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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.

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.

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.