The Poverty Trap

“Poverty is the worst form of violence.”  
— Mahatma Gandhi

What is a poverty trap?

A poverty trap is a situation that creates a never-ending pattern of poverty. Unless something dramatically is done to change the situation, the cycle cannot be broken, leaving generation after generation ‘trapped’ in a constant state of poverty.

The reality is that the effects of poverty lead to even more poverty. And this condition can be passed from generation to generation depending on the underlying cause(s).

What are the causes of a poverty trap?

When many people think about poverty, they think about the lack of an adequate income. While low wages certainly contribute to poverty, there are many other conditions that can cause poverty traps.

  • Lack of good paying jobs: In densely populated urban areas or remote rural areas, it is usually difficult for people to even find a job, let alone finding a job that pays well.
  • Inability to pay for higher education or specialized job training: Without money, people cannot pay for the education they need to get a better job.
  • Violence: Many poverty-stricken areas are so stuck in a poverty trap that people are forced to fight for the basic necessities which creates a very dangerous and violent environment. Violence can inhibit education, industry, and an individual’s ability to excel.
  • The cost of products and services: In poor areas, certain products and services (including food, housing, transportation and medical care) can be unaffordable for large portions of the population.
  • Lack of business and industry growth: In extremely poor areas, even if there is room to build buildings for large industries, the corruption of government, the price of power, and the lack of skilled labor can deter business and industry growth.
  • Poor sanitation: Poor sanitation, or tainted resources (like bacteria tainted water or high levels of air pollution) can lead to disease which spreads quickly and can be difficult to control in areas that are already lacking essential resources.
  • Access to quality medical care: Due to the lack of money or medical insurance, people do not get the medical care they need. Hence, many become chronically ill or die from starvation, malnutrition or a chronic disease.

Taxation and welfare systems can jointly contribute to keep people trapped in poverty because the withdrawal of means-tested benefits that comes with entering low-paid work causes there to be no significant increase in net income. An individual sees that the opportunity cost of returning to work is too great for too little a financial return, and this can create a perverse incentive to not work.

Hence, the government systems that were designed to lift people out of poverty actually institute the barriers that keep people from being able to climb out of poverty.


A Look at Global Poverty Today

Globally, the number of people living in extreme poverty declined from 36 per cent in 1990 to 10 per cent in 2015. But the pace of change is decelerating and the COVID-19 crisis risks reversing decades of progress in the fight against poverty. New research published by the UNU World Institute for Development Economics Research warns that the economic fallout from the global pandemic could increase global poverty by as much as half a billion people, or 8% of the total human population. This would be the first time that poverty has increased globally in thirty years, since 1990.

More than 700 million people, or 10 per cent of the world population, still live in extreme poverty today, struggling to fulfil the most basic needs like health, education, and access to water and sanitation, to name a few. The majority of people living on less than $1.90 a day live in sub-Saharan Africa. Worldwide, the poverty rate in rural areas is 17.2 per cent—more than three times higher than in urban areas. 

For those who work, having a job does not guarantee a decent living. In fact, 8 per cent of employed workers and their families worldwide lived in extreme poverty in 2018. One out of five children live in extreme poverty. Ensuring social protection for all children and other vulnerable groups is critical to reduce poverty.

COVID-19 and Poverty

Developing countries are most at risk during – and in the aftermath – of the pandemic, not only as a health crisis but as a devastating social and economic crisis over the months and years to come. According to UNDP income losses are expected to exceed $220 billion in developing countries, and an estimated 55 per cent of the global population have no access to social protection. These losses will reverberate across societies; impacting education, human rights and, in the most severe cases, basic food security and nutrition.

Facts and Statistics

  • According to the most recent estimates, in 2015, 10 percent of the world’s population or 734 million people lived on less than $1.90 a day.
  • Even before COVID-19, baseline projections suggested that 6 per cent of the global population would still be living in extreme poverty in 2030, missing the target of ending poverty. The fallout from the pandemic threatens to push over 70 million people into extreme poverty.
  • In 2016, 55 per cent of the world’s population – about 4 billion people – did not benefit from any form of social protection.

Section Source: The United Nations


This post is the second post on poverty. To read the first post, Understanding Poverty, please click here.


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Understanding Poverty

Poverty is the state or condition of having little or no money, goods, or means of support; condition of being poor; indigence.
— Random House Kernerman Webster’s College Dictionary

This definition follows most people’s thinking. However, it doesn’t acknowledge the existence and distinction of the two different types of poverty….

