. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
It takes a lot of money to survive in this economy if you're an unemployed single mother, trying to raise a couple of kids -- or working multiple jobs at the minimum wage or less. Millions of American men and women of all ages confront similar challenges.
How's that?
Dependent on public transportation, poor folks may end up paying convenience store prices for their groceries, rather than the cheaper prices (for more nutritious food) at Costco or mega-supermarkets. When there's "too much month at the end of the money" they have to borrow, paying interest on the money they use to pay their bills. If the bank won't loan to them, the interest on a "payday loan" to pay off the last payday loan may end up costing hundreds of dollars more than they initially borrow. Annual percentage rates of 400% are not unusual. If they're lucky enough to have a checking account, but unlucky enough to not have enough money in the bank, they may end up owing the bank $30 for each "insufficient funds" check -- plus another $30 to each of the merchants they were trying to pay, depending on merchants' charges for returned checks. [Photo credit: Nick Graham, staff, Dayton Daily News.]
These are expenses with which the wealthy are unfamiliar, because they've never had the experience of dealing with them.
However, there is one more expense analogous to Anatole France's observation that, "La majestueuse égalité des lois, qui interdit au riche comme au pauvre de coucher sous les ponts, de mendier dans les rues et de voler du pain." ("The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.") Le Lys Rouge, ch. 7.
Rich and poor alike are subject to the penalties for late cable bill payments.[fn 1]
Of course, like laws criminalizing the theft of bread, late payment fees fall heavier on some than others. The wealthy don't fail to pay their bills on time because they don't have the money. It's because they were on holiday in Europe when the bill arrived, put it in a pile of paper that they didn't go through in time, someone pays their bills for them, or they just don't care. For their poorer cousins it may mean one more payday loan.
I'm not wealthy. And I didn't major in STEM courses. But I do know enough math to work the numbers.
Here's an example of what I mean. Our City water bill is something less than $60 a month. What would it cost me, I wondered, if I just kept a balance of $60 with the City? These days it's hard to get more than 1% a year return on invested cash. So if I put that $60 in a savings account or CD it would produce 60 cents at the end of the year. That would be my cost, my loss, my "insurance policy" premium, for letting the City hold my $60 for a year. In exchange, I would never have to pay a single late payment fee (5% of the bill, plus unspecified "service fees" plus an additional fee for turning water back on). Such fees would be, in total, for a single offence, multiples of the 60-cent annual cost of avoiding them. And so long as I didn't fail to pay the bill for over two months I wouldn't have to worry about precise due dates.
It worked. No more risk of late payments fees. I started maintaining a balance with others. Except for the cable company, Mediacom. I tried it, but they seemed unable to handle the concept of a positive balance, so I gave up and tried to remember to pay promptly. Until this past month, when their bill got lost in a stack of paper, and they introduced me to their version of a late payments fee.
Now there's a little background you need.
• (1) To the best of my recollection I had a record of prompt cable payments every month for 28 years.
• (2) Very significant in this case, the cable company bills in advance. That is, I was charged a "late payment" fee for not paying in advance promptly enough for service I hadn't yet received (and is of often of unacceptable quality -- a technician is coming this morning to deal with broken signals[fn 2]).
• (3) Not knowing of the late payment fee that had been assessed on April 24, I had paid the amount due when the bill was discovered on April 26, in a check that cleared on April 27.
• (4) Thus, on the assumption that had I paid two or three days earlier the penalty would not have been imposed, what had the company lost? It had lost what it could have earned on $76.19 for (let us be most generous) four days. What would that have been at an annual percentage rate of 1%? Slightly less than one penny.
• (5) And how much was the penalty for this loss of 8/10ths of one cent? $8.50. And what is the annual percentage rate represented by $8.50 for four days use of $76.19? Roughly 1000% per year -- for paying a bill in full, four days late, for services not yet received. Rates like that make the pay-day-loan business look like a public charity.
Thirty years go this year (September 14, 1987), I was asked by an organization of cable company executives (CTAM) to participate in a debate with former FCC Chair Dick Wiley regarding the state of the cable industry. Here is a brief excerpt of my comments on that occasion. Although a bit harsh, they were delivered in good humor and received as such by the executives present. The question today is, just how much better has the industry become during the intervening years? Is it enough that they aren't dragging customers out of their recliners and onto the streets, airline style? Shouldn't we demand a higher standard?
[fn 1] I should make clear that the objection I advance in this post addresses the amount of the penalty for late payment, not the existence of such fees. The value of money, a payment, or a debt, is always a function of time. I would not deny for a moment that creditors are entitled to that value. I would strongly disagree that they are entitled to 400% (payday loan) or 1000% (cable company fee) returns during that time.
