Why The Millennial Generation Needs To Be Mobile And Global in 2016
New York born William Francis Sutton, simply known as Willie,
had a 40 year bank robbery career whereby he reportedly stole
an estimated US$2 Million Dollars in total. Not much
money by today's standards, especially if you divide it up
over a 40 year period, but that is not what he is really
remembered or famous for. When brought before a judge at
one particular point in time, the judge asked Willie: Why did
you rob banks? Willie supposedly replied: Because that is
where the money is. Willie does have a point, but not in
the context of banking alone. While we do not suggest
you take up a life of crime, we do believe you may need to
start think about becoming both mobile and global so you too
can go where the money is. Stated another way, the
Millennial generation faces a number of circumstances
detrimental to their economic health and it is important to
know what they are and how to deal with it. And this is
also of concern because the Millennials are the one generation
that may conceivably end up worse off economically than their
parents, although there are some ways to avoid this
Before we have discussion about where the money is and will be in the future, it is certainly important to know where it is not. And the where not includes many of the developed nations of Western Europe and North America. The numbers, demographics and statistics are clear (or at least they are clear to us, but then again we are not running for public office). Interestingly enough the Millennial generation (ages 18 to 34) now exceed the Baby Boom generation (ages 51 to 69) in terms of size in the US (Europe is another matter). In the US there are about 74 million people that make up the Baby Boomers and there are 75 million Millennials according to Pew Research. Stated another way, American Millennials make up about 27 percent of the adult population, whereas the European demographics are a bit different and can differ wildly by individual country. Whereas European Millennials taken as a whole of the entire EU make up 24 percent of the adult population, the numbers are much lower in Italy (only 19 percent). However, unlike the US where Baby Boomers make up about 26 percent or so of the adult population, in Europe they make up about 50 percent. So, issues surrounding unfunded government pension plans are far worse in Europe than in the US, looking at percentage of population alone, which brings us to one of the biggest threats to the Millennial generation: the government pension ponzi scheme boondoggle.
The idea and intent of government social welfare insurance, including government operated pension programs, are all well intended. The problem is, they are ALL operated as Ponzi Schemes with the premise that more and more young population will pay in as the population expands, thus having an ever expanding pool of contributors (and presumably much more than those taking out a check on the back end). However, as people decided to have smaller families and or no children in some cases over the past 40 years, the resulting demographics have not cooperated with the ponzi scheme model. While you can clearly see the problem in Europe, the US statistics should in theory give solace. After all, in the US the Millennials now in 2016 slightly outnumber the Boomers and statistics indicate they will out number Boomers in 2030 by 2 to 1.
However, that is assuming the Millennials can even get a decent paying job to be able to make tax contributions. Employment issues aside and regardless, the 2016 Tax Foundation’s annual analysis of American tax expenditures claim that American citizens pay more money to government in the form of taxes each year than they do on combined food, clothing and housing expenses. And aside from ordinary income taxes in the US, most American workers probably do not realize that they are actually paying 20 percent of income into the US Social Security program. Employees have up to 7 percent deducted directly from their salary, and the other 13 percent is paid by the employer. I want you to remember that 13 percent because we are going to come back to that in a moment (note, this effects American expatriates especially). But the key point is, it would appear that the old geezers like me (Boomers) expect the Millennials to pick up the tab via higher taxes and that is not only unfair, it is not feasible.
But finding employment is not the only problem. The Center for American Progress, for example, showed that 30 year old workers in the US earn today the same pay, adjusted for inflation, that 30 year olds earned back in 1984. The Wall Street Journal also reported that Millennials in New York City are earning about 20% less than the previous generation of workers, and they are absolutely drowning in $14 billion in debt. The average working 23-year old in New York City earned $23,543 compared to $27,731 in 2000 after adjusting for inflation (and the numbers are probably even worse if we use the real inflation rates instead of the bogus figures the US government provides). The average 29-year old made $50,331 in 2014 versus $56,026 in 2000. And analysis by the Bank of England showed the value of a university degree has fallen substantially over the past two decades as well. A university degree earned in the UK in 1995 would on average increase wages by 45 percent relative to having no similar university education, but the analysis from the UK showed that, by 2015, this premium had fallen to 34 percent. In plain language, university graduates are earning less.
