Why You Will Be Poorer Than Past Generations

Why You Will Be Poorer Than Past Generations


It was once easy for people to live within
their means. Our parents and grandparents may have earned
a low income by today’s standards, but they were able to buy a lot more with it than many
people can buy with their income today. In a 2016 article, Guardian finance editor
Patrick Collinson shares some family experiences to demonstrate this point. Back in the 1960s, his father was able to
raise five children on a salary that is the equivalent to £25,000 or $32,807.50 a year. His mother was able to stay at home to take
care of him and his siblings. Furthermore, his father was able to buy a
house, a television, and a car entirely from his earned income. In 2016, Collinson’s daughter also made
£25,000 or $32,807.50 a year, but she did not live as well as her grandfather did. For housing, she lived in a “room in an
ex-council flatshare” instead of owning her own home. She could not afford to keep her car and could
barely “keep ahead of the bills every month.” And she is not alone. According to a World Bank press release, “almost
half the world’s population – 3.4 billion people — still struggles to meet basic needs.” What happened? Why does it seem like so many people will
be poorer than past generations? Like Collinson’s daughter, many people around
the world are paying higher cost-of-living expenses than past generations. Take housing as an example. Collinson notes that the cost of homes in
the area of London where his father bought his house has gone through the roof. He observes that “houses in Rise Park, Romford,
now sell for £400,000 to £450,000 [$525,560 to $591,255], or nearly 200 times the £2,400
[$3,153.36] my father paid when his home was built in 1956.” Collinson’s daughter would not be able to
afford to buy a home that expensive on her meager salary. In Collinson’s words, it would be “an
unimaginable prospect” for her to make a down payment on a house because it would require
her to “find £40,000 to £50,000 [$52,556 to $ 65,695], or twice her annual gross pay.” In contrast, her grandfather “had to pay
a 10% deposit, or £240 [$315.34], equal to a fifth of his annual wage” when he purchased
his home in the 1960s. Another country where housing prices have
sharply increased over the years is Australia. Macquarie University researchers Peter Abelson
and Demi Chung conducted a study of housing prices in Australia from 1970 to 2003. In 1970, the annual median house price in
Perth was $17,500 , while it was $12,800 in Melbourne. By 1990, the annual median house prices in
Perth and Melbourne increased to $101,125 and $131,000 respectively. And by 2003, the annual median house prices
had doubled in these areas. In Perth, the annual median house price was
$205,000, while it was $276,000 in Melbourne. One Australian insurance company points out
how housing prices over the past 30 years have increased to the point that they have
outstripped average income in Sydney, Australia: “In 1985, the median price for a detached
house in Sydney was about $73,000 Australian Dollars, or roughly three-and-a-half times
the average yearly earnings at the time. In 2015, the median house price in Sydney
is over $900,000 – around 11 times the average annual earnings.” With the rise in the number of two-income
households, raising a child is another cost-of-living expense that has become more costly than before. In New Zealand, for example, the costs of
care and clothing for children have significantly increased in a relatively short period of
time. According to a 2019 New Zealand Herald article,
“cash-strapped Kiwi parents are spending almost twice as much raising kids as they
were five years ago.” New research finds that the “average spen[t]
on the three biggest rising costs – childcare, footwear and clothing – is estimated to be
$5028 New Zealand dollars per baby this year compared to $3034 in 2013/14.” Other data from the Bank of New Zealand (BNZ)
indicates that the cost of raising a child in New Zealand could be even higher. Last year, BNZ “estimated the cost of preschool
care per child was $8750 a year for one child.” The World Economic Forum recently named New
Zealand as the country with the most expensive childcare. World Economic Forum Senior Writer Sean Fleming
states that “based on 2017/18 data, a couple with two young children earning the average
wage have to devote 37.3% of their pay to childcare” in New Zealand. Another country that made the World Economic
Forum’s list of countries with the most expensive childcare is the US, which has childcare
expenses accounting for 33.2 percent of a couple’s average salary. Parenting website Fatherly provides a detailed
breakdown of these expenses. According to Fatherly, it’s not food, housing,
or transportation but childcare costs that are “busting family budgets the most”
in the US. Statistics provided by Fatherly show how these
costs have more than quadrupled between 1960 and 1995: “In 1960, when most mothers stayed
home to watch the kids, child care accounted for only two percent of a household’s income. By 1995, that number had grown to 9 percent
or almost $9,870 per year.” There are other costs of raising a child that
have skyrocketed since the 1960s. The cost of childhood education such as elementary
school tuition and fees has gone up considerably. A CBS News article states that “education
costs have sharply risen since 1960, when USDA estimated that those expenses were around
