There is always a great deal of talk about race and economics. There is the black economy, the Latino economy, and the mainstream economy, as if different races of people had their own currencies. Unemployment numbers are often compiled by race. We’re told that overall employment is down to 4%, but black unemployment remains at 15%. We’re told that whites are finding jobs, but Hispanics are not.
In the past, there certainly was racial and ethnic discrimination that made it difficult for certain peoples to find work and advance. “No Irish” was commonly posted as the US was flooded with Irish immigrants during the potato famine. Discrimination against blacks was enshrined in law in many states after reformation and the Ku Klux Klan used threats and violence to ensure that blacks remained second class citizens and were denied access to advancement in society. Today, while certainly there are some people who are racist, and one’s ethnicity make one gravitate towards or away from certain jobs (for example, ethnic restaurants overwhelmingly still employee individuals of that ethnicity), there is little in the way of a power structure that would prevent individuals from advancing based on race.
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And yet, still, it is relatively easy to predict which populations of people will fill the colleges, which will fill the board rooms, which will fill the low-wage jobs, and which will fill the welfare rolls. And a disproportionate percentage of those in the latter two groups will be black or Hispanic. (The majority in any group will be white, but that is because the majority of people in the US as a whole are white.) But if this is not due to racism or some sort of societal preference, often referred to as “white privilege,” what is the cause?
The answer is culture. Race and ethnicity are things which you are born with and over which you have absolutely no control. Because race is inherited from parents, and because parents pass other traits along to their children, it is also possible that those with certain abilities can be concentrated within certain populations. This isn’t to say that everyone in that population has those abilities, but that there can be a greater percentage of individuals within that population with certain abilities than in other populations.
Culture is something that you are also born into, but it is also something over which you can have control. Culture is learned and practiced. A white child from parents in Ireland adopted by black parents and raised in Kenya will only speak like his parents and perform Irish customs if his Kenyan parents choose to immerse him in that culture. Otherwise, he would likely have the speech patterns and follow the customs of his peers in Kenya. Just because he’s white, and just because he has an Irish lineage, doesn’t mean that he’ll speak and act the same as those back in Dublin. To lump people based together and expect certain behaviors based on race and ethnicity is, well, stupid.
Sometimes people of a certain culture will also primarily be of the same race. This can be because of their race, for example, many American blacks share a culture because they were basically forced to live together since there were few places they were allowed to live for much of the 20th century. People of the same race will also naturally tend to group together, and in doing so begin to share a culture, but this is not always the case. As a society progresses and becomes intermarried, this will become less and less of the case.
Your financial culture
When many people think about culture, they think about dress, food, and holidays. But culture extends into other areas of your life as well. In fact, culture can have a big effect on your future. In the Bay Area of San Francisco, the Asian community puts academics first and has a strong preference for their children to attend the University of California, Berkeley. As a result, the campus is dominated by Asian students from the area.
In Middleton, OH, as documented by J.D. Vance in Hillbilly Elegy: A Memoir of a Family and Culture in Crisis, the area is dominated by largely white individuals from a certain area of Kentucky where children are not expected to go to college and domestic abuse is rampant. The culture of the area moved to Middleton with them. As a result, while they are in relatively high-paying jobs from the auto industry and have many doors open to their children, few take advantage of the opportunities. (Hillbilly Elegy is an excellent book and something everyone should read to understand the causes of poverty.)
Your culture and your financial future
Your culture, and that of your community, are probably the best determiner of where you will end up economically if your don’t take a very active role in your own future. You could select ten individuals at random from a blighted inner city neighborhood and expect most of them to never make it out of poverty. Likewise, you could select ten children at random from a suburb and expect that most of them will attend college and lead at least middle-class lives. Select ten from a wealthy area like Beverly Hills and you can expect most of them to go to college and to get high-paying jobs with the help of their parents.
The biggest effect of culture on your financial destiny is the effect it has on your values and habits. If you believe that school is unimportant and that you’ll never go to college, you probably aren’t going to put in the time and effort it takes do do well enough in school to go to college and get the skills you need to do better than low-wage jobs. You probably have lots of others around you who are encouraging you to goof off in school because they come from the same culture. You are not expected to be a good student. If you try to be, you might even be ridiculed.
If you come from a middle-class culture, you probably see emphasis on school and education. It will be expected that you will go to college and get a job that pays fairly well. You probably won’t be expected to start a business or rise to the ranks of CEO, but that you will have the kind of comfortable life that your parents have. You probably also won’t see an emphasis on financial literacy, at most keeping a budget to balance earnings and spending. Everyone around you spends every dollar that they make and then some, which you see as normal. They have car loans, house loans, second loans, student debt, and credit card debt. You’re told that you need to keep up with the neighbors in cars, boats, and stuff. You’re told that you should get a good job that pays well, then get lots of stuff and take lots of vacations. You’re told that when you’re on vacation, spending restraint goes right out the window. You learn that you’ll always be in debt, but that’s OK since retirement will work out somehow.
If you’re in the middle-class, you can make your retirement infinitely better if you learn to take full advantage of your 401k. It really doesn’t take a lot of effort, just a little bit of learning. The Bogleheads’ Guide to Investing is a great place to start to learn how this is done. Unfortunately, your parents and those around you have probably set a bad example by doing things like underfunding their 401ks, taking money out when they change jobs, and trying to play the markets by switching from fund to fund. To fully take advantage of the 401k, you need to ignore culture and be different in your behavior.
The culture of the permanent wealthy
To become and stay wealthy, you need to adopt the culture of the wealthy. Here I’m not talking about high-earning, Beverly Hills kind of wealthy. These are people who are really not that different from those in the middle-class. They just have risen into higher paying jobs, some through connections with people within their circle whose culture is to give jobs to their children and their friends’ children. I’m talking about those who manage their money in such a way that their money and earnings grow over time. The difference between those who will become and stay wealthy and those who will not is described well by Robert Kiyosaki in Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! It is an excellent book to read to understand the difference between middle-class financial culture and rich culture. If you want to become rich, you need to adopt the rich financial culture.
As Robert Kiyosaki explains, becoming wealthy is all about setting up how the money you have gets directed, called your cash flow, such that a portion of it starts generating income for you. This is what is called passive income, because it is income that you receive without you’re needing to do much of anything. This is buying things like stocks, bonds, and rental real estate. I go into detail about how this is done, including making smart, rich-people choices with your cash flow, in the SmallIvy Book of Investing: Book 1: Investing to Become Wealthy. Dave Ramsey also does a great job of explaining how to make good financial choices on a simpler level in his book,The Total Money Makeover..
Fortunately, while it is certainly strongly influenced by it, your financial future is not set in stone by the environment in which you were raised. You can change your financial culture. The earlier you start, the easier it is to change, but you can start the process whenever. You just need to decide to start doing things differently. This can be as simple as cutting your spending and regularly sending the savings into mutual funds so that you start to build up passive income. You can also get more aggressive and really plan out your spending and investing to maximize the growth of your wealth.
If you take full control of your cash flow, and you do what is necessary to get a decent paying job – one that gives you some flexibility after you cover necessities, you can actually become financially independent in twenty to thirty years from the time when you start. To learn how to do this, check out FIREd by Fifty: How to Create the Cash Flow You Need to Retire Early. This book gives a strategy for building a cash flow plan and freeing up money to build wealth.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.