The Wealth Effect And Understanding Why Families Spend More When Assets Rise

Feeling richer changes how we act and when enough people feel that shift at once, it can move the entire economy. We unpack the “wealth effect” in plain language: why rising stock market balances and higher home values often lead to more spending, and why that effect hits the middle class harder than the ultra-wealthy. We also get honest about what the averages hide: wealth is concentrated, stock ownership is uneven, and that reality shapes how confident families feel about the future.

From there, we dig into the new Trump Accounts idea and why it’s more than just another tax-advantaged account. The design aims to give kids an early start with a funded kickstart for certain birth years, plus the option for families (and even employers) to contribute over time. We talk about “democratizing capitalism” through ownership and why watching an account grow from birth to age 18 could change behavior, build financial literacy, and make long-term investing feel normal instead of intimidating.

We also wrestle with the big question younger generations keep asking: what happens to Social Security? Jake shares a concern that these accounts could be framed as a substitute for traditional retirement promises, and we explore the tension between social programs and market-based solutions. Along the way, we draw a sharp line between money and wealth and why chasing quick wins through gambling-style bets or day trading often backfires compared to simply owning the market and staying the course.

If you’re a parent, grandparent, or just trying to build generational wealth the right way, you’ll leave with clear planning ideas and a fresh perspective on how psychology, policy, and ownership intersect. Subscribe for more, share this with a friend who’s raising kids, and leave us a review with your take: do accounts like this build opportunity or create new risks?

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Securities and advisory services offered through Silver Oak Securities, Inc., Member FINRA/SIPC. Silver Oak and B&H Wealth Strategies are not affiliated. http://www.finra.org/ http://www.sipc.org/

Transcript

Welcome And Why This Matters

SPEAKER_00 0:03

Welcome to the Four Seasons Podcast, brought to you by BH Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here, we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect, and enjoy your wealth. Ready to turn your financial dreams into reality? Dare to dream. And now, here's your host, President of BH Wealth Strategy, Jeff Bingham.

SPEAKER_03 0:43

Today we explore how that psychological shift influences the economy and how new tax advantage Trump accounts may shape the way families build and protect wealth moving forward. Welcome back, everybody. Skip Monty here in the studio with president of BH Wealth Strategies Jeff Bingham and COO and Associate Advisor Jake Bingham. Guys, how's it going?

unknown 1:06

Good.

SPEAKER_03 1:06

How are you doing? It's good. Doing just fine. Doing fine.

SPEAKER_02 1:09

Jeff, you hanging in there? I am. I am looking forward. Actually, this is a topic I'm very much looking forward to talking about. So I'm excited about this podcast.

SPEAKER_03 1:17

All right. Well, let's rock then. So this is a concept that affects everyday families more than they realize. What is the wealth effect? If you know, some people have heard that term. What is the wealth effect and how can the new Trump accounts impact that? Help us understand how to the ideas connect.

What The Wealth Effect Means

SPEAKER_02 1:36

All right. So let's let's talk about what the wealth effect is first and kind of think about the wealth effect is uh the term wealth effect and the phenomenon of the wealth effect has been around for a long, long time. Um probably became more in the public vernacular really during the Reagan administration in the 80s, and I cannot think of uh Donald Regan was the uh Treasury Secretary under under Reagan, and it was his uh his associate, Treasury Secretary, that kind of re reframed the phrase the wealth effect. So just give a little historical narrative on that. But the wealth effect is that when people feel richer, uh they tend to spend more money. And the what that looks like, Skip, is that for every dollar that of wealth that is increased, whether it be stock market and or their home prices, uh the average spend on that is three, three to four cents per per dollar of wealth created. So for $100, you can think of as you know, is 30 or 40 bucks or you know, three or four percent. Now, the interesting thing about that, and this is where the disparity in the wealth effect and this gap that we're gonna talk about comes in, is that that's the average across. But when you think about the concentration of wealth, which I'll touch on in a moment, the folks that already have wealth, um the the rich, if you will, using that phrase, um the they don't the wealth effect really doesn't change their spending patterns, right? So it really doesn't have much of an effect there, but they're in that average of three to four cents per dollar of wealth effect. But if you look at the lower, at the working, you know, at the middle class and the in the working middle class, if you will, uh that is really closer to 10 cents, right? So it's more, it's double to a little bit more than double than they spend. So it is a huge impact on on things. And of course, you know, as you continue to kind of drill in and unwind that right there, and you think about the concentration wealth, and this is where the Trump accounts are gonna come in, is that the top 1% in this country control 50% of the wealth, the stock market wealth is in this country.

