Your Financial Success is Determined By Something You Can't Control -- When You Were Born
The economic conditions you were born into shape the financial trajectory of your life. It defines your relationship with money and how you see the world.
In 2016 I got my first promotion. It didn’t just change how much I got paid — it changed when I got paid too. Instead of getting paid bimonthly like most people do, I would now be paid once a month.
There was just one problem: no one told me when my new monthly paycheck would come.
It was only after I expected my paycheck to come and it didn’t that I learned I wouldn’t get paid until the end of the month. Even though I had a good job at a well-known company, I was living paycheck to paycheck. I didn’t have any cash set aside in savings. After I paid my rent for the month I had $300 left in the bank and a whole lot of bills to cover.
I tried to do what I could to cut my expenses, but there is only so much you can cut. I asked my Boomer boss for help. I explained the situation and asked if I could telework on Fridays. It wasn’t much but it would save me some money on gas.
Even though I don’t drink much, she advised me to spend less money on beer. It was more important to her that my gas tank was full so I could show up to work.
I share this anecdote because it reveals how generational differences shape our perspectives about money. Older Americans hold a view that is more often than not, diametrically opposed to younger Americans. This divide shapes policies and social norms the rest of us are expected to follow.
Your relationship with money is arguably one of the most important relationships in your life. It dictates where you live, the types of jobs you have access to, and who you marry. Whether you realize it or not, how you parent and what you prioritize in life is governed by how much money is in your bank account too. Almost every facet of your life is dictated by how you earn and spend money.
Collectively, that means society is shaped by money. Our values, worldviews, and personal code of ethics are dominated by money. These beliefs often come into conflict. Some people are “smart” with their money while others aren’t. Meanwhile, some people need help while others are just lazy.
The assumptions and biases we harbor about money dictates how we judge the way other people spend money. Take Dave Ramsey as an example. If you’ve listened to his radio show you might have come to the conclusion that debt is a personal choice. People are in debt because they made bad choices. Their debt is a reflection of their character, showing a lack of fiscal discipline.
The late anthropologist David Graeber holds a different opinion. From decades of studying money and economic systems, he argues that debt is the basis of our civilization. To eliminate debt is to eliminate money itself. Debt isn’t so much a moral failing as it is a necessary evil to keep society going. Debt can’t — and isn’t supposed to ever be — repaid.
Your worldview and relationship with money depends on when you were born in the economy. Boomers like Dave Ramsey and my boss believe money is a function of integrity and personal character. They came of age in an economy where credit was cheap and good paying jobs were abundant. If you didn’t have money the system wasn’t to blame — you were.
Times have obviously changed and that’s what this essay is going to dive into. It’s going to talk about the cost of living crisis as a function of time and age rather than how much you make. It will argue that your financial success is incumbent on when you were born rather than how good you are at budgeting or whether or not you’re a savvy investor.
It will conclude by presenting you, the reader, with a choice. As unfairly as the cards in your hand have been dealt, you still have choices that can change the trajectory of your financial future moving forward.
The economy you were born into shapes your economic success. Some people — like Boomers — came of age in a good economy and have done well as a result. Millennials? Not so much.
The Psychology of Money by Morgan Housel should be at the top of your personal finance reading list if it isn’t already. Rather than focusing on spreadsheets and quantitative strategies, the book talks about the soft side of money.
Your relationship with money, including your beliefs about what money is and how you access it shapes your ability to save and invest, determining how successful you’ll be in the long term. While what you think about money can change over time, your initial beliefs are shaped by your family, community, and the overall conditions in the macroeconomy.
In the postscript, Housel illustrates how key events in the 20th century — the Great Depression, World War II, and the consumer boom that followed — created the economic paradigm that shaped Baby Boomer’s relationship with money. For soldiers returning from theaters of war to newly formed American suburbs, Housel writes:
“But low rates also did something else for the returning GIs. It made borrowing to buy homes, cars, gadgets, and toys really cheap…People measure their well-being against their peers. And for most of the 1945–1980 period, people had a lot of what looked like peers to compare themselves to.” (224, 229)
Baby Boomers and some Gen Xers were born at the right place at the right time in economic history. Whether it was working hard at a job or being frugal with how they spent their money, Boomers saw the fruits of their labor.
It was possible to work hard, save money, buy a house, and raise a family all on one income. These outcomes and the inputs that generated these outcomes shaped their relationship with money. That’s why today Baby Boomers like Dave Ramsey believe debt is a choice and spending is a reflection of your personal character.
The boom, of course, didn’t last forever. In the 1970s and 1980s the economy underwent a massive transformation. Productivity became decoupled from wages which meant that your good work ethic was no longer reflected in your paycheck. Geopolitical events half a world away induced stagflation here at home. And the good-paying manufacturing jobs Boomers were able to access in the preceding decades started moving to Asia.
The economy changed while society — one hell-bent on keeping up with the mythical Joneses — largely stayed the same. Anyone who came of age after this period of time experienced greater hardship and struggle to live the “American Dream.” Americans with flatlined wages and rising costs continued to compare themselves against consumer benchmarks that were no longer tenable. As a result, more and more consumers began leveraging credit in the form of loans and credit cards to maintain the illusion of economic viability.