2 percent of child-rearing expenses.” Fatherly estimates that child care and education
costs now account for “16 percent of the budget, or around $38,040 over the course
of a child’s life.” In addition, American parents today are spending
more on healthcare for their children than their grandparents did. Fatherly notes that “according to the USDA
data, the price of out-of-pocket medical and dental services not covered by insurance and
prescription drugs has more than doubled to around nine percent of a family’s budget,
up from four percent in 1960, and accounts for between $1,180 and $1,300 a year per kid.” Going into debt has become a popular way to
deal with these and other expenses. News website Newstrail recently reported that
“many families in the developed world are scrambling with personal debt.” This was not the case for past generations. While people in the past borrowed money too,
they had less credit options and less difficulty paying back what they owed. In a KERA radio interview, Louis Hyman, a
business history professor at Cornell University, discusses the history of credit in America,
which is where the concept of the credit card originated. His discussion gives us an idea about the
borrowing habits of previous generations. “We all hear how our parents and grandparents
never borrowed any money, but they borrowed all the time,” Hyman says. “They just borrowed in different ways.” Hyman observes people mainly had store credit
cards through the 1950s and 1980s, and they generally had the money to pay their credit
card bills monthly. “Wages just kept going up and up and up,”
he said. “So that if you borrowed today, you could
expect to make more in the future.” As most of you have probably noticed, the
rosy economic conditions experienced by previous generations did not last. The combination of easy credit for high-risk
customers and hard economic times that resulted in what Fortune Magazine refers to as “’precarious’
employment” have turned many people into debt slaves. And experts predict the number of debt slaves
will increase in the future. According to Newstrail, “economists are
starting to use the term ‘debt slaves’ as they see another cycle of increased borrowing
and a decrease in savings, all within a system that encourages people to continue borrowing
[ . . . ] in order to spend on consumer goods.” The debt that is currently enslaving people
comes from various sources. Credit card purchases, mortgage loans, unpaid
medical bills, and other borrowed money for all people living in a household are lumped
together in what is commonly known as household debt. A 2018 study by credit data management company
Bloom found that household debt around the world has been growing since the early 2000s. One interesting finding of the study is that
Chinese households have more debt than American households: “Household debt, when measured
relative to disposable income, as opposed to GDP, has skyrocketed from 40 percent in
2007 to over 106 percent in 2017 according to the Bank for International Settlements. Compared to the US, which has a debt to disposable
income ratio of 105 percent, Chinese households are suffering from a higher level of indebtedness
than American households on average.” Unfortunately, household incomes in China
have not increased enough to cover the higher household debt: “While Chinese households
have been on the receiving end of rapid income growth for the past decade, incomes still
haven’t kept pace with debts, as household income has grown on average 12 percent a year
while household debt has grown on average 23 percent a year. As such, household debt growth has far outpaced
household income growth.” Another country that has more household debt
than the US is Canada. The study describes Canada’s “debt to
disposable personal income ratio of 170 percent” as the “highest in the Global North.” While US households are struggling with a
combination of auto loans, student loans, and revolving credit as well as mortgage debt,
the study found that “household debt in Canada has been mostly driven by homeownership
growth and a mortgage boom.” The Bank of Canada has been somewhat successful
in slowing down the increase in this type of household debt through “interest rate
hikes” designed “to dampen demand and overconfidence in the housing market.” The Organisation for Economic Co-operation
and Development or OECD is another source of data for household debt as a percentage
of net household disposable income. All of the top 5 countries with the highest
household debt have debt that is over 200% of net household disposable income. The country with the fifth highest household
debt is Switzerland, with household debt that is 212% of net household disposable income. In fourth place is Australia with household
debt that is 216 percent of net household disposable income. Both Norway and the Netherlands are tied for
second place with household debt that is 239 percent of net household disposable income. Finally, the country with the highest household
debt is Denmark, which has a household debt that is 281 percent of net household disposable
income. While this amount of household debt may alarm
some, Danmarks Nationalbank is not concerned about it. On its website, it explains that the main
reason household debt is higher in Denmark than in other countries is that Danish households
“buy homes or consumer durables, such as cars.” These debts are a reflection that “compared
