How Rigged is the Economy against Individuals?

One of the prevailing themes in contemporary American public discourse is that the economy is irredeemably rigged against the little guy. The theory runs that the richest 1% have so much money that they are keeping the rest of us down.

That is a powerful story. It feeds on examples of cases where there are excessively wealthy people who do not have financial concerns that some anywhere close to the ones that ordinary citizens have. There are legitimate cases of harassment and discrimination prevent some people from achieving their potential.

However, the more complete story seems to be that despite inequalities in wealth, the potential for people to gain moderate levels of wealth is still present, even for people with median incomes.

In the FIRE community (Financial Independence/Retire Early) one of the more common targets for net worth prior to checking out of the workforce is $1M USD. Given that about 40% of American adults claim they can’t cover an unexpected $400 expense without borrowing or selling something, some argue that breaking into a seven-figure net worth is impossible.

Considering that the median household income in 2018 was estimated to be about $63K, which doesn’t include non-cash benefits like the company portion of insurance benefits, I’m more inclined to believe the people that tend to be optimistic about economic opportunities. Thomas Stanley and Sarah Stanley Fallaw’s recent book, The Next Millionaire Next Door, tends to support general optimism.

The first and most obvious allowance we must make in the whole debate, however, is that not everyone can get to the point of having a large net worth. There are people who have disabilities or medical conditions that will prevent them from engaging fully in the workforce and whose assets are regularly depleted by needed expenses. There are others who have, due to little or no fault of their own, been left in a precarious economic position because of poor choices by others or have had to leave a situation due to abuse. And, to be fair, half the households in the United States fall below the $63K income threshold, which makes it more difficult (though by no means impossible, down to a certain level) to create a large net worth.

But many in the top half of earners are not millionaires and never will be. In fact, according to Forbes in 2019, 18.6 million Americans have a net worth over a million. That means that approximately 1 in 17 people in the US are millionaires. That’s 5.6% of the population. Not bad when you think about it, but not as much as you would think.

The Next Millionaire Next Door is a follow up to Stanley’s 1996 book, The Millionaire Next Door, and basically asks if the economic system is really so rigged that no one can get ahead. He began the work with his daughter (Sarah Fallaw), and she completed the book alone due to his untimely death in 2015. The conclusion is that the basic patterns of behavior of millionaires has not changed in a fundamental sense in two decades.

The recipe for growing your net worth into the seven figures is the same as it was in 1996 and basically the same as it ever has been. Find work that uses your talents and do it vigorously. Live below your means by avoiding “status wars” with people at and above your income level. Invest your money; don’t just let it sit in a coffee can or a savings account. Do this for an extended period of time.

The upshot is that the path to becoming relatively wealthy is extremely simple. It has a lot to do with hard work and frugality. In fact, both the 1996 book and this latest book emphasize frugality as a central element of financial success. Even in 2019, the vast majority of millionaire’s surveyed had never spent more than $300 on a watch. Most of them drive Fords, Toyotas, Hondas, or Chevy’s that were purchased used, and very few of those surveys had ever spent more than $40,000 on a vehicle. Although they can “afford” to purchase more expensive products, they chose not to because the increase in value did not match the increase in price.

Also important to note is that those who accumulate wealth tend to be much more generous with their wealth. Individuals and families that have a high income, but a very low net worth do not tend to give much away. However, those that tend to save much of what they earn at whatever income level are, statistically speaking, more generous than your average American. Many of these next-door millionaires give away more than 5% of their income per year to registered charities, in addition to gifts to family.

To some this may seem counter-intuitive. Why should the savers be better givers? However, it makes sense when we consider the question from a different angle. High spenders don’t hang onto their money, but they have been mastered by their money and take pleasure in its spending. They, therefore, have a stronger love for money because of what it can get them. In contrast, the savers have mastered their money. They see it for its good beyond immediate consumption. They are also much more likely to want to see those funds invested into their community in a way that will cultivate hope for others.