  • Extreme poverty (also called deep poverty, abject poverty, absolute poverty, and destitution)
  • Relative poverty

Extreme Poverty

Extreme poverty is the complete lack of the means necessary to meet basic personal needs, such as food, clothing, and housing. The threshold at which extreme poverty is defined is always about the same, independent of the person’s permanent location or era.

In 2019, extreme poverty widely refers to an income below the international poverty line of $2.16 set by the World Bank. The vast majority of those living in extreme poverty reside in South Asia and Sub-Saharan Africa. As of 2018, it is estimated that the country with the most people living in extreme poverty is Nigeria, at 86 million.

In the past, the vast majority of the world population lived in conditions of extreme poverty. The percentage of the global population living in extreme poverty fell from over 80% in 1800 to 20% by 2015. Despite the significant number of individuals still living below the international poverty line, these figures represent significant progress for the international community, as they reflect a decrease of more than one billion people over 15 years.

Relative Poverty

Relative poverty is having a low income relative to others in a country. An example would be having to live on an income that is 60% below that of the median income of people in that country.

Relative poverty measurements, unlike extreme poverty measurements, considers the social economic environment of the people. The threshold for relative poverty is considered to be at 50% of a country’s median disposable income after social transfers. Thus, it can vary greatly from country to country even after adjusting for purchasing power standards.

A person can be poor in a relative term but not in an absolute term. The person might be able to meet their basic needs but it is not able to enjoy the same standard of living as other people in the same country. Relative poverty is thus a form of social exclusion that can effect peoples access to decent housing, education or job opportunities.

Relative poverty better reflects social exclusion and inequality of opportunity.

Once economic development has progressed beyond a certain minimum level, the rub of the poverty problem is not so much the effects of poverty in any absolute form but the effects of the contrast between the lives of the poor and the lives of those around them.

The problem of poverty in the industrialized nations today is a problem of relative poverty.


This post is the first of two posts on poverty.
The next post will address the Poverty Trap.


What are your thoughts on the two different types of poverty? Please use the comment section provided to share your thoughts … or experience.

If you prefer to contact me directly, feel free to email me at mbrown.ec@mail.com.


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A Living Wage and You

This post is targeted to workers in the United States because income information is readily available and it’s where I owned a business for 32 years. Similar information is most likely available in the country you reside. I encourage you to seek out this information.

Living Wage – Definition
A wage adequate to permit a wage earner to live and support a family in reasonable comfort.
— Collins English Dictionary

There is a lot of talk about a minimum wage and how much it should be. Yet, not much is discussed about a living wage and how much it should be using actual numbers.

  • A minimum wage is the lowest amount an employer can legally pay an employee for the mental and physical labor performed by that employee. Included are the skills and talents of the employee applied on the job to financially benefit the employer.

    Paying the minimum wage is mandated by law.
  • A living wage is the income paid to an employee to fairly compensate an employee for their contribution of their physical and mental labor, and the application of their skills and talents on the job that financially benefit the employer. And as a result, the employer pays the employee well above the minimum wage established by law as the employer recognizes the benefits to the business of paying employees a fair, living wage.

    Paying a living wage is voluntary.

Unfortunately, only a small percentage of working adults get to the point of actually earning a living wage that provides them with the financial resources they need to realize a life without constant financial stress.

Another perspective of a “living wage” is that it is the income you need to cover necessary and discretionary expenses while still contributing to savings. Using data from the Bureau of Labor Statistics and the 50/30/20 budgeting rule — which allocates 50% of your income to necessities, 30% to discretionary expenses and 20% to savings.

Many “advisors” (myself included) do a great job at addressing the need for budgeting, tracking expenses and saving money. We also make the “spend less than you make” and the “live within your means” mantras seem realistic by anyone earning an income. But….

What do you do when your “means” (income) just isn’t enough?

Here’s the truth, many of those “falling short” simply don’t have an adequate income to save any money other than a dollar or two between paychecks. The money simply isn’t there once their bills for their basic needs are paid.

  • Why is this the case for the many Americans?
  • Isn’t anyone working contributing to the benefit and betterment of society?
  • Shouldn’t every man and woman working a full-time job be worthy of being paid a living wage that allows them to live comfortably as long as they spend their money wisely?

We hear a lot about a living wage. However, there isn’t much detailed discussion about how much income equals a living wage. As you can readily imagine, a living wage in Iowa wouldn’t come close to being a living wage in New Jersey.

In an effort to address this issue, let’s look at the median wage, average wage, and the amount needed to earn a living wage in each state.

But before we get started, we need to understand the difference between the average salary (wage) and the median salary (wage).

Calculating an Average Wage
You can calculate the average base, mean salary, or average salary by adding all the salaries for a select group of employees and then dividing the sum by the number of employees in the group.

