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In this episode, MissBeHelpful's Yanely Espinal tells us the five biggest money mistakes low-income earners can make. The first 1000 people to use the link will get a free trial of Skillshare Premium Membership: https://skl.sh/thefinancialdiet11201

Yanely's YouTube: https://www.youtube.com/channel/UCr2h_5UeJH-0oxp5ntzpm-w
Yanely Espinal on Instagram: https://www.instagram.com/missbehelpful/

Study about the racial wealth gap (https://prosperitynow.org/sites/default/files/PDFs/road_to_zero_wealth.pdf)

Stats about medical debt leading to bankruptcy (https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html)

Research showing predatory lenders strategically placing stores in low-income communities (https://www.federalreserve.gov/pubs/feds/2009/200933/200933pap.pdf)

The Financial Diet site:
http://www.thefinancialdiet.com

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 Intro


I'm Yanely, also known as "Miss Be Helpful," coming at you via The Financial Diet. This video is sponsored by Skillshare. Growing up, I was a low-income kid. Both of my parents immigrated to New York City from Dominican Republic before I was born. And all of my childhood and throughout most of my adult life, I remember my family being dependent on government assistance for us to be able to get by. I am no longer a low-income earner, but I definitely think back to those days where I was struggling financially, and I really think back with a reflective mindset of like, what would I do differently if I could go back now, knowing all of the different things about financial education that I know today, how would I do things differently? So let's go ahead and jump in. Here are the five common money mistakes made by low-income earners.


 One



 Number one is high-interest rate debt. Now, the reality is for a lot of low-income earners, the money that they're bringing in from work is just not enough to cover some of the things that they need on a day-to-day, week-to-week, or month-to-month basis. Now being in poverty, the real problem is just that you don't have enough cash. You don't have enough money to be able to do all the things that you need to do-- to cover your needs and to have maybe some money for some wants. It's so, so, so important for you to understand that there are going to be times where you may need to borrow money in order to bridge the gap between what you have and what you need to have financially in order to get all the things that you need. But borrowing money at a really high interest rate is super dangerous because a lot of times, high interest-rate debts tend to compound exponentially over time. The longer it takes you to pay the debt back, the more you will pay in interest fees. This is extra, extra important when it comes to low-income communities. Because alternative lending places, especially predatory ones, strategically place their stores in neighborhoods where there are a lot of low-income families and where there are a lot of people of color. And this is just straight-up predatory. There's no other word to describe it but that. So if you can, avoid at all costs, going to a payday loan center, do it. Do not borrow money from those places. There's even studies that show that some of these payday loans go up to 300% or 400% in interest fees, which is insane and should definitely be illegal. But here we are, people are borrowing money in these environments because they need access to cash from one day to the next, and they see these opportunities as being able to give them that access. So it is really important, if you can, get yourself two to three days of time to make the decision.

Say you are in a high-pressure environment where your bills are due and they're immediately due. If you can contact the bill collectors or if you can contact your landlord if you're owing back rent or if you're kind of late on rent, try to let them know that you are, right now, in a situation where you're making a decision about the best loan option, and you will be coming into some money within the next few days, but you just need time to really finish that process. Usually, people are willing to work with you and give you some more time if you let them know the situation that you're in, and that is going to give you some time to compare all of the different options for borrowing that are available to you. Try to see if there's a credit union in your community. That is going to be much better than borrowing at a traditional bank or at a predatory loan center. See if there are nonprofit education organizations that will help you make that decision and compare and contrast your options. Or maybe there's nonprofit organizations that will issue you alone that will be a much better deal than any of the other institutions in the community. But take the time to do the research, to really dig through to find out what are all of the options and what is going to be the best for you in your situation.


 Two



Number two is having too many depreciating assets. Now I remember back in, like, 2013 2014, when I first started reading books about personal finance, and I kept seeing the word "assets" over and over again. I was like, what is this word? And I remember looking up "depreciating" and "appreciating" and just getting all of this new vocabulary into my head because financial terms can definitely be very technical. So I started looking those words up, and I found that a lot of people think that they have assets already. Especially in low-income communities, we tend to think, yeah, I have a car; that's an asset. I have furniture; that's an asset. But the reality is a lot of times these assets that we have are depreciating assets, which means that, over time, they decrease in their value. Their worth of less money tomorrow than their worth today.