The Next Millionaire Next Door leads me to believe that the majority of the “rich” are not the ones that are featured in the tabloid news or that are constantly scrabbling greedily for wealth. Rather, many of those who have obtained wealth in our society have, in some form or fashion, heeded the principles of 1 Tim 6:8–10:

But if we have food and clothing, with these we will be content. But those who desire to be rich fall into temptation, into a snare, into many senseless and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.

Though the political left, especially young socialists, tend to demonize those that have worked within the American economic system for decades to slowly accrue wealth, that demonization appears to be unwarranted. Those Christians who demean others, especially other Christians, for building businesses, working hard, participating in the community, giving regularly, and still managing to cultivate relative wealth are missing the fact that many of the next-door millionaires have done so by not loving money.

This is an interesting reversal. Next-door millionaires tend to be those who are generally content with food and clothing. They did not desire the wealth, but when they acquired wealth, they were good stewards of it. Statistically speaking, they give generously, live modestly, and work diligently. In fact, for most of those highlighted in this book, becoming wealthy was a secondary result of living wisely with those behaviors.

This sort of study might be helpful in overturning some negative perceptions and hostile rhetoric toward a portion of the population that has been diligent and, often, less self-interested than others in their pursuit of the good life. In this case, the good life being defined not as the unending accumulation of wealth, but of working hard, loving family and neighbor, and stewarding resources to have a reasonably secure future. In the United States that sort of lifestyle is often (but not always) rewarded with an abundance of resources over time.

Your Money or Your Life - A Review

In 1992 a little book was released that is still creating ripples today, nearly three decades and three editions later. Vicki Robin and Joe Dominguez published Your Money or Your Life not long after a major stock market crash on Black Monday 1987, as the United States was suffering under a slow-recovery recession after a decade of decadence. Your Money or Your Life is largely credited as the inspiration of the FIRE movement, which calls people to work hard, live frugally, save vigorously to achieve financial independence with the goal of being able to step away from the daily grind years before normal cultural expectations.

In true American fashion, the book is fashioned as a simple nine-step process that raises the reader’s awareness of where your money has gone, where it is going, and where you would really like it to go. The central concept of the book is that in the modern economy, humans trade time for money. And, since time is the one thing every human has a limited amount of in this life, they describe the employment relationship as one of trading life energy for money, hence the title: Your Money or Your Life.

As with many truly helpful things, the book’s premise is incredibly simple: For a great many people, raising awareness of expenses and asking a few value questions can reorient attitudes in ways that help shake of consumeristic habits and lead to a great deal more financial freedom. The concept works much better for those that are middle-income or higher, since the poor tend to already have a tight focus on their finances. But as Robins points out, many middle-income people have no idea where their money goes and are wasting a great deal of their time earning money to spend on things or experiences that give little satisfaction.

The practical advice in Your Money or Your Life is sound, which helps explain why a third revision was just released. The core is sound, though the specifics of recommendations have had to change. For example, in a low interest environment, the early advice to use bonds to fund retirement would be a relatively quick path to ruin.

Philosophically the book is all over the place. It mixes a few proof-texts from the Bible with Eastern thought, as well as some assumptions that are more American than anything else. However, by common grace there is a helpful integrity to the outlook, however quilted the underlying ideas may be.

One of the more helpful ideas that the book promotes is that all of life should be viewed as a whole. We can’t see our budget as one piece of our lives, our work as another, and our home life as something entirely different. All of them are of a piece and impact one another, as anyone who has worked alongside someone going through a divorce can attest. This isn’t to suggest that getting one thing right fixes everything, but what Robin and Dominquez point out is that viewing them all together helps us make better choices in the places we have agency. Spending money is, for many of us, one of the places we have the most agency. Therefore, the encouraging people to ask questions about how their spending reflects their values can lead to changes that open up opportunities in other areas.

Another significant element of the book is that it forces readers to rethink the nature of work. They argue,

The real problem with work, then, is not that our expectations are too high. It’s that we have confused work with paid employment. Redefining “work” as simply any productive or purposeful activity, with paid employment being just one activity among many, frees us from the false assumption that what we do to put food on the table and a roof over our heads should also provide us with our sense of meaning, purpose and fulfillment. Breaking the link between work and money allows us to reclaim balance and sanity.

