Why Isn’t Personal Finance Taught in School?

Internet Meme

Think back over your school days. In elementary school we had the basics: writing, grammar, English. Maybe American history. Math. Nature studies. Middle school? English literature, algebra, European history, and civics. High school? College level classes, more English literature, biology, physics, and more history. There were shop classes and home economics. And there was always gym classes.

If the purpose of education is to prepare a young person to go out into the world, find a job, make it in society, then our students are woefully unprepared. After twelve years of education, not one student is better prepared to manage their personal finances — or even understand how taxes and interest work. Over the course of our lives we, of course, use English. We use some math. History might come in to play at some point in the future. But we use financial knowledge. Every. Single. Day. So why is it not taught?

This latest post began while watching an interview with Robert Kiyosaki about the origins of Rich Dad, Poor Dad:

Kiyosaki recalls asking his fourth grade teacher why they don’t learn about money (10:30). She replied that they “don’t teach money at school” but couldn’t answer his question as to why. Kiyosaki continues, saying he eventually asked his father — who worked for the department of education — why money isn’t taught in school. His father’s reply? ‘Because the government doesn’t let us teach it. It’s not in the curriculum.’

So I began to wonder: how is education curriculum set? Why doesn’t the government allow personal finance to be part of public schools? (Note: I never attended private school, so I cannot speak to if it is taught there or not, but feel free to comment if you did. I’d love to know!) It seems not only common sensical that it would be taught, but given these horrendous metrics, Americans are in desperate need of financial literacy:

  • 41% of Americans use a budget (inversely, 59% of Americans don’t track or understand how much they spend every month)
  • The average American college graduate leaves school with $37,172 in student loans, most with no immediate plan to pay them off
  • Two-thirds of Americans would have trouble scrounging $1,000 for an emergency
  • 35% of Americans (!) have debt in collections with the average amount being $5,178
  • A National Endowment for Financial Education study found only 24% of millennials show “basic financial literacy” while 69% of the surveyed rate their own financial knowledge as ‘high.’

So what’s the deal? Before diving into a ‘Conspiracy of the Rich’ that keeps the average person money stupid, I wanted to learn the origins of our public education curriculum. I began to dig to find out just why what’s taught is taught.

It begins with the Prussian Education system.

The Prussian Education system was founded in 1763 by Frederick the Great. The system became the model for compulsory attendance (e.g., you have to go to school), national testing, and, per Wikipedia, “prescribed national curriculum for each grade, and mandatory kindergarten.” It also maintained a specialized training for teachers, essentially teaching teachers how and what to teach. This might be the most important facet, as teachers were not existing specialists or professionals, but professional teachers. The person teaching math or science would not be a mathematician or scientist.

The Prussian system was imported to the United States in the early 19th century, with early advocates including American education reformer Horace Mann (who eventually went to Germany to inspect German schools first-hand). The Prussian system was designed to serve the kingdom, training the populace to be soldiers, farmers, and eventually factory workers when the Industrial Revolution arrived. This is why you hear contemporary education referred to as “factory model” or “industrial era.” Indeed, it freaked me out a little bit when I realized that the reason for “bells” to signal start and end of classes was to train young people for the bells and whistles of the factory, denoting shift changes.

The Prussian system would later be refined in 1892 by the Committee of Ten. The committee’s recommendations became the basis of our modern education system: 12 years of education, eight of which are elementary followed by four years of high school. Curriculum was focused on English, mathematics, and sciences (such as chemistry, physics, and astronomy). The higher sciences such as psychics and chemistry were reserved for the high school level. English, mathematics, civics, and history would be taught at every level.

In the report linked above, there is no mention by the Committee of Ten of finance, money, or taxes.

So is our current system just outdated? What would it take to add personal finance to the curriculum? Why hasn’t it been? In 2013, a poll from Harris Interactive (sponsored by Bank of America) showed 99% of adults agree financial literacy should be taught in school. A 2013 Time magazine article entitled “Why We Want-But Can’t Have-Personal Finance in Schools” cites four major reasons finance has not been part of the curriculum:

  • Only one in five teachers feels qualified to lead a personal finance class, according to a University of Wisconsin study. So we don’t have enough instructors.
  • Personal finance concepts are not part of standardized tests like the SAT or ACT. As the saying goes in education circles: If it’s not tested, it’s not taught.
  • Education is run at the state level. So there is no federal authority to mandate personal finance classes, and each state has its own ideas on how to go about it.
  • There is little academic agreement as to what kind of personal finance instruction works. Many educators are waiting for clarity before they sign on.

There seems to be a catch-22 in regards to ‘feeling qualified’ to lead personal finance classes. Teachers don’t feel qualified to teach it because they never learned it themselves. In fact, these surveyed teachers may be struggling with their own financial literacy.

I’ve personally always been amazed that taxes are not taught at some level in school. These are something every American must file once per year, yet there’s no education or even explanation on how it all works. But, according to the Time magazine article above, teachers don’t really understand it either. I would say financial literacy should start at home, but parents weren’t taught in schools either. A 2011 Charles Schwab survey of 1,132 teenagers between 16 and 18 revealed 42% wanted their parents to talk to them about how money works. Only 32% of the surveyed teens knew how credit cards and interest worked. But if the parents aren’t knowledgeable (or comfortable enough) to talk about it, then the ignorance is passed on. It’s a death spiral of financial ignorance.

I couldn’t find an explicit reason why finance was left off the educational menu. One could infer that it wasn’t important in the 19th century — money still existed, bills had to paid with interest, although there was no personal income tax (except from 1861-1866 where it was enacted to pay for the Civil War) but property taxes and tariffs existed. Kiyosaki seems to insinuate that it’s more sinister, that financial education is left off the table explicitly to keep people dumb about money. His entire modus operandi for his Rich Dad series is to teach people about financial literacy because it’s not taught in schools.

He is right in that the failure to teach financial literacy in school falls on the government. Some states have taken the initiative, but it appears lacking, according to “Survey of the States“, a Council for Economic Education report. Seventeen states require high school students to take at least one course in personal finance. However, the report also shows “there has been little increase in economic education in recent years and no growth in personal financial education.” So states are aware of the problem, some have made an attempt to change it, but overall it appears to be half-assed or not a priority. I suspect it will take adding personal finance to standardized testing to get the ball rolling, coupled with education of teachers so they can teach the subject.

Until then, hopefully people like Robert Kiyosaki or Dave Ramsey will continue to get guide people. Or maybe blogs like this one can help someone find their way. Perhaps it will be those who are financially literate that will teach future generations.

How Monopoly Teaches You Everything You Need to Know About Quitting Your Job

For many of us, Monopoly was the only financial education we had growing up (further discussion on this is coming in a future blog post!). The depression-era Parker Brothers (now Hasbro) board game was based on an even earlier game called The Landlord’s Game, designed to educate the players about taxes. Monopoly takes it a step further, educating the player (I was always the battleship or car) on cashflow, taxes, financial ups and downs (Chance!) and…jail.

Assets

As in life, in Monopoly the name of the game is assets. To quote from a well-known financial literacy advocate, an asset “is something that puts money in your pocket.” This includes stocks, real estate, or a business. To Quit Your Job, you must have assets. Let’s say you’re hired as a retail employee. You are paid a low wage because your only asset is your time. If you move up, or get hired into management, your assets include your time and skills or knowledge.

To break away from this, you need assets that generate income irrespective of your time. Stocks, for example, are an easy asset to obtain. Stocks can go up in value. Even better are dividend stocks, which pay out money to those that hold shares on a regular basis.

Real estate is also an asset. It retails value, the value can go up and then the real estate is sold at profit, or you can charge rent to put money in your pocket. This is the backbone of Monopoly — green houses and hotels. Both generate money for you as your car or thimble roam the board. In real life, you can purchase real estate to rent to create monthly cash flow. You can also purchase REITs (Real Estate Investment Trusts) and collect rent dispersed as dividends.

Businesses are a third type of asset. Represented in the game as utilities (Water Works, Electric Company) and railroads, businesses are a way of generating income (aka ‘cash flow’). A business is the ultimate asset — it can grow in size, become an excellent source of cash flow, and is tax beneficial. Even better, you can continue to collect your $200 GO! salary as a business owner.

To Quit Your Job you must have assets. Saving up a bunch of money and then quitting will only give you a long vacation. Eventually it ends with you having to go back to work. Bills don’t end — even if you own your home 100%, you still have taxes and insurance and maintenance costs. You still need to eat. Life also likes to come knocking at the door. You need income — and assets provide it.

