Last Night’s Twitter Rant Involving 20somethings and Finance

As a side note, when I was posting this, I was getting some stick from presumably 20something people who were all, “Yeah, you don’t know what it’s like these days for 20somethings! It’s terrible!” And I get that, but I don’t know that it matters; debt and savings are concepts separate from that. If you have debt in your 20s (school loans and credit cards, for example) pay it down first if the interest rate on that is likely to be more than you’ll get from investing. Then invest and save. You’ll still be able to hang with friends and have a good time even if you’re putting a little bit into savings/investment with every paycheck. Honest!

Anyway, yes. The article linked to above is seriously one of the stupidest things I’ve read in a while. Don’t listen to it. It’s wrong wrong wrongy wrong wrong.

80 thoughts on “Last Night’s Twitter Rant Involving 20somethings and Finance

  1. There is a lot to be said for spending some money on recreation/luxury/whatever, because that can be a really good thing for your mental health, but yes, absolutely having some savings is a good idea.

  2. And even if you have debt try to have some small savings for emergencies. I forwarded this article to our financial counsellors to watch their heads explode.

  3. “f you have debt in your 20s (school loans and credit cards, for example) pay it down first if the interest rate on that is likely to be more than you’ll get from investing.”

    and that’s the trouble. the debt is a spiral. you start with your student loans and overdraft. you get a job. first thing you’ll probably need is a car, so that’s another loan. then you’ll need a deposit on a flat, probably some furniture. you’ll likely fund that with another loan. there’s probably a credit card ‘for emergencies’ too, so now you have three loans, a credit card, and no savings, and a job. then the company you work for goes under, and you have three loans and no job. so you take another job on lower pay because that’s all that’s available, and you’re earning less than you’re paying out. so you fund that gap with more debt on credit cards, and probably consolidate that periodically, too.

    welcome to my twenties.

    i eventually got to a decent situation in my mid-twenties where i was finally earning enough to pay down the debts, and was a year or two from having everything cleared away. i then got married to a woman who was a couple of years back down the line, and it’s at that point, i discover the scale of her debts and have to take some of those on. this is on top of mortgages, diy, vehicle repair costs, replacing a vehicle that went bang unexpectedly, and eventually kids, too.

    i’m now in my mid-thirties and i’ve still got at least another five years before i might possibly be debt free. no savings, no pension, and just about scraping by each month. and as my wife has depression, controlling her spending isn’t something that’s easy to do, so it might well take even longer than that to clear it all off. even then, there’s still a mortgage to pay off.

    so yeah, it would be *awesome* to be able to save. it really would. but the economic reality is that for my generation and younger, that option isn’t realistic.

  4. bladesuki:

    As may be, but that’s a different discussion than this one, which is about the author of this article saying one shouldn’t be saving in one’s twenties at all. If you can’t save/invest, yes, that sucks without question. If you can save/invest, however, you should, and the earlier the better.

    Let’s go ahead and stay on the topic, please.

  5. I save $50 every paycheck towards a Roth IRA, but if I end up with extra after all my bills are paid, rather than put it into my bank’s savings account, I put it towards paying off my student loans.

    My savings account earns 0.01% APY.

    My student loans are accruing interest at a rate of 6.5% — more than 650 TIMES faster than any interest will accrue on money sitting in my savings account.

    So my savings account has just enough to cover my butt for a month if I lose my job, and that’s it.

  6. sheteachesmath:

    Yes, that’s the smart thing to do, as noted: Pay down debt first when the interest rate on the debt exceeds your return on savings/investment. I personally would add a couple of months to your savings buffer, but fundamentally, yeah.

  7. Sheteachesmath – you have it figured correctly. That Roth Ira counts as savings too and will be worth a lot before you know it.

  8. The idea of the article is that today’s twenty-somethings are still teenagers only slightly self-sufficient. They might have sub-titled it “keep living like your 17!” Part of moving out from your parents’ home is learning self-sufficiency. That includes looking beyond the end of the pay-period.

  9. Robin in NM:

    I’ll tell you what, if Athena is living at home in her twenties, I am going to be charging her “rent” and then taking that money and stuffing it into a Roth IRA for her.

  10. Middle-aged SWM here. A year ago I was on a business trip and went to a downtown bar/grill for dinner and a beer. The bar was 4 or 5 deep with 20-somethings in a desperate hurry to buy alcohol–lots and lots of alcohol. In the time I had my meal, I watched a couple next to me run up a $200 tab–not counting tip. I recall thinking they could have bought a bottle of really good tequila for $50, got just as drunk, and still have $150 to invest for the future. As Scalzi said: compound growth. Put $150 into a mutual fund once a week for 20 years and see how much you have at the end of that time. Hell, put $150 into a mutual fund once a month and that’s better than nothing, by a long shot.

  11. Yes, I agree with @Skippy. Having a cushion is always good. You may not ever need it (and good on yuh!) but just knowing you have it In Case will make your tummy relax when you may have to make hard financial choices for the unexpected.

    Yeah, I regret not saving money in my 20s deeply, particularly when the opportunities to do so were abundant for me. :( I really could’ve been a millionaire by the time I was 40. ~siiiigh~ But it’s never too late to start good habits, either. I encourage my kids and my students and my writing minions and everyone to read “The Richest Man in Babylon” as a good way to get them started on the idea of saving. The biggest idea is to save 10 cents of every dollar and invest it in something meaningful. (TRMiB is big on life insurance as an investment. It does have advantages, but it’s not truly the only thing… but there are worse investments than getting whole life when you’re young and healthy and the insurance is cheap.) Even if you’re only saving $2000/year, investing that in, say, a ROTH IRA is a darned good way to start building up equity.

  12. @sheteachesmath Get a Capital One savings account (formerly ING). Their APY is 0.75%. (John – if you’d rather not have commercials here, please delete. I affirm that I have no financial ties to Capital One.)

