The Problems Americans Face in Building Long-Term Wealth and Ways to Solve Them
There's an internal struggle in the upcoming generation poised to take control of the financial world within the next couple of decades. People who are currently in their 20s and 30s have a lot of income potential and are highly educated, but they have many reasons to hesitate before their opportunities for financial growth. If they can harness their skills and the technology around them to create a financial lifestyle that works best for them, they will be better able to build wealth and a future that is worth having.
Problem: Insufficient Financial Education
It should come as no surprise that people who are skilled at money management will find more practical ways to use it to secure their financial futures. The trouble is that the average person is undereducated about what it means to invest, and why savings are so important for future success. As the number of guaranteed pensions declines toward zero, debts for young adults continue to rise, and incomes remain stagnant, people need to have ways to maximize the money they can make for use years down the road.
Solution: Turn-Key Investment and Savings Options
Issues saving money are pretty much ubiquitous across generations. A shocking survey from early in 2017 revealed that more than half of the American population couldn't produce $500 to cover an unexpected expense without getting into greater debt. This problem illustrates the need for savings options to be easier and require less thought. Solutions such as 401k auto-enrollment and integrated savings programs that can automatically withdraw money for people might make the difference between a person who is prepared for early retirement and a person who can't ever afford to retire in the first place.
Problem: Inadequate Structure in Budgeting
People who are constantly facing an income shortfall find it all too easy to live in a money-in, money-out lifestyle. The trouble is that without creating a useful budget, it's hard to know what to do with the money once income increases and it sticks around for longer than a couple of weeks. Adults who have a regular income but lack a budget that tells them what to do with the money might find themselves perpetually behind in their bills. This can negatively affect their credit, which can make it harder to buy a car, qualify for a mortgage, or even get a better job when they have some upward mobility.
Solution: Basic Budgeting Programs Like 70-10-10-10
Creating a budget doesn't have to be super complicated. Some people thrive on the knowledge that every dime has a unique purpose and take great pride in tracking their expenses and investments daily. Others find a simple budgeting system that keeps as much out of their hands as possible to be ideal. For people in the latter category, a 70-10-10-10 or similar system may make a lot of sense. In this system, a person breaks their after-tax income into several pieces. The largest part is living expenses, bills and debts, representing 70 percent of the total. The remaining 30 percent is divided into three equal pieces:
- Long-term savings, such as a 401k or Independent Retirement Account (IRA) retirement savings
- Short-term savings, immediate funds for practical purchase of an asset
- Enjoyment, like travel, charity donations, or purchases that may depreciate over time
Even those with modest incomes would find that saving 20 percent of their monthly income would help them generate wealth at a surprising rate. People who struggle to meet that guideline should consider cutting their expenses, or working to increase their income.
Problem: Lack of Trust in Financial Institutions
Watching the terrible recession has been hard for everyone, even those who didn't have as much invested in it personally. Seeing banks getting millions of dollars in bailouts while regular people lost their homes and their jobs didn't do a lot to foster faith in financial institutions as they currently stand. The problem is that the alternatives may not be a very useful source of advice or wealth accumulation, and certainly not for the long-term. People who will take recommendations from older friends and relatives but avoid financial advisors for a perceived conflict of interest may ultimately find that they aren't getting the most from their money.
Solution: Greater Transparency Leads to Reliability
Ultimately, the best way to accumulate wealth is to get into savings and investing as early as possible and discuss with your partner about your financial plans. Companies are aware that consumers expect to have all the information at their fingertips, and many are working to improve the level of transparency that their clients can see. People who have the ability to control their investments from their smartphones may be more likely to buy or sell investments when it makes more sense to hold for a longer time. However, that access to information and flexibility promotes experience with the markets at-large, which can lead to a feeling of reliability in the system. There's little that people can do to erase the past, but they can give themselves a greater sense of confidence in their ability to ride out the bumps and dips in the market.
Building wealth for the future or to make large purchases is all about information and opportunity. People who work to educate themselves about the financial systems and advanced budgeting techniques they can use to save and plan for retirement are more likely to see better results from their investments overall.