A Tale of Two Americas- The Average American Consumer vs. The Average American Investor

It’s no secret that the ripple effects of the Pandemic are still influencing the U.S. economy. 

Since 2020, the US has printed nearly 80% of all US Dollars in circulation. To put that in perspective, at the start of 2020 the U.S Economy had ~$4 Trillion in circulation. Now, there is nearly $19 Trillion in circulation, a 375% jump in 3 years. This, among other factors, has caused Inflation to decimate the value of our dollar. The cumulative effect of Inflation since 2020 is 21.75%. Let’s review what this means in detail.

Imagine you have a cart full of groceries on January 1, 2020. Let’s say that cart of groceries costs $100 exactly. Fast forward to July 1, 2024- the same exact cart of groceries would cost $121.75. This is inflation in action.

Conversely, imagine you have $100 in cash in your wallet on January 1, 2020. That amount of money would buy you $100 worth of goods. Fast forward to July 1, 2024, that same $100 in cash would only buy you $78.25 worth of goods. This inflation in action.

The value of the U.S. dollar is based on supply and demand. When the Government adds more dollars to circulation, it makes them worth less. 

Problem is, the average American doesn't proactively stay aware of what's happening in the Economy- they feel it when it begins to affect them. It's a tactile and emotional feeling when life starts to get harder when it comes to money. 

I want to tell the story of Two Americas- well, two different types of Americans. The journey of the American Investor vs. the Average American Consumer. 

The Average American Consumer

Cars, boats, RVs, clothes, electronics, and designer items- these are all depreciating assets. This means they lose money over time. The Average American Consumer spends a lot of time, money, and energy on these items. When you have a large part of your financial world tied up in these, not only is his/her hard earned dollars being invested in things that go down in value over time (thus making his/her time worth less), but these items are also susceptible to inflation. Therefore, one must spend more time working to buy the same amount of goods- purses, clothes, cars, etc. 

The above is what is causing the emotional feeling that the economy isn’t good for the Average American Consumer- the tactile and emotional feeling I talked about above. These individuals are paying 21.75% MORE to maintain the same lifestyle than four years ago- and that money has to come from somewhere. It has come from Credit Cards, Home Equity Lines of Credit (HELOCs), a reduced savings rate, and buy-now-pay-later services like Klarna and Afterpay. 

The Average American Consumer has been decimated by inflation since 2020. When one’s Active Income goes to purchasing things that go down in value and cost more year after year, a hamster wheel type situation is created. You end up working to live, and living to work. It doesn’t have to be this way- in fact, let’s tell the story of the other America- the Investor’s America. 

The Average American Investor

The Average American investor has been rewarded handsomely by inflation over the last four years. Since 2020, the S&P 500 (the 500 largest companies in the U.S.) has increased by 71.17%. An astonishing return for investors. 

For every $100 that The American Investor had in the Stock Market on January 3rd, 2020- they now have $171.17. The economic story for The Average American Investor is a stark contrast to the Average American Consumer, and this is why. 

The Average American Investor has most of their Financial World tied up in Assets that go up in value and provide income- called Appreciating Assets. The Average American Investor benefits from Inflation and money printing- because it causes the value of their assets to increase. In the case of the last four years- far outpacing the negative effect of inflation. 

Investors in the S&P 500 have outperformed the Cumulative effect of inflation by an eye-popping 49.42%

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Realistically, where you are on this comparison is a continuum. Where you sit between the Average American Consumer and the Average American Investor is determined by how much of your Active Income (the money you make from your job) you spend on Investments vs. Consumable items. 

The lesson learned from the last four years is that to be more like the American Investor will benefit you. One cannot out-earn the cumulative effect of inflation when it has caused prices to increase over 21% in the last four years. I believe this will continue to happen and we will see more of this in the future. 

Until then, the economic divide between the Average American Consumer and the Average American Investor will continue to deepen and widen. It’s up to you to choose a side.