More on “income inequality” and financial planning

Posted on October 17, 2022 by Dr. David Edward Marcinko MBA MEd CMP™

“The rich get richer and the poor get poorer”

By Rick Kahler CFP®

One of the pillars of my profession of financial planning and counseling is to help people get richer. For many people, this statement might evoke the idea of “income inequality” as summed up by the phrase “the rich get richer and the poor get poorer.” This is a common money script around a topic that evokes a lot of difficult emotion.

Of course, there are people who have wealth that tends to increase over time. This includes some who inherit vast wealth and others who achieve wealth through business ownership or creative successes. It also includes those who live on less than they make, invest the difference, and make sound investment decisions with the money they have saved.

Goals of financial planning

Regardless of the economic class people start out in, one of the goals of financial planning is to help them expand their lifestyles—in in other words, to get richer. We help them build wealth so they can afford to send their children to college, or can take care of themselves in old age, or can someday not have to work for an income. We help the poor to become middle class, the middle class to become affluent, the affluent to become rich, and the rich to become richer.

When I frame “the rich getting richer” in that manner, people typically respond, “I never thought of it that way.” It contradicts the popular interpretation that the way the rich get richer is by taking from the poor, hence “the poor get poorer.”

Certainly it’s true that some rich people and companies do exploit the poor or try to influence legislation in their own interests. The artificially high prices they charge can be one factor in causing the poor to get poorer. Examples of this might include the secondary educational system as well as industries where excessive regulations limit competition.

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Reasons

However, just as most of the rich don’t get richer by exploiting the poor, most of the poor don’t get poorer by being exploited by the rich. Some get poorer because they lack education or don’t know how to access help. Some get poorer by events out of their control, such as job layoffs, serious illnesses, or cultural, racial, or sexual discrimination. There are many reasons.

Some get poorer through choosing careers with little future, not taking care of their health, or making poor money decisions such as financially enabling children. Others are caught up in destructive behaviors like addictions or compulsive gambling. A few even choose poverty for religious or philosophical reasons.

Complex

As with many things, income inequality is complex.

For example, some people choose to take large risks that could result in their becoming very rich or very poor.

Others choose the security of a steady paycheck. There could ultimately be a huge wealth gap between the entrepreneur who hits it big and the more conservative person who wants to play it safe. Does that mean the gap is inherently bad, or that the risk-taker doesn’t deserve the rewards of success?

Certainly, the risk-taker could have ended up far worse than the person who played it safe. Does that make one right and the other wrong? I don’t believe so.

Assessment

Just as with other money scripts, “the rich get richer and the poor get poorer” is true in some circumstances. At other times, the truth can be that “the rich get poorer and the poor get richer.” It can also be true (think of the 2008 economic crash) that “the rich get poorer and the poor get poorer.” And the final truth—one that financial planners work toward—is to help “the rich get richer and the poor get richer.”

Conclusion

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“What’s wrong with income inequality?”

Posted on March 29, 2017 by Dr. David Edward Marcinko MBA MEd CMP™

“What’s wrong with income inequality?”

By Rick Kahler MS CFP®,

Do you think there’s nothing emotional about money?

If so, I dare you to stand up in a town hall meeting anywhere in the US and ask, “What’s wrong with income inequality?” There is a high probability that the responses that follow may have some emotion.

Emotional

Make no mistake, money is highly emotional. That emotion isn’t about the inanimate object, the pieces of printed paper that we carry in our wallets. It’s what we project onto money that makes it intensely emotional. And usually what we project isn’t about the money at all.

Consider, for example, envy and jealousy. On the surface, these emotions seem to signify we are not grateful for what we have and that the cure is to focus on what we do have. There’s an element of truth to that, but telling yourself to stop being jealous and instead be grateful probably doesn’t work for long. If you are like most of us, the jealousy is soon back.

The reason is that envy and jealousy are not about what we have, but rather about what we don’t have or we fear losing. Underneath envy is fear that I won’t get something I desire which is enjoyed by another. Suppose I am envious of a friend who lives in a bigger house. Underlying that is fear, perhaps a fear that I am failing my family by not providing enough space for them to live comfortably.

Underneath jealousy is also fear, but this fear is often masked by anger that someone else is getting something that is rightfully yours. I may be jealous of a coworker because they got a job promotion that I felt I deserved. Underlying my resentment of my coworker’s success is fear that my contributions to the company are not valued and that my job isn’t secure.

Similarly, I may feel jealous of someone who earns much more than I do. I may be resentful that they enjoy privileges, a lifestyle, or security that I rightfully deserve. Or I may believe that the money they have accumulated was wrongfully taken from others and that if they continue to accumulate wealth, mine may be next. I may fear for my very survival.

