Saving Money in Poverty

Saving Money in Poverty

People in poverty are often criticized for the way they live and the decisions they make. From the outside it is easy to criticize the person in deep poverty who buys things they don’t need on QVC, goes to garage sales and buys junk that piles up inside and outside their home, and spends their money on fancy grocery items instead of the cheapest options. However, for people in the deepest poverty, escape to even just a more stable poverty can seem impossible, and when that is the case, there is little reason to work on saving.
Matthew Desmond demonstrates this reality by explaining the situation of a character in a trailer park named Larraine. He writes, “To Sammy [Larraine’s niece], Pastor Daryl, and others, Larraine was poor because she threw money away. But the reverse was more true. Larraine threw money away because she was poor.” Desmond walks through Larraine’s financial situation. She had a tiny amount of money left after paying the rent each month, and if she saved every penny that she could for the whole year, she would bank enough money to afford one month of rent. However, doing so would come at a huge cost, forgoing things that brought her a small amount of enjoyment in her trailer park poverty. Instead of penny pinching, Larraine splurged on frivolous fun items and enjoyed the small perk of getting something nice from time to time. This frustrated the people in her life who she sometimes asked for money because they saw her prioritizing face creams and steak over hot water and sufficient food for the whole month.
Desmond continues, “People like Larraine lived with so many compounded limitations that it was difficult to imagine the amount of good behavior or self-control that would allow them to lift themselves out of poverty. The distance between grinding poverty and even stable poverty could be so vast that those at the bottom had little hope of climbing out even if they pinched every penny.” When this is the life you are stuck with, then why continuously live with nothing. Why continuously try to save when a whole year of saving only gives you enough cash in the bank (or under the mattress) to be secure for one month of rent payments if something went wrong. If there is almost no hope of your financial situation improving, then why not enjoy what you can, even if it means you are going to suffer a little more in some areas or risk having a utility shut off for a few weeks.

Happiness, Well-being, & Money

A question that is always asked and played with in movies, at family dinners, and in our popular culture is can money buy happiness? We will all say that the answer is no, especially when we hear about a wealthy person who commits suicide or has their life unravel in a public manner. Nevertheless, we all pursue a relatively high level of wealth and income, and we recognize that having more money would mean that we could eat out more often, take more vacations, and buy more things. There does seem to be some level of happiness that can be achieved through more money.

 

Daniel Kahneman shared research on the question in his book Thinking Fast and Slow. He writes, “an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 Americans, provides a surprisingly definite answer to the most frequently asked question in well-being research: Can money buy happiness? The conclusion is that being poor makes one miserable, and that being rich may enhance one’s life satisfaction, but does not (on average) improve experienced well-being.”

 

Kahneman’s quote is incredibly helpful because it splits apart happiness and well-being, particularly our experienced happiness and general well-being. The part of our brain that reflects back on our life and our overall happiness is not the same part of our brain that actually lives the experiences we have. As Kahneman showed earlier in the book, asking students how happy they are and then asking them how many dates they had in the last month gives you two separate responses with no correlation, but ask the questions in reverse, and suddenly those students who haven’t had many dates tend to respond that they are less happy. The reflecting part of our brain will experience happiness differently depending on the frames you place it in. The same thing seems to happen with happiness, well-being, and money.

 

When we think about how happy we are overall, we pause, reflect on our living condition, think about our relative success compared to others, and remember the fun events in our lives. Our happiness is improved when we are more sure of ourselves based on our relative social status and as we have more enjoyable and memorable experiences. However, this doesn’t mean that we are more happy than other people in our experienced well-being from moment to moment.

