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The FI/RE movement has picked up a lot of steam in recent years, but as one listener asks, how does that impact consumerism—and more broadly, can everyone to retire early?

Rich Girl Roundup is Money with Katie's weekly segment where Katie and her Executive Producer Henah answer your burning money questions. Each month, we'll put out a call for questions on her Instagram (@moneywithkatie). New episodes every week.

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Our show is a production of Morning Brew and is produced by Henah Velez and Katie Gatti Tassin, with our audio engineering and sound design from Nick Torres. Devin Emery is our Chief Content Officer and additional fact checking comes from Scott Wilson.

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Mentioned in the Episode

• Money with Katie blog post: “We Live in a Society”

• Mr. Money Mustache piece: “What if Everyone Became Frugal?”

• Money with Katie blog post: “Everything’s a Pyramid Scheme”

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Katie:

Well, how would you rather be spending your time right now than having this lovely conversation with me?

Henah:

I would make my own Substack and my own Instagram called Money with Henah. Rich Girl Roundup! Yes! Rich Girl Roundup! Yes. Rich Girl Roundup! Woohoo!

Katie:

Love it. Welcome back, Rich Girls and Boys to the Rich Girl Roundup weekly discussion of the Money with Katie Show. I'm Katie Gatti Tassin, and on Monday mornings my executive producer Henah and I use this segment to talk through listener questions, interesting money stories in the news, and more casual financial topics right after a quick break. Okay, so before we get into it today, this week's upcoming main episode was inspired by a listener question that we got months ago: Does Gen Z really have it that much worse than the boomers did? Can we put some numbers around this? And I think the results are going to surprise you. Okay, onto the roundup Henah. What are we talking about today?

Henah:

This week’s question came from Rachel who wrote, “If we're part of a society as you so eloquently wrote, which she's referencing our blog post called We Live in a Society, then how does this play into FIRE? It feels like a large part of the goal of FIRE is to get rich and then check out and consume.” And so this brought up a larger question for the Money with Katie team is FIRE even scalable? And so if you're unfamiliar with what FIRE is, it is the Financial Independence Retire Early Movement, which basically says earn more, spend less, and invest the difference so that you can retire before traditional retirement age. And this has really taken off. I guess the earliest mentioned I could find of it was in the nineties, but some folks like to save up 75% of their income to accelerate their progress towards their goals. And so I wanted to just kind of share that as a baseline context for what she's referring to.

But I think there was something interesting in her question that might be less around consumption and more about ethics. But I was curious, Katie, to start, how did this question land with you when you first heard it?

Katie:

Well, there was one word that I keyed on to immediately, which was the part about basically getting rich and then just kicking back and consuming. And I think an important thing to note is that a major part of the original FIRE philosophy was that of an anti-consumption movement.

It was basically something that said, hey, you don't need a lot of stuff to be happy. You can live an incredibly bare bones free and full life without the trappings of what the American dream tells you that you need in order to be happy. And as someone who used to be very, very deep in the lore and very bought into the FIRE mentality, most of these people live on less than $40,000 per year, sometimes a lot less, and aren't really entertaining themselves by purchasing things. I feel like that's a slightly important piece of context for this question specifically only because I think it introduces what's actually the more interesting component, which is how do we pick apart whether or not this is even a scalable solution? And I'm not trying to bury the lede, but the short answer is that it's not a scalable solution.

Henah:

Well, I have something I found online which might push back on that, but before we get to that, I actually just wanted to talk quickly about, she used the word consumption, but I'm again coming at it from a point of ethics.

So oftentimes people who advocate for FIRE may use means to get there that aren't really great for the broader society or whole. And I think some examples of that are like geo arbitrage we talked about in our moving abroad episode so they can have lower cost of living or real estate investing. Someone wrote in recently to us and said, it feels like violence, that someone else can make a profit motivated decision that makes me unable to afford to live in my home. But they basically get to retire on a pile of cash. Even tax advantaged investing in the ways that we're trying to cut how much tax we owe, but that creates a smaller social net for other people.

And so I think in my world, this has sort of shifted my POV of what FIRE means for me from retirement and get rich and checkout something more like freedom and flexibility to do productive work without connecting it to income-producing labor. I think it gives me the freedom to be productive in another way. And so I had found this Mr. Money Mustache piece where someone actually wrote on Reddit a comment very similar to what you were saying, that it's not very scalable because FIRE only works because people are consumers. And so if you try to imagine a world where a large population adopted FIRE and people changed their buying habits, the markets wouldn't work out.

And his argument actually is that it would, over time, it would be really hard to do at first in the short term, but that over time, basically those people who now need less to retire can go pursue more productive things to do with their lives. And he used the Bill and Melinda Gates Foundation as they have so much money that they're now trying to figure out what they could do to scale and help the world instead. And so it creates different types of market demands and different types of tapping into human capital. And so I know that your argument is probably a little different, but I wanted to also just throw that out there as a potential pushback on if we think it's scalable or not.

