“How to make money” is an extremely popular term on Google because people are desperate to make money and become rich but don’t know how to.
If you look at the search results for “how to make money”, they’re terrible. Lies, snake oil advice, and scams to get poor people into a pyramid scheme, a lottery or a contract job where all the profits but the little guys are just cogs in a machine that makes someone else more money.
This guide is not going to help you make money. But this guide will help you understand America: who makes the most money in America, and how has this trend changed over time? And what does this mean for you, today?
You’ll learn the history of wealth inequality. And how you can build wealth despite the challenges America throws your way.
You can’t win a game unless you understand the game. Let’s understand it now.
Debt Fuels Growth and Causes Collapse
There is an interesting thing happening around the world in the past decades, and that has to do with debt.
For better or worse, people around the world are taking on more debt than ever before.
This is not just true for the United States but every country in the world.
Consumer mortgage debt was 20% of a country’s GDP in 1983 (blue), then grew to 35% in 1990 (red) and 50% by 2006 (green).
China’s private debt-to-GDP ratio is at a level similar to the U.S. right before the 1929 Recession. (Source: this article)
Even Germany, whose government passed a law to balance the budget, has private debt above 100% of its GDP.
Literally everybody is borrowing more money and taking on more debt.
Is debt a good thing or a bad thing? Well, it’s both.
Debt Fuels Growth
We borrow money so we can invest and grow. And even if we borrow money just to spend it, spending leads to growth, too.
If you borrow money to buy a house, the real estate agent will make money, the home inspector will make money, and the bank will make money from mortgage interest.
If enough people borrow money to buy houses, entire industries will boom, from construction, real estate development, architecture to furniture sellers and banks.
But borrowing could lead to disasters.
Bad Loans Cause Financial Crisis
We love borrowing money as long as we can pay it back.
But everything is always great until it isn’t.
Borrowing eventually becomes too much and leads to banking and financial crises. The crisis then triggers stock market crashes and economic recessions.
This cycle of euphoria to collapse is as old as time, and happens around the world.
The more we over-borrow, the harder we fall.
When a financial crisis happens, real GDP per capita (person) falls.
The chart below shows what happened in past financial crises:
- On average, a financial crisis lasts two years
- On average, a financial crisis leads to a 10% decline in GDP per person.
This pattern is true around the world, from Argentina to Japan to Finland to the United States.
Financial Crisis Shuts Borrowing
During a financial crisis, borrowing stops.
Nobody is willing to lend money out and investments come to a halt. As a result, the value of assets from homes to stocks plummet.
The 2008 recession decreased home prices by 35%, shown in the chart below. And it took almost seven years until 2016 for home prices to recover.
But bad things don’t just stop with declining asset prices.
Negative Equity Leads to Bankruptcies
In 2009 at the depth of recession, 26% of all houses in the United States not only saw their home prices decline, they all had negative equity.
Negative equity means you owe more debt on an asset than what the asset is worth. So even if you sell your asset to pay off debt, you still owe more debt!
This means 26% of all houses in the U.S. had an actual price that is less than the mortgage they owe.
And what happens then? These homeowners have no choice but to declare bankruptcy so they don’t have to pay back the debt.
The concept is really the same as buying stocks on margin loans. If the stock price falls, you might owe more than what you own.
This is why we saw so many bankruptcies and foreclosures on home in 2009.
Negative equity is worse than losing everything – it drives people to the edge of a cliff, and then pushes them off of it.
Thankfully, negative equity has drastically declined since 2009.
But it’s possible that it’ll rise again during the next housing market collapse.
What do we learn here? A financial crisis is brutal on a person because it not only decreases the value of their assets, it still forces them to pay back debt such that it forces many people to declare bankruptcy.
On top of that, these people might also be losing their jobs and with jobs, their healthcare coverage.
As you think about how you are taking on more debt today, know that on some sense, you are literally doing what the rest of the world is doing.
But also know the consequences of bad debts during a financial crisis.
Recession Leads to Unemployment
When investment and lending freezes during a financial crisis, businesses stop selling and people stop buying.
Another result of this freeze is that many people get laid off.
The chart below shows the unemployment rate of the United States. You can see that it went down from 10% during the 2008 recession to well below 5%, but spiked to 15% during the 2020 pandemic.
Unemployment is hard on families. It’s not just about going hungry or not able to pay your bills, though that is hard enough.
