“The reason you’re living paycheck to paycheck is that you’re still buying those $5 lattes, using credit cards, and not tithing. Get it together! Make your own coffee, DIY wherever possible, pay cash, and give 10 percent of your income to your church. Then you’ll be #Blessed!”
I’m sure you’ve heard these messages before. If you’re financially comfortable, you might be patting yourself on the back or feeling relieved you can afford $5 lattes and save for retirement. If you’re struggling to make ends meet, you might be feeling rather triggered to hear these shaming messages again. In any case, I’d like to share my humble opinion as a financial planner: These messages are utter hogwash.
My professional, ethical commitment is to give individuals advice aligned with their personal goals and values, taking into account known facts about financial markets, public and private risks, tax laws, and the like. I cannot give blanket advice, because no two people’s goals and circumstances are alike.
But I’d like to explore what it might look like to bring the social justice values found in the Catholic tradition to personal financial decisions, instead of being guided by American cultural values, carried over from the Puritans, that emphasize frugality, industry, and patronizing forms of “charity.” What if we put human flourishing ahead of the accumulation of wealth, and the dignity of labor and community ahead of wringing maximum profits out of capital?
Please put on your own oxygen mask first
When you’re working from a foundation of personal health and security, you can show up to your work and family and community as your best self, with abundance to share when you’re ready. So invest in your well-being without apology.
This could mean investing time and money in education or training so you can earn more. It could be prioritizing time for your physical fitness and a full night’s sleep, or spending money on therapy to improve your mental health and relationships. It could mean hiring someone to clean your home or care for your children so you have more time for career advancement or volunteer work. If you’ve been raised with the idea that frugality is a virtue, spending money on these things can feel like a wasteful luxury, but try to reorient your thinking. You’re investing in your own social capital and paying other people to do honest, important work along the way.
If you’re living paycheck to paycheck and don’t have extra cash to “invest” this way, you might consider borrowing the funds. It’s unfortunate that some popular financial gurus demonize debt. Building up a track record of paying smaller debts on time (the foundation of a credit score) and borrowing for purposeful investments such as a higher degree, reliable transportation, or homeownership is the most dependable avenue from working class to middle class available for most people.
You shouldn’t feel guilty about having debt, though you should be discriminating and cautious that any loan you take out has an important purpose and fair terms. Shop around for the lowest interest rate you can get, and read the fine print to make sure there aren’t unreasonable penalties for being even a day late or a dollar short on your payments.
Dirty little secrets of the stock market
Evangelists of capitalism often equate the stock market with economic health, suggesting that more people investing in the stock market drives economic growth. They hope you never realize that what we commonly refer to as the “stock market” is actually a collection of secondary markets for publicly traded equity interests. What does that mean in plain English? When you buy shares in Grand Corporation (our hypothetical, publicly traded company, fictional ticker GC), none of the money you pay for those shares actually goes to GC, unless you bought the shares in an initial public offering (IPO). No more cash is available to GC to pay its employees or suppliers or invest in new technologies than it would have without your stock purchase. Your money goes to the person who sold the stock, who probably doesn’t work for GC or contribute in any way to its value. Stock market transactions after the IPO are just speculation about the future profit margins of the company, generating fees for financial professionals involved in executing these transactions but having no other real economic value.
Buying GC shares on the stock market doesn’t give GC any additional capital, but its executives probably own millions of shares. So when stock market speculators believe that GC profits will be rising, they’ll be willing to pay more to these executives to sell their shares. This incentivizes executives to run the company to maximize profits paid to shareholders, because they themselves are shareholders. The executives also pay lower tax rates on the gains from selling their shares than they do on compensation paid in the form of salary. They’re disincentivized from paying higher salaries across the board because that would lower profit margins.
The average worker receives little to no compensation in the form of stock shares or options, so they don’t benefit from stock price run-ups. Executives are also incentivized to increase profits by raising prices as high as the demand curve and competitive field will bear, causing further stress on the average worker having to purchase necessities at inflated prices.
I’m not suggesting that you should never invest money in the stock market, but your conscience may wrestle with the informed understanding that these investments generally feed the engines of capitalist wealth hoarding rather than build broadly shared prosperity. Even investing in ESG funds (mutual funds that select stocks for corporate “good behavior” around environmental, social, and governance concerns) does little to ameliorate the problematic profit pressures.
If your employer offers a 401(k) plan, it’s probably wasteful for you not to participate in it (see my comments on putting your own oxygen mask on first), and you probably have limited choices as to how you invest within it. But if you have additional resources to steward, it’s worth considering diversifying the use of your “talents” in ways that can grow your money for yourself and contribute toward the healthy growth of communities.