  13. first thing you’ll probably need is a car, so that’s another loan. then you’ll need a deposit on a flat, probably some furniture. you’ll likely fund that with another loan. there’s probably a credit card ‘for emergencies’ too

    One trap a lot of twenty-somethings fall into (and this has been true for decades) is that they don’t buy a decent used car, they get a new car. They don’t settle for a so-so apartment with 2 or 3 flatmates, they get a deluxe apartment, maybe even by themselves, and they get fancy new furniture and household goods. They don’t settle for a few good work clothes and shoes, they fill their closet with lots of designer clothes and shoes. The “emergency” credit card ends up full of debt for non-emergency “want-to-have”s.

    I’m not saying that this is what you did; I’m saying that this is what a lot of young people do — and then they complain about the fact that they can’t save any money and they can’t get out of debt.

    Yes, times are hard right now — but this is not a “new” thing. Previous generations have also had to deal with job scarcity and layoffs and high expenses and debt. My parents started out working during the day and putting themselves through school at night. When they had 3 kids, they lived in a tiny apartment over the town hardware store. The kids never had anything but hand-me-down clothes from the kids of another family — and hardly any toys to speak of. And yet my parents still managed to put away just a little money every month.

    The smartest thing a twenty-something can do is teach themselves (or take a class on) how to create a budget, how to save, and how to manage their expectations for a lifestyle which is realistic for their current salary and debt level.

  14. John,

    I completely agree with you. This article is quite possibly the dumbest one I’ve ever encountered. It should be retitled: “Hope is a Method.” Frankly, it’s a pretty good recipe for poverty. If I’d followed it, I would still be $100+k in debt, wouldn’t own a house, and would have been subject to the SF Bay Area’s Darwinian rising rental rates.

    The heuristic people should follow is a fairly simple one:

    1. Pay down principal and interest on unsecured (i.e., debt not secured by an appreciating asset like a house) interest-bearing debt first starting with the principal that has the highest interest rates (i.e., credit card debt).
    2. Pay down secured debt on depreciating assets like auto loans.
    3. Pay down the minimums on other secured debt on appreciating assets like a mortgage if you have one.
    4. If you can, you should always max out your 401k (if your employer offers one) and/or ROTH IRA (if you qualify) – this will provide you with exposure to the stock market, but will be set aside for long-term retirement.
    5. Each month put a small amount in a savings account until you reach 6 months of cash flow to stave off a sudden job loss or other emergency.
    6. Establish a separate investment account and fund it with a modest amount each month by automatically debiting your pay check and reinvesting in the stock and bond market to minimize stock and bond market volatility (i.e., dollar cost averaging).
    7. Avoid buying individual stocks (professionals will eat your lunch) and mutual funds (management fees will eat into your returns), but buy ETFs to diversify your portfolio risk and to get exposure to different industries over time.
    8. Pay down principal on your secured debt like a mortgage only if you think your combined annual rate of return for your other investments will be lower than your aftertax mortgage rate.

    The steps are simple. Having the discipline to follow them is something else entirely.

  15. I taught at Brown 67-73, during which I was putting $9.00/week into a retirement fund called TIAA/CREF. I left, went off to Europe, forgot about them and they lost track of me. I’d put about $3K into the account; I’ve never added any more.

    I just withdrew $360,000 from that account for a down payment on the house we’re building.

    Einstein said that the most powerful force in the universe is compound interest.

  16. That’s the stupidest thing I’ve ever read, and I only read half before I couldn’t take it any more. You don’t have to deprive yourself entirely, but making sure you’ll be able to manage if you lose your job is the bare minimum. “We don’t need a safety net”? Yeah, maybe if you’re planning to move back in with mom and dad if something happens. Apparently that’s an option for you. What a load of privileged bullshit.

  17. As someone who just recently turned 30, this is the stupidest advice I’ve read in ages. How the hell does this work, anyway? What happens if you lose your job? You have no savings account, so you can’t pay your rent, let alone utilities or groceries. Either Mommy and Daddy step in, or you have to put it on a credit card. Hopefully you can make the minimum payments on that; if not, you get those penalties, but even if you do you’re giving yourself a bunch more unnecessary debt (because what 20-something college graduate doesn’t already have student loans at least?).

    Or what happens if nothing goes wrong and you get that dream job that pays six figures (unlikely, but sure, let’s go with that). You’re in the habit of spending all of your disposable income; are you really going to start saving now? Unlikely. You’re going to spend all your disposable income on more expensive shit you don’t need, which is how you have people who are making tons of money and are still one paycheck away from financial ruin. Great way to live!

    Saving money isn’t living like you’re 40. It’s living with the understanding that you will someday be 40. Living paycheck to paycheck is something you shouldn’t do unless you have no other choice.

    Also, there are very few fields where barhopping counts as ‘professional networking’.

  18. I can’t even click on the link in that article. I’m afraid my head would explode.

    I spent my twenties in grad school and never thought of building up savings. Looking back, I could have. There were plenty of dinners out that I could have foregone and funded an IRA instead. But I did live relatively frugally and developed good habits that led to me graduating with minimal student loans and to quickly building up savings once I did start earning a real income.

    Yes, it sucks if you are living hand to mouth and can’t build up savings, but many people I know who say that, just haven’t made savings a priority, like I didn’t.

    One good habit I did develop was tracking my spending. So I could see if anything was getting out of control, where did I need to cut back. One doesn’t need to go as far as I did and track every single penny for years, but it is good to have a handle on every month what came in, what went out, and where did it go.

  19. John Scalzi, as much as I agree with the principles you espouse, there’s one consideration that actually modifies the entire computation.

    The financial sector – essentially, the economy of indebtedness – has grown so large that now there is zero chance that the obligations embodied therein can all be paid back. All of the actual goods and services that can be generated by, or extracted from, the real world can’t cover that debt.

    Finance is going to chug along until it has its Wile E. Coyote moment, and looks down. Which is seemingly starting to happen. Wile E.’s long metaphorical drop to the canyon floor represents the financial economy shedding value until it once again aligns with actual possible real-world value. This can (simplistically speaking) happen through inflation or deflation.