with other countries, it is relatively easy and inexpensive to borrow against wealth in
Denmark,” and most of the people who are borrowing money are wealthy. Denmark’s National bank is also confident
that Denmark’s large household debts will be repaid because of the country’s “well-developed
financial system” and the “large pension wealth” available to Danes after they retire. In addition, Denmark has a combination of
an “extensive social safety net” and “a high level of public service” that “reduce
the risk that households are unable to service their loans.” While some of the debt we are burdened with
today are for cost-of-living expenses that are beyond our control, other debt reflects
that many of us are contributing to our own poverty through questionable consumer behavior. We have a different attitude about shopping
than earlier generations did, and it has caused us to develop more wasteful spending habits
than those of consumers of the past. Through advertisements of the late 19th and
early 20th century, we see consumers of this time were more pragmatic. Richard W. Pollay, a marketing professor at
the University of British Columbia, describes the main approach used in ads created between
1890 and 1925 as “veneration of products.” In these ads, Pollay notes that the “sales
strategy was direct and ‘rational’, describing the products and their qualities, linking
these to common sense advantages such as saving ti[m]e, money or energy.” In contrast, today’s consumers often shop
for emotional reasons. Many people buy things to make themselves
feel better, a coping mechanism known as retail therapy. Business Wire recently reported the results
of a 2016 US shopping survey. It found “retail therapy is still a good
pick-me-up, with 96% of adults and 95% of teens admitting that they participate in retail
therapy.” In 2015, 15,000 people across 17 countries
participated in a poll measuring “pick me up” purchases called the MasterCard Treat
Index. According to one source, the poll found that
people in Turkey frequently engaged in retail therapy, “with two thirds of consumers claiming
to make regular cheer-up transactions.” Young people made more “pick me up” purchases
than older people. The poll found that “millennials are nearly
twice as likely (60%) as Boomers (34%) to treat themselves once a month or more frequently.” And there are a large number of people who
shop as a hobby. The Drum, which is Europe’s largest marketing
website, describes shopping as the “third favourite pastime” in Singapore. It cites the results of a study that found
84% of Singaporeans “’love’ to shop online,” with 1.7 million of them “making
one purchase a week.” Online shopping as a hobby is also popular
in China. A 2017 survey conducted by financial services
firm KPMG and Mei.com revealed that “online shopping has effectively become a national
pastime in China with 77 percent of respondents identifying it as their favourite leisure
activity.” In addition, the news website Daily Beast
notes that the “world’s most avid clothes shoppers are the Chinese, with 31 percent
saying that clothes shopping is their ‘favorite thing to do.’” These motives for shopping often result in
buying more than we need, which leaves us with a full house and an empty wallet. Excessive spending on clothes is a good example. In 1930, the average American woman “owned
an average of 9 outfits” according to fast fashion and sustainability expert Elizabeth
Cline. In the 21st century, that amount has increased
dramatically. A 2016 Daily Mail article reports that the
“average American woman has 103 items of clothing in her closet.” The modern-day American woman may have more
clothes than her 1930s counterpart, but surprisingly she does not wear most of them. A survey of 1,000 US women conducted by organizer
company ClosetMaid found that these women wore only about 10 percent of the items in
their closets. What happened to the other 90 percent? The women considered “21 percent to be ‘unwearable,’
33 percent too tight and 24 percent too loose.” In addition, another 12 percent of their wardrobe
consisted of “new, unworn clothing.” How much are these wasteful wardrobes costing
the average American woman? A 2017 article by retail franchise company
Winmark states that women “spend an average of $3,400 a year” on clothing and accessories. For some American women, this is nearly two
month’s salary. American women are not the only ones who overspend
on clothes that often end up hanging uselessly in their closets. A 2017 Telegraph article reports that the
average British woman “owns 95 items of clothing and only wears 59% of them regularly.” Like American women, British women spend a
lot of money on “unwearable” clothes. According to an article in the UK version
of Marie Claire, new research finds that the “average woman owns £2,400 [or about $2950
USD] worth of clothes she doesn’t wear.” Another big spender on clothing that is largely
unworn is the average Australian woman. According to the Daily Mail, the “average
Australian woman buys 27 kilograms (59.5 lbs) of new clothes each year, throws away 23 kilos
(51 lbs) every 12 months and only wears 33 percent of her wardrobe.” We could not find exactly how much the average
Australian woman spends on clothes, but in 2015 Australia topped fashion website WWD’s
list of countries with the highest “per capita expenditures on apparel.” WWD states that Australians spent an “average
