5 Critical Financial Lessons We Can Learn From Poverty & Homelessness

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I am both fascinated and disgusted by the abject poverty that exists in plain view here in my wealthy city of Denver, CO. It’s incredible to me that the swankiest apartments in town, often renting for more than $4,000 a month, are just two blocks away from a homeless shelter where hundreds of people go for food each day.

I’m determined to understand this problem, as you’ll note if you’ve been reading some of my other articles. I continually strive to learn what it is that the rich are doing right and where the poor go wrong. I try to do this both for myself and for anyone else who will read what I write or listen to what I have to say.

No, I don’t have all the answers. I don’t know why some people decide to be wealthy, while others simply wander through life penniless. That said, as I interact with people at both ends of the wealth spectrum, I’m learning more and more all the time.

In this article, I’d like to share five lessons that I’ve learned through my interactions with the poor and homeless so far. I’ve volunteered to work with these folks through two different organizations, one through my church and the other through a charity focused on Financial Dignity called Operation Hope.

I hope these lessons serve as both education for anyone wondering just how people become and stay poor and homeless and as insight into how to prevent the misery that often accompanies homelessness.

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5 Critical Financial Lessons We Can Learn From Poverty & Homelessness

#1. An Inability to Manage Money Results in a Total Loss of Decision Making Power

The poor and homeless often have remarkably little decision-making power over things that most Americans consider basics of life. Often, the church or organization that houses these folks determines what they eat, where they sleep, how they get around, how their children play and learn, and what they do for fun.

Related: Teaching Kids to Be Entrepreneurs is Key to Addressing the Wealth Gap: Here’s Why

In the cases that I’ve dealt with to date, the folks who wield this power are generally good folks with big hearts and have their guests’ best interests at heart. Unfortunately, their guests are likely the lucky few. From the stories I’ve heard, I can only imagine the lives of the millions of other folks with similarly poor financial situations who have instead given up their control to less benign benefactors. In many cases, these “benefactors” can be abusive significant others or criminals.

The moral: Failure with money management results in a lack of control over one’s life and decisions. If nothing else, respect money’s power to allow choice in the most fundamental of life decisions. Giving up that power is a terrible gamble.

homeless

#2. Financial Mismanagement Creates Unlucky People

The folks in the shelters that I talk to are often there because of a long chain of “bad luck” and “unfairness.” Typical examples of this include hospital bills, layoffs, pregnancies, legal troubles, and other similar unexpected expenses. This bad luck, sometimes coupled with a “cruel” landlord, boss, or creditor, is what often pushes people over the edge into homelessness.

The problem with the “bad luck” mentality here is that those who have savings or a strong financial foundation are barely impacted by the “bad luck” described above—or don’t notice it at all. For example, because I’m a big saver, a $500 plumbing bill simply delays my next investment. On the other hand, a similar $500 bill for someone living paycheck to paycheck could result in a situation where they are unable to make their rent or mortgage payment. Coupled with car breaking down the next month, these disasters can lead to foreclosure or eviction and spiral out of control very quickly. The same “bad luck” can result in very different outcomes depending on the history of your financial decisions.

For those with poor financial habits, a ruined credit report, and no savings, these kinds of events are total disasters. Irregular expenses of any kind result in an inability to pay the rent, pay for food, or pay off debts. In a vicious cycle, each unexpected expense further cuts away at their credit scores and reduces their ability to make critical payments, making them more and more vulnerable to the next unlucky event.

It’s not that the poor are somehow unluckier than the rest of us, it’s that financial habits result in an inability to handle bad luck when it pops up.

The moral: Be financially ready to handle bad luck. If we aren’t, the question isn’t “if,” it’s “when” an irregular expense will cause extreme stress and pressure on our lives. On the other hand, if we are financially prepared, disasters will be few and far between—and hardly noticed.

#3. Bad Debts Present the Ultimate Mental Barrier to Wealth Creation

After boring folks with lessons on “savings” and “credit repair,” one day, I decided to switch tactics and talk about the topic of debt.

To my surprise, every single person in the room owed a significant amount (more than $10,000) to someone else. When I touched on the concept of bankruptcy and how it can eliminate debts, everyone in the room began paying rapt attention (a stark contrast to the usual state of affairs!).

Now, I immediately regretted even mentioning bankruptcy and made it very clear that in most cases bankruptcy is a terrible path that brings misery and years of pain with it. But their interest was telling; the poor and homeless often have seemingly insurmountable debts to overcome. As I delved deeper into debt reduction, I learned something amazing.

homeless-financial

Related: Income Inequality: Are the Wealthy Superior People or is the System Unfair?

Because of their debts, the poor and homeless often are afraid to have any official documented financial presence at all, for fear their creditors can come after them. Almost half of the people I’ve worked with don’t even have bank accounts for this reason.

Try for a moment to put yourself in the shoes of one of the folks I worked with.

You’ve never had a job paying more than $10 an hour, you’ve had a couple of run-ins with the law, you’ve never had a bank account, and to top it all off, you had a medical emergency resulting in a $25,000 hospital bill in your hometown of Alabama. 

Broke, still sick, and in debt, you run away to Colorado to escape your creditors, including a family member that you can’t bear to be around any longer because you couldn’t pay them back for helping with your hospital bill. You are afraid to seek a “real” job, open a bank account, apply for credit, or do anything other than work for cash and spend everything you earn before “they” come after you.

Because of your fear, you have no ability to earn a sustainable income, and you have no vehicle through which to accumulate wealth even if you could earn a high wage. Every time you are confronted with an issue that requires more cash than you have on hand, you are forced to once again relocate or default on your payment, creating more creditors and more weighty debts.

The folks that I work with often have at least one or two debts that seem insurmountable to them. It is these massive debts that they think will follow them for the rest of their lives that spark the chain reaction for many of the other poor financial decisions that follow. They simply don’t bother to address any new financial problems that come up and have no desire to open a bank account, let alone begin investing. They think that the moment they do anything like that, their creditors will snatch the money away.

