Rich Kids Learn Different Money Lessons Than the Rest of Us

The privileged class is different from the rest of us.

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In many ways, the privileged class is different from you and me.

Generational wealth allows them to enjoy many of the finer things in life that most of us could never dream of. You might like going fishing to relax, but your little dinghy, row boat or even 14 footer will pale in comparison to the yachts of the rich and famous.

Think of the difference in leg room when you fly economy class and what is experienced by those who own their own private jets. And don’t even get me started on the airport delays and wait times for us plebes, while the money class simply boards their sleek jets, asks the control tower for takeoff clearance and just goes, whooshing off to their destinations as if traffic jams never existed.

Let’s discuss a few actual money lessons they learn, shall we?

1. Working hard every day can only take you so far. Working for someone else, 40–60 hours a week, your earnings are limited.

2. There are only so many hours in a week. Working for an employer, wages have not kept pace with inflation over the past 40 years. That’s why, after all, there’s so much enmity and resentment floating around America these days.

It always helps to have generational wealth on your side. When generations before you have the wherewithal to send you to the best of schools, it opens pathways for career advancement and placement that is not available to most.

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Breaking Down Barriers

You can break through this barrier with a few well-defined strategies.

Firstly, you might build out a consultancy in the area of your expertise. Once your backlog or workload is too big to handle by yourself, hire employees. Train and supervise them.

Today, DOGE, headed by Elon Musk, is slashing civil service employment by the millions and shutting down entire government departments that were formerly funded by Congress. As a private business, to keep it growing, you want to do the opposite.

As your business grows, hire even more workers and hire additional supervisors to supervise your new hires.

Once the business grows sufficiently, you might sell it and use the proceeds to fund a long-deserved retirement, otherwise known as a permanent vacation.

For those not so inclined to build their own business, there’s another route that is accessible to almost anyone: Dividend-growth investing.

Dividend-Growth Investing

Saving and striving for a comfortable retirement is a choice, not for everyone, but certainly for the majority of workers.

A commitment to live off less than you make can be the start of this journey. Of course, this by itself will get you nowhere.

The crucial ingredient is to invest your saved dollars on a regular basis, the earlier the better.

And, if you invest those dollars in publicly traded companies that have proven to pay out consistently larger dividends over decades, you will have solved the inflation problem all by yourself.

Doing this on a consistent basis will allow your savings to compound by reinvesting those dividends that you earn to grow to an even larger amount.

Social Security on the Brink

Millions of plain folks have been worried, for decades, about the viability of Social Security and whether it will be there for them when it’s their turn to retire.

Elon Musk and others have described this most-loved social program and safety net as the biggest Ponzi scheme in history. Most economists and analysts, including yours truly, regard this idea as pure poppycock (I’m dating myself using such an expression).

Even people of my generation (70’s and older) were fearful in their 20’s that Social Security would go bust long before it was their turn to collect.

After all, since 1935, workers have been paying into the Social Security system out of their ongoing wages, and employers have matched these contributions, dollar for dollar.

In 1940, there were 42 workers per retiree, and by 1960, that ratio had dropped to 5.1 workers per beneficiary.

When the worker demographic outnumbered retirees 42 to 1, funding the Social Security system was a no-brainer. At 5 to 1, it was still easy to see how this funding mechanism worked. Five currently working employees (and their employers) contributed into the system on payday each week, and these contributions, otherwise known as FICA taxes were sufficient to pay out Social Security annuity-like payments on a monthly basis to a much smaller cohort of just one retiree.

As the population aged, the graying of America meant that more folks retiring each month had to be supported by only 4 employees to fund payments to each retiree.

Now, that number has shrunk to just 2.9. Today, approximately 2.9 workers support one Social Security retiree. This ratio is expected to decline further, with projections suggesting around 2 workers per retiree by 2030.

Congress could fix this problem simply but they have declined to act for decades. In years past, Congress raised the wage amount that was subject to FICA taxation and they also increased the FICA percentage applied toward those wages. Why Congress has failed to take necessary action before the program runs out of money needed to fund these benefits in full, by 2030, is a mystery. Perhaps they are seeking to starve the program since the Republicans who control Congress don’t much like the idea of the program at all. In fact, this has been their goal for decades.

Prepare for the Storm Ahead

This is why it is incumbent upon folks to prepare for the worst. Even today, DOGE is cutting thousands of Social Security employees, closing hundreds of Social Security field offices and terminating phone services for most callers.

Before this government upheaval, it was possible for people to apply for benefits and ask questions about future benefits on the phone. No more. DOGE has decided that this is part of the “waste, fraud and abuse” in the government they are so determined to eliminate.

Now, if you don’t own a computer, or don’t have a fast enough connection, or simply don’t know how to navigate the Social Security application system online, you’ll need to make an appointment with your closest field office and present yourself in person, with proof of your identity and citizenship.

Never mind that you’ll be on hold for 5 or six hours on the phone, just waiting to make that first appointment. And let’s not forget about the months you’ll have to wait to get that in-person appointment.

Oh, and how about all those disabled folks and people over 80 that need help? Many of them simply won’t be able to travel to present themselves at an office that may now be hundreds of miles away, meaning several hours spent in travel for millions who don’t even own a car.

This is why it is so important for us ordinary folks to start planning for a future in which Social Security benefits are not a given and no longer guaranteed. Taking full responsibility to fill the gap between retirement bills and available income becomes an imperative. And dividend-growth investing can fill that gap!

As your income continues to grow from dividends, you’ll experience less stress and tension associated with the viability and continued existence of the Social Security system.

Positive Reinforcement

Pavlov’s dogs were not the only creatures to demonstrate that positive reinforcement is effective. B.F. Skinner adapted those principles to his research and discovered that operant conditioning, especially on an intermittent basis, could be very effective in reinforcing behaviors that were seen as positive in their very nature.

That is why the very first dividend you receive is the first step on a long journey to retirement security. Positive reinforcement flows from that first dividend payment and will encourage you to continue investing. The mere act of monitoring your brokerage transactions, seeing dividend payments continue to grow leads to further investment and dividends that just keep piling up, growing larger by the month.

Qualified Tax Treatment

Qualified stock dividends have long enjoyed preferential tax treatment. In fact, if your overall income is below a certain amount, you can receive dividends and owe absolutely no tax on that income.

That ‘s a heck of a lot better than working nine to five with no hope of ever retiring. Especially when earned income can be taxed at rates as high as 36% or more federally, in addition to 7% or more on the State level.

Your Takeaway

If your wish was to give it a rest someday, but you didn’t know how, I hope I’ve opened your eyes a bit today. So start investing early, invest on a regular (monthly or weekly) basis and let compounding do all the heavy lifting for your eventual retirement.

Subscribers to the Retirement: One Dividend At A Time investment newsletter who mirror the RODAT Portfolio have annual income in excess of $132,000.00 from dividends alone.

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Best,

the author

George Schneider, M.A

Editor and publisher, Retirement: One Dividend At A Time

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Disclaimer: This article is intended to provide information to interested parties. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended.

Disclosure: I am long all RODAT Portfolio names. The Portfolio continues to build dividend income with reliable, dependable equities which have long histories of increasing the dividend.

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