 

The rich person may feel isolated, may be insecure about losing their wealth, or may have the same family and social problems that anyone else has. The momentary emotional status of an individual is not impacted by wealth as much as our reflective happiness. Kahneman’s quote helps to pull these two aspects of happiness apart to see what is happening and understand the role of money. Kahneman continues to write that experienced well-being stops increasing as dramatically once an individual’s household income reaches about $75,000 in high cost areas. Subjectively, in the course of our lives, money doesn’t make us happier from moment to moment once we have received a high, but relatively reasonable income.
Money Isn't About Economic Security (For Most of Us)

Money Isn’t About Economic Security (For Most of Us)

Tyler Cowen started his February 28th, 2018 podcast interview with his colleague from George Mason University, Robin Hanson, with the following:

 

“Robin, if politics is not about policy, medicine is not about health, laughter is not about jokes, and food is not about nutrition, what are podcasts not about?”

 

Hanson goes on to explain that conversations are not really about imparting useful information and finding out useful things, but that conversation is likely more about showing off and signaling. When you share new information to someone, you are showing them that you are a valuable ally who knows useful things that might one day be helpful. When you share a particular piece of knowledge, you are signaling that you are the kind of person who would know such knowledge.

 

I think that Hanson’s views toward signaling are correct and deserve more attention and consideration. A lot of what we do has more to do with signaling than about the reason we would give to an observer for what we are doing. Hanson is not alone in recognizing this reality.

 

In Thinking  Fast and Slow, Daniel Kahneman writes, the following about money:

 

“Except for the very poor, for whom income coincides with survival, the main motivators of money-seeking are not necessarily economic. For the billionaire looking for the extra billion, and indeed for the participant in an experimental economics project looking for the extra dollar, money is a proxy for points on a scale of self-regard and achievement. These rewards and punishments, promises and threats, are all in our head.”

 

Money is not really about economic well-being (for most of us). Its not really about the things we can purchase or the vacations we can take. Money is really about social status. Having more of it elevates our social status, as does using it for impressive and expensive purposes. There is no objective ranking out there for our social status, but we act as if our social status is tangible and will reveal something important about our lives and who we are. Pursuing money gives us a chance to pursue social status in an oblique way, making it look as though we are doing something for high-minded reasons, when in reality we are trying to climb a social ladder and use money as our measuring stick of success.

 

Realistically, we are not going to be able to do much of anything about our signaling behaviors, especially if Hanson is correct in estimating that well over 90% of what we do is signaling. However, we can start to acknowledge signaling and chose where and how we send signals about ourselves. We can chose not to rely on money to signal something about who we are and can seek out more healthy avenues for signaling, with more environmentally friendly and socially conscientious signaling externalities taken into consideration.
Money Priming

Money Priming

An idea I have been a little obsessed with for the last several months is the importance of community in the lives of human beings. We are social creatures, and we depend on social structures for support, connection, joy, and meaning. During the Pandemic, we have had to face an absence of community, pulling back even more from the social groups and settings of our lives. America was already isolated in many ways, and I am worried for the long-term consequences of what we will lose in terms of community from this Pandemic.

 

One reason why the United States has dealt with diminishing senses of community may be related to our pursuit of wealth. Our culture values money and success so much that we elected a man with no political experience, with a history of bankruptcy, but with extraordinary bravado around his personal wealth to be our president. We elected President Trump because many of us wanted to feel a sense of greater wealth, or at least a possibility of greater financial success, and liked the ways in which he represented those ideas.

 

(I will pause for a minute to note that I think the president is reprehensible and I am glad I did not and never will vote for him. I also want to recognize that I am viewing supporters of the president in the general sense, applying a more positive lens toward them than others might. I recognize and understand that many of his supporters have dangerous and disgusting racial views that should be abhorred, but I also recognize that many of his supporters generally don’t think about politics much and like the presentation of wealth and the possibility of wealth that he presents.)

 

In his book Thinking Fast and Slow, Daniel Kahneman presents information about how money priming impacts our brains. Factors related to money seem to trigger specific responses and behaviors in people. As he writes, “The general theme of these findings is that the idea of money primes individualism: a reluctance to be involved with others, to depend on others, or to accept demands from others.” Money, in other words, works against community.

