Wednesday, March 14, 2007

Another Reply to Anonymous

The number of fun comments keep piling up, but I have yet to receive much of any constructive criticism, or even an idea of what anonymous #2 is concerned about.

I think the main problem a lot of people are having is my advocacy for debt among young people. Most PF Bloggers would consider this an unusual method of savings.

Consider that you will be working all your life, and that your future income will increase to a certain point, after which you retire. Debt is piled on early in life, and meant to be paid off later in life. The reason most don't advocate debt is that its difficult to tell (a) how much you will make in your life, and (b) at what point in your life you should switch from primarily taking on debt to primarily paying down debt. This is not to say that you should not ever pay down your debt, but that on average, your debt remains constant if not growing during the first period of your life. (There is a fancy economic word for this: Intertemporal Consumption)

To quote for Wikipedia:

The main discrepancies between predicted and actual behaviour is that people drastically 'underconsume' early and late in their lifetime by failing to borrow against future earnings and not saving enough to adequately finance retirement incomes respectively.
I have an economics background, so I know this tends to be problem in everyone's financial life. When you have little money, you spend very little, and when you have a lot, you spend a lot. Instead, the model suggests the inverse. When you have little, spend a lot, and when you have a lot, spend a little. This essentially smooths out your consumptions over your lifespan.

The two things I am capable of doing (as just about any financial analyst should be able to do), is with some certainty, predict (a) and (b). This is why, early on, I am taking on so much debt. Items such as a car and condo aren't purchases that need to made every year, and so if I'm going to get them eventually, I may as have them now.

Also, I will keep anonymous post option on for now, as it has provided me much fodder for posts. However, in the future, I do ask that anonymous posters be more descriptive about their issues. The level acrimony can stay the same. I'm thick-skinned.

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