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Who’s Responsible For Poverty?

By Frugaling 12 Comments

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Banksy I Hate Mondays Art
Art: Banksy

Picture this: a dirtied, scraped up, penniless homeless man holds up a cardboard sign pleading for pocket change. Perhaps he wrote well wishes and a message of gratitude for giving what you can. Most people who pass him don’t know where he’s from, his name, or how he came to be homeless.

As humans, we tend to fill in the blanks. Unless you’re chauffeured from a gated community to a private jet, and refuse to look out the window in daily travels, it’s nearly impossible to miss these questions of responsibility. We tend to explain the inexplicable with simplifications. People deserve what they deserve.

These mental shortcuts enable us to quickly pass through our day and “understand” the world around us. It’s complicated out there, and we have limited brain power. We can’t worry about everything, can we? Dwelling on uncertain ideas of responsibility might result in something scary: feeling lost, stupid, or flirting with pointlessness.

When we think of the causes of poverty, it can be natural to blame individuals. For instance, that the person asking for change on the street corner is too lazy to work, wants to feed their alcohol addiction, and/or doesn’t care to shape up. If only they would take responsibility for their actions, then they wouldn’t be homeless, right?

That’s the simple conclusion — and it’s possible — but today I want to encourage us to take a step back. Let’s think about some alternative conclusions. Those alternative conclusions harbor a truth that’s larger than one simplistic answer. It encapsulates the range of possibilities and diversity of lives.

Capitalism tends to encourage individual responsibility for actions. We have a penal system that punishes individuals’ actions as if they are divorced from difficult upbringings and environments — separate and isolated incidents. We have enormous financial markets, which encourage individual college students to major in business, computer science, and engineering. We congratulate and honor people for “their” work and individual contributions to science, politics, and bravery. When we seek answers for homelessness, poverty, and even wealth, the scripts have been built for us. As I’m a visual person, I’ve created a pie chart to explain responsibility in capitalism.

Pie chart 1

In this first chart, capitalist ideals suggest that individuals bear the responsibility. Pretty simple, right? When I was younger, I enjoyed the efficiency of more libertarian — individual responsibility — principles. If you work harder, you’re rewarded. The world is yours, if you earn it.

Those capitalism-infused libertarian values of responsibility eventually shifted. The best explanation was an active decision to expose myself to diverse reading material and cultures. Suddenly, the responsibility for homelessness, poverty, and wealth became complicated ideas. I needed to wrap my head around the chicken or the egg — what came first — of finance. Did the poverty cause lethargy or did laziness cause poverty?

Pie chart 2

Obviously, these pie charts aren’t scientifically exact. They’re meant to be illustrations of my thought process, as I consider where to assign blame and responsibility when I see poverty and wealth. The more I thought about what might influence and shape an individual, the more complicated it became. Certainly, it would save me time to write off the impoverished and say they are welfare grubbing lifesucks, but I choose to represent a different point of view. We are each born into this world with different characteristics — monetary, racial, SES, etc.

Pie chart 3

If we reexamine the aforementioned homeless man, responsibility becomes murkier with new variables. Suddenly, we see the man beyond the exterior and our previous assumptions. Perhaps the reality is that he was born to a single-parent household in a disenfranchised neighborhood. Perhaps he was a Vietnam War veteran who suffered from the losses of fellow soldiers and improperly/untreated posttraumatic stress disorder.

Or, perhaps we are all incredibly complex, diverse beings. We’re born with unique genes, environmental upbringings, educational opportunities, and parents. Heck, those listed here are but a small fraction of all the variables we could include.

If we quickly judge that someone bears the responsibility for being destitute, we are the lazy ones. We are the ones we often hate, despise, and discount. Carefully examining responsibility is challenging and not without errors, but we avoid incorrectly concluding that someone failed and deserves the punishment of poverty.

Filed Under: Social Justice Tagged With: blame, Class, Finance, impoverished, Income, poverty, responsibility, ses, status, Wealth

Nonconformity Is Key

By Frugaling 29 Comments

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Hard at work, trying to be different.

I regularly workout in flip flops. On the weekends I tend to wear the same shorts and/or T-shirts for two or more days. I’ve had the same breakfast for nearly five years (some type of eggs and toast). I started cutting my hair in sophomore year of college — can’t remember if I’ve paid for a haircut since then. I hate dressing up for work. I don’t have a car, and regularly bike to first dates (Where’s your car parked? Oh, the bike racks over there!). I fantasize about stealing condiments of ketchup and mustard at a local fast-food restaurant. I’d rather enjoy a good book or the company of friends over crowds in a club. I tend to leave the AC off or, at least, at sweaty levels if I’m alone. Vice versa, I tend to freeze in the winter because my room is draftier than the rest of the apartment and I keep the heat low. I’ve been known to pick up grocery items and carry them throughout the store, and then dispense of unnecessary purchases on random shelves (I’m sorry store clerks).

