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Within the lower income community, I see people with trashed credit who can't pay their rent, and I see people with the same amount of income who are living comfodtably. Not lavishly, but they can pay their rent, they can pay for a balanced diet, their cars run, they can aford cable tv and internet, and their credit is good.
Same income so the difference is lifestyle choice and a willingness to defer gratification and balance a budget.
Yep. There are people of all income levels who seem to get the basics and people of all income levels who just don't get it. Ever.
A poor woman I know , not a friend but I know of her by other people I know won the lottery. 4 million. After a few years went by she was broke again. How can anyone go broke with having 4 million dollars given to them taxes already taken out..
That is the thing about poverty. It isn't just a lack of income. It's about habits and attitudes. People who think $4 million is an inexhaustible supply of money are almost always proven wrong. Rich people understand that fortunes can dry up very quickly if you don't pay attention to your money. A lot of poor people just don't get that, even if you tell them until you're blue in the face.
I think that short term decision making is not an effect of being poor (seeking material goods as an escape), but that short term decision making is a cause of being poor. In this way, blowing your (limited) money on bling is just another symptom of the problem.
Home ownership is not a panacea to happiness, Freemkt.
BTW, why do you call yourself freemkt? You espouse socialism at it's finest with every keystroke!!
Actually, freemkt does advocate for more free market housing policies in the U.S. (less restrictive zoning, etc.), which I generally support (although the devil is in the details). That said, like socialists, freemkt believes his life situation is beyond his control and he is a victim of circumstance. Or as you say, he likes to "wallow in it", which is a more common trait of socialists than free market capitalists.
I deal with this as part of my job. I think it's more than that. I'm not talking about the "$30,000 millionaire" or the "temporarily embarrassed millionaire." I'm talking about the working poor. There's a mindset that prevents people in this predicament from saving or thinking of the future. Many have experienced a life in which there bank account ALWAYS hovers around $0. In their view, they've deposited EVERYTHING they've ever made into that account, and it's still $0. It's a bottomless pit.
Everything is here and now. That credit card they maxed out ten years ago will ALWAYS be there. Credit will always be "jacked." Future rent and bills will ALWAYS be there, no matter what. They're a given, there's no way around them, they are a fact of life, set in stone, a fixed cost of having a pulse. They cannot fathom a time when they're debt free, ahead of bills, much less able to retire or financially independent. Savings? No idea what that is. Experience has told them that these are insurmountable bills, and they never stop coming, never go down, never go away, no matter what.
To many, their long term debt isn't something that will never decrease, no matter how much they spend on it. Pay down a credit card? It will just be maxed out next month anyway. It's a financial black hole in their mind. The minimum monthly payment is a fixed cost that will never go away, something they'll die with. Why "waste" this windfall on something that will NEVER go away. Future bills? Well, they somehow manage, they always do. Maybe they'll "win the lottery" or "God will provide." Besides, what if they die tomorrow?
So, if there is any sort of windfall, they get hyper anxious. In their perspective, their bank account will ALWAYS be near zero by the end of the month. The amount deposited doesn't come into the thinking. In their minds, the account is zero, no matter what is deposited. It's a given. So, if that windfall is deposited, the black hole will suck that extra cash away, "with nothing to show for it." Better "enjoy" that cash while you can before the everyday financial black hole "steals" it from you.
It gets worse when the windfall is anticipated, as they've "spent" that windfall ten times over in their mind in anticipation. When the money comes, the anxiety triples, once they realize that their plans to "enjoy" it are thwarted by the realities (the money isn't as infinite as they thought, their dram purchases are much more expensive--or the items they buy have additional ownership costs.) Panic spending increases. That account is going to get to zero much faster.
This may be the "only time in their life" when they can do this or buy that. Trips to Disney, nice car, fancy clothes. Whew! They were able to "enjoy" that windfall before the the account went to $0 (like it always does). They have "something to show" for their spent windfall, and were able to "enjoy" it before it was sucked up by the black hole of never ending bills they would have to pay anyway.
