Saturday, December 27, 2014

Reversal of Fortune

What causes homelessness?  Lack of financial discipline.

What if you gave a homeless guy a pile of money?   Would they turn their life around?  Showtime producers made a movie, where they gave a random homeless man $100,000 and then filmed what happened.   He spent it all, in short order, and six months later, was, well, homeless.

The "Reversal of Fortune" movie illustrated this very well.   To a man who is a dumpster diver, making $25 a day so he can buy food and beer, any amount more than $100 was "a lot of money" and $100,000 might as well have been an infinite amount.   He failed to realize that such a sum was really trivial in today's world - perhaps enough to live on for 4-5 years at or near the poverty line -  maybe ten years at his $25-a-day former income.

So, he spent the money.  He bought a friend a car.  He bought himself a $35,000 truck.   He bought a girlfriend a car as well.   And then he hung out in bars and drank up all the rest - spending close to $10,000 a month.

Six months later, he was back to being homeless.

The producers of the show even took him to a financial adviser, but he eschewed the advice, on the grounds that the adviser "wanted all his money."

His family bugged him to get a job - but of course, he just wanted to get drunk all day long.   Alcoholism is a big problem among the homeless - along with drug addiction.

Lottery winners typically do the same thing - squander vast amounts of money in a short period of time.   These folks don't need more money in their lives, they need financial discipline.   Without the latter, the former is just a waste of cash.

A lot of people on the far left think that the sole problem the homeless have is "lack of money".  They think the same about the poor.   They think that the cause of poverty is the symptom - that lack of money is not the result of poor financial planning, but vice-versa.

The problem with homelessness or poverty is that lack of money is the symptom of the condition not the cause of it.

These folks decided to give a homeless man $100 and see what he did with it.  In part, he bought food and gave it to other homeless people.   I am not sure, however, that he wasn't aware he was being filmed (they had a camera in his face when they gave him the money, and he saw what car they got into).

But you know, in a weird way, what he did makes economic sense.In a homeless community, people rely on each other, and if you are down one day, maybe a buddy is "up". So by giving food to other homeless people in the park, he is "banking" goodwill. Later on, he can ask them for a favor, since he helped them at one time. Pretty smart thinking. A survival skill on the street, no doubt. If he kept the cash, well, it would have been spent on booze. These people aren't necessarily stupid, they just have pretty severe problems.
These folks decided to give a homeless man a house (although it appears they are renting it for him for a year).   I will be interested to see how that works out - after a year, then what?  Unless he can get a job or have someone pay his rent perpetually, he will be back where he started.  Even if they gave him a real home, he would have to pay taxes on it, utilities, insurance, and maintenance.   Without a source of income, how does that play out?

I would be interested to see the results of that experiment, after a year.

Then there is fraud.  We know that some homeless folks are faking it, or at least exaggerating their situation to get more money.  Last year, it was the shoeless beggar, who turned out not to be homeless at all.  Well, technically he is, as he doesn't own a home but has to live in an apartment.

Then there is this guy - who begs for a living and then drives home in his car.

Or this guy - who pretends to be mentally disabled, but then laughs when caught and says, "I make $100,000 a year doing this!"

There are more than a few.  And while not all of them are making $100,000 a year, a lot are making pretty good money - because in addition to your handouts, they get food stamps and other assistance, if they bother to ask for it.  If you get $1 in food stamps, you qualify for a free Obama phone.   And bear in mind that all begging money is tax-free, too.

That's why I think it is better to give that $100 or $100,000 or whatever, to a homeless shelter, than to some random guy on the street.  You could be giving it to a fraudster.  You could be giving it to someone who is just going to spend it on good times and blow it all in short order.   I think if you really want to "change someone's life" you have to give them more than money - they need guidance.   And they may not want your guidance.

There is a sponsor on NPR who says they are "researching to find the root causes of homelessness" or some such nonsense. 

I can save them a lot of research money and give them the lowdown in a few bullet points.
  • A vast majority of homeless people have mental health issues.
  • A vast majority have drug/alcohol issues. 
  • Many just live for the moment or the day.
  • All of them have problems managing money. 
The last problem is the big one.  If you can't manage money, then no matter how much you have ($100,000 or even $27 Million) or how little ($100) you will end up broke in short order.  No matter how much money you throw at people - or how many houses you buy them, or whatever, they will end up broke in short order, unless you can teach them how to manage money.

The fellow who was given $100,000 spent it all and was happy doing that.  He wanted to "live for today" and wasn't interested in saving or investing.   And quite frankly, he probably made the best choice.   Why?  Well, he really couldn't do something like buy a house with it, as he had no income stream or means of keeping the house.   With no money to pay taxes, insurance, utilities, maintenance etc., the house would fall apart in short order - and be lost to tax auction.

Similarly, something like a car is impractical, if you don't have the income stream to support it - and a place to park it.   Money alone didn't solve his problems.   But it did allow him to have a really good time, for a short while.   A very short while.

And that goes back to the second-to-the-last issue - living for today.   You can't instill financial responsibility in someone who doesn't want it.   We live near a small city that is mired in poverty.   Most of the folks living there squander their meager incomes on lottery tickets, rent-to-own furniture, buy-here-pay-here used cars, payday loans, title pawn loans, rent-to-own "bling rims" and other bad bargains.   You could try to teach these folks better financial habits that would put more money in their pocket and make them investors instead of consumers.    You wouldn't get very far.

Simply stated, they don't want to hear it.

It is like the response I got from my "Never Lease a Car!" and "Never Cosign a Loan!" postings.   The folks that do this don't want to hear that they are being foolish.   In both cases, usually there is a car involved - the young college graduate who wants a fancy luxury car, but can't afford it, gets one through leasing.   He wants to show off at the high school reunion.   The younger man, asking Grandma to co-sign on a Camaro largely wants the same thing.

People want today.  They want to live for today and in that regard, they are little more than homeless people who aren't homeless just yet.   But for a steady income stream, they would be living on the street.  They lose their job, and bam!   The inevitable will happen

Homelessness could happen to a lot more Americans, but it doesn't, mostly because so many folks hang on, living "paycheck to paycheck" and staying barely ahead of their creditors each month.   It needn't be that way, of course.   Putting money aside and investing - and cutting out "living for today" with fancy cars and smart phones - allows you to live more securely and realize that homelessness is not one lost paycheck away.






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