Grad students should save for retirement

[downer]

A friend of mine commented recently that poor people are often much worse at saving and planning ahead than people of means. The idea is that they engage in reckless spending, on jewelry, expensive phones, computers, and other high price items they didn't need. I don't know how much truth there is to that, but certainly some people do behave like that.

I heard of a family shelling out close to $3000 for concert tickets recently -- a middle class family with middle class jobs. That was beyond my comprehension.

I didn't grow up poor but there wasn't a lot of money. I have always been stoic in the sense that I learned to not want what I could not afford. I've always been a saver, and it has served me well, since I've had much less anxiety about money than others.

When I was in my teens a lot of people firmly expected a nuclear war. That didn't happen (yet). As I said upthread, I think there is a pretty strong chance society will disintegrate in the next few decades. But often the rich do pretty well even when that happens. The bigger the safety buffer you can build for yourself, the better, it seems.

On the other hand, my dad died with negative assets. He didn't save anything. His debt was wiped out when he died. It's not necessarily a terrible plan. He had a good life. It partly depends on how much of a safety net you can arrange for yourself, and he was good at getting people to help him out.

A lot of it is to do with how resourceful you are in emergencies and how well you tolerate debt and risk.

[Hibush]

One should be aware of the tradeoffs between today and tomorrow are worth it to each individual.

And a dollar's worth of fun today is worth more than a dollar's worth of fun tomorrow. :-)

My parents have a significant travel fund saved up, but they are now too infirm to travel. They gave me the funds for a trip with the admonition: Travel now, dammit, before it is too late. Don't skip the fun stuff on the trip because it seems extravagant.  TBH, it is a bit hard to get in that mindset. (They were poor grad students when I was young. And they grew up in a place renowned for frugality. I got a triple dose.)

[Kron3007]

A friend of mine commented recently that poor people are often much worse at saving and planning ahead than people of means. The idea is that they engage in reckless spending, on jewelry, expensive phones, computers, and other high price items they didn't need. I don't know how much truth there is to that, but certainly some people do behave like that.

I heard of a family shelling out close to $3000 for concert tickets recently -- a middle class family with middle class jobs. That was beyond my comprehension.

An interesting TED talk on this:

https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash?language=en

In case you dont feel like watching it, the summary is that it is really hard to make long term plans and good decisions when you are poor since you are worried about more immediate needs, leading to poor choices.  So it can be a bit of chicken and egg situation, are they poor because of bad choices, or are they making bad choices because they are poor?  Probably a mix?

[Kron3007]

One should be aware of the tradeoffs between today and tomorrow are worth it to each individual.

And a dollar's worth of fun today is worth more than a dollar's worth of fun tomorrow. :-)

My parents have a significant travel fund saved up, but they are now too infirm to travel. They gave me the funds for a trip with the admonition: Travel now, dammit, before it is too late. Don't skip the fun stuff on the trip because it seems extravagant.  TBH, it is a bit hard to get in that mindset. (They were poor grad students when I was young. And they grew up in a place renowned for frugality. I got a triple dose.)

My parents were fortunate enough to do a lot of traveling, especially after retirement, but gave very similar advice to travel now while you are young(ish) and can enjoy it.  They have also suggested not to suffer now to save for the future since I will (hopefully) make more then, so the dollar is more valuable to present me.  Obviously this needs to be balanced, but they know I am cheap by nature/habit  and I'm sure they would have different advice if they felt I was spending irresponsibly. 





   

[apl68]

A friend of mine commented recently that poor people are often much worse at saving and planning ahead than people of means. The idea is that they engage in reckless spending, on jewelry, expensive phones, computers, and other high price items they didn't need. I don't know how much truth there is to that, but certainly some people do behave like that.

I heard of a family shelling out close to $3000 for concert tickets recently -- a middle class family with middle class jobs. That was beyond my comprehension.

An interesting TED talk on this:

https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash?language=en

In case you dont feel like watching it, the summary is that it is really hard to make long term plans and good decisions when you are poor since you are worried about more immediate needs, leading to poor choices.  So it can be a bit of chicken and egg situation, are they poor because of bad choices, or are they making bad choices because they are poor?  Probably a mix?

I've wondered that myself.  The tendency of those who are poor or from poor backgrounds to make poor decisions about finances (and much, much else) is something that I've witnessed for myself at close hand many times.  It makes assisting them an enormous challenge.  It also makes the counter examples of those who manage to break the cycle of bad decisions and squandered opportunities (modest though those opportunities might often be) all the more remarkable and admirable.

