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Archive for November, 2011

The REAL Reason for the “Wealth Gap”

Wednesday, November 16th, 2011

I’m a bit disgusted with CNN Money. They make it sound like the old are getting richer at the expense of those under 35 when that’s not what’s going on at all.

The Pew Research Center  just released a report that found that younger people do not have as much in assets as people in that same age group 25 years ago while those over 65 have significantly more set aside than their 1984 counterparts.

The resulting CNN article was headlined:  Older Americans are 47 times richer than young.  The article went on to conclude that “Younger Americans have been left behind as the oldest generation has seen wealth surge since the mid-1980s.”  Oh, come on!

For starters, those over 65 are no longer really “the oldest generation.”  We have a lot of centenarians out there now.  But more to the point, Annalynn Censky suggests that the plight of the younger generation was caused by the older generation.  (Wanna bet how old she is?)  Get real.

The Pew study points to increases in home values over the last 25 years to explain the difference in wealth trends.  And that’s a big piece given that those under 35 who do own homes are likely to have purchased them at inflated prices and are thus carrying significant debt on them.  (Net worth takes debt into account.)

But I’m a former college statistics instructor.  When I see this kind of stuff, I always ask “What else could be going on here?”  The answer in this case is 401 K’s.” This is not about “a wealth gap” as much as it is about changes in the approach to retirement funding.

In 1984, most major companies had defined pension plans where the company put money aside, managed it, and used it to pay retired workers a monthly pension.  The company owned the fund and counted those assets on their books.

In the last 25years, the approach to funding retirement has switched to 401K’s.  The company matches individual contributions as some level and the account is held in the employee’s name.  This makes sense for a lot of reasons, not the least of which is favorable tax treatment and greater flexibility in rehiring workers in some capacity after they’ve retired.  But since these accounts are held by the individual employees, they are now counted as part of their net worth.

The impact of this retirement funding change wasn’t that dramatic when Pew collected data in 1984.  But for those over 65 now, most have at least some of their retirement funding in 401K’s or similar accounts.  Many have all their retirment funds in those accounts.

This is not “the old getting richer.”  It’s simply money that was used the same way but counted differently before.  (Next they will say that corporations are much poorer because they are no longer listing those assets on their books.)

We have enough to worry about in the country right now without the media encouraging anger between classes for any reason.  Younger people do have a big challenge in getting their financial ships effectively launched.  There are a lot of reasons for that, but “the old getting richer at their expense” isn’t one of them.  Offering them that explanation just means it will take them even longer to figure out how to get themselves on the right track.  What a disservice.  Try again CNN.


Getting Life off Hold

Wednesday, November 2nd, 2011

For many of us, there’s a lot on hold right now. We”re waiting “for the economy to improve” or “until I get a job” or “until my spouse gets a job” to do a wide variety of things. Waiting is difficult, especially when you have no control over what you’re waiting for.  Worse, it’s a waste of time if  what you’re waiting for isn’t likely to happen.

It would be fabulous if the economy just started improving on its own and we worked our way out of this recession the same way we’ve always done–by waiting it out.  But this recession has diabolical staying power.   Is continuing with the waiting game all that smart?  Perhaps it’s time to regroup entirely and get on with things a different way.

The current economic situation is the “new normal.” The spending and easy credit of the first decade of this century are not coming back. Automatic bonuses and wage increases have given way to lay-offs and salary reductions for years now.  It’s time to change the basic question from “How long is this downturn going to last? to “How can I live my life best given the ways things are now?”

To accomplish that, it helps to consider three things carefully:

  • Are your assumptions still valid? When the economy went south, we all assumed it was just an interruption.  Now it’s apparent that’s not the case.  Lots has changed that will not be changing back.   That means you need to put every single assumption you’re using to determine your course of action on table and examine each carefully.

Are you assuming you have to work in a certain field?  For a certain salary?  Are you still counting on the value of  your house for what it was listed at in 2007 in your planning?  Are you still assuming you will continue to live where you are living now?  (Where you’ve decided to live can make a huge difference in job availability and cost of living.   They are hiring bigtime in Williston, North Dakota.)

Take as many of the limiting assumptions as you can out of play and then see what options appear.

  • What are your alternatives?  Once we see an appealing option, it’s easy to fall in love with it and run with that before you’ve explored the full range of possibilities.  Start by defining what you really need.  Then look at how many different ways can you meet that need.  Then assess each one for its potential.

When things are in as much flux as they are now, it’s the people who can see possibilities in new places who thrive.  If you do it right, the changes you decide to make because the situation has changed can springboard you to a much more satisfying version of life.  That happens when you see the possibilities though.  Too often we think we are seeing the whole picture when we’re fixated on one thing that we insist is the thing that needs to change.

Do you really need to do that thing?  Or is there a different action/goal that will meet the real need just as well, but work better in this version of “normal?”

Look at the consequences of what you want to do, too.  Know what the fallout is going to be.  Know where things might go wrong and decide if you can live with that.

  • What’s the biggest step you can take wisely?  The hardest thing about dealing with a bad economy is that it’s a paralyzing phenomenon.  We just stop–and wait–as if a monster was standing in the middle of the road.  We let the monster decide what’s going to happen.

We place the blame for holding up the action with “the economy.”  “I can’t do ____ until the ecomony improves” is a version of victimhood.  I’m not suggesting that you ignore the economy and go full bore toward what you wanted before everything melted down.  But finding something you can move forward on will improve you confidence and your batting average.

This might be as tiny a step as gathering information about a new alternative.  Size is not as important as the simple act of doing something.  The big payoff comes from doing that little something again and again.

We’ve been on hold a long time.   It’s time to look at what we are waiting for.

  • What’s the probability that you’re waiting for is ever going to happen?
  • How many other ways can you meet the need that you thought would be covered by that eventuality?
  • How much do you lose by waiting? By taking action?  How much do you have to gain when you wait…when you act?

Even when it’s hard, life is good.  Don’t waste it waiting for stuff that’s not what you need now.   Change what you can without more waiting.  Move in the direction of what you want long term, even if it’s an inch at a time.