Katie:

Gotcha. Okay. So I think maybe the difference between the arguments that we're making is that it sounds like Pete's argument is about the consumption side of the coin specifically that if everybody FIREs and no one's buying stuff, that everything will screech to a halt. And it sounds like his point is that yes, the economic system would change to accommodate this new level of under consumption or less consumption, and that could be painful in the short term, but that in the long term, there is a means by which the society could actually be better.

I think that's interesting. I think my argument is the opposite side of the coin. So I did write about this a couple of years ago in a blog post called Everything's a Pyramid Scheme. We can link to it in the show notes. But yeah, the argument is basically this. It's not that it comes down to the consumption, but the production.

So my point was that financial independence and early retirement cannot exist at scale because our economic system would cease functioning these pieces, the production, the consumption, the investment, they don't exist in a vacuum. They're all connected. So in this example, my argument was if every young person in their thirties or forties achieved financial independence and quit working left the workforce, the workforce would be limited to those under the age of 35, which would effectively remove about 66% of the labor force or the equivalent of about 44 million people.

So for reference, approximately 4 million people left the workforce because of the COVID-19 pandemic over the course of I think two years because they either passed away or they retired or they could not work anymore for some other reason. And the labor market that created was so tight and there was so much consternation around there not being enough people working to fill all the jobs that imagine that at 10x: 40 million people, not 4M.

And that is a country where FIRE is prevalent. And so that was kind of my point is it's not scalable because you can't afford to lose that much of the workforce and for things to keep going. And there is this funny redundancy in the system that I saw in maybe poke holes in this, but if 44 million working age people just retire and they stop spending their discretionary income and they also stop producing whatever it is they're producing, theoretically, then profits drop. The stock market comes to a halt, the returns that are required to support early retirement vanish and everyone has to go back to work. So I don't know, maybe these two arguments aren't as different as I'm thinking they are. I'm kind of trying to piece through, I guess saying that it would scale and that you could have everybody achieve FIRE and everything would still work and the returns would still be the same, and the 4% rule would still hold true. I think that that has to presume that basically all of that labor in the system is redundant or that it's not actually necessary for the returns that are being created. And I guess that that could be an argument that you could make or that could be an avenue you could take to proving that out, but it doesn't seem likely that you could lose 60% of the workforce and there wouldn't be any consequences.

Henah:

Yeah, I think your note about the production side and the consumption side is interesting because to your point, Pete was talking about it from the consumption side, but at one point he says, “Frugality as a whole would work very well for society because we'd produce less and we'd earn less, but this is perfect because we would consume less as well. With the basic economies out of the way, now we can get really idealistic… This growing group of newly frugal people wouldn't just sit around and gaze at the oak trees all day. A certain portion of them would actually be even more motivated to produce new things than when they were under forced employment. So they'd start working again, but without much demand for consumer product, society would probably value different things. Some people would probably be willing to spend more to buy all renewable energy. This could create market opportunities to build more of this stuff. And it turns out that there are trillions of dollars of work to be done in that area.”

And then he does the Bill and Melinda Gates example and closes by saying, “All of these new desires create more market demand pulling workers into new fields and causing further growth of humankind's capital. The free market would do its usual job of allocating resources efficiently, much like it does today. So you see, there is really no magic to the fact that we are currently buying and throwing away a lot of junk, far from being a boon to our society. It's really an enormous tax we place in ourselves because it diverts our energy away from more beneficial efforts like the one noted above. In the short term, a massive switch to frugality would cause an economic depression as the free market struggles to reallocate everything and many people would suffer. But by creating a small and constant shift to a new way of living, the system will have time to adjust gracefully over time.” I think it's an interesting thought experiment. I don't know how feasible this is or would actually be in reality, but…

Katie:

I'm torn because in many ways I agree with it's kind of a revolutionary thought experiment. It's that how you really are changing the fundamental fabric of society and of American culture in that thought experiment.

But the part that I'm still not clear on is what are you doing for money in the meantime? Because the entire reason FIRE works is because the stock market is producing 10% per year. So is the thought that after this prolonged depression as things switch, that we would basically efficiently reallocate all of the resources to more meaningful means of production and then the returns would continue? I guess that's the only point that I'm like, I don't disagree with premise that societal change could work, but I do think that it's one of those exercises that still feels like it's rooted in the fundamental logic of capitalism and free markets, and I think that that might be why I'm having a hard time making sense of how it becomes scalable.

So for example, he even says something about free markets and the argument of free markets work, so everything would just reallocate efficiently. And I would argue that we don't actually experience free markets in the United States. There is an incredible amount of central planning and government intervention that guides what happens to companies in the United States, and the extent to which corporations experience a level of centrality and power that they would not naturally have if the markets were truly free.

