Why The Middle Class Is Financially Ruined - AGAIN

What's up, Graham? It's guys here. So, even though this channel focuses around investing, building wealth, and personal finance, every now and then, I come across an article that we have to talk about because it's becoming more and more apparent that the middle class is getting screwed at every possible turn. This latest finding is no exception: the Federal Reserve just reported that the wealthiest 10 percent of Americans now own 89 percent of all U.S. stocks.

And if that's not telling enough, it gets worse. 76 percent of Millennials are found to be financially illiterate, 40 percent of student borrowers are not making their payments, 32 percent of Americans have saved nothing for retirement in 2020, and just over 70 percent of Americans say that their plan for retirement is just to keep working. But what's even more surprising is that almost all of these are a result of a few basic mistakes that are easily avoidable.

And with just 15 minutes of work, you too could claim your fair share of stock market wealth without having to post your losses on WallStreetBets or make an OnlyFans account like me. So, let's address exactly what's going on, why the middle class is headed towards financial ruin, the biggest mistakes that are easily avoidable, and then what you could do today to make sure you're not caught in the crossfire for when everything goes to poop.

Although before we begin, I just want to say a huge thank you to everybody who hits the like button and comments down below. It truly makes a huge difference for my channel, and the more people that help out the YouTube algorithm, the more it's going to push it out to a brand new audience who can also help the YouTube algorithm.

Alright, so it became apparent that once I started researching this topic further, there were a few points that immediately stood out. Number one, right off the bat, is that 45 percent of Americans are not invested in the stock market at all. To find out why, look no further than the average American budget, because according to the Consumer Expenditure Survey, even though the typical income is $63,000 a year, almost nothing was left over after paying for the essentials like housing, utilities, food, taxes, and insurance.

This means many people are not investing in the stock market because they have nothing left over to invest. Now, even though that's a problem in and of itself, the main issue as it pertains here is that when you don't have any extra money to invest, you miss out on the profit you would have made had you put that money to work instead. In this case, that's why the top one percent has seen such tremendous growth over the last 20 years, because they've been able to invest in the markets and subsequently grow their wealth without working any harder.

It also appears that a person's income has a significant impact on the statistic as well, with 89 percent of adults earning above a hundred thousand dollars having invested in the stock market compared to just 24 percent of those earning under forty thousand dollars a year. So, given that, it's pretty straightforward that those with discretionary income to spend have the extra resources to invest in the stock market, and therefore they get the majority of the benefit when the stock market goes up.

But that really has to stop today. Even though stagnant wages, exorbitant housing costs, and high inflation absolutely can dictate how much money you have left over to save and invest at the end of the day, throughout almost all budgets, there's a level of wasteful spending that often goes unnoticed. For example, one study found that the average American wastes about $1,500 a month on non-essential purchases, and another found that Millennials spend more money on coffee than they do on their own retirement.

That's certainly not to say that you would have been a stock market millionaire had you just cut back on Starbucks coffee and Apple AirPods, but that is to say that statistically, there's most likely money left over that could be used for investing if you tracked where it goes, which 65 percent of Americans have absolutely no clue what they spent. In this case, the first step to balancing the investing scale is to simply invest in the stock market, point blank. You have to get yourself in the game, even if it's just ten dollars a week.

Otherwise, you're not going to see the benefit of an ever-increasing market. The easiest way to do this might be by starting a budget, tracking your expenses, cutting back on non-essential spending, and then investing the difference instead, or getting your free stock down below in the description that's now worth all the way up to a thousand dollars when you sign up for Public using the code GRAHAM.

But besides this holding back so many people, there's another very overlooked aspect to investing that so many people are not using to their advantage, and that would be retirement accounts. These are tax-advantaged accounts that you could set up, sometimes in a matter of minutes, that give you a wide range of benefits for when you want to retire, lay on a beach all day, and watch YouTube videos while you smash the like button for the YouTube algorithm.

For example, a 401k allows you an upfront tax deduction for everything you contribute, thereby lowering the taxes you pay. A Roth IRA allows you to pay taxes today and then keep 100 percent of the profits in the future without owing the IRS a single cent, or an HSA allows you to deduct from medical-related expenses. All of these accounts are set up to keep more money in your pocket long-term.

But according to a study in 2020, 60 percent of workers do not contribute to their workplace retirement plan, and among those who do contribute, the average is just seven percent of their paycheck. This means there's a lot of money being left on the table that otherwise could be used towards building wealth. To make matters worse, this is not a new trajectory either; over the last 30 years, retirement contributions have been slowly declining across almost every bracket.

This is such a problem that several states have even begun taking matters into their own hands and have made it mandatory to auto-enroll their employees for a retirement contribution so that way they don't get left behind. See, in most jurisdictions, the retirement account is something that you must opt into. It's not like you're going to get a job, walk into HR, and then they're going to tell you about all the benefits of early retirement, building wealth, and making passive income—oh no. Instead, retirement accounts are something that you must voluntarily set up, and if you don't know what exists, well then that's your loss.

But new laws are looking to change that by reversing the way it works entirely, and as they say, make it as easy as possible to implement. In this case, retirement accounts will be automatically set up for you, whether or not you know about it, and then if you decide not to contribute, you could back out at any time. But for everybody else, they don't need to do a single thing to get the benefits. That's why, if you want to build your wealth, contributing to a retirement account could be one of the best ways to put your money to work while getting the tax benefits at the exact same time.

Just check with your employer if this is something they offer, and if not, go and set up a Roth IRA yourself online. It takes you just about 10 minutes, and from there, you could begin to claw back some of that sweet, sweet stock market profit. But unfortunately, it does not end there, because when I was researching these two statistics behind this video, I came across something else rather unexpected when it comes to investing.

