Photo of Slovak Radio Building, an upside down pyramidal structure for me represents how we need to build society.
This is a freewheeling introduction to what should be a series of articles designed to walk a beginner through the daunting field of personal finance. I want to make my motivation, and in a sense, my qualifications clear in this introduction.
As bad as the outcomes of our economic system have been for average working class folks in the last several decades, including myself, the average American is confronted with greater access to financial investment products than ever. I would advise any young person today to get their first job in High School and start that portfolio before they enter college. It is not a college fund, it is a post-college fund. Or, I would say, “Skip college!” But that’s another argument.
I am a great example of what is possible for a low-income person. Here is the short of it: I went from, at the beginning of 2017, flat broke, on food stamps, bad credit, and crashing in someone’s basement for free, to, by the end of 2017, keeping thousands of dollars in the bank, a good credit card, and a credit score around 700. I even had a vacation that year. I only made $1,500 a month. By January of 2019, I owned my first home, had a second credit card, a credit score of 750, and several thousand dollars in the bank. I made just a little more that year. We are approaching 2020 and I have my finances diversified over several investments while maintaining an emergency fund, a third credit card, and passive income as a landlord. At this rate, I could retire in twenty years, especially if I stick to a full-time job. I haven’t!
Beyond personal financial liberation, there is a social-political motivation for me to develop a portfolio. Our capacity to engage with corporations as shareholders is greater than ever. The opportunity to grow personal wealth while supporting companies that we can believe in is also greater than ever. Numerous social challenges confront us, but if each to our own utilize finance as democracy and democracy as finance, then social solidarity can make a difference at the core of the corporations, and possibly spawn startups that would not otherwise see a market without our investments flowing toward positive ends.
I’m not going to take the time to source my claims here, but I am sure of the following statements: Average incomes have fallen against inflation, homeownership rates have fallen, workforce participation rates have fallen, average household costs have risen, wealth disparity has risen, and corporate profit has risen. Feel free to verify these observations. I am stopping myself from going into climate change and health care. If we each practiced finance correctly then I am positive this would improve.
There are many problems facing us. We can engage directly from the mature position of shareholder, or we can stand on the sidelines and complain from a social media feed. When you are a shareholder of a company, you have the right to complain. When you are not, you do not. For example, the difference between a regional credit union of which your membership represents a share of ownership versus a major corporate bank of which you are just a customer: One directs profit back to account holders and into local communities more effectively than the other; I will let you guess who.
If the product you consume from the company, as a customer, does not meet your satisfaction, you may complain, but as far as how that product is produced, you have no leverage. Perhaps a can of coke is just as satisfying as ever, but you want to reform Coca-Cola’s corporate practices. How do you do that? Activism generally includes boycotts, strikes, picketing, and journalism, in the tool box. How about adding participation through investment?
The stock market is a public, democratic system. Most of the biggest companies are publicly traded: Coca-Cola, Microsoft, Ford, U.S. Steel, etc. If you own just .000001% of Coca-Cola, you still have .000001% of the annual votes. There are votes every year, and various positions are adopted by the Board. Commonly, Board members hold more than 2% of the shares.
There can be an upside down pyramid so that the masses are directing policy up through the Board rather than what we are accustomed to, where only the wealthiest investors hold influence.
The more people that own shares the more diverse the set of owners. If ten million Americans own .000001% of Coca-Cola, together they own 10%. They have massive sway, assuming there is solidarity between them, they could even organize and put an activist on the Board with that kind of leverage. 10 out of 300 million, that is only 3% of the populace; they ought to find at least partisan solidarity.
Fact is, it is easier to open a brokerage account and invest small amounts of money than ever. Only fifty years ago, a single market transaction would cost the equivalent of one week’s average median salary. Now it is free at a range of established brokers.
I personally use Robin Hood. They offer exactly what I need: a good web-based interface with instant access to my deposits and fee-free trading, including cryptocurrencies. In future blogs I can dig into features within Robin Hood, such as stop and limit orders, fractional shares, and financial management tools.
It’s not just about opposing a company’s practices, it is also about engaging with a company you believe in. I personally try only to purchase from companies that I care about. I hope my stocks are held in companies that are working on the solutions to climate change and social inequity. Whatever aspects about them I do not like, I feel better voicing that as a shareholder than just someone standing by.
When you rent your housing, you’re throwing money wherever the person or company you rent from is throwing their money. They may be shareholders in companies you adamantly oppose. There are all kinds of externalities, social and environmental ramifications that we cannot see immediately in the production or consumption of a product or service, associated with our consumer behavior. I believe you should spend your money where you feel good about it, but only after you’ve funded your investments, and your investments should make you feel good.
My next post will take you through how I evolved from chronically broke to constantly growing my assets. If you have more spare income than me, you’ll be wealthier than me in no time by following my advice.
If you would like to support my personal finance content then you can join Robin Hood and hook us both up with a free stock.