And what about cost of living? Has cost of living gone down or become less expensive for the Millennials? Heck NO is the answer. Housing costs especially are a blatant issue effecting the Millennial generation. While US politicians especially want to claim all is well and that inflation is naught, rent inflation for some 43 million Americans has exponentially gone up and now averages 8 percent in the US. Whereas in the past, historically rent inflation average somewhere in the 2 percent range, it is now 4 times that amount. But why is rent inflation alone an important issue? Simply because the younger generation cannot afford to buy their own homes at a young age as many of their parents have done. In the UK a recent news headline shouts UK housing crisis: four in 10 renters fear they will never own a home. A poll in the UK finds that finds that 37% say home ownership is out of reach for good while 71% couldn’t buy without family help. So, unless the Millennials inherit a home from parents, chances are they will be long term if not life time renters.
Saving A Generation: Thinking Mobile And Global
There are two options open to a business, government and yourself individually if you want to increase the bottom line, financially speaking. You can increase your income (not always easy to do) or you can reduce your expenses. Obviously if you currently have no job or income that means going somewhere else to work. And regardless if you have some kind of income, be it from a salaried job or self employment, then that means reducing your living costs to increase your net funds at the end of the month (and housing costs are a large component of that, taxes as well). On the first part, it is interesting to note that the German city of Berlin has now become home to some of the best educated waiters on the planet. Young Italians, looking to escape the 50 percent unemployment situation in Italy have been going to Germany with many finding jobs as wait staff in the restaurant industry. This has become such a phenomenon that some neighborhoods in Berlin are being compared to the Little Italy area in New York City that came about during the early turn of the last century. There is nothing wrong at all with working as a waiter or waitress and it is a honest living. But it that why you spent 4 years or more in a university?
We have said many times before that we believe, for a variety of reasons, that the so-called developed markets or developed countries are on the decline and that the growth will continue to be found in the developing or emerging markets. And right now at least, the emerging or developing markets usually offer much lower housing and general living costs than the developed world counterparts plus they are still growing economically speaking. So, why not rent a high end luxury apartment in Manila and work as a trader on-line? Why not buy a new condo in Santo Domingo or Quito and work as a social media marketer for a company in France or Germany? Why not live in Kuala Lumpur and work as the Asian sales representative for a company in North America? Why not earn your living as a journalist or correspondent for a media company in the UK, but live for half the living cost somewhere other than London, maybe even in another time zone? All these things are possible and the Millennial generation especially is more technologically savvy than previous generations. In fact, the Millennials are probably the first generation to be able to truly live and work un-wired and physically unconnected to any one particular place.
However, moving to another country and working remotely is not the main challenge or problem. Rather immigration issues will be the number one issue you will face and here is why. While the so-called developed world has a larger percentage of the population that is becomes aged and retired, the emerging or developing markets have a huge percentage of a population that is young. So, the difficulty for governments in such emerging markets is to figure out how to generate sufficient jobs and employment for this segment. And as a result of the 2008 economic crisis (which is still on-going, and we are back again in recession now in 2016, although some will opine they never got out of recession since 2008) many of the emerging markets were flooded with the unemployed from other countries, with a large percentage coming from Europe especially. Many emerging or developing markets accustomed to seeing foreigners come and go as tourists were shocked to see such people entering as tourists but staying illegally to find work. The Dominican Republic alone was the recipient of an estimated 50,000 unemployed and illegal Spaniards that they wanted to deport but faced a government in Spain that started tap dancing faster than a flamenco dancer with her shoes on fire (to beg the Dominican Government not to send then back). So, the point is, you will need to convince your new port of call that you are there NOT to take work away from the locals, but rather to take advantage of lower living costs and lower taxes with your income derived elsewhere. Think of it as a new twist on outsourcing, with the outsourced party being yourself. And even if you take a reduction in pay through this arrangement, chances are you will come out ahead financially with the lower living costs and lower (if any) taxes.
