Source: CNBC
I came across an opinion article the other day that, although I agree with its overall premise, I disagree with the particular conclusion it came to in regards to it’s advice for Kawhi Leonard to buy a new car instead of the 20 year old SUV that he drives.
If you didn’t know, Kawhi attracted the attention of some of the financial press for owning a 1997 Chevy Tahoe, which he has had since high school even though he signed a $103 million, 3 year deal with the Clippers last year.
Barry Ritholtz, who is an accomplished wealth manager and author and has a lot of credibility when it comes to financial advice, responded to this attention. His overall assertion is that financial “scold” columns that advise people not to spend on lattes and new cars because if they don’t, they too can be rich, is poor advice at best. These financial “scolders” often use examples of extremely wealthy people being frugal to show how if the wealthy can deny themselves something, then so can you.
His rationale for why this is poor advice is that what you can afford is all about staying within your means. Many people make more than enough money to be able to afford a new car or a latte and they shouldn’t be scolded for doing so. In the case of Kawhi Leonard, he argues that driving a 20 year old SUV without many of the safety features of a new model, runs a greater risk of him getting injured in an accident and not making that money. When Leonard has signed on to earn $103 million in the next 3 years, $100,000 for a new car with all the latest safety features is worth the investment to keep his high earning body safe.
Green Isn’t Always Right
We financial folks love to evaluate things in terms of cold risk and reward. Our analytical and rational approach to life decisions are our strongest trait and also our weakest one. It allows financial advisors to take an objective look at what people have accumulated, what their future earning potential is, and how they can protect both what they have earned and maximize how much they can earn in the future. Sometimes being cold and rational helps people that are more emotional to see things in a different light and change their behavior to benefit them in the long run.
What financial folks have a tougher time dealing with though, are qualitative factors that play such a strong role in people’s decisions. Economists and other academics are constantly trying to measure and define happiness and contentment. Some things though, just can’t be quantified and are worth more to a person than money or future earnings.
A Defiant Act
In the case of Kawhi Leonard, you have to take into account the cultural context of the person that is exhibiting this frugal behavior. Kawi Leonard is Black, American and a standout star in one of the most popular sports in Black America (and the world for that matter). When I see him making $103 million and driving a 20 year old SUV, he isn’t necessarily speaking to people who read Bloomberg, Forbes or sip expensive latte’s. He’s speaking to Black America and poor people in America in general. There is a historical and cultural legacy in America as to why this is such a defiant act.
For much of America’s post slavery history, black people have been sold inferior goods, been forced into inferior housing and provided with an inferior diet and healthcare. The food we call soul food consists of the scraps that the masters did not want to eat. Chitlins and pigs feet were the part of the pig the masters wouldn’t deign to consume. Collard greens are bitter and more labor intensive to prepare and were left for the slaves. Fried chicken was popular because it didn’t go bad quickly and slaves could carry it and eat it when they had to travel for days when they were rented out to other plantations, considering there wasn’t refrigeration at the time.
Post slavery, many former slaves were often tricked into buying goods that were low quality and charged a huge markup. This led many to start to seek the best brands for a dual purpose: to know that they were purchasing something that couldn’t easily be counterfeit and to advertise to other people their own personal sense of dignity: that I’m not the poor castaway society makes me out to be, just look at what I am wearing.
Even with housing, the government backed policy of redlining herded black people into communities together where housing was substandard and investment weak. A circle of disdain and forced poverty from the rest of society that we are only just beginning to grapple with and climb out of 150 years after slavery.
From Joe Louis to P Diddy, successful Black Americans have sought to upend this image of poverty and project an image of success despite the odds stacked against them. Many have have communicated this message through material things. Fancy cars, jewelry, thousand dollar suits and mansions. In this sense, Kawi’s gesture may not be about frugality per se, it may be about saying to kids: you can be black and successful and still not have those things and it’s OK. In fact, maybe this is his contribution to the dialogue on what it is to be Black and successful in America. That is a legacy statement that goes beyond basketball and beyond himself, not a decision about his own personal risk and reward.
Numbers On Context
Black household incomes have consistently been a little over half those of white households going back to the last century. This is bad enough in itself as it points to the social divide and institutional dispossession of entire populations along ethnic lines.
Source: Peter G Peterson Foundation
When looking at entire groups of people, median incomes tend to be correlated with the proportion of a group who is highly educated. The proportion of educated whites compared to the whole white population is roughly 50% higher than the figure for Black people.
Source: US Census
That could explain a good deal of the income disparity, although compared to Hispanics you can make an argument that discrimination still plays a part. Apart from income though, net worth tends to be a reflection of income and financial habits over time and the situation is much worse here.
Source: Tax Policy Center
The median family net worth for whites is 10 times what it is for black families. This could potentially point to different financial choices that play out poorly for people over time that could be based on lack of knowledge or cultural norms in regards to money over the long run.
The point of me mentioning these statistics is that Kawhi Leonard’s behavior flies in the face of these trends and their stereotypes which makes his habits so much more significant. If this is his attempt to influence behavior and change the above statistics, then it’s a noteworthy gesture.
What Cost Benefit May Say
When we are backward looking, when we are concerned with protecting only what we already have, we tend to lose a forward looking vision that goes beyond the here and now that transcends ourselves. Kawhi could become an even bigger star, win even more championships and become one of the legends of the game, but he would have to risk getting injured every night he steps on the basketball court to do so. A simple cost benefit analysis would likely conclude: hey Kawhi, you have done enough, just perform mediocre, focus on not getting hurt and collect your money, the hard part is over. I have a hard time believing that Kawi Leonard thinks that way.
The potential to have iconic status in your sport and in the world, is a much bigger drive for some people. It pushes them to take risks and push the limits, even when conventional wisdom says they shouldn’t. From his basketball career to his car, Kawhi is not playing by anyone’s rules. Let him keep his 20 year old SUV and be great.
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