Thats sounds like nothing, but $5 a day is $150/month. Many people don’t have that. Not to mention the ability to invest in something that will continually give them a 10% return on their money.
I’m not even talking about owning your own business, necessarily. Here’s another example: My own mother. She has never earned more than $8/hr. We started out in a small apartment. She never owned a car in her life. She raised two kids on her own. And yet, today she owns a small store and has money in the bank. How? We didn’t spend much. She saved for 10 years for a down payment in a small duplex home. Never carried credit card debt. While the welfare families in our neighborhood had color TVs and cars, we took the bus and had an old black and white set that dated from about 1960, which was given to us by a relative. We used to stick toothpicks in the tuner mechanism to get it to hold a channel.
Anyway, she saved a small part of her salary, got enough for a 10% down payment on a small house (the house was $17,500, back in 1976). She lived in that house for 15 years, and then sold it for $75,000. Used that money to put 50% down on a small rural store, and retired there. Now she’s getting to be the age where she can’t handle the store any more, so she’ll sell it for probably $150,000 (got unlucky in that it never went up in value over 10 years - she hit a trough in real estate prices). Anyway, the $150,000, plus her savings, will give her a nice retirement nest-egg. She can buy a small town home or apartment in the city for $80,000, keep $100,000 in the bank for expenses, and life off of her pension with some style.
That’s a single mom with two kids, earning close to minimum wage. She managed it. It can be done. In fact, she could have done better had she really wanted to, but she’s happy with what she’s got.
I grew up in an area full of poor people. I know who made it, and who didn’t, and I can see the difference. The people who made it did the hard things necessary to make it - they worked a little harder, saved a little more, went without the latest trendy things, or even moved away if there was no work for them in the home town. And they had positive attitudes like the one I’m offering here. Their attitude is, “Anyone can be successful. Life is what you make it. Hard work is the key to success.”
The failed people I know, the ones who are still in poverty, aren’t like that. They have chips on their shoulders. It’s always someone else’s fault. Society has let them down. It’s not possible to make it unless you’re born rich or lucky. They are undisciplined. I have a friend who never went to college - when we got out of high school we both had to go to work, because our families couldn’t pay for college. I saved my money for three years, lived at home, and paid my way into college. He bought a fast car on a five year loan. He was always strapped for cash with his big car payment, so he was trapped in his job. Couldn’t go back to school. Today he’s still a day laborer.
There are some people who truly can’t make it on their own. But this does not describe the majority of poor people. The majority of poor people are poor because they made bad decisions. Get themselves in debt, have too many children at a young age, keep quitting jobs, or in general just live with a defeatist attitude that keeps them from achieving anything.
And yet, they can afford cigarettes, which around here cost $10/pack. A pretty good percentage of poor people smoke.
But if you can’t afford $5/day, you can afford $2/day. Figure out a way. And you’ll have close to a half a million bucks when you retire.
Here’s one trick: Once you can cover your expenses, and you get a raise in your job, take the amount of the raise, figure out what it comes to per month, and have it auto-deducted from your bank account and place in an investment. That way, you’ll never miss it. A raise of $.50/hr will get you an $80/mo investment deposit.
The problem with all this stuff is that at the end of the day, it doesn’t tell you very much. Great, so there is a correlation between IQ and grades (although a less strong one than I might have imagined) and IQ and income. But, is that so surprising? The IQ test is a test much like the tests that you take in school; there ought to be a good correlation with grades.
The unstated assumption here seems to be that the IQ is measuring some very deep innate quality called “intelligence”. However, I think the claims for that are extremely dubious. Admittedly, on the scale of tests, the IQ is designed more to test reasoning skills and less to test learned facts…But, it is certainly not completely devoid of testing learned facts, besides which reasoning skills can be learned and lots of other things (such as language barriers, attention deficits, reading comprehension problems) can affect a person’s score on IQ tests.