Average Wage Example:
Employee 1 earns $40,000, Employee 2 earns $50,000, Employee 3 earns $100,000. The total of $190,000 is divided by 3, providing an average salary of $63,333.

The average wage represents what the “typical employee” earns and can be pulled higher or lower by high salaries or low salaries at the extreme ends of the distribution.

Calculating the Median Wage
You can calculate the median base salary by arranging the salaries for a group of employees in descending order and then locating the salary that represents the midpoint of the distribution. Fifty percent of the salaries are less than the median and fifty percent of the salaries are greater than the median.

Median Wage Example:
Employee 1 earns $40,000, Employee 2 earns $50,000, Employee 3 earns $100,000. The salary in the middle, or the median salary is $50,000.

As the median wage represents a specific point in the distribution, it cannot be pulled higher or lower by salaries at the extreme ends of the distribution. It is therefore considered a more neutral measure of central tendency, especially in a small group of salaries where one extreme value can disproportionately affect the calculation of an average.
Source: Salary.com, Adapted


Alabama
Median Income: $33,740
Average Income: $51,347
Living Wage Income: $60,016

Alaska
Median Income: $48,680
Average Income: $69,789
Living Wage Income: $91,996

Arizona
Median Income: $37,020
Average Income: $57,422
Living Wage Income: $68,504

Arkansas
Median Income: $31,850
Average Income: $48,164
Living Wage Income: $59,461

California
Median Income: $42,430
Average Income: $75,400
Living Wage Income: $99,971

Colorado
Median Income: $42,310
Average Income: $62,375
Living Wage Income: $74,215

Connecticut
Median Income: $46,920
Average Income: $74,405
Living Wage Income: $90,278

Delaware
Median Income: $39,900
Average Income: $62,427
Living Wage Income: $71,254

Florida
Median Income: $34,560
Average Income: $52,728
Living Wage Income: $67,614

Georgia
Median Income: $35,950
Average Income: $58,280
Living Wage Income: $62,074

Hawaii
Median Income: $42,480
Average Income: $59,231
Living Wage Income: $136,437

Idaho
Median Income: $34,260Illinois
Average Income: $49,763
Living Wage Income: $66,486

Illinois
Median Income: $39,950
Average Income: $66,600
Living Wage Income: $66,847

Indiana
Median Income: $35,730
Average Income: $56,754
Living Wage Income: $62,086

Iowa
Median Income: $37,100
Average Income: $52,468
Living Wage Income: $63,397

Kansas
Median Income: $35,950
Average Income: $54,101
Living Wage Income: $62,090

Kentucky
Median Income: $34,650
Average Income: $50,701
Living Wage Income: $63,086

Louisiana
Median Income: $33,390
Average Income: $53,095
Living Wage Income: $63,842

Maine
Median Income: $37,120
Average Income: $50,441
Living Wage Income: $80,336

Maryland
Median Income: $44,690
Average Income: $69,893
Living Wage Income: $92,227

Massachusetts
Median Income: $48,680
Average Income: $76,437
Living Wage Income: $93,895

Michigan
Median Income: $37,620
Average Income: $58,132
Living Wage Income: $67,712

Minnesota
Median Income: $42,630
Average Income: $62,156
Living Wage Income: $68,944

Mississippi
Median Income: $30,580
Average Income: $44,285
Living Wage Income: $58,321

Missouri
Median Income: $36,040
Average Income: $54,580
Living Wage Income: $60,858

Montana
Median Income: $35,080
Average Income: $46,424
Living Wage Income: $70,719

Nebraska
Median Income: $37,130
Average Income: $56,147
Living Wage Income: $65,162

Nevada
Median Income: $35,550
Average Income: $54,842
Living Wage Income: $75,902

New Hampshire
Median Income: $39,870
Average Income: $62,427
Living Wage Income: $74,415

New Jersey
Median Income: $43,600
Average Income: $71,959
Living Wage Income: $86,244

New Mexico
Median Income: $34,120
Average Income: $50,893
Living Wage Income: $63,629

New York
Median Income: $44,990
Average Income: $80,640
Living Wage Income: $95,724

North Carolina
Median Income: $35,750
Average Income: $56,343
Living Wage Income: $64,406

North Dakota
Median Income: $41,340
Average Income: $55,447
Living Wage Income: $69,085

Ohio
Median Income: $37,360
Average Income: $57,764
Living Wage Income: $63,204

Oklahoma
Median Income: $34,560
Average Income: $55,204
Living Wage Income: $60,318

Oregon
Median Income: $39,580
Average Income: $60,306
Living Wage Income: $93,285

