Every morning I look forward to The Morning email from The New York Times. An article that ran not long ago struck a chord. It discussed “why economic inequality began soaring in the U.S. four decades ago.” The author, David Leonhardt, began: “If you look at historical data on the U.S. economy, you often notice that something changed in the late 1970s or early ’80s. Incomes started growing more slowly for most workers, and inequality surged.”[i]
Some of you were part of the work force that experienced this shift but many of you were born and entered the work force afterward and do not know anything different. To fully understand how things changed, it is necessary to review the dynamics of our economy both before and after the shift. In his article in The Morning, Lockhardt quotes David Gelles, “a Times reporter who has interviewed C.E.O.s for years, [and who] argues that corporate America helped cause these trends.”[ii] Gelles is particularly critical of Jack Welch and G.E. during that time:
“For decades after World War II, big American companies bent over backward to distribute their profits widely. In General Electric’s 1953 annual report, the company proudly talked about how much it was paying its workers, how its suppliers were benefiting and even how much it paid the government in taxes.
That changed with the ascendance of men like Jack Welch, who took over as chief executive of G.E. in 1981 and ran the company for the next two decades. Under Welch, G.E. unleashed a wave of mass layoffs and factory closures that other companies followed. The trend helped destabilize the American middle class. Profits began flowing not back to workers in the form of higher wages, but to big investors in the form of stock buybacks. And G.E. began doing everything it could to pay as little in taxes as possible.”[iii]
You may think this is an overly critical evaluation and you may be right. There are certainly other factors that played a role in the demise of the middle class. However, with the major reassessment of the role of business in the U.S. economy came a major shift in thinking in corporate America. Rewarding shareholders became the focus of corporate profits and employee wages fell behind.
My career as a financial advisor spanned this shift and as an investor, I reaped the benefit. Although it was a bumpy road with a couple of major setbacks, if you stuck with a solid investment plan matched to your risk tolerance, you were rewarded for investing in stock. Along with many of you, I built a solid base upon which to retire in comfort.
At the same time, those who could not afford to invest were left behind. It troubled me and perhaps that is one reason why financial education became my passion. If corporate America was focused on rewarding shareholders, then, in my opinion, it is important for everyone to understand the choices and have the opportunity to invest. My book, How to Dress a Naked Portfolio: A Tailored Introduction to Investing for Women, walks beginners through the steps necessary to start and the terms needed to understand saving and investing. If the middle class is to resurrect itself, then those who have the desire must put their savings where they will reap risk appropriate rewards.
As The Morning article says: “There are some tentative signs of change. The labor crisis and pressure from activists has led many companies to increase pay for frontline workers.”[iv] If your community is like those I live in and pass through, help wanted signs are everywhere. If workers are scarce, the fundamentals of supply and demand dictate an increase in wages to incent workers to enter or reenter the workforce. After the isolation we all experienced with COVID, many workers decided to change their lifestyle and employers out of necessity are adjusting.
In addition to the rewards of investing in the stock and bond markets over the long-term, I also did well with other investments—further education and real estate, for example. Perhaps I was lucky, and the timing was right. I realize that not everyone has the need and desire for further education nor perhaps the resources to buy real estate. However, almost everyone can start saving. A few dollars each month to begin. It takes a long-term focus and the desire to stick with your plan to reap the rewards.
Every day when I open the cabinet to get my toothpaste, I see pictures of places I want to visit and words of inspiration for living. I taped them to the backside of the door. They are reminders of my goals and priorities—my daily life GPS recalibration.
As you start to plan for the new year and set resolutions, what will your financial resolutions be?
~Bev Bowers, CFP®
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