Financial Education: How the Sausage Is Made Vol. 5 (transcript) (Patreon)

C writes; Dear Sam

What are good ways to rebuild credit after coming of age with medical debt and other things that tank credit scores?

Dear C

You asked one very American question, but there's so much to unpack.

Let's first talk about the irony of medical debt and how not wanting to die can ruin your life. I mean, how much of our life's miseries come from living?

And we wonder why suicides and depression are so high in the developed world? You're literally penalized for living if you're poor. If you're a person of color, a woman, or queer, you're penalized further.

If you truly understood how immoral and cruel our credit system is, you wouldn't point to any other country about theirs, including China.

Let's say China's social credit system is as bad as you think it is. Cool. Then let's consider how fair and democratic our system is. Do Americans have as much say as businesses when it comes to credit? No. Can you build credit without borrowing money? No. Can you fix your credit by doing social good? No. Are poor people and rich people on a level playing field? No. Can medical debt ruin your life? Yes. Can your identity be stolen? Yes.

Everything America accuses of China's credit system is a confession about what already happens to poor racialized Americans. What America doesn't like is that it doesn't shield the rich, gives equal say to the poor, and poor people can improve their credit without paying rich people back.

So China's system is immoral and repressive. Okay. Our system, even worse. If China is the bar, we are below that bar.

No matter how oppressive our credit system is, how undemocratic it is, how it's a mandatory privatized system, or how we have no say in how it works, how we're scored, or how others are scored, so long as we're a capitalist society, this system is liberal, democratic, and free.

Now knowing who C is and her financial situation, I know she is more fucked in the US system than in China or any other developed country. In most of the developed world, there is no such thing as medical debt, let alone medical bankruptcy. So consider how our system looks to the rest of the world? People go broke having a baby here—maintaining the human species makes you go broke. Think about that.

Looking at other countries for faults or pulling the "at least" card are deflections from talking about how bad it is here. Because it is bad here.

So what can C do? Wait seven years to rent an apartment? But as she's dealing with her current debt, it's easier to fall further into debt. And whether it's seven years or not, collections won't care. 

I previously outlined ways to "fix" credit, but you're limited in what you can do. "Trust" in the US is not about how you are in society—which is what the US finds repressive about China's system—our system is purely about money. To build trust means spending money. But what if you don't have money? Then you're untrustworthy. This is apparently the superior system.

Also, note how any explanation of China's system never comes with an explanation of how our credit system works. There's very little transparency about our system. Then you're constantly breaking rules you're unaware of and getting penalized for it. In this dystopian nightmare, this is called freedom.

GoFundMe and publicly posting your Venmo and PayPal usernames to request assistance is the capitalist solution to debt.

The cause for most housing insecurity is debt. Medical bankruptcy is one of the most common reasons. What happens if you become unhoused on top of being sick?

One way or another, in this developed country with the highest GDP and infinite money supply, being unhoused is criminalized. If you're unhoused, the likelihood of premature death or incarceration is 100%.

We're the richest poorest country. We're the freest, most punitive country. Then what do we mean by rich or free? Their meanings are selective and convenient. Contradictory, irreconcilable, but being rich and free are unfalsifiable regardless of the evidence.

Why are there more people in US prisons than in any other country? Because there are so many bullshit ways to go to prison, almost all of which has to do with poverty and skin color.

Why doesn't white American society recognize how bad it is for the racialized poor? Why does white America think they need to look to another country to find injustice?

Because white American society has old settler-colonial roots. Even if you aren't rich, you might have enough family, legacy, or other institutional advantages where there's still someone you can live with or someone you can borrow money from.

Even as a poor white person, you can get an inheritance because up until very recently, only white people had property to pass down. White society takes inheritance as such a norm, they don't even count it as part of white privilege because they assume it's just something everyone gets. They look to other countries for injustice because a poor American is a poor American, and skin color doesn't matter. And if poor BIPOC have all the same things poor whites have, then what's the big deal?

The US economy was built for people who could lend money to their kids and had property to pass down. So who is this system for?

You know the story of the poor white person who was so poor, they had to live with their grandparents? But what about someone who doesn't have generations of family here? What if they have no network? What if your grandparents or great-grandparents were enslaved and never owned a house? What if they lived through Jim Crow or boarding schools or on reservations? What if they don't have grandparents to provide free childcare? What if there aren't as many elders because Black and Indigenous people don't live as long as their white counterparts? Do you know what a privilege it is to even have elders and not have your old people die from a racist system? From environmental contamination? From medical racism? From poverty? From trauma?