At the start of the game, every player has some savings and a job (this is what GO! is, where you collect your $200 salary). You must balance your income (salary) early on while acquiring property and utilities. You can also save your income for later purchases. For those who don’t have a drive to Quit Their Job, they happily move around the board, trying to get to GO! as fast as possible – to collect their $200. Money is spent on things like Luxury tax and the occasional Community Chest mishap. They are happy not taking any risks with property and thus never get anywhere. In the context of the game, they will eventually be wiped out by landing on a red hotel at some point.

The winner of Monopoly is the one that ends up with all the assets.

Cash

Is cash an asset? Technically, cash can put money in your pocket through interest. However, in this day and age, most bank interest rates require a microscope to see and inflation easily wipes out any gains. But to Quit Your Job, you must have cash readily available.

Cash serves two purposes:

  1. Protection. In real life, you’ll inevitably flip that random Community Chest or Chance card. Hospital fees. School fees. It will be someone’s birthday and you have to give them $10. Also referred to as an Emergency Fund, you must have cash on hand when you Quit Your Job. Not having an Emergency Fund will require you to go into debt for sudden expenses, or sell assets like stocks to pay for it. Loss of assets or going into debt leads to going back to a job.
  2. Preparation. If you have cash, you can be ready to strike at any time. Imagine having a cash reserve when the 2008 crash started. Stocks and real estate (assets!) severely went on the cheap. By having cash at opportune times, it enables you to acquire assets at low cost. This is another facet of Monopoly: when another player is in desperate need for cash and looking to auction off a property, those with cash can scoop them up. Or if you already own Park Place and land on Boardwalk and not having the cash to purchase it. You just missed out on the biggest monopoly and biggest potential for cash flow because you didn’t have cash handy.

Jail

You want to stay out of jail both in the game and in real life.

It’s scary to think about how in the game, when you have nothing and you’re behind, that the best place to be is in jail. I’m not going to wade into the ‘poor people and jail’ arguments made online or in sociology circles, but there is an eerie correlation between this component of the game and real life.

Other Lessons

Overall, Monopoly is a great education in life. In addition to what’s been mentioned above, Monopoly also teaches about negotiating and compromise. There’s the wheel-and-deal component to it when it comes to trading properties and utilities. It’s also about accepting the randomness of life (I don’t expect to ever randomly win second place in a beauty contest) and the inevitable things ($75 Luxury Tax).

There is a reason Monopoly has been popular for 80+ years. The game is competitive, as is life. ‘Getting ahead in life’ is part of life. Whether it’s trying to get promoted, pay the bills, or Quit Your Job, Monopoly is the early childhood education in doing so.

And for all the realism in Monopoly, there’s always one thing that never happens:

The Other Side of $15 Part 2

“Don’t go around saying the world owes you a living. The world owes you nothing — it was here first.”

Mark Twain

This is the second part to an on-going series. If you haven’t read Part 1 yet, you can do so here.

I never intended to continue on the topic of $15 per hour, but after publishing Part 1 a few weeks ago, I continue to see it come up everywhere. I also found some additional points worth mentioning. Part 1 didn’t really give a conclusion, but the results of the thought experiment showed that there is no economic basis for $15 per hour minimum wage and that there are unintended consequences as part of it.

New York City continues to be a battleground for $15, with some economic reports stating that the increase of minimum wage to $15 this year making the case that it has caused restaurants to thrive, while others — including the government’s own Bureau of Labor Statistics (BLS) — to show a negative impact.

So which is it?

The New School and National Employment Law Project (NELP) wrote a joint report this month claiming they found a “thriving industry” despite the recent forced increase of minimum wage: “The New York City restaurant industry has maintained substantially faster job growth than the private sector overall in the years since the State minimum wage rose in phases from $7.25 an hour at the end of 2013 to $15.00 at the end of 2018.” However, in reading the report I found this statement on the same page of the executive summary: “This report does not suggest that New York City’s sharp minimum wage increase caused restaurant employment to soar—the more rapid restaurant employment gains likely are due to the city’s faster private job growth.”

So it didn’t hurt employment, but $15 per hour is not the catalyst for the industry to be “thriving” as Business Insider would lend you to believe (citing the same joint report as above). It appears some publications jumped on the report as “proof” a $15 minimum wage is good for business. I’m sure Bernie Sanders would agree with them.

Other reports aren’t so rosy about $15 in the Big Apple. According to the Foundation for Economic Education, New York City has lost 4,000 jobs in the restaurant sector this past year. The article included this Bureau of Labor Statistics chart showing a negative percent change in NYC restaurant employment:

In addition, according to an NYC Hospitality Alliance survey taken only a month after the $15 per hour bill took effect in New York, restaurants immediately started cutting employee hours afterward. All overtime work was halted also. The survey queried 574 establishments in New York City and found:

76.50% of full service restaurant respondents reduced employee hours, and 36.30% eliminated jobs in 2018, in response to mandated wage increases.* 75% of limited service restaurant respondents report that they will reduce employee hours, and 53.10% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31, 2018.

*In 2018, NYC also raised the minimum wage to $13 per hour from $11.

In addition, 87.3% of respondents report they will increase menu prices in 2019 as a result of the wage increases; 60.8% reported their food and beverage menu will be “reworked” in response to the increases; and 34.4% of respondents told surveyors that their repeat customers were dining at the restaurant less frequently than before the mandatory increase.

Graph showing 2019 impact on Full Service Restaurants from the same Hospitality Alliance survey
Graph showing 2019 impact on Limited Service Restaurants from the same Hospitality Alliance survey

Remember what happened to my fictional restaurant in Part 1 of this series? Once my payroll costs were increased 106%, it became a struggle to maintain employment and retail the cost of my hamburgers. Working hours had to be cut, which impacted operations, and the only other choice was to raise the cost of the hamburgers (by more than double), which threatened repeat customers. The findings by the Alliance show that my thought experiment was essentially correct, with real life results matching my fictional ones. The result is the same: increased menu costs and cut hours eventually lead to eliminating jobs.

There’s plenty of other recent articles criticizing the negative impact of the $15 wage increase from the New York Post, Business Insider, National Interest, and the Wall Street Journal. According to the Seattle Times an “upscale” restaurant chain in the city is blaming increased wage hikes for their bankruptcy filing, showing an increase of $10.4 million in additional labor costs.

Overall, the results haven’t been promising. If it is hurting high cost of living cities like Seattle and New York City, I imagine it would be devastating to cities like Buffalo, New York or Omaha, Nebraska — two cities with the lowest cost of living in the U.S. I can’t even imagine the struggle restaurants would have keeping up here in Pittsburgh.

One of the biggest problem with a national $15 per hour minimum wage is that its national. Cost of living fluctuates wildly throughout the 50 states, as evidenced from this U.S. Bureau of Economic Analysis data. An article from USA Today broke it down in easier to read terms (ever tried to read a government economic report?). In Mississippi, a dollar’s worth is actually the highest — equivalent to $1.16. That means that $1 will buy $1.16 worth of goods and services there. The lowest worth (predictably) is Hawaii, where $1 will only purchase $0.84 worth of goods and services. California and New York, two of the biggest advocates for $15 minimum wage, each buy only $0.87 worth. By comparison, your dollar bill is 25% more valuable somewhere like Mississippi or Ohio ($1.12).

So while $15 minimum wage is less disruptive when the dollar buys less, imagine the economic impact in a low-rent city. Prices absolutely must spike to accommodate such a (relative) large increase in labor cost. Cost of living will be forcibly dragged upward, disrupting the entire local economy as locals cannot afford to eat out or do the things they used to do. I can’t imagine that small, rural economies can support a $15 minimum wage either. I suspect it’s the rural areas and lower cost of living cities that have kept the federal minimum wage down, as they cannot cope with a higher one.

For example, in Pittsburgh we have a restaurant chain called Eat’n Park. There are quite a few of them, serving breakfast, lunch, and dinner. Some of them are also open 24 hours. Most dishes are in the $8-$12 range. According to Glass Door, almost all employees in the restaurant have wages that range from $4 per hour (server) to $10 per hour (dishwasher, cook). The store manager, on average, earns a $43,000 per year salary. If $15 per hour were implemented, that’s a 4x increase in server’s pay alone. Everyone in the restaurant (save the manager) gets a significant pay increase. If menu costs are increased to offset the huge wage changes, I guarantee you business will go down. Eat’N Park is very popular with the senior citizen crowd, most of whom are on fixed incomes (which is why they eat at Eat’N Park). Fixed income senior citizens are not going to be willing (or able) to pay the increased costs.

