Sunday, March 25, 2007

Bankruptcies and Billionaires

What's the difference between very rich people and everyone else? According to an oft-quoted droll comment, perhaps erroneously attributed to Ernest Hemingway, the rich have more money.

The problem is that the not-so-rich seem to have picked up most of the basic lifestyle habits of the rich, except for one crucial difference. Rich people spend a ton of money on stuff and give a lot of money to charity, but they manage to hang on to the majority of their wealth; regular folks spend a ton of money on stuff and give a lot of money to charity, but don't have so much as a pincushion of pennies stashed away, even for an emergency.

In fact, for most people, one of the tragic side effects of accumulating too much stuff is not accumulating enough cash to help get through a financial crisis. How can you save any money when you're busy spending it on all that stuff?

It doesn't take much to push the average American over the edge financially because most are so woefully lacking savings. The Association of Credit and Collection Professionals found that the number of personal bankruptcies tripled between 1986 and 2004. (Remember the '80's? "Gold. I'm worth it." "L'Oreal. I'm worth it." "Greed is good." Gordon Gekko in Wall Street, written by Stanley Weiser and Oliver Stone) According to CNN Money.com, personal bankruptcies hit an all time high in 2005 with an increase of 31.6%. People filed in a mad rush to get in prior to the October deadline date, after which a new law passed by Congress would make it a much more difficult process. California, always at the forefront of national trends, led the way, as usual, with an increase in filings of 36%.

There are many reasons that people go bankrupt. A 2005 bulletin from AARP states that nearly half of the personal bankruptcies filed each year are the result of medical expenses. But there are other factors at work, too. Bankruptcy Reader cites a list that includes:

(1) credit that is too easy to get (how many unsolicited credit card offers have you had lately?);
(2) lack of health insurance to handle a major medical crisis;
(3) a housing market boom due to low interest rates that led many people to use adjustable rate loans to purchase properties they really couldn't afford;
(4) student loans and debt (at least you're paying for something of value rather than disposable goods that you've already used up);
(5) divorce;
(6) more frequent corporate restructuring leading to job loss;
(7) but most importantly, the habit of living paycheck to paycheck.

The report states, "The average American has no savings, overspends on a monthly basis, and owns materialistic items that are not needed to survive." And we know that the majority of those materialistic items are clutter.

So your clutter is not only making you uncomfortable by overcrowding your home, it's also caused you to risk your financial security and that of your family because you "paid good money for it." ("But I paid good money for it," is a frequent, unacceptable excuse to hang on to useless stuff.) It's too late now to undo past decisions, but it's not too late to make better choices in the future, like saving some money instead of spending it all on unnecessary stuff. And it's not too late to let go of all those things you've accumulated that you know you don't need.

As for the rich, well, it turns out that they actually have a problem with money that's similar to some people's problem with stuff: they hoard it. Ironically, while bankruptcies have been mounting steadily for a couple of decades, Gregg Easterbrook wrote in the LA Times, "Income for the top 1% of Americans has more than doubled in the last quarter of a century, while that of the bottom fifth barely budged. The rich, in short, are getting steadily richer, both in absolute terms and compared with the rest of society." In fact, for the first time ever, all 400 people on the Forbes list of the ultra-rich are billionaires.

These extremely wealthy people are very generous, making staggeringly large contributions to worthy causes. But in terms of their net worth, all but a few are giving away only about 1% of their assets. (A rough estimate by the Urban Institute based on 2004 tax returns shows that "regular people" give approximately 2.3% of their income.) This means that these rich folks still have so much money that it would truly be impossible to spend it all on any personal possessions that could be meaningful, not to mention necessary.

Isn't there something off-kilter about this? In a related opinion article, Peter Singer, professor of bioethics at Princeton University, thinks so and comments, "In a world in which more than a billion people struggle to survive on the purchasing-power equivalent of less than $1 a day, there has to be a serious moral doubt about whether anyone should be a billionaire . . . come to think of it, we all spend money on luxurious, frivolous or unnecessary items when we could be giving it to organizations such as Oxfam America that will use it to fight global poverty."

We are so fortunate to live in a country that allows us the opportunity to accumulate individual wealth. Shouldn't we think more carefully about how we use that opportunity? We don't need to embrace the ascetic life of a monk or take a vow of poverty, but just once in awhile can't we pass on the double de-caf latte, maybe skip updating the wardrobe this season, and forget about trading up to a fancier car when the one we have runs just fine? Let's take that money that we would have spent, save a nice size chunk of it and give the rest to a charity that we believe in. That way, we can start to accumulate or add to a much-needed nest egg to protect ourselves and our families for the future and we can help others in need so that they have a future. Win/win situation, I'd say.