[fn 2] In fairness I should report that the two techs who came (and resolved the problems) were excellent in every way. They arrived at 10:00 for a 10:00 appointment, combined a friendly demeanor with a professional, experienced, serious approach to the challenges at hand, diagnosed more difficulties than they anticipated. Stuck with it until the problems were resolved, and left me a happy customer.
A fellow named Grant Sabatier has revealed his technique for turning millennials into millionaires by the time they reach 30.
There's a lot of wisdom in his story. But it reminds me of another story.
A concert audience member, blown away by the pianist's skill, walked up to the stage as the other audience members were leaving. She told the performer how much she'd enjoyed the concert, and then added, "I'd give anything to be able to play the piano like you do." Expecting a reply of "thank you," or "ah, shucks, ma'am," what she got was, "Oh, no you wouldn't." Startled, she protested, "Oh, yes I would. Why do you say that?" "Because," he replied, "you wouldn't be willing to practice six hours a day for ten years."
In other words, while our young millionaire has his math right -- any teenager willing to do what he says will have a shot at $1,000,000 by his or her 30th birthday -- few if any would be willing to follow the steps and live the life required to achieve that wealth.
Mr. Sabatier's recommended life, a kind of ultimate deferred gratification, reminds me of another story by way of explanation.
A farmer was leaning on his fence, looking out over his pasture, when his neighbor came over to chat. Noticing a mule lying on his side in the middle of the pasture, the neighbor asked,"How's your mule doing?" "Not so good," replied the farmer. "I was training him to live on dew; almost succeeded when he uped and died."
Sabatier doesn't require that his followers live on dew, but his requirements are only marginally more generous. He would probably agree with the thrust of the Saturday Night Live sketch in which a young couple with financial problems (played by Steve Martin and Amy Poehler) are urged, "Don't buy stuff."
The basic formula is that you hold more than one job, one of which you grow into a business, cut expenses to the bone, and invest a far larger share of your income than most would choose to do.
His investment strategies seem sound enough, and similar to what many investment advisers have to say: Buy index funds with the lowest percentage fees (rather than individual stocks or managed funds); on a regular schedule ("dollar cost averaging"); diversifying among max cap equities, small cap growth, foreign firms, real estate, and bonds (taxable and tax-free). Of course, that's the easy part -- once you have the money to invest.
I've given teenagers similar advice with a couple illustrations, both leading to the million dollars (in my illustrations, by age 65). One involves a 15-year-old smoker who gives up the habit and invests what would otherwise have been burned up. As I put it to a one-or-two-pack-a-day teen, "Smoking is not a $10-to-$15-a-day habit, it's a $1-to-$2-million-dollar habit."
The other illustrates the contrast between paying cash and buying on credit. Two teens want cars. One buys on credit and makes monthly payments for cars all his life. The other saves first, pays cash, drives the car while putting aside and investing monthly payments for the next one, repeating the process for all of his life. When then reach 65 they both still have cars, but the one who pays cash will also have $1-million in investments.
Or, as I used to tell law students (albeit before graduation carried with it $100,000 or more in debt), "If instead of buying a Mercedes or BMW you continue to live during the next ten years (as a lawyer) the way you did during the last ten years (as a student) you could retire at 35. You'll find your 'lifestyle' living on 90% of what you earn not noticeably different from living on 110% of what you earn."
It's all about the capacity for deferred gratification, illustrated by the marshmallow experiment. Jacoba Urist, "What the Marshmallow Test Really Teaches About Self-Control,"The Atlantic, September 24, 2014. I was born during the Great Depression. Deferred gratification was not a goal, it was a reality born of lack of money. There was no alternative, if I really wanted a bicycle, to getting a paper route first, saving my money, and then paying cash for it. One saying of the time was, "Use it up, wear it out, make it do, or do without."
But there is an alternative to poverty as the driving force.
If one thinks of doing without as painful deprivation, it is unlikely any teen who uses all their money to "buy stuff," one whose very identity is dependent upon physical possessions, will have any significant investments by the time they are 30, let alone $1-million dollars.
Yes, it's hard to alter one's behavior if one cannot alter one's thinking. But it's possible to alter one's thinking. I've written a book about it: Test Pattern for Living (available from Amazon).
The financial rewards can be enormous. But, like the lady who wished she could play the piano like that virtuoso, whether you are willing "to give anything" to achieve them is up to you.
