Tax Code Keeps Young Americans From Accumulating Wealth
The earlier a person start investing, the more wealth can be accumulate over a lifetime.
But younger Americans are not investing as much as they used to, and payroll taxes for Social Security and Medicare are a large part of the reason why they are not able to get on the path to accumulating wealth in their earning years.
Just 7% of households headed by Americans under 35 anni directly own stock, according to the Fed. That is a pittance compared to the 30% level prevailing when the survey was first conducted in Y 1963.
The biggest problem for young workers is that the government intercepts more than 12% of their paychecks through the Federal Insurance Contributions Act (FICA) payroll tax.”
After paying these taxes, many worker do not have much disposable income left to invest after paying for the necessities. Worse, the young get no rate of return on that money because the government spends it when it gets it. No wealth accumulation there.
On the investment front
Behavioral economists argue that investors are naturally irrational, but can be cured of that irrationality, initially offered hope, but no more.
At first around 2002, when behavioral economics took hold, people assumed humans can change, that they can still educate themselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become less irrational, not happening.
Since then, behavioral economists have been capitalizing on their newfound power to get personally richer, getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians.
Ask investors what they want from their investments, and most will say they want profits, but it probably is not true.
Inside all of us are wants we do not always express or often even are aware of. When people make decisions about money, they are often looking to satisfy those hidden emotional desires instead of doing what we say we’re doing; seeking out the best return possible.
But not being aware of these hidden wants can lead people make potentially devastating errors that can hurt us both emotionally and financially.
For instance: some may trade stocks constantly, and lose money in the process.
The Big Q: Why?
The Big A: because it feels fun, more like a game than sober financial planning.
On the other hand, people may refuse to take sensible risks to get a better return because they fear ending up poor. Or people avoid selling stocks that have plummeted in value because we want to keep alive the hope that they will rebound, and we do not want to admit defeat.
Trade in Global Markets with the World’s Leading Platform Open an account here , call us at 305 490 4116, or email us to get started.
It is important, therefore, to recognize and acknowledge our hidden desires. Doing so can help make better choices and ultimately achieve the goals we really need to accumulate wealth, build to and live the American Dream.
The task of planning the sequence of saving and spending over a lifetimes is daunting.
Spending temptations are all around us, from necessities such as food and shelter to luxuries such as iPads, expensive automobiles and fancy vacations. People feel good when they spend money, satisfying our immediate wants of utilitarian, expressive and emotional benefits.
But lack of self-control in the face of today’s spending wants might mislead us into spending errors, as we let today’s wants overwhelm tomorrow’s needs, leaving destitution for old age.
None of this is surprising, it is the story of so many people today who find themselves unable to afford the retirement they hoped for, or any retirement at all.
But as obvious as it is, many people do not understand the emotional wants that trap them, and keep them from accumulating wealth.
Some mechanisms are available to help keep people on the straight and narrow. Payroll deductions to defined-contribution retirement savings plans such as 401(k)s aid self-control during our working years. People need not fight spending temptation since they never have the money in hand. And the prospect of penalties boosts self-control when tempted to withdraw money from our accounts before the age of 59.5.
Careful mental accounting is needed to bolster the self-control necessary to resist spending, promote savings during working years and control spending in retirement so not to run out of money before running out of life.
With mental accounting, people place wages, dividends and interest in interest mental accounts and distinguish them from capital mental accounts that contain the stocks and bonds.
The method is to spend income, but not the capital, and accumulate wealth.
Stay tuned…
HeffX-LTN
Paul Ebeling
The post Tax Code Keeps Young Americans From Accumulating Wealth appeared first on Live Trading News.