Why are people poor?

Poverty is a problem all over the world. Since recession the rich-poor gap has only widened. In this article, I share some of my observations and thoughts on why some stay poor. 

1. They are lazy: Some may take offence on this but if the truth be told, it is the poor who spend more time with their TV's (or any entertainment) than the rich (who delve more on self-improvement, management, etc.). For example, the grumpy cat pic (the owner became a millionaire what about those who got entertained?). How many times have you come across someone sharing items that makes or motivates someone to think/think differently? Further, if you give an idea to make money to a middle class or poor, he/she would immediately produce a deluge of ideas off-his-hat of why your idea won't work and why he/she would never do it (I'm sure many have many pics like Grumpy Cat pic but none even tried to think of something to use them). On the other hand, if you give that idea to a rich he/she would immediately try to analyze the potential of the idea and try to think of how he could make it work. While some may attribute this attitude of the poor to their disinclination to risk taking, I would only attribute it to their laziness to put even the smallest of effort to think it through.
2. They tend to blame everyone else but themselves: The first step to improvement is to acknowledge one's mistake. For example, many wouldn't know that Walt Disney was twice bankrupt before his current successful venture. Hollywood actor Will Smith went nearly broke in 1990 but now is considered among the money-wise. History is replete with people who have outgrown their initial failures. If you ask them why they failed the first time they'd tell you what they did wrong, how they should have done it and possibly why they were successful now. On the other hand, go to a poor and ask the reason for his plight, he/she would immediately blame everyone else (parents, teachers, politicians, economy, poverty, etc.) except themselves.  Personally, my parents never wanted me to do my Masters or PhD. I wanted to pursue higher studies, and I hid all my efforts through my elaborate schemes saving every penny that I could. They were taken off-guard when I went to them with my admission to my Masters. Hence, in my perspective, self-improvement could only begin with self-realization! So, not acknowledging one's own mistake or giving excuses for their lack of action is never going to help anyone.
3. They believe in everyone: The poor trusts everyone, astrologers, politicians, priests, etc, with no questions asked. On the other hand, rich tries to make use of these elements to their advantage. For example, royalties are portrayed by various religious entities throughout history as descendants of Gods or adorned by them to rule common men. Many people believe that and tend to live their life in poverty. While the rich(royalty), would use those religious elements to make the common men endorse their dominion and strengthen their power. Nazis were very adept at spreading rumours to win people's mind, the theory is now widely known as the "Goebbel's law". Now, this is one of the pillars of Psy-warfare (Chinese have a large number of people working on this). Even now, Mr. Modi's Govt. is trying to crack-down NGOs that are trying to protect environment. GoI's (Govt. of India) contention is that these NGOs are funded by foreign elements to prevent development in India. However, if those Nuclear plants come to existence, aren't these the foreign countries which are benefitting from it? Why none asked Mr. Modi's Govt., this question? However, Mr. Modi has no problem in NGOs working to destroy Indian culture or spread Western propaganda (Ex. The Hindu*). In either case, people believed the GoI and didn't even care to question the logic. In this context, I'm only remembered of the great sayings of Thiruvalluvar (sage poet who lived more than 2000 years ago), when I think about their state!
4. They follow the crowd: One of the most deplorable things among the poor is their tendency to follow the crowd. Aren't there any better options, no poor or middle class care to look or hardly do. On the other hand, rich tend to constantly look out for new opportunities. Steve Jobs, learnt calligraphy, which eventually motivated him invent the first Apple Computers. Hardly, a middle class or poor, tend to make the connection between calligraphy and computers. Basically, they do things because everyone does them. When we had our baby, some of our acquaintances/friends (Canada and its Govt. as such is promoting breast-feeding in a great way...) were "advising" us to use baby-formula instead mother's milk. I was both astounded and disappointed. Their reason, every other person they knew of used that brand of formula-milk. None, cared to look or analyze the benefits of one over  the other. 
5. Under or Over educated: Most of the poor either are less educated or overeducated. American Bureau of Labor statistics makes a direct connection between the level of education and the amount of money earned. Though this is an average, less education could be considered a cause for low income. However, what is not very apparent is, too much education also tends to make one poor. Statistics paint a grim picture of the student debt of graduates, every year. Consider also the plight of postdocs who have great ideas but not much opportunities. In Australia, one postdoc seemed to have worked as a forklift, before getting into some position. On the other hand, rich start to earn early. While education is in their interest, they would rather spend more time in learning their business and developing it. 
6. They are cowards: The poor are less inclined to take risk or to stand out from the crowd. Even when their property is acquired by their Govt.,  or forcefully abducted by some "mafia" the poor hardly put a brave fight, even when they might have an advantage of winning the fight. For example, take the case of Target which recently failed in Canada. The CEO went home with more money than the severance package of all the other Target employees' put together. Even though the leadership is responsible for the failure, it is employees who ended up paying the price. Yet, there has been no noticeable protest or anger about it. This is irrespective of the fact that Canada is in election mode now and no politician would risk antagonizing their electorate. 
7. They are not born rich: Being born to rich couple has its advantage. A recent study found the  richer twin to have better mental faculties than the poorer twin. Further, even when a poor has some idea, it is the rich who have the money to implement that and they usually hire the poor for their ideas. However, the good news is that around 50% of the new-billionaires are self-made (Ex. Sergey Brin).
8. Lack of sacrifice: Every achievement requires sacrifice (No pain, no gain). Many rich, would have almost sacrificed their entire youth to get to the point they are now. They would have traded their "popularity" in their schools for their current position even be ridiculed and bullied. Many wouldn't even have had an opportunity to have date, while working like a nerd (many are). While, I wonder how many of the poor had ever sacrificed their want for an ice-cream or the dinner to save that one buck for investing?!
9. Selflessness: One of the interesting things about rich, is that they are mean and tend to stretch every bit of their dollar. Warren Buffett, though is one among the top 10 billionaires consistently, who is well-known for his frugality.  However, he is not the only one. Think about the poor, they are usually over spending and more generous than these billionaires.

