5 ms·

I'm not convinced by the argument that the middle class stay middle class because they spend too much on convenience. $4752 a year extra will not make me rich,

I'm not convinced by the argument that the middle class stay middle class because they spend too much on convenience. $4752 a year extra will not make me rich, far from it. $475,200 a year extra WILL make me rich.

greedo 14y ago
Plug $400/month into an investment calculator (@6%) and see what 40 years would do you... You'd be surprised how much a modest amount of savings can do when compounded over time.
- dennisgorelik 14y ago
  If you are 30 today, then in 40 years you would be 70. Good time to get rich :-)
  - greedo 14y ago
    I'd rather be rich at 70, than poor...
    - dennisgorelik 14y ago
      You are not going to get rich for free. That would require extra effort over 40 years. You can put that effort elsewhere, for example launch 5 startups, or have 5 more kids, or extra vacation every year.
  - teamonkey 14y ago
    After investing $4700/year for 40 years you still won't be rich. The amount I could withdraw each year would still be much less than my current middle-class salary. In other words, I'd have less income than I do now. In fact, I need to squirrel away a very large proportion of my salary to retire and be better off than I am now. I can't afford that, which is the point. The middle class is too poor to ever be rich.
- psykotic 14y ago
  Cut that daily $5 latte adored by the middle class, let the savings compound annually at 6% for 40 years, and you end up with $300,000. That sounds like a lot. Would you say that the middle class is hamstringing their upward mobility by drinking lattes? There are several issues with this simplistic analysis. Here are just two. One, it's ignoring inflation and risk. Two, it's playing a psychological trick on readers (and perhaps on yourself) by asking them to superficially compare the utility of two things, $300,000 in the hand 40 years from now vs 14,600 lattes spread over 40 years, that will make the money seem like the obviously better choice to most people. Actually, it's exceedingly difficult to get a handle on sparse, spread-out utility like in the latte scenario. Eliezer has the thought experiment where he asks you to compare the disutility of one person being tortured vs a million people suffering some trivial inconvenience like having a dust speck in their eyes. There he is spreading the utility over many people rather than over many years for one person, but the issues are strikingly parallel.
  - larrys 14y ago
    "Cut that daily $5 latte adored by the middle class" In theory (as presented by David Bach's latte factor (haven't read it but have heard of it)) but in practice unless it's forced savings people tend to spend differently if they have money and resources just because they feel secure and have a safety net. So they can take more risk. The other thing that the "latte factor" doesn't take into account is the positive benefits of that $5 purchase. You go somewhere, you feel good perhaps that has an impact greater than just drinking coffee that you make yourself. There is a psychic benefit.
  - greedo 14y ago
    Not hamstringing their upward mobility, but definitely hamstringing their retirement (assuming they're not funding it adequately). Of course inflation and risk are factors. I didn't realize that I need to include footnotes and references when discussing a common idea, that of investing for long term goals. And I think Eliezer's experiment is a load of crap, imho.
- TylerE 14y ago
  Show me an investment right now that is returning 6% per year without substantial risk, also to be fair in 40 years $300k is highly likely to be worth much less. For instance, 40 years ago, $3000 would buy a competent sports car, new, (MGB), and $7500 would buy a V-12 Jaguar (Source: http://www.teglerizer.com/new_car_prices_in_1972.htm http://www.teglerizer.com/new_car_prices_in_1972.htm). Imagine telling some in 1972 that if they put $50 a month in an investment account, in 2012 they'd have $37,500. That's sound like an enormous sum to them (10 new sports cars!), but when they cashed out this year I bet they'd be underwhelmed with the buying power of all that saving.
  - greedo 14y ago
    There is no investment without risk. And in fact, volatile times (as well as recessions) are some of the best times to invest. I wish I had had more liquidity in 2009. And when comparing inflationary effects, I bet if you gave a true comparison between the quality of the cars available in 1972 and 2012, adjusted for inflation, that the 2012 cars would win out.
kalininalex 14y ago
$4,752 of extra savings a year is an absolutely MASSIVE amount for a middle class person. For example, if you're already saving $20k a year, that will bump up savings to almost $25k. Then, this is just one source of additional savings. Cut further on services you don't really need (coffee at $4 a pop, $150/mo cable TV bill, etc.) and now we're talking some serious money.
- anothermachine 14y ago
  If people stop buying things, they won't get the 33%-off savings. Don't double-count. Middle class people don't spend enough in a year ($40k per person, tops?) to be rich even if they spent NONE of it. And if they "got rich" saving money, what is that money for? To be spent on desirables.
- teamonkey 14y ago
  None of this is going to make me rich though. Not by a long shot. Not even a tiny way there.

