On Thursday of last week the U.S. government released economic statistics from the second quarter of 2020 (April - June) and to put it mildly, they were terrible. The indicator they used, GDP, is often talked about, but rarely explained, so today’s post is all about what that indicator means, why it is used, what looking at it tells us about the recent state of the economy, and what it might show about the future. 

To start - just about every headline I saw about the economy on Thursday said something like “the worst ever” or “record low”. To be clear - GDP was not used as a metric until the mid-40s so we aren’t comparing our current economy to the Great Depression, just everything over the past 80 or so years. 

So, what is GDP anyway? GDP stands for Gross Domestic Product and is a measure of the total market value of all goods and services produced within a country’s borders. Note: GNP, or Gross National Product, is the same, but includes foreign investments. 

I think sometimes looking at the mathematical formula for GDP makes it a little clearer: 

GDP = C + G + I + NX

C = consumption (everything we bought)

G = government (all government spending)

I = investments (all stock market and other investments)

NX = net exports (value of all of our exports minus the values of all of our imports)

Basically, the more all of us spend, whether it is at a grocery store or an investment in venture capital, the better off GDP looks. The thinking behind using this as an economic indicator is that if folks are comfortable spending and are spending more than they used to then that means they have enough income and are feeling confident in the economy. While I think GDP is helpful, I don’t love this as a standalone indicator because it doesn’t take into account the overall picture of economic health -- it just shows overall spending. For example, over the past decade GDP has been growing and yet the wealth gap was also growing -- looking just at GDP makes things look good, but we know that the reality in many households is completely at odds with that. 

There are a lot of scary things about Thursday’s statistics from the Bureau of Economic Analysis, but the one that I find most worrisome is that the country experienced its worst quarter on record while at the same time the government (remember G! Government spending is one of the parts that make up GDP!) was pumping $2.2 trillion dollars into the US economy through the Cares Act. Now that most of that funding has either been used up or discontinued (think PPP and the additional $600/week in unemployment benefits) it seems like the third quarter (July - September) will look even worse, especially if the coronavirus continues to spread at the rate that it has been. 

But, because I am solidly a “glass half full” person, I can’t leave us on that depressing note. Instead, I’d like to end on a reminder: GDP is not an accurate metric for the economy as a whole. There have been institutionalized issues with our economic system for decades (think wealth inequality, unlivable minimum wage). GDP’s downfall makes all of that even more obvious (I know, I know, that’s even more depressing - hold on). 

As the economy slumps this is a perfect time to be able to rebuild in a way that is inclusive, focused on true equal opportunity and in harmony with long-term goals of environmental and economic protection for all. You may not be the one to decide to pump $2.2 trillion dollars into the economy, but you do make an impact towards this larger vision. You decide how to vote politically and you decide how to vote with your wallet -- you decide where to spend money, where to avoid, who to donate to and where to offer your resources and services. Things aren’t looking great, but I believe that we can use that outlook to make 2021 better. 

Next week I’ll be diving into a few other metrics that may be better (or worse!) ways of measuring our economic health. 

XOXO

Note: I posted an article on privilege almost exactly a year ago, but upon re-reading it, I realized that not only did it not go far enough, but that by only having one article I was doing a great disservice to my readers. 

It feels like everywhere I turn there are discussions about discussing privilege. The term comes up in conversations with friends in passing -  as in “I know and am grateful for my privilege, but…”. It comes up on my social media feed - as in “we need to confront our privilege”, and it comes up in news stories - as in “Tammy Duckworth didn’t come from privilege”.

Saying the word and acknowledging our own privilege, whether racial, gender, or economic (or all three), is good. Recognizing that it exists is an important first step, but it is only a first step and a pretty minor one at that. Conversations in passing, instagram and the periodic news story are all great forums for pushing a term to the forefront of our lexicon, but they are often not great spaces for going deeper (of course there are exceptions to this rule). I’ve been finding myself growing increasingly frustrated by the conversations, or, perhaps a better way of putting it, the “almost-conversations” that I’m surrounded by. 

