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AICPA Study: Right Conclusion, Wrong Analysis

The American Institute of Certified Public Accountants released a report recently which argues that Americans between the age of 25 to 34 face an “uncertain future due to poor financial habits.” While its conclusion may be correct, its analysis is flat wrong.

The AICPA report was based on the fact that Americans between this age are not putting money into savings accounts and that these Americans are more willing to take on unsecured debt, as compared to prior generations when they were the same age.

The report offers no explanation as to how this adds up to “poor financial habits,” and it fails to compare the economic realities of today versus the economic realties of these prior decades. The reality is that Americans between the age of 25 to 34 are not able to save money in interest bearing accounts because:

  1. Inflation and a weakening US dollar has made everything more expensive for this generation of Americans than it has ever been before: a. Most Americans between the age of 25 to 34 saddled with over $60,000 of education loans (as compared to the mere $10,000 of yester years), which cuts into younger American’s disposable income, b. Most Americans between the age of 25 to 34 are now buying into a housing market that is woefully inflated, which eliminates much of younger American’s disposable income, and c. Most Americans now earn less that what their parents did in terms of purchasing power and standard of living.
  2. With the expansion of the internet and online brokerage firms, American’s between the age of 25 to 34 are more investment savvy; therefore, they are now are putting their money in investments that are more appropriate given the younger person’s time horizon than mere “interest bearing savings accounts.”
  3. Interest bearing savings accounts are currently paying a mere pittance, which makes them unworthy investments (compare today’s 5% to yesteryear’s 10-15%).

Judging by the tone of the AICPA’s report, it was no doubt authored by one or more Baby Boomer(s). These Boomers are right, younger American’s are facing an uncertain economic future – but the reality is that this uncertainty is nearly 100% due to the Baby Boomer generation’s “poor financial habits.” The Boomers lack of saving and excessive spending via our national debt has compromised the American economy and it has subjected younger American’s to a hostile economy, which is a much different economy that the gift the Boomer’s parents gave them. The AICPA is right that younger American’s do face an uncertain economic future, thanks in most part to the Baby Boomer generation. If the AICPA were really concerned about the younger generations, it should have been advising the Boomer’s to save more and spend less.

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