greedo 14y ago

Plug $400/month into an investment calculator (@6%) and see what 40 years would do you... You'd be surprised how much a modest amount of savings can do when compounded over time.

dennisgorelik 14y ago
If you are 30 today, then in 40 years you would be 70. Good time to get rich :-)
- greedo 14y ago
  I'd rather be rich at 70, than poor...
  - dennisgorelik 14y ago
    You are not going to get rich for free. That would require extra effort over 40 years. You can put that effort elsewhere, for example launch 5 startups, or have 5 more kids, or extra vacation every year.
- teamonkey 14y ago
  After investing $4700/year for 40 years you still won't be rich. The amount I could withdraw each year would still be much less than my current middle-class salary. In other words, I'd have less income than I do now. In fact, I need to squirrel away a very large proportion of my salary to retire and be better off than I am now. I can't afford that, which is the point. The middle class is too poor to ever be rich.
psykotic 14y ago
Cut that daily $5 latte adored by the middle class, let the savings compound annually at 6% for 40 years, and you end up with $300,000. That sounds like a lot. Would you say that the middle class is hamstringing their upward mobility by drinking lattes? There are several issues with this simplistic analysis. Here are just two. One, it's ignoring inflation and risk. Two, it's playing a psychological trick on readers (and perhaps on yourself) by asking them to superficially compare the utility of two things, $300,000 in the hand 40 years from now vs 14,600 lattes spread over 40 years, that will make the money seem like the obviously better choice to most people. Actually, it's exceedingly difficult to get a handle on sparse, spread-out utility like in the latte scenario. Eliezer has the thought experiment where he asks you to compare the disutility of one person being tortured vs a million people suffering some trivial inconvenience like having a dust speck in their eyes. There he is spreading the utility over many people rather than over many years for one person, but the issues are strikingly parallel.
- larrys 14y ago
  "Cut that daily $5 latte adored by the middle class" In theory (as presented by David Bach's latte factor (haven't read it but have heard of it)) but in practice unless it's forced savings people tend to spend differently if they have money and resources just because they feel secure and have a safety net. So they can take more risk. The other thing that the "latte factor" doesn't take into account is the positive benefits of that $5 purchase. You go somewhere, you feel good perhaps that has an impact greater than just drinking coffee that you make yourself. There is a psychic benefit.
- greedo 14y ago
  Not hamstringing their upward mobility, but definitely hamstringing their retirement (assuming they're not funding it adequately). Of course inflation and risk are factors. I didn't realize that I need to include footnotes and references when discussing a common idea, that of investing for long term goals. And I think Eliezer's experiment is a load of crap, imho.
TylerE 14y ago
Show me an investment right now that is returning 6% per year without substantial risk, also to be fair in 40 years $300k is highly likely to be worth much less. For instance, 40 years ago, $3000 would buy a competent sports car, new, (MGB), and $7500 would buy a V-12 Jaguar (Source: http://www.teglerizer.com/new_car_prices_in_1972.htm http://www.teglerizer.com/new_car_prices_in_1972.htm). Imagine telling some in 1972 that if they put $50 a month in an investment account, in 2012 they'd have $37,500. That's sound like an enormous sum to them (10 new sports cars!), but when they cashed out this year I bet they'd be underwhelmed with the buying power of all that saving.
- greedo 14y ago
  There is no investment without risk. And in fact, volatile times (as well as recessions) are some of the best times to invest. I wish I had had more liquidity in 2009. And when comparing inflationary effects, I bet if you gave a true comparison between the quality of the cars available in 1972 and 2012, adjusted for inflation, that the 2012 cars would win out.

kalininalex 14y ago

$4,752 of extra savings a year is an absolutely MASSIVE amount for a middle class person. For example, if you're already saving $20k a year, that will bump up savings to almost $25k. Then, this is just one source of additional savings. Cut further on services you don't really need (coffee at $4 a pop, $150/mo cable TV bill, etc.) and now we're talking some serious money.

anothermachine 14y ago
If people stop buying things, they won't get the 33%-off savings. Don't double-count. Middle class people don't spend enough in a year ($40k per person, tops?) to be rich even if they spent NONE of it. And if they "got rich" saving money, what is that money for? To be spent on desirables.
teamonkey 14y ago
None of this is going to make me rich though. Not by a long shot. Not even a tiny way there.