It’s this mentality that seems to drive the poor and homeless to years of bad decisions and procrastination with their debts. Their attention and interest only seem to come to life when they begin to understand and believe that they can reduce their debts and repair their lives. Insurmountable debt, by contrast, leaves them feeling hopeless.

The moral: First, it is imperative to avoid large debts at all costs—either through an emergency fund or proper insurance. Second, in the rare event that one of these types of debts is unavoidable, it is imperative that the debt problem be tackled head on. Procrastinating or avoiding the problem leads only to misery and despair.

#4. Everyone Can Save, Even the Homeless

Even the broke and homeless are spending money foolishly. I know that I, like every other human being out there, make foolish purchases with money that would be put to better use investing. This is true for the wealthiest people on the planet, and, as I’ve discovered, the poorest.

As part of every lesson plan, we go through our weekly expenses over the past seven days. Every single time, there are meals, entertainment, or vices purchased—all avoidable expenses. I have yet to meet the homeless and unemployed man or woman who is unable to sock away at least $25 per week by trimming the fat out of their budget.

The moral: Savings aren’t impossible for anyone. Those earning an income above at or above the minimum wage are earning far more than the folks I work with and have no excuse not to begin building wealth for themselves.

help-homeless

#5. The Rest of Us Have Pretty Darn Good Problems

My financial problems are pretty good right now, as should be the case for most who are striving for and progressing towards financial freedom. I’m not worried about where I’m going to sleep or what I’m going to eat. I’m motivated by the promise of a better life, not the fear of sleeping on the street or having to pay for old debts.

I’m lucky—I had college paid for by loving parents, and I caught the money bug early in my working life while still debt free. I believe that I am doing everything in my power to build a strong foundation for the rest of my life. If you are spending your time reading articles like this one on the topic of personal finance, then I’ll bet that things are comfortable or progressing for you as well.

Not being able to find a suitable rental property to purchase in your town is a great problem. That means that things are going well. The inability to decide which stocks are the best investments is another excellent problem to have. The same goes for deciding when and if to start your next entrepreneurial endeavor. Just take a minute and be thankful that due to your knowledge and comfort with financial matters, you have money problems like those.

It could be a lot worse.

The moral: Be thankful for the financial problems that you have as an investor and pay it forward. I like to do this by educating the poor and homeless, children in school, or anyone else that wants to improve their finances. Just get out there and help others.

Related: How to Get Out of Debt: 5 Steps Toward Healthier Money Habits

Conclusion

I hope that these lessons motivate others to take control of their finances and encourage those already in great shape to help others do the same. I have a very different view of charity than some in that I do not believe in supporting the poor and homeless financially with my dollars, but rather through education and inspiration with my time.

If you are interested in working with the charity that I discuss in the article, you can learn more here.

I also would like to see more resources for charities or non-profits where investors may go to volunteer in an educational manner. If you know of any organizations that perform this kind of work, please let me know by leaving a link and comment below.

Investors: What do you see as major causes for financial disparity—and what’s your best solution for tackling these deep-rooted issues?

Let’s get a conversation started in the comments section.

About Author

Scott Trench

A longtime fan of BiggerPockets and a Real Estate Investor managing his first property, Scott is the company’s Director of Operations. BiggerPockets is a BIG website, and Scott’s background in finance and big data analysis will be instrumental in the next phases of company growth and in helping to bring the resources of BiggerPockets to more investors worldwide. Scott is passionate about helping others build wealth and serving his community in whatever ways he can. In his spare time, Scott enjoys skiing, biking, and cooking, and he is a lifelong rugger.

82 Comments

  1. Brandon Hall

    Awesome post Scott – one day we should definitely team up and start a non-profit focused on bringing financial education to various demographics. I feel like financial literacy is needed more than ever before.

    I’ve volunteered for Jump$tart and it was a great experience. I also plan on doing pro-bono tax prep for underserved communities here in the first quarter of next year. I’d love to know of other opportunities to get involved.

  2. Kevin Martin

    Great post Scott! I wish there was more real world financial education in the school system today. Unfortunately some of us have to learn the hard way. Always good to hear others helping out the less fortunate. This is what it’s all about!

  3. Zachary Gwin

    Scott, I absolutely loved this article. It’s nice to take a step back and reflect on our current situations. It definitely could be worse. I specifically enjoyed the point you made that ANYONE can save… A dollar that you don’t spend is the same as making a dollar. Good job, Mr. Trench!

  4. Jarred Sleeth

    This is one of my favorite blog posts I have ever read on BP. These are serious problems facing real people, and it is crucial that we take better care of educating young and old alike about personal finance. Thanks for posting this.

  5. Dawn Anastasi

    I think good financial literacy needs to begin when kids are young, and continue throughout their lives. Why do you have a checking account? What do you need to do to make sure you have enough money in it? How do you create and stick to a budget? Some of these seem like simple questions but when you see people living month to month and paycheck to paycheck, you can see that they never received such education.

    • Scott Trench

      Larry – I think it’s a chicken or egg argument. I know of some folks that have extraordinary drive and motivation, stuck working dead end corporate jobs at fortune 500 companies. It’s not that they don’t have drive! It’s that they aren’t directing their drive and energy towards something that has the potential to produce outsized results!

      This is a huge demotivator. It happens in corporate jobs, and it happens for the homeless. When you aren’t educated, no amount of effort can produce an encouraging financial result. When you are educated, very simple, painless exercises can produce magical results. That’s a huge motivator.

      Just like nature vs nuture, I choose to believe that motivation is a result of reinforcement of good decisions. Without education, you can’t make good decisions.

    • Gloria Almendares

      I agree with you Larry 100%. How do you “motivate” someone that is educated, but is clueless when it comes to money management? Some of my loved ones, love to “spend” money but have no idea how to “save” money! I feel helpless and frustrated, because I can’t teach people to have “ambition” and/or motivation”. How do you do that?

