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

Playing with FIRE - A Review

The Financial Independent, Retire Early (FIRE) movement has gone from a fringe group on a tightly networked series of blogs to a broader, more socially acceptable movement of people that are looking for a way out of the hustle and bustle of the modern economy.

In reality, the movement has been around for decades, with one of its earliest proponents being Vicki Robin, who collaborated with her partner, Joe Dominguez, to write Your Money or Your Life in 1992.

There are now multiple variations of FIRE, but the gist of the FIRE movement is to seek passive forms of income through various investments that will enable someone to live without having to rely on income from a regular, salaried job. In its most common form, FIRE leads its adherents to become frugal, saving a large portion of their incomes and investing them.

In the “traditional” FIRE movement frugality serves two purposes: (1) It enables one to save an invest a large portion of one’s income to create a source of future, passive income. (2) It reduces the overall living expense that one has, thus also shrinking the investment income one needs to truly retire early.

There are numerous stories that are regularly published by FIRE advocates that record the success of individuals that have been able to retire in their early thirties or forties. There are cases where individuals have been able to retire in their twenties, too.

Of course, there are also a number of reports of people who have attempted FIRE that have had to step back into the workforce for a variety of reasons, including the high cost of living in their chosen home, medical expenses, and others.

In 2019, recent convert to the FIRE movement, Scott Rieckens, decided to make a documentary of he and his wife’s beginning steps toward FIRE. The film includes a number of interviews with many of the key voices in the FIRE movement. Alongside the documentary, he also released a book that contains mostly the same information, with some more in-depth examples.

For those wondering what the FIRE movement is, both of Rieckens products are helpful. This provides a basic understanding of what FIRE is all about. It also provides a window into the motivation of many, like the Rieckens family, for pursuing FIRE: to have more time for family and leisure activities.

As something of a personal finance junkie, I’ve read a lot of the internet material on FIRE. It is a truly intriguing financial philosophy, but one that has particular dangers, especially for Christians.

Movie/Book Review

The Playing with Fire documentary and book, however, are not particularly compelling apologies for the movement. The concept, as presented by Rieckens, is more about the decision to be “counter-cultural” than it is about the mechanics of FIRE. Also, notably, the Rieckens’ vision for FIRE is to step out of the workforce in an arbitrary timeframe of 10-years, meanwhile holding onto the basic framework of a middle-class lifestyle. Additionally, Playing with Fire describes the early stages of the quest for FIRE, rather than presenting a vision of what the FIRE lifestyle looks like ten years after stepping out of the workforce or what it looks like to work through the years it takes to get to one’s FIRE number.

The book and documentary do include interviews from individuals who have been FIREd for an extended period of time, but in the attempt to tell a compelling story about the decision to become FIRE Rieckens neglects to sufficiently reveal why one should strive for it. The reason the Rieckens family gives is to have more time to care for their toddler daughter (which Mrs. Rieckens states will be their only child), though the math of a 10-year FIRE horizon shows that the decision is being made on the hope of seeing more of the child’s teenage years, rather than the time-intensive formative years.

In the end, individuals that already have done their research on the FIRE movement will find little of new value in Rieckens’ products. The FIRE concept is, after all, exceptionally simple. And, those who are pondering FIRE may come away with more questions than answers.

For those that aren’t aware of the FIRE movement, it’s a well-constructed documentary and the book is accessible prose. Renting the film from a streaming service may well be a decent way to spend an evening on the couch at home, but it is a beginning point, not an ending point.

Playing With Fire

Starring Pete Adeney, Brad Barrett, Jonathan Mendonsa, Vicki Robin, Jl Collins

Buy on Amazon