broadsideblog

Be Thrifty – Or Else

In behavior, Money on April 18, 2010 at 8:46 pm
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Being cheap is the new black, writes Daniel Akst in the Wilson Quarterly (you have to pay for on-line access), quoted in The New York Times:

To be thrifty, after all, is to save, and to save is not only to keep but to rescue. Thrift is thus a way to redeem yourself not just from the unsexy bondage of indebtedness but also from subjugation to people and efforts that are meaningless to you, or worse. Debt means staying in a pointless job, failing to support needy people or worthwhile causes, accepting the strings that come with dependence, and gritting your teeth when your boss asks you to do something unethical (instead of saying “drop dead”). Ultimately, thrift delivers not just freedom but salvation — which makes it a bargain even Jack Benny could love.

Margaret Wente, writing in The Globe and Mail, wonders how anyone — save the fortunate few with defined-benefit pensions — will actually survive retirement without a pile ‘o cash:

Because of imprudence, misfortune, a vast shift in cultural habits, or the sheer financial drain of supporting their kids until age 28, they are facing their old age with no savings, no pension and few assets. I have no idea what they’re going to do. All I know is that there are plenty of them. For the first time since we introduced old age pensions, millions of people who’ve led comfortable, middle-class lives are facing a big drop in their standard of living when they stop working. No more salmon teriyaki for them.

“A large chunk of the baby-boom generation is on the verge of retirement with only the state to depend on for a retirement period that will be, on average, the longest in Canadian history,” writes consultant Robin Sears in the magazine Policy Options. “We were pension pioneers. But we’ve lost our way.”

Whose fault is it that we don’t save like Grandma did? Is it ours, for crashing our savings rate below zero, and not being disciplined enough to resist the siren call of easy debt that’s been relentlessly marketed to us for a generation? Whose fault is it that we’re living longer than anybody has before, and screwing up the actuarial tables? Whose fault is it that the vast majority of us fail to save at least 10 per cent of our earnings starting at the age of 30, the way we’re supposed to? What about the single mom who’s put her kid through university, or the highly creative guy who is stupidly hopeless with his money, or the manager who got laid off at 57 and has to dip into his savings, or the millions of conscientious people who pay shocking fees to the investment industry to mismanage their RRSPs? Should we blame them, too?

You can see the problem here. Saving up for your old age is an individual responsibility. But helping you do it is a social one.

It would be nice if we could be more like the Chinese, who save 40 per cent of their money. That’s because they know they might starve or die from lack of health care if they don’t. The danger is that we’ll wind up like the Japanese, who suffered a huge economic hit in the ’70s and ’80s. Millions of retired folks were forced back into employment to support themselves. Former doctors took jobs as parking-lot attendants.

As someone self-employed, it’s not an issue I take lightly.

It’s a big pile of ifs: If my partner and I stay together, married or not, I’ll be OK, if his pension is still there; if Social Security pays out to us both what our statements tells us it will; if we keep saving 15% -plus percent of our incomes every single year; if our carefully chosen and diversified investments don’t tank; if , when we finally tap our accumulated capital, interest rates aren’t where they are now — a smack-in-the-face 1-2 percent on safe, secure holdings like CDs.

Now there’s a fair recompense for all that thrift!

If we bust up, it’s Friskies and a cardboard box for me! If I still own my home, and the mortgage is paid off, and if I can afford the monthly co-op maintenance fee, my only possible salvation from penury will be a reverse mortgage. Because my writing income isn’t nearly where I want it to be, and I can’t see suddenly doubling or tripling it for the next decade consistently, (believe me, I’m trying), my projected SS income wouldn’t get me through a month right now. There’s a comfy thought.

The old three-legged stool: SS, pension and savings is missing a leg — the pension — for most of us now. The second leg, savings, is a perpetual challenge when gas is $3/gallon and wages are stagnant or, in my industry falling to 1970s rates. Hey, change careers! Assume $10,000 to $75,000+ in student loan debt and cross your fingers that shiny new job market is all perky and welcoming when you graduate, competing with people willing and able to work at half the wages because they’ve still got five decades to save.

If they do save.

I recently interviewed, for my book, a single 51-year-old with a Master’s degree and $40,000 of student debt. Canned from her non-profit job a few years ago, she makes — wait for it — $7.25 an hour working retail. She couldn’t possibly save a dime and lives thanks to hand-outs from her 82-year-old mother. Her life is not quite what she planned.

One friend, 16 years my junior, is scrambling harder and harder and harder, like a hamster on a speeding wheel, to earn what she needs. Like us, she and her partner don’t even have kids. They are stylish and fun, but live very frugally.

Our “old age” is now.

  1. Whatever you do, remember this: If you are working, tip heavily. There is heap big Karma in treating a wait-person generously. If you can afford to sit down and be fed, you can afford to be generous with the hard working servers. As I’ve heard they used to say in WW2, if you got ‘em, smoke ‘em. It you are working, be generous. The more you do it, the better life gets. It works!

  2. leon, good point. Don’t forget chambermaids. I wonder how many people travel and don’t bother to tip the people who make sure their hotel room is clean and tidy. It’s become an even harder job in recent years as hotels have added many more pillows and thicker, heavier mattresses.

  3. Since we are on the subject of tipping might I also add, as one who used to slave as a “barista”, or someone who makes coffee at a local coffee shop, that coffee servers also deserve tips. Coffee is something that people take SUPER seriously. It can’t be too cold, it can’t be too hot. Hundreds of times I would have to stay my tongue when a person would ask for “a latte with extra froth” from saying “that is called a cappuccino dumbass”. I monitored how often the coffee pots stay out to the minute! I would remember 5 people’s worth of drinks and get them right day in and day out. Most days I would make 5 to 10 dollars on tips. I guess what I am trying to say is that there is a lot more work involved, and a lot more care than people think. If you ever wonder how they make them so quick, it is probably because you are a regular and they started making it before you even got there so you could be out in less than a minute. Thank your Baristas, please!

  4. My money market is really adding up with a whopping 1.07% rate of interest. I think I made 24 dollars last month! Yes, thrift does pay.

  5. It all feels like a game of Wac A Mole to me; invest in riskier vehicles with higher returns (cross your fingers), park it in vanilla funds or CDs and take the hit or…? We plan to look into foreign stocks and funds. Half my retirement funds are totally untouchable anyway because they are still in Canada so I can neither add to them nor shift them in any significant way without huge penalties.

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