Think about an example like Boeing and Airbus. Boeing has fucked up to an extent that if we lived in a true free market society, somebody else would've started an airline and usurped them because that firm really at this point has done enough damage that theoretically, in this perfect economic scenario, another airplane manufacturer would enter the scene and do a better job. But Boeing is so entrenched both in the US government and in US society, and starting an aircraft manufacturing business is so capital intensive that the barrier to entry is just too high.

So I think that not to get us too far off track, but the level of mergers and acquisitions and conglomerates and “too big to fail” firms in the US that we currently have... I think five years ago I would've been like, yeah, we have free markets. That's great. Everything's efficient and rational.

I actually don't really think that's the case anymore. And I don't know that in this grand thought experiment of is FIRE scalable, I'm not sure that we could lose all the production and all the consumption and things would just work themselves out. I do think that the role of central planning is already so entrenched that it would be critical in coming up with a better, better way.

And maybe it's more like public ownership of the things that everybody needs and not just re-imagining this kind of capitalist free market experiment wherein you still have that class division between capital owners and laborers. I guess you wouldn't if everybody is a capital owner, but I don't know, maybe I'm too far down the rabbit hole now.

Henah:

We are doing an upcoming episode about what would a world look like without capitalism or re-imagining capitalism, and maybe that is the step two of this conversation. Yeah…

Katie:

Maybe we've—

Henah:

We opened Pandora's Box.

Katie:

We've been two in the can of worms now. Yeah. I'm like, but class division, oh, the alarm in my head is ringing of reign it in, reign it in. We've gone too far.

Henah:

I was like, I'm not really sure how to bring this one back to her question. But I guess to your point, my follow up question, and we can consider this for the full episode, would be if we started all over again with a net-new country, how would you build it differently such that these central planning features either are or are not involved from a free market standpoint, and would it be different? But—

Katie:

Yeah. Hey, I think that the other thing though about her question, why I wanted to talk about this one is because I think there's another thing that doesn't scale very well and it's individualism. Like as a concept. Like, okay. Think about the argument about how—you tell me, what do we tell people who work low wage jobs? What do we say?

Henah:

It's on you for not having the right education or credentials.

Katie:

Yep. Okay. So what happens if every single low-wage worker suddenly has the chops to compete in the white collar job market for all the fake email jobs? What happens then?

Henah:

We're forked.

Katie:

Yep. Not only is there not enough jobs for them to do, because it's already hard enough with the existing labor pool of what, 35% of Americans that have college degrees, it's already a year plus to get a job as someone with a college degree.

But the entire low wage workforce that this country relies on, the 20% of Americans that earn low wages, that do the essential labor as we learned during the pandemic, what happens to all those jobs that now those people in this argument, well, now they have more education, they can go get better jobs. Okay, well, now who's doing—is the idea that, oh, well, then we would just have to raise the wages for the low wage work. Okay, great. Then let's just start there.

Henah:

Have you considered robots, Katie? AI?

Katie:

Yeah. I feel like I've been hearing that for 30 years. Sure. Believe it when I see it.

But again, that's not an argument for like, see, we should have low wage labor. It's an argument for let's just be serious about the solutions and not do this weird play pretend thing where we say, well, everybody just needs a master's degree because “unskilled labor” is solved by more education. It's like, yeah, that's the problem. At the individual level, this is fine advice. Yes. Someone who can only command $12 an hour or $15 an hour working at Chick-fil-A, yeah, they could go get a master's degree in chemistry and go get a really high paying job, but as a policy position, that is garbage.

And I think that it's this idea of, at the end of the day, there is so much about our society that does not scale so much. Good individual advice does not work at scale. And does that mean that you should not pursue FIRE? No, not in my mind. I don't think of that as a reason not to pursue it, but I also think we have to talk honestly about what FIRE is. It is an alternative path to the status quo that does not actually fix any of the root causes that make that status quo undesirable.

But it might help you free up the time and energy that you need to change the status quo if you want to, which I think is what Pete was getting at, which is that if you have a society of people that is largely unburdened by #WhatHasBeen, and they are not spending 40 hours a week doing their fake email job or doing low-wage work, that there is a certain optimism that says that productive capacity will get funneled into things that are more meaningful because people are no longer required to work for money.

Henah:

And that's what I'm saying, I think is how FIRE has shifted the game for me is that if I can escape full-time, work in 10, 20 years in a way that I can—

Katie:

Oh, so we're trying to escape. Are we? Yeah. Interesting. Trying to quit the second I hit that Fat Phi number.

Henah:

Yeah. Interesting. Trying to quit the second I hit that Fat FI number.

