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The cult of “passive income” and how it’s affecting college students

The opinions expressed in this article are the writer’s own and do not reflect the views of Her Campus.

Ever since we emerged into the "New Normal", many individuals, especially College students have discovered different avenues to attain income. It is evident that as college students, we struggle with financial sustainability due to lack of job security, minimum wage jobs, high housing costs, and the infamous student debt crisis. With all these material conditions, you have a recipe for desperation, and college students are the main victims of these conditions. How can we hope for a better future and financial sustainability in a world with so much uncertainty? The pandemic and the resulting lockdown caused 114 million people to lose their jobs over 2020. The ILO estimates working hours lost in 2020 were equivalent to 255 million full-time jobs, leading to $3.7 trillion in lost labor income." claims Felix Richter, a data journalists for The World Economic Forum. With millions of people lost their jobs, many relied on the consistency of stimulus checks or different side hustles in order to survive. With stimulus checks, many people decided to invest in entrepreneurship and different business ventures, while some opted-out to join MLMs and other "passive income' opportunities rather than returning to the work force. College students were no exception for the idea of passive income, whether you identify as middle-class, broke, or wealthy, the idea of attaining money with minimal labor resonates as an amazing opportunity. First, I want to touch upon MLMs and how they tend to target college students, especially young women to join these passive income "opportunities".

MLMS:

If you were on social media during the Spring of 2020, the chances you received direct messages on Instagram asking to join a "business opportunity" were very much apparent. Throughout the pandemic, almost every single woman I know had been approached by these companies to become a "boss babe" and join these multi-level-marketing schemes. To those unfamiliar with MLMs, or Multi-Level-Marketing, are businesses that involve selling products or services where the revenue of the company is derived from a non-salaried workforce selling the company's products or services, while the earnings of these participants are obtained pyramid-shaped or binary compensation commission system. You might be thinking, "but MLMs sell products or services, pyramid schemes require each paying participant to recruit further participants. Hence, MLM practices are legitimate and 100% legal, right?" Wrong. 34th Street Journalist, Aidah Qureshi claims that "Presented in this way, MLMs can seem attractive— the company gets to sell its products through individual vendors, vendors earn some commission from their sales, and consumers get their products. But the truth is far more depressing. In fact, a whopping 99% of direct sellers end up losing money instead of gaining a profit." To further market themselves during the pandemic, many MLMs have marketed the "boss babe" or "girl bosses" culture. These companies claim themselves as women supporting other women, when in fact, they tend to take advantage of financially venerable women such as, military wives, single mothers, and young collegiate women. During lockdown, many women have suffered with a lack of financial sustainability and mental health issues such as depression. MLMs and "boss babe" culture market themselves as the solution: "improve your mindset, join a community of like–minded entrepreneurial women and make some extra money. However, this narrative is a lie. The only people making money in an MLM are the few at the top, and the majority of the profit that they make comes from the distributors, not the product.  The very same business model that claims to be in support of feminism is working against it." claims Qureshi. If you would like to do further research into MLMs and how they negatively affect women, Youtuber Tiffany Ferg goes into a deeper analysis on MLMs and how they portray a false narrative of financial freedom.

Dropshipping:

Dropshipping is a form of retail business where the seller accepts customer orders but does not keep these goods sold in stock. Drop shipping is essentially order fulfillment that does not require the seller any responsibility over inventory rather these products are passed on to a third-party supplier, who then ships the order to the customer. Drop shippers tend to buy products off of e-commerce websites such as Alibaba and Aliexpress, then set up a website using Shopify, and identify and target buyers through Facebook ads. Although, drop shippers tend to sell on other social media platforms like Instagram and selling through other marketplaces such as Amazon. Even though this form of passive income resonates as attainable and profitable, some supplier can be deceitful about their products and dropshippers obtain thing profit margins. Blend College writer, Jeff Lam points out that "many suppliers take advantage of college students looking to start a dropshipping business. They recognize that college students are young and inexperienced in the business world. They then use this to their advantage by taking the money from the students themselves but not supplying the goods to the buyer." If these suppliers do not communicate or ask for subscription fees, these are major red flags, causing unsatisfied customers and an adequate amount of returns. Dropshipping may be perceived as easy and convenient, however there is a lot of risks due to high competition with other dropshipping sites and untrustworthy suppliers.