    Which way it breaks has a huge influence on the consequences of indebtedness of everyone, although arguably twentysomethings are in the toughest spot.

    Inflation: your debt shrinks by itself. So do your savings and investments. Grasshopper wins.

    Deflation: your debt grows by itself. So do your savings and investments. Ant wins.

    Myself, I think deflation will be the controlling paradigm (thus hyper-reinforcing your advice to the kids.) But me I’m pretty ignorant about finance at the macro level. Economists, who are hopefully less so, still appear to be deeply divided about it, though.

    Debt is like Russian Roulette these days, I think. The risk is a lot worse. The possible payoff of investment is hopefully good; but risk management is probably the most important priority for twentysomethings.

  20. Yes, times are hard right now — but this is not a “new” thing.

    For the love of Ubizmo. Please, as a fellow middle-aged cranky person, I beg you: stop. That is, if your point is to get 20somethings to actually listen to you, rather than tuning you out. Because there is nothing that will get a young person to tune out faster than lecturing them about how much smarter, more careful, more frugal we/our parents/our grandparents were and when they put their pennies in the bank they had to march uphill in the snow both ways to do it.

    I mean, setting aside that a child’s view of “what my parents did and went through” may not be, shall we say, entirely accurate, the ‘hard times’ young people are in now are not identical to what they were like a few decades ago. When I was a kid, someone with a high school diploma (or less!) could nonetheless earn a respectable living getting a job at the auto plant, apprenticing to a skilled trade, joining the military, or putting themselves through college with a Pell grant and a part-time job (and not coming out the other end with six figures of debt). All of that is difficult, and in some cases, impossible, in an economy where the middle class is vanishing and a bachelor’s degree is the new floor. And let’s not even get into the disparity between salaries and cost of living that’s coming down hard on established families, let alone young people just getting started in life.

    TL;DR: concrete tips on balancing savings with not living like a miser are helpful; shaming about the mythical good old days, probably not so much.

    Anyway, yeah, the article. I think somebody pointed out elsewhere that this particular author has a long string of clickbaity articles, and I hope to god no twentysomethings are reading this bullshit other than as a ‘can you believe this moron?’ over their expensive tequila.

  21. Also, if you get in the habit of budgeting and saving, you can also choose to budget for fun stuff. And if you are in control of your finances and have some savings, it gives you more options if things don’t go the way you plan.

    In my mid twenties I found myself in a really bad work environment, with a bully of a boss; it got to the point where going in to the office each day was making me ill. The fact that I had some savings, and no major debt (other than my mortgage) put me in a position to leave, as I could afford to accept a job which meant moving long distance and paying rent and mortgage until I sold my house. I was on the verge if quitting even without a job to go to, and that would have been an option, too.

    Of course it would be great to spend your 20s partying and networking, and be in a really well paid job in your 30s and able to save and pay off debt, but that isn’t going to happen for everyone.

  22. I have spent my thirties paying off my twenties, and it looks like I’m going to have to spend part of my forties doing the same thing.

    I highly recommend trying to be smarter than I was.

  23. TL;DR: concrete tips on balancing savings with not living like a miser are helpful; shaming about the mythical good old days, probably not so much.

    I wasn’t “shaming about the mythical good old days”, I was pointing out that justifying a choice not to save and be frugal now because things “are so much harder than they used to be” is a false equivalency.

    I have no expectation whatsoever of getting a twenty-something to listen to me — I was one of them once, so I know trying to get them to do so is an exercise in futility. They will all have to sink or swim based on the choices they make, just as I did (first the former, and then, eventually, the latter). Some of them will start out smart from the word “go”. Some will be fortunate enough to learn from their early hard lessons. Others will not.

    But yes, the cluelessness of the article’s author is breathtaking; I can only imagine that she is a trust-fund baby, or the child of parents who will allow themselves to be sucked dry. If not, she’s going to be in for a very rude awakening.

  24. Well, he’s one eviction proceeding or fire from homeless.
    Or maybe he’s Azriephel and is corrupting souls en mass instead of the traditional one at a time (not the right name; reckon I have to re-read ‘The Nice and Accurate Prophecies of…’ Again :-)

  25. Somewhere, the best advice I got on getting rich (which I have achieved, by my own metric) is to spend less than you make.

    I wish I could remember who it was that said it, but it came from someone talking about the fact that no matter how little you make, there is someone else getting by on 10% less than you are, and if they can do it so can you.

  26. It is possible to learn better money habits as you grow older. Because of growing up in poverty I knew nothing about handling the stuff in my 20s. Not just that I didn’t have any money, though I didn’t. I had no clue how to form a career, put together any sort of financial plan, none of that.

    Slowly over time I learned, sometimes the hard way. And I am older than John and presumably older than most of you here, and I managed to create a stable financial life eventually. Then, together with my husband, I’ve even managed to acquire enough cash that we are likely to have a solid retirement (barring planetary disaster, which I am not sure of).

    So if someone out there is struggling with poverty and disorder in their life, I just want to say that it really can get better, slowly over time at least.

    I used Jane Bryant Quinn’s books to help teach myself and I highly recommend them. Your local library can probably help you find one of hers.

  27. Also tell them… unless you are getting an MD or going to a top 10 Law School it is not worth coming out of college with massive debts. Go in state. If that will leave you in debt, spend your first 2 years at junior college. First 2 years of college are primarily standard requirements that are the same everywhere.

    Its not worth it to come out with massive college loan debt. It stays with you for decades.

