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In this episode, Chelsea dives into the various work and life myths capitalism has made us all buy into, from the importance of owning a huge house to the humongous CEO salaries we've come to expect.

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CHELSEA FAGAN: Hey guys, it's Chelsea from the Financial Diet. And this week's video is brought to you by Wealthfront. Whenever you read financial news, it can be easy to get caught up in scary headlines about the market being down. And while it might be tempting to keep checking your investment portfolio or maybe even start wondering whether investing was a good idea in the first place, it's important to stay focused on your long term goals and remember that volatility is normal.

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Click the link in our description and get your first $5000 managed for free on Wealthfront. And today, we're here to talk about the matrix that we all live in which is called capitalism. One of my favorite quotes is from Ursula K.

Le Guin who once said, "we live in capitalism, its power seems inescapable, but then, so did the divine right of kings. Any human power can be resisted and changed by human beings". Obviously, the girl could write.

So let's start there. But beyond that, I think one thing that is incredibly important for us all to constantly be remembering is that the things that seem normal to us, inevitable to us, ubiquitous to us, a, we're not always that way, and b, are very much subject to change should we decide to change them. And I refer to capitalism as the matrix in which we all live because it's not just an economic system, it's also the prism through which we've been trained to see almost everything else.

And there are many received wisdoms that capitalism has basically convinced us are inevitabilities, which absolutely are not, but also in some cases may not even be true. Oftentimes what we're led to think here in the US is just really about what's better for capital and much less about what's actually feasible. So let's get right into six myths that capitalism has us all believing.

Number one is if you want to do a good job, you need to work more than 40 hours a week. Most of us have grown up with the accepted fact that a 40 hour workweek is the default, with it being normal for some jobs to demand even more time from us. But the 40 hour workweek is a relatively new norm.

Prior to the industrial revolution, people worked basically just as much as they needed to survive. Anthropologists estimate that this was way less than 40 hours. But that jumped to a higher amount, about 70 or more hours a week during the industrial revolution.

And then, skipping over decades of organized labor strikes and demands for shorter workdays, the Fair Labor Standards Act limiting the workweek to 40 hours went into effect in 1940. And everything's been perfect ever since. We did it.

Just kidding. People still work more hours than they are supposed to or need to despite not necessarily having that reflected in pay or productivity. There's evidence that some Americans see working around the clock as a kind of status symbol.

While many people claim to be working 60 or 80 hour workweek, much of that time isn't actually very productive. In fields like finance and consulting, some workers may only be pretending to work 80 hour weeks, one recent study suggests. And even in cases when people really are working more than necessary, not only does this mean we're giving employers more than they're paying for, it's actually not doing very much for productivity.

And it makes sense when you think about these things through the lens of how much more productive we're able to be with all kinds of technologies and machinery and conveniences that didn't exist even a few decades ago. For example, if you work today at an ad agency doing a job that existed back in the 1960s when everything had to be done manually, computers weren't really a thing, email wasn't a thing, everyone needed their own secretary. And you could spend half the morning getting blackout drunk and smoking cigs, to think that you would need the same amount of hours in a day to accomplish the same work when you account for all of these conveniences and productivity tools just makes no sense on its face.

But that working more than we need to, again, doesn't translate to more productivity. In general, research suggests that we can handle working 60 hours a week for three weeks. And after that, we become less productive.

And as you may have heard here at TFD, we follow a four day or 32 hour work week, which we've been doing since last summer to great success. And we'll link you to my colleague's writings about the subject on our LinkedIn in the description. But although we enjoy the hell out of it, we did not invent the four day workweek or the idea that it could be actually better for productivity.

The country of Iceland tested several trials of shorter work weeks, typically about 35 to 36 hours between 2015 and 2019 which led to 86% of the country's workers to gain the right to move to a shorter work schedule without a pay decrease. And for the record, we didn't decrease pay either. The reality is for most of us with 40 hour a week office jobs, we either have more hours in the week than we actually need to get our work done or we're doing more work than should theoretically be on any one person's plate.