It's a difficult mindset to pry oneself away from. Add to that, it is very expensive to be poor. Payday loans, pawn shops and high risk credit cards carries a never ending treadmill of interest payments. Need a car to go to work? "We tote the note" places charge a hefty premium on top of a high interest rate. The car you bought? It's now upside down, out of warranty and needs repair--you can't sell it. So you trade it in, finance the overage (at an even higher rate) and you're now further upside down on yet another car--the black hole grows larger. Miss a payment? Get a repo? Get sued? You're credit is gone and you have judgments. The black hole seems inescapable. Try to get an apartment with bad credit? You'll need deposits, first and last month's rent, utility deposits. Oh yeah, you have minimum payments and judgment creditors after you. Better hope you don't get sick, get hit by an uninsured driver, or hit on by your boss. And we haven't even gotten to the single parent issues yet... You're forced into more choices that sacrifice tomorrow to pay for today.
There's a fire at the bottom of the stairs next to the exit. Your only choice is keep going upstairs, further trapping yourself in that burning building.
To some, things may have been this way for their entire working life. You may blame their decisions and life choices, but that doesn't address the issue of how to escape what they believe to be inescapable. Once you're in this trap, you choices get increasingly limited, to where you have focus on immediate "survival" choices, even though it's hindering your future. You go up another flight of stairs to avoid the flames, and the exit is now harder to reach.
I deal with this as part of my job. I think it's more than that. I'm not talking about the "$30,000 millionaire" or the "temporarily embarrassed millionaire." I'm talking about the working poor. There's a mindset that prevents people in this predicament from saving or thinking of the future. Many have experienced a life in which their bank account ALWAYS hovers around $0. In their view, they've deposited EVERYTHING they've ever made into that account, and it's still $0. It's a bottomless pit.
Everything is here and now. That credit card they maxed out ten years ago will ALWAYS be there. Credit will always be "jacked." Future rent and bills will ALWAYS be there, no matter what. They're a given, there's no way around them, they are a fact of life, set in stone, a fixed cost of having a pulse. They cannot fathom a time when they're debt free, ahead of bills, much less able to retire or financially independent. Savings? No idea what that is. Experience has told them that these are insurmountable bills, and they never stop coming, never go down, never go away, no matter what.
To many, their long term debt isn't something that will never decrease, no matter how much they spend on it. Pay down a credit card? It will just be maxed out next month anyway. It's a financial black hole in their mind. The minimum monthly payment is a fixed cost that will never go away, something they'll die with. Why "waste" this windfall on something that will NEVER go away. Future bills? Well, they somehow manage, they always do. Maybe they'll "win the lottery" or "God will provide." Besides, what if they die tomorrow?
So, if there is any sort of windfall, they get hyper anxious. In their perspective, their bank account will ALWAYS be near zero by the end of the month. The amount deposited doesn't come into the thinking. In their minds, the account is zero, no matter what is deposited. It's a given. So, if that windfall is deposited, the black hole will suck that extra cash away, "with nothing to show for it." Better "enjoy" that cash while you can before the everyday financial black hole "steals" it from you.
It gets worse when the windfall is anticipated, as they've "spent" that windfall ten times over in their mind in anticipation. When the money comes, the anxiety triples, once they realize that their plans to "enjoy" it are thwarted by the realities (the money isn't as infinite as they thought, their dram purchases are much more expensive--or the items they buy have additional ownership costs.) Panic spending increases. That account is going to get to zero much faster.
This may be the "only time in their life" when they can do this or buy that. Trips to Disney, nice car, fancy clothes. Whew! They were able to "enjoy" that windfall before the the account went to $0 (like it always does). They have "something to show" for their spent windfall, and were able to "enjoy" it before it was sucked up by the black hole of never ending bills they would have to pay anyway.