And if all those gazillionaires ever figure out that they don't need to hang onto most of their money any more than the rest of us need to hang on to most of our stuff, the world could turn into a pretty great place for all its inhabitants.

(c) 2007 Cynthia Friedlob

Thursday, March 15, 2007

Are There Any Simple Decisions?

The concept of being a thoughtful consumer quite easily leads to considerations of being an ethical consumer. But isn't this quicksand for many of us who are coping with already having consumed too much, too thoughtlessly? How can we worry about making the "right" purchasing choices in the future when we've already done such a lousy job with our past choices that we're positively drowning in stuff?

Clearly the primary concern for those of us dealing with clutter is unloading our excess possessions. This is a good time for a reminder that clutter doesn't necessarily mean junk; clutter is simply a quantity of stuff that is so large that it interferes with living our lives joyfully. It's not always as obvious as stacks and stacks of unread magazines that never will be read and now have become a fire hazard. A closet full of lovely clothes that don't get worn because they no longer fit is a closet full of clutter. A kitchen full of exotic cooking gadgets that never get used because you only enjoy cooking simple meals is a kitchen full of clutter. If it doesn't leave you room to live the way you want to live, if it doesn't leave you space to breathe, if it weighs you down in your mind, it's clutter and it's got to go. Working through that process of elimination obviously must be the priority for most of us.

But life goes on and every day we're faced with purchasing decisions, even as we sort and toss and clean and fervently vow that never again will we allow so many things to crowd our homes and burden our brains. So, why not try to make the right decision every time we buy something?

Well, first of all there's that pesky concept of "right" that needs to be defined. Do you only buy food that's organic because you believe it's healthier for you and your family? A good idea, but it can be expensive, it limits your product choices, and you may not live in an area with easy access to organic products. Must your clothes be manufactured only by companies that don't engage child labor? That does require determining which companies fit that category before you go shopping. Must your product choices be "made in America?" American companies now often have at least some part of their manufacturing done in other countries, so are they no longer producing "American" products? If you want to consider the impact your purchase has on the environment, how, exactly, do you assess it? For example, what about that lovely politically correct bamboo floor you're installing that required a huge amount of energy expenditure to transport the wood to this country? If you're a vegetarian, will you wear leather shoes?

Makes you want to scream, doesn't it?

Not only are there your personal beliefs that need to be clearly thought out and refined, there's also a huge amount of research that needs to be done in order to find out where a company or product fits into your criteria, once you've decided what's "right" for you. I've tortured my brain too often about this issue and, while I'll make every attempt not to be a fool in making my purchasing decisions, I have decided on a gentler approach that makes sense to me.

First, by simply reducing the quantity of purchases I make, I believe that I am favorably impacting the environment. When I do buy, whether I choose something used and give it new life, or buy something new of high quality so that it will last longer, I'm pretty certain that I'm demanding less of our limited supply of natural resources.

Second, I'm not totally oblivious to the news (although some days I'd truly like to be!), so if I'm made aware that certain companies engage in practices that I find offensive, I'll avoid their products. We live in a land of abundance, so it's not too hard to find an adequate substitute for almost anything we need to buy.

Finally, I'll try my best to consider what I know about the source of the product I'm buying, the people who make it, the process they use, its purpose in our world and the purpose it will serve in my own life. Just a momentary pause to think, even with limited information, will help me make better choices. Then, when I make some mistakes, because I can guarantee I will, I'll forgive myself and move on.

I made a choice today that I'm happy about: American Flatbread, an organic vegetarian pizza made in an artisan bakery in California and purchased at my local health food store. I often eat food that is not organic, I'm not a vegetarian, and I bought it because I was walking by the store and I didn't want to have to cook anything demanding for dinner. But I took a moment to read the box and liked what the company had to say. Result: it tasted great! I have no connection with the company and am not receiving any compensation for an endorsement; I'm just passing along a tip about a good product and using it as an example of how that brief pause before purchasing resulted in a satisfying experience.

On other occasions, I've also paused, reflected, purchased and ended up with something totally unsuccessful, so my system is hardly flawless. But more times than not, it has worked for me. So, if I take a few deep breaths, put the system into practice and make the leap of faith it requires, well, then at least I don't feel like I want to scream.