This is of course a systemic issue that's bigger than any one person, but if you do find yourself working more than 40 hours, ask yourself, is this necessary? Should I be earning overtime or maybe talking to my boss or HR about the need to hire additional help? Should I be moving to a different company?

At the end of the day, the 40 hour workweek paradigm is a manmade thing. And like all man made things, man can change it again. Number two is if you're poor, it's because you're lazy.

Capitalism may be beyond anything else does an incredibly effective job at making people who don't have as much money feel as if it is reflective of an inherent character flaw or defect. And certain factions of my own personal finance community are obsessed with the bootstraps narrative and the myth that people are poor because they spend way too much on lattes and sneakers. But the reality, surprise, surprise, is quite a bit more complicated than that.

A 2015 paper from the Harvard Kennedy School found evidence that debunks the lazy welfare recipient myth. After examining data from seven randomized controlled trials of government cash assistance programs in six developing countries, the authors of the paper wrote across the seven programs, we find no observable impacts of the cash transfer programs on either the propensity to work or the overall number of hours worked for either men or women. Which brings me to one of my favorite quick stats which is that the majority of welfare recipients actually do have jobs.

And even though conservatives regularly claim that welfare programs incentivize low income people to be lazy, the result is often the opposite. In research based in Canada and the US, the economist Ioana Marinescu at the University of Pennsylvania has found that even when basic income programs do reduce working hours, adults don't typically stay home to say play video games. Instead, they often use the extra cash to go back to school or hold out for a more desirable job.

And seriously, how many times are we going to click on an article like, see how this bootstrapping person became a millionaire by 27 only to find out that they got a gift of $100,000 from their grandfather? And not to fly in the face of the American exceptionalism land of dreams kind of language that we're also used to growing up with, but when it comes to economic mobility, America is actually far behind other developed nations. And in general, the biggest determining factor for how wealthy or poor you're going to be in your life is how wealthy or poor your family was growing up.

According to research from the National Center for Children in Poverty, few adults who did not experience poverty during childhood are poor and early and middle adulthood. At ages 20, 25, and 30, only four to five percent of those adults who were never poor during their childhood live in poverty. At age 35, less than one percent are poor.

But for adults who experienced low to moderate levels of poverty during childhood, one to 50% of childhood years, 12 to 13% report ages 20 and 25 and seven to eight percent are poor at ages 30 and 35. For adults who experienced moderate to high levels of poverty during childhood, or 51 to 100 percent of childhood years, between 35 and 46 percent are poor throughout early and middle adulthood. And this makes so much sense when you consider how many costs there are to simply being a person in a human body in the United States that can balloon to outrageous expenses through no fault of your own, such as medical bills and essentially decimate a person's savings even if they were bootstrapping their way and scraping by with a small emergency fund to begin with.

Basically, if you're teetering on the edge of poverty since youth, escaping it doesn't just mean being incredibly disciplined with money, it also means nothing bad happening unexpectedly. Which is all the more insulting when you consider number three, the idea that we just can't afford universal health care like so many other developed countries. Much like the idea that becoming better off financially as a matter of personal choice, capitalism perpetuates narratives that we don't need policy level social safety nets because the private sector can take care of all of our problems.

But in America where over 66 percent of those insured are insured by private companies as of 2020, we both spend more than other countries on health care and are worse off for it. According to the organization for Economic Co-operation and Development, the US spends more on health care than any other OECD country, both as a proportion of GDP, 16.9 percent, and per person or $10,586. Spending is expected to increase with health care as a proportion of GDP forecast to reach 20% by 2030.

But high levels of spending have not translated into people leading longer lives. Life expectancy at birth is two years below the OECD average and actually declined by over two months between 2012 and 2017. And conservative and liberal pundits alike argue that a major overhaul of the current system with the implementation of something like Medicare for all would be too expensive to take on.