It feels frustrating because I know through my day-to-day work that privilege runs deep within our understanding of our own financial realities and relationships. Privilege impacts how we earn, how we spend and how we discuss money. And those things -- the hows of money -- impact our society at large. By just touching the surface we are never going to be able to unpack our own privilege or make larger organizational and structural changes that will change the status quo. Instead, we just sit in the space of recognizing some guilt and shame we feel and hope that the recognition relieves us of our individual pain. Unfortunately, economic justice isn’t about individual pain, it is about collective disenfranchisement. 

So, let’s have a real conversation about privilege. Or, since this is just one small article, let’s at least start a real conversation about privilege -- one that we can come back to and continue to unpack over the following weeks, months and, let’s be honest, years. 

Since my expertise is financial, I’m going to focus on economic privilege, but I highly encourage you to have these same internal and external conversations around other forms of privilege (race, gender, sexual-orientation, body, nationality). 

A Guide for Understanding Your Own Privilege

First, we need to better understand the bare bones data on where we fall in the economic ladder of our society.

Because of the way we talk about money in this country (or rather, don’t talk about money), many of us assume that we are farther down the economic ladder than we are. The Pew Research Institute created a calculator that shows where you fall economically based on your geographic location, household income and number of members of your household. Take a minute to go find where you fall. Are you surprised? Play around with the calculator a little bit -- how easy is it for you to move from tier to tier? What happens if you pretend you got a raise? What happens if you add or subtract a significant other from your numbers?

My family falls within the middle income tier in the Los Angeles area, but only barely. If we have a good year financially (i.e. not a pandemic year) then we quickly move into the upper tier. Once our baby is born it’ll be slightly harder to stay in the upper tier because our household will be bigger and therefore each of us will have a smaller portion of the income allotted to us within the family unit, but I expect, based on past experiences, that over the next few years we’ll continue to earn more and therefore move back into the higher tier. The fact is that even though I am not part of the 1% of Californians (who make a minimum of $514,694 per year), I am far from poor. To see the minimum income to be in the 1% by state, check out this article. To learn more about the tiers and change in concentration of wealth over time in the U.S. check out this Investopedia article. 

Next, we need to understand the ways that we experience economic privilege and recognize that much of our success is buoyed by our own privilege. 

The American dream ideal encourages us to try to fit into the “I pulled myself up from my bootstraps” storyline regardless of our own backgrounds. My family lore certainly leaned into this narrative -- my father grew up in a upper-middle class neighborhood in the Milwaukee suburbs, went to college (granted, there were some bumps in the road for him during this time) and then worked his way from an entry level position at a bank up to Vice-President in a multinational corporation. He absolutely worked hard and he did move from near the bottom of the totem pole to very close to the top, but this is not a “pulled myself up from my bootstraps story”. My father is white, tall, has all of his hair and, while not receiving regular financial support from his parents after leaving home, benefited greatly from the place of economic privilege he was born into. 

Similarly, I grew up in a upper-middle class suburb of Chicago, went to a top rated public school (where I attended honors classes, which in retrospect, were blatantly tracked based on race), attended a private university paid for by my parents and then took advantage of the opportunities surrounding me to go into education and then, later, finance. I worked hard. I still work hard! I also am working within a societal framework that sets me up for success. Perhaps as a woman in finance, less so than my father, but I have removed myself from the typical financial industry in order to avoid the sexism that so often coalesces in large, male-dominated fields. Being able to remove myself was only possible because of my privilege. I knew that I could start my own business, I knew that if things went really poorly I could find outside work and I knew that family and friends would help me if needed. 

You experience economic privilege if any of the following is true (note: this is not an exhaustive list, just a starting point):

• You grew up in a neighborhood with good public schools

• You went to private school 

• You were taught specific ways to interact with those in power so that they would help you (i.e. writing thank you notes, dressing a specific way for specific events)

• You were able to choose your post-high school pursuits without focusing on cost or income

• You received at least some financial support from family and friends when you attended college and/or graduate school

• You’ve been able to take unpaid internships

• You have a network of friends and family who are able to help you get employment or other career related opportunities

• You do not have student loans

• You have not had to take loans or use credit cards in order to take advantage of non-paid or poorly-paid “great opportunities”

• You have been able to take advantage of career opportunities that cost you money instead of pay you money

• You are able to pay for equipment, materials and clothing that is “necessary” to be comfortable or taken seriously in professional settings

• You are able to outsource work, either professional or personal, to others that would otherwise take time out of your day

How many of these experiences have you had? Are you surprised by the layers of privilege you experience? 

