How Not to Be Poor

I read over Kathy Shaidle’s piece on the ways in which one can stay out of poverty. While a lot of the poor lifestyle decisions she points out make sense for avoiding poverty, such as finishing high school or not having numerous kids while a teenager, or even avoiding smoking, my experience as a therapist has taught me that education on how not to be poor is an important component for helping people to avoid poverty. Let me explain.

Most books like Peter Thiel’s Zero to One: Notes on Startups, or How to Build the Future tell one how to get rich and become the next billionaire. However, that is a pipe dream for most people, given that there are only about 2,325 billionaires in the entire world. What we need is more training on how not to be poor, a much more attainable goal. Yes, large life decisions can make one poor, but small, educational steps can make people capable of using money to provide a better life for themselves and their families.

Over the years, I have dealt with clients who lived in bad circumstances. They were depressed and often broke, living in a bad area which caused their depression to worsen. When they would come into any money, they quickly spent it on unproductive items or gave it to other family members, rather than learning how to use small amounts of money to slowly turn things around. Many had no bank account, no credit, and no idea that going to the local payday loan place was like adding fuel to a fire. In short, many people simply do not understand how to use money to improve their life and, in turn, improve their mental health and health in general.

I would start by teaching a client how to save money each month, how to go to the bank and set up a savings account, and from there, a checking account. Those that listened almost always ended up with cash, a car, and a home without going into debt. How do you use money wisely? You think about it and realize that you don’t need a lot of money to live well. You just need to use the money that you have as a tool rather than a hindrance.

For example, many cash-poor people buy furniture “on time” and it costs a fortune. Case in point: it can cost $26.99 a week to rent a love seat and sofa for a 104-week term. Seriously? This is about $2807.00 by the end of a contract.

WTF? Why would anyone do this? Because people–many of them who are middle class–just think about the weekly payment. “I can come up with 26 bucks a week,” they think. But at the end of it they own nothing and have paid as much or more than the furniture is worth. Why not go to some used furniture place and pick up an inexpensive coach and loveseat? Wouldn’t this make more sense? You can even go to eBay or somewhere and get a $75 couch with free shipping. Or go to Walmart and purchase a cheap new couch and save until you can afford something better. The point is, there is never a reason if you are sleeping on the floor or in your parent’s basement if broke to buy rental furniture. But people do–all the time.

Another way people get themselves into financial trouble following the same logic is when it comes time to sell their house. How many times have you seen neighbors or others overprice their house and not react rationally as it stays on the market for years? As long as they can make the mortgage payment, they believe that they need to let the house stay on the market at the high price and want even more to pay them back for all the payments.

However, after two years of $2000 a month payments, they still seem clueless in understanding that the high price has now cost them even more than if they had sold at a lower price, particularly if they have moved.

Point out to them that they have thrown $48,000 away in mortgage payments to get an extra $20,000 on their house and they will get angry and/or think you are crazy. Most people can’t do math. Those who actually crunch the numbers will realize that it is costing them more to keep the house on the market at the high price. They might cut the price by $15,000 or so and quickly sell. The others who don’t follow the advice will lose money but will feel good about themselves but wonder why they never have any money.

Money is a tool, we can teach people how to use it. Sometimes it works.

What other suggestions do you have for others on how not to be poor? For example, good websites for cheaper items such as food etc. or tips on how to save money?