$15 per hour minimum wage is in no way a one-size-fits-all solution.

So why are big box retailers like Walmart advocating for $15 per hour minimum wage? Wouldn’t that hurt them having tens of thousands of employees? I’ll go into detail in the third and final part of this series. Stay tuned!

Required Reading: 5 Takeaways From Before You Quit Your Job

Robert Kiyosaki has written a lot of books. I lost count somewhere in the teens. But when I saw this one on Amazon, I thought it would be perfect to review for this blog. It is, after all, about Quitting Your Job and what you need to know before doing so. I’ve talked about Kiyosaki in blog posts before, so this was a match made in heaven.

I wasn’t sure what to expect. Kiyosaki can be hit or miss. Some of his books I’ve given up on as they’re regurgitated bits from his other books or from talks he’s done. There was nothing new. (Critics are saying that’s all his new book Fake is: rehash) But I wanted to read this one just for the sake of this blog, so I took it head on. Plus, it would be interesting to see what he said after I’ve already Quit My Job. Would I agree? Did I quit my job the way Robert Kiyosaki says to?

The book can be summarized thusly: If you want to start a business so you can quit your job, you must make sure you have X, Y, and Z. That’s it. The rest is padded by life lessons and anecdotes. I was able to finally quit my job because my business grew to the point where I needed to devote myself to it fully, and didn’t need the day job paycheck to survive. The one thing I noticed was that my business DID have X, Y, and Z and we’re now bigger and doing more business than we ever have.

Point for Robert.

So here’s five takeaways I got from Before You Quit Your Job:

#1. What is an Entrepreneur?

I consider myself and entrepreneur. Not only because I built a business, but because I believe if you’re an independent filmmaker, you’re an entrepreneur. So how does one define the word? It’s tricky, and with the explosion of “start your own business” or “think like a business person” channels on YouTube or accounts on Instagram, the word entrepreneur is being thrown around quite a bit. Seriously, look up entrepreneur on YouTube and look at what you get: talking heads telling you how to build a successful business and quit your job to be an entrepreneur. But can any of them actually define the word?

Kiyosaki gives entrepreneurship the best definition I’ve ever seen (crediting Harvard professor Howard H. Stevenson): “the pursuit of opportunity without regard to resources currently controlled.” This also works flawlessly to describe an independent filmmaker. But that’s what an entrepreneur is — you see an opportunity and try to make it real, cash or resource or skill be damned.

My own personal experience fits right into this. I first identified the opportunity — a ‘Need’ — before I had the means or plan to fill it. But it was identifying it that set me on my path. I Quit My Job (the first time in 2014) setting off to build something to meet that need. Before I knew it, I had three business partners and the foundation for the company was being built. I didn’t have that before I left.

When I made my first film in 2012, it was the same thing. I had a script and a desire to make a movie. I didn’t have the money or the people yet. I had to seek them out. I built a team. We raised funds. I found money by selling stuff I owned or holding out my hat.

If you’re going to Quit Your Job, you’re going to need a business. And to start a business, you need to know just what an entrepreneur is.

#2. The Power of Excuses

Kiyosaki spends a small section confronting excuses. To quote: “Any two-year-old is an expert at making excuses. The reason most people who want to become entrepreneur remain employees is that they have some excuse that keeps them from quitting their job and taking that leap of faith. For many people, the power of their excuse is more powerful than their dreams.”

It happens all the time. Someone I know works a day job but has a dream to do something else. I always get excited hearing about what other people dream to do; I talk it up, start to ask them what their plan is to get there. Like clockwork, the excuses come out. Kiyosaki even lists the most common:

  • “I don’t have any money.”
  • “I can’t quit my job because I have kids to support.”
  • “I don’t have any contacts.”
  • “I’m not smart enough.”
  • “I don’t have the time. I’m too busy.”
  • “It takes too long to build a business.”
  • “I’m afraid. Building a business is too risky for me.”
  • “I’m too old.”

It’s like nails on a chalkboard. Excuses are what cause dreams to die. Imagine the amount of art, ideas, inventions, or technologies that we’ll never see because the person with the idea has an excuse.

Kiyosaki later gives a recap of a sit-down with a woman who was struggling after quitting her job to start a Network Marketing company. She took the leap and started the business. But, after 6 months, things were going terribly. Things were going terribly not just because she didn’t know how to sell but she refused to learn how to. She didn’t want to commit to new behaviors to make the business work. Even worse, she only wanted to work a few hours per week. Her excuses were different than the ones listed above, but they were still excuses: “I don’t want to.” She quit her job to start a business so she could work a lot less and make more money. So she failed at her business.

#3. The B-I Triangle

Kiyosaki loves his trademarked shapes and drawings. The CASHFLOW Quadrant is one example. The other is the B-I triangle shown in this book:

The B-I triangle, borrowed from http://www.richdad.com and I make no claim to ownership!

Simply put, for a business to survive and grow, you must have the five components and surround them with your business’s team, leadership, and mission. Kiyosaki gives the example of his early successful business, the surfer wallet company Rippers started in the 1970s. He didn’t have a legal component to his business and Rippers was brought down by competitors.

I look at the B-I triangle and compare to my own business. We cover all five (it helps that one partner is a licensed lawyer!) and we’re still in business five years into it.

I could break down each component, but it would take forever in this post. If you’re interested in reading more, pick up a copy of the book here and dive in. Just know that if you’re looking to build a business to Quit Your Job, it needs to have these bases covered. You’re going to need some sort of legal component (if anything to handle the mountain of paperwork involved with properly filing a business with state and federal governments!); an accountant (‘Cash Flow’) to help with taxes and expenses; marketing and sales (“Communications”) to get the word out about your “Product” (in our case, “service” is our “Product”); lastly, another word for “Systems” is “Network.” You need a network (How are you going to get your product out there? How are you going to get your product made? Packaged? Shipped?)

The other important point here is, if you’re going to grow your business and be successful it takes a team. You cannot try to be proficient in all five components — it won’t work. It’s best to focus or be strong in 1-2 of them and build a team to handle the rest. This is how we did it. I was the Product. One partner was Legal, the other was Systems and Communication. I brought in an accountant to handle Cash Flow. Yes, there are costs to building out the team. But you need to have them or it will all fall apart. If you’re flying solo, you’re going to need to hire a team around you.

One thing Kiyosaki doesn’t mention is that this B-I triangle also denotes the best way to grow. When you have a team in place, you’re not limited by the amount of hours you alone can physically work. A team shares the load, and a team can always be expanded. Think of Apple: Steve Jobs and Steve Wozniak started in a garage. They had a Product (and to some extent Systems). Apple is now huge because it’s not two guys in a garage hand building computers. There’s an entire Legal team. An entire Communications department to handle marketing and sales. Systems is now a network of factories in Asia and Europe building and shipping products.

#4. Working For Free

This section echoes the one with the failing network marketing business woman Kiyosaki met with. It is also one of the most important takeaways from the book. If you are good at your job in sales, that doesn’t mean you’ll have a successful sales business. Becoming successful means “working for free” a lot of the time.

“Working for free” is Kiyosaki’s Rich Dad euphemism for taking the time to practice or learn something without getting paid for it. The examples he uses are doctors (would you want someone who JUST quit their job to become surgeon to operate on you?), professional athletes, and even The Beatles.

“Even The Beatles worked for free before they became world famous and rich. Like the medical doctor or professional, they paid their dues. They did their homework. They did not ask for a guaranteed record contract, a steady paycheck, or medical benefits before they began practicing.”

The point is, you need to learn on your own (without getting paid) to build up your business and make it successful. If you have an idea for a great product, people aren’t going to buy your product if you’ve never made it before. Or tried it. Or even tested to see if it works. Part of the process of building your business is to spend the time learning it before you charge for it.

#5. The Entrepreneurial Process

It’s not as simple as, “I’m starting a business and then quit my job. My business will support me.” I tried it, and it didn’t work. When I quit Apple in 2014 to start my company, I expected enough money to come in early to not have to get a day job again. In six months I was filling out applications. Why? Maybe my goals were unrealistic. Maybe I didn’t appreciate the process enough of building a business. Or maybe I just didn’t know what I was doing yet.

In retrospect, what it really was was it took time. We had our B-I triangle intact. We were in a market space with little-to-no competition. But we had a lot of ground to cover — including failing. As Kiyosaki puts it, “since a new entrepreneur is creating something out of nothing, it is obvious mistakes will be made. In order to succeed, a new entrepreneur needs to be committed to going through these steps as soon as possible.”