When I was younger, each of these pieces brought me great insecurity. I purchased Under Armour clothing and paid careful attention to be appropriately attired to workout. I was terribly concerned with how I’d be perceived. I used to drive my car to dates, and pay for parking, gas, and all the depreciation in the process. It seemed customary to have and drive a car — the movies always featured the man picking up his date. Many of these examples started out as deep vulnerabilities, which spawned into consumption.

Then frugality hit me. With all of its messages and philosophical underpinnings, I felt this pull to save wherever I could. It worked. I started to save money and act more consciously about my spending. But like many moments in my life, I was insecure to broadly announce that I was frugal. I wondered how people would react.

Reactions varied across genders, ages, and populations. Some loved and admired that I was so “young” and looking to right my financial path. Others were defensive that I was looking to save, as if it said something about their own spending. They’d question just how frugal I was being, and whether I would continue. Doubt was pervasive at times — for me and the person listening. Could I continue frugality in the face of cultural assumptions of consumption?

I gained confidence in this new life by regularly reading websites such as Becoming Minimalist, Budgets are Sexy, and Zen Habits. Each website presented a minimal, simple life. The authors had removed themselves from many of our culture’s trappings. They wanted and professed the mantra of less.

While individuals’ reactions varied, there was consistency in my reading and writing. I found solace in their words and my writing. I could reflect on what this meant to me longer term. The broader picture I kept coming back to was a sense of modesty and necessity. I needed to live on less because I was born privileged, and many weren’t. Additionally, I was motivated to cut back to trim my student loans. These ideas provided a motivation beyond simply wanting to see more money in my bank account. I had no interest in amassing wealth.

Somewhere around then that confidence led to a loss of the previous insecurities. I embraced the weird. In the past, I may have held back with friends and dates. But I turned a new leaf and led with my new life. I’ve made do with less, which is transferable across domains of personal and professional work. There’s a grit that develops from going without.

Yes, I’m sweating profusely as I type these words. Yes, I risk dropping a free weight on my flip flops. Yes, I did bike to our date, and no there aren’t any pegs.

I’ve changed. At times, I’m countercultural, but at the heart is nonconformity. I’m sick of living within the carefully crafted bounds that others expect. Nonconformity has opened doors for me. My creativity has flourished in this time. By accepting a simple path, I’ve written and read more than ever for pure fun and enjoyment. It’s the greatest reward of this new life.

Filed Under: Minimalism, Social Justice Tagged With: countercultural, counterculture, Frugal, frugality, Insecurity, Nonconformity, Simple Living, Unique, Vulnerability, Weird

Debt: The Destroyer Of Dreams?

By Frugaling 17 Comments

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Colorado State University The Oval

Student loans ruined my relationship with money. It ripped out executive functioning of the prefrontal cortex, spit, stomped, and rolled it flat with a rolling pin. The critical-thinking components died an unfriendly, brief death. Suddenly, I couldn’t think straight or make sense of the “cost” of anything. I was the walking automaton with a mantra that wouldn’t stop: click, swipe, buy, repeat.

When you own nothing, the bank owns you. The lack of money became a thief of sleep, calm, and patience. This emotional vertigo sucked the fun out of future-oriented goals and dreams, as everything had reservations: lives comprised from decades by debt. In this confusing, cyclical spin, I temporarily lost the clarity that can be found within goals.

New questions refused to leave me alone. Why did I pursue this route in the first place? How will I possibly pay this off? Who can actually help me if something goes wrong? Where do I go for objective advice and feedback?

Then came questions about aging. How old will I be when the debt is done? What age will I be when I retire? How will I retire? Will I ever retire? How can, potentially, six-figures of student loan debt be paid off?

Lastly, were the questions about life and debt. What happens to my debt if I die before paying it off? Will it be passed on to a spouse, child, etc.? What if I left the country and never came back? What would I do if I got injured and either missed or was no longer able to make loan payments?

I briefly considered debt forgiveness plans. In some circumstances and areas of study, the federal government “forgives” debt after on-time payments after agreed upon periods of time. Debt forgiveness would allow me to wipe the slate clean, and be free faster. But I couldn’t wrap my head around the concern that might come from not graduating or being able to pay on time. What if something/anything interrupted my plans?

