Wendy linked me to a great article talking about financial leverage and how it interacts with people in different financial situations. The core of the concept is that people's lives are completely different based on the size of the largest financial shock they can absorb. Whether it be through access to credit, family money, cash under the mattress, or any other method of surviving an unexpected money shortage, if you can survive a financial mishap your life is drastically easier. Having to pay back the money later isn't actually that much of a problem so long as your life doesn't explode in the meanwhile.
Everyone ends up faced with small disasters like needing new tires for a car, having something stolen, or having to help a family member with a financial crunch. If you have the wherewithal to deal with that without issue, no problem. If you don't, you can end up in disaster mode - losing your transportation, losing your job, or being stuck with outrageous interest payments. I think that many people who have a large degree of financial resilience underestimate how bad things get, and how fast that happens, when you don't have that backstop against disaster.
I have particularly large financial resilience compared to my household income. Partly this is due to circumstance and luck - my family is stable and could help me if something terrible occurred, for example, but they don't shower me with expensive stuff either. But a really significant part of it is the way I think about risk, resources, and debt. I have a money demon that makes me dread the possibility of being in debt, so I hoard resources to make certain that I never have to worry about financial shocks. I have spent my whole life deeply concerned about this, and even when I was earning a lot I sat on it, at least in part to be certain that when something bad happened I would never have to ask anyone for assistance.
Some people don't have the discipline and worries that I do, so they live closer to the edge, and disasters have a much easier time wreaking havoc in their lives.
Some people have a lot less luck than me in terms of money, so they are stuck closer to the edge regardless of their inclinations.
And of course some people have way more luck than me and so they avoid disaster by dint of being rich, or having rich people around them who can provide insurance against financial shocks.
The better a society protects vulnerable people from financial shocks the more equal it will be, and the better off it will be overall. When rough times come, the rich ride it out, but the poor can lose everything, and the rich scoop up the leavings. We can fix this stuff by having universal health care, so that a disease doesn't ruin your life because you have no resistance to financial shock. We can do similar things with basic income or other social supports. Even things like public education, public transportation, and libraries all help keep people who might otherwise collapse under the weight of a small problem survive and thrive.
Whether a person is easy to leverage via financial shock because they have squandered their money or because they had challenging circumstances doesn't change the way I feel about taking care of them. We don't need to provide luxuries, but making sure that small challenges don't destroy people can improve the overall experience of our society enormously.
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