  28. When I was in my young twenties a Captain of mine keep trying to get me to start an IRA — just $50 a month he said, trust me. As a young E4 to E5 and eventually student, I ignored him, thinking I could not. Of course, the reality is that when you are single, without kids, and employed, finding $25-50 is not all that hard. In my young-30s (once I was commissioned) I finally started saving in a systematic and consistent way — 15 years or so later (now married with kids), I look at how much we’ve managed to put away and how much it’s grown and I just kick myself for not getting with the program as a 23yo. Of course failing to save for the long term is an easy trap when you’ve spent a big chunk of your life poor. Spending the money you have now because you might not have any later is one of those habits you can get into that can be hard to break out of once you have gotten to the point where things are tight, but you are not really poor anymore.

    As my old captain would say “pay yourself first.” Not a bad idea.

  29. When I was in my 50’s, I was working at a company that was changing its benefits, and the 20-somethings I worked with were discussing how much to put into the 401K’s. I told them about the retirement account I’d put $600 (matched by the employer) 30 years earlier, which was then worth $20,000, and I think some of them modified their decisions.

    I think it’s a real mistake for the banks to be paying 0 interest on small accounts. When I was a kid I had a bank account, and every time I added something to it, I could see how much interest I’d gotten since the last time. I don’t think anyone gets that experience now.

  30. @JJ: You didn’t present a false equivalency. You presented an anecdotal example of “lots of” twentysomethings blowing money on fripperies and contrasted to your own frugal parents, as evidence of how the current economic hard times are not an excuse for limited savings. That’s not so much pointing out a false equivalency as rigging the argument – and what you’re really getting it, it seems, is that somebody who is happily buying Jimmy Choos and hundred-dollar tequila shots who says they “can’t” save is probably not being all that honest. Which, true, but that’s hardly a feature of young people of today, or a commentary on the relative ability to save, or to suggest that if twentysomethings point to hard times for an inability to save money, that they’re full if it because our parents managed.

    I suspect the author of the article is writing to pull pagehits and doesn’t believe half of what he or she is actually saying, but yes, it’s hard to imagine somebody not in the 1% saying that with a straight face.

  31. It’s hard to get as many click-throughs on the premise “Make sure to budget a reasonable amount for entertainment while maintaining a financially sound lifestyle in your twenties”. In the meanwhile, I’ve seen this linked twice on sites with relatively large audiences.

    I think the author made a financially sound decision in the article. Although I hope she doesn’t actually live that way.

  32. It’s from a site called ‘EliteDaily’. No one who calls themselves ‘Elite’ should be taken seriously on pretty much any topic.

  33. One thing I did that was relatively painless, once I finally landed a job that had 401ks, was to contribute to the 401k any amount of raise that I got. Since I was working for non-profits I never got a very big salary so it was hard to voluntarily cut into food and rent money. But raises were money I hadn’t counted on so putting that into the 401k was relatively painless.

  34. Yeesh. That article just made my head asplode. Even the most grasshopper-like of my college friends had the ‘tip jar’, where the change they made at the end of the night waiting tables wound up. It wasn’t more than $5 a night, but after a couple of months, it was enough for an emergency car repair or their share of the rent. Yes, have fun while you’re young, but budget for it. Get a good fifth of bourbon to share rather than spend 3x that desperately clubbing, or save up for a weekend of clubbing. Take that trip to Australia, but realize you will be paying it off for the next 4 years.

    OTOH, DH and I just put a solar panel system in last month using several years’ of tax refunds. The savings account is now 3/4 depleted, but we have cut our ginormous electric bill (without turning off the chest freezer and the server farm, we really couldn’t reduce the bill; a topic for another time) to the point where we will recoup our outlay in 5 years, and after that it’s all bonus. This is a better ROI than our 1% savings account interest rate.

  35. When I was a kid, my parents decided to teach me about the value of investing by offering me compound interest on whatever part of my allowance I didn’t collect. Lets just say that I learned the lesson so well that they were eventually forced to stop while they still had enough money to pay their bills.

    Those of you with kids might want to consider this option. Although finding the right rate may be tricky. Too small, and the kid may not see any reason to bother. Too large, and you may have to cut the experiment off too quickly. :)

  36. Hey, I did just fine on cheap tequila in my 20’s! And as soon as I had a job with direct deposit options, I had a little put into a savings account every paycheck. If you don’t see it, you don’t miss it, and it’s way handy to have later.

  37. That is terrifying advice. It just tells us what we want to here. Even if the people taking that advice are doing okay money-wise, what happens when there is a sudden medical/car expense? What will they do then?
    What the author describes isn’t a life of creature comforts, but one of decadence. My friends and I save up FOR those things we like (buying new clothes, eating out, etc.).

  38. I’m incredibly proud of my 20-something son because when he got a grad school stipend large enough to save some money, he used the savings to pay off the part of his student loans that was accruing interest during grad school (much higher interest than he’d get from savings) and then pushed me to set up a payment plan for him to pay back money I’d loaned him. He also put enough money to carry him for a few months if he loses his income. Yes, it means living below his means (other than buying too many books because he lives in an area with lousy libraries), and that’s ok – he still has fun with friends, just not extravagant fun.

  39. I think Bill Blondeau’s comment is an important addition to the conversation.

    There are a lot of reasons (commodities trading, cheap consumer debt, socializing of corporate risk, diploma inflation, failure to price in environmental destruction to the price of consumer goods, failure of the minimum wage to keep up with the actual cost of living), but 20 somethings are inheriting a financially scary world.

    Seven years ago I started researching “Why can’t I afford the house the mortgage websites say I can” and found a rabbit hole of “doomer” blogs. There were compelling arguments for both inflation and deflation. It seems to depend on whether the U.S. Government controls the outcome (as a debtor, steady inflation is best) or the debt holders (whether that’s China or lizard people depends on your world view)… who would prefer deflation, thanks.

    Because the dollar is still the global standard, we’ve been protected from runs on the bank. If that changes (a significant party- say, Japan- starts measuring using a basket of different denominations) then… zombies, etc.

    I managed to go to an elite liberal arts college and I know that helped me have a better career trajectory than otherwise- but I had a lot of needs based financial aid.

    My children will not have that assistance- it’s ironic that they will not be able to afford to attend the school that made it possible for my family to not be able to afford it.

