Just let your wealth compound over time and you’ll be a millionaire, the advice goes. If this is true why aren’t more people rich?UNDERSTAND, SHARE & PUSH BACK
This doesn’t need to be a 20 minute video.
While money in a bank does technically grow exponentially, the real value (what you can buy with that money) of the account grows slower than the economy.
Meaning each year you can actually buy less with the money you keep in a bank account. This is why retirement accounts are typically tied to the stock market, to try to tie their growth more to the economy.
Most of the video applies to a Millennial and younger audience. These generations got screwed on the necessary components for compounding to work. Forced to pay for exponentially more expensive education than generations prior put them deep into debt right out of the gate. Further, they entered the workforce during the Great Recession which forever put them 10 to 15 years behind in earning power. Lastly, saddled with the two other things, it prevented many from buying homes which appreciate in value.
In short, the younger generations got totally screwed. The compound interest promise still works for X-ers and above.
I agree with the very ending premise: We need to massively tax the ultrawealthy.
It takes money to make money and I ain’t ever had the money needed to make more.
That’s because what it takes is time, a resource we are all limited on. The only way to accelerate it is to have a head start like already being rich or having money seeded from family or have enough spare income early on to front load it for growth. Instead, most start with nothing, make the least when we’re young, often not being able to even start saving and accruing interest until we’re older, and when we make the most money is near our retirement when that money has the least amount of time to accrue interest before we start eating into it to live off of. If you front load it with a lot of money you could line just off interest alone.
No amount of time will make you wealthy through compound interest with the current economic system.
While your money does grow in a savings account, the rate of growth is lower than the economy or real value of the money.
Just think about what a million dollars could have bought you in the 80s vs 00s vs now.
Yes your interest does also need to outpace inflation. Not seen a savings account that pays interest of anything like that right now. Nothing low risk is keeping up with inflation.
That’s the thing, interest rates are almost always less than inflation. The only reason they flip is because inflation needs to be brought down.
The reason for this is that the government/economic model is designed to encourage spending. Holding money is effectively lost “opportunity” so the real value of the dollar is always pushed down.
That’s because what it takes is time, a resource we are all limited on.
And patience, a quality most people lack.
There’s not enough patience in the world to make compound interest work for someone who lacks the expendable income upfront
You’re not wrong.
But there’s also definitely not enough patience on the part of people who do either.
Systemic failures aren’t character flaws.
Go knit that on a pillow, friend.
It’s not an argument. It’s a platitude.
It’s a statement of fact, you’re just butthurt because it’s a fact that completely destroys your delusional bootstraps bullshit
I don’t want to watch the 20 minute video but yeah, I started 30 years ago when it was possible to pay rent and put aside a little. I’m no longer putting any aside, my $75k a year job just keeps the lights on now
Millionaire doesn’t even feel very rich these days. I can’t retire right now but I’m worth a million bucks
Could you elaborate on that? At $1 million, that would be your yearly salary for over 13 years. At 5% yearly interest (from something like Discover) would generate $50k/yr. Why would you not be able to retire?
Kids.
Plus, $350k is just equity in my house
Could you elaborate on that? At $1 million, that would be your yearly salary for over 13 years. At 5% yearly interest (from something like Discover) would generate $50k/yr. Why would you not be able to retire?
I’m not the poster you’re responding to, but I’ve know the same math they used.
- Here’s the flaws in that argument. 5% interest is possible today in some money market accounts, but there was about a 17 year gap between now and the last time it was 5% was in 2007. These interest rates have a high correlation to Treasury Bills. So you can’t count on getting that 5% on the regular over the 40 years of your working life. Here’s a graph of the T-Bills yields over time.
- Even if you could, inflation will eat away at the value of your money especially over decades. So while $50k/year sounds like a decent amount of income in retirement, you’ll need substantially more money to maintain the same buying power. Example:
“$50,000 in 1995 is equivalent in purchasing power to about $104,222.77 today, an increase of $54,222.77 over 30 years. The dollar had an average inflation rate of 2.48% per year between 1995 and today, producing a cumulative price increase of 108.45%.” source
And that example is only over 30 years.
That poster is right. Being a millionaire these days doesn’t feel rich. This is especially true with the current administration attacking the social safety net with new restrictions on Medicaid and now Social Security is in his crosshairs. Lots and LOTS of us are going to be totally screwed in retirement. Even those that have enough for themselves and their immediate family are likely going to be sharing that with a close circle of extended family or friends to keep them out of starvation and exposure to the elements from poverty. None of us except the ultra wealthy are going to have a safe and happy retirement.
Yes that’s the last 30 years though. I’m not talking about past profits, I’m talking about the future. They seem to currently have enough money to secure at least a decade of spending even before taking interest into account.
Just don’t live longer than a decade, don’t experience inflation, and don’t grow old and infirmed.
I feel like I’m not being clear then: that’s ONLY taking into account the potential interest earned? Touching the principal, you’d be able to go for much longer. This is coming from a place of ignorance and envy as as American with no prospect of being able to save $1 million, ever.
I have not gotten anywhere near 5% interest the last 15 years. Best I did was around 3% and there have even been years with negative interest
I have received 5% at least the last few years, but even disregarding the last I’m talking about future spending.
I need compounds for there to be interest.
Gary’s Economics is an incredible channel
