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become a confident investor. Hey, guys. It's Chelsea from
The Financial Diet. In this week, we are
talking about a subject that I think is incredibly
important to address when it comes to giving and
receiving financial advice, especially for people in
my generation, millennials, or even you younger Gen Zs. You scare me a little, but
I got to look out for you. Generally speaking, the kind
of advice that most of us grew up listening to
and comparing our lives and progress against are,
frankly, completely outdated. Often, we're talking
about receiving advice from our parents, many of
whom might have grown up as part of the baby
boomer generation, and who came of
age in a completely different economic world with
totally different opportunities and who, in many ways, feel that
these same opportunities should be just as accessible
to us, and therefore, just as achieved by
us, even if that's totally not true in practice. And it is because
we are being held to these standards of a world
which no longer exists that we are constantly drowning
in all of that rhetoric around young people just
being bad with money because we love spending
money on pronoun lattes and buying
participation trophies. The entire concept
of adulting even is all about fitting
into this lifestyle which is no longer really
achievable economically for most young people. So it's important that
we remind ourselves that we are not somehow
magically lazier or less productive or less conscientious
than previous generations. In fact, it's
often the opposite. It is simply that we
are playing a game where the rules have changed, but
the goals are still the same. So here, without
further ado, are six pieces of common
financial advice that are completely outdated. Number one, "college is the
ticket to a well-paying job." No, it isn't. Over the past 30 years, getting
a four-year degree, or even more than that, has gone
from a pretty solid decision for individuals who are looking
to open their career prospects and even ascend in class
status to, in many cases, a fairly predatory
institution that leaves young people in debt with
vanishingly small opportunities for a lucrative
enough employment to justify all the
money they took out. Because for students at
private universities, the yearly cost has ballooned to
an average of $51,690 per year. In 1971, by contrast,
this was $2,930 per year. This means that the average
cost of going to college has increased by as much
as 2,700% in some cases, or about 4.6 times
the rate of inflation during the last 50 years. Now, you have probably heard
some boomers in your life talk about how they paid
their way through college while sweeping the floors
at the hard work factory. And the thing is, that is likely
true if they're saying it, because that was economically
possible at the time. College was priced in a
way that most people could afford to actually pay
for it themselves, pay for their children, or work
while going to school in order to offset the cost. But with these
ballooning college costs, the average person seeking
even a bachelor's degree is left with mountains of debt
because the price of college is no longer even
remotely pegged to a price point at which the
average person could expect to be able to pay
for it out of pocket or work their way through it. And this is coupled
with the fact that the value of the
actual degree itself has vastly declined,
as we've seen in saturation in degree holders
competing for entry-level jobs. It's not uncommon to
see entry-level or even minimum-wage jobs now
requiring master's degrees, and this simply was not the
case in previous generations-- but more on that in a minute-- and this has made it so
that the actual value of a degree itself, in terms
of what it promises in the job market, especially when compared
to the chaotic amount of debt that it necessitates,
has plummeted to where it can no
longer be considered a universal golden ticket to
a different economic class. According to entrepreneur.com,
a college degree isn't the steppingstone
it once was to a better job and a better life. In fact, studies show
that while less than 20% of college graduates
leave campus with a job, a staggering 80%
leave buried in debt. And yet, every spring,
18-year-olds around the country are being fed the narrative
by basically every authority figure in their lives
that a four-year degree is the primary, if not the only,
ticket to the kind of life they're probably dreaming
of, or even just, honestly, basic
financial stability. And with schools increasingly
seeing the enormous profit that can be made by giving students
the college experience, basically, everyone encouraging
high school graduates to go to college
is either operating on outdated information
or they're actively preying on the fact that the
average 18-year-old does not know that it is sound financial
decision making to take out a mortgage worth
of debt in order to drink grain alcohol
in a basement with some of their friends. But where these
students are not wrong is that it has become
basically a necessity to have a degree in order to
just enter the job market. With all of the
inflation of degrees happening, even having a
bachelor's degree sometimes is not sufficient. So even if paying
through the nose to have that campus experience,
especially all four years rather than starting
at a community college, is, in many cases,
unquestionably a bad financial idea. The idea that now we can just
reject college and still expect the same job prospects
is pretty naive as well. We've basically locked
ourselves into a situation where young people are forced into a
bad economic prospect in order to have a fighting chance at
a job that doesn't pay them enough, which brings me to my
next terrible piece of advice, which is to "get in at the
ground floor of a company and work your way up." So the idea used to be that you
would throw your high school graduation cap in the air and
then, still wearing your gown, you would walk across the street
into an advertising agency and you'd be like, I would
pay to sweep the floors here. And they're like,
well, here's a broom. And you start sweeping. And then 30 years
later, you are the CEO of that advertising firm. And as crazy as it sounds, that
kind of a career trajectory wasn't all that uncommon. Obviously, it's an
exaggeration, but it used to be not at all the norm
to require four-year degrees for every job. Actual training on
the job, as opposed to these unpaid internships
or expecting people to already magically have all the training
as they enter the workforce, was the norm. It was considered a part