      Gloria Almendares – Real Estate Investor, Principal Broker

  6. Darren Sager

    So much more could be done if we only had good lessons growing up. Excellent article Scott! Glad to see you giving back even with good things happening to you. Most of us just turn our backs not even willing to understand why this is happening. You dug deep and it shows. Operation Hope looks like a great organization. Perhaps we should rally the BP troops around here to join.

    • Scott Trench

      Thanks Darren! I hope you do get a chance to rally the troops! By all means, it’s important to make sure that things are going well personally first, and then put yourself in a position to do the same for others. It’s pretty much the whole model of BP!

  7. Gerardo Dominguez

    Great post Scott! I’m a big supporter of giving back as well. My non-profit of choice is Year Up (http://www.yearup.org/opportunity-divide/). I’ve been volunteering for them in one capacity or another for about 3 years now. If anyone has any questions on the program let me know, especially in the Chicago area.

    @scott trench. Your second point was the one that resonated the most for me. My wife was recently unemployed for about a month. She still hasn’t got her unemployment money that she was promised. Luckily for her I’m doing well enough to support us both (for a short time anyway lol) and she found another job quickly. I told her to be grateful that she wasn’t in a position financially where that one month would end with her being homeless. The bright side is that she has finally stopped rolling her eyes at me when I tell her to create a budget and save more for retirement. I’ll take a win wherever I can get it lol

    • Scott Trench

      Thanks Gerardo – I think that Year Up looks like a great gig!

      I’m glad that the second point resonated with you. I think that your example is a good one where your financial habits have allowed you to maintain your quality of life in spite of a spot of bad luck.

  8. Cheryl Schlehuber

    Scott, you are spot-on with this article… Not all schools are teaching children life skills, especially financial .. And many parents never had them to begin with, so they won’t be teaching them. One reason is strict state mandates do not allow room in the curriculum for these type of classes…The educational system needs to reacess the changing needs of our society today….personal finance could be one of the most important topics to be implemented into our educational system.
    Thank you so much for reminding us we all can contribute to this.

    • Scott Trench

      Thank you Cheryl. I agree completely with the points you are making here. I’ll even add to the fact that while education for children in schools is important, education for adults that were neglected, like the folks I mention in the article, is important as well, even if it may be less effective.

  9. Jeff S.

    Good thoughts Scott. Mental illness and addiction are huge problems in our society yet there are many stories of redemption from homelessness. My belief is many have the inability to deal with normal stress. Used to have a taxi van where we would hire night drivers. There was this guy that had become very used to living in shelters and even was involved in running them as a homeless person. Gave him a job. First night he made a $100 and he was on top of the world. Second night he seemed a little tired-less enthusiastic. Third night was his last-never saw him again. The stress was too much for him.

    • Scott Trench

      Jeff – Maybe it’s because of the environment that I was in, but I didn’t really see mental illness and addiction as the underlying problem for the folks that I’ve worked with. I’ve seen people with far worse addictions and mental states at my former workplace to be honest.

      I think that the fact that people are “very used to” living in the conditions that you describe is more reflective of my experiences personally. These folks are completely used to not knowing where they will be spending the night, eating their next meal, etc.

  10. Kim Wadelton

    Good article, I also work with the homeless here in Atlanta on financial strategies and planning.

    However, I would say you use the term financial mismanagement too often. Most people in this situation started out with so little that managing at all was not a possibility. When your buffer of monthly financial mistakes is only $10 you are in a much different situation than someone with a buffer of $100 or $1,000.

    Many of us had parents, friends, or other family whom we could lean on when our own buffer ran out. “Financial Mismanagement” implies these individuals lack some level of education or intelligent planning to stay afloat, when in fact it is more likely they started off in life with too little buffer to survive any ‘bad luck’ events.

    As all of the investors here know, it takes money to make money, whether it is yours or a business partners, so you either need personal capital or social capital to improve your situation. These are not abstract concepts but real resources that the homeless are missing. Without significant increases in income and social ties, education and ambition won’t be enough.

    • Scott Trench

      Hi Kim – thank you for pointing this out. You are right – I come from a background of relative privilege, and were anything to happen to me, even today as an adult, I know that I have parents that would support me financially if I had dire need.

      That said, I believe that the things that put most of the folks I’ve worked with on the street are a very long term set of bad financial habits and mismanagement. Every single person I’ve talked to was capable of saving $25 per week, even the unemployed.

      The case where folks have a financial buffer of only $10 is due, in my experience and opinion, to a long history of financial mismanagement. Everyone can save, therefore everyone can accumulate. Your case would be true for the first timer who has never been in a shelter before, but most of the people I work with have a long history, decades even, of no wealth accumulation. That’s financial mismanagement.

      Also, I fundamentally disagree with the notion “it takes money to make money” – at least when applied to thinking that it takes more than $250 to invest in something that produces excellent, meaningful returns. From a percentage returns standpoint there is nothing quite like being young and at zero net worth to begin making drastically powerful investments. For example, one of my first purchases in the real world was some pots and pans. Compared to the people I work with, this saved me hundreds, perhaps thousands of dollars in food costs in my first year (not eating out, eating healthier, bringing my own lunch). Same thing with purchasing a nice commuter bike. Same thing with an iron and ironing board. Same thing with buying a small duplex and house-hacking. Same thing with buying more efficient light bulbs. Same thing with upgrading my internet package and cutting cable… the list goes on.

      Each of those “investments” produces a smaller and smaller “ROI” as I accumulate more and is less meaningful to my overall position. The ROI on the cookware was 2500%, the ROI on the bike is like 2000% annually, the ROI on the duplex is a mere 200%. The ROI on the next rental property, in contrast, will be at the lousy 10-15% returns that the people who need money to make money get, because it won’t be leveraged nearly as much with FHA financing and won’t result in me living for free with little work.

