The wealth divide between the rich and poor has been the largest in recent memory. This has especially been exacerbated from the great recession in 2008, as the stock market recovered and the wealthy made back their money while the poor and middle class got wiped out.
According to Joseph Kahl and Dennis Gilbert, authors of The American Class Structure, the following is the way American class is organized:
- Upper: Capitalist Class, this is the top wealthiest 1% of Americans. These are the heirs, CEOs, entrepreneurs, and politicians. They have the ability to derive income from wealth rather than from work.
- Middle: These are the professionals that make up 15% of the hierarchy made up of professors, attorneys, journalists, scientists, professionals, and corporate executives. As you can tell, they hold advanced degrees and provide skilled labor. 32% are mostly white collar but some blue collar employees.
- Lower: This is the working class with 32%, made up of clerical and blue collar workers. These workers do not hold college degrees typically.
- The working poor make up 15%, are at the bottom of the occupational strata. These include janitors, cashiers, fast-food workers, and many are first generation immigrants from developing countries. Many others are single mothers without much formal education.
- Underclass, 12%. This group does not participate in the labor force. Many are disabled or rely on government assistance to meet their basic needs.
Notice how the rich derive more of their wealth from their investments or businesses than their actual labor. Some lessons to learn from this is the use of leverage. For example, a CEO is the leader of an organization, and a good one surrounds himself with people more technically proficient than him. That way he can leverage their abilities and lead with a big picture in mind.
An entrepreneur works hard to build a business that encompasses a system that generates revenue automatically. Whether it be selling shoes to millions of customers online, or managing a large team of people to sell a service to clients.
On the other hand, a worker profits from his or her labor. The problem is they are limited by the amount of time they can humanly commit to the job and their energy.
So the big take aways from learning from the rich are to leverage these systems (businesses) or leverage time and money and profit from their investments. (The Power of Compounding Returns). A professional such as a doctor, lawyer, CPA, ect, may even be struggling month to month if they see themselves as a worker rather than a business owner/investor. Instead of thinking yourself as a doctor, think in terms of your practice. This means automating your practice and delegating the administrative work to your assistant, receptionist, accountant, lawyer, ect. That way you can spend more time being a doctor and bill more.
The importance of the middle class can not be understated. They are the ones that use a larger portion of their income to buy consumer goods like cars, houses, clothes, jewelry, food, ect. The rich, however, use less of a percentage of their income to buy consumer goods and necessities and more of the income on more investments like stocks, bonds, alternative investments, real estate. These activities do not help to grow the economy, if more of the wealth goes into investment assets rather than spending on consumer goods.
It is my opinion that to be middle class is to be a part of an endangered species. More of society is turning into either rich or poor with the middle class getting wiped out. The trend is very evident, and I hope I am wrong for the sake of the US economy. To those who want to better position themselves, I say, pick your side, rich or poor, and act accordingly in your financial life, work place, and business.