of your career development to learn on the job. In fact, things like
unpaid internships have skyrocketed in
the past few decades when companies realized it was
a lot more profitable to make people pay you to get
job experience rather than you paying them for doing
the job at an early level. But basically, now it is
impossible to get these entry level jobs without
this prior experience that you basically can only get
through exploitative, unpaid internships. And even many of
those jobs will only pay minimum wage, which
we'll get to in a minute. But even if you're
able to get your foot in the door at an
organization, the idea that you can stay at
a company for decades and be handsomely rewarded
is completely false now. And believing that that's
how you should still be thinking about your career
is likely actively hurting your earning potential. Basically, for most
people, in order to realize larger raises,
increases in compensation, and promotions,
you're going to have to move to other organizations. And especially, if you followed
this get-in-on-the-ground-floor advice and started at a company
at an entry-level position and are still working
there many years later, it's likely that you're earning
well behind what you actually should be earning based
on industry averages. Because the raises that
you've gotten over the years have been based on that very
low, initial starting salary. So even a 10% raise
is still pretty small in the scale of things. Now, at the end of the
day, sometimes there are excellent companies
that still provide things like great pensions
or who actually do promote you and increase
your comp in a way that's commensurate with what you
would be getting elsewhere in the industry, but
the idea that this is how people should
approach their careers or that it's realistic
anymore to think that you can start by sweeping
the floors and end up the CEO and never have to get any
kind of formal training outside the job to do so is
just simply no longer a thing. But speaking of entry-level
jobs, many of which paying minimum wage, one of the
other terrible pieces of advice is "no one is above working
a minimum wage job." Now, if there is one thing
boomers love to talk about, it's how everyone should
take a minimum wage job "flipping
burgers--" I don't know how many people in this country
we need to be flipping burgers, but that is what
everyone is apparently supposed to do at some point. Because it builds character
and, more importantly, nobody is above those
minimum wage jobs, and you shouldn't be looking
down your nose at them. And the fact that young
people do and are quitting these exploitative
jobs en masse is just a sign of our decadence
and self-indulgence. But here's the thing,
the idea that no one is above a minimum wage
job is actually completely the opposite of true,
because everyone is above a minimum wage job,
because minimum wage jobs don't pay enough for people to live. In fact, the federal minimum
wage in the United States is currently $7.25. This is meant to
be a living wage, but it isn't the
case in practice. The hourly rate hasn't
kept up with the cost of living since the late 1960s. Back in 1933, five years before
the minimum wage became law, then-President Franklin
Delano Roosevelt said "by living
wages, I mean more than a bare subsistence level. I mean the wages of
a decent living." And the first US minimum
wage was implemented in 1938 as part of the Fair
Labor Standards Act. Today, full-time employees
earning the federal minimum annually pocket
just $15,080 if they work 40 hours each of
the 52 weeks in a year, placing them well below the
$18,310 poverty line in 2022 for families of two. And minimum wage earners
with families of four fall $12,670 below the
poverty line of $27,750. In fact, in almost every
state in the country, there is nowhere that you can
work a full-time, minimum wage job and be able to afford
a two-bedroom apartment. So the entire idea
of a minimum wage, the idea that it is
a minimum wage that allows you to have a
decent standard of living, is totally false. This is no longer the wage
that we're talking about. What we're talking
about in practice is poverty wages,
wages that guarantee that the person earning
them, even if they work full time every single
week of the year, which is what these bootstraps
boomers want you to be doing, will not be able to get by. They will be under
the poverty line. So the entire game has
shifted from saying, OK, this is your starting
wage that will set you up in life and from
which you will build, to this is a wage that
will prevent you from even being able to live normally. But again, depending on how
old these people are, back when they were working
a minimum wage job, it may well have been
enough to support them in a basic quality of living,
because the minimum wage was pegged to the cost
of living up until, again, about the late 1960s. So if you are being faced
with job prospects that expect exchanging 40 hours a
week of your life for being guaranteed to live
in poverty, you are not a bad or selfish
person for saying F that noise. But back in the day on that
sweet, sweet minimum wage, they were doing things like
buying starter homes, which is a concept that sounds
incredibly foreign to most people my age and younger,
but is still very much heard in that time-honored
advice of "you should buy a starter
home as soon as you can." So here's the thing. The idea of a young,
idealistic couple getting themselves
a teeny little Cape Cod or a ranch-style home
in a nice little suburb and fixing it up over the years
while wearing overalls and then finding out they can't
have kids but then having a life of adventure
anyway until the woman passes away and then the husband
has their last big adventure solo with a small boy scout
and a large tropical bird named Kevin, is just
no longer possible. In fact, the idea of
starter homes as a concept has largely been decimated
for much of the population for a few key reasons. One, stagnant wages are
largely insufficient to enter most real estate markets. Two, home prices have been
increasing, often well outpacing inflation. And three, a general
refusal of cities to build more high-density,
affordable housing to expand the housing stock. And the bigger problem,
which really speaks to the most inherent
internally inconsistent, winner-take-all,
zero-sum principles that underlie so much of this
boomer financial advice since, I guess,
maybe the Reagan era, is the very idea
that these homes are supposed to be these
insanely good investments. So let's unpack that. The idea that homes are
always these incredibly good investments because
you're always able to find new people to
