“Be the CEO. Money is your best employee,” reads the TikTok bio of Taylor Price, a twenty-five-year-old personal finance influencer who wants to “change the way Gen Z thinks about money.” Price’s philosophy is simple: financial freedom for her generation won’t come from a fat paycheck; it’ll be achieved by putting that paycheck to work through investment — and putting it to work as early as possible.
By the influencer’s calculations — outlined over a TikTok of her flat-ironing her glossy dark hair — if a twenty-one-year-old barista named Janelle earning an annual salary of $41,000 invests $350 each month, she’ll have amassed over $2 million by the age of sixty-five. Meanwhile, Ethan, an engineer earning $140,000 per annum who begins investing $1,000 per month at the age of forty, will, at sixty-five, have made just over $1 million. For Price, the clear winner is the person who retires with the highest final balance.
Of course, what Price’s logic leaves out is that wealth isn’t accumulated solely by saving or investing one’s own earnings. Her example assumes that there aren’t any other big differences between Janelle and Ethan. It could be the case that Janelle makes more than Ethan in the market by choosing to invest earlier. But let’s say Janelle’s only source of wealth is her investments, while Ethan is the only child of corporate lawyers who paid his college tuition, who have their own investment portfolios, and own three properties — all of which he stands to inherit one day. Not only will he retire far more comfortably and with fewer debts, but he’s also sacrificed a lower proportion of his higher salary over a shorter period to generate his own wealth.
Nevertheless, the logic of Price’s hypothetical is one that many Gen Zers — born between 1996 and 2010 — seem to find compelling, allowing it to shape their own investment habits. Using data collected from 13,000 investors across thirteen countries, including the United States, a report published by the World Economic Forum (WEF) in March found that 30 percent of Gen Zers start investing in early adulthood — compared to 9 percent of Gen Xers and 6 percent of Baby Boomers, who began later in life. The findings are echoed by a 2024 survey of 2,000 US citizens conducted by digital-wealth platform Arta Finance, which found that 54 percent of Gen Z respondents started investing by the age of twenty-one. In comparison, only 27 percent of Gen Xers surveyed had done the same.
It isn’t surprising that digitally native Zoomers are investing earlier than their predecessors. Retail investment has become more readily accessible to consumers in the past ten to fifteen years with the advent of fintech products like Robinhood, Acorns, and Coinbase, and the growing popularity of fractional shares since 2019, which allows investors with smaller sums of money to access higher-priced shares. The cohort is also far more likely to be exposed to and influenced by financial content like Price’s videos on social media platforms; WEF’s report noted that, “by the time they enter the workforce, 86 percent of Gen Z have learned about personal investing versus 47 percent of Boomers, underscoring a generational transformation in financial habits.”
But the structural conditions that a beleaguered workforce faces are also shaping their participation in capital markets. It simply hasn’t paid to rely on work alone for income — especially for nonsupervisory workers, who make up around 80 percent of the US workforce. While US productivity has been steadily increasing since the 1950s, workers’ compensation hasn’t been keeping up. The Economic Policy Institute’s (EPI) Productivity-Pay Tracker shows a stark divergence between economic growth and pay for nonsupervisory workers since 1979; while US productivity has increased by 86 percent, hourly pay has only increased by 32 percent.
The EPI’s fact sheet notes that this difference in economic growth has been absorbed into the “salaries of highly paid corporate and professional employees. And . . . into higher profits (returns to shareholders and other wealth owners).” Income inequality has therefore worsened on two levels. Not only has wage inequality increased, but labor has also progressively lost its share of income to capital.
Under these conditions, baristas like Janelle don’t stand a chance. She’d be a fool not to invest, if she can afford to do it. But the narrow and individual logic of personal finance obscures the elephant in the room: somewhere someone else is getting even richer. It goes without saying that a person with access to higher sums of money, whether gained through a higher salary or inheritance, ultimately stands to reap the most reward from market participation.
A 2023 paper by economists Yonatan Berman and Branko Milanovic shows that exactly this has happened, leading to the rise of what they call the “homoploutic elite” — a group of people who are not only the highest-paid workers among the population but also the richest capitalists. Using data from the Luxembourg Income Study, the US DINA Micro-Files, and the Survey of Consumer Finances+ (SCF+), Berman and Milanovic find that the share of people who are both labor- and capital-rich has increased from making up a fifth of the top 10 percent of richest people in the 1980s to almost a third now. Moreover, they find that this increase also accounts for about 20 percent of income inequality since 1986.
It might be true that more people might own some kind of capital than ever before, but Gen Z won’t win financial freedom by investing early if, by and large, most capital is owned by the highest wage earners — a situation that only prolongs wealth and income inequality. By choosing to invest early, a Gen Z barista on $41,000 could of course become richer relative to a version of herself that chose to invest later, or not at all. The problem is she’ll always be poor relative to the truly wealthy.
Great Job Huda Awan & the Team @ Jacobin Source link for sharing this story.