    …If you’re interested in seeing what actual 20 somethings are doing in the face of run away medical debt and student loans (they hit 1 trillion a year or so ago), I recommend checking out the Rolling Jubilee and googling student loan strikes.

  40. The entire premise of the article is flawed. You don’t need to spend lots of money to have experiences. There’s a lot of science about how things don’t make people as happy as experiences. Yes, money helps all the way around. But it’s possible to hang out with friends, enjoy the company of a lover, or even travel the world and crash at hostels, AirBnb, etc. on a creative budget.

    And if hanging out with your friends isn’t a fun experience without spending a lot of money, you need new friends.

    I don’t remember the random shit I spent money on in my 20s. None of it was important. But the things I did, especially with others, is still shiny.

  41. Bill, Alia,

    The world and economy will keep on spinning. The US won’t have a run on banks because our debt is denominated in our own currency. Just like Japan or the UK.

    The US economy is vast and deep. It is capable of absorbing enormous shocks. 2008 was the largest since 1930 and the economy is doing quite well now.

    In the aggregate.

    The disconnect is that a decent economy at large can still obscure large numbers of individual sufferings. Policy choices in our country have apportioned the wealth in increasingly concentrated populations. Tax cuts for the richest are paid for by services cuts for everyone else. The net effect is a lot like “war on the middle class”. I’m not sure that’s really as accurate as the most powerful trying to get the largest slice of the pie they can, even if it means shrinking the pie, but I can see how it’d feel that way to many.

    The economy is volatile and risks have been pushed on to the most vulnerable. But the doomer scenarios are all very improbable. The most likely doomer scenario is that a Republican is elected president and the government simply chooses to literally not function. You can see this kind of thing with Congress trying to default on the country’s debt to blackmail the president. There’s a lot wrong with our political will.

  42. I think you need to reconsicder the Marvels of Compound Interest in the light of the interest rates now being paid by banks on Government-backed/insured savings accounts. Yes, it served me well back in The Old Days, at three to five (and occasionally above 10) per-cent interest. But at two-tenths of one percent interest (about the maximum banks now offer short of gambling on the Stock Market) it amounts to pennies per year per thousand dollars. Mind you, I expect that the long-established habit of arrenging to spend less than my income, for the 70th consecutive year, will condine even though I probably should be starting to Spend Down.

    But contra that kid’s advice, probably the two smartest things I’ve done in my life were to buy a modest suburban house soon after getting my first steady job, and opting (a few years later, to forgo a c. $20-per-month “raise” in facor of continuing to pay Social Security Tax as well as paying into my employer’s Pension Fund. For 20+ years, now, I’ve been living much more comfortably in Retirement than most of my former co-workers.

    Do I sometimes regret not having splurged a bit more when I was younger and healhy & vigorous enough to enjoy it more? Of course. Anyone who doesn’t regret some things done or not-done has no imagination. Would I do the same thing again? Yes, pretty close.

    Don Fitch

  43. Jesus H Effing Krist on a stick. As far as financial advice goes, that article is the equivalent of Timothy Treadwell’s advice on wildlife management, and will likely produce comparable results.

  44. We were poor the first 2 years we were married and absolutely lived paycheck to paycheck in the ’70s. Jim got a real job in ’79, and what was one of the first choices we made? Starting our family, figuring it would take months or a years to get pregnant. 1 month later…but even though we weren’t in quite as a solid financial footing, we made it through, and since our late 20s, we have been saving well and finally bought our first house when we were in our early 30s.

  45. I’m guessing this is part one of a series.

    Part 2: Finances For MidLife – Why keeping up with the Jones should be your most important priority.
    Part 3: Senior Retirement Planning – Lotto tickets or the race track, which is right for you?

  46. Speaking as an economics professor, articles like this one is what happens when someone takes one economics class (specifically macroeconomics) and learns about consumption smoothing, but doesn’t understand compound interest or, more generally, interest rates. (Or the behavioral truth that people actually prefer increasing consumption over time to steady consumption.) A little economics is worse in many cases than no economics.

    (Suze Orman makes a similar argument in Young, Fabulous, and Broke.)

  47. And if hanging out with your friends isn’t a fun experience without spending a lot of money, you need new friends.

    QFMFT. Moreover, chasing a super-high-paying job is likely to involve much more sacrifice of “good times” in one’s twenties than being frugal does. (Not to mention that there are a limited number of those out there, so you might be one of the unlucky ones who puts in your years of networking and kissing up and late nights working and never even gets beyond middle management.)

  48. And incidentally, paying down debt IS saving — it still improves your net worth. I would never say that someone deciding to put $200 extra on their student loans every month versus putting $200 in an IRA was making a bad decision (and of course that goes even further if you have credit card debt). Interest you don’t have to pay any longer is just as good for your pocket as interest you get paid.

  49. I’m about John’s age but with a dramatically different history, closer in many ways to the article’s advice. During the various IT booms I alternated contract programming with bicycle touring. The one is very lucrative, and the other is very cheap. In classic “buy good gear” way, once you have $5000 worth of equipment you can tour first world countries for the cost of food. While earning I saved, not just for the holiday, but tax-effective savings into the Australian compulsory superannuation system. So despite an intermittent work history and much “experience the world”, I have decent retirement savings.

    But it also means that when I stopped doing that and “settled down”, I just kept living in share houses and saving as much as I could. That made buying a house in Sydney relatively affordable (Sydney house prices are insane, I paid ~8x gross annual income for an average priced house and I’m in the top 10% of taxable income). But I eat take-out food less than once a week, and have worked out efficient ways to turn cheap food into stuff that works for me. There’s a bunch of “because I do X and thus can do Y which means I can afford Z” stuff, but I started with “I’m too cheap to buy a car so I’ll pay a small rent premium to live somewhere I can ride a bike” back when I was a student. I still think I’ll buy a car one day, when I can afford it. Maybe when I retire.