Unemployment, and the struggle to find a job when nobody wants to hire you, kills people’s basic pride and dignity to find meaning in life.
It changes families, breaks families, and leaves families haunted even after recovery.
In the United States, we are seeing some really worrying signs of growing unemployment through both good times and bad; and they’re killing us.
Long-Term Unemployment is Rising
Unemployment is supposed to be cyclical: it goes back down when things are good.
But we are seeing some signs that for some people, things never go back to normal even after the economy has fully recovered.
The chart below shows something troubling. It shows that the labor market participation rate in the U.S. has been going down since the 2000.
The pandemic further pushed the labor participation rate to close to 60%.
Labor participation rate measures what % of our population is in the labor force – the people who are financially supporting families.
A decline of this number means more people are becoming permanently unemployed.
Now, some people are always permanently employed and that’s okay: a stay at home husband who’s wife is making the big bucks, the physically or mentally disabled, etc.
But some of these permanently unemployed are also people who tried to find a job but eventually gave up, including:
- The small town workers who got laid off and couldn’t find another job
- The middle-aged woman whose skills have fallen behind after taking years off to raise children
- Reformed prisoners with a criminal record but nobody wants to hire them
- Elderly people who still need work but can’t compete with the young
- Immigrants and refugees who can’t find suitable jobs in American society
- Undocumented, people struggling with depression, the list goes on…
When people become permanently unemployed, they’re no longer even included in the unemployment data because they’re no longer looking for a job.
In particular, Women and Black people have always had lower labor participation rates. Why? Companies have statistically shied away from hiring women, especially mothers, past a certain age due to, well, you can make your own guesses.
And there’re many research proving statistically how unlikely people want to hire Black people, especially Black people who are “too Black” in the eyes of non-Black people.
But this phenomenon goes beyond racism and sexism. It’s also happening to white men just to a lesser degree.
What is going on here?
Growth Stalled in the U.S.
The chart below shows the real GDP growth rate in the U.S.
We see that before the 1980s, the real GDP growth rate was about 5%. But since 2000, it is now hovering around 2.5% per year.
We are no longer growing as fast as we were before. This is partially because we’ve already grown so much since World War II, we can’t grow any further.
But then, you might ask, how is it that our stock market keeps going up when the GDP says we’re slowing down and more people are unemployed?
Well, we’re finally getting to the crux of the issue: money and happiness and who gets to be rich and happy.
Money and Happiness
What make people happy? After all, we want to build wealth and get rich so we want to be happy, right?
Does having a high GDP make people happy? It turns out the answer is yes.
This study and the chart below shows higher GDP countries have happier people.
The richer the country (from left to right), the higher people’s life satisfaction (from bottom to top).
The U.S. is on the upper right: we have a relatively high GDP per capita of $55K, and a relatively high life satisfaction score of 73.
If you live in the U.S. or any of the developed countries, congratulations, you live in one of the richest, happiest place on earth.
But we know it doesn’t always feel that way. Many people commit suicide and die from drug overdoses in the U.S.
According to surveys, we are more depressed than ever even though we live way better lives both financially and emotionally than people in, say, Yemen, South Sudan, Congo, Egypt, or even China and Russia.
Should we keep chasing happiness by chasing dollars?
Getting Richer, but Not Happier
Researchers who study the correlation between happiness and wealth found something more interesting.
They found that while richer countries have happier people, getting richer in an already rich country does not make the people in that country happier.
On the contrary, the chart showed that as the U.S. got richer, our happiness declined. What?!
Red on the chart means wealth and happiness are moving in the opposite direction between 2005-08 and 2015-18. During. this period, the U.S. got slightly richer (to the right) but significantly unhappier (downward).
In fact, not just in the U.S., but in India, Japan, Spain, Vietnam the UAE, people also on average got richer but became unhappier!
At the same time, countries such as Germany, Greece, Ukraine, Pakistan, and even Benin (a fabulous country in Africa) got both richer AND happier!
Why do some countries get happier as they get richer, and others go the opposite way???
The answer is wealth inequality!
The countries that got richer but unhappier had all the wealth go to the top 1%, whereas the countries that got richer but happier had wealth more equally distributed across all of its people.
Wealth Inequality Leads to Unhappiness
Indeed, America is becoming unhappy because growth did not benefit Americans equally.
In other words, more wealth increases happiness, but unequal distribution of wealth decreases happiness.