As a Latina, I was really curious about my whole community and the behaviors that we have. And I found a survey report on prosperitynow.org, which I'm going to link in the description back in case anybody wants to look at the report in more detail. But one of the things that really stuck out to me was the key finding is like, right at the beginning when you scroll down on the report, and it shows a comparison between white American families, black American families, and Latin American families, and the net worth, the different net worth between those families, the median net worth. And one of the things I noticed was that they had a chart that showed the median net worth and then the median net worth after you remove the assets that are called "durable goods." Durable goods are things like furniture, cars, things like electronics. And in my I was like, wow, that is definitely something that I never really thought about, like, you have to remove those things from your net worth because they're not growing with your net worth every day. They actually lose value-- electronics, gadgets that you have, cars. So in my mind, I was like, wow, this is so, so important to really try to educate more people about what are they putting their money into and making sure that the things that they're buying and the things that they're investing money in are going to appreciate over time.

Now, of course, you're obviously going to need to buy some electronics, and you're going need to buy some furniture, but as often as you can, think about how can you try to spend the least amount of money on those things, like just get exactly what you need and nothing fancy, nothing more, so you can free up some money that you can put towards appreciating assets.


 Three



That's actually the perfect segue way into mistake number three, which is, not investing in the stock market. I remember having a conversation with somebody, a friend of mine, a few years ago actually now. This was a conversation that is not really recent, but it's relevant to this video because I was talking to her about her financial troubles that she was having. She has a young baby boy, and she was talking about how he really loves Sesame Street, and so she went online to get a season pass for Sesame Place. Obviously, this is a conversation that happened pre-COVID 19 when people would do things like take their kids to Sesame Place. But anyway, the point is she wanted to get season passes to Sesame Place, and it was probably like $250 or $260 a year. And so she's like, I want to get it, and so I made sure to save up a couple of dollars every time I got a paycheck. I took some money aside, and then I was finally able to get that. And I said to her, yeah, that is really great. I'm sure that he's going to have some fun. But you've got to make sure that you're also taking some money aside from your paycheck to invest in his future in other ways. Like, have you considered a 529 for his college savings account? Or have you considered a custodial investment account with his name on it so that by the time he turns 18 you know he'll have some money growing in the stock market? And what she said to me was, oh, I don't have money for that. I don't have enough money to invest money. I see the stock market as something that rich people do because you need extra money left over to be able to do that, and I don't have that. I'm tight on money. And I just remember thinking to myself, like, I wish that she could prioritize investing for her son's future the same way she would prioritize Sesame Place! Because in my mind, I wanted to show her that Sesame Place is going to be really great right now.

But after a while, you're not going to be taking him to Sesame Place because he's going to grow out of it. And then when you ask him when he's 15, do you remember all those trips to Sesame Place, he's going to say no, because he was two, three years old. He doesn't remember those trips that you took. So in my mind, I see a lot of times-- and this is a tough conversation. I will admit this is probably going to be a little controversial because I don't have children. I'm 31 years old. I am unmarried. I do not have children. But I do constantly think about these things in terms of, when I have a child one day, I know the struggle as a former low-income person myself that, when you grow up as a low-income child, you're constantly thinking to yourself about all the things that you don't have, that you don't get because there's not enough money. And so I know I can only imagine a parent thinking to themselves, I want to be able to get my baby the nice things that I didn't have. And that is so understandable. That makes a lot of sense to think that you want to give more to your child than you had growing up. But the reality is we have to equally prioritize providing them with the knowledge, and the skills, and information that we didn't have growing up, too. It's not just about physical things or really fun experiences, because those things are fleeting. And the things that are lasting, and impactful, and meaningful are going to be the things that appreciate with them over time, things that grow, and things that they can actually utilize to build a meaningful life in the future.

 The most common way to build generational wealth and to become wealthy in America and in the world is to invest in the stock market. And so that's why it's really, really important for people in low-income communities not just brush off the stock market and say, oh, that's for rich people or, that's for these news anchors talking about stocks in the news. Normal people don't do that. We don't know what they're talking about. It's actually really important to push back on those thoughts and challenge those thoughts and say, no, what can I learn about the stock market? And how can I use it to try to build a better future, even if it doesn't impact me in my lifetime, even if it doesn't make me rich, can I create an environment for my children for the future generations so that they don't have to struggle financially the way that I have?


