There is a feeling of being cheated among those 30 and younger. Many have graduated college only to find that their dream job was not waiting for them. They were told from the time they were young that all they had to do was get good grades and go to college. They took out huge amounts of money in student loans and spent five or six years in college, only to return to their parent’s home. Somewhere along the way many thought that there was a formula for success, but they were wrong.
There is a reason beyond the jobs picture, however, that should be making young people angry. While it is true that the college degree they earned may not have been worth the amount of money spent on it – particularly if it was bought with student loans – the real reason to be angry is the loss of opportunity. While previous generations were able to go from the middle to the upper class, or even from lower to upper class, the opportunity is closing for new adults.
The reason is the lack of ability to start a business and the growing burden that the young are shouldering for the elderly. While previous generations have worked to improve the lives of their children and grandchildren, often sacrificing to pass wealth on the next generation, currently a lot of wealth is going the other way. There are five major contributors making it difficult for young people to grow wealth, detailed here:
1. The Debt. The level of the national debt is astounding, as in the debt in dollar bills laid end-to-end would extend from the sun past Uranus kind of astounding. For many years the debt has been largely ignored but has now climbed to the point that every man, woman, and child effectively owes about $60,000. This is almost twice what it was just five years ago. It may be that this debt is never paid, but defaulting would make it very difficult for the Government to borrow further, resulting in a dramatic cut in government services.
2. Regulation. There was a time when you simply found a store front and set up shop if you wanted to be a merchant. If you provided a service, you simply gathered the tools needed and started finding customers. The large amount of regulation now makes it very expensive and confusing to start a business. Many regulations appear to be for a greater good, but often are only created to protect established businesses from competition. For example, in some states one must have many hours of training to be certified to cut hair while existing hair stylists are grandfathered in. In other cases, there may be expensive equipment or training required, or a lot of paperwork must be filled out and filed regularly. A large business can pay for compliance, while a start-up cannot.
3. Social Security and Medicare. As more people retire and start drawing on Social Security and Medicare, these costs will skyrocket, making the national debt look small. While much of the cost of Social Security has been paid in, the money was spent on other things, meaning that payments will need to come from general tax collections and current workers. Medicare is even worse in that the amounts paid in are nowhere near close to the payments going out since they are virtually unlimited. Looking to cover the deficit, expect Social Security and Medicare taxes to be raised on young workers as a way to “save” the programs. Meanwhile, the retirement age is being raised, meaning that young workers will be paying in longer and receiving lower benefits than current retirees.
4. Healthcare. Healthcare costs will have an even greater impact than Social Security and Medicare. The Affordable Care Act (Obamacare) does nothing to control costs but shifts more of the burden of paying for healthcare onto the young. It also establishes a lot of new taxes and fines while reducing the quality of care. As with Social Security, young workers can expect to pay a lot for healthcare during the time in their lives when they are using little of it and then get meager benefits later in life when they start to use the system more. In fact, expect doctors go from being the best and the brightest to mediocre students as regulation and reduced potential payments cause the best students to go into other professions.
While the voice of young people is weaker than that of earlier generations due to lower numbers, the votes of young people are important to both parties. It is unfair that it will be difficult to start businesses because of regulation and impossible to save and invest because of high taxes to pay for benefits received by others. If this is not the future you wish, demand a reduction in regulations and a change from a socialist economic model where the Government takes in high taxes and then distributes the money to one in which individuals create and use individual accounts for paying for things like retirement and healthcare. If people contributed to their own retirement accounts, the money would be invested rather than being spent so that it could grow. If young people contributed to individual health savings accounts when they were young, there would be plenty of money to pay for healthcare expenses when they were older and needed it.
For the odd cases, such as individuals who could not work and therefore could not save for retirement, or the young person with the rare, expensive medicare condition it would be a small burden on everyone if most people paid their own way. This is because the most people would be working and creating wealth, so most people would be able to take care of themselves. In addition, because they would be rewarded for doing so, some people would create a lot more wealth than they needed for taking care of themselves, resulting in a lot of excess. Most people would take care of themselves, some would take care of others, and society in general could take care of the rest through minor amounts of taxes since the number of recipients would be small.
Other economic models where everyone receives benefits from the Government result in too many people doing the minimum needed and allowing others to take care of them. While this may seem like a good system at face value, everyone will end up poorer in the end, and the young people of today and tomorrow will be hurt the most.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.