You can measure wealth inequality by looking at the top 1% share of total wealth – the higher this number, the more unequal the wealth distribution is in a country.
The chart below shows the top 1% share of total wealth declining after World War 2 until about 1980 when it started to increase.
Today, the top 1% of Americans in the U.S. control close to half of the total wealth in the United States!
We are more unequal in the U.S. and really, around the world, than we’ve ever been at any point in our history. We are also richer than ever, but that wealth is only concentrated at the top.
In other words: the world has changed over the past 40 years massively in favor of the rich.
Why did this happen? Did some evil government or business make this happen? Or are most people just lazy and stupid and therefore they deserve it?
Immigration: How To Make Money Before 1980
Imagine the world before the 1980s.
If you weren’t born into money but you want to make money and become rich, and assuming this is before the 1980s, then you have to do one thing: make sure you come to America.
America was not just a beacon of hope and freedom, it was the best chance for people to succeed.
Don’t get me wrong, America was certainly hard back then, particularly for women and people of color. As a Black man in America before the 1980s, you face insurmountable discrimination, both direct and subtle.
But the reality is that life was shittier outside of America however unequal America was at the time.
Chances are if you were born between 1940 to 1980 and grew up in the U.S., you had things like televisions, microwaves, cars, free education, vaccinations, things the vast majority of the developing countries, including India and China, could not imagine having.
America was magic, Disney Land. And so however of a broken dream America was, people risked everything to come here, especially the brightest and most capable.
Getting a chance to immigrate to America is basically winning the lottery.
Wealth Inequality: How to Make Money After 1980
But after the 1980s, inequality in the United States started to increase.
The chart below showed that in the U.S., the top 20% income-earners now hold more than 50% of the income.
A famous study done in 2016, shown in the chart below, found that the bottom 5% income-percentile people saw 0% growth in their income from 1980 to 2014 (post-tax, the blue line).
The very rich (top 0.001%) in the U.S. saw a steady 6% growth in their income for more than three decades 1980 to 2014.
In fact, notice how much steeper this line becomes right after the 95th income-percentile mark? All the growth in the past 3 decades are going to the top 5%, with most of it going to the top 1%.
Believe it or not, this line was almost flipped before the 1980s, where poor people benefited more than the rich.
Wealth Inequality: Before vs. After 1980s
Before the 1980s, the U.S. had plenty of upward mobility: people could come from humble beginnings but able to become successful.
Indeed, before the 1980s, the poor saw a larger income growth than the rich. After the 1980s, the American Dream is no longer a possibility or reality.
The chart below shows income growth (y-axis) vs. percentile (x-axis) in 1980 (gray) vs. 2014 (red):
- In 1980, the poor and middle class saw > 2% income growth, whereas the top 1% saw almost no income growth.
- The story is flipped in 2014: the poor saw NEGATIVE growth in income (they actually made LESS not MORE), and the top 1% saw high income growth.
So before the 1980s, you can get rich by simply coming to America with nothing but would see your income rise as you work hard.
But now, to become richer, need to be rich already, preferably in the top 1%.
Wealth Inequality: U.S. vs. U.K.
By the way, the game hasn’t changed for everyone around the world.
What is happening in the U.S. is not happening around the world.
The chart below shows a different story comparing the U.S. to the U.K.
In the U.K., those on the bottom did not see any growth from 1980 to 1991, but since 1991, everybody got richer in the UK, including those in the low income groups.
The UK (and indeed, many other rich countries) are much more successful in sharing the benefits of their growth across all income groups.
Whereas in the U.S., beginning in 2000 we are seeing the bottom half of our country losing income rather than gaining.
Wealth Inequality: Middle Class Around the World
The chart below shows the median income growth since 1980; the U.S. is by far the worst out of all the developed economies:
Half of the people in the U.S. has not seen any growth for 20 years.
And we wonder why people are angry, why Trump got elected, and why people hate politicians in general.
Is America the greatest country in the world?
For the top 1%, America is amazing, these people have gotten richer faster than anyone anywhere in the world.
For the bottom half of this country, America has not gotten better at all in the past thirty years.
America is no longer a land of opportunities for the tired and the poor, statistically speaking.
Wealth Inequality and Taxes
Why is the U.S. so unequal in sharing its growth but other countries are?
Well, it has to do with taxes.
Taxes play a role in transferring or redistributing wealth from the rich to the poor (or from the poor to the rich).
In the U.S., tax laws favor the ultra-wealthy: those in the top 1% and 0.1%.