[arcturus]

An interesting TED talk on this:

https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash?language=en

In case you dont feel like watching it, the summary is that it is really hard to make long term plans and good decisions when you are poor since you are worried about more immediate needs, leading to poor choices.  So it can be a bit of chicken and egg situation, are they poor because of bad choices, or are they making bad choices because they are poor?  Probably a mix?

I've seen this first hand with students who choose to use a check-cashing service for their paychecks, rather than depositing them into a checking/savings account. Their statement to me (when I questioned their practice) was that it only cost a few dollars to use the check-cashing service. Given the low amount on those checks, it was an exhorbitantly high percentage of their take-home pay for the convenience of instant cash. On the other hand, it was not clear that they understood that they now had sufficient $$ to open a checking/savings account that would not charge them for their services.

In a related vein: while I understand the reasons, it always bugs me that those who need access to loans the most get charged the most to take those loans. [This is just another version of the sentiment that youth is wasted on the young...]

[Kron3007]

An interesting TED talk on this:

https://www.ted.com/talks/rutger_bregman_poverty_isn_t_a_lack_of_character_it_s_a_lack_of_cash?language=en

In case you dont feel like watching it, the summary is that it is really hard to make long term plans and good decisions when you are poor since you are worried about more immediate needs, leading to poor choices.  So it can be a bit of chicken and egg situation, are they poor because of bad choices, or are they making bad choices because they are poor?  Probably a mix?

I've seen this first hand with students who choose to use a check-cashing service for their paychecks, rather than depositing them into a checking/savings account. Their statement to me (when I questioned their practice) was that it only cost a few dollars to use the check-cashing service. Given the low amount on those checks, it was an exhorbitantly high percentage of their take-home pay for the convenience of instant cash. On the other hand, it was not clear that they understood that they now had sufficient $$ to open a checking/savings account that would not charge them for their services.

In a related vein: while I understand the reasons, it always bugs me that those who need access to loans the most get charged the most to take those loans. [This is just another version of the sentiment that youth is wasted on the young...]

Yes, I understand the reason for higher interest rates (risk etc.), but it only helps to make things worse.  This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

Again, I understand the logic behind interest rates etc., but the concept and capacity of entrepreneurism in North America is built around debt and this is only possible with reasonable interest rates. I wonder how many of our major corporations would have failed if they did not have access to cheap money. 

[Parasaurolophus]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

[Sun_Worshiper]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

[marshwiggle]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

These two points go together. The reason countries are borrowing from the IMF instead of other sources is that they're already so mired in debt (due to previous overspending) that no-one will loan them money. If they weren't fiscal basket cases to begin with, they wouldn't need the IMF. (Like the previous post, not to try and justify every decision and action by the IMF, but to make the point that countries who borrow from them have already made a lot of choices that got them into the mess they're in. Nobody else will want to lend to them, at least at anything approaching sane interest rates.)

[Kron3007]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

These two points go together. The reason countries are borrowing from the IMF instead of other sources is that they're already so mired in debt (due to previous overspending) that no-one will loan them money. If they weren't fiscal basket cases to begin with, they wouldn't need the IMF. (Like the previous post, not to try and justify every decision and action by the IMF, but to make the point that countries who borrow from them have already made a lot of choices that got them into the mess they're in. Nobody else will want to lend to them, at least at anything approaching sane interest rates.)

I honestly dont know much about the IMF, or economics for that matter, but while traveling in developing countries they have often told me how they are beholden to the IMF who prevent them from making policy changes they otherwise would.  I dont know the IMF's motives, but the whole situation stinks a little, at least on the surface.   

[dismalist]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

These two points go together. The reason countries are borrowing from the IMF instead of other sources is that they're already so mired in debt (due to previous overspending) that no-one will loan them money. If they weren't fiscal basket cases to begin with, they wouldn't need the IMF. (Like the previous post, not to try and justify every decision and action by the IMF, but to make the point that countries who borrow from them have already made a lot of choices that got them into the mess they're in. Nobody else will want to lend to them, at least at anything approaching sane interest rates.)

I honestly dont know much about the IMF, or economics for that matter, but while traveling in developing countries they have often told me how they are beholden to the IMF who prevent them from making policy changes they otherwise would. I dont know the IMF's motives, but the whole situation stinks a little, at least on the surface.   