Pennsylvania
Median Income: $38,450
Average Income: $64,706
Living Wage Income: $68,581

Rhode Island
Median Income: $42,040
Average Income: $59,055
Living Wage Income: $83,942

South Carolina
Median Income: $33,740
Average Income: $51,670
Living Wage Income: $65,953

South Dakota
Median Income: $33,450
Average Income: $49,827
Living Wage Income: $67,657

Tennessee
Median Income: $34,890
Average Income: $59,121
Living Wage Income: $60,682

Texas
Median Income: $37,100
Average Income: $62,230
Living Wage Income: $63,469

Utah
Median Income: $36,790
Average Income: $54,075
Living Wage Income: $67,807

Vermont
Median Income: $39,720
Average Income: $50,826
Living Wage Income: $83,878

Virginia
Median Income: $40,820
Average Income: $64,517
Living Wage Income: $69,886

Washington
Median Income: $46,100
Average Income: $74,016
Living Wage Income: $77,207

West Virginia
Median Income: $32,640
Average Income: $51,679
Living Wage Income: $62,635

Wisconsin
Median Income: $37,970
Average Income: $56,302
Living Wage Income: $67,667

Wyoming
Median Income: $40,240
Average Income: $55,018
Living Wage Income:

Data Sources
Median and Average Incomes, Bureau of Labor Statistics 2018 via Wikipedia.
Living Wage, GOBankingRates.com


The glaring takeaway from the income data shown above is how large the gap is between the median income in the State and the living wage needed live comfortably and save money. It’s no wonder there is a huge percentage of the population that is struggling every month to just pay for necessities. It also explains why so many Americans are buried in debt. The only way these people can have anything more than the necessities of life is by using credit … and usually by using a high-interest credit card because they don’t qualify for a credit card with a lower interest rate.

Let’s face it, if you are earning less than the median income, you are among the working poor in the United States. In fact, you may be eerily close to living in poverty.

Conclusion

As the median and average income data clearly illustrates, only a small percentage of the working population in the United States earn a living wage. For the rest, getting to the point of being able to earn a living wage may be a life-long struggle. That being the case, you still have bills to pay. That is why it is critical to:

  • Track your expenses so you know where your money is going.
  • Have and follow a monthly budget.
  • Live below your means so can faithfully and frequently save a little money for future use.
  • Avoid any additional debt.
  • Start saving for an Emergency Fund with a minimum of $1,000 but working towards 3 – 6 months of your net (bring home) income.
  • Live a simple life so your lifestyle doesn’t require more money than you make.
  • Don’t allow peer pressure from your friends and family to cause you to live beyond your means.

What do you think about a living wage? Please share your thoughts in the comment section provided.

If you prefer to contact me directly, please email me at mbrown.ec@mail.com.


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Keeper of Things

Waste not, want not.

My parents pounded this idiom into my head all through my childhood. My wife came from a similar background. Neither one of us throw anything away that has a potential use until we ask the other one if they might have a need for it. This doesn’t mean we are pack rats. We have limits on how many of a certain type item we save for a future use.

My wife saves glass jars of different sizes to put homemade trail mix in for Christmas gifts. Last year she gave away 20 of these jars of trail mix to friends and neighbors. Since her childhood she has saved wood boxes. These are just two examples out of about thirty types of things she saves. Many of her saved things go back to her childhood six plus decades ago.

I, on the other hand, am not so picky. If I think I may need an item in the future, I keep it … at least for a while. You would be surprised at how many times I’ve needed something that I’ve had saved for years. Just a few of the things I keep for a future need are:

  • Plastic containers (no more than 20)
  • Quality rubber bands
  • Rope
  • Screws, bolts, nuts, nails, washers, anchors, electric connectors, etc.
  • Paint
  • Plasters and putty

My wife and I are do-it-yourself type people. Some couples have a hobby that they share. We build, remodel or repair things together. As a result, we have over 30 years worth of leftover hardware from projects that we have tackled over the years. We almost always have any size or type of screw, bolt, nut or anchor we would ever need.

Three years ago I had an on-demand water heater break down. Since it was going to take 10-14 days to get the repair parts, we bought a new one. However, I still had the broken water repaired and put it in storage as a backup unit. The repair cost was $120. The cost of the new one was $492.

Two weeks ago the on-demand water heater broke down at a rental property we own. After having the unit looked at by a repair man, he told us the unit was too old and worn to put any money into it. So, I installed the on-demand water heater that we had stored for the last three years for such an event. At least for a few years, we saved $372 by having a backup water heater.