  1. Start the business.
  2. Fail and learn.
  3. Find a mentor.
  4. Fail and learn.
  5. Take some classes.
  6. Keep failing and learning.
  7. Stop when successful.
  8. Celebrate.
  9. Count your money, the wins and the losses.
  10. Repeat the process.

I didn’t officially Quit My Job until #8. My business partners and I just hit #9 these past few weeks with the largest contract we’ve ever had. It’s not easy starting a business, and you must appreciate it takes time before you can Quit Your Job permanently. The failures are rough. You’ll want to quit. You’ll question why you’re doing it. But if you keep going, the successes will start to keep up with the failures.

If you’re going to Quit Your Job by building a business, you will not be able to quit your job right away. It took five years of working at it until I was able to finally quit. And even then, I wasn’t really prepared to quit. But my business reached a new peak that required my full time and that told me it was truly time to Quit My Job.

Quick Update

A big THANK YOU to all of you who have visited and followed this blog!

I’m happy with the progress of the first three months or so, and I hope that the reading has been worthwhile. I have plenty more ideas for posts (and books for Required Reading segments!) but if there’s something you’d like to see a post on feel free to request it.

The blog continues to have a rather vanilla look to it, which I apologize for. WordPress is a great platform, but I haven’t unlocked all the amazing features just yet. My goal is to get to 100 posts then pay for upgrades and give the whole thing a visual overhaul.

In the meantime, stay tuned for future posts!

I Attended a Modest, Billion Dollar Party

Not the actual party

Over the weekend I had the pleasure to attend an interesting party. I was invited by one of my favorite clients to a quaint house warming party. My client has been in real estate for decades and built up a solid business of rental properties. I thought it would be a great opportunity to socialize with my client outside the job, and just make an appearance.

Now, reading the title you’re probably assuming the party itself cost a billion dollars. It was a mild manner affair, catered of course, but when the other guests began to show up it turned into something I’ve never seen before. The combined net worth of all the guests was in the billions. I was rubbing shoulders with a class I’d never been exposed to before. I took it all in.

When you think of a party of combined billionaires, what do you think of? Maybe what comes to mind is gold jewelry, Crystal poured by the gallon, and whatever else is found in high-budget rap videos. Or maybe your mind is drawn to the more conspiratorial, the secret society of the rich direction, imagining some Eyes Wide Shut affair with masks, cloaks, and ritualistic sex?

The truth is much less extravagant. To me, it looked like most people had just stepped off their yacht. It was shorts and polos for as far as the eyes could see. Some women wore dresses and I only saw one man in a suit. Wearing ‘business casual’ I felt overdressed. The wealth was only obvious in the cars people arrived in; the owner’s driveway contained a BMW, Lexus, and Maserati alone. The house was a thing of beauty — recently remodeled and completely overhauled. But for the most part, the wealthy themselves did not flaunt. No extravagant jewelry, no big watches, no trophy wives. There was no snapping of selfies or showing off.

I was immediately reminded of Stanley and Danko’s The Millionaire Next Door. If you’re not familiar, the authors surveyed hundreds of millionaires across the United States, looking for common statistics among the wealthy. What they found was that almost unanimously do millionaires live modest lives, shopping off brand or generic for most things, buying used cars, and not living extravagant lives.

The other noticeable thing? Most were older.

Why does this matter? It reinforces the idea that to become truly wealthy, billionaire level wealthy, it takes a lifetime of financial discipline. Have you ever seen the ‘hockey stick’ graph of Warren Buffet’s wealth? He didn’t cross $1 billion dollars until he was 56 years old. Unless you invent Facebook or design the Model T, it takes time to be a billionaire.

My mind wandered some more at the party: The extravagant parties (and lifestyles) are usually attributed to entertainment moguls, professional athletes, and…lottery winners. What do all three of those have in common? High bankruptcy rates. Rapper 50 Cent went from a $155 million valuation in 2015 to bankruptcy in 2016, $23 million in debt. MC Hammer went from earning nearly $33 million per year in 1991 to $13 million in debt just 5 years later. Johnny Depp is the latest celebrity struggling with debt and lost fortune. Nicholas Cage had serious financial problems, even blowing a $150 million fortune. According to a 2009 Sports Illustrated article, 78% of NFL players are either bankrupt or under “financial stress” just two years after leaving the league and 60% of NBA players go bankrupt within 5 years of leaving the sport.

And then there are the lottery winners.

According to several studies, 70% of all lottery winners go broke and file for bankruptcy. Here’s another staggering statistic: 90% of surveyed lottery winners believe the money will be gone completely by the family’s third generation. One last one: 44% of all lottery winners spend the entirety of their winnings within 5 years.

What I was seeing at this party was the key to wealth: financial literacy. These were people that built and owned businesses, that invested in real estate, that probably had pretty thick stock and bond portfolios. These were people who made sure that dollars incoming remained much higher than dollars outgoing. Are you paying attention? Because this is the secret to being wealthy.

As Roberty Kiyosaki likes to say, “The poor stay poor.” What he means by this is the mentality doesn’t change, even after winning the lottery or landing the big sports contract. Without financial literacy (with which comes discipline), that multimillionaire still has the mentality of poor person — so they spend on liabilities instead of acquiring assets. They live lavishly, enjoying their new found freedoms with being able to buy whatever they want. Nicholas Cage bought an island. MC Hammer bought a $30 million house. Famous lottery winner Michael Carroll smoked $2,000 worth of crack every day and ultimately ended up in prison at one point. The rich buy assets. Real estate. Businesses. Stocks. They put their money to work to make more money.

Being wealthy is a mindset. And all of these khaki shorts, gray-haired party goers had that mindset. I regret not wandering about more, asking what people did. I would have loved to get a sampling of where their wealth came from. I guarantee you that none of them were lottery winners.

If you want to quit your job and become wealthy, you cannot do it without financial literacy. I wasn’t born into wealth. When it comes to knowing money, the public school system failed me — it fails everyone. Schools do not teach financial literacy. There’s no classroom discussion on debt or taxes or passive income. I plan on writing a post dedicated solely to financial literacy and failure of such in the education system; but for now know that the path to true wealth lies in knowledge.

I leave you with a few tips should you ever find yourself in a billion-dollar party:

  1. Dress the opposite of how you think you should dress. Head to a department store and pick up an outfit in the Ralph Lauren/Polo section. Shorts and a polo shirt.
  2. Unless you drive a luxury vehicle, park a block away.
  3. ‘Catered’ does not mean hors d’oeuvres, caviar, and champaign. It means cold beer, margaritas, and steam trays.
  4. Bring a gift, or at least, a bottle of wine.
  5. Don’t be the first one there or the last one to leave

Required Reading: The Third Door


“Many times the hardest part about achieving a dream isn’t actually achieving it—it’s stepping through your fear of the unknown when you don’t have a plan. Having a teacher or boss tell you what to do makes life a lot easier. But nobody achieves a dream from the comfort of certainty.”

Alex Banayan

To prepare for this post, I looked through reviews of Alex Banayan’s The Third Door and was surprised to see such mixed responses. In fact, there are people who go so far as to give it one star and remark that it’s “a waste of time.” They also accuse Banayan of egotism and name-dropping, of the book being a self-serving tale about nothing.

I believe these reviewers are missing the point of the book.

What I got out of it was that this was a book about failure. I’ve never read a book that exhibited the power and need for failure. Failure is as important in life as success, but the human condition seems to want to shun and dismiss failure. Look as social media: people don’t post their failures and screw-ups. It’s all about what works, what’s successful, and the rewards. I thought it was novel for Banayan to document his journey to interview the biggest names in tech, finance, Hollywood, and popular culture. He didn’t do it to become famous, he did it to find out their paths to success and share it with the world.

He struggled mightily along the way. If he hadn’t shared the journey, the book would have been like so many other “self-help” or “steps to success” books out there. Banayan would have been another Tim Ferriss clone. But instead, Banayan takes us on the journey from dream to reality, fumbling and failing all the way. Some might have considered a lot of what Banayan shared as embarrassing or personal. But that’s what makes the book so important.

I first became aware of Alex Banayan and The Third Door in an interview I saw he did with Tim Bilyeu. He told the story of how Steven Spielberg made his own way into Hollywood, slipping off a Universal tour bus and wandering around the studio before finally making a connection. The “Third Door” refers to finding a backdoor into the world you want to break into. There’s the front door, where most get turned away. There’s the VIP door, where some people use connections to the industry or are born into it through family or wealth. The Third Door is making your own way, finding some passage that no one else has. Spielberg’s Third Door was sneaking into the Universal lot.