Slavery never ended in this country; it just turned into the prison system. Black people were "free," yet being Black was still criminalized. Newly minted prisons filled with African descendants captured by newly minted police that were previously slave catchers. Think about this travesty called justice. Think about the cycle of poverty this will cause. Think about the unpaid labor and chains supposed "free" Black folks had to go back to. Think about the trauma of believing you're free only to be chained again. You went from property of the state to enemy of the state, which makes you the property of the state once again. This also applies to the colonized world.

While in prison, you can't vote. When you're out, you can't open a bank account. You can't get a credit card. It's nearly impossible to get a job. So forget buying a house, getting a loan, or getting a car—if the prison you were in paid you at all, how are you supposed to cash that check? Of course, not every prison pays for labor, and the ones that do pay pennies per hour, but that's also going away.

Yes, white people go to prison also but not in the same numbers and not for the same institutional reasons. Compound this with police brutality and institutional racism.

The formerly imprisoned are expected to restart their lives while the US refuses to let them even have one. Again, domestic policy mirrors foreign policy. Just as the US subjugates Black men only to call them super predators, they do the same to nations they subjugate. This goes back to my example about the abusive husband claiming the wife is the real villain, or as US racists like to point out, Black people are the real racists.

We know the US doesn't provide much for social safety nets, but what happens if you don't even have the same societal safety nets white society has? What if your community has no old money because old money was about exploiting your community? What if there is no one fighting for the inheritance of the rich great-uncle because there is no rich great-uncle or rich family member period? There is this saying about families losing wealth in three generations, but what if your family never had wealth to lose?

What if you lived in a shitty house your family-owned, but your family still owned a house? And that same community didn't sell homes to Black people? What if the shitty apartment you grew up in didn't rent to Black people?

Going back to constraints, what if you had few options while the Black Other had no options? Most Black Americans may not be immigrants, but they're still what's known as permanent foreigners. Having the same disadvantages of immigrants while also having the disadvantages of being Black.

Our jails and prisons are not disproportionately filled with Black people simply because of moral failings. It's disproportionately filled because Black people are historically disproportionately poor, discriminated against, enslaved, imprisoned, and removed from their roots. Their legacies, networks, and real names—stolen and erased.

White America thinks China or whatever bogeyman country of the day is bad because they don't know shit about the lives of Black and Indigenous people. They don't even know about the lives of white trans people.

You don't necessarily even need old money to have generational community privilege from never having faced chattel slavery or Indigenous genocide. Being poor is different from being enslaved and knowing your child will also be enslaved. It is not the same as having your community completely wiped out.

This is why it's easy to think, "Well, our system ain't that bad." Speak for yourself.

It's a Cold War binary that all that exists is white America and the socialist opposite. In today's Cold War, it's China. Since we must all be doing well here, we must look to China to find people doing poorly.

In this binary, the racialized poor in America do not exist—do not get to exist. They don't fit in this narrative because that would mean America isn't great. That would mean America is unjust. Chinese people satisfied with their country also don't get to exist.

Xenophobia and racism are always intertwined. White American society will speak for both foreigner and permanent foreigner by way of racial ventriloquism.

In the tale of two types of power, Canadian imperialism not just within their own country, but their mining empire and private armies that dominate Africa and Latin America does not exist. Likewise, French, British, Dutch, and German imperialism all do not get to exist.

China is presented as the other equal and opposite hegemon, when as far as tentacles and colonialism, number 2, 3, 4, 5, and so on are all US allies. Who else would it be? Do you think the US is the only rich Western country?

Consider even Israel and Saudi Arabia. In place of US allies, Americans will name globally powerless countries like Cuba, Venezuela, and the DPRK, which are all sanctioned by the US. In contrast, these countries don't have the power to sanction anyone. 

The US and their allies can stop a country from trading with anyone else and block economic activity. China can't do that. China is only portrayed as the equal of the US to hide how powerful the US and its allies are and to provide the illusion of a fair global free market and competition when it's really one-sided.

But how America does one thing is how it does all things. How it sanctions BIPOC countries is no different than how it sanctions BIPOC within its borders. But when speaking about their country, BIPOC experiences are not represented. Instead, all you need to know is that everyone has freedom and equality here and also under global US capitalism.

Even outside of the US, Western progressives might recognize their own country as an imperial power along with the US, then name one of their enemies as the Other imperialist.

Throughout the Global North, these progressives might independently recognize their own country's guilt but, like a mafia, won't snitch on each other when naming other imperialist powers but instead name a poor country. How can you all conclude your country is number one or two but not appear in each other's list of top five imperial powers? Is it, "I did it all, and my friends are innocent?" Taking the fall for your friends and taking down a country you hate with you?