buy in at a much higher price, which is something that
is currently underpinning a massive amount of
boomer retirements right now, either through
sizable home equity or selling primary residences
in the seven figures which they bought for $0.25 when
Nixon was president, could not, in theory, just scale forever. Because basically,
in order to keep finding a ton of
people who will buy your home for a ton of money and
making sure to keep the housing stock as low as
possible in order to keep said value
of your home high, you create a zero-sum game,
and/or a situation in which the new owner is then
required to pass that cost off exponentially to the
next buyer in order to make their
investment pay off, I guess until all
homes cost $1 billion. But at the end of the day,
boomer financial security depends on houses being
expensive as hell. But the millennial
and Gen Z ability to participate in the real
estate market and get those, quote unquote,
"starter homes" depends on these homes being
not expensive as hell, or having a lot more homes
built which will end up with the same effect. Homes should generally
build equity over time and be some part of a healthy
financial life for people, but they can't be these
magic bullets that are increasing
astronomically in price while simultaneously refusing
to build more homes that would allow younger and
lower earning people to enter the housing market. You can't have both, at least
not in most major housing markets across the country. In any case, if you
are feeling like you're a bit behind where you would
want to be when buying a home, trust that it is
likely not because you like buying lattes too much. Number five, as a
child-free queen, is definitely one
of my favorites, and that's "if you want
kids, you should have them." Now again, this is
personally not my journey. And there are, I won't
lie, many benefits to being one of those dual
income, no kids couples. But outside of
people like myself, there is a massive phenomenon in
my generation and that below me of people who want to have kids
and very truly cannot afford them or people who feel that
it's not even an option that they should bother considering
because it's such a luxury to have kids today. And part of this
is, yes, once again, that that ding-dang
wage hasn't caught up with that ding-dang
cost of living. But it's also because
what used to be the foundation of
domestic proliferation, where only one partner
was working full time outside of the home while
the other partner was largely taking on child care
responsibilities, is just basically no longer
possible for many families. And here's the even cooler part,
we've basically all but forced women to join the
workforce, even and actually especially when
they have children, but then once we're there,
we make it as bad as possible for them. As one article in the
Huffington Post put it, "having a kid can boost
a father's earning power, while it takes away
some of the mom's. Women lose 4% of hourly
earnings on average for each child they have,
while men earn 6% more. This gap in earnings
persisted even after controlling for
factors like family structure or family-friendly
job characteristics." Also worth noting
that in this article, it points out that women are
punished in the workplace when they are perceived
as prioritizing work over their family,
and they're also punished in the
workplace when they're perceived as prioritizing
family over work. And an interesting fact for
me, and by interesting, I mean depressing,
is that apparently some of these discriminatory
hiring and pay practices even apply to women
of childbearing age who don't plan on
having children, because the company
thinks you're going to change your mind and
it's going to cost them money. This is why I'll never,
ever work for a man. And let's not forget, we're
literally the only developed country in the
world that doesn't have a federally mandated
minimum maternity leave, so let's start there. The point being, even for
many people, especially many women who would want
to have children, the idea that they just should do it
or even really could do it is incredibly naive
and goes against what is the actual experience,
financial and professional, that those women are basically
going to be conscripting themselves to. Having a big family
has gone from being a foundation of our economic
model to a luxury item. We did it. And lastly, perhaps
the most outdated piece of advice of them all,
"if you work hard, you'll be able to retire." You absolutely won't. Not just from working
hard, you won't. The idea that being a
really good little worker bee for many decades will leave
you with the kind of retirement where you get a nice party at
an upscale chain restaurant and then you move to a
planned community on a golf course in Florida where you
spend the next 20 years getting radicalized by Facebook, is just
not possible for most people anymore. We live in a time of
dwindling pensions, insufficient social security,
and rising costs of living which all but
guarantee that in order to set up a solid retirement,
everyone is basically out there Mad Max Beyond
Thunderdome-ing it by managing their own investments. Now, the good news here is that
setting up retirement accounts, contributing to them
regularly, and knowing what you need to save
in order to get there is actually not
difficult at all. It just sounds hard. And if you're
looking to learn more about how to invest,
especially for retirement, we're doing an awesome
workshop very soon about that very subject. More info on that
in the description. But it is going to be up to
you to manage this largely, and it is going to be totally
outside of how good or bad you happen to be at your job. Figuring out how much
you need to retire and figuring out
the best way to get there is going to be
something that you have to take the responsibility for. Do I think that this is right
or a good system in which we all should be living? No, I don't. But I also think that the
advice that you should just focus on working really
well and then retirement will sort itself out
is what is leading to increasingly high
numbers of seniors forced to take on work well
into what should have been their retirement age. Anyway, that was all a bummer. We've sacrificed a lot in
terms of economic stability and social safety net
these past decades, but you can spend hundreds
of thousands of dollars to get a link to a receipt
to an ugly picture of an ape, so who can really say
which is better or worse? As always, guys, don't
listen to that bad, outdated financial advice. And thank you for watching. And don't forget to hit the
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