I’ve been part of the personal finance blogging world for a few years now and I’ve realized a few hard truths. One of them is that there is no one answer to the problem of poverty. In the personal finance sphere, it’s a truth barely ever acknowledged that not everyone has enough.
We bloggers love to talk about our successes and we will happily share our “pathways to success”. What we’re not so good at is realizing that those pathways don’t always exist for everyone else. The sad truth is that there is a growing subset of people who are stuck in poverty with few, if any, ways out of it. No one aspires to poverty yet that’s where many are headed.
The Globe and Mail
Every Saturday, the Globe and Mail posts a review of a household’s finance on their website. (FYI – it’s behind a paywall.) The review includes a snapshot of the household’s assets, liabilities, monthly income, and monthly expenses. An advisor provides a professional opinion of whether the household has enough to generate a desire income in retirement. Readers are free to leave comments and, more often than not, readers complain that the household being profiled is too affluent. Readers clamor for households whose profiles are more relatable, i.e. those of someone earning a $50K-$60K per year while sending children to daycare, handling credit card debt, and paying a mortgage.
I’m always very confused by those reader comments. What are readers expecting the financial advisor to say? When a person is making a five-figure salary and all of their money is going towards mortgage debt, student loans, daycare, utilities, food, and transportation, then there really isn’t any wiggle room. The average person who isn’t making six-figures and who is raising a family is always under intense financial pressure to make sure everyone eats and that all the bills get paid. A severe illness or a job loss would be tragic, if not catastrophic.
There is no financial advisor alive who can help someone to build wealth when the entire paycheque is going out the door as fast as it comes in. There has to be some money to work with in order for a financial plan to have any hope of being useful!
What I’ve learned from reading many, many reviews of household profiles is that people who have excess money are the only ones who can reasonably benefit from a financial advisor’s review and advice. Having excess money means being positioned to implement a recommended investment strategy, to consider tax shelters, and to maximize contributions to the myriad of registered accounts that are available. When there’s no excess money, none of these options are really available.
Popular advice isn’t for those in poverty.
Most of the popular advice that you see shared online is for people with excess money. It can be an extra $5 per day, or it can exceed an extra $100,000 per year. The amount of excess money is not the point. What I want you to realize is that having excess money is the cornerstone to building savings and to investing for the future. If there’s nothing extra to save, then investing is essentially out of reach.
And to be very clear, I’m not talking about people who can cut back if necessary. Many people spend every penny on both necessities and luxuries, while deluding themselves that those luxuries are truly necessary for their well-being. No one needs a $300/mth cable package for their survival. I’d be tempted to argue that cutting the cord is a great way to cut down on the marketing that encourage the needless spending in the first place. But I digress…
If you don’t have excess money, you’re essentially a human conduit between your employer and your creditors. You work very, very hard and then disperse your paycheque to everyone else. To add insult to injury, you might also have to use credit cards to pay for food or utilities or some other basic necessity. However, if you’re using credit cards to survive, then please do not delude yourself into thinking that you’re keeping the wolves from the door. They’re circling and they will eventually be on your doorstep. Debt is rarely the solution to poverty. More often than not, debt simply entrenches you in poverty because the interest owed on your debt never stops growing until the debt is paid in full.
When you’re working super hard yet have no extra money to keep for yourself, then you’re the very definition of the working poor. From what I’ve learned, the only solution to poverty is to get more money. With more money in hand, the options for growing your money become viable options for you to consider. Until then, those options are eternally out of reach and may as well not exist.
And if you’re in this situation already, then I’m not telling you anything that you don’t already know. I’m sorry. I don’t have any quick fixes for your particular circumstances if you find yourself in this situation.
Living Below Your Means
One of the fundamental tenets of personal finance is to live below your means. I know that I’ve suggested that everyone do this. The reality that I’m coming to accept is that not every one can do this. It is a privilege to be able to live below your means, because it means that you have more than enough to pay for your daily living costs and there’s still money left over. There’s disposable income that need not be spent to keep food in the fridge and a roof overhead.
People who have already cut back yet are facing increasing costs simply cannot survive without spending every penny. They don’t have the luxury of an extra $5 to squirrel away in a paycheque. Doing so means going without food for 2 or 3 days in a row. No one ever develops a taste for poverty.
There are too many people who simply don’t earn enough. That’s the bottom line. If there is way to escape poverty’s clutches without increasing your income, please share that solution with the class.
For a good number of people, hard work is no longer the solution. However hard they work, there’s never enough to pay themselves first. If they do pay themselves first, then someone doesn’t eat or an eviction is in their future or the electricity is turned off. The rational solution is to solve today’s problems today and to hope for a better future tomorrow. When there’s only enough money to pay for today or to pay for tomorrow, which choice would you make?
What’s the answer?
If I had the perfect answer to solve the poverty problem, I would shout it from the rooftops. Sadly, that level of wisdom has escaped me.
My only suggestion is this. If you’re one of the people who has enough with a bit to spare, then consider making charitable donations to homeless shelters and food banks. People will always need a place to stay and food to eat. You can still invest for Future You. I will always urge you to build the life you want for yourself while helping others along the way. It does you no harm to help someone in need.
Never take your good fortune for granted. Believe me when I say that no one who is in poverty wants to be there. I would venture to say that more than a few of those folks were one day very financially similar to you. Something happened to wipe out their financial foundation and they simply were unable to rebuild.
Again, no one aspires to poverty yet that’s where they’ve landed. Be thankful if you’ve managed not to fall into poverty’s nearly inescapable grasp.