Privilege is a loaded word, and a concept that is still complicated and misunderstood by many. I won’t do it great justice here, but it’s something worth discussing when it comes to personal finance.
I recently stumbled upon an article titled, Millennials Who Are Financially Thriving Have One Thing In Common, and was introduced to the most excellent term:
Funnel of privilege.
I can’t wait to use alongside my other favorites like, “post-secondary education industrial complex”. There are just some things that are so fun to say.
What is the Funnel of Financial Privilege?
The Funnel of Privilege is exactly what it sounds like:
the likelihood of a millennial who enjoys one privilege, like paid-for post-secondary education, to enjoy a series of subsequent financial privileges such as funds to buy a house, get married, or a start business.
I know Millennials whose parents paid for their educations, then their weddings, and finally gifted them large down-payments for their first house. Others received cash gifts to make up for their losses in their stock portfolios.
Other friends of mine received blank cheques to renovate their homes or pay off their student loans from studying abroad. Some live rent-free in condos that their parents purchased as investment properties. Others still have things like their cellphone bills or car insurance paid for years after they leave the nest. Virtually all of them enjoy annual vacations to tropical destinations on their parent’s dime.
The reality is that a financially privileged person rarely enjoys just one financial privilege. Usually, they enjoy a multitude. The benefits of all of these privileges compound into an advantage that leaves less privileged peers no way of catching up.
The generational transfer of funds
I’d be lying if I said I don’t sigh with envy when another friend gets ahead courtesy of the Bank of Mom & Dad.
Measuring my adult financial accomplishments against those of my peers who have had their pockets lined by wealthy Boomer parents has been an exercise in frustration. Trying to keep up is like running a race with weights around your ankles. Maybe you can win, but it’s going to hurt like hell to cross that finish line a few seconds faster.
Some Millennials received financial help from their parents for both school and buying their first home. This group is dubbed “double lucky“. They make up more than half of all Millennial homeowners, despite accounting for only 3% of the Millennial population.
Almost two-thirds of millennials who pursue post-secondary receive some help from their parents. I belong to the last third that didn’t and paid out of pocket for my university education. I refuse to add up the grand total of my degrees, because I know it’s near or over $100,000.
When I imagine adding that six-figure balance to my net worth, my stomach knots just thinking about the difference it would make to my financial security. It’s true that the investment into my education “worked out and made me into a six-figure earner by age 30. But many of my peers got to the same endpoint without the burden of student loans.
The average student loan payment is $280. Assuming an average income tax rate of 25%, graduating without having to make this monthly payment is the same as earning $4,480 more per year.
I am still not a homeowner (and not in a hurry to become one either). But I’m not surprised that the majority who’ve hit this milestone did so student loan debt-free and with a cash cushion from their parents. Graduating without an IOU to the government or bank is the same as getting a sick raise.
The article didn’t touch on the third major expense frequently funded by parents: a wedding.
For almost 1 out of 5 weddings, parents foot the entire bill. The bride and groom take care of it themselves 30% of the time. The remaining weddings are paid for with a mix of parental and couple funds.
If you are triple-lucky enough to receive a financial boost to support you through school, buy you a house, and pay for your wedding, it’s no wonder you’re financially thriving. You hardly had to do anything yourself.
The more your parents give you to wed your sweetheart, the longer your thank-you card should be.
There’s even more privilege in entrepreneurship
We tend to think of the entrepreneurs as the ultimate boot-strappers. It turns out they often come from highly privileged backgrounds with resources to facilitate their boot-strapping.
The most common shared trait among entrepreneurs is access to financial capital—family money, an inheritance, or a pedigree and connections that allow for access to financial stability. While it seems that entrepreneurs tend to have an admirable penchant for risk, it’s usually that access to money which allows them to take risks. – Quartz
So if you feel frustrated about paying back your student loans, think it might be impossible to save for a down-payment on a home, have no idea how you’re going to afford a wedding, and would like to start a company but can’t afford to leap without a safety net… well, you’re not alone.
Most Millennials are not recipients of the funnel of financial privilege. But the ones that are, are absolutely killing it.
The funnel of privilege separates Millennials into two camps: those that have rich parents, and those that do not.
But is more money always better?
I’ve mentioned growing up on the lower-end of middle class before. I sometimes wonder how different my life would be now had my upbringing and early adulthood been more privileged. I feel this especially when I’m around my friends who enjoy the free education, free wedding, free downpayment triple threat from mom & dad.
My childhood and early twenties are, for the most part, marked by scarcity. I grew up almost exclusively in hand-me-downs and didn’t join any school sports or extra-curricular until high school because the expense was too high. I started working part-time at 14 because it was the easiest way to afford the luxuries of a cellphone and new clothes.
In my early university years, I rented a series of shitty apartments for a few hundred dollars per month, which I can only describe as having poor insulation, mice, no hot water, and entirely too many roommates. Many years before age 25 were hard. Sometimes very hard.
But hard was good, it made me want to get out.
The irony if it now seems to be that, having grown up without significant financial privilege myself, I will likely pass plenty on to my children.
Their car seats will be buckled into the backs of luxury cars, they will never be told they cannot participate in a sport or extra-curricular activity, and their university educations will be paid for. I hope to god they won’t be spoiled, and that’s something I can certainly control, but the privilege is a more difficult beast.
How will I teach my children all the hard-won benefits of struggling financially when they may never have to face it firsthand?
I’m happy to live in a higher socioeconomic class than the one I was born into. But part of me still respects the grit it took to get here. I worry that will be something I can’t teach.
When it comes to observing the Funnel of Privilege, there are a number things to keep in mind:
There is always someone that has more than you, and someone that has less. Understanding that your peers might have had significant help achieving major financial milestones should let you cut yourself some slack for not keeping pace.
What you can remember is, wherever you are in your wealth-building journey, you are likely well ahead of many other people, too. It’s important to remember to practice gratitude for what you do have, rather than focusing on what you do not. Don’t think you have much? Try practicing poverty for one week and see if it changes your perspective.
Help others whenever you can. One of the most important things you can do once you acknowledge the privilege you have is to give to people less fortunate than you. This is one of the main reasons I emphasize using your money to help others through charity and giving. Regardless of how little you have, you probably have more than enough to give a little away.
Focus on what you can control, not what you can’t. You cannot change the past, but you have full control over the future. Being at a disadvantage early in life might make it harder to achieve some things. But it doesn’t necessarily make them impossible.
Having to pay for your own post-secondary education doesn’t mean you can’t pursue a degree. Just like having no help with your a down-payment doesn’t mean you can never be a homeowner. Do what needs to be done to get the results you want, and don’t worry about whether it’s harder or easier for you than someone else.
Be proud of what you’ve accomplished so far. One of the best parts of hitting your financial goals with your own sweat and sacrifice is the fact that the reward is entirely your own. It’s easy to transfer a $5,000 cash gift rom you parents to your retirement savings, it’s hard to set aside $450 each month for an entire year to accomplish the same. Remember to pat yourself on the back for the discipline and dedication it takes to accomplish a big goal. It’s definitely worth something.
Know that even the most well-to-do parents cannot buy their children some of the most important things in life, like a loving marriage, career satisfaction, or a close-knit group of friends. I know it’s cliche to say “the best things in life are free”, but for a great many things, this is true. Regardless of where you stand when it comes to wealth and privilege, you can still have (and deserve to have!) a happy and fulfilled life.
You have a beautiful life. Don’t spend it worrying about how and where other people are getting their money.