In our recent discussion about tithing, I made a confession:
I do not tithe to church or charity. I feel guilty about this. My rationale is always: “Once I take care of myself, I'll take care of other people.” Yet what do I mean by “taking care of myself”? I don't know. Sometimes I think “once I've saved X, then I'll start sharing my wealth”, but X seems to be a moving target.
I've thought a lot about this over the past couple weeks. I've looked at my own life: I have a $10,000 emergency fund, a growing business, and no consumer debt. I own an 1800-square-foot home on half an acre, a car, and a pantry stocked with food. Despite all this, I still sometimes feel poor. I'm not. I know this. According to the Global Rich List, my wealth places me in the top 1% of the world population, and that will likely increase as I get older.
Why did the current financial crisis happen? I don't think a fully comprehensive answer could fit into a few paragraphs, but I can give some brief thoughts.
As of this morning, otherwise sound companies are encountering financial difficulties. If we think of the current financial crisis as being a simmering pot on an oven, the water just boiled over and knocked the cover off. Forces that were either hidden or contained were let loose, and this had a cascading effect. Credit markets dried up further in response to the fall of Fannie Mae, Freddie Mae, and Lehman Brothers. Businesses that otherwise were solid ran into cash flow problems. Essentially, we saw a bank run and lenders pull back their lines of credit and new credit could not be found.
This morning we have news that a neo-Resolution Trust Corporation will be formed to handle the tranches of bad debt currently out in the market. The market rebounded because such a move increases the certainty that at least part of the bad debt will be repaid.
Every time I write about Stuff, readers point me to The Story of Stuff, a 20-minute video about where Stuff comes from and where it goes. Until today, however, I'd never taken time to watch it. According to the website:
From its extraction through sale, use and disposal, all the stuff in our lives affects communities at home and abroad, yet most of this is hidden from view. The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns.
The Story of Stuff is an interesting short film, particularly in its last half. Writer and narrator Annie Leonard explains that the "golden arrow of consumption" is the heart of the modern economic system, a system that's really only existed since the 1950s.
"My generation doesn't know how to be thrifty," writes Eve Conant in the current issue of Newsweek. She describes how her grandfather — who fled his native Ukraine during World War II — would store plastic bags filled with leftover bread crusts in the closet of his new home in California, a house he bought with $13,000 cash. "He couldn't shake old habits," Conant writes. "Or were they old virtues?"
Now, many decades after Arkady's arrival, I also have plastic bags in my closet. But they're filled with nice clothes I'm giving away because my wardrobe is too full. The biggest life issue facing me when I open my closet door is whether to put on an Ann Taylor jacket or a Gap sweater. As talk of recession and belt-tightening makes headlines, I wonder where and how I lost my grandfather's sense of thrift.
These sentiments aren't exactly new. For decades — centuries, even — people have complained that younger generations haven't inherited the financial wisdom of their elders. During the 1750s, Benjamin Franklin bemoaned the lack of money skills among the American colonists. But these warnings took on greater urgency with the dawn of the age of easy credit. In the introduction to Ain't We Got Fun?, Barbara Solomon writes:
In a comment on my interview with Adam Shepard, Liberal Arts Dude pointed to the Economic Mobility Project, a nonpartisan collaboration between several leading think-tanks. According to the project's web site:
While as individuals [these groups] may not necessarily agree on the solutions or policy prescriptions for action, each believes that economic mobility plays a central role in defining the American experience and that more attention must be paid to understanding the status and health of the American Dream.
The Economic Mobility Project's purpose is:
I just finished reading Barbara Ehrenreich's Nickel and Dimed: On (Not) Getting By in America for the third time. In this book, the author chronicles three one-month stints working as one of the American poor. Her goal is to demonstrate that it's difficult to succeed as a waitress, or a maid, or a Wal-Mart employee.
This is a book that I wanted to like — I sympathize with the author's motives — but what could have been an interesting project (and an interesting book) is instead a bizarre Marxist screed about class warfare. Ehrenreich enters her experiment with the end in mind — failure — and she seems to do everything she can to make this end come to fruition.
Nickel and Dimed could have been so much more. I wanted to hear about the people Ehrenreich worked with, wanted to hear their backgrounds and stories and dreams, but very little of that comes through in the book. Instead, we learn about all the little ways in which Ehrenreich sabotages any chance at success.
Though Nickel and Dimed has its fans, I'm not the only one who thinks Ehrenreich's approach was flawed. A young man named Adam Shepard recently published a book called Scratch Beginnings: Me, $25, and the Search for the American Dream that chronicles his own time spent living and working the low-wage lifestyle.
Shepard — who is the first to admit that he has advantages that many of the working poor do not — started from scratch in Charleston, South Carolina, with $25 and the clothes on his back. He lived in a homeless shelter while looking for work. His goal was to start with nothing and, within a year, work hard enough to save $2500, buy a car, and to live in a furnished apartment.
It wasn't easy, but Shepard succeeded. In ten months, he had his car, he had his furnished apartment, and he hadn't just saved $2500 — he'd saved twice that. Was he lucky? Did he get good breaks because he's a young white male? Probably. But I think much of his success also came from setting goals and working toward them.
In this two-minute video, Shepard describes his aims:
Last Friday, two Get Rich Slowly readers sent me a Christian Science Monitor story about Adam Shepard. Intrigued, I contacted him, and he agreed to be interviewed by e-mail.
An Interview With Adam Shepard
Tell us about your day-to-day life. How did you live? How did you pay for what you had? What financial sacrifices were you forced to make?
That was the greatest challenge for me. I was getting paid peanuts, but I want to keep as many of those peanuts in my pocket as possible. In the [homeless shelter], it was easy, because I didn't have rent or a hefty food bill (breakfast and dinner were provided at the shelter). Once I moved out of the shelter, though, was when I really had to buckle down.
The Federal Reserve has lowered short-term interest rates twice in the past week by a total of 1.25 percentage points. (They lowered the federal funds rate, not the prime lending rate, though that falls in lockstep with the former.) Many people are excited because they believe this will lead to lower rates on fixed-term mortgages, meaning the average person may be able to save big bucks by refinancing. One GRS reader wrote yesterday to ask:
The feds cut rates again this afternoon. I would like to know if this means it may be a good time to consider refinancing my primary residence. I'm currently locked at 7.0% for 30 years.
This is a great question, one that I've had, too. But my research revealed something surprising. Contrary to popular belief, the federal funds rate does not directly affect mortgage rates. (Not even adjustable rates, from what I can tell.) According to Bankrate:
I stopped by the 7-11 yesterday for the first time in years. I was thirsty and wasn't willing to wait until I got home for a glass of water. I grabbed a $1.59 bottle of Aquafina and headed to the checkout stand.
A woman and her two teenage daughters were in front of me. They were purchasing three Big Bite hot dogs, a Slurpee, and a couple pieces of candy. From the way they acted, this seemed to be routine for them. They knew where everything was and how much it cost. There was some confusion at first as to the price of the Big Bites, but the woman was right and the clerk was wrong. The total bill was $7.21.
The woman me ran her credit card through the machine. "I'm sorry, ma'am," said the clerk. "That card was declined."