| Yet a recent poll by the Pew Research Center defined the American Dream as "if you work hard, you'll get ahead." I'm not sure I'd agree with that statement myself. Yes, hard work is generally required to achieve the dream. But that's just the beginning. A higher standard of living requires money. But expenses generally rise to meet the income available. Hard work and income alone are not enough for most to realize the material aspects of the dream. It also requires financial security. Wealth, in other words. That requires saving, which means living within your means, something tens of millions of Americans either can't or won't do. Of course, even for those disciplined enough to live on less than they earn, the return on risk-free savings is low. Your money will barely keep up with inflation and sometimes - depending on the level of interest rates - it might not even do that. Your savings need to be invested, which requires two things: intelligent risk-taking and patience. Yet surveys show that many Americans are financially illiterate. They don't understand risk and reward, stocks vs. bonds, or the incredible power of money compounding. Moreover, they want to get rich yesterday. That sends them out on a frantic snipe hunt for Powerball tickets or the hottest crypto of the meme stock DuJour. Yet those bets don't generally pay off. Investing in high-quality companies with superb management, rising sales and earnings, and defensible profit margins generally does. And while patience is required, time is your ally. I should also emphasize that the American Dream is an aspiration not an entitlement. Unless you were born with the proverbial spoon in your mouth, no one is going to hand it to you. (This is a realization that may be lost on the "everyone gets a trophy" generation.) Many young Americans are not even aware of what social scientists call "The Success Sequence." This greatly reduces the likelihood of falling into poverty. The sequence consists of three milestones: - Finish high school. Getting a high school diploma increases your job opportunities and earnings potential, which is essential for financial stability.
- Work a full-time job. Securing full-time employment, even at an entry-level position, provides both a steady income and the work experience necessary to move up.
- Wait until marriage to have kids. It's hard - if not impossible - to work a full-time job and raise an infant, unless you have a committed partner. A stable family structure is a great benefit. (On the other hand, if you're not marriage-minded and can receive or afford all the help you need, that's different.)
Studies show that those who follow the success sequence have a significantly lower risk of poverty. And it's pretty simple: Stay in school. Get a job. Wait to have children. According to a Brookings Institute report, 97% of adults who follow these three steps avoid poverty and eventually enter the middle class. Conversely, skipping or reversing these steps increases the likelihood of economic hardship. Of course, these are just the first steps. In my next column, I'll describe what other actions you can take today to live your version of the American Dream. Good investing, Alex | 
No comments:
Post a Comment
Keep a civil tongue.