Here’s another reason the Rich keep getting Richer

At a time when we keep reading that Australian’s are the richest people in the world, it seems that the rich are getting richer.

Now one of the reasons  the rich keep getting richer is because they don’t only depend upon the incomes but they own assets like real estate.

Another is that they have learned to save compared to the average Australian  who has difficulty saving.

Now would be fair to say that it is easier for the rich to save because they have more money, but it’s not as simple as that.

The maths of wealth is simple.

There is income (the money you make), savings (the money you don’t spend), and returns (the growth in value of the money you save).

The problem facing the bottom 90 percent—not the rich, but the “rest”—isn’t merely that they’re making less money than they used to, but also that they are saving virtually, none of it.

While I don’t have the statistics for Australia,  an article in The Atlantic  explains the situation  in America –

Wealth inequality has spiraled out of control for two reasons—middle-class Americans aren’t making enough money and they’re saving virtually none of it.

There are some interesting lessons in this article, so please read on:

In the last 30 years, the savings rate of “the rest” has fallen from 6 percent to negative-4 percent. It now hovers a whisker away from zero.

The rich are different.

They save.

And the really rich really save, even more than they used to, according to a new paper  from economists Gabriel Zucman and Emmanuel Saez.

Saving Money: Rich People Do It

Saez/Zucman

As you can see, thanks to a century of making more, saving more, and passing along the inheritance, the picture of wealth inequality in America today makes old-fashioned income inequality look like a socialist’s dreamscape.

Wealth in the USA in 2012

Saez/Zucman

It didn’t have to be this way.

Even with stagnating incomes, the rest could have done a better job building and keeping wealth.

If the bottom 90 percent had continued to save 3 percent of its income over the 1986-2012 period, its share of US wealth would be a third higher than it is today.

It must be said that, over this same period, interest rates fell dramatically, depressing the returns of ordinary savings accounts.

The bottom line:  being wealthy starts with not spending money.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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