My Dad is a psychologist who does lots of psychological testing of kids to understand why they are having problems in school, or so forth. And, he certainly sees the IQ test as being a useful component in learning where the deficiency is. But, as I recall, he is very skeptical of it measuring anything very innate, deep, and profound.
As someone else pointed out, the Jews who immigrated from Eastern Europe in the early 1900s were often claimed to be mentally-inferior and deficient on the basis of IQ tests and yet went on to become one of the success stories that everyone here talks about (besides now having higher IQ scores than the norm).
Wait a second…Aren’t we always being told that risk-taking is a wonderful thing—that it is what makes our country great and is what we have to cut the taxes on the high income brackets and on investment income in order to encourage?
Also, wouldn’t your reasoning imply that at least in terms of this one factor, we ought to have a completely confiscatory estate tax since passing a lot of money on to your heirs is about the most dramatic thing you can do to mitigate their effects of failure, much more so than giving out paltry welfare payments to poor people?
First, I am suspicious of this whole million dollar thing, but I have heard it all before so I will assume your numbers are correct and that they include the taxes you would pay and the fees associated with investing. I would like to see a breakdown of that if you have it.
I don’t deny that hard work has a lot to do with how successful you can potentially become, but you make it seem as if poor people don’t work hard or aren’t willing to do the things needed to do well in life. With your attitude, nobody would have any reason to be poor, or stupid, or have anything bad happen to them that they could have prevented. Why is anybody overweight if all it takes is exercise and moderation? Why do people get divorced if all it takes commitment and dedication? These things are complex. You seem to think success is easy. If it’s so easy, then why aren’t you as rich a Bill Gates or Warren Buffet? Did you not work as hard, or not save enough money? For most people all it would take to send them from economic sucess to poverty is a devestating illness or prolonged unemployment. Life is much more complicated than you make it out to be.
jshore said:
Do I really have to explain this? Or are you just looking for cheap debating points? Oh, what the hell…
There are different kinds of risk taking. One kind is laudable: Taking a risk on improving your condition by going back to school, for example. Or starting a business. Other kinds of risk aren’t: Telling your boss to go screw himself because you’re sick of him and you’re pretty sure you can find another job before your money runs out. Or having unprotected sex that might result in a baby you can’t afford. Or not saving for your retirement because the state will take care of you.
The existence of social safety nets increase the latter kinds of risks, because they reduce the potential damage from a bad gamble. Can’t find a job, now that you’ve told your boss to screw off? Oh, well. Go on social assistance for a while. Oops, having a baby? Well, I guess welfare will have to cough up.
Here’s a perfect example: Student loans. The default rate on student loans in Canada is very high. Why? Because the government will give them to you willy-nilly without making you show how you’re going to pay them back, and if you default, we have laws that say the default cannot go on your credit record. We made it easy to get loans, and limited the consequences of failing to discharge them properly. The result? People getting student loans who really shouldn’t, and then people failing to pay them back. No surprise.
Again, these programs may be good things, but you have to at least recognize that with the good comes some bad. Or put another way: Subsidize something, and you’ll get more of it. Subsidize poverty, and you’ll get more poverty.
My mother was born in 1933. Her father was a cruel alcoholic and her mother (my grandmother) died when she was 16. She was the oldest of five children. Her father raped her and her sisters. She moved in with my dad, also an alcoholic who beat her severely. Somehow she convinced him that her younger sister should also live with them and the younger sister was in and out of school. My mom quit school after 8th grade so she could run the house and care for her dying mother. She tried to keep the younger ones in school but eventually, they all dropped out. The two boys joined the military and went on to live middle-class lives. When I was three my dad broke several vertebrae in his back. At one point the doctors said he would never walk or work again. He did but he was disabled and off work for about two years, maybe longer. While he was off work my mom went to work for minimum wage at a textile mill. She worked very hard all day. I believe workers had to make “production” to get the minimum wage Or maybe there was some sort of extra pay for workers that made production. That was how we managed to keep the mortgage paid while my dad recovered. We did lose the car and this was not good because we lived in the middle of nowhere. My mom paid a lady down the road to carpool. Once my dad went back to work he worked constantly. He worked in the oil field, a rough-neck or some say roust-about I think. We lived in poverty although I do not remember ever being hungry. Anyway, my mom lived in poverty for most of her life. I don’t think it was because she never wanted to work hard or refused to save money. Now she lives with me, and we do ok. For the first several years of my professional life, I had some very poor financial habits. I worked though them and learned some pretty tough life lessons. I have had the great fortune of doing far better than either of my parents. I don’t think it was because I worked harder than either of them. Although, I have never been accused of being a slacker. People that live in poverty are not necessarily stupid or lazy. Many of them have had serious adversity in their lives.