Who Benefits And Who Does Not

SPEAKER_02 3:55

The bottom 50% have 1% of stock market wealth. So there's a huge gap, and that's where the Trump accounts are gonna come in. And so we'll talk about that in a moment. But that's so that's where this is, and the Trump accounts are something that's gonna, in my opinion, are gonna try to bridge that gap. That's where, you know, in today's world, I think we have a, you know, there's certainly an ideological battle that's taking place with um, you know, with with Jake's age group, millennials, and Gen Z's, to where there's certainly a hard tilt where I think the stat is 62% of that of his generation, those two generations, if you will, uh 62% think that socialism is a a good idea or not a bad idea. But also, interestingly enough, 83% of the same cohort think that, you know, that entrepreneurialship and and private business is is also a good idea, which is those two things don't, something don't go together on that, as they say. There's a there's a there's a mix in that. And that's that's where this conflict is. And so, you know, we're seeing that in in many different ways that are manifesting out there. And so, you know, my my opinion is is that uh the Trump, the Trump accounts are something that are gonna try to bridge that gap to bring a younger generation, really the children, if you will, of the Gen Zs, Gen Zers, and the Millennials, their children are gonna get and be get the Trump accounts, as we talked about in in an episode previously. The Trump accounts are for kids under age 18, and then any b any kid born, you know, between 20 January 1, 2025 to January or excuse me, December 31st of 2028, get a get a kickstart. They get $1,000 put into it. So what to democratize capitalism, right, for for the cohort that's having these kids that feels like they haven't had anything, they can't afford houses, they don't have, they're not having enough money to invest in the market, they're being left behind, but their children are all of a sudden going to be invested in the market from day one and have the opportunity to create wealth. And I guess one of the things that I would say, and I'm gonna turn this over to Jake to kind of talk about his cohort as I go through that, but I think there's so many things that are misunderstood out there, and we can talk about the reason. It could be financial literacy, it could be education, it could be all these things, is that there is a vast difference between money and wealth. But I think what we do is we conflate those two things together out there, and I certainly think that that uh millennials and Gen Zers do. Money is what we make when we go to work, money is how we buy things and consume things. Wealth is created, right, through either, you know, by either individuals uh that that can invest in their own businesses or they can invest

Trump Accounts And Building Kid Wealth

SPEAKER_02 6:40

in the in the American corporate structure of the businesses where they spend their money on. But wealth is a creation. It's not, you know, it's not the same. They're not the same thing, not even close uh to the same thing. And I think that's I think we've lost that that's you know, that insight into those two things. It's like, you know, it's I would compare it to the difference between intelligence and wisdom, right? It's kind of the same thing. I mean, you can you can see some of the smartest people in the world make some of the stupidest decisions you could possibly make because they have all haven't got discernment and wisdom. I think the same thing is true between money and wealth. They're not the same thing. One's something you make and you go earn, the other thing is something you create. Uh so that's that's kind of my take on it. I think that the Trump accounts for kids to be able to participate in the American capitalist dream is a way to get them back into focus on that, to participate in it. You know, it's interesting that the the the the Gen Zers and the Millennials are the ones that have been left out, their parents, the baby boomers, folks of my generation, um you know, that have created a lot of wealth, created a lot of debt, you know, in the country. I mean, there's a lot of things to talk about there, but that now all of have benefited from capitalism, their kids and their grandkids have not, and now that in that middle cohort right there, their children now have the opportunity to do it. And that is the clash that's taking place out there between capitalism and socialism in this country, and in a and framed up perfectly, in my opinion.

Money Versus Wealth For Younger Generations

SPEAKER_03 8:15

Well, Jake, how might, from your perspective, might these accounts influence saving, spending, or investing habits for your generation and younger?