Real estate investing:

Thanks to Dystopian Real Estate culture perpetuated in shows such as Selling Sunset and Selling Tampa, Real Estate Investing as become one of the most popular methods of passive income. While wholesale retailing may present itself as a lucrative business, it is not the quickest and easiest way to start a journey in real estate. Because of Tiktok, wholesaling presents itself as an legitimate investment with no risks and market it as a career with minimal effort. The reality is that it takes a lot of effort, patience, and an extensive amount of market research before you go in and start investing into wholesale real estate. You also need to be able to network with people that are potential buyers and sellers to start getting leads. While this does sound like a great option for those attempting to enter the real estate business, you still need cash for investing and extensive research on the housing market. Then there's Flipping, which is purchasing revenue-generated assets and quickly reselling them into profit. Within the real estate industry, the term is used by investors to describe the process of buying, rehabbing, and selling properties for profit. Flipping can have people make a quick profit however, there are multiple unanticipated expenses such as building permits, contractor delays to renovations, and materials that you may not have the budget for to renovate the houses. Hence, it is imperative that you must have capital to join this business, any investment properties may be subject to capital gain taxes as well.

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FINANCIAL INFLUENCERS:

Based on recent statistics, "At least 91% Of Gen Z and 75% of millennial respondents used social media for information on investing, more than any other source of information." With so much consumption of social media, financial influencers can create content for those hoping to be self-employed as well. This phenomenon of financial influencers came from 25-year old Tiktoker, Austin Hankwitz as he managed to make roughly around 500,000 dollars a year pushing content on how to become a millionaire. Moreover, he gets offers for different brand deals and was able to build his portfolio on social value at about $1.3 million since March 2020. These creators tend to share their stories about how they were financially struggling, which reels in the audience and sharing reactions to other personal financial topics that offers these influencers some sort of relatability to the viewers. Also, these aspiring mentors about make it a habit to flaunt their wealth on social media: "look how successful I am, look how much money I generate annually. This could be you too!" Naturally, this attracts viewers, especially younger audiences that sense the relatability and hope to gain financial freedom. Yet again, this is very reminiscent of how MLMs function, it's the same process. They tend to hook you with a sympathy story: how much capitalism drains the working class or the evils of Corporate America. Which then creates an allure of entrepreneurship or being self-employed as very intriguing." This crossover of personal financial influencers differentiate from previous financial gurus because they started with real-estate content and the exploitative "self-help" NFT bro finance channels. Before you go and start purchasing a course of real-estate or NFTs, think about these influences as this: If they are so rich and successful, why are they making Tiktoks and YouTube videos? Do these influencers want that extra competition? No, they want to create a social media presence that is valuable and those videos are just teasers to take advantage of those who are so financially vulnerable, they just want to learn. You want to make 10,000 this month? Just purchase these courses e-book, and coaching seminars.

NFT INVESTING:

So what exactly are NFTs? For those unfamiliar with this financial phenomenon, NFTs stands for non-fungible tokens. Which basically mean digital assets that belong to you and you alone. Fortune Magazine states: "because NFTs are rare by nature, there is inherent demand, creating plenty of opportunities to flip them for profit on platforms like OpenSea. Flipping is a loose term for buying low and selling high. For example, in October 2017, NFT CryptoPunk #8348 was sold for $456. Currently, the very same NFT is valued at $171 million. " Even though NFTs sounds like a good investment, the market for NFTs is not very liquid. Given the premature state of NFTs, these tokens are not widely understood and the number of potential buyers and sellers are very at a small-scale. This means, NFTs can have a difficulty to trade and NFTs are not a very volatile source of income. Which brings us to the conclusion that NFTs do not generate income, "Unlike dividend-paying stocks, interest-bearing bonds and rent-generating real estate, NFTs do not offer their owners any income potential. Like antiques and other collectibles, the returns associated with NFT investments are based entirely on price appreciation, which is not something you should count on" says Thomas J. Brock, an Investment Management and Finance Professional. So even though we have seen some people get very rich of NFTs, many people have lost a lot of money as well. These strategies tend to target young and low-income audiences on how to start investing in stocks or purchase that course on how to invest in Forex. Moreover, some NFT influencers have allegedly used Crypto or NFTs in bump-and-dump schemes like, Ice Poseidon scamming $500,000 from fans in a crypto scheme. Therefore, for those who want to learn how to invest in stocks, try investing in stocks with more liquidity in the market or putting some money in mutual funds.

FINAL THOUGHTS:

We should not despise those who are trying to generate passive income, especially college students that feel the need to have some sort of financial safety net. What if we hit another recession? Or if you lose your job, how are you going to pay your bills? How are you going to pay for health insurance or college tuition? Hence, this idea of having multiple sources of passive income while going to school, sounds like a adequate backup plan. If you lose your job or one of these streams of income does not work, you have other streams of money coming in to support yourself. However, I do not recommend listening to these influencers or MLM "boss babes" that claim they have all the resources to make you rich. If you need to purchase a course of crypto investing or a small fee of $300 to join a MLM team, I would definitely look into other avenues of attaining income.

Amanda Ultimo is an international business major with an associate's in Business Administration. Serving as Lead Campus Ambassador for The Women's Network and former Treasurer for WGSA, both organizations that focus on Women's Rights and Equality. Amanda also provides written pieces about fashion, culture, art, and beauty.
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