Consider all five of the best players in the NBA being on the same team and the top 20 all being in the same conference. The Cold War binary would be NBA fans believing the top player in the weaker conference is the number two player. NBA fans can be fanatical, but they are not this deluded. But fans are not manipulated by the same machine. Whereas even a progressive or socialist might look you dead in the eye and honestly believe the best player in the Washington Generals is better than all the other players in the Harlem Globetrotters other than number one. Because the Cold War binary says, number two can't be from the same team as number one. There's no single magic pill to erase a lifetime of conditioning and default assumptions.

The richest white person must have an Other, a Black equivalent. The poorest white person then is just as poor as the poorest Black person. Equivalent.

If the poorest white person fails not because of institutional racism but bad luck and moral failings, the same must be true for the poorest Black person. Therefore, there's nothing to be done.

It is not uncommon for a poor white person to be dirt-poor but always have a house to live in because someone in their family always had a house. Or there was always someone who could co-sign. Or for that white person to be a dirt-poor homeowner or rural landowner.

I talked about if guns were a human right, they'd be free. Well, they were at one time to people who counted as humans. White settlers were given free guns and free land, so long as they killed the Indigenous and kept the order among whites and Black people. Groups they considered to be non-human, institutionally are still treated as non-human. This is another historical difference that time only compounds.

I know unhoused whites who still have someone in their family who has housing. This is not to say they're unhoused by choice. What I'm saying is, this is not the same as someone who has been institutionally unhoused, whose family has had a legacy of housing denial, and who has no kin with secure housing.

Being poor and being poor plus a legacy of enslavement, institutional mass incarceration, genocide, intergenerational debt, housing insecurity, lack of access to education and nutrition, exposure to environmental contaminants, and years of segregation laws are not the same. Likewise, a white person in white America is not the same as a permanent foreigner in their own country. Just to make it explicitly clear, this type of oppression and disenfranchisement also applies to countries in a white supremacist imperial world.

This is what systemic oppression means. This is why a poor white person is still worlds apart from a poor Black or Indigenous person. Otherwise, why would Black and Brown revolutionaries in the US side with socialist movements in China, Vietnam, Cuba, and Africa if what they had in the US was so much better?

Even if you believe another country is doing something reactionary, it is not under your control. The US may act like God; Americans might believe it to be God, but it is not, in fact, God. The US can start a military conflict or institute new sanctions, which will worsen the situation. It is this belief that that's better than doing nothing that makes things worse. Sometimes nothing is the best thing to do when you're only tools are murder. 

Furthermore, a country can't socially develop if you have your boot on its neck. No country on this planet is not in some way molested by the world's banking and military superpower. So even the thing we might want to stop happened because of the conditions enforced by the US.

For C, it's heartbreaking that a young person has to live under these circumstances, but she's not alone. If your choice is begging creditors to forgive you for living or becoming unhoused and possibly incarcerated, why wouldn't you hope for revolution?

Hoping for revolution is far better than hoping to die or for the world to end. But if you can imagine no alternative to capitalism, that's probably all you can think of.

H writes; Dear Sam

Can you invest outside of a 401k and IRA? What does buying a stock mean? What are robo-advisors? How much should I have in cash savings before I begin investing?

Hi H,

Can you invest outside of a retirement account? Yes. That's called a taxable brokerage account or a non-retirement account.

Retirement accounts are recommended because the market is uncertain, so you need the tax advantages to give your investments a leg up. However, you also need time for growth, and the rules of a retirement account force you to wait.

What does buying a stock mean? It means giving your money to a company so they can raise capital, while on paper, you get a small stake in the company. But really, you're not an owner in any real sense unless you have a high percentage of total shares.

Many of the top publicly traded companies today don't actually make any money. Like a pyramid scheme, they only make money by selling their shares to new members rather than sales from customers. Also, like a pyramid scheme, you can get in after the peak and be left holding the bag—paying a lot for something no one wants.

What are robo-advisors?

The name is misleading because it sounds like an AI that gives you financial advice. It can be that, but most often, it's more like a bot that trades on your behalf. Most securities trading is automated and done by bots anyhow. Even ETFs are automated, which is why the expense ratios are so low.

If bots are already the norm, why go with a robo-advisor when an ETF is already bot-driven?

Many decide this is redundant and don't. However, some investors want a more complex and reactive portfolio that's managed daily. In contrast, ETFs are passive and not managed daily.

Robo-advisors aren't guaranteed to make you more than an ETF, but that's not their point. Instead, robo-advisors are about customization and having it your way. This is why they start out with a personality questionnaire and invest in a way that matches your wants and concerns.