 

Individualism itself is not terrible. I don’t know where the balance should lie between community and individualism, and I feel myself pulled in separate directions regarding both. However, I believe it is our connections to each other and our shared goals and purposes that will help us feel a sense of meaning and purpose in our lives. Living in suburban homes (as I do), parking in our garages, and withdrawing into our homes to stream shows (also guilty!) is individualistic and exclusionary. It doesn’t help us have meaningful relationships with our friends, families, neighbors, and fellow citizens. It doesn’t help us work toward shared goals, doesn’t help us develop sustainable futures, and doesn’t help us better understand each other.

 

We need more community in our lives to tackle major problems in our society. Unfortunately, America is committed to ideas of wealth creation to an extent that limits our ability to build the community we need. Money priming influences how we behave in relation to each other, and it is not helping rebuild the communities that we have allowed to atrophy over the decades.
Fiduciary Healthcare Responsibility

Fiduciary Healthcare Responsibility

For many Americans, their job provides them with some type of retirement savings account. Historic legal action, laws, and regulations require that companies who offer retirement savings vehicles responsibly manage the money they invest on behalf of their employees. The investment options that employers chose must perform at a reasonable level. A company can’t push all of its employees to invest back in the company (as Enron did in the 1990’s) and a company can’t just take employees retirement savings accounts and put them in a low return savings account at a bank – the return to the employee in interest would be so small that it would be meaningless. Employers fiduciary duty requires that they offer legitimate retirement savings options that are in the best interests of their employees and will likely achieve a reasonable level of return on the investment. We understand this fiduciary responsibility for employers when it comes to our retirement savings, and now, some leaders are starting to look closely at the fiduciary healthcare responsibility of employers in the same way.

 

In his book The Opioid Crisis Wake-Up Call, Dave Chase explains his concerns regarding wage stagnation in the United States. He shows that real hourly wages in the United States, across all education groups, has fallen since 2007 (the book was published in 2019 making the time period of falling wages 12 years). At the same time that wages have fallen or stagnated, healthcare costs and expenditures have soared. With out of pocket spending rising, employer contributions to health plans going up, and patient premiums also getting more costly, Chase argues that the lost wage increases for American’s have been channeled into an under-performing healthcare system.

 

This is where the fiduciary healthcare responsibility of our employers becomes an important issue. Our employers are offering us (for about 50-65% of Americans) health insurance at the expense of higher wages. The money used for purchasing the plans offered to us and helping us access care, can be thought of like a retirement savings account. It is our money, and the company has a responsibility to ensure it is used in our best interest and that the products and services purchased with our money are safe, effective, and likely to provide us with a reasonable return on our investment. The healthcare dollars spent by our employers for health insurance today does not measure up.

 

Chase predicts a series of lawsuits targeting the fiduciary healthcare responsibility of employers in the near future. Lawsuits could target ever rising expenditures for diminishing or stagnant healthcare quality. They could address limits in services that hinder health outcomes for individuals. Companies could be on the hook for failing to do background checks on brokers or failing to shop for the best insurance plan for their employers. All of these issues are addressed by Chase in his book, and he believes that if employers took their fiduciary healthcare responsibility seriously, they could be a major asset in changing the future direction and costs of healthcare in the United States.

Return on Donation

An argument that Kevin Simler and Robin Hanson present in their book The Elephant in the Brain is that when we donate to charity, we are signaling to others how caring and generous we are as humans. The actual good that our donation will do is secondary to being the kind of person who is caring enough and generous enough to help out with what ever cause we donate toward. It is not, the authors argue, the suffering of other people or creatures that we are concerned about, it is whether or not we think of ourselves and are seen by others as the kind of person who cares about it.

 

Simler and Hanson write, “Occasionally, we’re even happy to donate without knowing the most basic facts about a charity, like what its purpose is or how donations will be spent. “Within two weeks of Princess Diana’s death in 1997,” writes Geoffrey Miller, “British people had donated over 1 billion pounds to the Princess of Wales charity, long before the newly established charity had any idea what the donations would be used for, or what its administrative overheads would be.” When we analyze donation as an economic activity, it soon becomes clear how little we seem to care about the impact of our donations. Whatever we’re doing, we aren’t trying to maximize ROD [return on donation].”