 Four



Number 4 is making bad insurance choices. Now I know that in low-income communities, like I just talked about there's a lot of predatory stuff happening in the lending space. There is also a lot of predatory stuff happening in the insurance space. There are MLMs, and pyramid schemes, there's all kinds of scams coming around talking about insurance packages, and deals, and plans. And it is so hard to know what is quality, and what's actually legitimate, and what's worthwhile. So especially for low-income people, it is so, so, so important to understand the insurance decisions that you're making. It is really important to have the three basic types of insurance that you're going to want to have, which is health insurance, life insurance, and property insurance. Now I'll start with health insurance because it is definitely the most important, given that the number-one reason why people file for bankruptcy is because of medical debt. Isn't that nuts? That in America, specifically, when you cannot pay your medical debt and you have outstanding medical expenses that you're not able to pay for, it can lead you to become bankrupt. That is nuts. And so it's really important for you to understand your health care package, if you have one, and if you are not receiving any type of health insurance package through your job, if you have a part-time job that doesn't offer health insurance, or your wage-based job, or whatever, even if you are on a full, annual salary type of job, they even might not offer health insurance package. It's not guaranteed that if you are working at a place that you're employed at that you're going to have health insurance.

Right now, in the middle of COVID-19, there's so many people that have lost their jobs. And if you did have health insurance through your job, you might have lost that. So it's really, really important to research what are your options during open enrollment for health insurance. It is a really, really important for you to do your homework, get online, and find out what are the things that are available to you, what do they all mean, understand the premium, understand the out-of-pocket expenses, understand all of the things like deductibles that come with insurance plans and really become familiar with that world and that language because when you are not familiar with it, that's when you let yourself be even more susceptible to the predatory stuff happening in the insurance space. When it comes to life insurance, I think a lot of financial experts all agree that you only really need to have life insurance if you have dependents. If there's somebody out there in the world besides you who depends on your paycheck, on the income that you bring in, even if it's not a lot, then you're going to want to have life insurance because the moment that anything bad happens to you and you leave this earth and you leave your family and loved ones behind, that person who depends on your income is no longer able to be taken care of. You're not going to be able to provide for them anymore. So it's really important that you leave them with something.

Number five, the final money mistake that low-income earners tend to make is having no financial data. Now this is just a fancy way of me saying that they're not budgeting. Most people in low-income environments do know how much money comes in and how much money goes out because when you're in a financially stressed environment, you're constantly thinking about money because you know that it's a resource that you're lacking, and you have to really do what you have to do to make ends meet. But it is really important to be able to go to a specific place to see financial data, to see trends over time. If you don't have no financial data, then you can't make no financial changes, and things are just going to stay in that financial rut for the long term.

So there was a study done where they had families that earned-- that got government benefits for food, and they said, OK, we're going to show you your government benefits for a whole month, and then this other group in the study was showing their government benefits weekly. And the family that looked at their earnings or the money that they had available weekly, they were able to save way more money. They were able to stretch that money out and make it go further in that month because they were looking at it weekly instead of looking at it once a month and thinking, oh, I have this money for the whole month. That creates this false sense of abundance of, like, oh, I got all this money. Then, they spend it right away, and then it's gone, and then you have to wait for the next month to get their benefits again versus weekly, if you look at your money in a weekly environment, it puts you in a position to really be able to make better choices with your finances. So if you are already budgeting and you're a low-income person and you're thinking, uh, I already budget, try to see if you can switch your budgeting to a shorter term because that can definitely help you to make some quick changes in how you're thinking about your money and your financial environment that could help you stretch that money out a little more and could lead to you saving more money in the end.


 Closing



All right everybody. I hope this video was really helpful for you, and I hope it gave you some new ideas about things that you might be able to put into your own financial life and your own financial habits and practices. And I don't know about you, but whenever I watch a video that has really good tips, or really good advice, or something insightful that I find I could really use it and take away from it, it leaves me feeling really inspired, like, all right, want to go do that.


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