It seems like very other week there is a new survey of young adults asking them if they think the American Dream is still available to them. The answers come back more and more negative each time, with a recent poll showing that only about half of young adults believe that the American dream is still there. Part of the issue is that the media keeps talking about how bad things are for Generation Y and asking them if they think the American dream is dead. So is the American dream gone, and if so, where did it go?
Well, first let’s talk about what the American dream is. It is probably a little different for each person. For me, the American dream is the ability for each person, regardless of where he or she started in life, to end up significantly better off economically if he/she has the drive and talents to do so. In America, there are countless stories of individuals who immigrated into the US with nothing who were millionaires or billionaires within twenty years. There are even more stories of parents who worked hard and gave their children the ability to go to college and move from the labor-intensive jobs they performed into office jobs and occupations where they used their brains more than their muscles to get work done. Contrast this with places like India where the caste in which you are born or into which you marry determines how far you can go in life. Be born into the lowest caste and you’ll spend your life cleaning up other people’s waste with your hands.
I would say that the American dream is not dead, but it is dying off and will disappear unless it is reinvigorated. There are two factors involved – one that requires a change in laws and those within the political system, and the second that must come from within each individual.
The first factor is the prevalence of protectionist regulations and crony capitalism. Many of the people who became very wealthy in the past did so through starting a business. When they did so, they didn’t need to spend years and thousands of dollars getting certifications and applying for licenses. They just raised the needed cash and started the business. Maybe they started making baked goods in their kitchens. Maybe they manufactured computers in their garage. Maybe they started selling hotdogs on a street corner. Maybe they started a bank by just opening up an office and putting out a sign.
Today you need many hours of training and expensive licenses just to cut people’s hair. Due to Federal laws, you need extensive training in lead paint remediation to do work on windows and other home renovations. If you hire employees, you’ll need to keep track of numerous tax and employment laws and possibly provide your employees with health insurance. While some regulations and laws are well-intentioned, many are put in place by existing businesses to protect their turf from competitors. These businesses either get grandfathered in and therefore not need to go through the training and other steps that new entrants would need to take, or they have the money and resources to comply with the regulations – plus they pass the costs onto the consumers – while the financial barrier is too great for net entrants into the field.
Perhaps one of the biggest example of crony capitalism is Obamacare. In this law, consumers are forced to buy expensive health insurance. This is a result of the hospitals, insurance companies, and politicians getting together and passing the law over the wills of a majority of the people so that they can make more money with a captive set of customers. The real danger of Obamacare is that it will eventually take every extra dime that middle class workers have. A big part of this blog is explaining how to grow wealthy through budgeting, saving, and investing. If Obamacare is allowed to continue to exist, the costs will increase and swallow up everything people making between $30,000 and $150,000 per year make beyond what is needed to pay for basic necessities. By design, the subsidies you receive are based on your income. This means that if you earn more, you pay more, so that working harder or moving up in salary will not allow you to generate more free cash for investing and saving. Getting a raise or working more hours will just result in paying more for health insurance to fund other who aren’t working as hard or as smart. (Note that as people realize this, many will work less, causing the health insurance cost for those working more to rise still further.) Middle class workers cannot save the money needed to become financially independent while paying usurious taxes.
Changing this will take a change in the political environment where politicians and businesses cozy up to one another. It will take constituents paying attention to what’s going on; voting; and expressing themselves in letters to the editor, calls and emails to their representatives, at public forums, and on the internet. In some cases, it may take new people running for office and getting involved in the political parties which are run now almost entirely by those getting political favors. In the least, talking to friends about the issue and making more people aware of crony capitalism will help.
The second factor comes within. Unfortunately, many young people have come to believe that all they needed to do was to go to college and get good grades (either legitimately or through cheating) and they will be set for life. They then get out of college and discover that there is no one waiting with a six-figure job with eight weeks of vacation each year. In actuality, achieving the American dream will take a great deal of work, often for far less pay than your parents are currently making. People who built great companies often worked for little or nothing in the early years. Many had other jobs to pay the bills while they worked nights and weekends to build their companies.
Even if you decide to work for someone else, you may still need to start in a lower pay grade than you wish and work to move your way up to a higher salary. You need to spend the early years learning skills and gaining connections so that you can become more valuable to your company. If you do this for a number of years and can’t find a way to progress in your own company, you may need to look at opportunities outside. Unfortunately, often the only way to increase your salary significantly is to change companies since most companies don’t give the raises they should for those early in their career who are learning new skills and becoming more valuable at a fast rate.
What do you think? Please leave a comment?
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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.