Last time, I wrote about someone who claimed that all of the important personal finance tenets could fit on an index card. And who then produced that index card.
It contained nine ideas or suggestions, eight of which I tackled in the previous post. But the last one was so interesting and unexpected that I thought it worth breaking out into its own section.
As a recap, the first eight were:
- Max your 401(k) or equivalent employee contribution
- Buy inexpensive, well-diversified mutual funds such as Vanguard Target 20XX funds
- Never buy or sell individual securities. The person on the other side of the table knows more than you do about the stuff.
- Save 20% of your money
- Pay your credit card balance in full every month
- Maximize tax-advantaged savings vehicles like Roth, SEP, and 529 accounts.
- Pay attention to fees. Avoid actively managed funds.
- Make financial advisor commit to a fiduciary standard.
And here’s the last one:
Promote social insurance programs to help people when things go wrong.
For me, this last point makes the entire list more (dare I say) transcendent.
Is one of these things not like the other?
First of all, let us grant that we shouldn’t dissect this index card like the Dead Sea Scrolls. This is just an idea by a person.
Nevertheless, the idea that “social insurance programs” (which I take to mean the same as “the safety net”) have some bearing on personal finance is fascinating and compelling.
It is the only suggestion in the list that talks about other people, so it puts as primary our awareness of our interconnectedness, even in the financial sector.
But is that germane?
We got ours
I say it is. There is this interesting myth that we should all be self-made and self-sufficient. The idea is that it’s everyone for themselves, and that everyone is given an equal opportunity at success, and if you don’t succeed, well, it’s your fault. “It worked for me, so if it didn’t work for you, sorry.”
To this I say, “Mind the empathy gap.”
The idea that success is totally self-prescribed is wrong for so many reasons that it actually makes me angry. It’s wrong in the unjust way as well as wrong in the incorrect way. We all are given different opportunities and start at different places (think the wealth of parents, the color of our skin, the geography of our upbringing). We all assume that there is no good luck in our success and no bad luck in others trials.
But more than this, there’s the somewhat obvious realization that we most literally are all in this together. If others fall through the social and economic safety net, there are repercussions for all of us. If someone else takes out a mortgage they can’t afford, it’s their fault, I guess, but when lots of people make bad choices or have bad luck, the entire economy is affected, which means that you are affected. (Even if you were the vision of rectitude during the entire financial crisis, you were affected. Guaranteed.)
So by promoting social insurance programs, not only are we helping our fellow humans (which is the honorable and compassionate thing to do), but it’s also helping everyone out. Ourselves included.
Otherwise, we’re just a big boat, but with the tide way out.
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