    My variant is much closer to “choose what you’re spending money on”, out of the sensible options.

  50. We were all skint when I was a 20-something, and yet I remember having raucous good times. Those of us who could had money automatically deducted to go into 401K or IRAs (can’t miss it if you never see it), or chipped away at the student loans. But we drove old cars — or if they were new, they were bottom of the line cheap. We scrounged furniture. I’m STILL using the kitchen table and chairs my mom got in 1976 and gave to me in 1981. And a couch Mr. Lurkertype got in 1978.

    But we only went to fancy sit-down restaurants once or twice a year. And we didn’t go to bars, we just bought booze and drank it at someone’s house…and my memories of hangovers tell me we did that PLENTY of times. We had potlucks followed by watching video movies. Or grabbing fast food and going to the theater for first-run movies. And we managed to go to Worldcon/NASFiC every year, no matter if it was East, West, or Middle. Sure, we might have to spend a day and a half straight in the car, and we’d be 4-6 to a room, but there we were.

    Keep 1-6 months’ expenses in savings. Pay down your student loans. Go for any matching 401K/IRA plans your employer will give you, or open your own Roth IRA and put $5/week into it if that’s all you can manage. Don’t buy new clothes and shoes and gadgets every month. Don’t have a friggin’ destination wedding; use that money to pay off your debts. Shop at Goodwill. Learn to cook simple food. Then learn fancy food. Read the flyers about what’s on sale when at your grocery store. Get a library card. Do splurge on the Mexican Coke. Don’t get the cheapest tequila.

    I promise, you can still have a lot of fun. You will eat, drink, and be merry. You’ll remember those epic weekend-long parties fondly. Er, the parts of them you DO remember, but hey — someone’s going to take your picture and you’ll see it on Facebook. ;)

  51. It’s click spam fodder. Look at her bio:

    “After graduating from PSU, she moved to NYC to write fart jokes at Smosh Magazine. Making her way to ED, she now writes riveting commentary on nude pics, condoms and first dates.”

    See if that lasts her into her 30s. :)

    She is a troll, working on getting clicks and comments. And she’s doing very well. I bet she’s working on Trump’s campaign as an aide. My guess is that she’s a marcom major picking up a little side income so she can put away some savings.

    Heh.

  52. My number one tip (from a person who’s been living on or near the poverty line for most of the past ten years) for saving money: if you’re not going to use it or appreciate it, don’t bother buying it. It doesn’t matter how cheap it is, or how much of a “saving” you’re getting on the price – if you won’t use it, it’s money wasted. This covers everything from food, through kitchen gadgets, household items, clothing, accessories, vehicles – you name it. If you aren’t going to use it, you’re not saving money by purchasing it.

  53. When I read the article I kept looking for the “Sponsored by [insert credit card company here]”

    But in recognition of changes 20-somethings are dealing with, when I was cleaning out my parents’ house last year I found the letter for my scholarship to Enormous State University for my freshman year in AY 1971-72. Two semesters, all tuition, books and fees covered–everything except room/board/entertainment. The cost was $390/semester for a full-time STEM student.

  54. Oy. I know that’s the reality a lot of 20-somethings live, and I am so incredibly grateful that our kids managed to dodge it. They both had more than their share of fun in their 20s – so much so that for a while, I was convinced neither of them would ever earn a bachelor’s degree – but they have both somehow learned to save in spite of it.

    The younger kid is 30 years old. I showed him how to calculate compound interest when he was in his teens, and I don’t think he ever forgot it. He refused to buy a car until he got his first real job after graduating college, walking to get where he needed to go during college, taking Greyhound to get home for holidays, and insisting that he didn’t want a car payment, insurance costs and gas fill-ups until he had a steady income. When he did buy a car, it was a carefully researched used car that had the fewest projected repairs and the best gas mileage. The salesman’s eyes bugged when the kid whipped out his graphing calculator to do mileage comparisons on the used car lot. The kid just bought his first house, a foreclosure that he’s working nights and weekends to fix up, while still working at his professional job. He’s stingy enough that he went out and rented a sewer rooter to clear his own lateral of tree-roots instead of paying someone else $150 to do it for him. And through all this, he’s socking away 10% of his salary in his retirement investments.

    The elder kid, the 32-year-old, is the one who succeeded in astounding me the most. This is the profligate one who couldn’t keep a dollar in her pocket to save her life, who maxed out her first, last and only credit card within six months, and who came frighteningly close to living the lifestyle the article-writer espouses. She’s also the metal-head, the punk-rock fan, the one with tattoos, green hair and an attitude as big as all outdoors. Despite (because?) of all that, she’s the one who landed a post-college job in IT that pays her better than her brother and both her parents, and she, too, is putting away a hefty chunk of her income toward her retirement. I got the shock of my life recently when she called me and said, “So, I was listening to Morning Edition on NPR the other day and they had a piece about how most women don’t do a good job of planning and saving for their retirement. Is there a time when I could come by and talk with you about my retirement portfolio, to see if you think my strategy and savings are going to be sufficient to see me through retirement?” You could have knocked me over with a feather – not sure whether I was more shocked that she was listening to NPR or that she had any retirement investments at all. But she did, and she planned them well, and they’re prudent, sound and carefully thought out.

    The saddest thing about it all is that these two kids are the exception rather than the rule for their generation. I’m reasonably sure they’ll do well, keep saving, and have enough to retire on when the time comes. I’m equally sure that they’ll be in the small minority of their peers. And that’s just a really scary thing, especially considering all those folks who want to do away with Social Security.

  55. > The saddest thing about it all is that these two kids are the exception rather than the rule for their generation.

    Not so much in Australia, and especially not for kids in their 20’s here. Most of the ones I know are working as many hours as they can fit around their study in an attempt to keep their student loans small. The older ones are mostly working awful jobs while trying to find work that’s at least vaguely related to their degree, or enjoying the fruits of a technology degree by working tech support or building apps and websites on short term contracts. Almost all are trying to defy the odds and saving for a house, knowing that on their income it will take 10-15 years of savings to get a 20% deposit. Well, their half of a 20% deposit. A few smarter (more optimistic?) ones are grouping up and going 5-10 ways on a house, because houses here return 10% or more every year and the governments treat failure to do that as a crisis.

