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The surest road to financial success and independence is a long one. That path includes working
hard at a career you enjoy, living on less than you earn, taking educated and appropriate
risks, and building wealth gradually through diversified investing.
I know many people who have followed this route successfully. Their achievement-what
has long been described as the American Dream-should be something to be proud of.
Apparently, in today's world, that isn't the case. At least not according to an Associated
Press news article published in the Rapid City Journal on December 9, 2013. The headline
was straightforward enough: "Rising riches: 1 in 5 in US reaches affluence." The article
stated that 20% of Americans will have household incomes of $250,000 or more at some point
in their lives. This includes those with high incomes for only one year or a few years.
During those periods of affluence, they are in the top 2% of earners.
Beyond that, the piece was filled with inaccuracies and assumptions. First, its writers confused
"affluence" and "wealth." Someone with a high income in a given year is affluent. Anyone
with a basic grasp of finance, however, understands that wealth is associated with net worth.
When only 2% of Americans have a net worth of $1 million or more, 20% can't be accurately
described as wealthy. Some high earners are two-income couples or
professionals at the peak of their careers. For others, affluence is a one-time deal.
Consider this example. A couple in their 50's have always earned around $40,000 a year (adjusted
for inflation). The husband inherits a $250,000 IRA from his parents. The couple decides to
distribute the money in the IRA, pay the income taxes, and use the balance to pay off their
mortgage. For that one year only, their income exceeds $250,000. That certainly isn't enough
to earn the label of "new rich." The article notes these "new rich" tend to
be "much more fiscally conservative" than other Americans and "less likely to support
public programs, such as food stamps or early public education to help the disadvantaged."
This makes anyone who ever receives over $250,000 in any one year look like Ebenezer Scrooge
before his transformation. but it is true. Ask anyone, no matter how liberal, who received
a windfall in 2013 and watched 25% to 50% of it disappear to federal and state income
taxes, whether they are happy about this income redistribution.
The AP also notes the number of people reporting income of over $250,000 doubled since 1979,
leaving the impression that the rich are getting richer while the poor are getting poorer.
While this is technically correct, the figures are meaningless because they are not adjusted
for inflation. The article also cites Paul F. Nunes of Accenture's Institute for High
Performance and Research, in support of its contention that those who are newly or temporarily
affluent aren't spending enough. Their "capacity to spend more will be important to a U.S.
economic recovery." Instead, they "spend just 60 percent of their before-tax income, often
setting the rest aside for retirement or investing." In other words, these successful Americans
are doing exactly what the American Dream says they should do. They are taking care
of themselves and planning for the future by working to build their short-term affluence
into lasting wealth and financial independence. For this, they should be applauded. It would
be more helpful to our country, economically and socially, to see them as role models rather
than part of the problem. Instead of trying to bring successful people down, we would
achieve more by using their example to lift others up.