The gap between the rich and poor is getting bigger. The middle class seem to be lower down in the separation of this gap. One simple thing keeps the divide growing, and that is debt.
When a typical person buys a house, and starts paying a mortgage, then their future income is tied to their debt.
When a rich person buys a house, they are making an investment with their earnings, and their house becomes a future source of income.
One pays interest, the other reduces capital gains. One pays monthly, the other moves their money around. When one does renovations to add value to their home, they increase their debt, the other adds to their write-offs, and reduces taxes on gains.
But the part of this that really makes a difference is that with interest rates so low, the rich don’t use their own money, they too borrow money for expenses. But while poorer people use a large part of their income to pay off the low interest debts, the rich use their ‘extra’ money to make more money than the cost of the low interest debt. By borrowing, they increase the wealth gap. This great divide gets bigger.
This is a bit of an oversimplification, but it speaks to the fact that people live in different worlds. The same way I’ve described this gap, I can describe another gap between the ‘poor’ middle class and the truly poor. For the truly poor, they can’t buy a home, and so their rent does not go towards any equity. Their wages only go to survival. An unexpected debt of just a couple thousand dollars can be enough disrupt the balance and cause homelessness, or force the need to take out a high interest loan… because the poor are a risk to default and so they pay a premium on debt. Then payments for that debt become the focus of wages, but there is no house, no equity made on that debt, it’s purely an expense.
For the truly poor, the wealth gap is a an inescapable chasm. This is the gap that matters most in our world, the one that keeps people at or near poverty levels. This is the great divide that really matters, and it’s one that should be addressed by the leaders of our world in the same way that they are approaching climate change. It matters not just to the poor, it should matter to everyone. Because in this amazing world we live in, there is no need for the poverty we see to exist.