      Investments that reduce expenses are the same from a financial standpoint as ones that make more money. Better, in fact, because it’s all tax-free. “It takes money to make money” is a dangerous myth that demotivates and misleads the poor to think that things are “unfair” and that it’s someone else’s responsibility to look out for them because they will never get money to invest..

      • Kim Wadelton

        There are a wide variety of causes to homelessness and poverty, some of which may be financial mismanagement. I do respect efforts to teach financial planning skills.

        I want to emphasize that for people who are low income, it is often a lot more beneficial to add $100 a month to their income than it is to take existing income levels and teach them to skimp and save $100 a month. While I do encourage everyone to find a way to save, finding a way to earn more is a necessary combination to create a long term solution. Often that involves getting creative with social networks, building ties, and making the connections that lead to better opportunities. I would put operation hope in this category of building opportunity.

        Ultimately improving income levels, so you can enjoy your cable TV, and your morning starbucks, or whatever the luxury is, helps people to build the life they are proud of and regain the “decision making power” you mention.

        Starting with too little money is starting with too little power. The alternative to starting with money is starting with a friend to help you out. Who bought your pots and pans? Who paid for your first month’s rent where you had a stove to cook on, and a refrigerator to keep the groceries you bought so that you could save money. The homeless eat out for a reason.

        Many articles like this imply that individuals somehow deserve their situation as a punishment for bad choices. When in reality you can have a full time job as a college graduate and still not earn a living wage. Making a choice between paying the electric bill and paying the water bill there is no good choice. You can graduate out of foster care and have no job, no family, nothing to start off with. I think it is important to be careful with the language we use to describe those struggling with debt, poverty, and homelessness in a respectful way.

        • Katie Rogers

          I appreciate the perspective you are promoting. It seems intuitive that people have financial trouble because they lack some combination of management skill, financial education or drive. Most people do not get close enough to those in trouble to actually know what happened, so it is easy to speculate. If they ever get a chance to know someone who has fallen on hard times and yet clearly possesses the skills, education and drive that would seem to prevent such misfortune, they may have their preconcedptions shaken to the roots.

          Some of these unfortunate people are fabulous money mangers, capable of making a dollar stretch further than you could imagine. They are often extremely creative and resourceful because they cannot solve their problems with money. They must find a non-monetary or minimally monetary solutions.

          I knew a woman who had fallen on hard times through no fault of her own. She had a resume worthy of being a college professor, but it took her 3 years to land a position as an adjunct. In the meantime, she applied for every imaginable job. She paid her rent and supported her family through temp agency placements, cleaning apartments between tenants, providing home health care, and preparing taxes during tax season. She even taught financial literacy to high schoolers in a summer program. She had no lack of skill, education and drive, and yet with all these advantages, she was turned away from the most suitable jobs as “overqualified.” She had to dumb down her resume to get the low-paying jobs she did have.

          When someone like this takes years and years to climb out of misfortune, it puts a whole new perspective on the obstacles facing those with fewer inherent advantages.

      • Katie Rogers

        I really think you need to open your outlook a little. You basically said that whatever Kim says, it must be mismanagement, and that empathy creates a sense of entitlement within the poor. A lot of people who claim to be “helping” harbor this back of the mind suspicion, and it prevents them from being truly helpful without condescension.

      • Gloria Almendares

        I agree with you Scott. It does not “take money to make money”. I am a prime example of that. It takes “hard work” and ”determination.” I had a goal, and was determined to purchase 10 houses in 10 years. I reached my goal in 3 years! There was no room for “failure” in my vocabulary.
        I too believe in “giving back” to the “under-privileged” and to your community.

  11. Deanna Opgenort

    Living in a housing co-op situation for 15 years has given me LOTS of opportunity to watch different people’s financial planning skills…or lack of…up close.
    The roommate who was making $50k a year, but running out of gas and lunch money by the end of the month (no vices, no bad habits, but when old creditors called this person would just shove $ at the problem, without even questioning whether the debt was legitimate — a collectors dream!)
    Biggest issue is the unability to “expect the unexpected” — super-fragile budgets that depend on NOTHING going wrong
    (can’t afford to replace a windshield wiper blade, let alone a gas increase or tires). The biggest trait I’ve noticed in the failure-to-thrive population is that they are completely unable to predict the future. They seem unaware that driving consumes gas…until the tank is suddenly, inexplicably….EMPTY!
    There is no internal “bean counter” that keeps track of upcoming expenses – ie on the 15th day of the month one should have at least 1/2 of the rent saved up. If the 60k tires on your car are $600 and you have driven 30k miles on them you should have save up at least $300 toward tire replacement.

    • Scott Trench

      Thanks Deanna! I agree that planning ahead is super important. I will also say that it doesn’t have to be as complicated as making sure that you set aside money for very specific expenses every month. A day to day fund that covers everything you expect over the next few months and then some is probably an easier thing to build, and will keep you from doing too much bean counting.

      • Deanna Opgenort

        One of the freedoms that saving money creates is letting you skip micro-budgeting (I know — Dave Ramsey would be spinning in his grave, except that he’s not dead). I no longer have to keep track of how much is in the checking except in big round numbers.
        Oh absolutely, and of course it’s an aggregate. It’s the idea that if car maintenance expense are likely to be $1200 per year, you should be setting aside at lease $100 per month in the “car repair fund” — knowing if Toyotas normally last 250k miles and yours is at 125k it’s “half used up” (though with cars you can expect to need to start repairing things before the car is “used up”).

  12. James Munson

    Scott thanks for the great article. This just exemplifies why anyone with good financial skills and knowledge children need to pass this information along to their children as well as any nieces and nephews you can get to listen. I have a family member who is horrible with money and as a result has gone from doing ok to homeless on multiple occasions. His children are the ones who really suffer because of his and his ex-wifes poor decision making skills. Accordingly, at every opportunity I try to teach his three girls any thing I can about securing their financial future. So far two have listened and should do well for themselves and the third is doomed to follow her parents poor example.

