What Happened to The American Dream?

Are you familiar with Investopedia? If you’re reading Retire by 40 and other personal finance blogs, you probably know about them. I regularly visit Investopedia to check economic news and research various financial concepts. They just released the 2023 Investopia Terms of the Year. These are the terms visitors are most interested in. Surprisingly, the #1 term this year is “American Dream.” This is unexpected because the American Dream isn’t exactly a financial term. However, it seems people are more worried about their finances than in previous years. Today, let’s look at the American Dream and see what happened to it.

The American Dream

What is the American Dream? Here it is from Investopedia.

The American dream is the belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society in which upward mobility is possible for everyone.
The American dream is believed to be achieved through sacrifice, risk-taking, and hard work, rather than by chance.

This is about right. My parents immigrated to the U.S. in 1985 to give it a shot. They struggled as minimum-wage workers for several years. Eventually, they became restaurant owners and put 3 kids through college. They wanted to give us a better future and they achieved that. After we graduated from college, they moved back to Thailand to enjoy a more relaxing lifestyle. They worked hard and achieved their goals.

As for me, I became an engineer after college. It was a good career. I made good money and invested a large portion of it in the stock market every year. I got married, purchased a house, had a kid, and enjoyed a typical American lifestyle. However, the job became too stressful and I retired early from my engineering career after just 16 years. That was good enough. I achieved my American Dream. We are comfortable financially and I’m very happy with my life. Those early years of saving and investing paid off. A lot of this is due to luck, though. Almost everything worked out right for me.

What happened to the American Dream?

Unfortunately, it seems the American Dream is becoming more difficult to achieve. The cost of living is higher than ever and job security is nonexistent for most workers. Inflation was a big problem for a while. Many of us got a raise, but everything also got more expensive. Americans are pessimistic about the economy and recent consumer sentiment reflects that.

Homeownership is a big part of the American Dream. Maybe that’s what getting everybody down. Housing prices are very expensive and the mortgage rate is too high. The housing inventory is also low. Current homeowners are reluctant to sell because we want to keep our awesome sub-4% mortgages. Also, homebuilders aren’t building many new houses. They need to borrow money to build houses and it’s harder to make a profit with these high-interest rates. As a result, many young families can’t buy a house and they are starting to get bitter.

Another important part of the American Dream is upward mobility. The idea is to do better than your parents. That’s pretty hard to measure. How do you know you’re doing better than your parents? It’s easier for me because my parents were immigrants. They started over from nothing when my dad was 40. My life is much easier and more financially secure by comparison.

I don’t know if RB40Jr can do better than me, though. There are more headwinds than when I was young.

College is far more expensive than in the 1990s.
It’s hard to find a high-income stable job. AI will take over many jobs by the time RB40Jr enters the workforce. (AI is another top term at Investopedia in 2023.)
A house is very expensive now. It’ll be tough to buy a house by the time he’s 27 like I did.
Dating seems ridiculous these days. I doubt he’ll be as lucky as I am with my partner.
Climate change and other global issues.

Life will be tougher for RB40Jr and his cohorts – Generation Alpha. However, RB40Jr is pretty lucky. We only have one kid and we’ll help out. His college fund is already worth a little over 6 figures. He’ll still need to get scholarships and work, though. After college, he’ll have to find his own way. We’ll have to wait and see if he can achieve his American Dream.

What about you? Are you doing better than your parents? Did you achieve your American Dream?

Image credit: Mi Nu and Debbie Hudson

Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.