The Invisibility of Safety Nets
If you have a safety net, you do not realize that others do not have one. If you do not have a safety net, you cannot fathom how others get them. And that’s a problem.
Hello, Talking About Money Community, how are you doing?
The topic for this post arose from a conversation that I recently had with a person who is quite close to me. Actually, it was a series of conversations that occurred over the span of a few days, as I reflected further and refined my thinking. [This is what typically happens for me. What happens for you?]
What I realized was that we were looking at the same situation, but from two different perspectives: One of us was viewing the situation through the lens of someone who has benefited from safety nets through the years; the other one of us was looking at the same situation through the lens of a person who has had intermittent safety nets along the way. It took a while to figure out why we weren’t coming to the same conclusion about what we were observing – because safety nets are invisible.
Let’s dive in.
What is a safety net?
In the framework on financial capability, the first type of safety net that you probably think of is financial capital. That’s what I think of too. Do you have emergency savings, so that if you were temporarily unable to work or had a large one-time financial expense, you could pay for it? Beyond emergency savings, there are other financial safety nets that I can think of. Do you qualify for a pension so that you can count on a secure retirement in the future? If you are saving for retirement yourself, do you make enough income so that you are on track? Do you have a safe and affordable investment vehicle for those retirement savings?
Having insurance is a safety net. Auto insurance will protect your ability to move around, enhancing not only your quality of life but also your options for work. Health insurance will ensure that you are taken care of if you get sick or injured. Disability insurance is important, as it will replace lost wages if you get sick or injured. And life insurance is the ultimate safety net for your loved ones if you were to untimely pass on, as it protects those who rely on you for their financial needs.
Your human capital is a second form of a safety net. Your health and your ability to work allows you to earn an income to support yourself and your family. And the healthier you are, the more you can work! Your educational attainment is a form of human capital, as it gives you more options for different types of work that you might perform.
Your social capital is a third social safety net to consider. I break this down into two categories – family and friends – though there may be some overlap between what they can do to protect you. Are there members of your immediate or extended family that have financial means? Could they bail you out of a financial calamity if one should befall you? Do you have family members who will help you with a down payment on a home? Or who will pay for all or part of your college degree? Or who will leave you an inheritance? Or maybe do all three?
If your family is not geographically close, you might rely on the safety net that your friends provide. Do you have someone in your life who could drive you to the hospital if you got in an accident? Or who could come and stay with your kids of you unexpectedly got called out of town? Or someone who could do your grocery shopping if you are stuck at home? In the time of Covid, social networks in the forms of friends and neighbors have come to the forefront in their importance to your well-being.
What’s the difference between having a safety net and not having one?
Have a safety net gives you options. If Plan A doesn’t work out, you can more on to Plan B or Plan C.
Safety nets give you peace of mind. Knowing that you have emergency savings means that when your clothes dryer belt breaks on a Sunday night with all your wet work clothes inside, the situation is a short-term problem that needs to be fixed, rather than a week-long catastrophe that causes a domino effect of frayed nerves, lost sleep, missed work, and further financial fragility.
Having a safety net gives you the room to take risks. If you know that there are financial resources (or people that you can rely on) when the going gets tough, you might take the risk of starting your own business. Or going back to school. Or taking a job that seems like a reach where you are not completely sure that you will succeed.
What does not having a safety net look like? Those of you who have worked with financial insecure households know. It means a lack of options.
Not having a safety net means focusing on the here-and-now and never making long-term plans. Or if you try to make long-term plans, it means mentally having a escape hatch for when the going starts to get rough and you feel the need to cut and run.
Not having a safety net makes you risk-adverse. You are most likely not going to start a business. You might do a risk analysis and decide that pursuing higher education will take too many hours away from work and other daily responsibilities. You are more likely going to take the job that you know you can accomplish with your eyes closed, not the one that will push you to grow and might lead to a higher income.
Why is knowing this important?
It’s important that you stop to consider if the person that you are interacting with has (or does not have) a safety net, because safety nets tend to be invisible to the casual observer. And if you are a typical person (hint: you are) you are going to make an initial assumption that the person that you are talking to has a lived experience similar to yours, and therefore has (or doesn’t have) the same kinds of safety nets.
If you have a safety net, you come across circumstances where you don’t understand why people make the choices that they make. You don’t understand why they are still renting an apartment, because your parents gifted you the money for the down payment. You don’t understand why they haven’t finished their bachelor’s degree, because your college tuition was affordable to your family. You don’t understand why they aren’t stretching for that dream job, because you know that you have savings to last you if that job doesn’t work out.
And if you don’t have a safety net, you might not immediately realize how people have the things and opportunities that they have. How did they buy that house so young, working in a job that seemingly can’t pay the monthly mortgage payments? How did they manage to take that risk to start that business, and how are they supporting their households while they are getting it off the ground – where is the money coming from? How are they taking time off from work to take that trip – how did they make that happen?
What happens if you can’t visualize someone’s financial, human, or social capital? Most likely you are going to attribute their success to some internal factor, like drive, or ambition, or grit. And if you watch them fail you might chalk it up to laziness, or lack of intellect, or fear. Either way, you might be getting the story all wrong. And that doesn’t do either of you any good.