In the format of my past “Required Readings,” here’s the 5 biggest takeaways from The Third Door:

#1. Being Persistent is Not Being a Hassle

“You’ve got to stay in the fight. It’s going to get tough. You’re going to hear no. But you’ve got to keep pushing.”

When Banayan first started out, one of his big targets to interview was Tim Ferriss, author of Tools of Titans and (more famously) The Four Hour Workweek. Banayan would badger the hell out of Ferriss via email, always starting the correspondence off with “Hey Tim!” and ending with “Thanks in Advance!” The emails got cringeworthy. Banayan believed Ferriss would see the persistence and finally respond. The problem was, Banayan was being a hassle, writing crappily-written emails and testing Ferriss. Banayan thought the emails sounded warm and cordial. Ferriss thought they were annoying and slobbish.

Banayan finally got a response after sending 31 emails. A phone call was arranged and Ferriss proceeded to explain to Banayan the difference between being persistent and being a hassle. Ferriss was persistent but “balanced.” He never emailed ten times per week; he never ended emails with “Thanks in advance!” because it sounded rude and entitled. Ferriss suggestion something cordial like “I totally understand if you don’t have time to respond.” Throughout the phone call, Ferriss also subtly (but not so subtly) hinted to Banayan to stop saying “Hey so and so!” in emails as well.

By the end of their discussion, Banayan had learned from Ferriss the proper way to send an unsolicited email while looking for a response (and you can find it on page 50 of The Third Door).

#2. Style Comes From Being Yourself

“Sometimes when people are starting out and feel they don’t know how to interview, they look to the people they admire—maybe it’s Barbara Walters or Oprah or myself—and they see how we interview and they try to copy that. That’s the biggest mistake you can make. You’re focused on what we’re doing, not why we’re doing it….When young interviewers try to copy our styles, they’re not thinking about why we have these styles. The reason why is because these are the styles that make us the most comfortable in our seats. And when we are the most comfortable in our seats, our guests are the most comfortable in their seats—and that’s what makes for the best interviews.The secret is: there is no secret,’ Larry added. ‘There’s no trick to being yourself.”

Alex Bunayan ran into Larry King in a grocery store. It sounds ridiculous, but much of The Third Door is and right from the get go (starting with the crazy Price it Right story, which I’ll get to later). After some persistence, Banayan was invited to have breakfast with King on several occasions, eventually meeting King’s personal circle of friends with whom he had regular breakfast meetings.

The quote from Larry King above illustrates the takeaway. It’s important to be yourself. Being yourself is what makes you comfortable, and being comfortable brings out your style. This rings true to me, because I see so many other filmmakers and writers try to emulate someone famous’ style. This makes them a copy, a clone, and, most importantly, nothing new. If I want to see a Quentin Tarantino movie, I’ll go watch something Quentin Tarantino made. I don’t want to watch someone else make their Tarantino movie. When you try to emulate someone else or their style, you’re never comfortable because you’re not being yourself. Because of this, I could see why so many amateur interviews are so shitty or awkward for those being interviewed.

If you don’t believe me, surf YouTube for celebrity interviews and I guarantee you’ll find some cringe.

If you’re active in the arts, people will always try to find or ask you about your ‘style.’ How do you like to do things? What do you like to convey? What’s your vision? I’m proud to say as a filmmaker that I have no fucking clue what my style is. And maybe that makes it my style. Ask a painter, or a writer, or a filmmaker what their style is and 9 out of 10 times they’ll start naming other painters, writers, or filmmakers.

#3. Failure Leads to Growth

Growth comes from mistakes. You have to cherish them, so you can learn from them. Your mistakes are your greatest gift.”

As mentioned above, the theme I saw in the book was ‘failure.’ Banayan shared his and his mistakes, but never came out and said “failing made me better.” Instead, you could SEE it happening through the course of the book. Tim Ferriss gave him criticism on how he wrote emails, so Banayan began writing more professional emails. He made more inroads to other interviews.

Near the end of the book you could see how much he’d grown. Early interviews were stilted and awkward — as if reading questions from a notecard. By the end, when he interviews rapper Pitbull and Jessica Alba you can see he’s changed. The Alba interview in particular was the moment I saw he had arrived. Banayan was genuinely interested in what Alba was doing with her business and they eventually connected over the loss of a loved one due to cancer (Banayan’s father died during the writing of his book). After so many chapters of interviewees being held up on a pedestal or Banayan struggling to get certain information for his book, it was nice to see that Larry King’s advice on interviewing had stuck.

The unstated lesson from The Third Door is you NEED to fail. “You can’t get an A if you’re afraid of getting an F,” he says. If he hadn’t failed repeatedly, he wouldn’t have pushed himself creatively and found ways to get interviews with Bill Gates, Maya Angelou, Tony Hsieh, or get Warren Buffet to answer a few questions. (This last one was the result of a clever ruse using three of his friends strategically at the Berkshire Hathaway shareholder’s meeting, placing them in various sections where microphones were placed to ask Buffet and Charlie Munger questions.)

#4. Where There’s a Will, There’s a Way OR: How I Learned to Hack The Price is Right

The book opens with a bang. Banayan decides his dream mission is to cultivate interviews from some of the most successful people in the world. He just needs the money to do so. After seeing that USC (where Banayan attended college) had tickets available for The Price is Right, Banayan decided that was his chance to earn his project’s funding.

The only problem was, Banayan had no idea how to play the game.

Instead of studying for finals, he studied up on how to ‘hack’ the gameshow. Banayan found there were patterns to being selected from the audience, namely by outrageous and eccentric behavior that caught the eye of the producer. The producer would then put the person’s name up for being called out of the audience, ensuring an eventful episode of the show. He dressed extravagantly, acted over-the-top (hugging janitors and making scenes), and caught he producer’s eye. When he eventually got in front of Drew Carey to play, he had to ask the audience what to do.

I couldn’t believe the story was real at first. It seemed to extraordinary. A person who didn’t even know how to play the game, who needed money to chase his dream, won over $30,000 in prizes on The Price is Right. But that’s exactly what happened. Banayan found an opportunity and did what he needed to to make the most of it. He didn’t let a small detail like knowing the rules stop him!

#5. Linear Life vs Exponential Life

This one speaks for itself. If you read this blog, you’re not looking for a “linear life.”

“You see, most people live a linear life…They go to college, get an internship, graduate, land a job, get a promotion, save up for a vacation each year, work toward their next promotion, and they just do that their whole lives. Their lives move step by step, slowly and predictably…But successful people don’t buy into that model. They opt into an exponential life. Rather than going step by step, they skip steps. People say that you first need to ‘pay your dues’ and get years of experience before you can go out on your own and get what you truly want. Society feeds us this lie that you need to do x, y, and before you can achieve your dream. It’s bullshit. The only person whose permission you need to live an exponential life is your own…Sometimes an exponential life lands in your lap, like with a child prodigy. But most of the time, for people like you and me, we have to seize it for ourselves. If you actually want to make a difference in the world, if you want to live a life of inspiration, adventure, and wild success —you need to grab on to that exponential life—and hold on to it with all you’ve got.”

In other words, life is what you make of it. If you want something you have to work for it. Here’s another quote from ‘Sugar’ Ray Leonard, whom Banayan interviews in Leonard’s California Mansion:

“You may have the heart—you keep fighting, you keep fighting, you keep fighting—but your mind is saying, ‘Man, forget this. I don’t need this.’ The head and the heart aren’t going together; but they have to go together. It all has to connect. Everything has to connect to reach that level, that pinnacle…You may have a desire, a wish, a dream—but it’s got to be more than that—you’ve got to want it to the point that it hurts. Most people never reach that point. They never tap into what I call the Hidden Reservoir, your hidden reserve of strength. We all have it. When they say a mother lifted up a car off a trapped child, that’s that power.”

If you’ve ever had a dream or you’ve ever been discouraged by “how difficult” chasing your dream is, then The Third Door is for you. It’s not going to tell you how to be rich. It’s not going to gameplay how to quit your job or become famous. It will remind you that it’s okay to fail, that you should fail, and by failing you grow and get better. Remember, Alex Banayan was just an 18-year-old student a USC before he got to sit down with some of the biggest names on the way to writing his dream book. He found his way and you can to.

Pick up a copy of The Third Door by clicking this link or the image of the book below!