Positive stereotypes and higher standards play a role. Do you know of any families where the parent was a doctor and the child ended up becoming a doctor (or lawyer, or doctoral candidate in something else)? Statistically it is safe to say that if you parent(s) is a doctor then you are more likely to become a doctor than someone whose parent is an auto mechanic. I do not have proof right now but from what i’ve seen firsthand that is an accurate assessment. So maybe those households have higher standards and expect more out of people.
Jewish people have high education rates, 55% have Bachelor degrees and 24% have graduate degrees while the non-jewish US population has 28% and 5% respectively. U.S. National Jewish Population Survey (October 2002) Maybe Jewish people just have higher standards and this creates a snowball effect.
That site also says Jewish median household income is $50,000 which is only a few thousand higher than the median US income, even though their education rates are 2-5x higher than the average.
Beyond positive stereotypes and higher expectations, I would assume coming from a background of hardship plays a role but that doesn’t explain why all groups from bad backgrounds do not succeed. What about the native African population in the US, do they do as well as the Asian population? I don’t have stats, but probably not.
Ah, the joys of compounding. Trouble is, 10% is not an easy rate of return to average. I know that in the '90’s, pre-crash, the long term retrun on equities in the US was considered to be around 12%. The last few years have put a pretty significant dent in that. Even in those days my manager would have not been happy with me suggesting 10% as a reason rate of return over the long term for a blend of assets (well, he probably would have been, but he shouldn’t have been, but that’s a different story). Certainly if these are an individual’s sole retirement assets, or even a major contributor, 10% is just not viable. And the moment you start scaling that rate of return down, the end number doesn’t look so hot. Of course, your example looks much better because it ignores the effect of inflation. If we assume inflation at 3%, then prices will alost quadruple over your 40 years, making your $400,000 worth $100,000 in present day money. Assuming of course you hit 10% annual return. Its also assuming you need the money at a time when the market is at or above average. Often your expenses can’t be timed, and you may be required to withdraw money in a downturn.
That’s before we have looked at the effects this nestegg, already dramatically smaller than it seems, has on your chances of state benefits. Certainly when your spouse needs long term nursing care, you are going to be forced to spend it all down before you get any help. But don’t worry, with spiraling medical costs, it won’t last long before you are holding your hand out to Uncle Sam. That’s if having the savings in the first place didn’t prevent your child qualifying for financial aid to go to college.
In short, the $2 or even $5 a day seems great when you look at it briefly. The assumptions involved and the latter realities make it seem less impressive.
But $2/day is a very small amount. $60/mo is a small amount of savings. A 10% average return is not impossible - yes, you wouldn’t have made that in the last four years, but on the other hand, you would have made much more in the previous ten years. The average is close to 10% over the long term.
But let’s say that after inflation returns are smaller. Let’s see some various examples:
Let’s assume you can put away $200/mo, at an after-inflation rate of 7%. After 40 years you would have $524,000 in real dollars.
Or how about just $100/mo at the same rate? You’d have $262,000 in constant dollars.
There are little decisions that really add up. For example, If one person buys a car for $20,000 when they are young, but another person buys one for $10,000 and puts $10,000 in a 40 year retirement account earning 8%, that one decision alone will give the second person $245,000 after 40 years.
