The American dream has been exported across the globe and passed down from one generation to the next. It is the belief that anyone who works hard enough, stays dedicated to achieving their goals, and has the right mindset can have it all. However, many people continue to work themselves to the bone with little to show for it. Year after year, it seems that rich people stay rich and poor people stay poor. So, what are the keys to success and economic mobility? Is it simply changing the way you think, or is it more complicated than that?
Best-Selling Books Suggest It Is Your Financial Outlook
In an attempt to answer this very question, many best-selling books offer psychological reasons and personal testimony as to why rich people stay rich and poor people stay poor. The common thread through all these publications boils down to your attitude towards money and your outlook on personal prosperity.
Simply stated, rich people think and act differently with their finances. According to several authors, changing the way you view money and realigning your goals according to your new mindset can help you gain wealth. So, what are some of the differences between a rich mindset and a poor one?
1. Rich people control their money instead of letting it control them.
Rather than let things happen to them, rich people identify the behaviors that contribute to their circumstances and take control of them. They take an active role instead of passively watching and accepting things because “that’s the way it is.”
2. Rich people are more willing to risks.
Rich people understand that risk is an inherent part of investing, and sometimes you have to ride out the lows before you see gains. So, rich people are more willing to take risks rather than playing it safe. In other words, when it comes to investing, they play to win rather than playing with the hopes of not losing.
3. Rich people commit to the goal of being rich.
Although most people imagine what it would be like to be rich, those who are wealthy commit to the goal. While some only dream about it, rich people commit and work towards building and maintaining wealth.
4. Rich people think big.
Some people impair themselves by limiting the scope of their thinking. When you move beyond the small mindset and start thinking bigger, new opportunities present themselves.
5. Rich people look at the big picture.
In the same line of thinking, rich people also look at the big picture. They focus on long-term goals instead of the setbacks along the way. Rich people realize they are bigger than any of their problems and have the confidence to overcome them.
Economic Research Shows Increased Income Equality
Although your personal drive and motivation play crucial roles in economic mobility, research suggests the problem is much more complicated than changing the way you think. There are institutional factors that help rich people stay rich and poor people stay poor.
Reduced Employee Benefits
One of the most significant reasons that economic mobility has become more limited is due to the huge reductions in employee benefits. People have a diminished savings capacity since they are now paying for benefits that previous generations enjoyed as a perk of their employment.
Although workers once relied on pensions and retirement benefits in return for company loyalty, expectations are changing. Where workers used to be automatically enrolled in companies’ pension plans, they must now participate and contribute to receive benefits. Unfortunately, the rise of employee-sponsored 401(k) plans has led to unequal participation across income levels. Those who earn less are at a greater disadvantage for several reasons. First, they have less disposable income and may not be able to afford to contribute. Therefore, they receive lower matching contributions, if any, from their employer.
Another drastic change has been in employee-sponsored health insurance plans. While many companies once offered comprehensive plans for medical, dental, and vision, you will be hard-pressed to find comparable benefits packages today. Many employers are now opting for watered-down plans to save money. However, this always means workers are forced to pay more out-of-pocket expenses which undermines their ability to build wealth.
Increased Costs of Living
Speaking of increased expenses, we cannot overlook the government’s failure to keep up with the rate of inflation. Although the federal minimum wage has not increased since 2009, inflation has increased drastically.
In fact, it has risen by 23.94%. To put this in context, if you had $100 in 2009, you would now need $123.94 to purchase the same items or products. This undermines people’s savings goals and deteriorates their purchasing power. Unless people receive matching wage increases, it will be impossible to keep up with the rising cost of living and cause the wealth gap to widen.
Burdened by Debt
Finally, we cannot overlook how increasing debt is negatively impacting people’s ability to build wealth. In 2021, the U.S. set a new record when we reached $14.6 trillion in household debt. According to CNBC, the average American carries $90,460 of debt. Even if some of this is considered “good debt” that will increase your net worth or generate income over time, it is still a staggering figure.
Whether you are trying to pay down student loans, credit cards, a mortgage, car loans, medical bills, or other personal loans, it is difficult to build wealth or get ahead when you are starting in the negative. If the majority of your income goes towards your debt, that leaves very little for other financial pursuits.
Find Ways to Facilitate Economic Mobility
Despite all the outside factors affecting wealth, the environment you are raised in has the greatest impact. The family and social class you are born into determine how easy it will be for you to become rich. If you are born into a wealthy family, you already have a huge advantage. Not only do you have greater access to education and opportunities, but you also have more security with the passing of generational wealth.
However, if you were not fortunate to have these advantages in life, you must create opportunities for yourself. Even if the system is stacked against you, adopting a rich mindset can help you rise above it and achieve your financial goals.
- Does the Current Minimum Wage Perpetuate Poverty?
- How the Rich get Rich
- How to Start Investing When You Aren’t Rich