It's a difficult mindset to pry oneself away from. Add to that, it is very expensive to be poor. Payday loans, pawn shops and high risk credit cards carries a never ending treadmill of interest payments. Need a car to go to work? "We tote the note" places charge a hefty premium on top of a high interest rate. The car you bought? It's now upside down, out of warranty and needs repair--you can't sell it. So you trade it in, finance the overage (at an even higher rate) and you're now further upside down on yet another car--the black hole grows larger. Miss a payment? Get a repo? Get sued? You're credit is gone and you have judgments. The black hole seems inescapable. Try to get an apartment with bad credit? You'll need deposits, first and last month's rent, utility deposits. Oh yeah, you have minimum payments and judgment creditors after you. Better hope you don't get sick, get hit by an uninsured driver, or hit on by your boss. And we haven't even gotten to the single parent issues yet... You're forced into more choices that sacrifice tomorrow to pay for today.
There's a fire at the bottom of the stairs next to the exit. Your only choice is keep going upstairs, further trapping yourself in that burning building.
To some, things may have been this way for their entire working life. You may blame their decisions and life choices, but that doesn't address the issue of how to escape what they believe to be inescapable. Once you're in this trap, you choices get increasingly limited, to where you have focus on immediate "survival" choices, even though it's hindering your future. You go up another flight of stairs to avoid the flames, and the exit is now harder to reach.
Great description. Fundamentally, it's an emotional and psychological issue. If you believe you can't escape from a situation, it will be self fulfilling.
I'm not talking about the actual impoverished people, living on (legitimately obtained) SSI, living on the street, or barely-able-to-put-food-on-the-table people. But a lot of people I know (and know of) with "lower" incomes seem, in my opinion, to waste a lot of money.
I don't want to fall back on "well it's an educational thing, and if they had a better education, they would be better with money." Because that's really not true. Lots of these people I see wasting money have a college degree, some even have a Master's. I'm seeing people with various levels of education spend their money in ways that seem wise and ways that seem unwise. To me, "wise" means "in a way that will increase wealth" and "unwise" means "in way that will decrease wealth, or that can be dangerous."
I have some co-workers/employees at my company who only earn like $13 an hour, but they have fancy manicures, and the newest iphones. I recently heard one of them (whose salary is in the 29,000-32,000 range) talking about having a $300/month car payment. Another person who I know earns only about $45,000 has a Mercedes SUV that goes for around $90,000. Where are the priorities? Do they save or invest anything?
Again, it's really a value judgment on my part, I know. But some things people spend their money on, are really, in the empirical sense, a waste. Right?
Cigarettes
Lottery tickets
Expensive clothes/shoes/sneakers
Manicures/pedicures/expensive hairdos
The latest entertainment technology (last year's technology is unacceptable)
The highest price cable TV package & pay channels
Tacky "collections" that have no value
Casinos
I saw one of those shows about people who have won the lottery, and wasted all their money, and I was kind of shocked. And then I thought about people I know who play the lottery, and how they would likely waste their money in that way too.
Even when it comes to collecting, you can see big difference between people who are wise and the unwise. Collecting is a hobby that is purely for the purpose of investing in objects that you enjoy, and that will hopefully go up in value over time. So you might collect antique gold jewelry, rare coins, pieces of art, antique guns, early bicycles, even vintage advertising signs, etc, and those will largely increase in value over time. But the people on these "lottery" shows, and some lower-middle-income people I know, will instead invest in new objects that are labeled "collectibles" and that will never increase in value. I mean, Beany Babies were the prime example of this in the 90s, but there are many more examples. On one of those "I won the lottery" shows, the person spent tons of money on a collection of comemorative plates, with portraits of famous people on them (like John Wayne, race car drivers, Elvis, Gone With the Wind characters). The guy actually believed that these were going to go up in value, and he or his wife actually called the plate collection "our nest egg" or "the kids' college fund." It was so pitiful that they really believed this.
