Over the past few days, I’ve been thinking about two very profound concepts. First, there is the work of uber-minimalist and money saver, Mr. Money Mustache. Then there is the incredibly unbalanced income distribution in the United States and how little people really understand it. I believe that both are on a collision course, for the better.
First, I’d like to show you a chart that has been flashing in my mind when I close my eyes from time to time:
Source: This video on YouTube, https://youtu.be/QPKKQnijnsM
This is by far the best chart I’ve seen to date to show the scale of inequality in America. Notice that the trend line from poor to rich is nearly hyperbolic in shape. The video referenced here also provides polling data for what people think is the ideal, how people think that wealth is distributed and the actual distribution of wealth.
And while it would be easy to point to the 1% and say that they are evil, I don’t think they are. I think they are just living on a very expensive carousel, thinking that their gains are ill-gotten, or there would be far more transparency about wealth distribution. They would have no need to influence policy from education in primary and secondary schooling, like how they made land disappear from economics, if they believed that they truly earned their wealth. There would be no Panama or Paradise Papers, both a large dataset of tax shelters, shell companies and trusts. We would all know where the money is.
I would say that it takes two to tango. If the wealthy are set, then we put them there. Americans are a bit of a greedy lot and it shows. Consumer debt is still very high, even after the recession. Student debt is at an all time high. Corporate debt is at an all time high. Where we are now is a result of public policy decisions made by those with the greatest influence in government, and allowed by a majority of Americans asleep at the wheel.
Those with the greatest power, have the time to participate in government. They show up at really boring school board meetings, water district meetings, planning commission meetings and board of equalization meetings. They have access to elected officials not just by way of their money, but also, their time. Because they spend much less money than they earn, they can save their money, in spades. And that frees up time because at some point they don’t know need to work for money. Money works for them.
Who put those 1-percenters there? We did. A man only has as much power as others are willing to give to him. If we feel any resentment at all about the 1%, we must also remember that as a culture, we put them there.
Now I want to show you another video. This one is about 20 minutes long, so you’ll want to take some time and watch it. I like this guy, Mr. Money Mustache, because he lives a frugal life to save money. Listen to him now:
The short story for Mr. Money Mustache, is that he figured out that if you save 64% of your income for ten years, you can retire at the same level of comfort you’re living now. Yes, that’s a very frugal life. Most of us who have bought houses know this life. We worked, we saved, we found a way to do it. But a house doesn’t buy retirement.
Now have a look at this chart:
Notice where we are, the United States, on that chart. On this chart, higher numbers are better, and countries are ranked left to right, lowest to highest. Notice that we rank 28th on that chart with a 4.1% savings rate. Heck, even Costa Rica whips us with 8.8% savings rate. Notice how all those “socialist” countries like Norway, Denmark and Sweden, have a much higher savings rate than we do. And China…they are at a 46% savings rate, and they’re a communist country! What are we doing wrong?
Now before we sink into malaise and think that it’s over, imagine what would happen if in America, we taught our kids, from the beginning, how to live the frugal life? I’m not talking about being a pauper. I’m talking about learning how to work for money, manage that money, and take notice of how we feel when we buy something.
Mr. Money Mustache says that any money we spend on something that does not make us happy is wasted. Expensive weddings, cars, houses and knick knacks aren’t what make us happy. It’s the people in our lives that make us happy. Well, for me, I find my own happiness first and allow those other people in my life to add to my happiness. But the point here is notice how you feel after you buy something. Do you feel better or do you dread going to a job you hate just to make payments?
What would you do with your life if you saved enough money to retire? Would you lay on a bed all day and watch Gilligan’s Island? Or would be out there, doing something to help others? Would you find work that is meaningful to you instead? Mr. Money Mustache says that work is better when you don’t need the money.
Now consider the political implications of that statement, “work is better when you don’t need the money”. Remember how a large contingent of employees walked off the job at Google in protest over how allegations of sexual harassment were handled? Do you think they did so at considerable risk, or do you think they had enough money to manage between jobs? According to Glass Door, self-reported average total compensation for software engineers at Google is around $144k, raging form $78k to $500k. I think those people might have enough money to make a change if they needed to.
But what would happen if 90% of Americans were born and raised in a culture that teaches savings for retirement in 10 years, instead of 45 years? Why, I think that people would simply refuse to work for companies that put shareholders first. I think that people would be able to refuse to work for companies that are corrupt. I think that people who have saved enough money to retire by the age of 30, can pick and choose the work they want to do.
Better yet, Americans who have saved enough money to retire by age 30 can actually participate in politics at the local level to weed out the corruption before it rises to the top. They can lobby for legislation for regular people like you and me. They might even have enough free time to run for office.
If America had a savings rate of 64%, most corporations would be hard pressed to pay their CEO $20–30 million a year. Remember, a man only has as much power as others are willing to give him. We gave it to them, we can take it back, just by living a frugal life.
I am already a frugal man, but not that frugal, not yet. A 64% savings rate is one of my long term goals. But I will be teaching my kids how this works. The beauty of this concept is that there is no lottery winning here. There is no real luck, though luck may come, but it is a matter of philosophy, lifestyle and discipline. And if an entire country decides to do this, the CEOs of America are going to have to work very hard to earn their keep.
Something like this is hard to do on your own. You’d need help if to achieve a 64% savings rate if you weren’t raised to think that way. You’d need something like a consumers union dedicated to a 64% savings rate. Now that is political power. Real power. When We The People have enough money to decide who We want to work for, when We want to work for them, and for how much, the tables will turn.