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The impact of Universal Financial Independence?

This post came as a logical extension of a post by Amanda from Centsibly Rich the other day on Mustard Seed Money. The post in question talked about what if Debt was not the default currency of our world. My mind of course took this to the next logical conclusion. What if the entire world had Universal Financial Independence?

In general pursuing Financial Independence has many benefits for the individual. You have less money stress, more options, the ability to structure income for lower taxes, and ultimately you can retire on your terms. I’ve stated before on this blog that everyone’s goal should be financial independence, as retirement is not always a choice. Either way everyone should be pursuing Financial Independence. But what if everyone was pursuing or had achieved financial independence?

What if Everyone Retired Early?

Everything in the economy of a country works off the concept of production. We measure the health and well being of a nations economy by Gross National Product, or the market value of all goods and services produced by a countries labor or property, regardless of national boundaries. Production is sourced from both labor and capital. Up to a point capital, like robots, can pick up the slack as labor declines. But ultimately with todays technology you still need labor to produce most things. So obviously if everyone retired in the economy it would be a bad thing since Gross National Product would fall. This would lead to a decline in the ability of the country to purchase things. It would also lead to a slow down in technological advancement. After all the smart well off people would retire sooner depriving the world of their inventions. We would all be worse off. Obviously we don’t want everyone to retire early.

What if we had Universal Financial Independence?

Financial Independence can be mutually exclusive from early retirement, as my myself have stated. But what is the impact of everyone working towards financial independence? Well lets start with the bad. Consumption would decline. People would buy less. Given there would be no reason to produce something that no one would consume we’d end up with a lower demand in respect to our current supply of many goods in the economy. This would initially result in a lowering of prices due to a glut of supply. Over time companies would lower their production. Ultimately we’d end up with a recession in the business cycle due to the lowering demand for goods. We would also end up in a reduction in government services due to the production declines. Neither would be good for your investments or job compared to today.

Now the interesting thing is, this lowered consumption state would mirror that of other cultures and our own pre the 1980s. Prior to 1980 debt was largely shunned by the populace, even if they were not purely pursuing Financial Independence. During the 80s the concept of heavy debt and leverage usage took off. I recently read a book on the take off of heavy company debt and also the purchase/sale of heavy indebted company bonds, otherwise known as junk bonds. The book, Liars Poker, talks about how Pre 1980 companies had difficulty selling Junk bonds simply because investors did not want to be associated with holding a companies deeply indebted companies. We were so adverse to the concept of being deeply in debt that we did not even want to hold other people’s debt, let alone be in debt ourselves. Some countries still are, as more than a few out there are still slow to even pick up the concept of credit cards. So one could argue that if the entire world was working towards financial independence we would return to our normal production levels. This may be true but like technological advancement the transition would be painful for many.

The Reality, there is Little to Fear.

Simply put the chances of a large part of the populace stopping their spendy ways and using mindful expenditures to work towards financial independence is as likely as me winning the lottery tomorrow. Note I do not even buy lottery tickets so that is an extremely low probability. Our culture has debt engrained into its very fabric. I thought 2008 would leave the populace hesitant  about debt.  Perhaps we could have seen some sort of sustained reduction. Yet, here we are almost ten years later and people are again loaded up. If a collapse due to debt in institutions through the whole economy could not get the populace to deleverage, nothing ever will. Which leaves us with you the reader. If you the reader, one of that vanguard of intelligent individuals who understand the benefits of financial independence take steps to become so, well then you would stand as a unique few. To illustrate how unique, I once told a coworker I intend to retire by 55. Mind you this is not what the more extreme blogs out there call early retirement. I’m not looking, or even want to, retire at 35. It’s not even a major stretch for someone making a higher income to retire by 55. And yet at least 2 coworkers are taking bets that I will not do this. They know I make good money, and yet the idea of being financially independent might as well be a martian landing on their house.

The Benefit of Being the Few, The Proud, Pursuing Financial Independence

Being the unique follower of Financial Independence you are means you will not see the societal downsides. There will be no contraction caused by lowered consumption related to Universal Financial Independence (though there may be other contractions). You will benefit in all the ways I mentioned in my second paragraph. Furthermore, because you are unique you will be able to do so in relative obscurity. If we had universal Financial Independence we would probably have marketing companies and con artists targeting everyone for their known wealth. In reality Stealth Wealth is possible in small pockets. So continue to work towards Financial Independence. Even consider encouraging other who seem curious to do so. For better or worse, the whole world will never pursue Universal Financial Independence. As such this is not a risk to fear.  In fact, it’s a benefit to embrace including that positive feeling if you help someone get on this financial track.

