Going For Broke

I don’t know any young person who believes Social Security will be a significant source of income in retirement. Most of them think Social Security is a joke, and with projections that it will run out of money in 2032 and without significant reforms soon, it is a joke. Long gone are the days when younger Americans look for a job with a good pension. I bet fewer than 1% of Gen Z even know what a pension is. About 20% of private pensions have received some form of federal assistance over the last 20 years. That’s around 300 individual plans that were insolvent or on the verge of insolvency. I hope someone asks what would happen if the federal government wasn’t there to help next time.

The pandemic gave many young Americans free time and cash. Social media fueled the hype around stock and crypto investing, with get-rich-quick strategies like memecoins or memestocks. A few investors made money, but many lost. This has led many young Americans to forgo traditional routes to wealth building, like buying homes or building up a 401 (k), in favor of high-risk, high-reward investments. 62% of Americans under 35 years old said they had to make risky investments to reach their financial goals. 80% of Gen Z and 75% of millennials feel like they are financially behind.

Bloomberg: Gen-Z Traders Go for Broke in Pursuit of a New American Dream

Home ownership for baby boomers and Gen X meant financial security. You make payments for 20 or 30 years, all while your home appreciates. You pay capital gains tax on the profit, and that creates a solid financial foundation. For middle-income Americans, their homes make up to 70% of their total net worth. Home mortgages were a form of forced savings with tax advantages over renting. Homeownership was a rite of passage for these generations, but unfortunately, it is no longer affordable today. In a previous blog, What Mobile Homes are Not, 61% of renters believe that owning a home is impossible for them.

Social media is very good at highlighting only the young Americans who made money on Kalshi or Dogecoin. Losers are not welcomed to social media attention. That might be an American thing, the free market capitalism our country is built on gives attention to winners, not losers.

Where does this all end up? It creates a generation that is very financially vulnerable. This comes at a time of increasing strain on the US in paying its debt, an insolvent Social Security system, and an evident and widening wealth gap. This is the generation that is one bike accident, one bad trade, one last hope that Terra coin will recover its value from financial disaster.

That’s a scary place for not just those generations but for all Americans.