Even Warren Buffet agrees; he says tax laws are why Warren Buffett himself pays a lower tax than his secretary.
The chart below from the 2011 Luxembourg Income Study shows inequality, measured by a metric called the Gini coefficient, before and after taxes.
The purple line is the Gini before taxes, and the red line is the Gini after taxes.
The chart shows that the U.S. does not have the highest purple line, or Gini before taxes. But after taxes, the U.S. has the highest Gini.
Meaning after taxes, the U.S. is the most unequal developed country in the world because our tax laws favor the rich.
If you are a conservative, you must be fuming right now. But I’m apolitical, I’m simply sharing some data. And the data says that the U.S. has allowed the top 0.1% to keep way too much wealth.
And by the way, I am a top 1%. Some of you may ask, why should a top 1% advocate for more wealth equality? Doesn’t this hurt you? Here’s why.
A more equal control that provides opportunities for everyone to succeed will attract the brightest talent from around the world and allow more “hidden gems” within society to prosper. And this benefits the everyone in that country.
Everyone in America wins because someone in this country, whether immigrant or native born, built Apple, Google, Tesla, or produced the most beautiful music and movies.
Hip hop is a music genre invented by inner-city Blacks and the music genre is estimated to generate $131 billion in revenue in 2030. This, too, benefits America.
Americans invent, and we need to empower everybody of all economic and racial background to do so otherwise we all lose.
How to Make Money Under Wealth Inequality
Where are the top 1% getting their money from? Are they working, investing, building?
The income type can be either labor income (salary), capital income (investment), or mixed income (could be others or a mixture of either).
The chart revealed that the top 10% (P90-95) are still mostly getting their income from jobs (labor income accounted for 90% of their income source._
But the higher up you go in the income percentile, the more capital (or investment) in earn rather than income.
The top 0.1% (P99,9-99,99) has 50% of its income from capital income (investments) and only 30% from labor income (salary).
Somewhere between the top 0.5% and top 0.1%, people go from primarily making money from salaries to primarily making money from investments.
Make Money via Investments
At the top 0.01%, nearly all of your income comes from investments, where the tax on capital gains is much lower than tax on salaries.
So we learned two things here:
First, you can still get to the top 1% by finding a great paying job. In fact, the majority of the top 1% are still getting their money from jobs.
Second, you should start investing in the stock market. Everyone in the top 1% and beyond derive a good portion of their income from investments.
We are not talking about day trading or buying Gamestop stocks. We are talking about index fund investing. Check here for the best vanguard funds for long-term investments and here for the best Fidelity funds.
How to Make Money by Finding the Right Jobs
Jobs have changed a lot since the 1980s. What used to be a stable, good-paying job before 1980 may not at all be a good career today.
This is not just true in the U.S. it’s true around the world.
A study by Autor in 2010 analyzing data from 1993 to 2006 showed that across many countries, middle-class jobs are disappearing.
Autor’s chart showed jobs are becoming more polarized: we have a rise in highest-paying jobs (teal color going up), and also a rise in lowest-paying jobs (blue color going up)
But the middle-paying jobs are decreasing rapidly (green color going down).
Job Polarization Explained
Some people say that jobs are becoming polarized because we have never increased the minimum wage.
So as things got more expensive, the real minimum wage fell. The real minimum age was $7.50 in 1979. In 2006, it was $6.50 after you remove inflation.
Other people say it was the decline of unions that led to a decrease in middle-class jobs. It is true that 21% of the jobs were unionized in 1979 and only 7% were in 2009. It’s unclear how and why unions could solve this problem.
Still, some blamed offshoring of jobs to India and China. But since 2006, we’ve not seen an increase in jobs being offshored. And many jobs, like service jobs, are not possible to be offshored. So I’m not sure this explains the whole situation either.
Andrew Yang blames technology: that AI and robots are replacing routine tasks. He and many others argue that computers are replacing secretaries and others who do routine tasks.
This is a possible scenario. But remember: robots and AI still cannot replace non-routine jobs, such as an aid taking care of your grandmother.
But think about this: do you use this app called Doordash? It delivers food to your door. I use it quite often and it’s really convenient.
Doordash pays its corporate employees $500K a year to build a beautiful app and lots of models and technologies to connect the people who want to buy food with the people who want to cook.
It then pays a bunch of Dashers $20/hour to deliver food (that is $40K a year, less than 1/10th what it pays its corporate superstars).
