Why Amazon’s $15 an Hour Won’t Save America
The first federal minimum wage took effect 80 years ago this month: it was 25 cents.
Today, adjusted for inflation, it would be worth $4.19.
The Fair Labor Standards Act was passed by President Franklin D. Roosevelt. FDR saw the act as the second-most-important piece of the New Deal after the creation of Social Security and called it “the most far-reaching, farsighted program for the benefit of workers ever adopted in this or any other country.”
Last week, Amazon announced it will be raising its lowest-paid U.S. employees’ wages to $15. They said they would now lobby in Washington D.C. for an increase in the federal minimum wage and urged competitors to follow.
Raising the national minimum wage should raise everyone with steady work above the poverty line, right? Moving from $7.25 an hour to $15 would make a huge portion of the population much more comfortable, wouldn’t it?
But I ask, will an increase in wages actually shrink the gap between the rich and the poor?
I doubt it and here’s why…
At a young age, I knew I wanted to be rich. I saw my parents struggle financially and the stress that gave them.
I knew that wasn’t for me.
I wanted to buy nice things, be generous, and enjoy life worry-free.
When I told my rich dad, my best friend’s dad who was a successful businessman, that I wanted to be rich, he asked, “How do you think you become rich?”
“You make a lot of money,” I said confidently.
“That’s partially correct,” my rich dad said. “But you can make a lot of money and still not be rich.” He went on to explain how some employees and self-employed people made a lot of money but weren’t rich because they had low financial intelligence. They lost most of their wealth to high taxes and by purchasing liabilities.
The Four Forces that Steal Your Wealth
There are four things that steal your wealth: Taxes, Debt, Inflation, and Retirement.
People who make a lot of money aren’t necessarily rich because they lose so much of their income to those four forces. High-earning professionals are some of the highest taxed in the US, don’t have any investments that provide cash flow and hedge against inflation, are overly-burdened with debt, and aren’t ready for retirement—meaning they need their paychecks or they’re broke.
It’s entirely possible, for example, that two different people each making $100,000 per year could have entirely different financial lives. One could be poor and the other rich.
Here’s an example:
Of the two people who both earn $100,000, one pays 24 percent in income taxes, has a crippling mortgage, and saves money in a 401(k) that barely keeps up with inflation. The other pays nothing in taxes, owns rental properties that provide passive income that adjusts with inflation, and has a plan to use that passive income to purchase more passive income investments. Who’s richer?
It’s possible to make a lot of money and use the forces of taxes, debt, inflation, and retirement for your benefit—but it takes high financial intelligence.
Here’s the fundamental problem for the ‘rich,’ high-income employees: They have the highest tax burden, the lowest control over their retirement, and can sell only their time.
My rich dad said, “The main cause of poverty is fear and ignorance.”
His point was that most people are so afraid of not having money that they’ll do anything to get it. Usually, this means working jobs they don’t like, for people they don’t like, for a salary they don’t like.
The reasons for this are that while people know they want fine things, they don’t know of any other way to attain them than trying to work for more and more money. The more they make, the more they buy, and the more money they need to make.
A Lesson in Wages at a Young Age
As young boys, my rich dad wanted to teach Mike and me a valuable lesson about money. He did so by having us work at one of his convenience stores for three hours each Saturday. Our job was simple… and mind-numbing. We dusted the shelves each time a car drove through the parking lot, sending a wave of dust through the store doors that were open to keep the store cool since there was no air conditioning.
In return for this, we each received 30 cents—even in the 50’s, not a lot of money—and a promise to learn how to be rich. At the end of each shift, I used my money to buy comic books and went home wondering when rich dad would teach me how to be rich.
As weeks went on, I got my $0.30, but I never got the teachings I expected on how to be rich. Finally, I was ready to quit. I was making poor money for hard work and it wasn’t worth it—or so I thought. That is when I finally got my first lesson on money.
“I want to teach you the power of money,” said rich dad.
He went on to explain that our desire for more money had the effect of blinding us. Rather than see opportunity, we let our lack of money give us tunnel vision. The only option was to have him pay us more. We were working for money.
He then explained that he didn’t work for money but did what he loved and made money work for him. Our eyes were opened.
After rich dad’s financial education lesson, Mike and I put our heads together to see how we could make money work for us as well. The answer had been in front of our faces the whole time we were dusting the shelves and complaining about how little we were making.
Rich dad said, “The sooner you stop working for a paycheck, the sooner you’ll see things other people never see.”
The 8 Rules of Money
The rich know how to play by different rules when it comes to money. That’s why they don’t have to work for a paycheck.
Rule #1 – Money is Knowledge
Rule #2 – Learn how to use debt
Rule #3 – Learn how to control cash flow
Rule #4 – Prepare for bad times and you will only know good times
Rule #5 – The need for speed
Rule #6 – Learn the language of money
Rule #7 – Life is a team sport: Choose your team carefully
Rule #8 – Since money is becoming worthless and less, learn to print your own
For those of you who have been struggling financially and waiting for a pay raise, perhaps it is time to try and follow the eight rules of money. Change your own rules to play the game and win.
Editor, Rich Dad Poor Dad Daily