 

If we were very concerned about making sure that we made a difference in the world with any money we donate, then we would take steps to ensure that our donation was going to make a difference. We would want to see a spreadsheet showing how the foundation used our money. We would want to know how many people were helped and in what way. We would want to know how much money went to the salaries of the employees of the charity, what money was spent on office furniture, and how much money was simply used as fixed office costs that didn’t benefit the cause we wanted to support.

 

Instead, the charities we donate to very rarely present any information along these lines. Our donations and charity are something we feel in our hearts, not something we think about in a rational way. Effective Altruists have argued that if you want to actually make a difference you can feel good about, if you actually want to show that you are a caring person, you should make an effort to understand how much good your donation is doing. We act as if that is why we donate, but then we don’t do any of the things (most of the time) that would support the argument that we care. A much more simple explanation of our donations is that we want to look good and feel good internally about our generous and charitable behavior, even when our generosity and charity is effectively wasted on organizations that are ineffective.

Getting Beyond Economic Success

In his book Becoming Who We Need To Be author Colin Wright examines the way we think about and operate as a society around money. He suggests that money has grown in importance and engulfed every aspect and function of our lives in ways that are damaging but often hidden from us. He writes, “As we grow into adults who care about things like self-actualization and happiness defined in ways other than the color-within-the-lines manuals we’ve been provided, we still often limit ourselves to defining happiness in economic terms. If I can make this much money each month, I can leave this soul-sucking job I hate. If I can reduce my expenses, I won’t need to work so much and can free up time to spend on that hobby I’ve been neglecting. If I invest properly now, I may be able to not work at all at some point in the distant future.”

 

Wright argues that money has become our default measurement of success and happiness.  The idea that we can be both happy or successful without large amounts of money does not align with the ways we actually live our lives. We see the story of people getting away from this mode of thinking in movies all the time, but we rarely live our lives with something other than money at the center of all that we do. As a result, our goals, daily routines, and attention are all focused on helping us make more money or use our money.

 

Money itself will not make us happy, but it does provide us with new opportunities. I recently listened (I think to an episode of Tyler Cowen’s podcast but I can’t remember) to an economist suggest that money does not make us more happy above a certain level, but that our level of life satisfaction does continue to increase as we have more money. Our overall happiness may not continue to increase as we have more money, but having more money seems to open up new possibilities in our lives and give us more ability to engage in the world in a satisfying manner.

 

A question we should think about, is whether there is a way to change how we approach life so that we can have a high level of satisfaction without needing ever more money. Does our satisfaction come from distinguishing ourselves from others by purchasing court side tickets to the game? Do we get satisfaction from displaying our status with a large RV? Is our satisfaction contingent upon fancy trips and traveling to exotic places? I don’t know if there is specific research around this idea, but perhaps we can shift what we use on an individual level as our default for success away from money and begin to find more satisfaction in our lives in things that are more meaningful than purchasing expensive and fancy items that show off to our Facebook friends and broadcast our status. Exactly what the alternate version of success will be for us will likely vary from person to person, but it will probably favor relationships and connections with others over material possessions and purchases.

A Clear Picture of Success

In 2017 I wrote a piece about an idea from Colin Wright in his book Come Back Frayed. In our lives, the primary yardstick we use to measure our success, Wright explains, is often a monetary yardstick. We look at our bank account, the funding levels of the organization we are a part of, and how much we make each pay check and determine whether our lives have value and are meaningful based on how much we make. Colin Wright was one of the first authors who helped me be aware of how frequently I judged myself and others based on income, or cues related to income (how fancy is someone’s car, what shoes does someone have, do they live in a wealthy neighborhood?).

