NYC skyline representing the middle-income housing.

The 4 Wealth-Stealing Forces that Make You Poorer... and Others Richer

How to play by the rules of the rich and why this election won't save you

Take a look at this sobering graph from the Pew Research Center.

Share of adults living in middle income housing is dropping

The share of adults living in middle-income housing is dropping.

As you can see, from 1971 to 2015, the share of adults living in middle-income households fell from 61% to 50%. This graphic alone explains why our election this year has a different tenor than previous elections have held.

In a country where the rich are getting richer and the poor are getting poorer, the straw is finally breaking the camel's back. That is why candidates like Donald Trump and Bernie Sanders have gained so much traction against traditional party politicians. It is why we are seeing so much polarizing discussion and violence. The American middle class is the spark that is lighting a powder keg of dissatisfaction.

As you can also tell, this decline of the middle class has happened for a long time and steadily since the 70s. Over the last four decades, there have been forces at work that have stolen wealth from the middle class and given it to the rich. Much of the anger in our country is coming from the fact that people are being financially ripped apart by these forces. Yet, they are not truly aware what those forces are exactly or what to do about them. All they know is that they want change.

Yet, if they understood those forces and what to do about them, they would be able to take matters into their own hands rather than hope a politician would fix their problems for them.

Here are the four financial forces that cause most people to work hard and yet struggle financially.

  • Taxes
  • Debt
  • Inflation
  • Retirement

Take a moment and reflect briefly on how much these four forces affect you personally.

Taxes

America was relatively tax-free in its early days. In 1862, the first income tax was levied to pay for the Civil War. In 1895, the US Supreme Court ruled that an income tax was unconstitutional. In 1913, however, the same year the Federal Reserve System was created, the Sixteenth Amendment was passed, making an income tax permanent. The reason for the reinstatement of the income tax was to capitalize on the US Treasury and Federal Reserve. Now row rich could put their hands in our pockets via taxes permanently.

Debt

The Federal Reserve System gave politicians the power to borrow money, rather than raise taxes. Debt, however, is a double-edged sword that results in either higher taxes or inflation. The US government creates money rather than raising taxes by selling bonds, IOUs from the taxpayers of the country that eventually have to be paid for with higher taxes-or by printing more money, which creates inflation.

Inflation

This is caused by the Federal Reserve and the US Treasury borrowing money or printing money to pay the government's bills. That's why inflation is often called the "silent tax". Inflation makes the rich richer, but it makes the cost of living more expensive for the poor and the middle class. This is because those who print money receive the most benefit. They can purchase the goods and services they desire with the new money before it dilutes the existing money pool. They reap all the benefits and none of the consequences. All the while, the poor and the middle class watch as their buck gets stretched thinner and thinner.

Retirement

In 1974, the US Congress passed the Employee Retirement Income Security Act (ERISA). This act forced Americans to invest in the stock market for their retirement through vehicles like the 401(k), which generally have high fees, high risk, and low returns. Before this, most Americans had a pension that their work provided. They could focus on their jobs and know they would be taken care of. After ERISA, Wall Street had control over the country's retirement money, and most people had to blindly trust Wall Street because they simply didn't have the education and knowledge to understand how to invest properly.

How the rich get richer

Here's the kicker. The rich know how to use these forces to make more money rather than have them steal their wealth.

The rich know how to make investments and run businesses that allow them to pay little-to-no taxes.

The rich know how to use debt and other people's money to make investments that provide constant cash flow while paying that debt off.

The rich know how to make investments that hedge against inflation and make them money while others are falling behind.

The rich know how to utilize all these forces to have a secure retirement provided by cash-flowing assets.

The rich can do all of this because they understand how money works and have a high financial IQ.

This election season, it can be tempting to, once again, look to a political to save you. It didn't work and hasn't worked in the past. Rather, take that anger and energy and invest it in your financial education. Learn how to play by the rules of rich when it comes to money. It might not save the middle class…but it will save you.

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