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From lavish lifestyles to gilded investments, the wealthy have long had an edge when it comes to money.
But have you ever stopped to wonder how and why the wealth gap keeps increasing?
As with most things in life, it’s not just luck; it’s a combination of strategies those at the highest levels of wealth employ.
We’re going explore 16 ways in which savvy financial moves enable those with money to keep their bank accounts full and rising.
From taking advantage of tax loopholes to investing intelligently and passing wealth from generation to generation through trust funds, get ready for a crash course that will help you gain insight into how the wealthy play (and win) a winning game with their finances!
#1. Old Money Keeps Growing
The wealthiest families manage to hold their wealth through generations by taking advantage of trust funds and inheritance laws.
These tools enable them to pass stocks, bonds, real estate, and other investments from one generation to the next without ever paying taxes on those assets.
While the average Joe cannot access these strategies, understanding how they work is essential in understanding why old money continues to grow no matter what the economy throws at it.
#2. Economy Manipulation
The wealthy are not without their tricks when it comes to manipulating the economy.
For example, they may take advantage of tax loopholes or buy up assets and companies at a discounted rate in order to increase their wealth.
They may also invest in industries that are expected to have a bright future.
#3. Automation and AI
The rise of automation and AI has reshaped the job market and income distribution.
While these technologies boost productivity and create new opportunities, they also displace many low-skilled workers.
Retraining and upskilling programs are essential to prepare the workforce for the changing job landscape.
Governments can also promote the development of industries that complement automation, generating new jobs.
Striking a balance between embracing technological advancements and safeguarding workers’ interests is crucial to mitigate income inequality in the era of automation.
#4. Inheritance and Family Wealth
Intergenerational wealth transfer perpetuates income inequality.
Inherited wealth provides a head start in life for the affluent, while those from low-income backgrounds lack similar opportunities.
Implementing inheritance or wealth taxes can reduce the concentration of wealth in a few hands.
Governments can use the revenue generated to fund social programs and initiatives that promote economic mobility.
Encouraging philanthropy and community reinvestment by the wealthy can also help address the disparity in family wealth.
#5. Technological Advancements
Rapid technological advancements have revolutionized industries and boosted economic growth.
However, these innovations come with consequences, particularly for low-skilled workers.
Automation and AI have led to job displacement, leaving many unemployed and underemployed.
And as AI grows, expect more jobs to become extinct.
Today’s technology-driven economy favors highly skilled professionals, widening the income gap as wages soar.
To mitigate this impact, governments and businesses must invest in reskilling and upskilling programs to equip workers with the necessary skills for the future job market.
Additionally, measures like universal basic income could help alleviate the financial strain on those displaced by automation and foster a more inclusive society.
#6. Tax Evasion and Offshore Accounts
Tax evasion and offshore accounts enable the wealthy to shield their income from taxation, exacerbating income inequality.
Governments must strengthen tax enforcement and cooperation with international partners to combat tax havens and ensure the wealthy pay their fair share.
Implementing progressive taxation and closing tax loopholes can help bridge the gap between the rich and the poor.
Additionally, increased transparency in financial transactions and ownership can deter tax evasion and ensure a more equitable distribution of resources.
#7. Globalization
Globalization has opened doors to new economic opportunities, but it has also exacerbated income inequality.
The competition from cheaper labor markets in developing countries places downward pressure on wages for low-skilled workers in developed nations.
On the other hand, multinational corporations and high-skilled professionals benefit from access to global markets, amassing more incredible wealth.
Addressing this issue requires balancing global trade and protecting domestic workers.
Governments should implement policies prioritizing fair wages and workers’ rights at home and abroad, ensuring that the benefits of globalization are shared more equitably.
#8. Financialization of the Economy
The shift to a financialized economy has exacerbated income inequality.
Financial activities, such as speculative investments and asset management, benefit those with existing wealth.
To address this, governments should implement regulations that prevent excessive risk-taking and promote long-term investment.
Reorienting the economy toward productive sectors and reducing reliance on financial markets can create more inclusive growth.
Additionally, progressive taxation on capital gains and financial transactions can counterbalance the wealth concentration caused by financialization.
#9. Corporate Influence
The influence of corporations on government policies and regulations also widens the wealth gap.
Lobbying efforts and campaign contributions from powerful corporations often result in policies that favor their interests.
To address this, campaign finance reform and transparency measures are essential.
Governments should ensure that lobbying activities are regulated, and decision-making processes are open to public scrutiny.
Implementing policies that promote corporate social responsibility and hold corporations accountable for their impact on society and the environment can also help create a more equitable economic landscape.
#10. Social Safety Net Changes
In times of economic downturn, social welfare cuts can disproportionately affect low-income people.
Governments should strengthen social safety net programs, ensuring they are resilient during economic hardships.
Expanding access to healthcare, unemployment benefits, and affordable childcare can provide crucial support for low-income individuals and families.
Adequate social assistance can create a more inclusive society, providing a foundation for upward mobility and reducing the widening divide between the rich and poor.
#11. Housing Market Disparities
Rising housing prices are another area that has contributed to income inequality.
Affluent individuals benefit from property ownership as a prime investment, while many low and middle-income families struggle to afford homes.
To address this, governments should implement policies that promote affordable housing, such as rent controls and subsidized housing programs.
Expanding access to affordable housing can alleviate financial burdens on lower-income households and improve their economic mobility.
#12. Income Tax Policies
Income tax policies significantly impact wealth distribution.
Tax cuts for the wealthy in recent years have reduced revenue for social welfare programs, deepening income inequality.
Progressive tax systems, where the wealthy pay higher tax rates, can help address this issue by ensuring that those who can afford to contribute more do so.
Additionally, governments should close tax loopholes and crack down on tax evasion to ensure a fair and just tax system.
The increased revenue can then be channeled into social programs that support the vulnerable and foster greater economic mobility for all citizens.
#13. Wage Stagnation
Despite economic growth, wage stagnation is a significant contributor to income inequality.
Many low and middle-income workers struggle to keep up with rising living costs, preventing them from building wealth.
Raising the minimum wage and ensuring fair wages that keep pace with inflation can help improve workers’ financial stability.
Strong labor unions and collective bargaining can empower workers to negotiate better wages and benefits.
Additionally, fostering a supportive business environment that incentivizes companies to invest in their workforce can aid in narrowing the income gap.
#14. Education Disparities
Access to quality education is a pivotal factor in reducing income inequality.
Disparities in educational resources and funding can hinder opportunities for those from low-income backgrounds.
To address this issue, governments must prioritize funding for public education, particularly in disadvantaged areas.
Investing in early childhood education and providing financial aid and scholarships for higher education can help level the playing field.
Collaborations between governments, private sectors, and non-profit organizations can also support innovative programs that improve access to education, empowering individuals to break the cycle of poverty.
#15. Lack of Resources
Those in poverty often have limited access to resources such as capital, technology, and information that can help them become more successful financially.
For example, those living in rural areas may not have access to high-speed internet or other technologies that can help them start a business or find better job opportunities.
Similarly, those living in impoverished neighborhoods may not have access to banks or other financial institutions that can provide them with loans and other forms of capital needed to start a business.
#16. Limited Access to Credit
Those who are wealthy often have easier access to credit than those who are less affluent due having greater assets such as real estate or investments which lenders use as collateral when issuing loans or extending lines of credit.
Additionally, they also tend to have their finances in order, helping them to achieve a higher credit score, and thus be more likely to receive a loan.
On the other hand, those who live paycheck-to-paycheck may be denied credit based on their income level, employment status, or lack of collateral.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.