Bonds that build and microcredits
So what’s the alternative to investing in the stock market if you want your savings to grow by more than a paltry interest rate? Bonds are another common form of “public” investment. They raise capital for growing enterprises and provide investors with a higher rate of return than cash deposits. Companies can’t hand out bonds to executives who haven’t paid cash for them, the way they do for stocks. They also pay investors the same fixed rate of return regardless of whether the company’s actual profit margins barely meet this rate or far exceed them, so they don’t create the same pressures to squeeze out higher profit margins at the expense of the long-term satisfaction of employees and customers. Many bonds are not issued by for-profit companies at all but instead by federal, state, and local governments. Governments typically use these bonds to fund public infrastructure, from roads and public transit to parks and school buildings.
The difficulty with bonds for small investors is that they typically have high minimum investment amounts and tie up principal investment for years at a time. (Bonds can be bought and sold on the secondary market like stocks or within mutual funds, but then they become speculative as well.) However, smaller investors can consider purchasing permanent life insurance as an indirect way to put their savings dollars toward bonds.
Life insurance companies are required to invest their reserves conservatively, which means they take income from insurance premiums and put a lot of that into diversified bond investments. This is particularly the case for whole life insurance policies as well as the “fixed account” options for indexed or variable life policies. Look for mutual insurance companies that return their profits to policyholders instead of shareholders. The cash value that accumulates over time in a permanent life insurance policy can be accessed by borrowing or withdrawing some of those funds, and the policy’s death benefit can provide financial security for your loved ones and/or substantial gifts to charity when you pass away.
Finally, if you want to invest in people and projects where you know exactly who receives the funds and what they are used for, you can explore options for microcredit or even lend directly to someone you know and trust. These unregulated investments involve a high level of risk, but it may be worth it to you to contribute to community-level enterprises and have full control over the lending terms to know they are reasonable and just. At least be sure that all the terms of loans you make are memorialized in writing and signed with fully informed consent.
Does your charitable giving augment or undermine justice?
In the 2006 encyclical Deus Caritas Est (God Is Love), Pope Benedict XVI distinguishes between the “direct duty to work for a just ordering of society . . . proper to the lay faithful” and the charity exercised by the church, which is “love [that] does not simply offer people material help, but refreshment and care for their souls, something which often is even more necessary than material support.” The tax code makes no such distinction, treating institutions devoted to such work alike as “charitable.” Unfortunately, it’s not uncommon for tax-qualified “charities” to actively work against justice and love or at least be indifferent to them.
Whatever your personal values are with regard to how much you “give to charity,” you should do your homework when deciding who should receive your donations. Neither an IRS stamp of approval nor branding under the name “Catholic” guarantees that an organization supports justice or love. If you want to engage in true charitable giving, accountability for the specific activities and use of funds by an organization should take priority over the question of whether you choose to “tithe” (a substitute for taxes in ancient Israel’s theocratic society).
Many people today choose to give to individuals and causes that are not qualified as tax-exempt but have a serious material need (for example, GoFundMe campaigns) or make important contributions toward justice (such as certain political campaigns). From an ethical point of view, these may be more appropriate recipients of “charity” than the ones you can deduct on your taxes. But it still would not be ethical or legal to claim them as deductions on your tax returns just because you think they are worthy causes.
Justice and love begin at home
The law generally assumes that spouses have equal rights and access to income and the accumulation of wealth during a marriage, regardless of who contributed their labor or how assets are titled. In practice, many couples fail to consider what is a just or loving distribution of responsibility and control over their marital income and assets. Some people will tightly control family finances without honoring the opinions or needs of their spouse. Others feel entitled to be kept in comfort without making proportionate contributions to the family’s well-being. Couples should establish and maintain an open, honest dialogue about a just distribution of responsibility and control over their finances. Refusal to do so is a serious breach of the marital duty to seek the mutual good of spouses. Thinking that simply jointly titling accounts takes care of the matter is neglect.
Justice and love do not necessarily call for everything to be 50-50, but rather from each according to their ability and to each according to their need. The more the contours of what is right and just for a particular couple diverge from 50-50, the more they should consider memorializing that in a prenuptial or postnuptial agreement. Many people wrongly assume that these agreements signal a lack of commitment to lifelong marriage, but what they actually do is make a couple’s commitment to each other legally enforceable, including against third parties.
Putting financial decisions and resources at the service of human dignity and flourishing often requires some nonconventional thinking and intentional effort. But it’s eminently possible for those who choose that path.
This article also appears in the September 2022 issue of U.S. Catholic (Vol. 87, No. 9, pages 26-28). Click here to subscribe to the magazine.
Image: Pexels/Tima Miroshnichenko