Financial vulnerability isn’t anything new.
But the current partial U.S. government shutdown has brought this condition front and center – causing it to become a part of a national conversation. Especially as 800,000 affected federal and federally-contracted employees and their families confront the reality of not getting paid or not knowing when next they will get paid.
This shutdown has also highlighted something that often gets overlooked by everyday folks and financial professionals alike: financial vulnerability isn’t just an issue faced by low-skilled, low-wage earners.
Quite frankly, I think the shutdown is ridiculous, unnecessary and mean-spirited. That said, I am happy about the discussions (and hopefully the reflections) it is prompting.
Fingernails on a Chalkboard
For the longest time, I’ve been having a “family” fight with some in my industry about the term: financial literacy.
Mostly because when it is used, it is often done to ascribe a certain lack of awareness and knowledge, as well as a lack of financial prowess, assumed to pertain to a certain segment of our population: poor people.
I have been working in the financial services industry since 1986. In 1997, I was hired by my first financial coaching client – an investment banker! He came to me because as he said, “I can sit in a boardroom and negotiate multi-million and billion dollar M&A deals, but can’t manage my own money for sh*t.”
My first-hand experience with a broad spectrum of people and their money is why the term “financial literacy” has always been to my ears like fingernails on a chalkboard.
For starters, financial literacy isn’t just about shifting people from being unbanked to opening a checking and savings account. (This myopic perspective doesn’t account for the emotional relationship we each have with money.)
Second, some poor people are better at managing their dollars and cents than higher-earners; they have to be because they can’t afford to get it wrong!
Third, the term misses an important point about financial self-awareness: it has nothing to do with how much money you earn or how well-educated you are.
Listening to the coverage of the partial government shutdown, especially some of the less compassionate reactions to the stories of how well people were prepared for this event, reminds me of how we, as a culture, tend to view financial literacy and who/who doesn’t need it.
Just as we fail people when we approach financial literacy in a limited way, the same is true when we view financial vulnerability as if it is an “either-or” situation.
We are all capable of…
Here’s the truth as I see it: Financial vulnerability can happen to any of us. If for no other reason than the fact that it is often triggered by a sudden change in your circumstances. So, it is probably better to think of it more as (a) being dynamic, and (b) existing on a scale. High degree; Moderate degree; Low degree.
Not only does this perspective take away the stigma of being financially vulnerable, it forces all us to realize that everybody is exposed to a potential financial shock or setback.
It’s Emotional And Financial
In additional to recognizing that financial vulnerability is dynamic, it also important to pay attention to its layers – or types.
As you listen to the coverage of the shutdown, pay attention to the profiles of the affected employees. Can you discern the emotional elements at play? Do you hear their anxiety; their fear (or sense of hopelessness); do you hear how the person/family is wrestling with uncertainty; do you sense if they feel social shame; can you tell if they have social support?
In listing the financial elements, I want you to consider how you might be exposed – keeping in mind that some elements are less obvious than others:
- Inconsistent income
Perhaps you don’t fall into the “low” income category, but what about inconsistent income? Do you have a job or business where your income fluctuates?
- High retirement savings; low regular savings
I see a lot of instances where people have a nice chunk of money saved for retirement (good on them!), but don’t have $1,000 in a savings/money-market account they can easily access – without penalty.
- Assets –
Are your assets illiquid? So, yeah, if you had to “sell” something to raise cash, you could, but (a) you wouldn’t get the cash overnight or within a few days, and (b) you might be selling at an inopportune time.
All of the above and, of course, high credit card debt and an unstable employment status can leave you susceptible in the event of a sudden financial shock or crisis. Not to mention a long health crisis or untimely death in your family.
Get Through/Be Prepared
As you read these emotional and financial elements, how did you react? And is your reaction in sync with your actual current financial capacity? Could you weather a financial setback?
If yes, of what magnitude and for how long?
If no, what can you do starting today to better prepare yourself for a day that may come?
Maybe you’re reading this and this is hitting really close to home because these aren’t just words on paper. You are currently navigating yourself through this maize, right now. If I can help in anyway, please let me know
Or, maybe you’re reading this and it is serving as a cautionary tale. If that’s the case here’s what I’m hoping you take from this post:
How you react to other people’s financial experiences provide important clues about what’s happening with you and your personal finances:
- For example, if you’ve said, “…well, why are they living paycheck to paycheck…” How many paychecks could you miss without your lifestyle being dramatically interrupted? Or, if you said, “…wait, what? They don’t have $400 – $1,000 in savings!” How much liquid savings do you have ready access to?
The purpose of these self-directed questions isn’t to place judgment on yourself (or others). But it can help you to more easily see if your financial foundation is as strong and solid as you believe.
- There’s nothing like looking at yourself through another person’s experience and story; it prompts you to think about what you would/wouldn’t do differently. This “critics” view is an opportunity to examine your own habits, goals, actions, expectations and beliefs.
So, what, if anything, has the shutdown prompted you to re-examine about you, your household and money?
Here’s the thing: Sometimes you don’t know just how vulnerable you are until you are caught off-guard and find yourself in a financially vulnerable situation.
And remember, this issue isn’t whether you can/cannot be exposed to a potential financial shock or setback. The question is how well can you weather it.
Sure, there are those who will discount the issue and the question and say that in all instances of financial vulnerability it is due to personal responsibility. Granted, there is always some degree of that to take into account. However, personal responsibility doesn’t exonerate some of the systemic causes and issues at play when financial vulnerability rears its head.
Sadly, as I write, it is not looking good for this shutdown to come to an end soon. But, let’s extract as much value as possible from this unfortunate event and use it as an invitation to check on our own financial health. And, to engage in conversations with our loved ones regarding their financial health.
Because regardless of where you fall on this matter from a political perspective, some aspect of your life is going to be (or will soon be) affected by this shutdown.
p.s. Join us for the next Comfort Circle™dinner – “Create Your One-Page Financial Plan.” It’s on Monday, January 28th at 6:30pm. Click here for details and to RSVP. And if you’re an entrepreneur or small business owner who wished pricing your services/products weren’t so hard, let’s talk about the one-day retreat I’m hosting (click here).