I'm in the middle-income range, and I'm somewhat frugal, but not overly so. The wasteful things I spend on are wine, eating out for lunch when I could pack a lunch, and stuff for my pets, and maybe a bit too much on books (I like nice hardcovers instead of paperbacks). But I only spend money on those things when all my other bills are paid, and I have put away some money into savings. Then the remainder, I allot for those wasteful things that I like. But if I were to hit hard times, those would be the first things to go. I know people who will keep spending on their "vices" and wasteful things, and let bills and necessities like saving lapse. I know people who have almost the exact same salary as I do, but they are always broke, have lots of debts, never give to charities, but somehow just got the newest iphone or drive a brand new car. If they have some kind of emergency, like they suddenly need a new heater or roof, or they lose their job, they have nothing to fall back on. They spend in a way that will make them poor.
I do buy higher-priced clothes, not because of designers or names, but because I make my clothes last a looooong time. If they are good quality and a classic style, I can still wear things I bought 10 years ago (or more!) I also do that because I hate shopping, so I don't buy clothes that often. I know people who shop every week or two, and blow money on fashions that will be out of style next year, or that are so poor quality, they will fall apart by next year.
I'm not perfect, and I'm not holding myself up as some ideal of wise spending (I do have that wine and book habit) but I do feel like I have to be a bit judgmental (silently) when I see people waste money really unwisely.
What do you see people wasting money on that you just don't understand? Do they spend money on this stuff while not putting anything into savings and/or building up debt?
I honestly think that if you could magically give every person in the US, rich, poor, or in the middle, $100,000, that after one year, they would all mostly be in the same category they started off in: rich, poor, and in the middle. Maybe very few (I'd like to think I would be one of them) would invest it wisely and move up a few notches, permanently. But the rest would be right back where they started.
Sorry for the length, but this has been nagging at me for some time, and just sort-of crytallized today.
Of course. And, BTW, not only those with "lower incomes" waste money, but so do those with high incomes. Those on assistance have been known to waste money that not theirs, too.
Actually, freemkt does advocate for more free market housing policies in the U.S. (less restrictive zoning, etc.), which I generally support (although the devil is in the details). That said, like socialists, freemkt believes his life situation is beyond his control and he is a victim of circumstance. Or as you say, he likes to "wallow in it", which is a more common trait of socialists than free market capitalists.
"Renting is where you pay a premium to enjoy temporary, restricted use of property."
My impaired internet access where I live is the only thing holding me back from making more money.
For "YOU" apparently. Not for me. You like to wallow in it. I have a great place! No worries...I can be gone a lot...here's my schedule the next few months...Palm Springs, Costa Rica, California, SE Asia including Singapore and Thailand, etc., and back again to Nevada and Northern Cal.
If I owned a home here in the Northland, I'd have to figure out what to do with it while I was gone in the winter , etc...
I live in a great apartment complex with underground heated parking.
When I leave, I'll set the temp at 65 or whatever...(the halls are heated so my avg winter utility bill is $40), put my luggage in the taxi to the airport and I'm off!!
"Renting can be a situation where you pay some money to enjoy a life of carefree comfort that allows you freedom to do what you want with the time not spent maintaining or worrying about your house."
Home ownership is not a panacea to happiness, Freemkt.
BTW, why do you call yourself freemkt? You espouse socialism at it's finest with every keystroke!!
Home ownership is not a panacea, but as an unbeatable hedge against rent inflation, it is a crucial component of financial self-sufficiency for low earners.
Low-earning rent serfs never get ahead financially because they always MUST pay current (inflating) rents. Home ownership with a fixed-rate mortgage allows them to escape the cycle, and to enjoy a surplus which grows over time and can be invested for the future.
"Renting is where you pay a premium to enjoy temporary, restricted use of property."
My impaired internet access where I live is the only thing holding me back from making more money.
Thank you for giving me my first laugh of the week.
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