Debt is the ultimate restriction of freedom. From dreams at night to dreams of the future, debt knows no boundaries. It doesn’t politely wait for your day to begin or end. It’s the constant burbling and gurgling noise that confuses focus. And I’d be shocked if debt doesn’t restrain students’ ability to study and proficiently pass through school.

Nobody deserves this discomfort and stress. While many parents fork over gigantic savings for their children to attend college, countless undergraduate students pay their own way. As a culture, we’ve exalted the role of higher education and repeatedly shown statistics for success. “You’ll make more over your life as a college graduate,” they say. And they’re right, most people do.

Unfortunately, not everyone can or will take the same path. What if you aren’t excelling in college and decide to drop out? What if you get hurt in the four years of college? What if, what if, what if…?

For every student that decides to pay their own way through college, they take a leap of faith in themselves. Our culture admires their choice, risk, and self-investment. But despite this admiration, we do not reward them by heavily subsidizing their educations. Instead, we enshrine them in debt bubbles that are ready to burst.

Debt becomes the great opportunity maker; unfairly, as only some of us will carry this burden and it totals over $1.2 trillion.

As a country, we need to attack this debt — the wealthy and impoverished, together. The United States should be a leader in education for the masses. Between 5 and 18, we suggest that people deserve it. We say it’s a right. Children should receive a rounded education. Then, you graduate high school and — poof! — the right becomes a privilege afforded to the wealthiest among us.

To solve the debt crisis, we must rethink the entire privilege-based system of higher education in America. Fundamentally, we need to wrap our heads around our economic needs for an educated, working-age populace. The immoral shackles of debt that we place on hardworking students shouldn’t exist.

Filed Under: Loans, Social Justice Tagged With: college, debt, education, loans, Student Loans, Students, university

The Real Reason Poor People Can’t Save

By Frugaling 29 Comments

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The Real Reason Poor People Can’t Save. People in poverty will continue to sit back and watch as others’ lucrative capital increase until something changes.  #savingmoney #savemoney

The Great Recession was “solved” by a number of rapid fire actions by Congress and the Executive Branch. They came together to fund stimulus bills and negotiate with massive banks. They found a way to save most people’s retirements, despite the corruption and chicanery of companies that caused the mess.

We were in a horrible bind. Most people’s entire wealth was wrapped up in real estate and investments, which were tanking. The bubble had popped. Previously, people with little credit and, sometimes, no down payments were able to buy homes. It inflated everything, as people were buying more than they could ever afford.

After the collapse, a lengthy program called for zero-interest borrowing and quantitative easing. The Federal Reserve (U.S. central bank) doled out massive amounts of money to banks at zero and near-zero interest. Effectively, this would enable banks to give borrowers easier access to mortgages, small business loans, and more. The hope was that banks would generously loan out the money.

Then came quantitative easing. Because the interest rates were already at zero, the Federal Reserve (central bank) couldn’t prop up the banks this way any more. They made a last ditch effort and started buying bonds (or, debt) of financial institutions (i.e., Bank of America, Chase, and Wells Fargo).

Every time there was speculation that the discount window to interest-free loans or quantitative easing would come to an end, the stock market would hiccup. Investments would nose dive and a panicked market pleaded with Federal Reserve chairs to hold back – the economy was still “soft.”

Economic stimulation of this sort allowed people to spend more, too. By acquiring low-interest debt, people could buy more, bigger, and better. Everything seemed more affordable when loans were artificially depressed (heck, that’s why I bought a car I couldn’t afford).

Screenshot 2015-05-28 17.29.08People with money bought and bought. And they invested like mad. Those who invested post-Great Recession were rewarded handsomely. From the bottom of the crash to now, the Dow Jones Industrial Average (DJIA) has returned approximately 173%. In other words, investors who got in mid-2009 and 2010 have nearly doubled their money!

One of the saving graces of today’s economy is that inflation has held constant. Throughout 2014, the inflation rate ranged from 0.8 to 2.1% every month. And inflation is an important variable in this conversation, because it’s essentially a measure of affordability. When inflation increases, the consumer price of all goods increases. Everything from bread to cars to homes is affected by this measure.

Thus, in 2014 the average inflation rate was 1.77%. Not too shabby! When you compare that to deflationary or atmospheric inflation, we are in a pleasant sweet spot. The price of goods are increasing at a controlled, moderate rate.

For most of us, the stimulus has worked. My investments are doing better than ever and I’m seeing some sizable gains. The future of my money looks brighter.