    On another note, you may want to correct your personal bio. I assume you are a “life long runner,” rather than a life long rugger.

  13. Silvica Rosca

    Great post Scott. Thank your for volunteering your time to help people out.

    As for the chicken/egg aspect, I think it’s a little bit of both. Education and motivation work hand in hand. Some people naturally are more motivated than others. For others, knowledge stirs up belief. Knowing that something might be possible and knowing that there is a way to get there is a great motivating force.

  14. Susan Maneck

    I don’t think the poor lack ambition so much as financial literacy and there is a lot we can do as landlords to teach this to our low-income tenants. I own one house is a very poor neighborhood and the family that lives there has been slow on the rent. They always manage to pay, but it is like I have to collect a little each week. While I was on vacation I was horrified to find out they rented some furniture. Not surprisingly I found when I got back their electricity was about to be turned off. I insisted that my tenants sit down and figure out what this rent-to-own furniture was costing them. When they finally did that the tenants realized that they would end up paying 6K for used furniture when it was all paid for! Next time I went over to collect rent they had it and the rent-to-own furniture was gone. I teach at a historically black university in Mississippi. I always tell my students that if you don’t want to stay poor ,”don’t drink, don’t do drugs, don’t rent furniture.” The last one always wins me some laughs, but I hope for that very reason it gets remembered.
    My dream is that one day my tenants will own all my property.

  15. Gloria Almendares

    I have converted “tenants” into “homeowners” many times over. They are very appreciative! However, not all tenants ‘get it’. I believe that it takes more than “education”, it also takes a little bit of intelligence and drive. I usually write this on a piece of paper, to get my point across:
    Tenants = Poverty
    Landlord = Wealth

    • Katie Rogers

      That’s great, but completely out of reach for the vast majority of tenants in my town. 75% of residents rent. The median house here is an unbelievable 16 times the local median wage. Hedge funds and out-of-area investors pick up the starter homes for “cash.” Hedge funds do not even care about whether a property cash flows. Thus to compete, the tenant would need, not 20% of the purchase price, but 100%. Most tenants are already paying more than 50% of their income as rent, and many landlords believe it is in their own interest to keep rents as high as necessary to discourage home-buying. They can get away with this because the vacancy rate is only 0.5%, so there is nothing to motivate landlords to charge a reasonable rent within a typical tenant wage or offer decent, well-maintained units. You would be surprised at the condition of the average rental in my town. My town is full of relatively wealthy tenants making even twice the median income, who are still priced out of buying.

      Anyone who has read my comments knows I am determined to change this dynamic to one that conforms to the Golden Rule, at least as far as possible within my own little sphere of influence.

        • Katie Rogers

          People throw around the “don’t play the victim card” way too freely, in order to discount or avoid thinking about real problems within our society that other people face. Would you tell the black people relegated to the back of the bus that they have the choice to walk? People’s choices are not 100% free. Instead of telling people they are free to leave a terrible situation, why not help alleviate the terrible situation? This is why I lower the rent instead of raise it because I know what it is like to be a tenant in this town.

      • Scott Trench

        I did everything in my power to buy a property as soon as possible and I bought it one year into the working world. Yes, I had a decent job making slightly less than $50K per year, but I lived FAR below my means. I believe it is possible to live far below your means for almost anyone in any situation. Even the poor in America have the ability to save voraciously – the minimum wage earners are some of the top income earners in the entire world.

        Those who don’t build wealth, in my experience, and from everything I’ve seen simply don’t prioritize it, whether due to lack of ambition, knowledge, or another higher objective. Like the rest of America, I have every right and every ability to move my self into another town, another city or another state. The ability to invest in real estate or build wealth exists for us all.

        That said, if you want to live in San Francisco California in a nice home AND build wealth – you’re darn right – you can’t. Too bad. Move. I want to build wealth -> therefore I don’t buy a ridiculous Tesla or ridiculouse home costing more than $150,000 for just my own self…. Get out of there and go somewhere where you can actually build wealth. That’s your choice to cripple yourself financially, whatever your justified reasons may be, it’s not a systemic societal unfairness.

        There are 50 states and thousands of counties to live in with cheaper and possibly better lives. Even here in Denver, the foolishness of folks living in places above their means or without roommates, yet who complain about money astounds me. For all mentally capable persons, the ability to build wealth, as I’ve seen it, comes down to an educational and behavioral component. Either they don’t understand the concept of building wealth, or it’s not important to them.

        • Katie Rogers

          Who said I was living above my means? We save over 50% of our income. Who said I was even talking about myself? By the way, fixers here cost at least $300,000. And you are wrong that people have absolute freedom. They do not, but I sincerely hope you do not learn that the hard way.

          I am wealthy now, but I will never allow myself to forget when I wasn’t.

        • Scott Trench

          Katie – sorry the “you” in my response was more of a vague “people in general” I was not referencing your case specifically. I was not talking about Katie Rogers in my example post, but I see how that can be confusing.

          Please interpret “you” not as “Katie”, but as “World, any one of YOU may live wherever you want.”

          That said, we’ll have to agree to disagree that people in America don’t have broad freedom to choose where and how to conduct their lives.

  16. Deanna Opgenort

    “I want, therefore someone else should provide”

    The Santa Barbara housing market crisis is the result of decades of draconian building restrictions. Eons ago the city fathers decided that they didn’t want “change” and “growth” to ruin the feel of their community, so they put a strangle-hold on all new construction (elitism being what it was back then had you told them that their actions would mean that in 2015 only the wealthy could live in SB would have pleased them quite a bit).
    For decades it has been impossible to build almost anything, including multi-unit housing, so despite the increasing population there has been virtually no increase in the number of housing units (kids ARE born there, while wealthy folk want to move -who do you think can afford to pay more?).
    As far as comparing the (mostly white middle-to-upper class) population of Santa Barbara to Rosa Parks….um, not really. Most Santa Barbara residents can easily move elsewhere if they chose, but yes, they would either have to commute further to their job and get used to a less-adorable neighborhood.

