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Economists say spend it while you're young
Old 09-11-2008, 03:39 PM   #1
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Economists say spend it while you're young

Spend your money while you're still young—you'll be happier - By Ray Fisman - Slate Magazine

"Recent research by economists Amy Finkelstein, Erzo Luttmer, and Matthew Notowidigdo suggests that you'll get a bigger bang for your consumer buck by spending while you're healthy, before old age starts to take the fun out of life's indulgences. Their research is part of a larger academic enterprise attempting to understand what makes us happy."

This is similar to the idea of consumption smoothing.
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Old 09-11-2008, 03:49 PM   #2
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I thought I read somewhere that people who are able to delay gratification are happier. Hmm... I'll see if I can find it.
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Old 09-11-2008, 03:53 PM   #3
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I'm always more satisfied if I can delay it longer
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Old 09-11-2008, 03:55 PM   #4
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What you read was that people who are able to delay gratification are smarter. (The study did not draw any conclusions about whether they were happier)

Delayed Gratification, Intelligence Linked
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Old 09-11-2008, 03:55 PM   #5
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Originally Posted by Abreutime View Post
I thought I read somewhere that people who are able to delay gratification are happier. Hmm... I'll see if I can find it.
Not happier - more successful in their career.
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Old 09-11-2008, 03:56 PM   #6
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Not happier - more successful in their career.
Nope, the study didn't conclude that either.
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Old 09-11-2008, 04:02 PM   #7
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Originally Posted by JustCurious View Post
"Recent research by economists Amy Finkelstein, Erzo Luttmer, and Matthew Notowidigdo suggests that you'll get a bigger bang for your consumer buck by spending while you're healthy, before old age starts to take the fun out of life's indulgences. Their research is part of a larger academic enterprise attempting to understand what makes us happy."
Isn't this rather obvious?
Climb the mountain when you physically can do it or just sit at the bottom later when you physically can't climb it.

They should have asked those on this board and saved themselves a lot of time.
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Old 09-11-2008, 04:06 PM   #8
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Nope, the study didn't conclude that either.
Ya think there might have been more than one hypothesis on this concept?


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Old 09-11-2008, 04:07 PM   #9
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Isn't this rather obvious?
No. If it was so obvious, why do so many of us on this board save so much of our income while we are young? If we accept the premise that spending while we are young makes us happier than spending when we are older, then we should be spending all of our income while we are young, and maybe even more, with the plan of spending less when we get older and paying back what we borrowed when we were younger, and simply working longer.

Come to think of it, that's exactly what most people do.
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Old 09-11-2008, 04:12 PM   #10
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Obviously if you save until it hurts and have a crappy quality of life as a result for a few decades, then have an average to above average retirement, you will not have maximized your utility/happiness.

Dollars should be consumed today as long as the marginal utility received is greater than the expected marginal utility of spending them later.

Maybe peoples' personal discount rates are higher than the equity rate of return of ~8-10%. This means that they maximize value by spending money immediately. In fact, it would suggest financing your lifestyle with debt brings you net utility if your personal discount rate is, say, 15% and the going rate for consumer credit (house, car, etc) is 7% or less.

I would assume that spending money at, say, age 25 to go on a 3 month backpacking trip would bring about much more happiness than saving the money and spending it at age 70 to go on a nice vacation. Enjoy it while you are young and able to still enjoy it.

I didn't read the economists' article, but let's say a $5000 backpacking trip at age 25, if foregone, might lead to a savings of $5000. That $5000, at 5% real return, would be worth around $45,000 in real terms at age 70. If you are healthy, it might be utility-maximizing to spend the $45,000 at age 70 instead of the $5000 at age 25. If you are sick, the article suggests your marginal utility of consumption drops quickly.

I would assert that perhaps desire for early retirement is actually supported by the economists' article. For many of us, there is a desire to "retire" (ie - do whatever we desire all day) while we are still healthy and able to enjoy our time and money. Maybe age 40 for some. Age 50 for others. Some older. But most don't seem to like the idea of waiting till age 67 or 70 to start "having fun" in retirement. There seems to be an exponential increase in illness likelihood and severity the older you get. Maybe sometime in your late 50's is when the "illness" curve starts steepening??
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Old 09-11-2008, 04:21 PM   #11
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I have not read the study... but based on the brief description, there is something to that idea that makes sense.