Additionally, I have fewer “savings” than ever, and that’s a good thing because I have more invested than ever. I followed the financial advice of the world and realized that cash is a drag. I don’t mean that tongue-in-cheek. Cash suffocates returns, because checking and savings accounts pay next to nothing (even if you choose an online bank). To let cash sit in those accounts means that we accept a pittance and suffer from inflation rates.

Let me put this together. We have benefited from the Federal Reserve’s decision to provide easy capital to banks, which then presumably went to consumers. Similarly, quantitative easing has further supported banks recovery and ability to loan. Investments are spectacular right now, too. But this combination of events has wreaked havoc on the most desperate among us.

The advice for someone like me (who has some – albeit small – amounts of money) is to invest. Don’t suffer the cash drag. Unfortunately, that financial advice doesn’t apply to the poorest among us. Those with irregular and/or unknown paychecks by amount and/or interval can’t invest the money. By investing their funds, they could put themselves at risk because they don’t have enough liquidity. Additionally, they might not be able to invest because they barely have enough at the end of every month to scrape by.

That’s where the advice between wealthy and poor individuals diverges. Our financial commentators tell wealthy people to invest, and the impoverished to save. If only the poor would save more, their lives might be better. Except, if you’ve been following along, “saving money” doesn’t mean protecting money. The average interest rate of savings accounts was 0.06% in 2014. At Bank of America, Chase, PNC Bank, and Wells Fargo – all the brick and mortar banks that those in poverty are more likely to use – the interest rate is a dormant 0.01%.

Let’s say you’re Joe Poverty, trying to save. Mr. Poverty has turned on CNBC, Fox News, and CNN to listen to all the financial advice he can get his hands on. He’s motivated and leans in. He wants to live better, eat healthier, and save for the future. He wants to pay his daughter’s student loans, and he feels guilty that he couldn’t support her. His first step is to open a checking and savings account at a local, popular bank. He needs to be able to pay bills and receive paychecks, but he also wants to begin saving. The checking and savings accounts will pay him 0% and 0.01%, respectively.

Now, here’s where things get really sad. Joe Poverty is going to stay in poverty using this method. Unless he can drastically increase his income and build a huge safety net, he won’t have enough to invest each month. Because he’ll be precluded from investing, his only hope is to save. So he does. And he does. And he does. He’s motivated, remember? He cares about his daughter and wants to succeed.

He drops money here and there into the savings account. But each month that money is worth less and less. Despite his attempts to save at 0.01%, the inflation rate hovers around 1.77%. Effectively, he loses 1.76% every month in spending power. The savings are hibernating, as the world around those dollars is ablaze. The market is benefiting nearly every day from free-flowing capital, but the poorest have had to sit by and watch it happen. Every month, having less.

At some point, Joe Poverty feels like “he’s failing.” He turns on the channels, rereads books, and looks at his savings account. Despite his efforts, he can’t afford to pay off his daughter’s loans. Her loans accelerate at 6.8% interest, as his savings lingers.

This economy disincentivized savings. It trumped up how easy it is to spend and invest, while ignoring those most in need. Savings rates used to 3%, 4%, and 5% only a few years ago. They could easily beat the inflation rate, and incentivize savings. People really added to their wealth when they saved.

Even worse, by disincentivizing savings, those who might need positive reinforcement didn’t receive it. In fact, they were punished for saving. They had less and less each month. The savings were an illusion, and the purposelessness was degrading. Who wants to continue trying to save and add to their income – following the advice of wizened “gurus” – only to find out they’re failing?

The Great Recession hurt nearly everyone. The actions that the government took are debatable. The necessity of those actions are questionable. But the result is undeniable. People have been encouraged to spend free cash and invest for the long term. Neither are bad options in a low-rate environment. Sickeningly, that advice doesn’t apply to everyone.

People in poverty will continue to sit back and watch as others’ lucrative capital increase until something changes. We need the Federal Reserve and the government to incentivize savings like mad. We need an economy and country that’s prosperous for a greater whole, not a select few. The discount window for loans must raise their interest. The quantitative easing must stop. And the world must compromise investment performance for a short while – adjusting to the new rates – to encourage everyone to save.

It’s no longer enough to verbally smack and accost the most destitute without understanding the systemic factors that prevent their success. It’s time we advocate for respect and change these financial practices. Then, and only then, will the advice to “save” make cents.

Filed Under: Save Money, Social Justice Tagged With: Account, Bank, Income, invest, Investments, money, poor, poverty, savings, Social Justice, Wealth

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