Tuesday, October 13, 2015
Peter Diamond Econ 490: Managing Future Risk
Ever since I was very young I would say I've been planning for the future. I used to get paid three dollars for every A on my report card when I was in grade school. And while I could have bought video games or toys, I saved up every dollar I got. I saved all my birthday money and good grade money that by eighth grade I was able to invest $1000 in the stock market. Now, I didn't know much about the stock market at the time, but I knew how to save money because at a very young age I knew that the future is never promised, so you need to have a good plan for it.
Skip ten years to now, and I would say more than ever I worry about the future, and that's why most of my decisions are based on 10,20,30 years from now, and not based on the present.
I am an Economics and Psychology major because I thought it could bring me more money in the future. Most big money jobs like Investment Banking and Private Equity hire Finance/Econ/Accounting majors. So if they look at me compared to other applicants, I have all the knowledge regarding numbers, but I also understand the people side of things, so I could excel when closing deals and forming relationships. That unique characteristic that I brought made me more valuable, which lead to more money then, and will in the future.
My summer jobs I also chose based on the future. After freshman year I worked at a law school because I was interested in law and knew I could make a ton of money if I was an attorney. After sophomore year I worked at a private equity firm because if I excelled in that I would be making a million dollars a year by the time I was 28-30. After I graduate I also plan on living at home for a year or two to save money. Hopefully my job is in a big city so I don't need to buy a car either. In my opinion there's no point in living a fancy life when you're young. That's why I plan to save as much as possible when I'm young so I can enjoy the final 40 years of my life.
When kids are starting out, they should build a financial cushion, because you don't want to worry about paying bills in the future. If you're worrying all the time then you can't focus on more important things like your work. I don't live cheaply because I want a lot of money in the future, I live cheaply and make financial decisions because I don't want to worry in the future. Simple as that.
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Am I to infer from this story that you didn't play video games at all while growing up? (Knowing my own kids and the friends they've had, that is a little hard to believe.) Perhaps you had access to playing video games without having to buy them on your own, in which case saving your money may have still been a good idea but then it didn't entail quite the sacrifice you suggest.
ReplyDeleteWhen I was a kid we got an allowance, meant to be spent not saved. But I didn't get paid for A grades and as a parent I wouldn't recommend the practice in general. If the kid likes school and seems to do well there, then paying for grades makes problems. If the kid is struggling and not putting in effort and that persists for a while, then paying for grades might be a remedy. But only then.
Switching to your current situation, and recalling an earlier post where you talked about working yeoman's hours at your internship, there is more than a management of your savings that is at issue. There is investing in yourself emotionally, physically, and intellectually, all outside of work. You can live your whole life around work for a while - maybe several years. Invariably you will then hit a wall and ask yourself, what does it all mean and why am I doing this? If you have balance from non-work things that engage you, it will take longer to hit that wall and then maybe you don't hit it at all. Without the balance, it will happen for certain. The only question is when.
I lived cheaply as a grad student for four years, after which I really wanted something else. Based on that experience two things I would suggest not being cheap on are: a decent bed with a reasonably firm mattress and comfortable shoes that give good support for your feet. There are other things you can cheap it out on and not suffer for it. You don't want to have backache or you feet hurting at the end of each day.
One last point. Depending on the cohort of people you find at work and outside of work who become your friends, their norms will impact your consumption behavior. The gift exchange idea I have talked about repeatedly in class carries over to friendships outside of work. The gifts don't always have to be in terms of money. But if people are being kind to you it is necessary to reciprocate. You will be shooting yourself in the foot if you live so cheaply that you are unable or unwilling to do that.
I definitely played video games when I was younger, so yes maybe I wasn't making that big a sacrifice. But while I could have spent the money on other things, I decided to save it, unlike most kids.
DeleteI disagree about the paying for A's because if you think about it, no matter what grade level you're at you're trying to get good grades for money. In grade school I tried to get good grades because my parents paid me, but in high school I tried to get good grades to get into a good college, and in college I try to get A's so I can get a higher paying job. If you ask the majority of kids why they study or try to get solid grades, they aren't going to say it's because they love school, they're going to say it's because they want to get paid.
And I don't think that's a bad thing, studying more for "money." Because while money isn't everything, you need money to survive and getting good grades is just part of that process.
I do fully agree with you on your final point about consumption behavior with coworkers. If they spend a lot in general and spend a lot on you, you have to return the favor, or else you look bad. If someone gets me a great gift I get them something either just as good or better.