The Other Side of $15 Per Hour

Over the past weekend I was traveling when two separate incidents caught my eye and made me start to think about the current push for $15 per hour federal minimum wage. The first was a visit to McDonald’s (my first in 20 years!) I visited a McDonald’s in Columbus, OH and found only a handful of employees working along side a phalanx of automated order machines. The other was an article showing that Bernie Sanders own campaign staffers were making less than $15 per hour, even though a large part of his campaign platform is $15 per hour minimum wage for all. I usually don’t wade into the political forefront, but I thought this would be an interesting thought exercise.

There has been a lot of noise about the Fight For $15 recently since multiple presidential candidates have taken up the banner. The movement stems from November 29, 2012 when over 100 fast food workers walked out of their respective restaurants in New York City to protest, creating the largest strike in the history of fast food. On July 29th of the following year, over 2,200 fast food workers went on strike. Since, the movement has expanded out of just the fast food industry to a national call of the federal minimum wage being raised to $15 (it currently sits at $7.25 per hour).

But is $15 per hour feasible? Is it even responsible? After all, we’re talking an increase of over 100%. According to presidential candidate Bernie Sanders’ campaign website feelthebern.org, he believes increasing the minimum wage actually benefits small businesses and will raise the standard of living. If raising the minimum wage is good for all, why not do it?

I own a business. I have several employees and contractors, and I determine their rate based on what my company is paid for a given job or contract. I also have to make sure my compensation is competitive for their skillset, or else I risk losing an employee to another business. I also have to take into account business expenses incurred to run the business and my own compensation as owner. These three factors play into what the employee is ultimately compensated. I pay too much, I risk the business and my own income; I pay too little, I risk losing the employee to better compensation.

But for this post, let’s assume I own a restaurant and pay five employees minimum wage. $7.25 per hour x 40 hours x 5 employees costs my company $1,450 per week in labor. The labor cost is factored into the cost of my business, which also includes the lease, utilities, insurance, ingredients, appliances and equipment, etc. My restaurant specializes in hamburgers which cost $1/ea. I take home a salary of $40,000 per year, which isn’t much but it makes running the business worth it to me and allows me to cover my own personal expenses. If minimum wage goes to $15, it would be a 106% increase in my labor costs or $2,987 per week. That’s a $1,537 increase per week, $6,148 a month, or $73,776 a year increase to my business. So now, I have to decide how this new increase can be afforded. I can’t cut back on equipment costs, because I need the equipment to make the hamburgers. I can’t cut back on ingredients, otherwise I won’t have hamburgers to sell. I could cut my own salary, but the increase is more than I even make and if I take a pay cut, I can’t afford to work there either. The lease and utilities must be paid or the restaurant closes down. I could increase the cost per hamburger to make up for the shortfall, risking a downturn in sales or losing customers to competitors (or home cooking) at which point I’m going out of business or cutting employees altogether. The only other alternative is to cut hours or go to automation (just like those kiosks in the Columbus McDonald’s)

This is exactly what business in cities with $15 per hour minimum wage have been doing. In Seattle, employers began cutting hours when the minimum wage hit $13 per hour. When his staffers complained of making under $13 per hour over the weekend, the Sanders campaign promptly cut hours to make the math equal $15 per hour.

Another unintended consequence of raising the minimum wage in Seattle was workers began requesting less hours because their yearly income increased to the point where they were at risk of losing welfare or various assistance programs. But wasn’t the intended effect? Wasn’t one of the speaking points of higher minimum wage to boost people off of welfare?

Another unintended consequence of high minimum wage is that it creates a barrier of entry to unskilled and young workers. If you’re 16 years old looking for your first job, you have no skills or experience. If an employer is required to pay over $30,000 per year for a full-time employee, the chances are they’ll never hire an unskilled teenager. I know I wouldn’t. If I had to pay that much for an employee’s salary, I want the best qualified person — this means skills, experience, and maybe a college degree. It makes it harder for teens to land that first job and begin acquiring skills and experience. From governing.com:

A long line of studies about the minimum wage has revealed that it can drive down employment at the low end of the wage scale, but those losses are made up for by increases in higher-paying jobs. The University of Washington findings, however, suggest that there’s some merit to the usual complaint that gets lodged against minimum-wage hikes — that they’re not only expensive for employers, but threaten to cut the first rung on the career ladder out from under teenagers or others just getting their start in the labor market. “The evidence that we’re picking up is consistent,” says Jacob Vigdor, an economist at the University of Washington. “We’re pricing out low-skill workers.”

“In Seattle, Minimum Wage Hike Comes at a Cost to Some Workers” Governing.com January 2019

This began happening in Seattle after the minimum wage began its journey to $15 per hour. In the linked article above from reason.com, “entry-level job growth stalled”:

Job growth continued in the rest of Washington state but not in Seattle.

“It’s presented by minimum wage advocates as a win-win…no negatives,” complains a skeptical Erin Shannon of the Washington Policy Center in my latest video.

Shannon points out the negatives. For example, stores that once hired inexperienced kids and trained them, giving them valuable starter experience, stopped doing so once Seattle raised its minimum wage.

If it’s not working so great (or, at least, as intended) in Seattle, why are presidential candidates pushing for it on a national level? First, it makes for great political rhetoric. It sounds appealing to low income workers while making the candidate appear as a fighter for the “little guy.” But there is also another reason for the government’s push for $15 per hour that no one is talking about.

It increases taxes.

If you’ve read any of my other posts about Robert Kiyosaki’s The Cashflow Quadrant, you know that employees get taxed the highest rates. A $15 minimum wage means increased payroll taxes from millions of American works. Workers will suddenly find themselves bumped up into higher tax brackets due to annual income increases. A 106% pay raise means a lot more in federal, state, and local income tax. But it’s not just income taxes — Social Security and Medicare taxes are also taken out of paychecks and based on a percentage of the paycheck. So with an increased minimum wage, the government gets a windfall of additional Social Security and Medicare income. According to IRS.gov, the 2019 withholding rates are 6.2% for each employee and employer for social security and 1.45% for Medicare. If you were making $7.25 per hour, your wages would be $290 for the week, $580 for the pay period and you’d pay $35.96 in Social Security and $8.41 for Medicare. Under a $15 per hour rate, you’d make $1,200 in the same pay period, paying $74.40 in Social Security and $17.40 in Medicare taxes. In case you missed it, the employee is only responsible for HALF of their Social Security and Medicare withholding (6.2% is half the 12.4% that is Social Security tax, 1.45% half the 2.9% Medicare tax) Under payroll taxes, the employer is responsible for the other half. So the employee pays $74.40 and the employer must ALSO pay $74.40 and $17.40 to the government.

So all governments — federal, state, and local — increase their take with a $15 per hour minimum wage. Maybe the government hopes that the higher wage relieves some of the the looming Social Security trust fund shortage. According to the 2019 annual report by the trustees of Social Security and Medicare, the program is already paying out less than it’s taking in and it will run out by 2035. A $15 minimum wage could help shore up that fund. In theory. But payroll taxes also incentivize employers to keep hours down to reduce their 50% share of the Social Security/Medicare tax cost.

Back to my little restaurant: If I cut back hours to compensate for the increase in wages, I suddenly don’t have enough coverage. I was paying $7.25/hr for 40 hours, but with a $15/hr wage, I’d have to cut it to 20 hours to get labor back to where it was in order to keep my hamburger price consistent. Now I have a shortage of 100 hours (5 employees x 20 less hours). What can I do now? I can either make up the 100 hours as the owner (working 140+ hours per week is equal to working almost every single hour of every day) or I cut back the restaurant’s hours. This means less hamburgers sold. Which means less revenue. Which means it becomes difficult to pay my 5 employees and myself. If I fight to keep the restaurant open, the next step is to cut an employee (I can’t raise hours because I can’t afford it and I can’t stay open longer because I can’t physically do it myself). Now I have 4 employees, and I’m forced to cover even more myself.

Do you see the death spiral here? Eventually, I’ll close either by insolvency or it not being worth it to me anymore. If I’m working 100 hours per week, it’s not definitely not worth it plus I’ll never have the time to expand my business or open a second location. And I’ll never be able to find someone to take over, because no one wants to work 100 hours in a struggling business. Eventually, I’ll shutter the restaurant and all of us will be unemployed.