This is how we got to where we are today. For Boomers, debt was a choice because debt was largely associated with the purchase of unnecessary consumer goods. The salary you earned from your job was enough to pay for college, put a down payment on a home, or buy a new car so long as you were responsible with your money and saved up for those things.
The same can’t be said for my generation, the Millennials. Most of us came of age during or shortly after the 2008 Financial Crisis. There weren’t jobs for experienced professionals, much less high school and recent college graduates. As the economic crisis bore down, Millennials took shelter in colleges and universities to ride out the economic storm.
This is why millions of Millennials are struggling under the weight of student loans. Yes, taking on these loans was a choice — but also yes, the prevailing economic conditions of the late aughts shaped how Millennials made financial decisions that were supposed to shape their careers.
When you were born matters because the economy you were born into isn’t going to be the same as your neighbor. That means the expectations and assumptions you hold for your life might not apply to them. Your neighbor can have a great job, budget and save responsibly yet still be struggling at no fault of their own.
Success in today’s economy hinges on two major expenses — childcare and housing. The economic conditions of when you bought your house and started your family determine your cost of living. Spoiler alert: it isn’t the same for everyone.
When you hear about the cost of living crisis you might acknowledge that many Americans are struggling to get by. Polls back this. Around 78% of Americans are living paycheck to paycheck, even high earners.
While your personal situation might not look that bad, you might not be aware of just how bad it is for your neighbor. The timing of when someone bought a house and if they have children in daycare can decimate an otherwise healthy, middle class paycheck, leaving families on the brink of poverty.
The social safety net provided by the welfare state does not extend to these people. Either you’re under the poverty line or you’re struggling to get by. There’s no in between.
One TikToker broke down the state of the American middle class based on two factors: housing and childcare. Those who bought their house before rates went up have a significantly lower cost of living than those who did not.
According to his analysis, if you purchased a home before the pandemic, you benefited from lower home prices and more affordable interest rates. Depending on whether or not you have children in daycare, your monthly expenses range from $1,500 to $4,000.
It’s easy to criticize a young person for throwing away their paycheck on overpriced avocado toast and expensive lattes when your mortgage is a fraction of what everyone else is paying.
Those who purchased homes after the pandemic are struggling. Millennials largely fall into this category thanks to the burden of students. loans. Many put off starting families simply because they couldn’t afford to.
Timing truly is everything.
Compare that to individuals who purchased homes after the pandemic. In 2015, the median home price was just under $300,000. Today, home prices are around $421,000 with interest rates at 7%.
Individuals who “waited” to purchase homes and start families are suffering through the most expensive housing market in history. They are forking over $4,000 to $6,500 per month in housing and childcare costs. If you earn the average salary — around $59,000 — you can’t afford a home or a family.
And renters aren’t faring much better. According to Rent.com the median rent in America is $1,987. Whether you own a home or not, keeping a roof over your head costs more than it ever has in history, and it’s a significant driver behind the cost of living crisis in America.
The reality is striving to save more and spend less isn’t going to solve this problem. It’s a structural flaw in the economy — not a personal character flaw. Your individual financial success isn’t so much a reflection of you, the individual, as it is the state of the economy you were born into.
Final takeaway.
The economy is awful right now and yes, young people are totally f*cked. Millennials are insolvent and with the oldest entering midlife, it’s unlikely they will ever be able to repay their debts.
Gen Zers aren’t doing much better. They’re saddled with equally oppressive student loan debts and diminishing job prospects. Today’s college students will graduate into an economy where entry-level roles will have all but disappeared.
The cards are stacked against young people. It’s impossible to win the same game their parents and grandparents played.
If you want to be successful, you have to take the hand you’ve been dealt and play a new game. A game you can actually win.
Housing is unaffordable in most places, that is an undeniable fact. But housing isn’t unaffordable everywhere.
Take Detroit as an example. Once a bastion of the American Dream, Detroit has fallen to the wayside. As a result, housing prices are low. According to Realtor.com, the median sold price of homes in Detroit is $100,000.
Even though Detroit isn’t a desirable place to live, $100,000 is a lot more affordable than $400,000.
There are options for childcare too. Just like you won’t find affordable housing in a high cost of living city, you won’t find affordable child care either. You have to look outside of major cities for that.
Take Tulsa, OK, as an example. There you can find home-based daycare for $800 per month and houses for under $300,000. Just by leaving major cities you can dramatically lower your monthly costs.
Whether it’s housing, your approach to childcare, or your career, we’re designed to mimic what everyone else is doing around us. Everyone else is pursuing high-profile careers in big, expensive cities. But just because that’s what other people are doing does mean that’s what you have to do.
You think you know the economic conditions shaping the financial mindsets of others but you don’t. Whether it’s the economy they were born into or family wealth, you are fundamentally playing a different game than they are. It’s unreasonable to hold yourself to a standard that you can’t achieve.
The economy isn’t going to improve anytime soon. As AI comes online and the job market goes through a period of disruption, you’re likely to see more uncertainty and economic hardship in the years to come.
While you can’t change what’s happening around you, you can change how you exist in the world. Do you continue to swim upstream, battling an economic tide you’re unlikely to win, or do you simply flow?
The choice is up to you.
What do you think? What shapes your financial and economic worldview?
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