I was in Norway not long ago, and they recently had a change of government, and I heard a lot of complaining from the opposition about how the rich will get richer, and the poor will stay poor with the new administration, and it bugs me. Do not misinterpret what I am saying. Poverty on a global scale is a tragedy, but the phrase « the rich is getting richer, and the poor stay poor» is almost always used as an argument for more taxes, not as an argument for human aid. So to be clear this is not an article about poverty on a global scale, but about economy in western countries.
We often divide our society into different classes, to simplify the study and analysis of different aspects of our societies dynamic. Even though the old model where proved outdated by London school of economics www.bbc.co.uk/science/0/21970879 (see the link for more information), I am going to use the old model that divides our society into: working class/the pleb, middle class, and upper class/elite, just because it’s less complicated. Of these groups of people only the upper middle class and the elite have enough liquidity to invest. The other groups use almost all their income on expenses, upkeep and so forth, and when they save money it’s usually to by a new car, a bigger house or go on a nice vacation. Lets say that a family has a total income of 50 000£, and that they use it all on food, electricity, house, cars etc. If someone in the family got a salary increase and they now have a total income of 51 000£, and that their expenses still where 50 000£, that means that they have 1 000£ they can use at whatever they like…
This is where we have a crossroad. There are several reasons for this crossroad, but they can be divided into three categories. Number one is the consumer culture, number two is the difference in mindset, and the third is knowledge.
A part of the consumer culture is the goal of having average or above average comfort and lifestyle. With that I mean that most people are never satisfied with having a lifestyle that is below average, and therefore want two cars, a medium sized house, good and healthy food, nice clothes and so on… This lifestyle costs a certain amount of money, and if you have a income that don’t allow you to achieve this lifestyle, then you will use most of a salary increase, lottery winnings or other forms of extra income to achieve this lifestyle. If you on the other hand already live above average you will in most cases don’t feel the external and internal pressure to achieve a better lifestyle, as much as those who have a below average lifestyle, and therefore be more likely to save the money.
Our mindset comes from experiences and upbringing. A person who grew up not knowing if they would have food the next day, are going to bring that mindset into his adult life and spending habits, no matter how much they earn today. The same way a person who grew up in abundance, are also going to bring that mindset into his adult life and spending habits. Our mindset will always be influenced by our upbringing, and not only that but we will also in some degree adopt the mindset of those around us. If you wonder why you behave like you do, or why you manage your economy the way you do, then I suggest that you confront your own mindset, and you may find some answers.
The final category is knowledge, and in this case knowledge about economy. There are three main sources of information about how to manage money. The first is parents. The second is education, and the third is life. In Utopia, knowledge would have been free, and equally available to everyone, but lets face it. We don’t live in Utopia. A good education costs a lot of money, whether it is a degree at Oxford or a afternoon seminar at the culinary academy you better have your chequebook ready. If you don’t have time to do everything yourself, you can always hire a consultant. Knowledge in form of hired manpower is effective, but expensive. Since most forms of knowledge is expensive, it seems that the upper middle class and the elite again are at a advantage.
The lower middle class and the working class have less money to invest than the upper middle class and the elite, nor do they have as much access knowledge about the global economy, and therefore we are left with these calculation:
Lower middle class and the working class:
Little knowledge about global economy → the odds of successful investments are less likely. + Little available money that can be invested = if successful investment, the return will be small.
Upper middle class and elite:
A lot of knowledge about global economy → the odds of successful investments are more likely. + A lot of available money that can be invested = if successful investment, the return will be large.
In conclusion it’s easier for the upper middle class and elite to set aside money, and to make successful investments, but it’s no excuse for the lower middle class and the working class to complain. Life is hard, and if you want something you have to work for it. You need money to make money, that’s just the way it is. If you want to invest money you better start putting money aside, and accumulate knowledge wherever you can find it.
S,L,I: Save, Learn, Invest.