Why Millennials Need a New Financial Gameplan
The next generation is already behind
We all know the story of the American Dream. It's the story of immigrants from all around the world, coming to the US to build a better life for themselves and their children. They are promised work, the chance for upward mobility, and the opportunity to live a better life than their parents.
It turns out, however, that the dream that once held so much promise and hope for parents, is quickly turning on their children.
A recent study conducted by economists and sociologists from Stanford, Harvard and the University of California revealed some pretty unnerving news about the under-30-year-olds in America. The Equality of Opportunity Project set out to measure the American Dream by identifying the income of 30-year-olds in 1970, and comparing it with the earnings of their parents when they were about the same age. They then collected the same data from 30-year-olds and their parents today.
The results are staggering. "In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age, they found. In 2014, that number fell to 51%."
The fading American Dream
Children were once assured they would out-earn their parents. Rising inflation rates, growing job creation, technology advancements, all of these and other factors promised abundance to the next generation. No wonder we call millennials the "entitled" generation! They've been told their whole lives that if they follow the status quo they'll outperform the past generation, just like their parents did.
But the numbers tell a different story. Today, only half of millennials are earning more than their parents did at their age. And that number is not expected to rise anytime soon. In fact, the Wall Street Journal reports:
"Even growing at 3.8% annually-about what Donald Trump pledges to produce as president-would only increase the percentage of children able to out earn their parents to 62% from 51%. Many economists are skeptical that the U.S. can grow anywhere near that level and is more likely to grow at around 2% a year."
The article goes on to call for extensive political policy revision to help boost the economy. But what America really needs is a new financial gameplan
Millennials need a new financial plan
Millennials' problem is not the slowing economy or growing wage gap. What their real issue is, is that they're playing by the old rules of money.
They are trying to play a new game with old rules. It just doesn't work! The old rules that their parents played by promise that if they went to school and got good grades, went to a good college, then graduated and got a good job, and steadily worked hard, that they would be rewarded with a cushy retirement package and plenty of money to live.
It may have worked for their parents in 1970, but today that old "American Dream" is a bigger fantasy than ever.
Millennials need a new financial plan, one that teaches them the new rules of money.
We live in a different world than the 1970s. So it only makes sense that we need new rules and strategies to help the next generation not only match pace with the last generation, but surpass them.
First, make the move
Raj Chetty, of the Standford part of the research team, said, "Wages have stagnated in the middle class. When you're in that situation, it becomes very hard for children to do better than their parents."
The key word here is "wages." Millennials are earning less wages at traditional jobs than their parents.
But those wages are for employees, people on the left side of the Cashflow Quadrant. And, as we know, wages are not an indication of true wealth. Instead, they are shackles that keep you imprisoned in the Rat Race, bound to a traditional employer and the whims of the economy.
What 30-unders really need is a shift in mindset from the left to the right side of the quadrant.
My bet is that most of the parents who were earning high wages in the 1970s were still employees. Higher-paid employees, but they still fell on the left side of the CASHFLOW© Quadrant.
But playing by the rules of the left side of the quadrant just won't cut it anymore. Today, if millennials want to outearn their parents, they're going to have to drastically shift their mindsets, and make the move from the left to the ride side of the quadrant.
They can't rely on being traditional employees or self-employed. This study just affirms that the left side of the quadrant is a sinking ship. Wages are going down, the poor are getting poorer, and the old rules of money aren't going to save them.
If millennials really want to rise up, they have to embrace the right side of the quadrant, and become business owners and investors. They have to practice the rules of the rich.
How? By learning the new rules of money.
The new rules of money
In today's world, there are new rules of money. Think of all the changes that have happened in the world over the last 40 years. How could anyone think that the way to get ahead today is by doing things the same way their parents did them?
Robert wrote about the new rules of money in his book Conspiracy of the Rich. Below are the 8 new rules that millennials need to learn if they have any hope of thriving in today's world:
- Rule #1 - Money is Knowledge
- Rule #2 - Learn how to use debt
- Rule #3 - Learn how to control cash flow
- Rule #4 - Prepare for bad times and you will only know good times
- Rule #5 - The need for speed
- Rule #6 - Learn the language of money
- Rule #7 - Life is a team sport. Choose your team carefully
- Rule #8 - Since money is becoming worth-less and less, learn to print your own
(To learn more about each rule, you can read Robert's extensive write-up on the new rules of money in a series of blog posts that he sets up here.)
Learning these new rules of money will help millennials navigate a drastically different world. They still have the opportunity to surpass their parents, but they can't do it the old way. They can't rely on their parents' advice and rules. They don't just need to outearn their parents - they need to outthink and outgrow them as well.
Why this is a good thing
I understand why a lot of millennials get branded as "entitled" or "spoiled." I sympathize with them! They're victims of unfulfilled promises and old ways of thinking and teaching that are way behind the reality of our world.
But that's where the excuses have to stop. This might just be the wake up call that gets Americans back on track toward the American Dream.
If millennials can learn and embrace these new rules and mindsets, they can change the course of the nation for the better. We see it happening every day, with 25-year-old CEOs running prosperous startups that think outside the box. They create and play by new rules, and we need more entrepreneurs like them.
The world has changed, and the next generation needs to change with it. Only then will they be able to leave a positive legacy, and achieve the New American Dream.