Another aspect of this story is that on-demand water heaters are difficult to find right now in Ecuador due to Covid-19 pandemic lockdown. Since many parts of the world were locked down for two months, units were not being manufactured or shipped. Hence, the marketplace inventories are mostly depleted.

This is a perfect example of why repairing things instead of throwing them away is not only frugal … it’s also the smart thing to do. You may not need it not need it now, but you may need it badly down the road.


Do you have a story about saving things? I would love to know about it. Please use the comment box below to share your story.

If you prefer to contact me directly, please email me at mbrown.ec@mail.com.


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Money and Individuality

I think nearly everyone wants to achieve financial stability. I don’t think there is a person alive who prefers to be buried in debt, living paycheck to paycheck, and not having any money saved. Yet, many people find themselves in this dreadful situation.

With all the financial advice and planning techniques readily available, why is barely surviving the most common financial position in life with so many helpful resources available? Some experts say it is as simple of not being committed to doing the actions required to achieve financial stability.

I say it is more complicated than that. There is a problem with much of the financial advice and programs offered … they don’t fit you. It’s like you trying to get into a small size jacket when you require an extra large. The advice and the programs offered are not individualized to your specific:

  • Motivations
  • Goals (early retirement, a new house, etc.)
  • Life circumstances
  • Financial obligations
  • Reasons to get up every morning
  • Non-financial dreams

Is the lack of non-individualized advice and programs a reason you have not started doing what it takes to stop being buried in debt, living paycheck to paycheck, and not having any money saved?

Guess what? Only you can provide the motivation. Only you can put together a plan that fits you. No one else can to this for you. You are the one that must create the opportunity for financial stability and well-being.

There is, however, a central truth that is included in all plans to achieve financial stability and well-being:

  • You must spend less than you make and save the rest.

This is a great opportunity for you. You are in control. You get to put together the things you need to do to make it happen … based on what fits you. You have no one else to answer to other than yourself.

You can do this!


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A Confession of a Life-Long Saver

The vast majority of posts you see from bloggers regarding money management, budgeting, and investing is targeted toward those who are in the stage of life where they need to accumulate for:

  • An emergency fund
  • A college fund
  • A down payment for a home
  • Retirement

What about those who have attained financial independence? What about the savers and investors who have accumulated more than they’ll ever need? Do these people still need to focus on growing their financial assets?

Here is my confession:

Since I am financially secure, I only have the amount of money needed in income-producing accounts to provide the annual income my wife and I need based on the lifestyle we want. We keep the rest of our money in cash … not in any financial institution.

Since this is contrary to recommendations you will receive from nearly all financial advisors, you need to understand the reasons why this is important to us.

  • We have no need to grow our money beyond what we save each month from the income we receive from our income-producing accounts.
  • It’s nobody’s business — especially any government — what our true financial status really is.
  • Both of us have known poverty. Having a sizeable amount of cash at hand is important to us. It’s a matter of feeling safe and secure.
  • Just as an Emergency Fund is needed in the event of an unexpected expense like a medical emergency, the transmission goes out in your car, your employers eliminates your position, etc.; we believe that a stash of cash is needed in the event the national or global money system is “offline” for a period due to a natural disaster or some form of a cyber crime.
  • Banks go under. While our money may be insured up to a certain amount, actually being able to have access to that money may take a while.

Note: Everyone’s financial background, needs, goals, and philosophies are different. A practice that works for me may be entirely wrong for you.


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Money In Perspective

I had a young man ask my wife me this week how we managed to get to the financial point in life of retiring at an early age and not having to ever worry about money. I told him that it came down to four actions.

1. Live Below Your Means

We are bombarded every day of our lives to strive for more. More money. A bigger house or apartment. A new car. The newest fashion. The latest smartphone. And the list could go on for ever. When you step back and really think about it, everyone wants your money and there’s really little to no narrative about the need to keep some money for yourself. Even worse, the whole credit industry wants you to spend more than what you have.

Allowing yourself to be seduced to always spending more than you can actually pay for at the moment is the culprit that will keep you enslaved to your creditors. We should you work as hard as you do to financially support everyone else. You need to be securing your own financial well-being, not that of everyone else attempting to get every dollar you earn. Your financial stability and well-being are actually quite simple. Spend below your ability to pay. Ask yourself these questions:

  • How much do you spend on your actual needs and how much do you spend on your wants?
  • Would cutting the spending on your wants in half or more put you in a better financial position every month? Would this allow you to become aggressive at paying down your debts? Would you be able to get serious about saving money for your own financial health?

The ugly truth
In most cases, your current financial position in life is exactly where you planned to be. Your past and recent actions regarding money led you to your current financial standing … good or poor.