The other alternative to cutting hours is to raise the price of my hamburgers to sustain the increased cost. Imagine being a customer of my restaurant: years of $1 hamburgers when suddenly you come in one day for lunch and find it costs twice (or more) to eat there. You’ll likely not come back or tell your friends. The human consumer is quite perceptive to price changes. Raising the cost of my hamburgers will expedite driving customers away…and less money coming in from sales. Which causes me to cut another worker…which causes me to reduce the hours the restaurant is open…which reduces sales…

The other question I began to think about is “Why do we have a minimum wage?” I mean this in the purest of thought experiments. Where did the minimum wage come from? Essentially, it’s a social safety net, ensuring American (or other national) employees make a certain amount of money. The first minimum wage appeared in the United States in 1912 in Massachusetts. Eventually, the federal government established a national minimum wage in 1938 under the Fair Labor Standards Act (FLSA), set at $0.25 per hour (adjusting for inflation, about $4.45 today). It was basically a protection for American workers during the Great Depression. The argument for raising it is that the current $7.25/hr isn’t a “livable wage.” Or, in other words, it doesn’t cover the cost of living.

Essentially what the government is doing is setting price controls — they dictate the absolute lowest an employee can be paid, regardless of skill or experience. So where did they get $15 from? Who chose this number? The only origin story I could find comes from SeaTac, Washington in 2013. It was the first city to have a $15 minimum wage and was a byproduct of an attempt by union organizer David Rolf to unionize workers at Sea-Tac airport. The $15 per hour rate was part of a bluff to get the airport to allow unionization. From the same Marketplace article:

There’s the $15 number itself, nice and round, easy to fit on a bumper sticker. The figure first came to people’s attention in a series of strikes by fast-food workers that started in 2012. The workers didn’t achieve their goal of unionization, but $15 stuck.

“The Accidental Origin of the $15 Minimum-Wage Movement” Ben Bergman, Marketplace Jan 30, 2015

So $15 was arbitrary: a randomly chosen number used by a union organizer to play hardball with an airport in Washington state. Eventually it caught on. To some, $15 isn’t enough. Just this past week Representative Rashida Tlaib (D-Mich) began calls to make the federal minimum wage $20 per hour. Jeff Spross of The Week published an article this week called “Is There a Case for a $20 Minimum Wage?” where he mentions that by some productivity measures, the minimum wage should be $22.49 per hour by 2024. If we’re chasing arbitrary numbers, why stop at $22.49? Wouldn’t $50 or $100 per hour cure all poverty? Wouldn’t we all be rich?

Part of the problem is such a high minimum wage disrupts a larger portion of the workforce. If you’re a McDonald’s worker making $20 per hour, that’s $40,000 per year over a full-time schedule. According to Glassdoor.com, the average McDonald’s Store Manager annual salary is $46,354. Someone taking orders or flipping burgers at McDonald’s makes almost as much as the Store Manager! The inevitability is that the Store Manager will now seek an increase as well. He has a lot more responsibilities, a higher skill set, and is in charge of several other employees, but his compensation now lags compared to those that work under him. To maintain the previous ratio, his salary would need to double to match the workers’ increase. Worse, it could lead to disillusionment or de-incentivizing to move up or learn new skills.

This is what happened in Venezuela after sharp raises in the country’s minimum wage in 2018:

“We all earn the same. I earn the same as the girl who presses a button to open the door,” said Arcaya, who has worked at the university for 19 years. “I studied and I worked hard. And now it turns out none of that was worth it.” 

Workers at hospitals, the Oil Ministry and insurance companies all said the pay hierarchy had been distorted following Maduro’s shock measure.

“‘We All Earn the Same’: Venezuela Minimum Wage Hike Angers Skilled Workers” Corina Pons, Reuters September 26, 2018

The other part of the problem has to do with economics, as countries like Venezuela and Greece can attest to. Let’s say that the minimum wage does go to $15 per hour and no jobs are lost. Let’s say every business can afford it and all low-wage labor gets a bump. (We can do this because it’s a thought experiment) This means that the amount of spending by millions of workers has now increased. More bills are paid. More loaves of bread and gallons of milk are purchased because they can be easily afforded. There’s a lot more money going out and spending is up. Prices will respond in kind. This “excess liquidity” will be mopped by up prices of goods and services. You have more money chasing the same amount of goods and services, the result inevitably being price inflation. In addition, companies will raise prices to maintain the higher hourly wage. This is called Wage Push Inflation. Soon, the $15 wages don’t buy as much as they used to and we’re back where we started. Why are politicians and workers complaining that the current $7.25/hr isn’t enough?

Because it doesn’t buy what it used to.

In effect, raising the minimum wage is a result of currency inflation. Because the value of the dollar decreases, it requires the minimum wage to be raised or else things become unaffordable. If things become unaffordable, they don’t sell. The choice is to lower the price so they do sell, or that item is replaced by one that does sell. Raising the minimum wage will ensure that goods becoming unaffordable remain purchasable. Investopedia gives an example of Wage Push Inflation: “If a state raises the minimum $5 to $20, that company must compensate by increasing the prices of its products on the market. But because the goods become more expensive, that raise isn’t enough to propel a consumer’s purchasing power, and the wage must be raised again, therefore causing an inflationary spiral. “

So what’s the takeaway from this thought experiment? My fictional little restaurant didn’t do so well. There’s no economic or logical choice for a $15 per hour minimum wage; I couldn’t find any economic studies that could show why that specific number is valid as a target. It seems to be chosen only because of the PR value and catchiness of “Fight for 15.” The other question is, will $15 per hour minimum wage really solve anything? The consequences could outnumber the (temporary) gains, and Wage Push Inflation and price inflation could quickly negate the sought after results.

I don’t deny the catchiness of “Fight for $15” or the hero status it gives political candidates. It sounds good to many people. But the math behind it just doesn’t seem to work. When it comes to government setting prices we must remember The Laws of Unintended Consequences: The actions of people, and especially government, always have effects that are unanticipated or unplanned for. On July 18, 2019 the House of Representatives passed a bill to raise the minimum wage to $15. The Congressional Budget Office reviewed the bill and admitted that the bill would produce a financial boost to nearly 30 million workers…but that “it would also result in 1.3 million jobs lost by 2025.”

Update Edit: Just after originally publishing this post, I came across the story of Emeryville, California’s minimum wage hike. Emeryville (home to Pixar animation) has the highest minimum wage in the country at $16.30 per hour (as of July 1, 2019). According to a Wall Street Journal article, Emeryville is the scene of a standoff between restaurant workers and their employees over the high minimum wage:

The economy is booming in the Bay Area, but at Patatas Neighborhood Kitchen, located in this small city just north of Oakland, owner Marcos Quezada recently eliminated the dinner shift and laid off six of his 10 workers.

He struggled with the decision but felt he had no choice after Emeryville increased its hourly minimum wage in July from $15 to $16.30, the highest in the U.S. “I just didn’t see how I was going to survive it,” said Mr. Quezada, who opened the eatery in 2017.

Remember what happened to my fictional restaurant? In several other cases mentioned in the WSJ article, the menu prices sharply increased to offset the new cost — in the case of Emeryville cafe Rudy’s, the price of their Crunchy Asian Salad went from $10 to $15.50, a more than 50% increase. From the same WSJ article:

“There is a tipping point,” said Erik Hansen, the owner of Moomie’s, who is deciding whether to raise sandwich prices by as much as $1.50 or lay off one of his three employees. “We may have the highest minimum wage, but I don’t think the people in Emeryville will feel like paying the highest prices in the country.”

Things have gotten even more complicated recently. In June 2019 Emeryville instituted a ‘pause’ in the wage hike for “small, independent restaurants.” The city council voted to halt increases for select restaurants meeting various criteria. So now the new minimum wage rate is only applicable to a certain size restaurant or above (according to July 26 update to the HR watchdog article, this ruling is now “in flux and may not be valid.”)

This article has been expanded into several parts. You can continue reading Part 2 here.

Joe Rogan on Quitting Your Job

In need of a little #MondayMotivation?

I recently came across this video of Joe Rogan and Gary Vaynerchuck talking about quitting your job. Both are people I follow and listen to and read regularly. What Joe Rogan is saying in the video is the epitome of this blog and why I started it, so I wanted to share. Listen very closely to what he’s saying.

The YouTube video is above and I’ve also transcribed Rogan’s text below:

Most men live lives of quiet desperation.

It’s one of my favorite quotes ever, because it’s true.

You’re in this world where you just can’t wait to run away.

But I think one of the reasons why people have this deep seated anger and resentment is that there’s a bunch of people out there that have these lives that are deeply unsatisfying because I think there are so many people that are working all day long doing something that is deep unsatisfying and almost painful to them. Soul killing.