SPEAKER_01 8:28

I I think well, he's gonna call me a little bit cynical for how I look at the Trump accounts, is uh I th I think it would be very helpful psychologically, see your money grow from birth 18 when you can't touch it. You'll see that the market works and being in it works. Um but what worries me about it is social security is we hear that fear a lot. Like, is it gonna be there for our clients? And I think yes, but for my generation it's a bit more worrying. Uh and is a Trump account a way to say, hey, you're gonna have these retirement accounts, they're gonna grow until you retire. Uh we don't need social security anymore. Um interesting.

SPEAKER_03 9:09

Of course, you know, I've I've been hearing social security is going away since I was a kid. So and I'm thinking that it's a good thing. That's right.

SPEAKER_01 9:16

You know, the in the you the 2000 campaign for president, you would hear you there was a discussion. Uh you don't really hear that anymore, and you can't get voters to vote for you. You say, hey, we're gonna take your retirement income away from you. Um, so is this a we recognizing that there's an issue there? Here's a solution. Uh now you have this money, you can retire on that if you contribute, but it's it's worrying.

SPEAKER_03 9:44

Very interesting. Well, what should families and obviously young families because you know uh the age age groups that are most impacted by this, what should they consider before deciding how to incorporate these accounts into their planning?

Social Security Fears And The Tradeoff

SPEAKER_02 10:00

Well, uh to incorporate them into their planning is in in in an instant in many ways, it it's a no-brainer. I mean, you know, to do it. I mean, if you've got the ability to do it, I mean you've got the ability to sign up. And if you're in this four-year time span that we're talking about, if you don't sign up and get the thousand dollars put in for your children, then you know, shame on you, because it's certainly that information we're talking about. Everybody's, you know, there's it's you're able to do it. Now, the ability to be able to add to those accounts, which again, we can put $5,000 per year into it. Uh, employers can do it for their, you know, their workers that have children. I mean, so it can be, you know, it can be participated in by employers, but it, but again, it is a it's it's kind of that individual, if you will, rugged individualism, you know, where the parents and whatnot are are you know need to be funding some of these things to their to get their kids a head start, you know. Uh so I don't think there's any doubt that from you know from a planning perspective, it's just it's just do it, uh, you know, and do it for whatever at whatever level you can do it. I mean, if you've got a child that's being born in this time period, that's I mean, like I said, that's just I mean, that's without, as my dad would say you do that without question. But I think the other thing is is that if you're you got children that are under 18 years old right now, um then you want to sign them up and get them started if you've got any resources whatsoever to do that. Uh, you know, the interesting thing is is this this generation that's going to be able to put money and have these things funded, we're the cohort of of the Gen Zs and the Millennials that we're talking about that they haven't participated in this wealth. They again, they don't, you know, in many cases, they don't own their own homes yet. Uh, they're the children of baby boomers. And by the way, baby boomers, 42% of baby boomers that have have benefited wildly from capitalism. 42% of them in a recent survey said that they have no intention of leaving their children uh any inheritance. They plan on spending it all away, um, which is um quite concerning. Uh in so many ways. That's a different, that's a different podcast altogether. But you know, but again, their children and their grandchildren are the ones that have been left out of. They're like, no, we're not gonna leave you any money, even though we've created arguably this mess that that kind of that we're in a little bit. And that's just my opinion on a couple of things. I think it's our job to make it better. And I think that's these are the things that that the Trump accounts and various things are doing. We're trying to make the world a better place to kind

How Families Should Use The Accounts

SPEAKER_02 12:35

of re-uh establish, you know, the belief in the American way, right? American exceptionalism and the the I the ideal uh of what of what has been led this country to to its incredible heights of where it is over the last 250 years. Uh, that's what I think the Trump accounts are an idea, a, you know, a psychological, but also a real way to do that. You know, the interesting thing Jake talks about with Social Security is that, you know, when when you've got his cohort we're talking about there, that is leaning towards socialism. I mean, Social Security is like the thing, right? That is a social program. And yet we're creating Trump accounts to, you know, to push that away. That's kind of a that's a that's a different conversation to have, but isn't that an interesting paradox to kind of talk about and think about in there uh where you think Social Security is the way to go away, which all are we're leaning towards socialism, and here comes this capitalist idea to do it. I mean, this it is truly uh a battle of of ideas that is taking place. I mean, it's it's taking place right in front of our eyes, and the Trump accounts are a way to uh to combat that or to be part of that fight, right? Because again, you've got boomers that have benefited wildly from capitalism over time, created an enormous amount of wealth. And the amount of wealth that's gonna transfer, even if it's 42% say they're not gonna leave their kids anything, or don't want to, or don't care to if they do or not, that's an interesting stat. But there's an enormous amount of generational wealth that's gonna transfer.