    • Katie Rogers

      Fact is, it is not as easy to simply move and get another job as it once was, whether you live in Santa Barbara or elsewhere. There was a time when I could move anywhere I wanted, and have a job within a week. If I didn’t like I could easily go elsewhere. These is simply no longer true for most people.

      The Santa Barbara workforce has done the math. The costs of cheaper rent and commuting (there isn’t any commute that is relatively close) is so close to SB rent that the time cost of money kicks in, and a lot of workforce end up staying in SB. Actually our commuters tend to be the higher paid members of our workforce, like police, fire fighters, and nurses. Some 60% of them live in Ventura. For the lower paid workforce, commuting does not compute.

      • Deanna Opgenort

        OK, so I realize that I came off rather churlish in some the responses to your earlier posts.
        I am GLAD that you were in a position to lower the rents on the properties you acquired. Your likely reward is that your very lucky tenants are likely to stay forever and behave very, very nicely, which can actually be an excellent business model.
        The system IS broken for those at the bottom of the economy, but it has been for millenia (“the poor will be with you always”), and it isn’t necessarily the fault of the “evil landlord”. There is an excellent book that you would like called “Nickel & Dimed” by Barbara Ehrenreich. IMHO it should be required reading for every landlord with low-income rentals.
        All that said, I’m going to ask a funny question; did you inherit your property? Usually dropping the rent is the last thing on a new landlord’s mind after they have thoroughly researched the market, found and purchased a property and are paying off an 80% mortgage +PMI (+insurance, +1% full market value in property taxes) all while setting aside money for repairs & vacancy, and hopefully making some return on their investment.

  17. Hi, I’m a newbie. I really like this post. It is definitely a state of mind. I ‘m don’t own a bunch of properties but I would like to own a few OUTRIGHT. I am an average person that owns a small business. I made up my mind that I was not going to go into debt….EVER. For those of you who think that you don’t make enough money , you don’t have enough experience to own some properties, I think everyone can, if they put their minds to it and make very SPECIFIC Goals. I would like to purchase my first property with as much down as I can so I will keep you all posted. My goals are NOT SEXY . They are slow and steady….like the tortoise and the hare.
    Although, I don’t make a lot of money, I STILL give. If you open yourself to giving in the small things, you will certainly give in the larger things. Be a consistent giver and you will be amazed at the opportunities come your way! Thank you again for this post. : )

    • Deanna Opgenort

      My one comment is that debt-free is excellent (I am. Always have been. It’s great)., but remember that a mortgage isn’t “debt” in the conventional sense.
      If you are going to be buying property it’s probably to time start playing the credit rating game. Credit cards are a 4-letter word, BUT that’s what the banks look at to see if you are going to have the discipline to pay them on a mortgage (I bought my house with a credit rating of ZERO. Used private money, but since it was a Manf home in 2010 it was going to be private money anyhow, so didn’t matter…on that particular purchase. The loan was countersigned by a relative though).
      Treat it like a game if you want to get a good credit rating while not going into debt.
      1) get a credit card. I know this is counter to a lot of what you hear, BUT there are caveats.
      2) Set the card to have the MIMIMUM payment made automatically, then pay the FULL amount manually before it is due. This assures you will never have a late payment (which is death to your credit score), while also making sure you don’t accidentally get a bank late fee if you lost track of the day of the month or forgot a purchase.

      Feel free to contact me if you like. I’ve done part of what you say you are trying to do, and it’s definitely an upstream swim.

  18. Silvica Rosca

    Just read an article in Fortune that reminded me of this topic. It discusses the positive impact that financial education at the elementary school level had on students’ outcome in life in the Chicago area. Fortune had another article back in March about how teachers’ expectations for students had a drastic impact in Harlem, NY. Just reinforces the comments made above that it education and mindset are the biggest players.

    http://fortune.com/2015/07/25/ariel-community-academy/
    http://fortune.com/2015/03/10/harlem-charter-school/

  19. vicki gleitz

    Wow! You must “hang” with a different group of homeless people than I do in Denver. [ mostly at the “triangle,” under various bridges, along Colfax, downtown] because the people I meet are mostly mentally ill. some of them are injured Iraq vets [ the disabled homeless Vietnam vets, pretty much LONG gone] and many are physically disabled. PTSD, and the environment they are exposed to causes many Autistic people to be homeless. [ estimates are that about 35% of the homeless are Autistic] I know women who ran away from homicidal men with only the shirts on their backs and women left by their husband who first wiped out the bank account. . Had no family or community support. Had only had sex with their husband and never touched a drop of liquor. And they ere on the streets, cold and hungry and after a few cold hungry seemingly hopeless nights , finally took up the offers of warmth and a few bucks. so many then started the drugs to numb the pain of what they were living. I know so many who had money until it ran out after the horrible car accident, or the cancer treatments or whatever. I could tell a thousand true horror stories. Once they get on the streets, the constant rapes and beatings. and I do not know where that $25 a week comes from. By not buying that cheap small fries at the fast food joint because if they are not paying customer they can not use the rest rooms. By not using that money to purchase a shower or taking a bus to a slightly safer place to sleep? And when they smoke that joint or cigarette or down that pint because if they do not do SOMETHING to numb the pain they just KNOW that they will not beable to stop themselves once again from jumping off that bridge?
    Personally, I have never been homeless, but only because o a few lucky breaks. This is my story. And financial responsibility has nothing to do with it.
    I am an old woman. As a child I was diagnosed as profoundly to moderately mentally retarded [ did I mention I was reading fluently before age 3?] Finally, it was obvious that I was not mentally retarded, but I was the socially awkward, emotionally immature, weird as hell little girl who screamed in pain from sunshine, many noises, any strong odors, and most clothing textures.
    I grew into a painfully shy young woman. I rarely spoke. I usually shook. But in an era where submissive women with childlike bodies and beyond huge breasts [ this is before boob jobs and body contouring] were still the ideal for many men, I was able to marry from a choice of many men.
    Had 2 kids, and was pregnant with third 16 yeas later when husband was diagnosed with late stage CLL. We had money. Spent it all having drugs smuggled in in hopes of saving husbands life. It probably gave him an extra year, but he died. Maybe that was financially irresponsible of me. no regrets whatsoever.
    A year later I met the sweetest man in the world. He loved my grieving teenaged kids, and my “decidedly different” baby. And he was “enchanted” by my quirkiness.
    Baby grew to pre-adolescence. We were both diagnosed as Autistic. Husband and I, by being very financially responsible were getting ready for an early retirement. Then youngest son became gravely ill. He had neurological pain so severe that he passed out from the excruciating pain hundreds of times a day. He begged me every day for years to help him die. There was no help in western medicine. We tried everything to help him. Traveled all over the world to find healing waters, potions, faith healers, shaman, everything. we went from ready to retire, to a net worth of negative $300,000. Unlike my first husband, my son survived. Still has problems, but so much better comparatively. If I were not so financially irresponsible, my kid would be dead. instead , at 21 years old he is helping to change the world as a respected Autistic activist[owns his own home free and clear]
    We could have wound up homeless, and my story would have been no more profound than any homeless person I have known. We had some breaks, and because of them, and some hard work [no harder thana homeless person struggling to stay alive] we are once again getting ready to retire in a few weeks.
    it is so easy to judge, and I guess it makes people less frightened to believe that all of these people are responsible for the tragic circumstances they are in. It is super easy. Until you get to really know them and their individual story.

