Financial privilege is a term used to describe the benefits people have in society due to their economic position.
For example, people who come from wealthy families are more likely to have access to financial resources that others cannot, such as the ability to graduate from college without debt or get help starting a business.
Financial perks play a huge role in determining your financial reality, and it’s important to understand what it is and how it works.
What is a financial privilege?
Financial privilege – also known as economic privilege, monetary privilege, or rich privilege – means having a level of wealth that gives you advantages that others may not have.
Think about it: did you or someone you know have wealthy family members? Maybe your best friend got an inheritance from his grandmother or a fancy new car when he turned 16?
These are examples of having financial privileges, and they give a great advantage in life.
Funnel of Financial Perks
Financial privileges do not exist in the bunker. If your parents are wealthy enough to help you in one area of finance, chances are they will help you in other areas as well.
This is called the “Private Funnel” and this study from Zillow illustrates how this funnel works. The Zillow study found that:
- Of all the millennials who graduated from college, 61% had their parents help cover their expenses.
- Of those millennials whose parents helped pay for college, 12% became homeowners.
- Of those who are homeowners, 3% had parents who also helped cover the down payment on their home.
When you come from a wealthy family, you are more likely to succeed in life because they can help you:
- Pay for college.
- Afford a higher down payment on a home.
- Finance the wedding of your dreams.
- Fund your new business idea.
- Avoid costly mistakes by teaching you how to budget, save, manage debt, and invest from an early age.
All this help frees up more money that you can use for savings and investments. And in some cases, all this leads to generational wealth, when your family can pass on their money to you by inheritance.
Financial Perks in America: A Closer Look at the Racial Wealth Gap
America is a nation of haves and have-nots. And when it comes to the racial wealth gap, unfortunately, the haves are overwhelmingly white and the have-nots are disproportionately black and brown.
According to a recent study, the median wealth for white households is $188,200, compared to $24,100 for black households and $36,100 for Hispanic households.
In comparison, this means that the typical white family’s net worth is eight times that of the typical black family, and five times that of the typical Hispanic family.
And it’s not just about income. Even when comparing families with the same income, whites have much more wealth than blacks or Hispanics.
This gap is the result of centuries of discrimination and exclusion regarding housing, education and employment opportunities. And that makes it much harder for people of color to access financial benefits.
How Financial Perks Affect Your Life: A Story
Financial privilege affects every aspect of your life, from your ability to accumulate wealth to how you are perceived by your peers.
Here is a short story to explain.
Meet Ted and Kate. They both graduated from the same college with the same degree. They were also hired by the same company for the same job.
At first glance, Ted and Kate are in the same financial markets. But if you dig deeper, you can see that their real financial situation is radically different.
First, Ted was lucky enough to finish school without debt. His parents started saving money for his education when he was born. He also moved back in with his parents after graduation, allowing him to live free. (You can read more about the financial benefits of living here).
Kate, on the other hand, comes from a lower middle class family background. Kate’s family couldn’t help getting into college, so she graduated with $40,000 in student loan debt. (Her payments are about $400 a month.) She also has to rent an apartment next to her new job, which costs $1,400 a month.
Read more: Student Loan Debt: Understanding the National Crisis
A closer look at their budgets
Ted’s parents helped him through the salary negotiation process and his starting salary in his new job is $50,000. After taxes, Ted brings home about $3,000 a month. He lives on $1,000 and saves the other $2,000.
Kate’s starting salary is around $45,000. Unlike Ted, Kate didn’t know how to negotiate—or didn’t even know how—so she took the first salary offered.
Kate brings home about $2,800 after taxes – $1,800 goes straight to paying rent and student loans. The remaining $1,000 goes towards living expenses, which prevents her from saving the recommended 20% of her income.
One year later
A year later, while at work, Ted mentions to Kate that he is going to buy his first house.
Kate cringes a little inside. How is Ted already buying his first house? I still eat Ramen noodles.
For Kate, Ted’s new financial milestone is another reminder of how bad money she is. She tells him that she will be lucky to buy a house within the next decade. Little did she know, Ted had an invisible superiority.
To add to this…
The funnel of financial perks tells us that, thanks to the wealth of Ted’s parents, they are also more likely to help him meet the down payment on the house, pay for his future wedding (which will likely be quite expensive), and perhaps even fund any entrepreneurial ventures he may have. which he wants to go.
Why Ted and Kate should check their financial privileges
If Ted never speaks openly and honestly about his financial privileges to others, Kate (and everyone else in Ted’s circle) may continue to believe that they are all just “money suckers” compared to him.
As a result, this can affect Ted’s friends in different ways:
- They may feel anxious or stressed about their finances, which can lead to trouble sleeping or concentrating.
- They may feel ashamed or embarrassed about their position, which can damage their self-esteem.
- Lack of self-confidence can cause them to miss out on professional or financial opportunities that would allow them to earn more money.
- They may go into debt or overspend because they mistakenly think they are doomed to an eternal existence with money.
On the other hand, Ted’s delusion that he is a financial genius and that the Kate of the world are financially irresponsible can lead to a number of interpersonal, financial and ethical problems for him as well.
- Ted’s ignorance of his financial privileges can lead him to make insensitive or offensive comments that will alienate Kate and those around him.
- He may overspend or take on more risk than he should because he believes he cannot lose.
- He may not have empathy or desire to help those less privileged than him.
How to check your financial privilege
Financial perks come in a wide range, but it’s something we can all have to varying degrees. Thinking about our respective levels of financial privilege (or lack thereof) can benefit everyone on the financial spectrum.
If she were Kate, she would understand that her financial circumstances are not a reflection of her personal worth. And Ted will understand that his privileged position does not make him superior to others. Instead of feeling competitive or judgmental, they could support each other and work together to find solutions to their shared financial problems.
So, what factors should be considered when evaluating your own financial privileges?
- Your family background: If your family has a wealthy background and social status, or if you have access to high-paying jobs or lucrative business opportunities through your social connections, this gives you a significant advantage over others.
- Your location: Living in a wealthy area, or even in a developed country like the US, can provide you with opportunities that people in other parts of the world don’t have.
- Your race and nationality: People of color have historically faced more economic hardship than whites due to institutionalized racism. When evaluating your financial privileges, consider how the color of your skin may have affected your (or your family’s) ability to achieve financial success.
- Your gender: The gender pay gap still exists and many women still earn less than men across the board.
What if you have financial privileges?
Having financial privileges doesn’t mean you’ve never experienced hardship in life. It simply means that your money has unlocked certain resources that others may not have, such as a better education, better paying jobs, better housing, or even healthier food.
Once you evaluate your own level of financial privilege, you can start thinking about how you can use it for good. For example, you can:
- Be honest with your friends about how much financial privilege you have. Whenever possible, acknowledge how your financial perks have made certain aspects of your life “easier” than it might be for others.
- Be generous when you can. If you have financial privileges, look for ways to share them with others—whether it’s paying the bills at dinner or teaching someone how to negotiate a job.
- Amplify the voices of marginalized groups in your workplace, college, or community. Listen to people who may not have the same level of financial privilege as you, and work to remove systemic barriers that prevent marginalized groups from achieving equality.
Financial privileges affect your life both in obvious ways, such as your debt level and savings account balance, and in more subtle ways, such as how your peers treat and communicate with you. Understanding and recognizing your level of privilege over others can enrich you and your community as a whole, both financially and psychologically.