Of course, the sage advise is moderation and balance. Perhaps a more accurate statement is: Do not save to the degree that you deny yourself when you are young when you can afford to spend some money early and still prepare for old age. Owning a pile of money when one is old and feeble (and cannot enjoy it) and not being able to enjoy it.
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Old 09-11-2008, 04:33 PM   #12
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From article:
Quote:
The authors find that healthy retirees are a pretty contented lot—only 13 percent of respondents reported not being happy. The rich are happier—going from an annual income of $25,000 to $50,000 reduces the likelihood of saying you're unhappy by nearly five percentage points.
I don't believe we have enough of the raw numbers and methodology to quantify but to me it doesn't seem worth having to save up double the amount (probably more given tax structure) to increase you chances of being happy by 5% given that only 13% total aren't happy.

If you could convince me that I was 80% likely to be a happy retiree at age 50 living on 25k per year but hey work another 15 years until 65 and you're up to 85% chance of being with 50k happy I'd surely quit at 50 years old and take my chances.

edit: 2nd grade math
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Old 09-11-2008, 04:42 PM   #13
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No. If it was so obvious, why do so many of us on this board save so much of our income while we are young?
Because you can make the intellectual trade off of current gratification for the your expected greater future gratification.

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If we accept the premise that spending while we are young makes us happier than spending when we are older, then we should be spending all of our income while we are young, and maybe even more, with the plan of spending less when we get older and simply working longer.
You are arguing to the extremes and substituting "happier" for "bigger bang for your consumer buck" in the article. Instead of "happier" a better word would be "value". In other words: you get a greater value out of consumer spending when you are healthy. Another way of saying it: the value of a skiing vacation is less when you have a broken leg. Obvious, no?


There are two parts to the article:
Part I
"suggests that you'll get a bigger bang for your consumer buck by spending while you're healthy, before old age starts to take the fun out of life's indulgences."

Part II and the remainder of the article
"Their research is part of a larger academic enterprise attempting to understand what makes us happy."
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Old 09-11-2008, 05:12 PM   #14
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I just watched a PBS program on the difference between bonobo learning and human learning. The researchers duplicated the 1960s marshmallow study, but the program narrator specifically mentioned that the link between SAT scores and the ability to delay gratification was not completely proven.
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Old 09-11-2008, 06:04 PM   #15
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Interesting---I had a similar thought recently concerning a really small investment in a variable annuity (flame if you want but I was very young and stupid when I put money in it) Anyway for a while I put (at the highest level) about $100 a month in it. Next year at age 55 I could annuitize it at a little more than $100 per month (don't plan to do that---now realize this investment was when I was young and stupid). The thought that really bummed me was "that $100 would have meant a lot more to me then than it does now."

On the other hand, saving for the future has been my mantra and my ability to retire next year at 55 is in part because of that...in spite of the time spent being young and stupid ;-)
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Old 09-11-2008, 07:27 PM   #16
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Here we go again...taking SS at 62 vs 65 or later...
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Old 09-11-2008, 07:55 PM   #17
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I hate the assumption behind this premise: being "old" means being disabled. Get the book Younger Next Year or Suzanne Somers newest book Breakthrough or Google Arthur Devany, a 71 year old retired Phd who is fitter than most of the college students I see during my teaching day. I really resent the assumption that being over, say, 60 means that you can't enjoy life. This will be a battle for we boomers. We will win it but will be dragged back by the ones who gave up and won't get out of the rocking chair.
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Old 09-11-2008, 08:06 PM   #18
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Hmm, I'm intelligent, rarely delay gratification, was successful in my career and am supremely happy.

You CAN have it all!
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Old 09-11-2008, 08:12 PM   #19
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Hmm, I'm intelligent, rarely delay gratification, was successful in my career and am supremely happy.

You CAN have it all!
I have found it especially easy to 'have it all' when I really don't want much.
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Old 09-11-2008, 08:12 PM   #20
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Hmm, I'm intelligent, rarely delay gratification, was successful in my career and am supremely happy.
And delightfully modest!

Ha
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