    • Scott Trench

      Very interesting story! I’m sorry to hear about your history of difficulty and am lucky to have experienced less misfortune. I believe that you are right – I must work with a very different group of poor and homeless than you. Please remember that I volunteer through structured organizations with through churches and other nonprofits. The folks who are able to make it into that system are indeed likely to be a little bit more capable than the mentally ill you reference on the street.

      My personality and disposition is such that I don’t think that I will be of much benefit to those with mental impairments. I respect the efforts of those who do work with that type of individual, it’s just something that I don’t think I’d be very effective with.

  20. J Scott Hamilton

    After skimming the comments I don’t think the following points were mentioned.

    1) There is a saying among the homeless that there are three general reasons for being there; Habit, Hurt, or Hangup.
    Habit – Usually drugs or alcohol. Crack and heroine are the more common drug addictions.
    Hurt – A painful event in their life they can not get over, and are stuck in the past. Death of a spouse or a rape come to mind.
    Hangup – Could be as simple as refusing to submit to any kind of authority.

    2) Many assistance programs will reduce or eliminate benefits if you have wealth. SNAP benefits is a big once, which I believe now 1 in 7 Americans is on. This means you can not have a 3 – 6 month financial cushion for emergencies and still receive these kinds of benefits.

    3) Being poor is expensive. A lot of the goods and services offered to the poor have a much higher per/unit cost. The Rent-To-Own scam is the more egregious example, but also includes check cashing services, payday loan services, and even dollar store purchases. You don’t get what you pay for being poor.

  21. Julie Marquez

    Great read and interesting conversation, it’s great to read on this real estate investing forum. I’m glad to have my personal finances in order, and wish everyone else could do the same, even the homeless. I am very thankful, but besides being thankful for my own blessings, what is the next action step?

  22. Matt Geerts

    This article reminds me of the Richest Man in Babylon. I feel like that book should be standard reading in all schools, maybe with a simplified picture book version for elementary school, then some serious analysis of the chapters in high school.

  23. Charles Morgan

    I would like to put in here for those who want to help:
    The Girls Scouts is a great organization that has helped many young girls develop life skills.
    Volunteering to teach finance classes is a great way for you to help.
    Of course the boy scouts is another great organization that offers you the chance to teach young people the financial skills needed for success!

  24. Josh Waggoner

    What fantastic insights in this article Scott. Thank you for your post. Like yourself, I’ve chosen to not financially help those who are homeless, fearing it would fuel a mediocre mindset.

    However, offering education is what I’m ALL about! You’ve given me a great lead on how I might assist more productively in helping those recover from or prevent the homelessness symptoms.

    Best Regards,
    Josh Waggoner

  25. Larry Weingarten

    Good work Scott! It isn’t a panacea, but education is, to me the single most important approach to helping people live better, regardless of where they start, Sadly, our schools mostly don’t tech the skills or ways of thinking that encourage living well. In my own way of “passing it on”

    Yours, Larry

  26. Melissa Dorman

    Great article. As a social worker by day, I come across homeless folks every day and see the difference in mentality that you mention above. Generational poverty, systematic racism, “bad luck”, and growing up in a community where it’s normal to buy the next shiny toy over paying rent on time are all big factors that keep the poor in the poverty cycle. I love educating folks on financial matters, particularly other social workers who work with the poor. One of the biggest factors I recognize in my therapy with folks is whether a person has an internal locus of control or external locus of control. In other words, do they believe they are a victim of chance or the primary mover and shaker of their life. It is a game changer from “woe is me” to “I am in charge and can change my situation”.

    • I agree that locus of control can be a life-changing concept. Too often the positive effects are undermined by not realizing that locus of control is not a polarity, but a continuum. Without this understanding, people born on third base think they hit a homerun all by themselves, and people born in the dugout do not see how they can ever get in the batter’s line, (and everything in-between).

  27. Jordan Thibodeau

    Scott, I know your heart is coming from the right place. I love and respect you for that. But I have to disagree on a few levels. Maybe it’s because I’ve seen abject poverty, have been homeless, and came from a broken family, but was able to rise above due to my community. That being said, I love you.

    Personal responsibility for people who aren’t in survival mode is important. But it’s not until you face the depths of survival mode before you can truly see how hard it truly is to execute such a plan.

