Economic inequality which can also be described as the gap between rich and poor or even the “wealth gap” is something that is becoming more and more apparent in the 21st century. Historical social divide barriers are long gone in our minds but the disparity between the “working & middle classes” and the rich in terms of wealth is very much here to stay and is fact set to widen over the coming decades. For those of us who do not appreciate the current economic situation, now is the time to act and understand that there will soon be a choice that has to be made: educate yourself to become more financially savvy and hopefully rich(er) or carry on as you are with the rest of the world and become poor(er) through lack of financial understanding, education and ultimately lack action.
As the rich-poor divide grows here in the UK there is a fear that our UK society itself will be harmed. Will those who manage to become rich be targeted by the masses in terms of “the pitch forks coming out”, jealous and malicious behavior? It has been shown in more than 50 studies that the crime rate and the tendency towards violence is greater in areas where there is a greater social divide and income differences are greater. I certainly hope this trend doesn’t continue but what I do hope for is a greater understanding throughout the nation that financial education is crucial if we are to survive into this new era. Assuming the state will look after you in your retirement is no longer an option. With pension and welfare cuts only making the divide greater there is a real need to ensure that the masses don’t get left behind otherwise our whole society could be heading for turmoil.
Tax and Politics combined
One factor which can be argued to contribute to the increase or decrease of the wealth gap is Taxes. Politicians and Economists have long argued whether tax policy has had the desired effect of decreasing wealth inequality in the countries in which the policy is implemented. The trouble is if the government increases the tax too high on the wealthy they will simply take their money elsewhere and this will have a damning effect on the overall economy of the country in return. In the UK it is a well known fact that foreign buyers in London have a significant effect on wealth in the capital and a large amount of their investment is in the London Property market. If the UK government where to suddenly hit all wealthy buyers will a much higher percentage of property (or other) taxes then these investors in the UK’s community would look elsewhere. Obviously there are many reasons politically why the government wouldn’t just harm the super rich by hiking taxes. Tax and politics go hand in hand in that respect by keeping and in fact seeking to attract more super rich into the UK by keeping the UK’s tax policies as fair as possible without putting off would be wealthy foreign investors.
A study in 2014 by Credit Suisse showed that the UK was one of 3 European countries where the wealth gap had increased since the 2007 recession. The richest 10% of people living in Britain now own over 54% of all the assets, this is up from 51.5% in 2000. Now 4,700 people in the UK have a personal fortune of over £31million, up from 1,300 in just 2013. This is a massive increase in the number of wealthy people living in the UK. The UK saw the largest jump in average household wealth of any country in the past year largely due to a 9% increase in house prices. Showing that owning assets is a key strategy for the wealthy and indeed super rich. Tangible assets (like property, commodities e.t.c.) are a key to the rich getting richer as key factors like quantitative easing by the Bank of England (i.e. printing more money) only inflates the assets already owned by the rich. If you don’t own any assets then you will essentially become poorer each time quantitative easing takes place.
One thing is for sure there is money to be made in this world but you need to decide which side of the fence do you want to fall. The rich-poor divide is getting wider so sitting the middle is no longer a viable long term option for anyone. Self education to survive will be key for a lot of people but the governments also need to help people out of poverty in some way, providing better financial education at school would be a good start for example. Investing in assets such as property if you’re lucky enough to know how to do so will help future proof some of the wealth (however small) you already have. Remember do not rely on anyone else to help you as the markets and global economy have a far greater power than any government policies are able to control so education and understanding are key to surviving and flourishing in the coming decades.