Over the course of the next week I encourage you to spend time reflecting on your experiences of economic privilege. Take time to journal, think quietly, talk to close friends and family members to try to delve deeper into this work. You will not be able to fully understand your privilege in a week. Society has done an incredible job of creating social norms that make it very difficult to unpack the invisible threads that help us, but, with time and effort, you will be able to understand a lot and, perhaps more importantly, create neural pathways that allow you to continue to delve into this uncomfortable awakening again and again in the future. 

Next week we’ll turn to focus on how to transform your understanding into action, but, as I’m a big believer in the power of truly understanding your own desires and values before taking action, I’m going to leave it here for now. 

As always, I’m here for you in your money journey, no matter where you are.

XOXO

When I started my coaching business I was told by countless peers, business coaches, books, blogs and podcasts that I should not under any circumstances list my prices on my website. What they all recommended instead was to have client acquisition phone calls, win over the prospective clients with my charm and amazing services and then right at the very end (preferably after I had gotten the prospective client to voice their desire to hire me) tell them what my prices were. Because I was new to entrepreneurship I listened to them. 

It felt awful. I always felt like a slimy salesperson and hated that gaining clients essentially felt like I had to trick people into signing up for coaching sessions with me. I shouldn’t have to trick people! What I do is awesome! I knew that my services were valuable and I knew from experience that people loved working with me, but none of that came through in my client acquisition process. 

After a few months I decided that I was going to ignore the recommendations by these so-called experts. I didn’t add my prices to my website right away, but I started being very transparent about them in any interactions I had with prospective clients, both verbally and in writing on fliers and workshop notes. Sometime in 2018 I added the prices directly to my website (you can find my individual coaching pricing here and my group coaching pricing here). Making my prices transparent was a game changer. I got more clients. I had an easier time explaining my services and the value that I bring to the table. And, the best part, is that I felt aligned with the values that are at the heart of Verdi Advising. 

Verdi was founded on the belief that everyone can manage their money well if they are given the opportunity to gain the knowledge, skills and confidence they need. My ultimate goal is to improve economic equality in this country through individual change -- the more people (who have traditionally been left out of the financial advising market) who are financially confident and skilled, the more people out there who have access to capital and economic power than they had before. In a country with an incredibly stark wealth gap that is largely gender- and racially- based, this has always felt like my guiding light. 

If my ultimate goal, my vision in business terms, is to create a world in which economic equality exists, then part of my work must be on promoting transparency. The way that economic inequality has been maintained is partly through the policing of information. By making it socially acceptable and legally condoned to not share financial information, financial institutions and those that have traditionally held the financial power in this country have been given the greenlight to actively not engage with the have-nots. I may not be able to change the laws by myself, but I can begin to chip away at the taboos around money. I can speak freely about what I spend money on (check out my Day in the Life of my Wallet highlight on instagram), and what I charge for services. I can encourage others to do the same. I can expand my role to look outward at what other, larger companies are doing and what the government’s role is in this work.

In the Verdi Money Club I share everything I spend in a whole month. Even after years of inner work on my money relationship, that day of the club always makes me a little uncomfortable - and that is one reason I do it again and again. The reason I’m uncomfortable is because I, probably like you, was taught from a very early age that sharing these kinds of details is inappropriate and socially unacceptable. Countering that deep narrative is extremely difficult. In future posts I’ll share how I work through these uncomfortable feelings and explain why some of them are so deep seated in our psyches. 

Before then I’d love your input - what do you want to know about? What money taboos have the strongest hold on you? What do you want to know about encouraging transparency at a wider scale? 

As always, I’m here for you and your money journey - wherever you are on (or off) your path. 

XOXO