Alright, so in terms of the deeper statistics behind why so many people are not investing, I was rather surprised to see that men were more than twice as likely to say that they were not investing out of a fear that they would lose money. Now, I have to say across all of my research, this seems to be a very common theme. After all, stock market ownership was steadily increasing to a high of 63 percent in 2005. But why, as the stock market plunged during the great financial crisis, did the percentage of Americans who own stocks decline right alongside with it?

But even though nothing is guaranteed in the stock market and losing money is almost always going to happen at some point, the good news is that there are ways to ensure that you never lose more money than you could financially recover from. First, take a look at how much you could potentially lose. In this case, throughout the last 100 years, there have only ever been four drops that exceeded a 40 percent decline: one in 1929, one in 1978, one in 2001, and one in 2009. That's it. Each of those drops lasted an average of 24 months, and all of them recovered had you just held, done nothing. Historically, that has been your worst case scenario, and the chances of losing all of your money are pretty much non-existent as long as you stay away from options, individual stocks, and wild speculation.

The second for the best chance at seeing a consistent return is to diversify. Instead of investing in a few specific companies and then crossing your fingers hoping they do well, invest in the entire stock market through broad index funds. For example, historically, since 1950, the S&P 500 has returned about 7.6 percent a year adjusted for inflation with dividends reinvested. Even though you could certainly risk the chance of losing money in the short-term as the stock market fluctuates up and down, over a period of 20 years, the S&P 500 has never once produced a negative result, meaning there is a very strong likelihood that you're not going to lose any money as long as you just hold and don't panic sell.

And third, what most people overlook is that even though you might lose money short-term by investing in the stock market, you are guaranteed to lose money long-term by staying out of the markets. Thanks to inflation, thanks to Jerome Powell, I think it's no surprise at this point that the purchasing power of your money is losing value every single day. All of a sudden, money doesn't go as far as it used to. Rent is going up, stocks are getting more expensive, and this Nicolas Cage pillowcase now costs $16.

So, the choice now becomes: invest your money in the stock market, which has always been profitable over 20 years, or hold on to your cash and not invest, which has always been unprofitable over 20 years. From this perspective, even though some people choose not to invest out of a fear of losing money, the real loss comes from not investing anything at all. In terms of building wealth and chipping away at the statistic, it's always better to invest something than nothing.

And fourth, it would be impossible to talk about this without addressing a situation that holds so many people back, and that would be debt. The Federal Reserve of New York recently surveyed and broke down the average American debt by category, and among that was a $5,000 auto loan, a $2,800 credit card balance, a $5,700 student loan amount, and an additional $1,500 worth of miscellaneous expenses that had yet to be paid off. That means on average, across the board, Americans hold about $10,000 worth of debt.

And get this: the average credit card interest rate was 16.43 percent, the average auto loan was 8.6 percent, and the average student loan is 5.8 percent, costing the average person about $1,200 a year in interest alone. Business Insider even decided that this is one of the main reasons why Millennials were staying out of the stock market, and it’s one of the few reasons here where I actually kind of agree with it. Even though consumer debt is something that should be avoided and will absolutely hold you back from investing as much money as you can, in this case, if you're ever paying a higher interest rate than you could reasonably expect to make in the stock market instead, then it's always a better idea to pay off the debt first before you invest.

That's because when you look at the optimal return of your money, paying down a 16 percent credit card balance would make you twice as much money as investing 8 percent in the market. So, in this case, my personal philosophy is to take the approach of cutting back as much as you can in every area possible, then use that to start paying down the highest interest rate first above 5 percent. For the average person, that's going to leave you with an extra $100 a month leftover to invest.

And finally, fifth, the reality is all of this wealth is what's known as an unrealized capital gain, meaning their investments have simply gone up in value alongside the entire market. But it's important to realize that those amounts fluctuate on a daily basis, and even though they might go up, they could also just as easily go down. For example, during the last sell-off, $1.3 trillion was lost in the tech market within a month. 500,000 millionaires were lost almost overnight, and even though they certainly don't need any pity, unrealized wealth is largely at the whims of the economy.

On top of that, since these investments tend to compound over time, the longer you keep your money invested, the larger it's likely to grow. That's why it's also no surprise that the people who hold the vast majority of wealth in the stock market are also over the age of 65. In fact, if you're under the age of 35, then statistically, you only hold 1.4 percent of the stock market—that's it. However, as you get older, make more money, invest more money, and then reinvest more money, that amount will continue to grow.

And that's why, as long as you invest your money consistently, eventually, you'll be able to grow your wealth in the stock market just as effectively as anybody else. So overall, given this information, I have to say it's no surprise that so many people are outraged to hear about how much wealth is held in the stock market by such a small group of people. But once you start breaking it down further, you begin to realize that it's not so much about the rich versus the poor, but instead the fact that financial literacy is not taught in schools.

Most people have absolutely no idea what they're doing, and when there's no trusted source to turn to, most people avoid the stock market and in the process miss out on building their wealth. It's a terrible downward spiral where the less money you have, the less money you invest, and therefore, the less money you have. But that doesn't mean there's not a solution, no matter how small it might seem in the short term.

In this case, understand that you'll have to find a way just to start looking to retirement accounts in your workplace, track your expenses, pay down your debt, and realize the repercussions of what happens when you don't invest your money long term. And if you could just get that far, I guarantee it's going to put you leagues ahead of the majority of the U.S. population, no matter how much money you make.

So, with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post pretty much daily. So if you want to be a part of it there, feel free to add me there as my second channel, The Graham Stefan Show. I post there every single day I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that.