Financial Independence Has To Do With More Than The Money You Save
The journey to financial independence (FI) requires a level of dedication, discipline and self-determination. That’s particularly true when you’re someone trying to reach independence in your early 30s or 40s.
It’s easy to forget, though, that the restraint and intuitiveness isn’t all you need. In fact, even the notion of financial independence comes from a place of extreme privilege. It’s why the concept of financial independence is a very Western notion. While the strategies and tactics can sometimes be used by those without much privilege to rise up, they aren’t a cure-all. And even for the most self-made person, you need the engines of the financial markets working and the freedom to pursue tools that better provide security, no matter race, sex or creed.
In an election year like no other, many of these engines have come under spotlight for one reason or another. From rights people have gained over the past half century to the ability to safely live in the state in which we call home and even the legitimacy of our American democracy, the notion of financial independence resides in the ability for continued growth, safety, trust and access.
Without those tools, then the number of people with the chance to seek financial independence would become minuscule, no matter how hard one works.
Our Nation’s Wealth Is Built On Trust
As the election nears, there’s been plenty of talk and discussion about whether President Donald Trump will step down if he doesn’t win. While there are safeguards to such a situation, it does bring up the threat of a contested passing of the guard, which has been counter to the American way since the founding of the nation.
This non-violent, democratic process has a direct impact on the wealth of our nation.
There’s also been a lot of discussion, as Congress debates another round of stimulus, about the size of our national debt, which is expected to surpass our gross domestic product next year. Why, if our debt is so large, would creditors continue to support the nation? Why would they continue to let that debt grow?
It’s because they trust the American financial and government system to repay. Without that trust, though, the debt becomes far more problematic. Suddenly, credit markets tighten as lenders shy away from taking on additional loans. Companies can’t operate like they want and the investments that everyone in the FI community invests in will begin to struggle.
“Borrowing costs are inversely proportional to the faith in the integrity and competency of the governments seeking cash, and it’s why America can borrow so cheaply, Argentina pays a steep price and Venezuela can find practically no lenders at all,” writes Obama Treasury Deputy Assistant Secretary for Federal Finance James Clark for Bloomberg Opinion. Clark was detailing his experience negotiating American debt with creditors.
There’s a lot of debate about whether Wall Street wants a Biden or Trump presidency. While much of the analysis is burdened by the individual investor’s political leanings, there’s truth that Wall Street needs a properly functioning government – and credit markets – to operate best.
Instead of the size of the debt, creditors worry about whether the government operates well.
“When the public reads about individuals who are profiting from the Trump administration’s programs, such as one Treasury official who doubled the value of his family’s investment company with the very program he designed, they lose trust in the system – and so do those who buy our debt,” Clark continues. “Given that we have a President who has fired numerous independent inspector generals tasked with oversight, refused to comply with Congressional inquiries, and refused to commit to accepting the results of the 2020 election, I fear that their trust is in short supply.”
It’s not about the election, necessarily. Instead, it’s about whether the standard democratic ideals the US stands for lasts beyond the election.
If debtors trust drops, so will markets, but this time in ways that won’t produce a V-shaped return. That’s not good for those seeking financial independence, when much of the investments lie in broad market index funds filled with US based firms.
Access To Markets For Women
Ever since Supreme Court Justice Ruth Bader Ginsburg’s passing, dedications have flooded in, discussing her vast work in freeing women from laws that prevented their own self-determination. These were laws that actively prevented women from the same education, financial resources, health benefits and livelihood that men had the advantage of.
As the fight over Trump’s nominee, Amy Coney Barrett, for the Supreme Court begins, it’s important to remember some of the things that Ginsburg did decades ago to help those women that want financial independence today.
Until 1974, women couldn’t apply for a credit card or loan on their own. They would often need a husband to secure a mortgage or, for single women, maybe a father or brother. It’s not difficult to imagine the burden this adds, particularly to single women but also to married women that wanted a level of autonomy. Without easy access to loans, credit credit cards or mortgages – it leaves an inability for people – whether they’re women or people of color – to build credit scores, afford homes and even buy cars.
As TIME writes:
“A body of jurisprudence favorable to equal rights — much of it stemming from legal work directed by Ginsburg when she was an attorney — began accumulating in the early 1970s and adding momentum to the fight for equality.
“Th[e Equal Credit Opportunity Act], signed into law by President Gerald Ford on October 28, 1974, was in some ways the culmination of that work. Without it, women would not have been able to access one of the basic tools of financial independence.”
There’s mountains of evidence that lenders continue to use discriminatory practices when providing mortgages to people of color today. The fight for access isn’t over, which limits the ability for more people to reach FI.
Climate Change Could Overshadow It All
Since mid-August, 6,700 structures were destroyed by wildfires in California. The Atlantic has seen so many hurricanes this year, the weather service has run out of names for storms with more than two months to go in this year’s season. July 2020 went down as the second hottest month ever recorded.
We know that the threat of weather patterns and environmental disasters tied to climate change have begun to rise. For those living in the path of the destruction, the impact can destroy one’s livelihood, home or worse. How bad this existential threat grows depends on where you live and the steps the world takes to slow down the progress.
It’s clear, though, that the financial markets will feel the impact. In September, The Commodities Future Trading Commission released the report “Managing Climate Risk In The Financial System.”
In it, the bipartisan group of authors find “that U.S. financial regulators must recognize that climate change poses serious emerging risks to the U.S. financial system, and they should move urgently and decisively to measure, understand, and address these risks.”
The report compares the impact of climate change to that of COVID-19 or the 2008 financial crisis, except it will be spread out among communities and time, while difficult to predict which area will be hit first and hardest.
This will have profound influence over finances of those caught in the crosshairs. Sure, those that saved more will have a larger buffer of protection. But without tactics to address the issue, then personal finances are at the whim of the weather.
There’s not much independence in such a scenario.