Please don't forget to share with us your thoughts on why you think poor are poor...

* It is my observation that 'The Hindu' publish mostly Western propaganda, when it comes to socio-economic issues and hardly prints a rational comment opposing that view. Please refer to my earlier post, for example.

Frugal Living may cost your job!

In the last few years, there have been many pages cropping up with tips on frugal living. I have also shared my views and practices in my previous post, on frugal living. However, since every micro-economic decisions has its implications to macro-economy and vice versa, I’m trying to offer here a different perspective.

Frugal living is based on the concept of reducing expenditures while maximizing one’s health and economic benefits. It is based on identifying the necessary expenditures from unnecessary expenditures and to act smartly. However, such acts, is also likely to reduce demand for products, which are likely to result in increase in unemployment as the owners and CEOs try to max-out their profits at the cost of employees, curb innovation, etc. These consequences would likely reduce Governmental income, which would increase the debt-to-GDP ratio (as GDP would reduce due reduction in demand) leading the country into the vicious cycle of austerity. This is depicted in the following graphic. 

A Simple Case Study - eschewing smartphones:

In my perspective, avoiding smartphones (cell phones, if possible) is one of the easiest ways of saving money and probably have enough to invest. However, when the demand for smartphones reduce, first the low cost manufacturers followed by the premium phone manufacturers would see a reduction in demand. This will force them to optimize their investments in a such a way so as to maximize their profits. One of the easiest ways to do that is laying-off employees. They would save money from the salaries of the laid-off employees as well as the exploitation of current employees. When there is a fear for lay-off the current employees tend to cling to their jobs by putting on more hours and working during weekends/holidays. This increase in unemployment is likely to affect the country’s economy adversely (though not that of the CEOs’ or the boards’). Further, in their effort to prioritize investments, they would also cut funding to many research programs, resulting in unemployment and loss of innovation. Further, app manufacturers, game developers, etc. would lose their market, leading to further unemployment. This would have adverse effect on economy as unemployment and debt-to-GDP would rise. Thus saving some bucks by avoiding a product is likely to throw-up people in streets without jobs.

Finally, for people wondering where do I stand, I stand with frugal living. Why? I’m in search of a job and I simply cannot afford otherwise. On the other hand, I strongly believe that the rich should spend more (preferably proportional to their asset) but in general, it is the poor who is spending more all over the world!

Frugal living: Tips to live on a budget

Frugal living is not being mean and tightfisted but it is a principle/discipline aimed at understanding the difference between wants and needs and arriving at an optimal solution to maximize benefits! 

Now-a-days, there are many articles in the internet on frugal living. While, I take some hints from them, I do have my reservations. For one, these articles seems to propound tight-fisted approach bent on saving money, with no concern to health or other aspects. As a person, who has been successfully practicing frugal living since 1999, I share my thoughts in this article: 

1.       Differentiate between a ‘need’ and a ‘want’:

This is the primary key for frugal living. A cup of coffee, for many, is a need to get your horses kicking. However, a coffee from Tim Horton’s or Starbucks is more of a want than a need. The amount of caffeine that gets you started is also available in store bought instant coffees. I used to buy a pound of Nescafe from Walmart for ~10CAD; with 4 teaspoons per day the coffee lasted for over 5 months. In other words, the cost of my coffee/cup was ~7cents. While a cup of coffee from Tim Horton’s is ~ 3CAD!!!

Similarly, smokes and drinks are wants, not needs. Some wants can and will be deleterious to your health like smoking and drinking. There is a study that links ageing to alcohol consumption¹.

My strategy to identify want and need:

Need: “Could I survive without this?” if your reply is ‘no’, it is a need!
Want: “Could I survive without this?” if your reply is ‘yes’, it is a want!
Needs need to be fulfilled, but wants can wait!

