I received an interesting newsletter recently from a(n) (online) bank I'm a customer with. According to a Febelfin survey of 1000 young people between 16 and 30 years old, it appears that over 1/5th of them started investing, including a quarter of them during the corona crisis.
Last Updated on November 22, 2019 by Mr. FightToFIRE
Did you know that it can take you, on average, 4.5 generations before you go from a lower class income to a middle-class income?
When I talk about going FIRE at 40 – 45 I do this from a position of relative luxury. I’m able to live with my parents and save most of my high income towards that goal.
Most people that try to achieve FIRE have some leg up and will achieve it sooner than later. Maybe because of being able to work a high paying job or have just that something that allows them to cut costs. Some (within the FIRE-community) suggest anyone can do it as long as they earn enough money or spend less.
This sounds simple in theory but isn’t so easy in practice because of something called social class.
The low-income class
Let me clarify. Let us take my country Belgium. According to OECD, someone is in the low-income class in Belgium if the family income is less than € 19,295 gross.
Per month this gives us €19,295/12 = € 1607 gross income. Interesting to note is that the poverty line in Belgium is € 1,139 for an individual.
This tax year the majority of that salary falls under the 25% tax bracket. After taxes, you are left with roughly € 1205, but after tax breaks and other benefits, something like € 1400 net is likely; which is a very rough estimate, I know.
That’s the income part. When looking at expenses, it’s safe to assume not everyone can live with their parents in their 20’s, so you have to pay at least rent. When I take my already low expenses of € 600 and add simple housing such as an apartment at € 600 and other expenses (€150) that accompany living on your own, you end up with € 1400 – €1350 = €50 cash at best. It’s clear this doesn’t give you much leeway, if any at all. If you can save anything at all, you might have saved enough at your official retirement.
The problem is, that someone with such a low income can’t cut more costs because they already reached rock bottom. Here is where reality kicks in. The best way to get away from this would be to increase your income.
It’s hard to imagine, but breaking free from your low-income household takes time and even with hard work you don’t always see results. This makes it arduous to reach FIRE. If you are part of a low-income household it can take generations to reach a middle-class income.
Basically, climbing up the social ladder is plain difficult. Even in Western democracies that boast all citizens have more or less equal opportunities. In Western industrialized countries, it takes an average of 4.5 generations to climb from the lowest income category to the group of middle-income earners.
France, with its slogan ‘liberté, égalité, fraternité’ is one of the worst pupils in the European classroom, highlighted by an OECD-report. Hungary, a country that was under communist rule 30 years ago, is doing even worse.
The United States, which boasts that ‘The American Dream’ is accessible to everyone, is not doing very well either. For someone born into a low-income family, it takes an average of 5 generations to climb up to the middle-income group.
In Belgium, it takes an average of 4 generations. This puts us in an extensive group of countries that are doing better than the OECD-average.
In Scandinavian countries, it is easier to climb the social ladder. Denmark can present the best report with 2 generations.
No, not everyone can do it (in their generation)
When people tell me that you can make it with hard work and dedication, I give them a stern look and ask them to really think about what they are saying.
Now, I realize these are averages, and there are always people who can do it within their generation. This goes the other way as well. There are families that are stuck for 10 or more generations even though it should be possible to break out in a generation or two.