I’ve been having conversations with two different audiences these days. The first audience is composed of people like you and me. The second is filled with professionals in the investment management and retirement services industry. I can’t believe what I’m hearing!
In the first audience…several of my financially savvy friends, witnessing the gradual decline in the value of their hard fought savings, now wish they had spent more and saved less. “those families spending all of their income on lavish vacations knew more than us fools saving for the future”. Ouch.
Many in the second group, the experienced financial professionals, are now admitting that the days of the pension probably made more sense than today’s self-directed investor system. After all, the great thing about a pension is those who die young finance those who live “too long”. This pooling concept makes so much sense, indeed! Can I believe my ears? I thought social security should be privatized and that we would all manage our assets like Goldman Sachs geniuses to the moon and live a great retirement?
How can conventional wisdom change so quickly?
Posted by hbennett on July 26, 2010 at 6:26 pm
As a parent of college age kids, it is apparent to me that our system rewards those who choose to spend like drunken sailors.
I made money and saved it. Now it goes to colleges for my kids, who get no financial aid. Some others seem to get financial aid because they have no saved assets to go with their income.
I recognize that some have truly low income and/or career choices that don’t align with high pay. Financial aid is a good thing and should be available to these people.
But to see those with incomes of over $200K and no saved assets get financial aid? This is more common than I would have ever believed. One highly regarded school I know well has 86% of their incoming freshman on financial aid.
I guess it is no wonder the tuitions are so high. But tell me again why I have to pay for this inflated tuition and financial aid to others just because I was responsible and thrifty???
Oh, on the good news front, my IRA balance is doing okay and may still be more assured than any social security…. but of course you may have noticed that IRA payouts and SS payments combined above a certain dollar are taxed. This makes it reasonable for anyone to think why bother on the responsible IRA savings front too (since the “excess” is just going to be taxed anyway).
Responsibility is being punished. The account balances are lower, but they’re not that bad. It’s the government policy that is rewarding bad behavior that is in turn getting more bad behavior and greater public dependence and cost.
Posted by Financial Literacy, LLC on August 29, 2010 at 8:23 pm
I never really looked at the pseudonym of the person who wrote this when I responded the first time, but now it occurs to me that you may be the highly effective soccer coach I know in a hamlet called winchester. Which makes me feel a little embarrassed since you probably know quite a bit more about this subject than I do…hope to see you one of these days at Wedgemere.
Posted by Financial Literacy, LLC on July 26, 2010 at 9:05 pm
Well, I’m not sure anything I say will make you feel any better; but it’s in my nature to try. First, the college thing. You are absolutely right that the financial aid system, as I understand it today (3.5% of liquid assets, 35% of annual gross income), is stacked again the middle/upper middle class. Those with multi-millions can afford tuition like we can afford a summer vacation. Those with very low incomes have an advantage at need-blind-admission schools. But there’s the catch – I suspect that 99% of higher education institutions today are not technically need-blind. So, your savings may have helped your children’s admission.
Second, you will be rewarded for deferring consumption and building a retirement account. Those who live beyond their means (after all, retirement IS a liability that needs to be financed) will likely suffer the consequences,when the retirement bill comes due. My hope for you is that your portfolio is aligned with your life stage and that your retirement lifestyle will not suffer from the global financial crisis which could linger for another couple of years.
As for spending versus saving, I never met anybody on their death bead who said they wish they had purchased a larger house or a more luxurious car. Fulfillment come from the time you spend with people, the things you do for others, the experiences you have in life. True, some experiences are expensive – now that’s a worthwhile thing to finance.
If there’s one thing this global financial crisis has demonstrated, it’s that there are an awful lot of greedy, selfish, and nervous people in this world. Sometimes bad behavior does get rewarded, but I’m hoping that people have a conscience and they will eventually pay.
Good luck to you!