Financial Literacy

You’re On Your Own?

Years ago, I got to know a White House economist who categorized all economic policies as either YOYO or WITT.

He favored WITT – We’re In This Together – policies. But he feared that the economy was becoming more YOYO – You’re On Your Own.

He was right. The economy has trended YOYO in recent decades. And it seems that larger forces beyond simple left-right politics are behind that. (It has real consequences for us as investors too – more on that later.)

In fact, this YOYO trend is occurring in advanced economies worldwide, from the U.S. to Europe, Japan and Australia, among others, according to a recent study by the McKinsey Global Institute.

The study claims that the “social contract” in all of these wealthy nations has changed dramatically in recent decades. That’s the pact we individuals make with institutions like our employers and the government. We agree to adopt certain codes of behavior and renounce certain freedoms (such as the freedom to murder and plunder). In return, these institutions agree to protect us and promote our well-being.

But the social contract is not eternal or written in stone. It has changed dramatically through human history. Think of Roosevelt’s New Deal in the 1930s, which established Social Security to keep the elderly out of poverty, or Johnson’s Great Society in the 1960s, which added healthcare programs for the poor and the elderly. Those were definitely WITT policies.

In recent years, however, things have mostly gone the other way. Here are a few major YOYO changes.

You’re no longer guaranteed a full-time job with benefits or a pension.

The relationship between companies and their employees is dramatically different today. Each year, the number of “independent” workers rises. Today, around 28% of workers in wealthy countries (some 180 million people) have nontraditional work arrangements, and more than a third of independent workers in the U.S. are 55 or older. In fact, the very low level of unemployment we’ve achieved today is largely due to the growth in part-time employment.

We now even have a household term for this: the gig economy. Workers in this economy are self-employed, often as freelancers or contractors – positions that come without paid holidays, vacations, retirement plans, career training or other benefits.

And company pensions? They’re a relic of the past. Only 13% of private-sector workers today have pension plans, down from 38% in 1980 and 50% in 1960.

So saving for retirement is now entirely up to you, not your company. Your employer might help a bit via a 401(k) match, but only if you’re a full-time employee.

You can’t count on being more prosperous than your parents.

It used to be a tacit promise in America that if you worked hard and played by the rules (i.e., adhered to your side of the social contract), you would become more prosperous than the previous generation. Nine in 10 people born in 1940 had higher incomes than their parents.

Today, only about half of those born in 1980 make more than their parents did at a similar age.

Part of this is due to weak wage growth over the past four decades – wages rose just 12% between 1979 and 2018 for middle-income workers, adjusted for inflation.

Several factors have contributed to that sluggish income growth. Globalization has exposed workers to competition from cheaper labor in low-income countries. New technologies have automated many jobs, reducing the demand for some kinds of skilled labor, especially in manufacturing. The portion of workers in labor unions, which at one time secured better pay and benefits for a large portion of American workers, has declined dramatically. And low productivity growth and economic growth have also slowed wage gains.

The government will do less to support you in retirement.

Unfortunately, it has to do less. Longer life spans mean people spend more time in retirement – about 20 years now. That’s up from 16 years in 1980, and rising.

And there are fewer workers every year to support retirees. In 1960, there were 5.1 workers paying into Social Security for every one collecting benefits. Today there are only 2.8 workers per beneficiary, and that number continues to fall.

The average Social Security benefit today is about $1,475 per month, or $17,700 per year. That’s just above the federal poverty level of $13,000 per year.

While I don’t expect Social Security to go bankrupt, I do expect benefits will be trimmed as the baby boomer generation continues to put pressure on the system.

What Does It Mean for Investors?

Clearly, the onus is now on individuals and families to build wealth and save for retirement.

Luckily, there’s a way to do just that. That’s being an owner of a company, not just an employee. And you do that by investing in the stock market.

In fact, Fidelity Investments just announced that the number of people with $1 million in their retirement accounts reached a record last quarter due to the roaring bull market, which Bloomberg News says is minting retirement millionaires.

“Research has proven that if you want to grow your wealth, you need to own stocks,” Chief Investment Expert Alexander Green wrote recently.

Today that’s easier than ever. It takes just a few minutes to open an account with Robinhood, Square’s Cash App or one of the other free trading apps.

Combine that with Investment U’s market analysis, and YOYO becomes a lot less concerning.

Enjoy your day,



Matt has worked as an editorial consultant to the International Monetary Fund, the World Bank, the Economist Intelligence Unit and other global macro-institutions. He wrote about markets and economics for U.S. News & World ReportBloomberg News and Investor’s Business Daily, among other publications. He also worked for several years as head of political economy for a Financial Times-owned macroeconomic consulting firm, advising hedge funds around the world. Matt’s claim to fame is that he’s interviewed two U.S. presidents and has spoken with five Federal Reserve Chairs from Paul Volcker through Jerome Powell. Matt also served as The Oxford Club’s Editorial Director for two years.

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