From Scarcity to Abundance

Living on the edge

There's been a lot of attention paid to a recent Federal Reserve report showing the number of Americans that are living pretty close to the edge.

Whether it's growing economic inequality, the shift to the 'on-demand' economy, or just the current phase of the economic cycle, the economic fragility of a huge number of Americans is becoming much clearer.

Most disturbing amongst the evidence was the fact that 47% of Americans would not be able to afford an unexpected $400 expense like a medical emergency or a lost job.

What's more surprising is that this does not only apply to the lower or even lower-middle classes. Around a quarter of people making $100,000 year reported that they couldn't afford an unexpected $400 expense. So this has really become an epidemic affecting a huge swath of the country.

We all know that living so close to the edge can be stressful, but it may mean that many of us are unwittingly caught in a scarcity mindset.

Scarcity Mindset

Popularized by Sendhil Mullainathan (who's also one of our favorite Recommended Reads), his work on the scarcity mindset shows that the state of lacking — being hungry, poor, unloved, or like a lot of Americans very close to the economic edge — makes you focus so much on that domain that you make better decisions in that domain … and you make substantially worse decisions in other domains.

Makes us wonder how this level of economic insecurity might be affecting not only our stress levels but also how we're functioning in other domains.

Would we be better parents, better students, better drivers, or even better people if we had a little more of a cushion?

Abundant Mindset

This research on the scarcity mindset stands as an interesting compliment to the abundant mindset that has gained so much attention recently.

Katia Verresen is life-coach to the stars (of the tech world). She counsels leaders at major companies like Facebook and Twitter and according to Verresen, the key to success lies in "abundant thinking," which (highly simplified) means having a positive, grateful and powerful attitude.

Abundant thinking means taking control, deciding that you have a choice in every situation. The opposite, scarcity thinking, is focusing on the negative and feeling as if you have "no choice."

Here's a breakdown:

From Scarcity to Abundant

The million dollar question then becomes: How do we get from scarcity thinking to abundant thinking?

One method promoted by lots of the self-help gurus is to just re-frame how one's see the world. Verresen and others would focus on time-tested techniques like meditation, positive re-focusing, and offering appreciation to help get from A to B.

This is definitely a good start, but as Mullainathan's research points out, reframing and relaxing may not always be possible in a truly scarce environment.

We're evolutionarily built to focus on the key challenges in front of us, and in a world of truly scarce resources — say if you're in the 47% of people who couldn't handle a $400 expense — re-framing and re-focusing might not be possible.

So how can we figure out a way to build just a little more economic stability into our lives? Even if we never used it, how can we move ourselves a little farther from the edge to free us from the scarcity world and help us adopt the abundance mindset that has proven so successful.

Doesn't look like the government will be stepping in to help. There are some fascinating experiments being run by organizations like GiveDirectly and Y Combinator on universal basic income, but these are years away from being able to really make a difference.

But what if we were able to look to the people around us …

Get by with a little help from our friends

One element of the Federal Reserve Report we found fascinating was how more and more people are relying on friends and family to help cover not only emergencies, but also basic financing. 27% of people who hit hard times reported getting help from friends and family. Furthermore, since 2007 the number of people relying on friends and family for help with a down payment has risen substantially.

It would seem that people are already starting to figure it out: a little help from our friends and family is the way to go. Think of how much bigger that could be if it was as easy to get help from a friend as it was to get a credit card?

And what if we could set it up so that the help was there before we even needed it?

What if your friends and family could make sure you were always a safe distance from the edge, and you could help make sure they were too? What if you set up a pool of money that you could draw on if that unexpected expense actually happened?

Would just having money available — even if no one ever needed to use it — be enough to move us from a scarcity mindset to an abundant one? To help us make better decisions in all the other domains of our life?

This is something people have started to use Frank for. It was covered in CB Insights as a new form of micro insurance, but we like to think of it as a way to move from scarcity to abundance.

We hope you'll try it out. We know it can help.

Frank: Sophie

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