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The  “one-percenters”

Such fears may drive a good portion of the anger toward the so-called “one-percenters.” If my physical and emotional needs are satisfied and I am happy with my life, do I care if someone else has more? Probably not.

But if my physical needs are not met, I am unhappy, and I feel that the money I am entitled to has been taken from me by those that have money, I care a lot. In fact, I can be rage-ful and jealous.

According to a January 17. 2017 article by Amanda Hirsh at unstuck.com, envy and jealousy can be a gift, a trailhead of sorts that can lead us to an unconscious fear. Once we uncover the fear we can often take concrete steps to resolve it, rather than wasting precious energy being stuck in anger and rage toward others.

Hirsh suggests that, the next time you feel yourself becoming envious or jealous, you consider it an opportunity to ask yourself three questions:

  1. What am I afraid of?
  2. What do I really want?
  3. Why do I want that?

Assessment

These are not easy questions to answer. It may be best not to consider them when you are already triggered and consumed by the emotion, but to wait until you are calmer and in a more reflective place. Then the answers may help you move past the jealousy and shift your focus to your own options.

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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On Income Inequality

Posted on February 10, 2016 by Dr. David Edward Marcinko MBA MEd CMP™

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A Passionate Discussion

Rick Kahler MS CFP

By Rick Kahler MS CFP®

Income inequality is a topic of passionate discussion today in many of the circles I move in. The discussion typically starts with a foregone conclusion that income inequality is a huge problem in the US. Some solutions I hear include increasing the top income tax bracket to 90%, initiating an annual wealth tax, or increasing the estate tax to 100%.

While leveling the playing field will certainly solve income inequality, it won’t solve the real problem. When I say that, I often get stares of bewilderment and disdain. It isn’t unusual for people to slowly distance themselves as if I had shapeshifted into Donald Trump.

How bad is it?

First, how bad is income inequality in the US? It’s certainly no worse today than it’s been in the last 80 years. The CIA World Factbook 2015 Gini Index, a rating where 0 is equal income and 100 is completely unequal income, finds the US rates a 45.0, exactly what it was in 1929. That puts us in 38th place, slightly above the global median, which is 39.4. The worst 30 countries have ratings of 46.8 to 63.2.

Regardless of the fact that it has not increased over the last 80 years, what is the real problem with income inequality? A common assumption is that it has created an America where most people don’t have enough to afford a minimal quality of life.

But is that true?

In a column from October 2015, George Will cites a new book, On Equality, by Harry G. Frankfurt, a Princeton emeritus professor of philosophy. Frankfurt drives home a main contention that economic inequality is not inherently morally objectionable and that “doing worse than others does not entail doing badly.” His alternative to economic egalitarianism is the “doctrine of sufficiency,” which is that the moral imperative should be that everyone have enough.

Now, consider this

If you are a US citizen with an income of over $32,400, you are in the world’s top 1%. Globally, you are considered “rich.” Indeed, the poorest 1% of US citizens have more wealth than two-thirds of the world’s people. Clearly, income inequality in the US doesn’t inherently mean everyone in society doesn’t have enough. This would suggest that complaints about US income inequality may be in response to something other than having enough.

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Perhaps the real problem is more of a “discontent of those who are comfortable but envious,” as George Will suggests. Consider this: to be in the top 1% in income in the US you need to earn over $380,000 a year. Someone earning $32,400 a year, even though they are in the global top 1%, may easily lose that perspective when viewing someone earning over $380,000. The comparison could foster discontent by stirring up feelings of envy, jealousy, unworthiness, shame, and guilt. Rather than taking responsibility for and exploring these difficult emotions, instead we often shove them deep within and demonize others.

Will suggests that the biggest underlying producer of income inequality is freedom. Freedom includes the power to choose careers, such as opting to be a teacher rather than an engineer with full knowledge that teachers generally earn substantially less than engineers. The economic and non-economic benefits of each profession are dictated by market forces, rather than those in government deciding the winners and losers.

Assessment

Envy of the rich is almost timeless and universal. Properly reframed, it also can be motivating. Contrary to common perception, 85% of the top 1% did not inherit wealth but are first-generation millionaires or billionaires. Perhaps envy didn’t drive them to try to tear down what others had achieved. Instead, it motivated them to build their own success. 

Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Warren Buffet: Fighting Income Inequality with the EITC

Posted on September 1, 2015 by Dr. David Edward Marcinko MBA MEd CMP™

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By Prof. Chris House PhD
Ann Arbor Michigan

[Associate Professor of Economics at the University of Michigan]

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Orderstatistic

Warren Buffet’s article in the Wall Street Journal reminds me of some postsI wrotea while backon fighting income inequality. His article contains a lot of wisdom. Some excerpts:

The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.

He writes that an expansion of the minimum wage to 15 dollars per hour

would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty. […]  The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC).

I agree entirely and so would Milton Friedman.

Unlike the…

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