But plenty of studies predict otherwise. According to a February 2020 article in The Hill, Christopher Cai and colleagues at three university of California campuses examined 22 studies on the projected cost impact for single payer health insurance in the US and reported their findings in a recent paper in PLOS medicine. Every single study predicted that it would yield net savings over several years, even the Mercatus Center, a right wing think tank, recently found about two trillion dollars in net savings over 10 years from a single payer Medicare for all system.

But the bleak reality is that lawmakers are compromised when it comes to making health care decisions that affect the entire country. According to data from the non-profit health news source Kaiser Health News, not affiliated with Kaiser Permanente, pharmaceutical companies and their lobbying groups gave roughly 1.6 million dollars to lawmakers during the first six months of 2021 alone with republicans accepting $785,000 and democrats $776,200. We love equitable Queens.

Combine that with the fact that congress people have a great health care plan, the incentive for them to make things better for the country, even if it would mean a ton of long term savings and health benefits, is hard to see. Number four, which is one I take very personally to heart as a CEO myself, is that executives have always earned way more than their employees. Eh, a lot of people buy into the myth that CEO's are earning these exorbitant salaries and compensation packages because they're doing so much for the company and or because that's how they've always been compensated.

But CEO pay has ballooned in recent years and it looks nothing like it did decades ago. The economic policy institute estimates that CEO compensation has grown 1,322 percent since 1978, while the typical worker compensation has risen just 18%. In 2020, CEO's at the top 350 firms in the US made 24.2 million on average, which is 351 times more than a typical worker.

And a key factor here is stock related compensation which comprises 85 percent of CEO compensation. According to Lawrence Mishel, a distinguished fellow at the economic policy institute, there are six key reasons why CEO wages have risen so exponentially compared with typical worker wages. High unemployment, which forces workers into accepting the lowest wages possible, globalization, which allows companies to find the cheapest workers in the world, the erosion of unions, which makes it harder for workers to collectively bargain, low labor standards, including a low minimum wage, the increase in non-compete clauses, which makes it hard for workers to find a better wage in their industry, and domestic outsourcing, like shifting to a workforce of freelancers.

And while some might argue that paying ceos more would make them and therefore the company perform better, a 2016 report from financial services company, MSCI Inc, found that companies with the highest paid CEO's actually performed worse than their competitors. And once and for all, let's dispel the notion that ceos are earning on average over 350 times more than workers because there are 350 times smarter or harder working or better for the company. We all know by now that the CEO landscape is not a diverse one.

Data from 2017 to 2018 for S&P 1500 firms shows that women only hold five percent of these positions and minority representatives only seven percent of CEO positions. And it's not just that white men most commonly hold these executive positions, CEO's typically had other advantages growing up that aren't as obvious on the surface. Forbes released the Forbes 400 of the 400 richest Americans every year, spinning a tale that most of these, mainly men, are fully self-made.

However, Boston based group United for a Fair Economy has shown that this is not the case. In 2012, they looked into the backgrounds of those on the previous year's Forbes 400 and these were their findings. UFE defines born in the batter's box, those Forbes 400 rich who hail from poor to middle class circumstances.

Some had nothing growing up. Others had parents who ran small businesses. About 95 percent of Americans overall currently live in these batter box situations, just over a third, 35 percent of the Forbes 400, come from these backgrounds.

Just over three percent of the Forbes 400 have left no good paper trail on their economic backgrounds. And of the over 60% remaining, all grew up in substantial privilege. Those born on first or in upper class families with inheritances up to $1 million make up 22 percent of the 400.

Second base, or households wealthy enough to generate inheritances over one million, made up another 11.5 percent. And on third base with inherited wealth of more than 50 million dollars sits seven percent of America's 400 richest. Last but not least, those born on home plate.

