I talked recently about how your grandparents or the generation before were probably not making as much money as you do now, but also had fewer needs, because they were vastly self sufficient. They grew their own food, built part or all of their house, sew their clothes, and so on.
As a result, they were able to save a large part of their income, and if they had borrowed for a house, pay it off in less than 10 years.
There is now a disproportion between the value you produce at your job, and what you can buy. For example, in my village, people still grow their own corn, as part of their base diet. They need a patch of land to grow the corn, which they own or rent for the season, then they go sow, supervise, harvest, and dry the corn. Eventually, they pluck it so they can store it for the year, and feed themselves and their animals. They eat tortilla corn for all three daily meals, and their chickens and pigs eat corn too, so you would think it makes sense to grow your corn. Except corn, plucked and dried, is worth $0.12 a pound.
An unskilled worker earns $8 a day. He could buy 66 lbs of corn for every day worked. Assuming his family of five eats 5lbs of corn every day, and his animals another 6lbs (enough to feed quite the chicken coop and a few pigs), he would be left with a surplus of 55lbs of corn every day worked.
Growing your own corn does not require that you work every day, but it is time intensive and you are taking the risk that the crop will get bugs, or a natural disaster will reduce it to zero. Working as an unskilled worker to get the 4,000 lbs of corn you need every year would require you to work just over two months. The other 10 months can be spent earning enough for your other expenses, which in my village are very few, most people build a simple house with their bare hands and only have to pay for electricity if they are even plugged to it, $2 for water rates, and the rest is to enhance their diet a bit, buy phone credit and other consumer goods they didn’t need one generation ago.
Which brings me to my point. Today, one hour of your labor buys much more than it used to. Your grandparents had to spend several hours each month to gather, chop, store and dry firewood to cook and heat their house, today, you can work for a couple of hours and have enough to pay your electric bill.
Yet, according to The Telegraph, people born in the 60s and 70s will be worse off than their parents when they retire, unless they receive a big inheritance. That study shows that those people earned more than their parents when they started their careers, so how do you end up worse?
At the age of 30, people born in the 1970s were paid three-quarters more than those born in the 1940s took home at the same stage in their lives.
But the younger generation put away about £60 a week less…
How is that possible? We make more, and we save less, something is wrong there. First, you could blame our laziness. We work less hours than our grandparents used to (in France, the workweek has been reduced to 35 hours, with 5 weeks of holidays as a minimum) and yet when we go home we want to crash on the couch and eat overpriced convenience food. We want bigger houses even though we are having less children. We want an iAnything and new clothes every season when they used to buy make a new costume every 5 years.
Sure, had we never evolved we would still be living in a cave, and some items have become necessities. Who would want to spend 20 hours a week hand washing clothes and dishes when a machine can do that in a fraction of the time? Who can do without a computer when so many jobs and opportunities are being found online? When you can fly across the ocean for a few hundred dollars why not enjoy it, who cares if your grandparents never left the country?
But if you look a bit more closely, there are things you don’t need. Things that are such poor quality they’ll break on the first use. Junk food with so may chemicals your health bill will be through the roof in your 50s if you keep eating them. The yearly car replacement…
You want to aim for the financial stability your grandparents have in their retirement, so try looking at the lifestyle they lived and realize how easy we have it those days, so there is no excuse to send a good chunk of your income into those retirement and investing accounts.
Don’t know where to start? Here is Harry’s ultimate guide to understanding your 401(k).
Are you better off than your grandparents? Why or why not?