 

Wealth and income, however, are both impacted by a number of forces beyond the control of a single individual and both people who we hold in high esteem and people who are self centered and morally questionable can become fantastically wealthy through either hard work or dumb luck. Therefore, judging someone based on wealth and income is an incomplete measure of another person. Wright was one of the first people to express this in a way that really connected with me, and I found the idea again in the writing of Ryan Holiday and Marcus Aurelius. In a long quote from Ryan Holiday’s book Ego is the Enemy, he writes,

 

“You will be unappreciated. You will be sabotaged. You will experience surprising failures. Your expectations will not be met. You will lose. You will fail.
    How do you carry on then? How do you take pride in yourself and your work? John Wooden’s advice to his players says it: Change the definition of success. “Success is peace of mind, which is a direct result of self-satisfaction in knowing you made the effort to do your best to become the best that you are capable of becoming.” “Ambition,” Marcus Aurelius reminded himself, “means tying your well-being to what other people say or do … Sanity means tying it to your own actions.””

 

We cannot expect that in our lives everything will go well and we will live up to the external yardsticks we use to define success. If we expect a certain number of followers, likes, or shares then we are deciding the value of something based on the perceptions of other people and whether something randomly becomes a hit. If we decide that we are only successful if we have enough money to buy a new Tesla, we are putting ourselves in a position where we may compromise on being a good human being in order to obtain enough money to purchase something that we think will tell people that we are valuable and successful. We give control of ourselves to other people when we live this way. Our happiness is not our own, but a yo-yo string controlled by the opinions of our social, work, and family networks.

 

Changing our definition of success to measures internal to who we are is more healthy and reasonable. Pursuing a craft, hobby, or passion for self-fulfillment is different from pursuing a goal for reasons of obtaining greater wealth, respect, and admiration from others. Those things may come from living well, but when they are a result of good work and arrive obliquely through our efforts to do our best at what is in front of us, they will be more rewarding and less tied to our definition of who we are. This can give us the opportunity to live on our own terms, content with the person and lifestyle we pursue.

Never Achieving Alone

The United States is focused on achievement and success and we use a few basic measuring sticks to compare ourselves to others and to display how successful we have become. Money is our main yardstick, tied to other measures of success such as home-ownership and the size of our homes, the number and types of vehicles we drive, and so on. When we talk about our own success and reflect back on our path we tend to look at the tough decisions and sacrifices that we made along the way. We focus on the obstacles we overcame where others faltered and we create a highlight reel in our minds that emphasizes our good qualities in the face of adversity and downplays the help we received from others or the advantages we started with. When we do this we begin to develop a false sense of what was truly necessary for us to get to where we currently are, and we begin to overestimate ourselves, our importance, and our relation to society as a whole.
In his book Between the World and Me, author Ta-Nehisi Coats reflects on his life journey and the lessons he learned in a long form essay to his son. He at one point reflects on the poets and writers who were influential to him at college and includes a quick note to his son that stood out to me. Coats writes, “It is important that I tell you their names, that you know that I have never achieved anything alone.”

 

We often miss how dependent our lives are on those around us. We look at the smart decisions we had to make and praise ourselves for being disciplined, for not getting in trouble, and for being more industrious than those who are not as successful as we are. Money becomes the measure of how well we have done on our own, and fancy cars and houses become the way we display our value as human beings and our self-reliance through tough times.

 

These displays and our memories however, do not reflect the realities of our lives and our interdependence on other people. We never truly do anything alone. Our lives do not take place in a vacuum and we are not born as the amazing all-stars we make our selves out to be. We are dependent on other people from the very beginning, and often times, the success we achieve can be attributed to luck, to meeting the right people, and to having the right support at the right times in our lives. We have a large role to play in along this journey, and our attitudes, decisions, and work ethic greatly influence where we will end up, but we never truly achieve something without the help of others. We do not choose our parents and we do not choose our genetic pre-dispositions to things like disease, addiction, physical height and weight, or mental focus. Each of these areas could be managed and improved through personal decisions, but it is important to recognize that many of us do not start with equal footing and we do not all face the same levels of adversity.

