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Does Financial Independence Make Inequality Worse?

Are FIRE adherents part of a worsening worldwide problem? Or part of the solution?

I sometimes struggle with the optics of financial independence. Every day we are bombarded with shrieking headlines bemoaning the spiraling of income inequality, featuring homeless hoards vs. billionaires, medical expense bankruptcies vs. 103rd floor penthouses condos.

And here I was, living a life of financial independence, free from the worries and stresses of those living paycheck to paycheck. And although I am a very, very far cry from the uber-wealthy derided by the press, I drive a Porsche 911, wear Prada shoes, and often spend hours simply staring into space. I felt a bit like an ancient emperor, declining on a day bed while being fed grapes – as slaves toiled on his latest pyramid.  

Which made me start to wonder: is this whole #FI thing leading to worsening income inequality? If so, does pursuing FI make me a bad person? I began to ponder the arguments for and against, summarizing them as follows:

Arguments For:

  • Those guys eating grapes: financial independence does kind of divide society into two camps: those that worry constantly about money and can’t seem to get ahead no matter how hard they work; and those that recline all day eating grapes – or at least lie snug in their beds every night, sleeping the blissful sleep of the financially independent. That’s seems like a pretty stark dichotomy, and one that’s a bit unfair at that.
  • FIers contribute less to social programs: if you’re like me, most of your income comes from low tax burden sources like real estate, savings, and perhaps a small amount of 1099 or W2 income that keeps you in a lower bracket. Yes, billionaires famously avoid taxes, but the average working stiff making even $400k is probably only taking home $250k. Leaving $150k to fund local, state and national expenditures which often (food stamps, Medicaid, homeless shelters) help the poor. When you leave the full time working world, you usually pay less in taxes, thus contribute less to the disadvantaged.
  • Financial Independence is harder for the poor: let’s face it: subsisting on beans and rice for a few years and living in a tiny trailer can be “fun” if you grew up in a mansion and look forward to an inheritance. But, I imagine there’s a an element of shame in such a lifestyle if you grew up poor and want only to bust out of the lifestyle you’ve been trapped in since childhood.

Arguments Against

  • What income inequality? As I have argued, income is profoundly tricky to measure. People lie, their tax returns don’t reflect their income, there is almost no way to truly measure everyone’s income. Mainstream sources like The Economist have called into question many inequality studies. So, how can the financially independent be worsening a problem that doesn’t exist?
  • FI produces fewer billionaires and centa-billionaires: to have inequality you need not only desperately poor people, but spectacularly rich people too. And it seems to me that many, if not most FIers, leave the game long before reaching anywhere near that level. The typical profile is a smart software engineer who quits his job at 35 to travel the world, vs. launching a start-up and selling it for a billion.
  • Poor people can join the party! It may be harder to achieve, from a psychological, and practical standpoint. But, there are plenty of stories of people who achieved financial independence with lower wage jobs and little or nothing to start with. This is not to minimize how difficult it can be – in fact I talk about the challenges of FI for the poor in a separate post.  

What We Can Do About It:

Which brings me to my final point. If you do think we FIRE adherents are evil and making the world a worse place, there are several actions we can take:

  • Abandon financial independence: we can certainly start throwing money away on useless things like lavish weddings, payday loans and University of Phoenix degrees. We can commit to a life of struggling financially. But this may have the paradoxical effect of actually increasing income inequality: by shifting all the FI-ers from the middle to the bottom.
  • Spread the word: tell those with less means that they too, can do it. I love bloggers like Patrice Washington and Jamila Souffrant who do NOT fit the profile of upper middle class software developers, who really have faced real financial struggles and are still winning the FI war. I think that their stories are the best tools to help spread the financial independence movement to those with less means.  
  • Participate: if you do believe income inequality is a problem, then do something about it directly. Donate to financial literacy programs or support politicians that support them. Warn the public, even through small impact tactics like blogs and social media, about the forces that keep people with less means poor: e.g., the aforementioned payday loans and for-profit degrees, as well as annuities, pyramid schemes, high commission “financial advisors”, etc.

So perhaps the question of whether FIers worsen inequality is moot. The point is that we can use our resources, our knowledge, our stories to help everyone (including the poor) achieve financial independence themselves. And maybe, at the end of the day, making everyone financially independent is a better goal than reducing inequality anyway.

Do you think the FIRE movement worsens inequality? Should I gear more posts towards those with few or no resources? Tell me in the comments below!

3 replies »

  1. I really like the questions you’re asking, and am wondering what else we can explore in terms of causes, consequences, and things to do.

    My childhood friend Ilsa* is financially literate, responsible, college educated, and saves hard, but still landed in the working class & struggles to stay afloat. I was fortunate to land in the top 10%, where incomes are rising, and with my similar saver tendencies, FI’s a real possibility.

    But what can I do about the real inequality between me and my childhood friends, including the ‘good’ and ‘responsible’ ones? If I give generously to lift them up, I won’t reach FI. If I wait ten and we spiral into deeper inequality…? If I campaign for more equitable opportunities for wages and capital ownership for all…? I’m really curious where you land with this series, because it’s something I’m wrestling with myself.

    • Cee- thank you for your comment. It is a question I too have struggled with as my friends come from a wide spectrum of socioeconomic levels. For many reasons (including their potential resentment) I don’t think it’s a good idea to give them funds directly . However, if they show an interest, there are many ways you can help. You can certainly share your own learnings and advice if they have an interest. You can ask them questions to help them think about the financial decisions they are making. You can share resources you have discovered, e.g., online learning destinations, savings apps, coupon destinations. And, if you really trust their judgement (and you have to be sure here) you can even co-invest in a low risk venture such as a small business or real estate (with an amount you can afford to lose). I hope that helps!

  2. This is an interesting point. I don’t think anyone really needs to worry about whether personal financial behavior makes inequality better or worse. The point is whether your behavior makes society better or worse. I would argue that people who make a concerted effort to consume only what they need, ride bikes instead of driving gigantic SUVs, and so forth generally make the world a better place by consuming less of the planet’s non-renewable resources as a part of their day to day lives. I’m not going to start wasting money because, among other things, the effect of dispersing my entire net worth (or even 10,000 times my entire net worth) among the American populace as a whole would have a trivial effect on wealth inequality. A better bet for anyone concerned with this issue would be to keep their money and instead spend some of their time canvassing and making phone calls for politicians who have articulated a reasonable plan for attacking inequality.

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