Now, that’s the power of compounding. Imagine the power of compounding the other way, when you’re carrying credit card balances at 18%.
The small decisions matter. Putting off a purchase until you can pay for it cash instead of on credit. Buying a used car instead of a newer one.
And of course, people will continue to reply with truly hard-luck stories about the person who’s brother died and wife got sick and he had to raise 12 kids, and use that to prove this all wrong. But those extreme cases are not the norm. I know lots of poor people. Almost all of them are people just like me, only they are poor. Not that I’m rich, but I’m not living paycheck to paycheck, and I’m putting away enough money to retire early with a good income. When I look at the people I know who are poor, I can almost always see why. And it’s not because they’re necessarily lazy, or stupid, or uneducated, or unlucky. There’s a fellow who works with me - he’s a software engineer with a Masters degree, and makes as much as I do. And he’s always broke. He’s 35 years old, single, no investments, and living paycheck to paycheck. But hey, when we all got our bonuses last year, his went to a new $2000 mountain bike. Mine went into a tax-deferred savings account. Windfall money is perfect for saving, because it doesn’t change your lifestyle to do so. A while ago he borrowed some money from me until payday. When I asked him where is salary went, he said, “Well, we went out on the town, and I was buying rounds for the house.”
Another person I know has been broke for a long time. He finally got a good paying job, and I just heard that he’s going to Mexico for Christmas. He’s ‘earned it’, because times have been tough so long, you see. He also bought a new stereo on his credit card. He’ll be able to pay it back within a couple of months with his high paying job, doncha know. But he doesn’t tend to hold a job very long, because he has a temper. So my guess is that he’ll live high on the hog for a few months or even a year or two. Then he’ll lose his job and be stuck with no income, $20,000 in credit card debt, and a mortgage he can’t pay.
Then he’ll complain about how it’s impossible to get ahead, and how ‘lucky’ I’ve been to have the things I have.
For every story about the truly hard done by who have been dealt a lousy hand, there are ten people like the ones I just described. I’ll bet you guys know some.
Where are you getting this from? Is it made up? The numbers I was given working in the finance indistry were anywhere from 10.5% to 13% average return on equities in the long term. and that was before the latest crash, during the longest equity boom seen (the one that couldn’t end, that meant we should give up on asset allocation models). But that is equities alone. I am amazed to see how you would design a portfolio for someone investing $200 a month that would have an expected return of 10%, assuming that $200 represented their sole savings. Taking the risk to allow 10% isn’t that hard when you have a 401(k) and other assets to rely on later. Taking that kind of risk with your sole financial assets is somewhat irresponsible.
Compounding is indeed an immensely powerful thing, and investing is wonderful. But I was a broker long enough to see enough long term predictions and mountain graphs to realize they are done for a reason, and that is to maximize the psychological effect on the potential customer. And $2 a day ain’t going to do it. Not that that’s a reason not to invest the $2, but it isn’t the ticket to a land of golden retirement happiness.
Okay. Fair enough. And sure, you can come up with examples of risk-taking that are undoubtably laudable and ones that are clearly nutty. But, you have to admit that there is a gray area in there too. For example, the decision to quit your job and start your own business. And, at some point, some of these examples in this gray area are going to get classified as good or bad partly on the basis of whether the risk succeeded or not. And, of course, if people only took the risks that were almost sure to succeed, then they wouldn’t really be risks, would they?
And some of the programs that you oppose are going to help a person who quits his job to start his own business. For example, if he is young and healthy then maybe he won’t worry about health insurance but if he is older or has a semi-serious medical condition of almost any sort then lack of national health insurance is going to make it more difficult for him to set out on this course.
And, what about the extent to which a program like welfare might provide a poor mother have enough money so she could start to take some classes at the local community college?