The IMF makes loans to countries with Balance of Payments problems while maintaining a particular exchange rate. The way to get into Balance of Payments problems is to spend more than you earn. The loans are typically conditional on cutting government budget deficits. That's what beholden means: You get the loan if you stop spending like a drunken sailor!

[marshwiggle]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

These two points go together. The reason countries are borrowing from the IMF instead of other sources is that they're already so mired in debt (due to previous overspending) that no-one will loan them money. If they weren't fiscal basket cases to begin with, they wouldn't need the IMF. (Like the previous post, not to try and justify every decision and action by the IMF, but to make the point that countries who borrow from them have already made a lot of choices that got them into the mess they're in. Nobody else will want to lend to them, at least at anything approaching sane interest rates.)

I honestly dont know much about the IMF, or economics for that matter, but while traveling in developing countries they have often told me how they are beholden to the IMF who prevent them from making policy changes they otherwise would. I dont know the IMF's motives, but the whole situation stinks a little, at least on the surface.   

The IMF makes loans to countries with Balance of Payments problems while maintaining a particular exchange rate. The way to get into Balance of Payments problems is to spend more than you earn. The loans are typically conditional on cutting government budget deficits. That's what beholden means: You get the loan if you stop spending like a drunken sailor!

IIRC, in the case of Greece, they had for years been financing really early retirements with generous benefits on debt, and at the same time not bothering to collect all kinds of corporate taxes that were owed. They could do so since being part of the EU made lenders willing to keep giving them money. So yes, IMF-imposed austerity was going to be pretty tough, because they had been living beyond their means for a long time, and getting things in order could only be painful.

[Kron3007]

This is not limited to individuals either, if you look at lending practices in central America for example, it is shocking.  They pay crazy interest rates, making it very hard to get ahead.  Probably by design...

IIRC, that's absolutely by design where the IMF is concerned, because it gives them leverage in the restructuring process to demand various free market measures.

This could be its own thread, but I don't agree with this assessment of IMF lending. These countries request loans from the IMF and, in exchange for those loans, agree to make policies to balance the budget and do a better job collecting taxes. And interest rates from IMF loans are typically at the market rate (occasionally lower).

Don't get me wrong, there is a lot to criticize about IMF lending and the conditions that accompany it, but the evidence (imo) does not support this idea that IMF is purposely burying countries in debt to force free market reforms.

These two points go together. The reason countries are borrowing from the IMF instead of other sources is that they're already so mired in debt (due to previous overspending) that no-one will loan them money. If they weren't fiscal basket cases to begin with, they wouldn't need the IMF. (Like the previous post, not to try and justify every decision and action by the IMF, but to make the point that countries who borrow from them have already made a lot of choices that got them into the mess they're in. Nobody else will want to lend to them, at least at anything approaching sane interest rates.)

I honestly dont know much about the IMF, or economics for that matter, but while traveling in developing countries they have often told me how they are beholden to the IMF who prevent them from making policy changes they otherwise would. I dont know the IMF's motives, but the whole situation stinks a little, at least on the surface.   

The IMF makes loans to countries with Balance of Payments problems while maintaining a particular exchange rate. The way to get into Balance of Payments problems is to spend more than you earn. The loans are typically conditional on cutting government budget deficits. That's what beholden means: You get the loan if you stop spending like a drunken sailor!

Yes, on the surface, but the people I spoke to were implying that future loans were being used as leverage to guide other non-monetary policy.  Basically threatening to cut off future loans if the country dosn't fall in line.  I dont want to get more specific for sake of anonymity, but the specific subject was non-monetary but a politically hot button issue related to international conventions.

This is where it gets suspect to me.

   

[marshwiggle]

The IMF makes loans to countries with Balance of Payments problems while maintaining a particular exchange rate. The way to get into Balance of Payments problems is to spend more than you earn. The loans are typically conditional on cutting government budget deficits. That's what beholden means: You get the loan if you stop spending like a drunken sailor!

Yes, on the surface, but they were basically implying that future loans were being used as leverage to guide other non-monetary policy.  Basically threatening to cut off future loans if the country dosn't fall in line.  This is where it gets suspect to me.

   

Since virtually any government program requires government financing, then all kinds of "non-monetary policy" have big ramifications for spending. A government deciding to, say, offer free post-secondary education to all while mired in debt can try to buy votes that way and then point the finger at "those IMF meanies who won't let us do it!!!"