Escaping Slavery Through Financial Literacy - Part 1

When families transition from slavery into regular employment it is important for them to quickly improve their financial literacy to avoid falling back into slavery.

Financial literacy is important regardless of your social status or country of origin. An individual’s prospects and those of their family are synonymous, in many ways, with the financial practices they adopt. The adoption of these practices has more to do with what a person knows than the size of their paycheck. Or put another way, the greater a person’s financial literacy the better their financial situation. Despite the importance of financial literacy it is not taught in most schools to the same extent as numeracy and literacy.  Consequently, adults who can find the value of “x” and who can quote Shakespeare are likely to live under crippling debts. These same people will also not be able to ensure the long-term financial future of their children.

Time and chance happen to us all and there are examples of financial literate families being trapped in horrendous financial situations. The absence of adequate social safety nets, fair wages, and sudden illness can decimate well thought out financial plans. These uncertainties cannot be prevented by good financial practices, however, their negative impacts can be significantly reduced. New Rivers Enterprises has partners in Pakistan who regularly demonstrate that financial literacy can assist people in dire social and economic circumstances. When families transition from slavery into regular employment it is important for them to quickly improve their financial literacy to avoid falling back into slavery. New Rivers Pakistan’s national director includes financial literacy in the rehabilitation programs she runs for families released from slavery. This training will also form part of the support given to families connected to the factories operated by New Rivers. These families are given living wages and opportunities to run their own businesses through the access to garden plots at New Rivers’ factories.

Cost of living pressures are being felt by families throughout the world due to high inflation rates and many other factors beyond their control. The pressures facing families in OECD countries today are very similar to those faced by families transitioning out of slavery.  Importantly, the financial literacy principles taught to low-income families in Pakistan are also applicable to families facing cost of living pressures throughout the world. The principles which will be explored are: living within a person’s means, enjoying money, debt and creating margin.

Living Within Your Means

Living within one’s means is a simple concept to understand but one which many people find difficult to implement. Corporations spend vast amounts of money to convince us that the products we consume are signs of prosperity. In reality, the products we choose to not consume set us up for prosperity. To quote Tyler Durden (a character in the movie Fight Club) “Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need.”

In Pakistan, financial literacy involves helping families understand how current resources can be used to meet their needs now and in the future. A family transitioning from slavery to low-wage employment will have access to day wages of around 1,500 rupees being brought in by at least 2 members of the family. This income of around 3,000 rupees per day is substantially greater than the 900 to 1,100 rupees the entire family received every two to three days while working at a brick factory. Put another way, this family is now receiving around 78,000 rupees per month compared with around 14,000 rupees per month. The difference is around 64,000 rupees per month. 

This difference is immense for families who have never had food security or access to adequate housing. This level of wealth can become problematic if the family commits to a larger expense than they can afford. For example, if they take on a rent for one floor of a house in a nice neighbourhood which costs 40,000 rupees per month then the majority of their surplus would no longer be available to them. They would again be at risk of re-entering debt-based slavery if unforeseen events (or future events which they ignored) happen.

In this example, this family is better off transitioning first to a more communal home in a less affluent area where the rent would be around 20,000 rupees per month. The family then has 58,000 rupees remaining. Living modestly, this family could have adequate food, clothes, electricity and gas (for cooking and heating) for another 20,000 per month. 18,000 rupees are then remaining. Another 10,000 rupees per month would also provide some and perhaps all of their children with the opportunity to attend a state-run school. The education at this school is not fantastic but it is better than the complete lack of education their children experienced while living at a brick factory. 8,000 rupees remain after all of these expenses. Without financial literacy, this family is likely to spend this surplus on unnecessary but attractive items. 

However, this family stays within their means and sets aside 6,000 rupees per month for unexpected future costs like medical bills. They also set aside 2,000 rupees per month to spend on items or activities they want. The concept of enjoying money will be covered in a future blog. This family then spends these 2,000 rupees each month and 80% of the funds set aside for future expenses is spent on those expenses. After 12 months, this family has successfully transitioned from slavery to low-cost employment. Their children are also consistently attending school. Importantly, the family has also managed to save a modest 14,400 rupees from unspent funds. These savings are more than the monthly income the family would have received at the brick factory. This family’s financial position is still precarious but their financial literacy has prevented them from becoming victims of debt-based slavery despite their financial vulnerability. Their discipled practice of living within their means has dramatically improved their future financial prospects. 

Lessons from this example can be applied to any financial situation. Spending within one’s means creates financial security and stability. Cost of living pressures are making previously affordable lifestyles unaffordable. It takes a courageous person to adjust their spending habits when spending begins to exceed income. The idea of increasing income will be explored more fully with the concept of margin. Getting spending under control is one of the simplest, yet most emotionally difficult ways to address cost of living pressures.  

The first step to living within your means is setting up a system of tracking where every dollar is spent. The digital nature of transactions makes it easy to create this system by accessing the transaction records in banking apps. Simply categorise these transactions.  Patterns will soon emerge of the ways money is being spent. 

The second step is to ask the hard question “What are the expenses we need to meet”.  Housing, food, medical and vehicle expenses are generally non-negotiable expenses.  Being non-negotiable is not the same as being unlimited. Look for ways to reduce these expenses as much as is reasonable. For example, stagger non-urgent medical appointments across different pay cycles. A more significant example is to honestly consider whether the stress of a large mortgage is worth the emotional connection to the building we call home.  Down-size is not a dirty word. It is simply a recognition that financial literacy sometimes requires us to swallow our pride. Financial literacy is not about comparison. It is about managing YOUR finances. Getting the non-negotiables under control is a key component of living within one’s means.

Thirdly, come up with a realistic budget which includes some or all of the other spending categories. Make sure to include a future expenses category, like the example of the family in Pakistan. Unspent funds from this category can easily become savings. These savings can then be applied towards future financial goals or used in a way that allows for the enjoyment of money. To that end, make sure there is a “Spending” or “Fun” category (even if it is small).

Finally, stick to the budget. Importantly, avoid the temptation to top up one category from funds allocated to another category. If the dining out budget is empty, keep it empty until it gets topped up in the next pay cycle. Saying “no” to expenses is not a sign that you are not succeeding. It is a sign of financial literacy being put into practice.

Keep going. Remember, financial literacy principles keep low-income families out of slavery in countries with virtually no social safety nets. If these families can claw their way out of dire financial situations, so can you. Future blogs will cover the financial literacy concepts of; enjoying money, debt and creating margin.

Check out our blogs on 'Small Changes - Big Differences' (Part 1 and Part 2) to learn more about how New Rivers is developing ways to improve the lives of some of the most vulnerable workers in the world.

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We are always interested in feedback and new ideas that people may have with respect to changes that can be made at the brick factories and any other businesses that New Rivers is involved in. We look forward to hearing from you - email us at info.newrivers@gmail.com.

Pictured: Manfred, Michelle (centre) and the New Rivers Team