These high rollers, or 21.25 percent of the total Forbes list, all inherited enough to earn their Forbes 400 status, like our favorite self-made billionaire Kylie Jenner. But remember those unions I mentioned earlier? Well, another one of the myths that we've all come to have to accept is that unions are bad for productivity.

And that is undoubtedly led to the situation we found ourselves in where they are not as common in the US as they once were. In 1983, over 20% of Americans were in unions. But as of 2021, only 11.6 percent of Americans are covered by union contracts.

Let me state the TFD stance on this unequivocally, unions are good. They're good for workers. They ensure that workers have access to benefits like health care and paid sick leave, they provide job security, they enforce things like salary floors.

And they generally help protect workers against unfair employment practices. But they're not just good for workers. Unionize employees are less likely to quit their jobs, for example.

A combination of better pay and benefits, more upward mobility, and the ability to exercise voice gives unionized workers a reason to stay and even in a normal labor market, the cost of replacing a single low wage worker is around 20% of their annual pay. That includes direct hiring costs and the lost productivity that comes with turnover. At a company like Amazon which has employee turnover of 150 percent, that can add up to billions of dollars each year.

And one study from the economic journal found that the higher union density a firm had, meaning the higher percentage of workers participating in the union, the higher its productivity and the higher its workers wages were. It's arguable that productivity and output are not the right ways to gauge the success of unionization, but if we've learned anything about how these myths propagate and get embedded into our system, we're not going to be able to rid ourselves of them unless we at least acknowledge how they benefit the major stakeholders. So yes, they're good for the bottom line too.

Number six, and this one might be the one that we can most visualize in our day to day life, is that owning a big house is a sign of wealth. In many ways, few things really typify the American economy, mentality, and self-image like Mcmansions do. Not only because of what they represent, but because of how linked they were to the 2008 economic collapse.

Americans have long held huge associations with not only owning your own home, but owning a large home on its own little tract of land. Quite frankly, regardless of the quality of that actual homes build or the size of that parcel of land. And because of this narrative, the pressure in America has always been to appear as though you're thriving, which leads to a substantial percentage of Americans who are actually considered house poor.

When someone is house poor, it means that an individual is spending a large portion of their total monthly income on home ownership expenses such as monthly mortgage payments, property taxes, maintenance, utilities, and insurance. According to a recent consumer affairs survey of just over 1,000 homeowners with a mortgage, 54 percent of homeowners reported that their house related expenses are their most considerable financial burden despite their homes being their most significant asset. What might be surprising though is that 40% indicated that their housing expenses are more than they can afford.

And what about dual income households? Is it easier for them to handle household expenses than their single income neighbors? To some degree, yes.

But still almost 2/3 of dual income households felt that it's harder than it should be to meet household expenses compared to 79 percent of their single income neighbors. Overall, 69 percent of respondents considered themselves house poor, which warns looking into why homeownership is such a burden for Americans. Some of this is obviously that we are still as a whole, pressured into homeownership, even when it is not nearly as feasible for us as it was for previous generations in large part due to those stagnating wages we talked about earlier.

It's also because Americans are typically encouraged to buy more house than they need, more square footage, more bathrooms, more bedrooms. We are taught to believe that our home represents not only so much of who we are as people, but how successful we are economically. That even if it paradoxically means we're much worse off financially, we still will prioritize the biggest house on the block we can afford, which of course led to the construction of many shoddily built Mcmansions so that everyone could be the king of their own little fiefdom.

Now, of course, I'm biased as someone who lives in a two bedroom apartment that many people in the country would probably consider unlivable because of how small it is even for just two people and an eight pound dog, but it is worth considering just how much of our own financial health we're taught to be willing to gamble just to have a house that looks really good in the annual Christmas card. But if you are looking to do something actually sustainable for your financial health rather than buying a huge Mcmansion, I highly recommend you check out Wealthfront. As always guys, thank you for watching.

And don't forget to hit the subscribe button and to come back every Monday, Tuesday and Thursday for new and awesome videos. See you.