Saturday, March 25, 2017

The Three Faces of Poverty in Modern Life.

In order to become richer, sometimes it is helpful to understand poverty.

When Thomas Piketty published Capital in the 21st Century, it is easy for a rentier like me to dismiss this as a rallying cry of welfare-state socialists. But as it turns out, the book had the effect of deepening my conviction towards my dividend portfolio because it proposes the idea that the growth of capital far exceeds the growth of earned labour income as reflected in the ( r > g ) inequality which made the work antithetical to capitalism. The lesson I learnt is that : Between using your wealth to make more wealth and selling your time to make money, always choose the former.

Today I'm going to propose that there is more than one way of being poor.

Understanding that inequality and poverty goes beyond the lack of financial wealth may be a useful insight in structuring your personal finance as well as planning for your children's future.

I propose three ways to look at poverty.

a) Financial poverty

The most common form of poverty is when you lack money. Without money, there is essentially no way you can buy what you need. Nothing more needs to said here as the combined might of financial bloggers are now at your disposal to obtain advise on wealth management matters so let's move on...

b) Temporal Poverty

More insidious than wealth poverty is time poverty. Some families or communities may not be considered financially poor but they might suffer a form of temporal poverty in that they lack time. A wealthy executive woman can hire a helper to assist with child rearing, but a single mother is not just financially poor, she is time starved as she has to balance a job with child rearing. Even if both women are equally smart and capable, the single mother will always feel more tired than the wealthy executive.

One recent study concerns the lack of sleep which, unfortunately, led to the censure of a popular radio station. This would have been better construed as a discussion on time poverty and its effects on our population. It starts with a constructive discussion on what are trading away our sleep for.

Dealing with time poverty is often very similar to dealing with financial poverty. If you studied harder while you were younger, you might be able to trade off one unit of your time for more money than if you had dropped out. Similarly, time spent planning your budgets in your 20s, can give you more time after financial independence in your early 40s.

c) Social/Cultural Poverty  

It's not what you know but who you know.

Being in the right family, school or church can result in very different life outcomes. My dad and his blue collar co-workers would coordinate trips to buy in bulk that result in substantial savings within the household. At the higher end, being from a particular school along Bukit Timah Road is helpful getting a foot in the door in high finance.

It is much harder to earn social or cultural capital. Sometimes, you can break a social barrier by studying hard and earning a valuable skill. An engineering degree is often the fastest way a working class family can quickly gain a foothold in the middle class.  Some barriers, unfortunately,  simply cannot be breached - for further details you can read Kevin Kwan's Crazy Rich Asians.

In the US, Tyler Cowen talks about the phenomenon of rich, white families gently buying up the homes of adjacent black families so that more of these rich, white can be clustered together. In the US, we have a problem with rich liberals railing about income inequality when they live amongst the most segregated communities in the country. In Singapore, just look at the folks aggressively promoting Singlish - can you figure out which schools they come from ? Personally, I think its the same phenomenon.

Social poverty is possibly better managed with a government mandate. We've done very well when we made sure that our public housing are evenly distributed based on race. We may want to do the same thing with primary and secondary schools.

At a personal level, perhaps along with auditing your financial accounts, you may want to have an honest look at you spend your time and whether your time is really spent on important priorities in your life. Thereafter, you may want to review your family, schools and companies you are associated with to see whether you have a "weak network" in case you need to look for a new career or start a business.

You might be richer / poorer than you think.

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