Blog | Personal Finance

For Richer or For Poorer?

The demise of the middle class and what it means for you

Let me ask you a simple question. Do you feel richer than you were 10, 20, 30, 40, or even 50 years ago? Or do you feel poorer?

If the answer you gave was poorer, you’re not alone.

A recent survey from the PEW Research Center reveals that a majority of Americans feel life is worse off now than it was 50 years ago. “41% say life is worse while 37% say better.”

But is that just a feeling, or do the facts support the sentiment?

Taking a look at a half century ago

I was a kid over 50 years ago, and my poor dad wasn’t poor by economic standards. He was the head of the schools for Hawaii and had a steady income, a good amount of savings, a home, and a pension. In other words, he was your typical member of the middle class.

Like most people, my dad bought into the American Dream of a house, a job, a car in the driveway, and a family. Most people in his generation worked hard to attain the status of comfortable, middle-to-upper-middle class. And, at the time, if you were frugal and saved your money, you could achieve that status.

At the same time, as he got older, my dad didn’t adjust to the changing rules of money. Rather, he stuck to what he always knew—the old rules of money. Later in his life, his lack of financial knowledge resulted in him losing nearly everything through some bad investments. His lack of understanding about money and how it worked is the reason why I call him my poor dad.

My rich dad on the other hand was planning for the future 50 years ago. He saw what was happening with money and was making preparations. He was getting ready to put the new rules of money to work. As a result, he grew his business empire and his wealth substantially in his later years.

The disappearing middle class

If he were alive today, my poor dad, would have struggled financially even without his bad investments. He most likely would not have been comfortable. Today, the middle class is quickly disappearing. All the ways my poor dad achieved a level of financial comfort no longer work in today’s economy.

Today, savers are losers, houses are worth less and less, there are no pensions, and essential goods for life are more and more expensive. Today, inequality is higher than it’s ever been.

In short, the middle class is screwed.

The two classes of people

For a while now, I’ve been predicting that the middle class would disappear and that we would have only two classes of people in the U.S., the poor and the ultra-rich.

As MarketWatch reports, “In the U.S., the rich appear to be leaving the middle class behind. The American middle class made up just 26% of incomes in 2014, down from 46% in 1979, adjusted for inflation, according to a separate report released last June by the Urban Institute, a nonprofit and nonpartisan policy group. The upper middle class controlled 63% of all income in 2014, up from just 30% in 1979. And it isn’t because more middle-class Americans are richer: Middle-income households make up 120.8 million of the population, almost as much as upper middle-class and lower-income Americans combined.”

Translation: The rich are getting richer, the poor are getting poorer, and the middle class is disappearing.

In fact, in America, incomes have shrunk or stayed flat in 81% of countries since 2005 to 2014. Second only to Italy in the world.

You have two choices

Today, you have only two choices, become richer or become poorer.

For my poor dad, it wasn’t his financial status that made him poor. It was his mindset. He didn’t understand how money worked, he thought investing was risky, and he valued security over everything else. So, he chose to save his money, work as an employee, and rely on his pension for retirement. When that didn’t work, he tried to make up for it with risky investments that didn’t pan out. His lack of financial intelligence and his inability to grasp that the rules of money have changed, left him broke and regretful.

The question for you today is do you want to be like my poor dad or like my rich dad?

If you want to be like my poor dad, it’s easy enough—keep blindly doing what you’ve always been told to do: save money, get a good job, buy a house, and invest in a diverse portfolio of stocks, bonds and mutual funds. Savers are losers, and it’s easy to be a loser in today’s financial world.

If you want to be like my rich dad, it’s going to take a new mindset and a lot of work. This work begins with increasing your financial education to understand how money works and how to make money work for you.

There is much opportunity to become rich for those who think like the rich. The middle class is disappearing. Today, it is essential that you are financially intelligent so that while others become poorer, you can become richer.

You can start by understanding the new rules of money:

Rule #1 - Money is Knowledge

Rule #2 - Learn how to use debt

Rule #3 - Learn how to control cash flow

Rule #4 - Prepare for bad times and you will only know good times

Rule #5 - The need for speed

Rule #6 - Learn the language of money

Rule #7 - Life is a team sport. Choose your team carefully

Rule #8 - Since money is becoming worth less and less, learn to print your own

So, what’s it going to be? Richer or poorer?