(c) 2007 Cynthia Friedlob

Tuesday, March 06, 2007

Ethical Spending

An old joke says that our continent leans to the left so eventually all the nuts roll out to California. As a resident nut, sometimes I'm hard pressed to argue with folks who live elsewhere and are convinced that there's more truth than humor in that punch line.

But I do like the fact that California is a place where most unconventional behaviors and points of views are tolerated; where you can reinvent yourself, repeatedly, if necessary; and where the hard edges of reality are at least softened slightly by the temperate weather. Here in Los Angeles, I enjoy having so many different ethnic groups represented that it's possible to experience a mini-excursion to other countries just by taking a day to explore a neighborhood, like Little Tokyo, Chinatown, Little India, Koreatown, Olvera Street, and many others. And the drive down Sunset Boulevard from the far eastside all the way out west to the Pacific Ocean is a fascinating trip. Unfortunately, one of the things it exposes is the enormous gap between the living circumstances of the rich and the poor.

L.A. certainly isn't the only city in the world where crushing poverty coexists with unfathomable wealth, but this is a show-biz town so I've always felt that we have a special gift for flaunting the extremes. Consider a house that's currently on the market in Bel-Air, the neighborhood adjacent to the more famous Beverly Hills 90210 zip code. The 34,458 square foot home features a bowling alley, a racquetball court, indoor and outdoor swimming pools (with an outdoor kitchen), a theater, a disco, nine bedrooms and twenty bathrooms. Oh, and his-and-her offices, just in case someone might need to do some sort of work to support the place. Asking price: $29,995,000.

When it comes to an example of conspicuous consumption, you'd think this would be tough to top. But it turns out that heading north up the coast to wine country brings us to a rival that also deserves our attention: Castello di Amorosa, a sort of wannabe Tuscan castle, boasts 121,000 square feet, has 107 rooms on seven levels, and includes, among other things, a drawbridge, a church, and a dungeon, fully-equipped with medieval torture devices. This gigantic structure is the creation of a winery/deli owner who expects to spend $30 million completing it. However, rather than simply dedicating the castle as his private home, he plans to open it to the public for tours at ten bucks a pop -- as long as they pay another ten bucks for a tour of his winery.

So, in both cases about $30 million dollars are being devoted to these places and this prompted a letter to the LA Times from reader Carol Palladini of Santa Barbara. In spite of also living here in Nutland, she thinks that spending that kind of money is conspicuous consumption run amok. "As long as a significant number of people are without decent shelter, adequate food, clean water and opportunity for basic healthcare, it is shocking to see the excesses on which people with wealth choose to spend their money."

The operative word I want to point out is the word "choose." Perhaps you're thinking, "We're Americans, dagnabbit, so we can spend our hard-earned cash however we want!" True, and I'm grateful that we do have the freedom to make choices, including ones that are totally self-indulgent. The problem lies in the ethical issues that arise when we make those choices: how do they reflect our humanity, our compassion, our sense of fellowship with others?

When confronted with the enormous social problems that exist throughout the world, at some point most of us open our wallets and donate what we can. We're consistently a very generous people. But at what point do we feel comfortable enough to say that we, personally, have enough? When does striving for more -- more of everything -- stop? If it never stops, is that a sign of great ambition or a sign that we've started to define who we are by what we have? And if the latter is the case, how do we ever find peace and contentment within ourselves?

I don't know where you need to draw the line and say that you have enough; I'm busy trying to sort that out for myself! But somewhere, for each of us, there are boundaries that can, and must, be drawn between comfort, luxury, and obscene over-indulgence. An important part of being a thoughtful consumer is working hard to determine where those boundaries are and then choosing to avoid excess. That doesn't mean we must sacrifice every opportunity for luxury forever, just that we must have awareness when we do allow ourselves something special.

So, if you've earned a pile of money and want to spend $30 million of it on a house or a castle, or even the world's most fabulous party, you're certainly entitled to make that choice, but that just doesn't sit well with letter writer Carol, or with me. Maybe our feelings are best explained by the now famous judicial quote from 1964 in which Justice Potter Stewart struggled to determine a definition of obscenity: "I shall not today attempt further to define the kinds of material I understand to be embraced . . . [b]ut I know it when I see it . . . "

(c) 2007 Cynthia Friedlob