The only way you can climb out of the pit of financial hell and to start getting ahead is to live below your means and commit to spending less and saving more.

It sounds easy. In reality, it can be the most difficult task you have ever undertaken.

2. Live a Simple Life

Life is as complex as you make it or allow it. Simple tastes, simple pleasures, and simple living will typically put you in a position of spending your money on the things in life that really matter. Those things that build life-long, cherished memories.

You will have no need or desire to keep up with the latest gadgets, a new car, or a bigger-improved-restyled everything. Contentment will bring peace to your life — not the continual stress of not being happy with what you have and always needing more or something new.

3. Pay Yourself First

The first bill you pay every paycheck is to your savings and/or investment accounts. If you wait until after everything thing else is paid, you’ll never save and invest enough money to attain financial health and independence.

4. Strictly Manage Debt

Depending on where you are in life, an auto loan or a home mortgage may be required. Credit card or personal loan debt should always be avoided. The interest rates on these types of unsecured debts are typically much higher than secured loans. When using a credit card, pay the full balance every month.

Financially successful people understand that interest is something to be earned — not paid.

Conclusion

There is no secret to attaining financial health and well-being. All it takes is:

  • Always be mindful of your money
  • Have a simple lifestyle
  • Manage your expenses
  • Manage your debt
  • Always pay yourself first

This isn’t rocket science, but it does take concentrated effort and commitment.


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Why Buying Local Really Matters

In recent decades, policy across the country has favored the biggest corporations. Yet a growing body of research is proving something that many people already know: small-scale, locally owned businesses create communities that are more prosperous, entrepreneurial, connected, and generally better off across a wide range of measurable metrics.

Here’s a roundup of the important findings that are putting numbers to the harms of bigness and the benefits of local ownership, and that policymakers can use to craft better laws, business owners can use to rally support, and people can use to organize their communities.

Start-ups

These studies find that as the economy has become dominated by fewer and larger companies, there’s been a sharp decline in the formation of new businesses. Do we really want our choices to be limited to the large corporate box stores?

Jobs

These studies show that locally owned businesses employ more people per unit of sales, and retain more employees during economic downturns, while big-box retailers decrease the number of retail jobs in a community and surrounding areas.

Inequality

These studies find that the increasing size of corporations is driving inequality, while local and dispersed business ownership strengthens the middle class in the communities we live in.

Economic Returns

These studies find that local businesses recirculate a greater share of every dollar in the local economy, as they create locally owned supply chains and invest in their employees. Local small business owners often support local sports teams, help fund after-school programs, provide scholarships, and offer special benefits to students in their community’s schools.

Wages

These studies show that locally owned businesses are linked to higher income growth and lower levels of poverty, while big-box retailers, particularly Walmart, depress wages and benefits for retail employees. Studies in this section also quantify the costs of these big companies’ low wages to state healthcare programs and other forms of public assistance.

Social Well-Being

These studies find that a community’s level of social capital, civic engagement, and well-being is positively related to the share of its economy held by local businesses, while the presence of mega-retailers like Walmart undermines social capital and civic participation.

Public Subsidies

These studies document the massive public subsidies that overwhelmingly favor big businesses and have financed their expansion, and how this subsidized development has failed to produce real long-term economic benefits for communities.

Taxes

Building on the studies included in the previous category, “Public Subsidies,” these studies examine the differing impacts of locally owned businesses and big-box retailers on public finances. They find that large retailers systemically tilt the playing field in their favor by skirting their tax obligations, as well as that locally owned enterprises generate more tax revenue for cities, with less cost (financial and environmental) than sprawling big-box shopping centers.

Existing Businesses

These studies demonstrate how big-box retailers have significant negative effects on the number and vitality of nearby local businesses, in that they both lead to a loss of existing businesses, and contrary to the claims big-box retailers themselves often make, do not serve as a catalyst for new growth.

Study findings from the Institute for Local Self-Reliance.


Personal Narrative

I try, as much as possible, to purchase products and services locally from a local, independent owner. I have the belief that building a relationship with the local owner is a “paying it forward” opportunity for I time I may need that owner’s help … desperately. I want to provide two examples of this paying off.

Gas Station With a Repair Garage

Before I retired, I typically drove just under 65,000 miles (ca. 104,607 km) a year in my business. I left home early in the morning a didn’t return home until late at night.

One night at around 10PM, just before I made it home, I realized that my left front tire was loosing air. I needed to get it repaired or replaced because I needed to leave home the next morning by 6AM. I pulled into the gas station where I fill my gas tank every morning. The owner was there closing the station. I knocked on the door and since he knew me, opened the door and asked if I wanted a cup of hot coffee. I thanked him and proceeded to tell him about the nearly flat tire.

