The Real Personal Finance Hack Is Having More Money – Forbes

The recently-proposed hike in US capital gains taxes teed off a massive amount of discussion among Americans. For those – myself included – who earn equity as part of their compensation and expect most of their lifetime income to accrue through capital gains, a ~2x tax hike can be a tough pill to swallow. With that said, the state of personal finances in the US paints a picture of an America that more than ever needs more well-funded and robust social safety nets.

In the world of well-designed personal financial management apps (such as Mint, Truebill, Trim, Monarch Money, etc.), the product is centered around the idea of helping people do more with less. Personal spending insights to the tune of, “You spent $200 more on restaurants last month” are paired with recommendations from personal finance experts such as, “buy fewer lattes and less avocado toast.”

Ultimately, these efforts seem a bit like focusing on nutritional information during a famine. It’s helpful for the sake of personal finance to make people more informed, but how many ways are there to effectively distribute a minimum wage salary? Is the gating factor to someone leading a full life – one in which they can afford shelter, food, children, and education – primarily how they spend their money, or how much they make in the first place? Financial literacy is a requirement to move up the opportunity ladder, but that ladder has to first be reachable for financial literacy to matter.

Over half of Americans now work in low-wage jobs. Using the highest minimum wage in the US ($15 in Washington DC) and a standard work schedule (40 hours per week, 51 weeks per year), with a 15% annual bonus, someone can make $35,000 per year. Wage levels in the US have stagnated since the late 1970s as productivity, inflation, and continued to grow, so that $35,000 buys less each year.

What this implies is that half of Americans today cannot afford what they would have been able to years ago. The vast majority of these Americans make their money from salaries and wages, not from capital gains.


There are many hypotheses as to why lower incomes have stagnated in the US even as higher incomes and asset prices have risen, including more exotic theories like the common stock ownership of index funds. The real reason is likely to be a combination of many factors, but the primary driver since the 1980s is globalization. Simply put: many of the jobs that made up the backbone of middle-class work such as manufacturing and services have moved offshore to lower-cost centers.

And when it comes to removing middle-class jobs from the American economy, the trend that offshoring started, artificial intelligence will finish. In the same way that companies spent the last 40 years moving manufacturing jobs to Shenzhen and service jobs to Bangalore, they will spend the next 40 increasingly automating those jobs that remain in the US. This fourth or fifth industrial revolution won’t just displace blue-collar jobs but will also begin to obviate the need for knowledge economy jobs. This will take some time to elapse; it won’t happen overnight, which is why we can prepare for it.

To be clear, this is not itself a bad thing! The lower the productivity costs achieved by automating and relocating jobs has created an America where consumer goods like TVs, plane tickets, and cars are massively more affordable to more people, not restricted to just the wealthy. We can work less and produce more. And our average leisure time has been steadily going up! But the gains that came from lower-cost production have mostly accrued to capital owners: stock and equity holders.

When a manufacturing job is sent overseas or a customer support role is automated via an NLP chatbot, a trade happens: a worker loses their job, but a company is able to provide their product more efficiently at a lower price point. So these gains accrue to companies, which are translated into corporate earnings and share prices, which benefit the portion of American households that own stocks.

But those households that don’t own stocks and assets are double-penalized: not only do jobs become more scarce, but they become poorer relative to the beneficiaries of capital gains.

Coming back to the proposed tax hike, we are social animals by nature, which is why we compare ourselves to our peer set. At many points in my life, I took a reduced salary relative to what I could have been making elsewhere by shifting my compensation towards equity. When I look at my friends, many of whom get paid in salary and bonus, it can be frustrating to think that my own compensation could take a hit due to changes to the rules of the game. But in my opinion, comparing myself just to other high-income workers and capital gains beneficiaries misses the forest for the trees.

In my opinion, we owe it to the half of Americans who depend on wages to keep the American Dream alive by funding more robust education, healthcare, vocational training, and economic opportunity.

The Daily Kos once noted that “Polite people don’t like to talk about “class” in the United States. This is a country where almost everyone calls themselves “middle class.” It is probably more appropriate to ditch the post-war ideas of class and adopt something along the lines of the (controversial) “three ladder” theory of class in the US, in which capital (and capital gains) is increasingly concentrated at the top and upward mobility is progressively more challenging for the bottom. In my opinion, we should be asking ourselves how we can keep the American Dream alive and give everyone the chance to pursue a meaningful life by moving up the ladder.

In the 1960s, author John Steinbeck quipped that in America, “the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.” The belief that anyone can become a millionaire through hard work and determination is a cornerstone of the American foundation. Let’s keep that belief alive by providing access to the economic ladder people need to pursue that dream.

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