There are too many eggs in the “work” basket for many of us. We define ourselves by our job and invest our best energy into tasks that may be demeaning or seem to be designed to be frustrating.

To some degree, that is the nature of an industrialized economy, which sometimes reduces tasks to repetitive minutia in the name of efficiency. Connected to this reduction is that due to the liquidity of modernity, there are few stable aspects of a contemporary human’s life. We are likely to change jobs, move thousands of miles, and undergo shifts in vocation that would have been unthinkable for the majority of human history. Work was meant to be satisfying as we create and organize, being made in the image of God. What work has become is not what it was meant to be. This is helpful truth that the authors recognize.

The book carries some significant baggage philosophically. The authors seem to assume that one of the primary purposes of humanity is to achieve a degree of autonomy. The number of cases of divorce they seem to celebrate is significant. There is an assumption that happiness can be achieved in some measure through material goods. All this and more lie beneath the surface, which should cause the Christian to read this book with care. At the same time, the advice is presented by non-Christians who argue for a distinct worldview, which makes it easier to chew the meat and spit the bones than when someone reads Dave Ramsey or another of the Christian financial gurus, where a heavy dose of proof-texts and testimonies saturated with church language can cause us to lower our guard, allowing greed to slip in when we least expect it. Your Money or Your Life is helpful, in part, because it is written from a different perspective that can be illuminating even as we filter it carefully.

For many American Christians, the lure of consumerism has led to an increase in consumer debt, a lifestyle of excess that would have shamed earlier generations of believers, and an increasing difficulty to enjoy the benefits of real wealth in one of the most affluent societies on earth. Books like Your Money or Your Life can present an alternative picture that is, in fact, closer to a biblical attitude toward money and the unity of life than many similar products from faith oriented Christian publishers offer. It’s high time American Christians began to rethink their money habits, and Your Money or Your Life is a decent place to start.

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated for 2018

By Robin, Vicki, Dominguez, Joe, Mr. Money Mustache

Buy on Amazon

Consumer Debt and the Coming Recession

For those that pay attention to such things, the news is filled with extreme views about the current and future state of the economy. At the same moment in time, there are pundits arguing that most Americans are in abject economic misery, while others argue that life has never been better economically. One group is arguing that imminent economic doom is upon us, another tells us that things are only going up from here.

If most of us are honest, in the decade since the Great Recession, things have generally gotten better for most people. However, in many cases, people do not feel great about the economy and, at the same time, are setting themselves up for problems during the next recession.

The Inevitability of Recessions and Stock Declines

News reports predicting a coming economic recession or a significant stock market decline are correct. They have no idea when those things are going to come, but some sort of economic perturbation is pretty much inevitable.

One of the more interesting aspects of our attention economy is that when the next economic dip happens, its significance will be determined, in large part, by how people respond. For example, if people get skittish and sell during a stock market decline, that will make the stock market decline even worse. If people alter their consumer behaviors radically during a recession, that is likely to make the recession worse.

More significant than whether and when a recession is coming (it is and who knows) is how we are living day to day in anticipation of those events.

A Plea for Simple Living

There is no question that some people are struggling to meet basic necessities already. Due to a medical condition, loss of a job, a very low wage job, or bad debt choices earlier in life, many people are living paycheck to paycheck. If that is you, then feel free to check out. This post is written to the vast majority of us who are in the middle class and have some economic margin.

We once received a gift subscription to a magazine called Real Simple that amounts to an advertisement for a high-end consumeristic minimalist lifestyle. All the pictures were of perfect rooms with “simple” solutions to problems like magazine storage or whatever, but the solutions always cost hundreds of dollars. The result was an aesthetic simplicity, but that’s not how they got there. According to that style magazine, simplicity is a consumer good that is really expensive.