I see a lot of advertisements on YouTube about how amazing it is to be a Dasher, making a quick buck here and there. But let’s not kid ourselves: these are minimum wage jobs exploiting the poorest people.
Doordash, like many companies, does not employ middle-paying people: their employee base consists of highly technical, business-driven superstars and a bunch of cogs in the machine (the Dashers) that the company can’t wait to replace with robots.
Is it cruel? Yes. Is it sound business? Also yes.
How to Make Money: Answered
So in conclusion, we have come to the realization that the world is changing: jobs are becoming polarized to high vs. low salaries. The middle class is disappearing.
In both the high salary and low salary cases, the jobs that are left are the non-routine jobs.
For high salary jobs, use your brain and creativity to create things computers cannot create.
And for low salary jobs, use your emotional and physical labor to fix and help where computers cannot.
And with any money you earn, you put it into the index find and no touch it for many years to come.
Education and Financial Freedom
And what happens if you are still young? You go get an education.
There are a lot of people saying college is not worth it.
The vast majority of the people, myself included, are successful today only because we went to great schools.
The chart below shows that for those born into the poorest (1st on the x-axis) American families, having a college degree gives you an 80% chance of getting out being the poorest (1st on the y-axis).
Sure, you can be one of those smart college dropouts or build a successful business without a college degree.
But it is really important to keep in mind that for most Americans, studying hard and getting into a good college is still the best path toward getting into the top 1%.
How to Make Money Despite Wealth Inequality: Summary
In summary, we have learned three lessons:
Debt is Great, Until It Isn’t
Every country tries to grow by taking on debt. People in these countries do the same.
And eventually this leads to financial crisis, stock market crash, unemployment.
Financial crisis sucks and has long-lasting damage. But it’s a thing of our worlds and can’t be avoided.
Post-1980 America is No Longer the Dream
Since the 1980s, moving to America is no longer the way to achieve the American Dream.
Because only the top 1% has steadily increased their wealth for the past 40 years.
The bottom half of America saw their income decrease in the past 40s, and even the top 10% and top 5% barely saw their income increase.
It was only the top 1%, 0.1% and 0.001% that really saw their wealth skyrocket.
Inequality in America is at an all-time high. The U.S. is more unequal that every other developed country in the world.
Polarization of the Labor Market
We are seeing a shift in the jobs market. Many jobs for the middle class have disappeared.
The top 1% jobs are the jobs computers can’t replace: they are more creative and/or more technical.
The wealthier you are, the less you’ll depend on a salary as income. The very rich at the top 0.5% and above rely on their investment income to live.
So if you want to be rich, start investing today and make sure you get a college degree.
As for what jobs you should get into, here’s what you can do:
Become a Creative
It is more competitive, but also easier than before to make money from your creativity and art.
From writing, making music, creating entertainment, to art, cooking and teaching, you can make money by being yourself and offering real value.
The creative economy is huge. My blog is a creative endeavor. Your tik tok account is a creative endeavor. Etsy stores are full of creative people.
There’s a 19-year-old girl from Kazakhstan who remixed “Roses” Into a Hit.
I don’t understand MrBeast at all, but he’s a 22-year old creative who made millions and raised $72 million to build trees.
The list is endless.
Okay, so you are an introvert and you don’t want to become an influencer? Not a problem.
Did you know that you can spend 9 months learning how to code and make $120,000 rights after?
App Academy is my favorite coding camp. It is by far the best place to learn how ot code and make money right after.
Learning how to code is hard, but everybody can do it if you like that kind of logical thinking. Yes: women and people of color can do it too, and so can people over 40!
If you have a desire and drive, consider a coding camp to change your life.
Otherwise, Find Non-Routine Jobs
Otherwise, consider non-routine jobs that also pay great.
Go into sales, become a air traffic controller, secure a license to become an electrician, elevator mechanic, pharmacy technician.
Own your own welding business. Hearing aid specialist. Garbage or water/sewr utility workers.
Or, open your own daycare and cleaning business.
The list is endless.
Got spare cash? Read about which stocks I own to quiet my monkey mind: Best Stocks to Invest in Long Term: 20% of My Portfolio
Want to Invest? Read up on my favorite fund for retirees: Vanguard Wellington Fund (VWELX): Retirees’ Favorite
Study Net Worth Percentiles by Age Here: Average Net Worth by Age: What Is Considered Rich?