Last week, I wrote about young people turning to sports betting, day trading, and other speculative investments, partly because of this sense of “financial nihilism.”
A Northwestern Mutual survey found that 80% of Gen Z respondents who were drawn to speculative investments said it was partly because they “feel economically left behind.”
Essentially, the concept of financial nihilism is that people feel the economic game is rigged against them. That the rules were written for someone else (typically older generations) and that no matter how hard you work or how responsibly you behave, you won’t be able to get ahead.
So why not go all in on a 12-leg parlay or spend all of your time trading triple-leveraged options?
While I don’t really buy into this feeling of financial despair, I do think young people have some, just some, justification for their complaints.
In the year 2000, the median home price was $119,926, approximately 171% of the median household income. In 2024, the median home price reached $345,963, which is about 354% of median income. This means buying a home today is roughly twice as expensive as it was at the turn of the century.
Renters aren’t off the hook either. Nationwide rent prices are up around 36% since 2020.
The overall price of stuff also grew by about 25% since 2020, more than double the 10% cumulative inflation seen from 2015 to 2020.
What’s interesting is wages have gone up. Between 2020 and 2024, U.S. wages rose about 22% while cumulative inflation was 19%, leaving the average worker with a real wage gain despite higher inflation. However, it’s very frustrating for most people to get a 20% increase in pay over a few years and still feel like it’s not buying a better lifestyle.
But this is exactly why you should invest your money.
Most Americans make the majority of their money from wages. Yet, as we know, inflation gnaws away at your wages.
To combat that inflation, you can use your income to buy assets.
Kyla Scanlon has a great article detailing how the richest people in America receive more than half of their income each year from interest, dividends, and capital gains from owning stocks.
Take a look at how much stocks have grown on an inflation-adjusted basis compared to wages over the past 30 years:
This is how capitalism is designed. Capital grows faster than labor. Money can make more of itself when it’s in the right investment account.
That’s the irony of financial nihilism. The very system that people feel shut out of or has left them behind is the one that anyone can buy into to build wealth.
The system isn’t going to change because you’re frustrated with it. But it will reward you for joining it.
Your wages can be used as a tool to buy assets which can then generate income. And then that income buys more investments, which generates more income, and buys more investments, and so on. That’s the power of compounding.
A person who finds a way to invest $1,000 a month from age 30 to 65, earning a 10% average annual return, will build over $3.2 million of wealth.
Instead of looking to cryptocurrency or sports betting or day trading or any other speculative investment hoping for a miracle that gets you out of your financial situation, you can consistently invest in a diversified basket of stocks and let compound interest work for you.
The first strategy is hoping for something to save you. While real investing is owning the thing that’s winning.
Thanks for reading!
Jake Elm, CFP® is a financial advisor at Dentist Advisors. Jake a graduate of Utah Valley University’s nationally ranked Personal Financial Planning program. As a financial advisor at Dentist Advisors, he provides dentists with fiduciary guidance related to investments, debt, savings, taxes, and insurance. Learn more about Jake.