Simple living is less about what stuff you own and more about what activities and services you deem necessary. Simple living at its best is simply asking what aspects of life are necessary and eliminating those that don’t fit that definition. Another definition is that simple living is asking what we do that glorifies God and minimizing the extras.

When we stop asking risk vs. reward questions about our lifestyle choices, we put ourselves into the situation like the couple making $160,000 who were described as living in “modest oppression” because they “couldn’t afford” everything they wanted. Alyssa Quart’s description of the largely self-caused mental and emotional stresses of the middle class in her 2018 book, Squeezed, should serve as a warning to rational minds to make better choices.

As Christians in the American middle class, we really need to begin asking “why” questions if we are going to be effective stewards of our time, treasure, and opportunity. We have the means to get the gospel to the ends of the earth and instead we are spending our money to overflow landfills with useless plastic.

The simple life is about being focused on what adds gospel-value to the world and spending our money on that.

Avoiding Comparisons

Also in Squeezed, Quart writes, “While Americans overall may live better than medieval aristocrats could even dream of, that means nothing when oligarchs live next door, flaunting their luxurious homes.”

The funny thing about comparisons is that we tend to make them with those living above our means. Very few of us look at those who are legitimately struggling financially and go home thankful for our abundance. Instead, largely due to the mystique of television and movies in which everything is always perfect, we continually moan about the inadequacy of our resources.

There is a reason God gave us the 10th Commandment.

Did you have a nice vacation at home? Well, the other guy at work took his kids on a safari adventure. Now that vacation doesn’t look so good.

Does your daughter enjoy soccer? The neighbor down the street does, too, so they’ve invested thousands into clinics, travel teams, physical training, and other goods and services designed to get their child ahead. Suddenly the local rec league isn’t very compelling.

There isn’t necessarily anything wrong with a big vacation or pursuing excellence in sports, but those are often excesses that we try to have without making sacrifices to compensate.

The result is that many people who are making a whole lot of money are spending all of it and a little bit more.

Rising Debt Loads

One of more frightening statistics, in my opinion, is the rise in household debt to the levels prior to the 2008 recession.

The Great Recession was rough for a lot of people in large part because people were up to their ears in debt when the problem started. For a few years society seemed to learn a lesson, but now it appears that we have forgotten.

I’m not on the “no debt ever” train, for a variety of reasons. However, I do believe that we typically position ourselves better to survive economic downturns if we minimize debt and seek to eliminate it when times are good.

A lot of the debt right now is being driven by a perception that the stock market is going to keep going up and up. In the long run this is probably true, but there may be a point at which half of the money invested in the market will “disappear” just like it did in 2008 and 2009. That is never a great feeling, but it is a really terrible feeling when you know that your pay is likely to stagnate for a while, you may lose your job, and the company bonus you budgeted to pay for your vacation is unlikely to materialize. In other words, when you are up to your ears in debt, the clouds of economic doom look a lot more ominous.

Market expert is not a title I’d claim, but I remember the pain of debt-ridden people who had a high salary but large payments and weren’t seeing the economic growth they were counting on. One way to eliminate that pain is to avoid debt and eradicate it. To do that, we should consider the common causes of debt.

The Cause of Debt

The problem most middle-class Americans have is that they are spending too much on things that they enjoy too little and bring too little glory to God.

Instead of comparing ourselves to our neighbors, we ought to be regularly asking of every expenditure how this glorifies God. We will certainly get things wrong from time to time, but a gospel-focused consumer mind will likely resist the urge to overspend on things that really do little good for anyone.

Once we get above a certain financial level, most debt is driven by buying more car than we need, a nicer house than necessary, services that we only use occasionally, and products that offer little benefit in the long run. Evaluate your household spending for the last year with a critical eye and this will likely become self-evident.

This means that rather than being trapped in system that makes us do bad things, we are in a culture that encourages us to do dumb things and we usually don’t invest the will power to stop.

For most of us, our debt is a problem we have created by being unwilling to limit our consumer choices to that which glorifies God.

We are setting ourselves up for misery in the future with our choices today. Why not begin making simple, better choices that will leave us happier when the next downturn comes?