 

In a quote written to James Harmon for his book, Take My Advice, philosopher Martha Nussbaum wrote, “even though we develop a degree of mastery and independence, we always remain alarmingly weak and incomplete, dependent on others and on an uncertain world for whatever we are able to achieve.” Great business decisions and adventures can never be undertaken alone, and sometimes the people around you explain more of the success of your business than just your own hard work. We influence the outcome, but we never truly control where we end up. Even the best business idea and the best team focused on reaching smart goals can be taken down in an unpredicted market collapse.

 

In Meditations Marcus Aurelius wrote, “a branch cut off from the adjacent branch must of necessity be cut off from the whole tree also. So too a man when he is separated from another man has fallen off from the whole social community.” What Aurelius is explaining is that we are connected to others and dependent on others to grow and thrive. Like a branch cut from a tree, we will wither away on our own. We may be able to become successful through smart decisions and hard work, but constantly operating in the background is a society that supports us. Cory Booker in United writes, “our rightful, long-cherished veneration of individual freedom and self-reliance and our faith in the free market must not be accepted as excuses to fail in our individual responsibilities to preserve our communal treasures.” One of those communal treasures is a society that still manages to support others and create opportunities for others through our connections and collective abilities. What makes us great and has allowed us to grow did not occur on our own, and it is up to us to reflect that support back onto others.

 

Ultimately, our money and wealth say nothing of our value or of the obstacles we overcame to get to the place we find ourselves. Looking back, it is easier to see our sacrifices and hard work, and harder to see the advantages we had. We are dependent on society at the same time that society depends on our best efforts. Being aware of how we benefitted and the advantages we received will help us make better decisions and live less selfishly in respect to others and our society.

A Monetary Yardstick

Time is a resource that does not seem to be well understood or well used in society today. We spend a lot of time at jobs we do not fully enjoy, and when we are not working and have leisure time, we are afraid of boredom and don’t know how to use time to be present in the moment. Author Colin Wright has approached this problem head on, and found some solutions.  Through his writing he has been able to reconnect with the present moment and direct his time according to his own desires. In his book, Come Back Frayed, he writes about his travels to the Philippines and what control over his time means to him. After explaining that in his life, his goals have been related to finding control in as many of his decisions and actions as possible, he writes about a feature in a Forbes article. He was profiled for the way he spends his time earning relatively little money. He writes,

 

“The response to such a story is a confused one, particularly amongst some of my entrepreneurial friends. When you’re part of that culture, a clever person dedicated to building something of value, something you believe will make the world a better place, will solve problems which plague humanity, will elevate you to a higher status, that of ‘successful entrepreneur,’ the yardstick you’ve been provided is a monetary one.”

 

Wright’s criticism is in the way that many successful entrepreneurs judge success. Financial success, bank account statements, company valuations, and access to funding become the indicators of success for most people. How we judge whether someone made an impact in the world becomes entangled with financial success. What Wright continues to explain is how he has chosen to measure success in his personal life differently. Rather than searching for greater sources of revenue and income, he focuses on freedom and expanding his ability to make his own choices.

 

When we decide that we will no longer allow financial success to be the true measure of how successful we are, we open our lives to a new realm of possibilities. Rather than continuing to spend more time focused on work and growth for the sake of financial gain, we can begin to align our lives with the things that truly matter to us, help us be present in the moment, and allow us to have a personal impact on the world. The financial yardstick we become accustom to does not do a good job of truly measuring the type of people we are or the quality of our actions. Our culture’s decision that success is equivalent to monetary wealth may help serve us well in terms of having many exciting things, but it also pushes us toward hedonism and lifestyles that can be unhealthy physically, mentally, and socially. I do not have the solution that Wright seems to have found for replacing the monetary yardstick, but I am able to recognize that a focus beyond money and beyond possessions can help us adopt a more well rounded life. The challenge is how to align life with the things that truly matter, and to find an appropriate place for money and success.