What do you think? Will the US culture ever change to one of mass pursuing Financial Independence? Have you helped someone start down the path to financial independence?

12 Comments

  1. Leo T. Ly
    Leo T. Ly June 19, 2017

    To from being a consumer to a saver is not and easy change and people don’t like changes. Especially if it means that they will have to cut back on their live style.

    Currently, there are a couple of people that are close to me that I am trying to pass on the concept of financial independence. I can only sjuthem the door, they need to walk in and see what’s inside.

    • fulltimefinance@fulltimefinance.com
      [email protected] June 19, 2017

      It’s always interesting reading about people’s epiphanies when it comes to savings for that reason. It is usually driven by some sort of conflict.

  2. We have been conditioned to want, and for that reason you’re right in it being extremely unlikely everyone will pursue financial independence in such an extreme way. Sure it may be an end goal for some, but for many it is likely an afterthought, an idea that simply seems too far away to do anything about today.

    • fulltimefinance@fulltimefinance.com
      [email protected] June 19, 2017

      It’s sad that it is that way. Culturally the consumerist mindset is so mainstream the first though people have when you mention financial independence is either Scrooge or deprivation.

  3. I wonder if in the universal FI scenario, production would shift from the current (largely) mindless consumerism to a more conscious and targeted production. There would be a large economic shock when people stopped buying as many goods. Companies would panic and would have to cut production as you noted.

    But then what? What if companies then dedicated more time and energy into more revolutionary products that deliver big value over the current market of goods? For example, instead of continuing to put out variations on the same cars every year with minor improvements, maybe companies race to be the first to come out with extremely safe, environmentally friendly, self-driving cars? Presumably more conscious consumers would be willing to pay more for a big leap forward in safety and environmentalism.

    I wonder if in the long term it would lead to more technological advancement because there would be less value in the low-hanging fruit of consumerism.

    • fulltimefinance@fulltimefinance.com
      [email protected] June 19, 2017

      That’s a possibility in the long run. Then again since everyone would still have different needs whose to say it would not largely be the same results in lower volumes?

  4. Mr. Need2save
    Mr. Need2save June 19, 2017

    I think folks like us are always (at least as far as I can see) going to be in the minority, at least in the United States. As you point out, my plan depends on this assumption. If the masses aren’t buying new cars, phones, clothing, every few years then the stock market isn’t going to grow. Without modest stock market growth, our plan for Financial Independence would have to change.

  5. Rich @ pennyandrich.com
    Rich @ pennyandrich.com June 19, 2017

    Perhaps a little off topic but this post reminded me of Keynes’ “Economic Possibilities for Our Grandchildren” where he predicted that an economy could become so productive that people, having all their needs met, would essentially trade work time for leisure time. People would reach a “good enough” standard of living. Obviously that hasn’t happened even though one could argue that we’re productive enough to make it happen on a fairly wide scale in the US.

    I think debt and consumption is only part of the story. The other, more positive, part of the story is the value of work and production. People often feel better when they are working, when they are productive. There’s a human desire to do better and to accomplish tasks and even to take risks. It can be fulfilling — sometimes even more fulfilling than financial independence.

    • fulltimefinance@fulltimefinance.com
      [email protected] June 21, 2017

      It’s funny you should mention Karl Marxs theories on technological advancement. One of my early posts was on that topic: http://www.fulltimefinance.com/technology-and-karl-marx/

      I do agree with your take that some people would still work regardless. The real question would be whom would still do the really bad jobs. There are definitely some jobs out there that no one would do if it weren’t for employment needs.

  6. Mustard Seed Money
    Mustard Seed Money June 20, 2017

    That was an awesome post by Amanda 🙂 I don’t think our society will move from debt until the incentives around debt are removed (ie student loans, mortgage interest, etc) are removed from the tax code. Once they are removed I think you will see pressure put on debt and may push the stigma of debt back on the forefront of people’s minds.

    • fulltimefinance@fulltimefinance.com
      [email protected] June 21, 2017

      It really does make me shake my head how much our government incentivized debt. Who knows if that will ever change.

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