Mind you, I am not saying that social safety nets will not in some cases increase the probability of someone making poor choices because there is some insulation from the consequences. But, I think this sort of argument tends to get really overstated with other factors that lead to these poor choices (or even make them hardly a choice at all) being overlooked. And, certainly some of the problems that get so much discussion (teen pregnancy, for example) seem to be bigger problems in the U.S. than they are in countries with a more generous social safety net.
And, like I said in my last post, if this whole issue of people being insulated from the consequences of their failures were really such a big concern, then I’d expect those expressing this concern to really be worried about those who inherit huge sums of wealth, which is really the much more extreme example of this occurring. And, that simply doesn’t seem to be the case.
That’s annecdotal. Also, the Asian engineers are also most likely nth generation or came over as engineers from their native country. I think the question the OP is asking is why did some ethnic groups come over to this country as dirt poor immigrants and become successful while others remain dirt poor. Many of those groups did, in fact, have strong community loyalties - hiring neighborhood kids, shopping at neighbors stores, involved in the church, etc.
Where did I say I oppose them again? I thought I just finished saying that while these programs may be good and necessary, it’s important to recognize their negative effects. Because if you don’t, you might tend to go overboard with them.
For example, I don’t favor the removal of welfare, because I think there are some people who would clearly be in desperate straits without it, through no fault of their own. At the same time, I think Clinton’s welfare reform was the best thing to come out of his presidency, and it had tremendous positive effect, because it addressed the kind of negative incentivism I’m talking about, while still maintaining a safety net.
But we’re getting off the subject here. The OP asks why some cultural groups seem to be more successful than others, and I gave my answer: Because these groups tend to live by the kind of values that can been seen in successful people everywhere: hard work, living within their means, saving, striving to move up in society through hard work and their own wits. There’s nothing magic about being Korean or Japanese that makes them successful - the things they do are available to everyone.
Well, the default rate on student loans in America is very low because the only ways to default are death or grave injury. Everybody still gets loans because college tuition has risen so much that parents can no longer be expected to provide it and student are unable to work their way through. Since there is literally no way to dismiss them, a good portion of the population (and their kids) just live in increadable poverty when things go wrong. I’ve seen it with my own eyes- not just my generation, but our parents who are still struggling to make payments.
Two year schools typically offer education and training nothing like four year schools so comparing them isn’t really the same. Two year schools are better for people going into certain professions and I think some things taught at traditional four year schools should be moved to a two-year school because they don’t work well in the 4 year system.
Getting a 10% return on your investment isn’t hard. I have money in several mutual funds and there have been years where I’ve seen 14%, 15% return and then years where I’ve seen 5% return but over the years I’ve not really had a single mutual fund average out to less than 10% return. Personally due to my income the Roth IRA isn’t an option for me but they are an excellent way to get a return on your money and you don’t pay tax on the growth.
Okay, and my point is that the negative effects can sometimes be exagerated. But, I agree they should be structured as much as possible to create positive incentives.
[Also, note that my example involving health insurance in the U.S. is an issue where, as I recall from the threads where we’ve discussed it, you have been on the side of the U.S. keeping its current private system…Or, at least you try to fill us in on all the downsides that you perceive for the Canadian and other national health insurance systems. And, I would argue that the current system here keeps even some of us who are quite well-off from taking “positive” risks because the prospect of being unable to get good health coverage at any sort of reasonable price is scary.]
Well, I would have to ask you when you got into the market. For those of us who got in in the late 90s (I started my 401K in late 1996 and additional taxable investments into mutual funds in 1999), the story so far is quite different. At the end of the last year, my 401K was worth 96% of the total amount I had contributed over the years. My taxable mutual fund investiments were worth 93% (and that doesn’t even account for any taxes I have paid on capital gains and dividends that they have declared…although I think this has been fairly modest). I have to admit that I probably I’m not the world’s greatest investor, but I don’t think I was especially careless.
Admittedly, over the much longer-run, I may still average out to a return like 10%…But, there are going to have to be some good years a-coming to do that!