    If this world was in an ideal state, I would buy your premise.

    But sadly 25% of the homeless people you see on your streets suffer from mental illnesses:
    http://www.nationalhomeless.org/factsheets/Mental_Illness.pdf

    Health related expenses are the number 1 cause for bankruptcy:
    http://www.cnbc.com/id/100840148

    I have a question for you. When a person is facing bankruptcy due to medical related costs such as chemo treatments at 30k a pop. Would proper money management solve the issue? I don’t think that person willingly “gave up” their financial power. How does one build such a cash reserve when their earnings pail in comparison to these huge expenses?

    You have to realize, me, you, and most of the people on BP, while we did start from humble beginnings. We were exposed to education, raised with the right believes and values to thrive in capitalistic society, or powerful networks that exposed us to concepts of financial literacy. Because of this we had the right connections to begin our quest wealth building in RE.

    What we overlook is that these people are in survival mode, I was survival mode when I was homeless and couch surfing between friends houses. You can’t think, you are basically in Maslow’s lowest level of the hierarchy of needs.

    Ideas of financial discipline and wealth building don’t help you when you can’t even afford something to eat. People who do have the extra $25 spend that money in order for a quick dopamine hit to feel better. Is it the right thing to do coming from a logical stand point? Of course not. Does it make sense from a survival stand point? Yes, because it eases their mind and allows them to cope with their suffering.

    Coming from a place of these people should do “XYZ” doesn’t really help the issue. You should experience the primal extinct of survival, soon you’ll see another aspect of our privilege is being able to sit in front of a computer, reflect on the world, and suggest people need to do “XYZ” to solve their issues.

    Yes, a lot of people make terrible financial mistakes and become impoverished. But the premise that a homeless person can just save his way back to financial solvency is a reach to say the least.

    While I support your efforts to help the community via operation hope, I suggest you try working at other charities such as food kitchens, clothes closets, and other charities so you can begin to see a wider swath of poverty in america.

    Homelessness and poverty in america is a multi dimensional monster that has no single cause. A few of the causes: Lack of economic resources, proper schooling, broken families, the inheritance of poverty via systemic legal racism towards (blacks 1607 to 1964, Native Americans including North and central america central america from 1492 to 1964), government red tape, a regressive tax system, a broken healthcare system (VA, Mental Health, and unaffordable healthcare), and the list continues.

    Personal responsibility is important, but you’re forgetting the other half. The other half is the community and tribe that rallies around these people when they are in need.

    When my mother faced bankruptcy the church paid off her debts. When I lost everything, the church community rallied behind me. For these homeless people, some do screw up, but I’m willing to bet most didn’t even have a fighting chance as soon as they came out of the womb to be successful in our society. So instead of saying what they should and shouldn’t do, lets work towards building a community that can provide these people with the support they need to become successful.

    It does make us feel good to say people only need to do “X” to be successful. It strokes our ego. Makes us look good for taking control of our lives, but if dive deeply we all know someone who was there for us in our time of need. Someone who provided us with the right mental framework to make sense of this world.

    I’m all for people pulling themselves up by their bootstraps, but if they don’t have bootstraps, should we jump on them for failing? Or should we reflect on society to see what we can do for these people?

    In conclusion I love you Scott.

    • Scott Trench

      Hey Jordan – I don’t think that I’m discrediting homeless people in this article. I’m simply observing the behaviors that result in monetary problems.

      I’m also not attempting to discuss folks with mental diseases. The point of this article is to observe tendencies that I’ve come across in my experience, and to point out the contrast to those of means.

      I am NOT a huge conservative on this topic, and am now volunteering with an organization I think is even better than the two I mentioned in this article – one called Upstream Impact.

      I do however, think your comment was interesting, and will respond by saying that I believe that there are three primary reasons behind homelessness and hopelessness among folks that I work with in dire financial and life positions:

      1) Knowledge – education and the development of skill was not a choice for me. It was made for me by my parents and the excellent school system I grew up in. This same advantage is not available to everyone else.

      2) Culture – I grew up in a local culture that encouraged learning, academic and sporting success. Others may be influenced by cultures that promote other values, which may put some (or many) folks at a disadvantage.

      3) Personal choice – I think that personal decision-making is impacted by factors 1+2 above. My upbringing and education have empowered me to make choices that led me to where I am today. But, plenty of other people from that same background made different choices, and are in very different life positions.

      My conclusion at this time = It is unfair, unequal, uneven, and unreasonable that knowledge and cultural gaps exist in this country that lower the odds of success for some, and increase them for others. We can either whine about this and “demand change” or, in my preference, work one on one, and in small groups with people to educate them.

      Yes, their situations might be problematic. Yes, they may have not had great family situations. Yes, they might need a helping hand. Yes, life is unfair, racism exists, poverty exists, discrimination exists, and the world is unequal.

      Too bad. It is STILL, at the end of the day, up to the individual to accept personal responsibility, to strive to improve his/her social circumstances, increase his/her knowledge, and make consistently better choices.

      I work to empower individuals in those areas – culturally and with their knowledge base. But, their decisions are their own. Their success is their own. And their failure is their own.

      I think that’s the best we can do as a society. It is not my job to force people to make good decisions. It IS my job to accept and understand the fact that I must reach out to my society and help create circumstances where good choices are easier (culture), the great results from those decisions are more apparent (knowledge), and where the responsibility for success and failure is personal.

  28. Benton Middleton

    I’ve said it before and I’ll say it again:
    Capitalism has NOT failed America, America has failed capitalism. The real answer solving America’s poverty woes is educating and then engaging ALL Americans in business skills and entrepreneurship.

    Imagine if you will, a nation not of employees, but rather a nation of entrepreneurs, freelancers and independent contractors. A nation where 98% of all citizens are self- employed or at least own comfortable stock in the company they work for. Poverty would be a problem no more in America.

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