2.       Health is your greatest asset:

While I buy coffee from Walmart, I never buy vegetables or fruits from Walmart. For one reason, they tend to go bad soon. Another reason, it is hard to find organic or non-GMO products there. While some may argue that an anti-GMO stance is Paleolithic, as a scientist, I’m personally not satisfied with assurances of the companies based on statistically insignificant study samples. Further, there seems to be direct correlation between the number of allergy and cancer cases and the amount of GMO products used by countries. The causality or mechanism has not yet been established behind the correlation, it also happens to be their defense.

I don’t consume alcohol or smoke for the same reason! - Health

While life is not that valuable, health is! Why take risk? (Ask a life insurance personal the value of your life…J)

3.       Babies:

Having babies is among the most difficult both emotionally and financially. It is a dilemma. Every parent is emotionally guided to buy beautiful clothes and toys for them, though we know that they’d out grow them quite fast. It is smart to use hand-me-downs for clothing. Similarly, it is smart to buy toys from second-hand stores (But don’t forget to sanitize before use!). Sometimes, we buy toys that we think the babies would like but we would only find them showing least interest in them. My baby is a great teacher for me in this regard. For babies, the most lovable toys are its parents, don’t ever forget that…!

4.       Set weekly budget targets:

We live on a 100CAD/week budget (for 3) on groceries with a 10% margin. While my wife is the implementation chief on that, I set the targets based on our consumption characteristics. Living with 100CAD is pretty tough, but not impossible. Such targets have also helped us to stay away from temptations, such as cookies or other snacks doused with cornstarch and corn-syrup, produced from GMO crops. Good for our health. In the last 2 years, we haven’t been to any restaurant but we buy only organic produce. If there was some amounts left due to some promotions are stuff, we would indulge ourselves with a cup of ice-cream shared between us. We share ice-creams more because of the health concerns than because of financial concerns.

5.       Source your supplies:

This is quite tricky and requires some knowledge of your locations. Some products are always cheaper in certain stores than in other. Before each week grocery shopping we try to compare prices of produce from different stores and then plan our trip so as to minimize our walking and cost of shopping. Networking is also a great idea to identify sources. My wife’s networking enabled us to find new sources, which we expect to reduce our costs further.

If interested in gardening, small vegetables grown at home are another good source of food practically free!!!

6.       Exploit coupons:

This is a key idea, if you’d like to save some money and most web sites would advise the same. However, sourcing the coupons and timing is the extremely important. For example, when we go for shopping at Bulk barn, we usually buy a pound of Almonds and if it costs less than 10 CAD, we would buy some other things until our bill amount is exactly or slightly over 10 CAD to take advantage of their coupons. We use 6 almonds per day (more almonds mean more fats), which would last until the next coupon is issued. Buying the same amount of almonds from any other shops in our locality is extremely expensive.

7.       Clothing- Trim your wardrobe:

Women would take particular exception at this. Anyway, I have exactly one boots, 1 pair of sneaker and 1 flip-flop. I have exactly 14 pairs of underwear. I don’t mind wearing the same clothes (but not underwearJ). It saves money not only in accessories but also in laundry. Technically, since we don’t have a washing machine in our apartment, my budget target for yearly laundry is 100CAD max. So far so good and I don’t smell like a fish.

8.       Take Transport, only if you have to:

We go by walk to all places within 5 Km radius. Advantage is that we walk at least an hour and it is the best exercise one could have with a baby, who is more than content to enjoy the view outside. Running may not be option to everyone. I damaged my ligaments by trying to run. So, if you have not been practicing sports, it is better you don’t take damaging sports but take mild ones. To save money, try to integrate them with your daily chores like shopping, etc. For me, I really don’t have the patience to wait for the bus, which works in my favor. By walking, you may end up saving over 9000$, an average annual cost to own a car².

9.       You are not cheap:

We don’t take bus, if we could. However, we don’t walk 5Km to an organic store if their sales for the weak doesn’t break-even our cost of time to walk to their store. Time is more valuable than money.

10.   Dump your gadgets:

This includes TV, Xbox, iPhone, etc. Having TV makes you pay more taxes in France. Xbox and iPhone are more likely to waste your most valuable asset – Time. Further, TV is not really good for babies/toddlers. It is better avoided altogether. Think about the amount of subscription charges you may save²!

I hardly have had any cell phone. In my perspective, the phone itself is cheaper in comparison to the amount we have to shell out every month for the data plans and services. I would happily invest that money in something, like I did it on my education and would do it on my children’s education. 

Remember, by throwing off your smartphone you might save around 1700$ per year³!

11.   Small is sweet:

When it comes to living, smaller apartments or homes are sweeter. For one, they keep the family closer. On the other hand, reduce you electricity and maintenance costs. Smaller living space also means kids have to go out to play, where there is no TV, which would greatly benefit their fitness and reduce your headache in cleaning their mess...!

The amount of savings that you could realize is directly proportional to your place of residence. However, these principles had never let me down since 1997, when I started to save money to buy books for engineering entrance exams! Hope, they help you too…J

References

¹http://en.wikipedia.org/wiki/Impact_of_alcohol_on_aging

²https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_120410/

³http://www.usatoday.com/story/news/nation/2013/04/16/aaa-car-ownership-costs/2070397/