Katie:

Oh, really? What would you do instead? What would you do instead of Rich Girl Roundup? How would you rather be spending your time right now than having this lovely conversation with me?

Henah:

I would make my own Substack and my own Instagram called Money with Henah.

I do agree though that the premise of FIRE for me is to give myself that freedom and flexibility where I can go put my energy into social justice or global development work or whatever it is. It reminds me of how rich women have nothing to do except charity work and all the tropes. Like, you already have the money. What else are you going to do? I want to be a rich woman, is what I'm getting at. I'm kidding. But yeah, I think that that is what he was getting at. And so sorry to Rachel.

Katie:

I was going to say, man, Rachel's probably like Rachel, why the fuck did I even write in? That was such a diatribe. No, but you know what? Actually in this case, we did answer the question though. I'll say sometimes we just use the question as an excuse to whatever else we want to talk about, but we did answer it. She says the question is, is FIRE even scalable? And I feel like we just did a pretty good job of breaking that down.

Henah:

She didn’t actually ask that question.

Katie:

Oh, well, what was the actual question?

Henah:

She said, “If we're part of a society, then how does this play into FIRE? It feels like a large part of the goal of FIRE is to get rich, check out, and consume, and I don't love that.”

Katie:

Oh, so the question is how does being in a society play a role in going for FIRE?

Henah:

Yeah. But I think we also addressed some of those things like the ethics of FIRE.

Katie:

So the question you asked was this, but it made me think of this other thing that I actually wanted to talk about. So that's what I'm going to talk about instead. That's what we should call this segment.

Henah:

Two minutes ago you said, hey, we didn't do that for once. Here we are. All right.

Katie:

How about a money story?

Henah:

All right. I do have a money story. So this one came from Colleen S, and I think Katie, you'll actually find this really interesting. So basically they had a washing machine malfunction in 2021 when they were living at base housing at Camp Pendleton, and the washing machine was one that they owned. So they got a bill of $14,377 to fix the damage from that malfunction.

Katie:

Oh, like it leaked or something?

Henah:

Yes. Got it. And it created issues in the floors. And so the renter's insurance that they had, USAA and Lincoln Military Housing, they reached out to both of them, and they fought with them for six months. And they had discovered that Lincoln had a $50,000 deductible, and USAA liability would not cover the damage at first. And so they started reaching out to all these different news platforms. They've actually shared this story on a couple of different outlets, but basically they were on the hook to pay this $14,000 because they kept being denied and they had to use their emergency fund.

But eventually, USAA did pay the bill, and then they updated their renter's insurance policy to cover military families living in privately owned base housing who experienced water damage caused by their own personal property, which I thought was kind of interesting that it actually changed a policy that they offer.

Katie:

Oh, so wait, so USAA then wrote into the policy that they will cover that?

Henah:

Yeah, that's how I interpreted it.

Katie:

Oh, at first I thought you meant, they wrote in like, oh, and by the way, if for example, hypothetically you're washing machine broke, we aren't covering that.

Henah:

I think that's what they had done. And then they realized that's not fair for military families who are private.

Katie:

Oh this is a happy ending then.

Henah:

I mean, to the extent that you can be billed $14,000 and fight it for six months, sure.

Katie:

Yeah. That's crazy. So to recap, they had a washing machine that malfunctioned. It sounds like the element of this story that's kind of interesting is that they're dealing with military housing and USAA, so two very specific entities in the US, but that they originally denied the claim for almost $15,000 worth of damage. So yeah, I would've assumed a renter's policy would cover something like that.

Henah:

Yes. And so one of the things that a lot of the issues they ran into was because this military family—like most—lived in what's called a public private venture. So the federal government owned the land, but the house itself is leased by a private company, which was then rented to service members in exchange for their military housing allowance. And so it created all these complexities of what's counted as covered and what's not. But I thought it was an interesting story, one, because clearly they fought it and they were able to get the money paid back to them.

Katie:

Yeah. Happy ending.

Henah:

But also that it changed policy that they offered, but also that a lot of people have renter's insurance, myself included, and to really know what's covered and what's not. Because I think my husband and I literally just picked whichever one sounded good that came with a bundle. We were like, yeah, sure. We didn't own that much that could cost much anyway. And now I'm sort of like, oh, we should go back and really look at that, because it doesn't technically preclude you from anything if you don't know the ins and outs.

Katie:

Okay. Amazing. Well, that is all for this week's Rich Girl Roundup, and we'll see you on Wednesday to talk about the differences or maybe the lack thereof between Gen Z and the Boomers. Big suspense.

Henah:

Maybe we'll actually answer the question that time.

Katie:

Woo. Rich Girl Roundup. Yeah. Rich Girl Roundup. Woo. Rich Girl Roundup. Yeehaw. Rich Girl Roundup.

Henah:

Yay. Love it. Woo.