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The famous saying of “The Rich Gets Richer and The Poor Gets Poorer” can be explained in my opinion in a rather simple way.
1. Everybody working and living has some savings. The RICH tends to have their saving in investments such as stocks, real estates et al. The savings of the POOR tends to be emergency cash and less in investments.
2. During a recession, everyone’s net worth drops. The RICH’s investments while drop in value, need not be touched since the RICH has other cushions to allow him/her to live on. The POOR do not have such liberty and must dip into his hard earned savings and depleting it.
3. When the recession ends and another boom period materializes, the “investments” of the RICH come roaring back and historically recovers more than what it lost. Thus, they become richer. The POOR having used most of his/hers savings must EARN them back. This is hard particularly if inflation accompanies the recovery. Thus, they become POORER.
4. Of course, economist has more elaborate theories explaining this famous saying: From the Marx theory of communism to most notably the Thomas Picketty’s treatise on income inequality in the 21st century.
5. ADVICE TO YOUNG PERSON STARTING OUT: Save early, defer gratification, invest, and enjoy your sunset years.
6. My refugee mentality made our family following unknowingly the above advice resulting in our comfortable retirement.
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