Now with all that said, the new impetus on the slowing going broke developed nations is the paradigm of taxation by citizenship and not by territory or where the work was done. This is a very real possibility you will need to deal with. The US of course always held onto this mafioso taxation idea (once you are in, you are in for life) but many of our European clients are concerned that their own governments may want to try this nonsense as well. For Americans (remember we said we would come back to the 13 percent social security tax paid by the employer), the US Government in recent years has pressured foreign companies with US citizens living and working abroad for the foreign company, to start forking over the 13 percent social security tax (they call it a contribution, but most contributions we are aware of are not done at gun point). And as a result, the employee with US citizenship working abroad became a 13 percent more costly liability, forcing employers to tell them please get a new passport or get lost. So part of your long term thinking should also include another citizenship and as a result of that another passport (from an emerging market nation - read from a NON high tax, going broke nation).
Perhaps my solution is a bit drastic for some, and certainly there are many people that believe one should work on changing the system from within, voting in new and better politicians and so on. And it is true that the Millennial generation is much more dedicated to social causes and activism than their parent's generation. But on this issue, I cannot help but be reminded of the Occupy Wall Street movement. Remember that? What happened or what was the outcome aside from traffic jams in the financial districts of some major cities? In my opinion, the only thing that came out of it was they figured out new ways to screw you. Negative interest rates, bank bail-ins, talk now about eliminating larger denominated currency notes and we can envision the end game of eliminating all cash currency as well. Why? Because negative interest will only truly have an effect if there is no cash to hoard at home (see what is going on in Japan at the moment). And more importantly it is about control. If you cannot get your hands on cash, and for some reason they decide to place currency controls in place whereby you cannot even wire transfer your digital currency holdings, then what do you do? They have your money incarcerated, and by default you as well.
With many of these new proposals being proffered, it would seem to us that some people want to bring back feudalism (good luck with that). A situation whereby you are property of the lord of the manor and tied to the land where you were born as serfs of yesteryear. I mean not in the same literal sense of course, but rather via taxation directly tied to citizenship (no matter where you live and work), elimination of cash currency and a host of other initiatives designed to restrict your freedom (the argument of course will be to combat bad guys running around the desert in Toyota pick-up trucks, but we are a bit smarter than that). And if by chance you do think or still believe more government intervention is the answer, just take a look at the mess they have already made. They cannot save themselves and I get the impression they really do not know what they are doing (or maybe they do and it is all on purpose?), never mind trying to salvage the nation and economy for the next generation.
I wish I could tell you exactly what will come to pass in the future but I cannot. I can only offer the advice to read, investigate and learn as much as possible. Make business and social contacts globally. Think and plan your future (you are the only one that can because it you wait for government to do it for you, you will be disappointed, yet again). Watch the current events as if one is playing chess, trying to figure out the next 3 or 4 moves ahead and remember the mistakes made so you know better later on. The survivors will need to clean up the mess and the world will need a group of solvent, educated and dedicated young people from the Millennial generation to do this. So, be a survivor. The intellectually and ethically challenged members of my generation that are running things will be in adult diapers and running around in electric wheelchairs soon enough. You just need to figure out how to hold on until then. And on behalf of many in my generation too selfish, too arrogant and do dumb to do so – I apologize on their behalf.
John Schroder is the author of this article and his firm, Ascot Advisory Services, has been assisting clients for 17 years in The Dominican Republic with residency applications, citizenship applications, banking and investment accounts, and other legal services (real estate contracts and title transfer, company formation services)