of $1,050 annually.” Some of the excess shopping that we previously
discussed is the result of another bad spending habit that will leave us poorer than past
generations – impulse buying. According to a 2018 CNBC article, a survey
by Slickdeals.net found that the average US consumer makes 3 unplanned purchases a week,
which adds up to about $5,400 per year on impulse buys. British people are almost as impulsive as
Americans when it comes to shopping. A 2018 Independent article reported the findings
of a study commissioned by online lender MYJAR.com. The study revealed that British people “make
an average of nine impulse buys” per month. It also “found the typical adult blows almost
£200.00 [about $258.73] a month on everything from chocolate and sweets to new sofas, clothes
and takeaways.” These impulse buys add up to about $3,105
per year and “close to £144,000” or about $186,287 over the lifetime of British consumers. Impulse spending is a problem in other parts
of the world too. Nielsen’s 2013 Global Survey of Consumer
Shopping Behavior “revealed that many online respondents in Asia-Pacific and Middle-East/Africa
are impulse buyers and adopters of new products.” When presented with the statement “I often
buy things I do not need impulsively,” 52% of respondents in Thailand somewhat or strongly
agreed with the statement, while the percentages of those somewhat or strongly agreeing with
the statement in India and China were 48% and 44% respectively. Egypt and Saudi Arabia had the same percentage
of respondents — 42%. And now there is a new social trend that is
causing young people to go deeper into debt – social media consumerism. Financial website The Ascent explains how
social media increases spending: “The biggest reason social media encourages
you to spend money is an age-old concept taken to its 21st-century extreme — peer pressure,
previously known as ‘keeping up with the Joneses’ and now referred to as ‘FOMO
(fear of missing out).’ With social media, you get a constant view
of the best parts of other people’s lives. You see the meals at fancy restaurants, the
designer clothes, and the luxurious vacations. And if you follow any celebrities or influencers,
you’ll see those types of posts all the time. It’s natural to feel a bit jealous and to
want the same for yourself.” You may laugh at the reasoning behind social
media consumerism, but the overspending that results from it is becoming a serious problem. The Ascent cites a study by Allianz Life that
found “61% of millennials said they’ve had feelings of inadequacy about their lives
because of what they saw on social media, and 57% said that social media caused them
to spend money due to a fear of missing out.” It also adds that “Credit Karma found that
39% of millennials had even gone into debt just to keep up with their friends.” In a recent article, CNBC also explores the
financial toll social media is having on millennials. It discusses the findings of Schwab’s 2019
Modern Wealth survey. According to this survey, “just under half,
49%, of millennials (ages 23 to 38) say social media influenced them to spend money on experiences.” The survey also found that “48% say they’ve
overspent when sharing experiences with friends, whether it’s dining out or going on a group
vacation.” However, while millennials may be eager to
share their experiences of the good life on social media, they tend to hide the financial
problems caused by them. According to a Forbes article, “out of the
40% of people who went into debt for their social lives, 73% kept it a secret from their
friends.” Is there any glimmer of hope that millennials
can improve their financial circumstances? A Business Insider article tries to see the
bright side of the millennials’ situation, noting experts call them both the “brokest”
and “richest” generation. Data from the Fed indicates that “individual
incomes were falling for millennials” but at the same time “family incomes for married
couples grew.” A study by the Pew Research Center also found
that “millennial households are earning more than previous generations did at their
age nearly any time in the past 50 years.” In addition, millennial researcher Jason Dorsey
points out that in time inheritances may also add to their wealth. “From a big-picture viewpoint, millennials
will likely receive the greatest wealth transfer in modern history — from the baby boomers,”
Dorsey said. “However, the reality is that baby boomers
are healthier and living longer than even they planned, so that wealth transfer might
not happen for 20-plus years.” Did you learn anything new from this video? We bet you did! And if you want to learn even more then check
out this other great Infographics Show video or this other great video by us! You might not have a choice about your financial
future but you can pick which of these great videos to watch next so do it right now!

4 Comments

  1. Mustafa Osman says:

    148th place

  2. First name Last name says:

    Free market competition has had an immeasurable impact on living standards worldwide. Today's average American lives better than royalty of yesteryear. Air conditioning, life expectancy, refrigerators, microwave oven, cell phones, clothes washers and dryers, safer cars, ovens, medical technology, and on and on……

  3. Ten Minute Tokyo 2 says:

    Because elites are illegally manipulating wages down.

  4. satya sri sai says:

    Comments :4

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