The public education staples of reading, writing and arithmetic must be joined by a comprehensive practical economics curriculum that emphasizes entrepreneurship and multiple streams of income. Matriculation in this program must begin in preschool and continue throughout life. If policymakers are sincere in their oft stated desire to curb income inequality, they must immediately institute mandates that will have public schools adjust to provide students with the economic knowledge that they will need to thrive in the 21st century. To do anything less will increase the burdens on already strained public liabilities and resign vast and growing swaths of Americans to generational underachievement.
According to Vanguard, the median 401k balance for those 65 and older is approximately $70,000. With Americans witnessing increasing lifespans, this amount is hardly enough to sustain one through what could be 20-25 years in retirement. Even at a 10% ROI, $70,000 will only reap $7,000 annually, a number far below the threshold of poverty.
This statistic is emblematic of decades of neglecting the institution of a substantive and ongoing public education campaign around money. One that has, as its core objective, endowing individuals with an intuitive sense about how money works so that they can make it work for them. No longer is it sufficient to think in terms of income derived exclusively from work. That model obviously has not resulted in an increase in savings. We have to promote the virtues of additional sources of income.
According to the US Bureau of Economic Analysis, savings rates for Americans are at all-time lows.
We can’t entirely chalk this lack of savings up to mere conspicuous consumerism. The fact is, existence is more expensive than it ever has been when you factor in housing, transportation and food costs. Therefore, a high percentage of that spending, 60%, according to the Bureau of Labor Statistics, is needs based. By educating the populace as to the value of creating additional and self-sustaining streams of income, we can actually abolish a great deal of the poverty in our country by providing people with an ability to generate more income, while at the same time increasing the size of the overall economic pie.
True economic prosperity and increasing one’s quality of life are not mutually exclusive ideals. This is evidenced by the fact that the wealthy tend to have more time to devote to enhancing their quality of life. One reason they are able to do this is because they can derive income from more than the raw expenditure of their time and energy. They have force-multiplied their earning potential across multiple endeavors. They are, in effect, expanding time itself and exploiting the phenomenon, such that income generation is limited only by creativity and risk tolerance as opposed to productive hours in the day.
It is also true that many Americans are cash strapped. According to the Center for Financial Services Innovation, 50% of Americans currently spend all of their income. Further, 54% of Americans age 18 to 24 spend their total income. These respondents relied on one source of income, a job.
At first blush, one might imagine these spenders are profligate and in need of a budget with strict controls. While that might temporarily staunch the bleeding, such a tourniquet, it has a limited effect. Other measures must be put into place. In short, you can’t save your way to wealth. The real cure resides in providing more income and an economic education as to what to do with that additional income in order to secure true generational wealth.
Never in the history of human society has there been a greater opportunity for individuals, Americans in particular, to establish avenues of income over and above their occupational compensation. Profit sharing programs are becoming more widely recognized as a mutually beneficial scenario that allows corporations to grow profits and provide sustainable income to participants. Crowdsourced lending and real estate investment arrangements such as Fundrise, Lending Club and others provide access to revenue generating methods that have heretofore been the exclusive domain of the well-heeled. The distributed nature of these structures mitigates risks.
More direct passive income ideas include affiliate networking programs which reward affiliates for each new client they bring to a retailer, such as Amazon or Alibaba. Network marketing, although much maligned, actually generates greater than $200 billion in annual sales globally with over $40 billion of that originating in the United States, according to the Direct Sales Association. Employing one’s economic education to conduct proper due diligence and research further reduces exposure to risk in all of these examples. However, part of the economic revolution has to include an inculcation of risk acceptance. In fact, having one income based in a job is itself an extremely risky proposition.
Direct business ownership offers an extremely attractive avenue to build an income stream that is usually scalable and therefore open to myriad growth prospects. Increasing revenue is at least a theoretically straight forward concept in a business ownership scenario. Expanding service offerings, widening territories, or hiring more sales staff to wrest additional market share from indigenous operating areas are all viable methods to increase incomes. In today’s globally interconnected economy, entrepreneurs have an opportunity to market and provide services far behind the local area in which they are based.
Owning a business also offers the entrepreneur equity prospects beyond the sale of the core product or service line. Intellectual property such as recipes, scripts, and music present licensing opportunities. Qualcomm has exploited the licensing model to great effect in the semiconductor industry. For brick and mortar concerns, owning the real estate upon which the establishment resides presents the opportunity to sublet space to other small businesses while reaping tax advantages. The real estate ownership model places the business owner in possession of two assets. The largest restaurant chain in the world is well known for its fare, but McDonald’s is also one of the leading real estate companies on the planet by virtue of its insistence on owning the real property upon which the restaurants sit.
Some might believe that a more economically educated populace would have a deleterious effect on GDP. In fact, I believe that more economic education would result in more income, and thereby more, not less, discretionary spending. It does not take a world class economist to tell you that higher income earners spend more money. In addition, seniors may not have to pare down their spending habits as much in retirement if they have additional income streams, over and above pensions and Social Security, which continue to produce after they’ve left a job. If we can abolish the mindsets and miseducation that perpetuate poverty, we can actually grow the economy and realize a much more inclusive brand of prosperity.
Universal Basic Income (UBI) is the latest ballyhooed pie in the sky panacea to income inequality. Yet the source of its funding emanates from tax coffers and, in essence, is just another public liability grounded in redistributionist and confiscatory policies. However, a true stream of income that is based in the production of goods and/or services will increase tax receipts. Additionally, the UBI offers a subsistence level of monies while a true income stream rooted in economic reality has an unlimited potential.
The sense of money, and what to do with it, has to be as intuitive as the understanding children have around the latest electronic gadget. Additional income streams must be made to appear as “cool” as they actually are. We must create an economic Apollo Program that emphasizes the creation of supplementary sources of income. Then, we must go further and underscore the long term financial value of having a portion of all income sources allocated to sustained wealth creation, preservation and economic legacy generation.
To be sure, this plan has challenges, the most glaring of which is the fact most educators themselves have not been taught how money works. In many cases, their formal education has led them to place entrepreneurship at a lower priority than working for someone else. It’s fair to ask, “How could someone who is not a business owner teach anyone to be an entrepreneur?” That fact should in no way dissuade the initiative. The answer is clear; business leaders must take an active role in this effort. In keeping with the moonshot analogy, we didn’t know how to go to the moon until we focused on doing just that. America needs to bring to bear the influence of Hollywood, sports media and the corporate and religious communities to lead in this endeavor. In order for this movement to be successful, it is essential that the pop culture zeitgeist serve as a taste maker such that the “in thing” is not just economic prosperity, but intellectual affluence where money is concerned. We owe it to successive generations to commit to a sea change in our collective fiscal mentality.