It's like a chef asking you what you like then trying to make a meal they think you'll enjoy. Is this guaranteed to be the best meal of your life? No. Will this be better than a set menu? Not necessarily. But this isn't about maximizing utility, it's about preference.

How much should you have in cash savings?

Since you're not supposed to touch your investments, you want to have emergency savings for things like housing costs. The major reason people don't invest is that they can't lock any amount of money away. They might not have savings at all or have enough to tier between long-term and liquid.

The emergency you want to think about for emergency savings is losing your job and paying for housing. You want your savings to cover at least one month's rent, if not more. Emergency savings should be liquid, meaning available to withdraw at will without penalty.

Should everyone in a capitalist society invest for their future? Yes. But in a capitalist society, the ones who most need to invest in their future can't, and those who already have a secure future can.

Being poor in capitalism is a catch-22: invest in your future and die now, or spend now on immediate safety and die in the future. This is why poor people die prematurely compared to the rich.

DB writes; Dear Sam

My understanding of investing is a bit basic, so here we go: I have a dollar. I'd like to turn it into two dollars. How can I do that?

Dear DB,

This is an interesting question because even the amount we're talking about is small. So the less money you have, the harder it is for that money to grow. Many investment options have a minimum, which is another major reason people don't invest.

Poor people are priced out of investing. Think about the cruel irony of capitalism, the vehicle to help poor people prices out most poor people.

Where are places you can invest without a minimum? Places like Robinhood or crypto exchanges. No minimum and high risk. Mainstream society asks why poor people gamble with their money when they're priced out of everything else. It's victim-blaming when capitalism is working the way it's supposed to. But rather than blaming capitalism, capitalism has raised us to blame ourselves.

You lock the doors on people and wonder why people go to the doors that are open? But here's the thing, the owners of capital know. They just pretend not to know for the sake of plausible deniability. You can't overthrow me if I didn't know.

If a poor person is the right type of poor, where they're poor but not so poor they're priced out of investing, which mostly describes poor whites, their only strategy is time.

Rich people have multiple strategies, including time. Poor investors only have one. A rich person can make money over time, but they can also make it very quickly. They will do both. A poor person has to put money away and just wait. Wait long enough to ride out any bad times. Think about the inequity of the group that dies sooner, having to wait longer than the rich people who live longer?

Even the success stories of poor people who retire comfortably had to first go through 60 plus years of living miserably. That's not a success story, that's an indictment.

The success story is someone who had to put away every dollar and live like a miser, not allowing themselves any pleasures, to hopefully take it easy when they're finally done working? What kind of success is that?

And what if you retire during a financial crisis? Then you lived like a miser only to retire into poverty. Unfortunately, that happened to lots of people who retired during the last recession.

So time is a strategy but not a guarantee. There are too many variables that will be out of your hands. But time, as shitty as it is, is the only thing capitalism will allow for the poor but not too poor.

But can you also see how for the poor, any amount of risk to their money can be terrifying? A nothing risk to a rich person is an irreversible risk for a poor person. The stakes are already high when you're poor, and capitalism says the only way out is to risk what little you have? Capitalism is Squid Game.

G writes; Dear Sam

What are credit unions, and are there any alternative banking setups?

Dear G,

Credit unions are member-owned financial institutions. This seems to meet the ethos of most lefties, so why aren't we all members of credit unions? Because you have to qualify to become a member, and each credit union has its own requirements. 

Since credit unions don't make a profit, they can't compete with banks as far as locations and advertisement. Naturally, this limits awareness and accessibility.

However, what makes them better than banks is that they offer low rates on loans and higher rates on savings accounts because the profit gets paid back to the members.

They also won't make financial products based on the profit motive but instead based on member needs.

I can't mention credit unions, however, without mentioning public banks. Public banks are owned by the municipality and answer to the residents of that municipality. This is more socialistic and democratic than credit unions and thus even rarer.

As far as alternative setups to banks, some online and mobile payment services now offer direct deposit and debit cards. In addition, there are various online alternative options for savings accounts.

In the past, US post offices were an alternative to banks as well. Postal banking is mostly over, but you can still get money orders from any US post office.

Online alternatives to traditional banks can be useful for the unbanked who are shut out of traditional banking due to incurring too many fees. This is why predatory check-cashing businesses exist. This is also why they're often found next to banks.

Online and mobile payment platforms, however, may not offer check-writing ability since the point of the platform is to replace checks. The absence of checks is why they can take the unbanked because nothing can bounce. Unfortunately, poor people need check-writing ability more so than the rich for things like paying rent.

The concern with payment platforms is that they gamify transactions and push you into their other products, such as credit cards and investing. Manipulating our behaviors is how these platforms make money while putting us at more risk.

