We got some reader suggestions on writing about the state of the economy and why everyone feels poor at the moment. Some are ready to buy houses, others are just starting out with their new ‘big girl/big boy’ jobs, but everyone is saying the same thing:

“If I’m considered an above average/top earner in my age group, why do I feel like I can’t afford anything?”

The answer to this question has many parts. We answered them below.

Here are the answers to the test, but we have some pretty cool graphs below for you to check out.

TL;DR - There’s a number of factors that have consumers cash crunched at the moment despite the S&P seeing historic highs. Perception vs. Data (It’s a vibecession! see below), inflation, stagnant wages, and interest rates. On the interest rate note: there’s a generation of home buyers waiting to flood the market once interest rates get cut, but we’ll see asset prices rise because of the shortage in housing. Long story short: Market dynamics trump individual performance. Successes and failures in this economy are not always to your credit/your fault.

The Cash Crunch: High earners in a tedious economy

Basically, we’re now realizing that the stock market is just 1 out of many indicators of the economy. We’ve really been trained by every cable news outlet to think that that the indices are the single greatest source of truth on our economic feelings.

But really, the stock market is just the scoreboard for the people who are in the position of preserving their wealth. This issue will hopefully illuminate some issues for the people who are still attempting to build their net worth.

Perception vs. Data

This is probably the big one. The notion that the stock market’s success is the tide that lifts all boats. It makes sense to think that, since many of us remember the 2008 crash, so we equate ‘crashes’ with dreaded ‘bread lines’ buzz and people not being able to afford anything.

Kyla Scanlon calls it the ‘Vibecession’. Here’s our condensed take on this:

Her graphic is below. Pay attention to the box on the lower right side.

After studying this graphic a little bit, it feels right, but we needed to find some numbers for this, too.

Claire Ballentine and Charlie Wells interviewed a 1000 ‘rich’ people (top 10% of tax filers). These are households that make 175,000+ a year.

Out of the 1000 respondents, 25% say they feel either Very Poor/Poor/Getting By.

There were some interesting tidbits around re-locating to cheaper cities. Around 30% of those ‘rich’ people said yes when asked if moving to a different city would help their financial situation

Bottom line: A big chunk of people who are ‘better off’ than you are kinda in the same place with their financial situation.

Inflation

We’re going to keep this simple and try not to mention Jerome Powell. So basically, we had prices go up a lot in 2021 and 2022. But even if they aren’t going up as quickly, we still have to process that things just cost more now. Now, inflation is cooling and the fed is aiming for a rate cut soon-ish, since signs are pointing to a cooling labor market. But that doesn’t mean that prices are going to come down to pre-pandemic levels. It just means that prices aren’t going up as much/are remaining stagnant for now.

Which brings us to the next part:

Stagnant Wages

Given that we’ve seen so much inflation in the last couple of years, wages have failed to keep up fully, especially for those who stayed in their jobs. Higher prices and same wage = cash crunch/higher debt.

Interesting Tidbit: 70% of this reader list is a six figure household. We’ve talked to 6 people who are in the top 10% earning bracket, they all think they’ve done something wrong by not being able to afford the things their parents had at their age.

Interest Rates

Plain and simple: the cost to borrow is simply too high. Couple that with the enormous price hike on Real Estate, it makes it virtually impossible to afford a house you could have bought as little as 2 years ago.

Now we’ll definitely see a rate cut later this year, as all indicators are sayoing that it’s ‘safe’ to do so. But for a generation that has had its eyes on buying a home at this point in their lives, there could be an another price hike on real estate again.

“But guys, why would this happen? Well, When those rates get cut we’re going to see buyers flooding a market where the demand has vastly outstripped supply (see graphs below).

While we’re going to see this graph (figure 1) ease up to the middle eventually, that’s going to take a few years. Our half-assed guess is everyone planning to buy a home will probably delay buying a house for another 2-3 years even after the fed starts dropping rates.

None of this is investment advice, btw.

Have a great week!

Ahmed and Peter