    But Oz is not the US, we have lower unemployment and better support from government for young people. Albeit we have governments who are trying to move us towards the US model both here and in the US. But the voters don’t like that.

  56. I think that article is written from a privileged position. One,from one who expects to be able to party now and save for retirement later and be able to live a good life in both situations. I don’t know the author but I’d bet that he’s pretty comfortable. This isn’t true for many people. Giving blanket advice to all 20 somethings in finance is irresponsible. Everyone needs to make their own decisions based on their reality.

    Two, it comes from a person who lives in a society that will provide at least some level of subsistence even if you have a horrible job and can’t save for retirement.

  57. The article is not just horrible life advice, it’s also written incredibly poorly. Did this person actually get paid to write like a naive 15 year old?

    I lived my 20’s as they advised largely because I was sure I wouldn’t live to see 30. Now I’m 46 with three kids and I will not be able to afford to retire until I’m 80. The financial mistakes I made back then last way longer than the “fun” times.

  58. Show, don’t tell. Your kids aren’t going to listen and learn from abstract discussion of hand-wavy, far in the future economics. Trust me, I taught high school econ, and they need to get their hands on it to understand it.

    So when I was teaching middle school computers, I taught spreadsheet formulas any having the kids set up a compounding interest schedule. First for “if you put away $5 a month” and then for “if you carry a balance on your credit card.” Pulling those totals out of the spreadsheet for themselves got the idea through a lot faster than lecturing at them. And I think for many students this was the first time they had a concrete idea of how a credit card is paid – it’s easy for kids to think of the credit card as magic, free money.

    As parents, you’ve got laboratory conditions right at hand – your own finances. Before these kids get their hands on wages or their own credit cards they should already be aware of how you’re budgeting, saving, paying bills, etc. Watching my mother raise four teenagers on a secretary’s salary taught me not to spend more than I had in my pocket. If I didn’t have cash to pay for it, I didn’t buy it. (And obviously, I didn’t need it, because I needed to pay tuition more.) Now, I’m not saying I wouldn’t have happily accepted an Obama care plan, because going through all of your twenties without medical, dental, or vision care sucks, but I’m very happy with my own frugal habits. And even though we now could afford to splurge, I’d rather let my husband sleep soundly knowing our retirement is secure.

  59. Yeah, she’s totally trolling. Either that, or it’s really, really subtle satire.

    As you and others point out, save money or have fun is a false dichotomy, and it’s certainly possible to do both. But in answer to Ms Martin’s assertion that saving money isn’t fun…

    You know what else isn’t fun? Hearing your car make some kind of death rattle and knowing you don’t have money saved up for repairs or a down payment on another one. Being offered a really great job across the country and realizing you can’t afford to relocate. Realizing that your injury or your parent’s illness is going to keep you out of work for a couple of months and you don’t have the savings to cover it. Losing your job in your 40s or 50s and realizing that it’s going to be a lot harder to just replace it at that age. Knowing you’re going to be working until you physically can’t, because you have no retirement savings and Social Security isn’t going to cut it.

    Having savings gives you options. It lets you make choices about your life rather than letting circumstances control you.

    You absolutely *should* budget in money for fun. Not having fun is really bad for you on a mental and emotional level. You need fun in your life. But not having financial security is really bad for your mental and emotional health, too. Don’t neglect either one in favor of the other.

  60. I get that 20somethings have a harder time on average than we do, particularly if they’re saddled with tuition debt (or didn’t go to college at all).

    Nonetheless, back in 1994, I was earning 18K a year in an entry-level publishing job in NYC. My take-home every 2 weeks was $485 and my monthly rent was $500. I still managed to put 3% of my salary into a 401(k) so I could at least get the matching dollars from my employer. That’s only $540/year—a mere $45/month. Six years later, that account had $12,000 in it.

    (I know the amount because my company was bought by another company and we had to roll things over. And when you don’t make much money, you know how much everything is and you never forget it.)

    Compounding interest really, really doesn’t take much seed money.

  61. Don Fitch said: But at two-tenths of one percent interest (about the maximum banks now offer short of gambling on the Stock Market) it amounts to pennies per year per thousand dollars.

    Fortunately, “savings account at local bank” and “Stock Market Casino!” are not the only two financial vehicles available to today’s investor.

    In this thread people have pointed to high-interest online savings accounts (OK, 0.75% is not awesome, but it adds up to ~$7.50/$1K year, or a paperback book, not “pennies”). I find it hard to characterize the stock market as “gambling” if you’re investing in broadly-balanced funds with decent expense ratios (ideally index funds). And there are money markets, CDs, bonds, bond funds, REITs, and many other options for investors who aren’t willing to buy stocks or stock-based funds but want a higher return than a savings account provides.

  62. So basically: no long-term planning for anything, and stay completely self-absorbed. Remember, these are the people who will be in charge of everything someday. Let *that* thought haunt your nightmares.

  63. As a CPA in his 30s, this article is a travesty. John’s points are right on. Money saved today is more valuable than money saved tomorrow. Further, if you aren’t making an effort to save for your future, or for when things don’t go as planned (loss of job, loss of health, etc), you are doing yourself a huge disservice. I have never met anyone that said wow I should have saved and planned my finances less. Live your life and enjoy yourself, but ensure your current and future needs are taken care of first. Life isn’t much fun when you can’t pay your bills. Its not a game and there are no free restarts.

  64. One thing that really haunts me is the notion that you won’t need your money after you die, so you may as well spend it now. Broadly, that is of course true – if you don’t have any family you care about, or are morally bankrupt enough to be comfortable leaving them bereft.

