We talk a lot on this website about how to increase returns and lower defaults, but at the end of the day our money is simply not worth living for. The reason I work hard to earn a good return on my Lending Club IRA is so that it might enable what is more important: the relationships with my family and friends.
Life is found in living generously. In the day to day, this entails joining into reciprocal life-giving community with others. Yet few realize how every element of our lives can become generous. Beyond caring for friends and family, we can make a tremendous impact on the world in the way we structure our lifestyle, even in how we operate our finances. The ways we earn and spend our money has a tremendous ability to positively impact the lives of those around us.
The Quest for Ethical Underwear
Let me use a somewhat dramatic example: this very day, June 17, underage children are hard at work in Asia sewing clothing for those of us who live in the United States. And I don’t just mean fifteen year olds. Twelve year old kids, children like our own, are hard at work on the clothing we will someday wear. They are people like us with hopes and dreams to have healthy, thriving realities, and we have the ability to make a difference in their lives.
Yet most of us use their clothing without consideration of their labor. This is not because we are mean-spirited or intentionally exploitative. Quite simply, it is incredibly difficult to ethically dress ourselves. The other day I needed a new pair of boxers, and tried to find some that were made by a company with solid labor standards. Do you know how difficult this task was, even in the city of Seattle? I went to five stores before settling with a nearby American Apparel, and paid a premium for them: $18/pair.
I search for ethical clothing because I believe that twelve year old kids should be going to school, not sewing sweatshirts, and when I purchase clothing that believes this I support a market that improves the condition of the world. Children in our world’s poorest nations would have better lives if all of us within the United States made a similar effort to purchase our goods from companies that are considerate of their laborers.
This call is not a burden; indeed, it’s the secret to being happy. If we make our everyday choices considerate of others, we live richly. We leap-frog the quagmire of our self interest and enter into a life that shines wide with meaning.
The (Failed) Quest for a Social Mutual Fund
As I’ve mentioned before, my original foray into ethical investing was through a “socially responsible” mutual fund. This was a fund that promised to consider the environmental and labor standards of the companies it funded. I was moved by how they seemed to trumpet the important of ethics while keeping pace with the S&P 500. Plus they had a beautiful website that simply oozed with photos of mountain ranges.
Five months after opening this IRA I happened to glance at their holdings, a list of the stocks inside this mutual fund. I was surprised to discover that they were not very socially responsible at all. Their top holdings were in large companies like Pepsi. While I do enjoy the occasional ice-cold cola, I was frustrated by this discovery, frustrated by the lack of intentionality. Surely there had to be a better way to help the world than through sugar water.
Was there such a thing as a truly socially responsible mutual fund? Digging deeper, I found that lots of people were asking this same question (see this article from Forbes). It seems that funds which attempt to provide a solid consistent return often state themselves as socially responsible to simply differentiate themselves from the 8000 other funds out there. Many socially-conscious investors eventually succumb to skepticism like myself, doubtful that there exists a socially responsible way to get a consistent return on investment.
Socially Responsible Lending
This is why I love peer to peer lending. It is an amazing way to invest and save for retirement that also positively impacts those in need. The majority of borrowers are folks trying to consolidate debts and pay off their credit cards at a more favorable rate. Where before somebody was in debt to five different credit card companies paying 25% interest, now they have a single payment with a lower rate.
If you look at the article I wrote recently outlining my returns, you will notice I am invested in over 700 peer to peer loans. I do not think of these as loans; I think of them as people. I have taken my retirement account and lent it to over 700 individuals and families across the United States who need it, individuals who have good credit reports and worthy stated purposes for my cash. Zoom out from my portfolio to the landscape of peer to peer lending as a whole: over 200,000 people have been issued a peer to peer loan, 200,000+ indebted individuals and families who have found a more reasonable interest rate, giving them precious financial breathing room.
When Will Socially Responsible Investing Discover Peer to Peer Lending?
The curious reality remains, however, that peer to peer lending has yet to catch on for its ethics. Read articles throughout the internet, and the majority of its cheerleaders are busy celebrating its return on investment. So I have to ask: when will the ethical investing movement discover peer to peer lending?
As I said earlier, I think our greatest reward is found in the relationships that comprise our lives. Finances and retirement accounts are important only so far as they enable us to focus on what really matters. In this way, I hope the country begins to involve itself in peer to peer lending, not just for the yield it offers, but because of how refreshing it is to help those in need.
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