Even though the garage had been closed for two hours, he told me to drive the car in the repair garage to let him take a look at it. It turned out that I had a piece of metal in it. He repaired the tire for $12. He didn’t try to sell me a new tire … he fixed it for a measly $12.

This is exactly why I pay him an extra 5-cents per gallon of gasoline every morning when I fill the tank.

Local Mini Grocery

A bout a month ago I stopped at my neighborhood mini mercado (small grocery) for some fresh fruit, vegetables, and ice cream. When I went to pay, I discovered that I had left my wallet at home. The owner, from an isle away, heard my conversation with the cashier. He come over to me and told me to take everything home and to pay him for the merchandise the next time I was in the store.

I didn’t have to sign anything. All I had to do was stop back in and pay him on my next visit. Get your local Wal-Mart, Target or Kroger to do that!

While I don’t do my weekly grocery shopping at this little store, I typically spend $10 – $20 a week there to help assure its presence in my neighborhood. Having it handily available is well worth the extra buck or two for the week. Besides, they always have quality produce and eggs from free-range chickens.

We need to keep in mind that frugality isn’t always about dollars and cents.


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Keeping a Stash of Money at Home

Is it a good idea to keep a stash of money at home? If yes, how much and where?

When deciding if you should keep a stash of money at home, you need to consider how much money you want to stash, the reason(s) you want to keep a stash and how quickly you may need access to your money.

You also need to consider the risks inherent with keeping a stash of money at home. Does the benefit of having a stash of money at home outweigh the associated risks?

Legality of Keeping a Large Stash of Money at Home

It is legal for you to store large amounts of cash at home so long that the source of the money has been declared on your tax returns. There is no limit to the amount of cash a person can keep in their home, the important thing is properly securing it. 

Common Reasons to Keep a Stash of Money at Home

The reason many people keep a stash of money at home is for an emergency like:

  • A weather-related catastrophe.
  • There is a loss of electricity, water or gas to your community or neighborhood.
  • There is an out-of-town family-related emergency and you need to immediately leave home to provide assistance and support to this family member.

Many people like to keep a portion of their emergency fund at home. They feel more secure when they know they have cash on hand if they aren’t able to withdraw money from an ATM or their bank.

How Much Money to Stash Away

At a minimum, you’ll want to have enough cash to keep your household going for three days. Since a serious crisis might mean an evacuation on short notice, it’s a good idea to have enough money on hand to buy gas, food, and a couple of nights at a motel for your whole family.

For most people, $1,000 is enough to get them and their families through a short crisis. If you have a big family or unusual needs, such as a medical condition that requires special treatment, you’ll probably want to save more. Single folks without dependents can likely get by with a little less.

Where to Stash Your Money at Home

Keeping money under your mattress might sound like a good idea in the movies, but in reality, it’s one of the worst places to hide your cash. Not only is it the first place any burglar would look, but your mattress won’t protect your money from fire, tornado, flood or several other types of natural disasters. Here are some ideas:

  • A hidden safe securely bolted to the wall or in a slab.
  • In a hole in your yard. Protect your money in a double Ziploc bag, then put it in a jar or tin and dig it up outside. Make it as water-tight/ waterproof as possible so it doesn’t rot due to moisture.
  • Inside a sock or an article of clothing kept in a drawer with similar items.
  • Taped in an envelope under the cat’s litter box.
  • Taped in an envelope under a low shelf in the kitchen or bathroom.
  • In a crawl space. If your house burns, the crawl space is less likely to get damaged.
  • Inside a fake outlet. Make it look believable by putting it in a location where an outlet could go. You can hide the outlet with a piece of furniture. If you can’t hide it, make it more believable by plugging something to it.
  • In your bug-out-bag. Any go-bag should be equipped with some extra cash. A couple of hundred dollars in small bills should be plenty in case you need to evacuate at a moment’s notice.

The Worst Places to Stash Your Money at Home

  • In plain sight. The catch-all mug on your kitchen counter or pencil cup on your desk could be a convenient place to keep some cash — and that’s just the problem. It’s convenient for thieves, even amateur ones, and possibly too much of a temptation for you and any sticky-fingered friends or family members. Don’t create the opportunity for someone to steal your money.
  • In your bedroom. That’s where most people keep their cash, jewelry, and other easily grabbed valuables and it’s the first place many burglars head. So forget about your dresser, nightstand, bedroom closets or even under the mattress. Burglars will flip the bed over almost every time. They may also overturn other furniture, knowing that people sometimes tape an envelope of cash underneath.
  • In the fridge. Hiding cash in a refrigerator or freezer might have once been a good idea, but it’s a familiar trick to burglars. Expect them to ransack your fridge and freezer and dump everything on the floor.
  • Anywhere you’ll forget about. Crime isn’t the only thing that can separate us from our money. Our own faulty memories can do the job as well. So, wherever you decide to bury your treasure, make sure you’ll remember the spot later. Consider writing a note to yourself, one that you’ll understand but a thief wouldn’t. Or tell a trusted friend or relative. Otherwise, you could find yourself flipping your mattress or dumping out all the cornflakes, wondering just where you stashed your money.