    I would hope that if I go the way of others on the male side of my family and die in my 50’s, I would at least be able to ensure anyone that may have depended on me isn’t left with nothing. Even if it just helps put my mother into a nice nursing home, that’s worthy cause enough.

    So sure, be short-sighted and fritter away your money if you wish. You’ll suffer later – but hey, it’s allowed. But if you will ever have someone else who might need the money more than you “need” a nice dress, it might be worth thinking about not being selfish.

  65. Also (per the illustration at the top of the article): “Hey kids! If you’re wearing seatbelts in your 20’s, you’re doing something wrong! Seatbelts are for old fuddy-duddies. You’re young and strong; nothing bad could ever happen to you!”

    It was a perfect match to the article itself.

  66. @sgsax: Where on earth did you get the idea that the author of this article is in any way representative of young people (sorry: “these people”), either now or as they will be by the time they’re old enough to run things?

  67. Speaking as a very American young twenty something, I don’t know anyone who splurges on fancy apartments or cars or designer professional wardrobes as we are often accused of. Most of my friends find the idea of living sustainably even with two or three roommates in a crappy apartment disturbingly unlikely. That said, I know tons of people who waste so much money they absolutely don’t have on going out on the weekends, partying, and generally burning small amounts of money continually.

    But I don’t think it comes from a sense of entitlement, or even the same disturbing mentality outlined in the article. If anything, my generation gives up on financial instability because it seems unattainable. I know very few people who see themselves being able to invest in a reliable car and house and retirement fund and the kinds of things generally expected to start a family and become a proper adult. In some ways, whether those goals are attainable or not is irrelevant. For a lot of 20 somethings, they feel unattainable.

    Our generation has crazy terrifying amounts of debt (and most of these people ARE going to state schools and community colleges but tuition has been rising non-stop since my parents were in college so affordable isn’t a reality for a lot of students in a lot of states). We’ve grown up being reminded that our student loan debt outweighs credit card debt, that our teens or young adulthood saw the greatest economic hardship since the 1930s and that our country is more economically unequal than it has been since the 1920s. And I think a lot of people have given up out of fear and seeming impossibility of it all. What’s the point of saving when there’s no way you’re going to make it anyway? That is of course a terrible, terrible idea. But my general sense is that most (very young) 20 something economic irresponsibility (and there is a good amount of it) comes from fear and a desire to ignore a future that seems scary and unmanageable. .

  68. I guess what struck me was all the cliche writing:

    •We’re not trying to live with safety nets; we’re trying to live on the edge.
    •You can’t make a mark on the world if you’re too cheap to live in it.
    •Refusing to give yourself the luxury of enjoying your money negates the whole point of making it.
    •When you have nothing to lose, you have everything to gain.
    •This isn’t the time to safeguard — it’s the time to bet all your chips and hope to make it big.
    •Life is to be lived, not watched from the inside of your rent-controlled apartment.
    •Those who don’t plan for the future aren’t planning for their death.
    •Don’t waste your youth worrying about expenses when you should be worrying about experiences.
    •You’ll regret the experiences you didn’t take, the people you didn’t meet and the fun you didn’t have because you were too worried about a future that came and went.

    That’s some next-level trolling right there. :golf clap:

  69. Jeez, what a pernicious piece of claptrap on an utterly specious site. Kids may feel deprived because their parents have raised them in flat-wage decade, but if the YOLO generation decides not to save, they will be even more miserable. I often don’t have it, but the best defense is money in the bank.

  70. 1. Wage incomes now are both less and less reliable than they were when you were a young man.

    2. Have you looked at interest rates lately? They are tiny—you’ll be making no profit on money in a savings account, and only a little on long-term instruments like CDs or treasury bonds. The prime rate is now zero. The Fed is giving money to banks, just to keep the system solvent. Banks are giving back money on credit purchases, just to get people to use credit.

    3. If you want to make money on your savings these days you have to go into the stock market. Well…index funds are not too risky (Vanguard provides good ones.) But no mutual fund is insured against catastrophe. it takes nerves of steel to hold positions through the market’s shifts and changes, and there are no guarantees; shifts in the market may eat up all your profits and need may leave you withdrawing money during a downturn.

    Taken together, these make saving much, much harder than when you were a young man, and even then a prolonged period of unemployment may wipe out any savings. Under current financial conditions it is going to be difficult for anyone now in their 20s to hold on to their savings—long periods of low income are likely to eat them up. They are also probably poorer than their parents, which means they’re going to have to develop the habits of poverty, which is hard. And, of course, there are people like you to tell them they are doing it wrong.

    Oh, yes. Consumer financial fraud is still a thing. Mortgage fraud is still a thing. Caveat emptor, caveat—what is Latin for borrower?

  71. I remember reading a story about a woman who had worked her entire adult life in a grocery store. She saved methodically, and lived frugally. By the time she retired, she was a multi-millionaire. But she had lived as though she made a little over minimum wage.

    The person telling the story was trying to make a point about how unfair taxes were for this woman. (She should pay zero taxes for her good habits.) I got a completely different moral from the story. This woman lived as though she was poor, but she didn’t have the worries of poor people. She wasn’t living paycheck to paycheck. She didn’t live in dread of losing her job. She wasn’t really poor.

    Money doesn’t buy happiness, but it can buy a degree of peace of mind. I experienced that peace of mind in 2008 and again in 2011, when my income dried up for a time. In 2008, I worked three months out of 12. I had by then saved a couple of years’ in my rainy day fund. This was in addition to my “retirement” savings. I just didn’t sweat it. That year I also had the opportunity to travel to China, and to follow through on an off-hand offer to drive my stepmother from Texas to Newfoundland and back.

    A recession or stock market down-turn will affect those with a lot of savings “harder” than it does those with none. But once you pass a certain threshold, that doesn’t matter so much. The Great Recession cut my net worth in half from its previous high. But the recovery tripled my net worth, so after it was said and done, I was still worth 50% more than before.

    Having good savings makes it possible to ride out the hard times.

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