Credit unions won't do that, but they have the problem of limited access. Postal banking bills or new public banks will always get opposed by private interests.

This is capitalism.

Leona writes; Hi Sam

What's the difference between a college fund and a custodial account?

Hi Leona,

So I covered some of this already in discussing trust accounts. College funds and custodial accounts are both accounts for minors. College funds are either 529 plans or educational savings accounts, also known as Coverdell accounts. The difference between college savings accounts and custodial accounts is first flexibility and second tax liability.

Custodial accounts, as previously explained, are flexible. On the other hand, college savings accounts are more like retirement accounts because they're trying to qualify for special IRS tax rules.

Ever wonder why retirement accounts and college savings accounts have those weird numerical names? Those numbers are the IRS codes. They are not the actual investments themselves, just the tax rules for how they'll be taxed. 529 accounts will follow the 529 tax rules.

That means both 529 and education savings accounts are limited in what they can invest in and can only be used for education. Any other withdrawal will get penalized. In return, it grows tax-free, and withdrawals for education are also tax-free.

What happens if your child doesn't go to college or there's money left over? So long as it's used for education, including college loans, it can go to someone else.

Education is broadly defined; it doesn't necessarily have to be college. However, you are limited in how much can be spent when it's not the primary intended purpose. A college savings account has no withdrawal deadline, so you can wait if there is no current use.

However, with tuition constantly ballooning, it's more likely you won't have enough rather than having too much.

This doesn't mean custodial accounts don't also have tax advantages. Since the minor is the tax liable owner, taxes are at their tax bracket. This often means they, too, won't pay any taxes on it unless they earn enough income to report. Parents usually go with college savings accounts because they are unaware of custodial accounts or don't like that it automatically rolls over to the minor. Much like a trust, college savings accounts give parents more control over how and when it's spent.

For the ultra-wealthy, using minor accounts or putting assets in a minor's name has been a way to avoid taxes, including estate and inheritance tax. This is part of how generational wealth grows, not paying taxes.

J writes; Dear Sam

What are some good ways to budget and plan your finances, so it doesn't just evaporate in your typical spending habits? I make enough to pay all our bills and save, yet we have no savings at the end of the year.

Dear J,

Budgeting can be as simple as what Madelyne did. Figure out your monthly take-home income and add up all your monthly bills and debt payments. See how much you have left after those fixed expenses, then figure out how much you want to save.

Your remainder after savings is your budget for food, entertainment, and miscellaneous expenses. If you have money left over at the end of the month, put it into savings. If you didn't budget enough for food and entertainment, alter it for the following month. Budgets should be adaptive.

The more you track and budget, the easier it is to predict and keep track. Many apps will do this for you, but it means giving them a lot of your personal information.

What often stops people from budgeting is their own financial trauma and shame. That's all very real.

Budgeting is also about consensus. You have to get everyone in your household to agree to the terms and stick to them. This might mean some family members hate that they live in a reality where money is scarce. You can't budget without having open and honest discussions about money: that we live in a capitalist hell, and this is what one has to do in a capitalist hell to survive. And the ones who don't have to live in this reality are not your equals but your oppressors.

S writes; Hello Sam

How do we burn this system to the ground?

Dear S,

Due to surveillance capitalism, I cannot answer that question. But ultimately, I don't know. It needs to start in the US because the US is the enforcer of capitalism. Still, because it is the enforcer of capitalism, it's the hardest place to make changes.

What makes sense on paper would be to create a union of other countries to circumvent the US and work amongst ourselves. However, even 20 countries united wouldn't equal one America. Secondly, any student of history knows what the US did the last time smaller countries tried this.

The US isn't really going to allow a free and open market to decide what happens. Otherwise, what's the point of the CIA? The US actively attacked these movements and made the very idea of socialist egalitarianism poison to the world.

The CIA solely exists to stop other countries from bypassing the US. Remember, the CIA wasn't a part of the constitution. What role does it play in our checks and balances? What role does it play in the democracies of other countries? Although, the same could be asked of our Federal Reserve system.

US indoctrination is so strong that a nationwide walkout or general strike seems unimaginable. You'd probably have too many workers on the side of big business.

For example, just look at the pandemic. Rather than the whole country on the streets demanding healthcare, people were prematurely dying. Half the country was on the same side as their oppressors who were killing them. This is why you must look at hegemony. Even without a dictator or Trump, the control of capitalism is absolute.

But things are subject to change. That's how it appears now, but there is one relevant truth from personal finance: "past performance is no guarantee of future results."

Even though this is how things are now, that does not mean things can't change.