The bare-minimum financial move any time we receive a paycheck is to put a certain amount of it away for retirement and emergencies. As you may have heard, rough common knowledge is to have six months’ income as backup at all times and to save 10-15 percent of income starting in our twenties. I’m sure you’re allowed to save a lot more than that, if you want to.
Savings mechanisms come in different ways. One is the individual retirement account, or IRA. Contributions to a Roth IRA are made with after-tax income, but the funds are not subject to tax on withdrawals or earnings. A traditional IRA's contributions in comparison are tax-free, but income tax applies to withdrawals. This does make a difference. When you need to know what difference it makes for you, it’s time for a fiduciary.
IRAs, mutual funds, exchange-traded funds and other things on the back page of the Sunday paper are all ways to put your faith in the market, contribute to business and economic growth and capitalize on it in a few decades. Of course, people also store wealth in real estate, which provides invaluable help for high-expenditure items when you have a mortgage you can refinance.
There’s no reason not to invest in both real estate and the stock market. The former is fairly straightforward. The latter, however, is powerful because it affects many more people than just those who live in a particular house. What you invest in sends a strong message about what you’re willing and hoping to see succeed, affecting vast masses of people.
That’s why socially responsible investing (SRI) has become an object of focus lately. Investors who engage in SRI use this tool to pull financial support from companies that partake in human rights abuses, environmental mismanagement, child labor and irresponsible governing, among others. More than a decade ago, a “green bond” was issued by the European Investment Bank to back projects for renewable and efficient energy. By 2017, both public and private green bonds at a value of more than $155 billion have been issued.
We’ve seen our own impact-investing drive here on campus with the Divest movement, which passed the referendum by a 3.4 percent margin last March out of more than 6,000 votes, according to Minnesota Daily reporting. Its goal was to “demand that the Board of Regents divest from companies that are 1) complicit in Israeli violations of Palestinian human rights, 2) maintaining and establishing private prisons and immigrant detention centers, or 3) violating Indigenous sovereignty." This was all about money talking, implicitly through any university investments.
What this all amounts to may just be too little too late. At the rate we are building and investing in sustainable energy, it will take 400 years to transform that system, according to an MIT Technology Review article. The UN Intergovernmental Panel on Climate Change still found 12 years left to avoid catastrophe in climate.
Investing is important, money does talk. Maybe you could rationalize it as some sort of rolling-basis financial democracy, which demonstrates the will of the people. The true power is with those who make state, federal, and international-level decisions. The rest of us are responsible for choosing those representatives wisely. In the meantime, SRI may not cause the U.S. to promise to remain in the Paris Climate Accord in 2020, but it can send continuous, impactful messages and support. Apart from voting responsibly, spending meaningfully is effective too.