Most of the above information can be found on most websites addressing this topic. However, there is one type of financial emergency that is rarely discussed … cyber crime.

A Successful Cyberattack to the Global Money System

A criminal cyberattack to the global money system would be catastrophic and would create immediate social chaos. When people don’t have any cash on-hand, and they cannot access money via ATMs, credit and debit cards, or visiting their local bank … social anarchy will ensue.

Such an event may require you to have a sizeable amount of cash on-hand until the global money system is back online and functioning properly.

To put the potential crisis in perspective, consider how your government (at all levels) were prepared for the COVID-19 pandemic.

  • What technical systems and human service programs were in-place and ready to be immediately implemented and deployed?
  • Did the government agencies have adequate supplies and equipment in storage for easy access and ready for immediate disbursement?

If our governments are as prepared for a successful cyberattack to the global money system as they were for the coronavirus pandemic, how long could the resulting crisis last?


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Being Frugal … Not Cheap!


What is the difference between being frugal and being cheap?

Frugality considers value … not cost alone. For many people, ethical standards are also a consideration. Frugal people know that, sometimes, it is better to pay more and get better overall value. These folks want to save money but not if there will be a detrimental cost to others or our planet.

Cheapskates are primarily concerned with paying the lowest price for a product or service with little concern for the long-term well-being of self, society or the environment.

As it turns out, cheapskates are typically less skilled at managing their money than frugal people due to their shortsightedness.

Being Frugal vs. Being Cheap

Cheap
A cheapskate may try to double-dip on rebates by using a second address. (Example: work address or post office box) Most rebates clearly state that the rebate is limited to one rebate per person. By doing this, the cheapskate is committing an illegal act … fraud.

Frugal
A frugal person will research a product or service based on expert and customer reviews and will wait for the product to go on sale before making the purchase. The frugal person will be buying a quality, well-reviewed product or service at a reduced price.

Cheap
Cheapskates believe everything is overpriced and that the seller is trying to rob him. It’s not unusual for a cheapskate to make a scene at the store with a clerk or cashier because he believes an item is overpriced and demands a price reduction.

Frugal
A frugal person frequently waits for an item to go on sale before buying it. They may also use a coupon or rebate. If a frugal person cannot afford something, she will wait for it goes on sale or do without. It’s no one else’s fault that she cannot afford the item she desires.

Cheap
A woman finds the perfect dress for an upcoming party. Unfortunately, the cost of the dress is far more than she can afford. She gets the great (unethical) idea to buy it and wear it to Saturday night’s party and then return it to the store on Monday.

Frugal
A frugal woman will look at consignment stores where she can buy a beautiful dress that might have been worn once at a steep discount off its original cost. She can afford the dress, and she will have it to wear in the future. This is a frugal and ethical purchase.


Cheap
You have a habit of swiping paper, staples, paper clips folders, toilet paper, paper towels, condiment packets and trash bags from work. You don’t have any qualms about this because you feel you are underpaid anyway.

Frugal
A frugal person doesn’t steal … even if it is just petty theft. If something is being discarded, that’s a different scenario. It makes frugal sense to help yourself to items being thrown away and you have a use for it.

Cheap
You need to get a birthday present for aunt. Since you are on a tight budget, you decide to give your aunt a jacket out of your closet that no longer fits you.

Unfortunately, you forgot that she complimented you on it when you last wore it at a family member’s graduation party.

Frugal
Secondhand gifts don’t need to be thoughtless gifts just because you are on a tight budget. Upscale thrift stores and consignment shops typically have a selection of like-new merchandise that you can purchase for a good price. Clean and wrap the item up nicely and your aunt won’t care if it was secondhand if you selected something you know she’ll just love.

The difference may between being frugal and cheap may not be obvious if the “cost” of the item or service is the sole determining factor. In these cases, it may come down to doing what your sense of right and wrong is telling you to do.

Deep down inside ourselves most of us know the difference between being frugal and being just plain cheap. Being frugal makes us feel good about ourselves. Being cheap makes us feel dirty … inside and out.


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