Who Is Responsible for the Growth in Wealth Inequality?
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A study came out recently which revealed that more than half of the income taken in the States during 2012 was made by the top 10% of earners. The same study also revealed that the top 1% gobbled up 95% of the income gains since the end of the Great Recession. There are a number of reasons why we’re seeing this come about and I am not trying to solve all the perils of wealth inequality in a singular blog post, as much of it is well beyond me, but I do want to take a stab at considering what might be beneath this change.
While it might be easy to point fingers and lay blame at the causes behind the growing disparity between the top 1% or 10% and the rest of “us,” I think it should cause us to look at what we can do in light of it and how we can seek to mitigate the issue of wealth inequality.
Where Has the New Growth Come From?
It would be easy to look at the top earners and think they’re simply working the system to make more bank and leave the rest of us behind. I am not deluded enough to think that there is not some of that going on, but I do believe that some of the gains made by the top 1% have been on the up and up. According to the study, a large chunk of the top earners garnered much of their gains through the stock market through either having access to “easy money” thanks to the interest rate climate or locking in gains last year to avoid higher tax rates this year.
That said, there is a growing sentiment that much of the reason why we have seen the growth in wealth inequality is because many in Washington have made it easier for those with money to make even more money. The argument goes that with higher incomes, individuals have access to better rates for loans, lower fees on products and overall better access to products that’ll help them grow their money.
That’s also not to mention that the top 10% of households, in terms of wealth, own reportedly 90% of the stock market. It’s hard to look at that and not think that the system is rigged towards the “upper crust” and slighted against the rest of us – it really is. However, I’d like to dig a little deeper on the wealth inequality as opposed to starting a hate fest on the rich.
What Does the Top 1% Look Like?
I admit, it can be hard to not disparage the top 1% and blame them entirely for our growing wealth inequality. Towards that end, I’ve seen numerous studies that have shared some of the numbers behind the top earners and it helped me reframe my outlook a little. In terms of income, this is what the top earners look like:
- The top 1% of earners made $394,000 or more in pre-tax income last year
- The top 10% of earners made $114,000 or more in pre-tax income last year
I look at that bottom number and know that here in Omaha, you can do quite well at $114,000 a year in income, but take that same amount of money and put it in San Francisco or New York and it definitely would not go as far. My point is that wealth, on one level, is relative and that there may be more at play then just the income. This of course does not touch on the uber rich though which really is a separate topic altogether, but a simple look at the richest people here in the States indicates that many made their own way or at least inherited it from someone who did.
Wealth Inequality is Simply a Reality
On one level, reading news like this pains me to see the growing wealth inequality as I feel that one of the results is that it’s broadening the gulf between the haves and have not’s and is making it tougher for middle class families to eek out some sort of wealth accumulation. The shrinking middle class is a prominent challenge that we’ll continue to face as a society and one that hopefully improves over time as opposed to widening.
Not to dismiss that very important issue, but looking back, wealth inequality is something we have always dealt with and will likely always deal with on some level. Sure, it has ebbed and flowed over the course of our history, but it’s something we’ve always had. Does this make me happy as an individual to see? Certainly not, but it is something that is an unfortunate reality of life and pushes me to continue to look for ways to create wealth for our family and encourage others to do so as well.
What Can or Should Be Done About This?
The topic of wealth inequality can definitely be a political topic, and it’s not really my desire to get into the politics behind it. With that in mind, should we bury our heads, throw our fist up at the top 1% and bemoan the state of affairs? While the jaded side of me says, “sure, go for it” I don’t see how that can benefit us as a society.
What it does motivate me to do is to continue the fight to encourage financial literacy in our society. The reading I have done on this topic largely points back to the reality that those who have money have it because they make their money work for them. My desire is to help others make their money work for them as opposed to being enslaved to it. I know that can be easier said than done, but I do believe it is possible.
While it would be easy to suggest government intervention to try and solve the issue of wealth inequality, how often has the government actually made a problem simpler to handle? Not very often from what I have seen. While wealth redistribution costs those receiving the funds nothing and opens opportunities for corruption, financial literacy empowers individuals and engenders character and maturity.
This leads me back to the teaching of financial literacy in many levels of society – from the home, to school to college in order to ingrain much of the basics behind making wise financial decisions known to more so they can implement it in their lives. Ultimately, it doesn’t necessarily matter how big your paycheck is; it’s how you manage it that counts when it comes to growing your wealth.
What is one thing you’d do to try and reduce the growing wealth inequality? Do you think government intervention is the answer?
Photo courtesy of: 401 (k)2013
John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.
Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.
Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.