SPEAKER_01 14:12

Well, I I think that my generation, there's less and less people that think wealth can be created, it needs to

Ownership Beats Gambling And Day Trading

SPEAKER_01 14:20

be given or chased. I mean, you look at things like couchy, gambling, uh cryptocurrencies. I mean, we we want those it's we're not building anything, we're looking for big gains. That's right.

SPEAKER_03 14:33

But in in a nutshell, if you've got young children, if you're you know, Jake's age or younger, your advice is just do it.

SPEAKER_02 14:44

It's absolutely just do it. You know, get you know, you don't have to just because 5,000 is a cap, if you can, if you can do $500, you know, whatever it is, right? I mean, think about it. Just put some money into it. As my dad always say, the way to be a financial success is put yourself on the payroll first, or put your kids in this, in this case, on the payroll, have their grandkids, you know, have the grandparents uh you know fund these things, you know, find ways to get money in there and own the U.S. market, the best performing asset class, bar none, over the last 100 years or more, uh is the way to create wealth, right? As Jake was talking about. And then I I I think this this conversation we we could have a long you know back and forth for another podcast, because I think there's enough in here to to continue a conversation on because it is interesting, and his point is well taken that all the betting markets and everything that are out there, you know, and people think that, you know, you're betting on the stock market, that that's what that is, is a bet. It's a gamble. And that just hasn't proven true. I mean, look at how the market, what what creates wealth in this country is own is ownership, right? It is ownership and it's ownership in companies, whether it be private in your own business in an entrepreneurial way like we're doing, or owning companies like Amazon, you know, pick pick the S ⁇ P 500, you know, look at those things. And that's creation wealth. Those companies, those founders of those companies have created wealth. They haven't done it with that's not money, that's wealth that's been created right there through because we go to them and we buy their burgers, we buy their goods and their services that they provide, right? To to do that. And that's creation. That's not, you know, that's not not that. And that's and that's what we got to get back to. And it's not a gamble to do that, but doing the couchy markets and you know, day trading and those kind of things. I mean, more power to the folks that can do that. But if you're day trading, you better be able to afford to lose that money because you will make a mistake at some point in time because the market all the market will win. And all you have to do, but all you have to do, you don't have to beat the market, you just own the market, right? You just own and you stay the course, as we've talked about, to a degree, right? I mean, that's that's how you do this uh and and believe that it that it can happen. Now, there's a lot of other things in housing and all those kind of things, the cost there that need to be addressed, but that's uh, you know, those are different different days. But I think, like I said, end of the end of the day, the wealth effect has got to trickle, you know, it's got to be passed down into, you know, from the top, you know, 40%. It's got to flow into the into the bottom 60%, which is where it is. When you think about that disparous, that wealth gap that's there, the wealth effect has left them behind. So you've got to close that gap, and the Trump accounts are laid at begin to close that gap, both uh in actuality with with with money, dollars, if you will, being invested into these things, uh, but also a psychological gap that is in there as well.

SPEAKER_03 17:39

Very

Key Takeaways And Free Consultation

SPEAKER_03 17:40

good. Very good way to end. And let's talk more about this in a future episode. There's a lot to talk about.

SPEAKER_02 17:46

Yeah.

SPEAKER_03 17:48

All right. Well, you guys have a great, blessed rest of the day, and we will see you in that next episode.

SPEAKER_00 17:57

Thanks for tuning in to the Four Seasons Podcast, brought to you by BH Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretire.com. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and Registered Investment Advisory Services offered through Silver Oak Securities, Inc. Member FENRA SIPC, BH Wealth Strategies and Silver Oak Securities Inc. are not affiliate.