Editorial

You can ease income inequality

Feb 2, 2014 @ 12:01 am

+ Zoom
(Roger Schillerstrom)

President Barack Obama made halting the growth of income inequality a key part of his State of the Union message last week, and while financial planners and advisers can do little to fix the drivers of the problem, they can take steps to ameliorate its effects at the margin.

The apparent growth of income inequality — the rich getting richer and the middle class and poor stagnating — are, in the short term, the inadvertent results of government efforts to stimulate growth in the economy, and, over the longer term, the results of advances in technology and globalization.

The government's efforts to stimulate recovery, especially the Federal Reserve's quantitative easing, has flowed largely into the financial sector, pushing up the earnings of those connected with that sector, and those whose salaries are paid in part in stock and options.

The technology revolution has increased the demand for employees with computer-related knowledge and skills, pushing up the income premium for those employees. At the same time, globalization has produced competition for U.S. firms and has wiped out many low- and middle-income jobs, and kept pressure on the wage rates for the surviving jobs.

The same income inequality growth occurred during previous periods of technological innovation. Mechanization of weaving and farming in the industrial revolution created many millionaires and millions of poor workers as home weavers and laid-off farm workers flocked to the cities for factory work, driving down wages.

The solutions to the problem are long-term, not short-term.

First, as Mr. Obama and most members of Congress recognize, the U.S. education system must be greatly improved so that more children are ready for college when they complete high school and then move on to higher education. And those who aren't college-bound should be trained in the job skills that employers are seeking.

Second, as the economy adjusts to the new realities and shows stronger growth, the market for workers and their wages likely will adjust as it has in the past.

In the meantime, planners and advisers can help those affected by the slump in the growth of real earnings for most workers.

TALK TO EMPLOYERS

First, they can talk to the employers among their clients about encouraging their employees to save at least a little for retirement, perhaps by using the new individual retirement account proposed by Mr. Obama — myRA — in the State of the Union address.

They can also talk to their clients to consider voluntarily raising the minimum wage. It is far better for companies that can afford it to do it voluntarily than have it mandated by the government.

Third, they can help middle-income clients better manage their week-to-week financial affairs by examining their weekly budgets and improving them, or helping establish such budgets if they don't exist.

Fourth, they can help low-income workers by providing increased pro-bono financial management advice — for example, by offering free seminars at libraries, churches, retirement homes, etc.

Financial advisers may not be able to help all who are being left behind, but they can help some.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

Carson Group's Schaben: Making sense of millennials

Lazy, entitled, the trophy generation: These are stereotypes most often associated with millennials. But why are these myths and not realities. Carson Group's Aaron Schaben explains.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

Trump rejects idea of new caps on 401(k) savings in tax plan

GOP reportedly had been considering reducing the cap on the annual amount workers can set aside for 401(k)s.

Finra's stats reveal an industry in decline

The broker-dealer regulator reports fewer entities under its watchful eye.

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print