Tuesday, September 1, 2009

The Big Lie

Forget the assault on the American Dream.  That was soooooo 2006/07.

No, early middle-age Americans, the elder of Generation X,  are starting to wake up to the Big Lie.  I wonder just how mad they are gonna get.

The Big Lie was the BS the 40 to 50 year old Gen Xer's, bought hook, line, and sinker.  My contemporaries spell it out:

...Went to a "good" college, went to work for a large Corp., maybe got an MBA.  Started to actually make enough money to leave the nest (stop relying on Mommy and Daddy) at 28 to 30. Worked 10, 15, some 2o years (the 50 year old's), and rather than earn MORE money for all of their educational endeavors, they made less than union Electricians, Plumbers, and Carpenters. While these union guys are now retired WITH PENSIONS, my corporate buddies have all been optioned out of their companies, absent the golden parachute/handshake/handcuffs and with a 401k worth all of $100k.

What happened?

"LET'S GO TO THE VIDEO TAPE!"

Our 45 year old hero started working 20 years ago at the age of 25.  He took 5 years to graduate college, backpacked Europe, jerked off for a year, and then at the age of 25 became gainfully employed.  Starting salary back in 1989: $35,000.

Our hero works for a few years, doesn't know what he wants to do when he grows up, but selling copiers, managing a hotel, making bank loans, etc... isn't it.  So he takes 2 years off to get an MBA.  He had $20k in student debt, and he takes on an additional $60k in Grad school.  He graduates a newly minted MBA.  He is 30 years old.  His net worth is a negative $80k.  He has $2k in his checking account and a leased car.

Ahhhh, but his ship is about to come in.  He's got an MBA after all.  He lands a job in New York selling investment advisory services, in Banking, or Advertising... starting salary for our MBA in 1994 is: $70k.  

Our hero marries.  He spends $10k he does not have on a ring (with a stone that cost some kid in Africa one his limbs), and Mr. & Mrs. Hero spend $50k they don't have on a wedding with Mrs. Hero's dad picking up most of the tab (they opt for the wedding instead of a large down payment on a house or to pay off debt).  Well, they got some great pictures and a boring honey moon and now they are back home - and back to work.

A few years go by, our happy couple buys a house with 10% down and the monthly payment for principal, interest, taxes, and insurance consumes 42% of the family income.  Two car leases consume 20%, living expenses and taxes consume the rest.  Savings?  "Soon, we will start to save... soon".  Our heros are now 35 years old.  Never in their lifetime have they heard of somebody getting laid off.  That happens to blue collar people, not "highly educated" folks like themselves.

Babies start coming, and with them child care expenses, insurance, medical care, and in a few years, little Johny's private school for Kindergarten is $12k.  After all, he can't go to public school with "those" kids.  Our heros are now 40. His salary: $150k.  Her salary: $65K.  Their savings: ZERO.

Ah, but its 2004.  They don't need savings. Their house has $400k in "equity" from surging home values.  Our heros save little to nothing, live the good life, and along comes 2008.  They are 44 years old.  They have no savings, are both unemployed (they know what laid off means now), the house has no equity, but they do have property taxes of $20k per year along with a mortgage that could choke a horse.

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By 45 our hero's parents had been saving for 25 years, had a nice nest egg, and a fully paid for home to live in.  Not our hero. He's pushing 50! without a pot to piss in or a window to throw it out of - literally.

There are millions of heros out there.

And the Big Lie continues.  Kids today are told that they must go to a certain school, take on HUGE debt for training of little commercial value, perhaps go to grad school, take on some more debt, and put off going to work until 30.  Though they have cut their most productive working years by 25% (instead of 20 to 60, they only have 30 to 60).  Government, with their "Progressive" tax policies PUNISHES people that earn the same amount over 30 years that someone else earned over 40 years by seizing a MUCH larger chuck of their income because they made more during a particular year, but not a DIME MORE over a career (let's do some math.  If a blue collar union worker makes $80k a year for 40 years (constant dollars) or an "educated", white collar worker earns an average of $106,000 for 30 years... you know, starts at $35k and works his way up to $200k before being thrown at as a too expensive, middle age guy that did not make the cut... well, both workers earned $3.2 million GROSS, but our white collar hero paid $78k in taxes over what our union worker did if the "progressive" tax rate is 10% higher for incomes above say $75k (sound familiar?).  If the union worker actually saves money during the decade that our white collar worker is in school, they would earn compounded interest for a DECADE, perhaps as much as $75k!  Net/net our union worker earned almost 5 % (Gross.  Actually it is more like 8% as measured against after tax income... you know, the income that actually matters) more than the white collar worker in his career).  My bet is you'll never see this kind of analysis at the admissions office of your Alma Mater.

The corporate world of "up or out" has forced people to move from company to company seeking advancement - AND LOSING ANY SHOT AT DEVELOPING A PENSION.  Then the 401k came along.  One could save for retirement, and bring the funds with them when they left a job.  Only, the money that might have been left over to fund that 401k went instead to paying off their student loans.  Most of the extra money they earned over their blue collar brethren went to pay for the taxes at higher progressive rates on incremental increased earnings.

They went to college for a better life - and now they are broke!

To ad insult to injury, the government wants to tax them into penury in the form of outrageous property and sales taxes, not to mention the Federal income taxes, to pay for union pensions promised to government workers.

This system does not work for the participants.  So don't participate.  Advanced education debt is for people that actually get some training to do commercially viable work - surgeons, architects, engineers, mathematicians, shoe repair, etc... Going into debt and losing 25% of your working years to study humanities?  Get a grip, and get a library card.  Or not, and be one pissed off, broke and broken, 50 year old corporate reject looking for a rifle and a bell tower.

If you have a few bucks - not rich, but not poor - give your kids a public college education and a check instead of a private college education and no check.  You don't have to give them the money on graduation day... but you can have it ready when they go to buy their first home.  You will be giving them, and your grand children, a something very much worthwhile - FREEDOM.


Greg


4 comments:

The Mad Scientist said...

Greg I don't care about the rest of the stuff, but do you have a video of the honeymoon?

Greg T. Jeffers said...

MS:

You really are one very, very troubled young man...

not to worry, over the years you will grow out of it, and then... you will be a very, very troubled old man!

LOL

Anonymous said...

Thankfully we chose City Hall and haven't bought a home. People always criticized us for not building "equity" in a house or apartment. We always looked at it as an obligation--a debt--rather than a chance to build "equity". Debt is senior in the capital structure, as so many are finding out now.

Greg T. Jeffers said...

Anon:

In the end, we all need a place to live... but if the rent/buy ratio is bent out of shape by high taxes, etc... or if your needs a minimalist in nature... renting is a viable option... provided you have another, more advantageous store of value.

Economic life is about interpreting one's environment correctly - and then acting accordingly.

Good Luck!