You’re stuck in traffic all day and then they’re stuck in a cubical after that. They relish the time to take a shit in the bathroom and look at their phone. That’s a highlight of someone’s day. They get in traffic on the way home. They get home after that they’re watching television.

I think if people have a regular day job, if you can just find one thing you do as a passion project and just keep building on it. Keep watering it. Keep adding fertilizer. Keep giving it attention. Keep giving it focus and you can escape and you can be self-serving. You can be okay. You’re gonna be okay.

Look man, making furniture feels good. If you can do that, you could cut those corners perfectly and sand everything down nice and stain it. And then it’s done and you get the satisfaction. And you sell it to someone and that pays your bills. That is infinitely more satisfying than being stuck in some fucking cubicle working for someone you don’t want to work for, having these stupid fucking office meetings, talking to people in Human Resources, sitting down with your supervisor, where they evaluate your job performance: “You really need to be enthusiastic about this company.” “This company is your future.” You’re like “Fuck. Kill me now.”

You know there’s a lot of people out there that would way rather do something else and I hope they understand that they can. And people that are trapped in bad situations, one of the problems is, you feel like this is your future and you can’t get out of that. There’s no hope. There’s no light at the end of the tunnel. There’s no rainbow. And if you feel like that, that alone can be incredibly defining and limiting. But if you can look at, if you can look at yourself objectively and say “Okay, I’m in credit card debt. I’m working in a shitty job, I don’t like what I’m doing. But I have some ideas. I need to feed those fucking ideas. I need to feed them. And water them. And I need to set aside a certain amount of time everyday to just try to make those things happen. You can do that.

Everyone has a different personality. They have different interests. Different things that they would be really satisfied pursuing. That’s not encouraged. What’s encouraged is go find a job. What’s encouraged is go find some place, that you can shove yourself into, go find a square hole, you can stick your round peg and just fucking jam it in there and shave down the top and bottom so you slide in with all this extra space on the sides and feel like shit the rest of your life. Because you need a job. Because you’re in debt. Because you have credit cards. Because you have student loans. Because that’s what everybody does. And so you do it too. That’s what’s wrong. You have an apartment you have to pay for. You have a car you leased. You have a wife you need to feed. You have a child you have to raise. You have to. You have your mortgage. You have your this, you have your that. And that’s where it all comes from.

Well the opportunity takes place usually when you’re young and you don’t have any responsibility. That’s when you have your options. Well your options are severely limited the more you gather responsibilities. Like if I had to as a 51-year-old father of three, married man, pays taxes, has a house and a mortgage, and a business and all that jazz, if I had to quit everything now and struggle as I struggled as a stand-up comedian, it would never work. But, the only way I could be this person now is if I took that chance when I was 21. When I was dead broke and had my cars repossessed and all that stuff. That’s the only way you ever get where you want to go. You have to take a path that’s dangerous, and most people want to take the safe path. And the safe path leaves you stuck in quiet desperation. Almost every time. It’s hell.

The way you can change is you have to put aside enough money to give yourself a window. And then you have to have a plan, and you have to spend all your waking hours outside of whatever shit job you do planning your escape. And you have to come to the realization very clearly that you fucked up. And you got yourself stuck. So whatever you’re doing, do it like your life depends on it. If you’re going to try and be an author and you’re working eight hours a day, plus commuting, plus family responsibilities or whatever else you have, whatever time that you have, you have to attack like you’re trying to save the world. You’re trying to save your life. You don’t want to drown. That one and a half hours a day that you have to write — Goddamn you better be caffeinated and motivated. You gotta go. You gotta get after it. And you gotta have discipline. Most people don’t have those things. Most people don’t understand what it’s like to really go for something. And to know the consequences of not doing that are horrific.

Death, Taxes, and Student Loans

“Give a man an education and he will build a new world. But give that man a loan, and you can own that man forever.”

Unknown

According to a CBS article published last month, two-thirds of American employees regret their college degrees, referring to a PayScale survey of 248,000 respondents. Given the national price tag (now nearly $1.6 trillion), the average American with a college experience is suffering from buyer’s remorse. When you look at the lifetime of repayment, is it any wonder why?

Just this past spring I paid off my student loans. It wasn’t easy and it sure as hell wasn’t fun. In fact, the chest-thumping euphoria died out rather quickly. I’m still relieved the payments are over, but life quickly got on with itself. So I now have the opportunity to look back at all of it: Now that it’s paid for, was college worth it?

At the end of my senior year in high school, I began the process to prepare to go to college. Why was I going to college? I had no idea. It was just expected of me. The mantra was “Do well in high school so you can go to college so you can get a good job.” What the hell was a “good job?” No idea. What was I going to study in college to get this good job? Who knows. In retrospect, it’s disturbing I was herded to a major life decision that involved tens of thousands of dollars and fifteen years of repayment because of a stupid mantra. I had no guidance, no plan, and no ambition to it.

So I went to college. For four and a half years I studied stuff. I took the math requirements, but the majority of classes were heavy loaded with history and film classes. I eventually majored in both. I’ve always loved film and made films in middle school and was a camera junkie. I was excited that I could actually study film at the University of Pittsburgh. I was going to have a career in film.

When I graduated, I found myself on the street with two sheets of paper and a huge loan. So where was this “good job” I was supposed to get? How was I going to pay for my loans with a piece of paper that said I understood the philosophies and influences behind French New Wave cinema, or the historical impact of the Magna Carta? I did what many adrift humanities scholars do: I got a job in retail. When I started my retail career at Apple in 2005, I quickly found myself at home amongst various creative people that had also gone to college but never found that “good job” promised to them if they went to college.

So the short answer is “NO” I wouldn’t have gone to college if I could go back to that moment. At least not until I had a plan. Or understood the breadth of tens of thousands of dollars in interest-bearing loans. If I wanted to be a filmmaker, I should’ve gotten a job, saved up, and made a film. When I did finally make my first film in 2012, it was the greatest education I’d ever had — something no classroom could ever compete with. Sure, not going to college would’ve roiled my household, my parents ranting about how I would become a bum or homeless if I didn’t go to college.

Just to be clear: I’m saying college may not have been the best choice for me personally. My success in recent years came from knowledge and learning I provided myself through reading and experience. None of it came from anything I learned in a classroom. I have the utmost respect for those attending college for engineering, science, and medical fields. There’s no way round it and it’s not even up for discussion. If you’re one of these fine people, please continue your scholastic journey. Not surprisingly, the group most regretful, according to the CBS News article, were those that studied in humanities.

College degrees used to be a novel thing. In 1940, only about 5% of Americans completed 4 years of college. Now, more than one-third of Americans over the age of 25 have a college degree or higher. A college degree doesn’t mean quite what it used to. It’s become the baseline for education to employers. So to get that novelty again, people push for Masters degrees and PhDs. That all adds up. I know lots of people working to get a MBA to make themselves more valuable to employers. Most of those people are still working retail.

How much do these things really matter in the 21st century? Technology has changed so many things and knowledge flows freely through the internet. Does a degree mean anything (except for the aforementioned science and medical fields) anymore? I’m 37 years old and a lot of people in my generation are creating their own careers through side hustles and startups. Does having an MBA make you a better entrepreneur? Do you need a four year degree to come up with a gizmo or product to make people’s lives better? How many successful YouTubers or Amazon FBA businesses went to college to learn how to do it?

I think over the next generation or so, people will begin to shun college. It will become cost prohibitive. Why take out $30,000 in loans with interest when you can look up what you’re interested in online? I don’t believe colleges will adjust to the drop in admissions well, either. I suspect most colleges have a lot of bloat, raking in tuition that’s easily supplied by private and public loans, their students not really aware of the true cost. When those tuition numbers start to dip, will colleges be prepared to adapt? Recall that LSU was exploring bankruptcy just a few years ago. They’ll likely hike tuition to try and make up for it, and even more will walk away. The cost of college has grown out of control — much like the housing market in 2008 or the tech market in 2000 — and a reset is inevitable.

“Free college for everyone” is not the answer, either. Are the professors going to teach for free? Administrators file paperwork as charity? These employees must still be paid, so someone has to pay for it. “Free college” will be paid by the taxpayer or through government loans that add to the national debt. It doesn’t fix the problem. It also doesn’t guarantee everyone gets that “good job” upon graduation. I also believe you should pay for your own choices, not have others pay for it or else there’s no real value in it.

Be smart about your choices, particularly when they involve loans and interest. College is fine if that’s what you truly want to do, but understand the risk.