Monday, August 7, 2017

97. It steals your future.

Billionaire Warren Buffet attributes his wealth to “a combination of living in America, some lucky genes, and compound interest.” With savings and time, anyone can benefit from compound interest. Its effects are extraordinary. As investor JL Collins explains, “you’ll wind up rich” and “not just in money” if you simply spend less than you earn, invest the surplus, and avoid debt. Of course, money that you save when you are young has more time to grow than money that you save later. That is why it is so important to start saving money as soon as possible. You may not be thinking about saving for retirement right now, but you should be, because retirement pensions have largely disappeared. You will probably depend on your savings someday. Life is expensive. Unfortunately, graduate students are much more likely to go into debt than to save money. This brings us back to Reason 1.

There is an adage: “He who understands compound interest will earn it; he who does not will pay it.” If you borrow money in the form of a student loan, you are obligated to pay back every penny that you borrowed plus interest. If you manage to stay out of debt, in graduate school you are still not earning a proper salary at a time in your life when saving money could do you tremendous good. Worse, you are entering a profession for which there is a long period of apprenticeship (see Reason 4), in which jobs are scarce (see Reason 8), and in which highly trained people do extremely low-paying work (see Reason 14). Your wise friends outside of academe will have built up a nest egg before your academic career has even started (see Reason 63). There is a perception that graduate school leads to a better life, but working, saving, and building wealth while you are young is a much more reliable route to success. Just remember to spend less than you earn.



14 comments:

  1. God Emperor Trump will fix the economy and MAKE AMERICA GREAT AGAIN!!!

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  2. Excellent post, 100 Reasons. Indeed, most grad students are not thinking about their future, or retirement, at all. If they do think about it, it’s in vague terms - “I want to be a professor” - with no idea of how rare, difficult, and long the road to obtaining a tenure-track position can be.

    Just go to a 20-year high school reunion. Those who went to grad school are often still trying to find a stable job, living frugally to get by, and moving to the sad places where the jobs tend to be. Those who began working right after high school or college have moved up in their company, have had several children, own their own houses in nice places, and have up to 20 more years of income saved or invested than the ones who went the grad school route. This is not the type of thing young 20-somethings think about when entering grad school. Sadly, by the time they realize how much they could have accumulated over the last couple of decades of compound interest, they cannot make up for lost time.

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    1. "most grad students are not thinking about their future, or retirement, at all"

      Guilty. At 22 I didn't care about that stuff. However, I knew that I probably would care one day, so I made a pact with myself to just get an MA to start off with, and do to it fully funded so that at least my financial cost was low. I left academia after my MA, got married, started working and then had a family. Having no loans made this doable. I still kick myself sometimes about the opportunity cost, but it was pretty low in terms of loss to my lifetime earnings.

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    2. That's an excellent summary of the situation, AnonymousAugust 7, 2017 at 6:47 PM. People are sold on following their passion and doing something that makes the world better (noble, indeed), but those who did trade jobs or something that requires college but not a Ph.D., like an accountant, are living good lives at the 20-year reunion. It's a sad and frustrating situation for those of us that pursued advanced degrees.

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  3. Once again, absolutely correct and irrefutable.

    Enrolling in school is not the equivalent of working. From a financial standpoint, it can actually be worse than short-term or even medium-term unemployment. Leaving aside the percentage of graduate students -- and it is not inconsiderable -- who truly are work-averse and remain enrolled in grad school in a deluded attempt to save face with their families and friends, it's fair to say that most of us want to become contributing, productive members of society as rapidly as possible. That means employment.

    Again, leaving aside the long-term unemployed or work-averse, for most of us any stretch of complete unemployment lasting more than a year or two is already considered quite long. And by graduate students' standards, that's barely an overture. A graduate student can expect to be unemployed (or severely underemployed -- as practical matter it makes little difference) for a period lasting five years or more. That's five years' opportunity cost with no income at all.

    But wait! There's more!

    A five-year stretch of unemployment is bad enough, right? But during this time, the graduate student actually has recurring, unavoidable expenses -- tuition, books, travel -- that would put pressure even on an employed person.

    Hence, at the end of the day, the graduate student, with his or her worthless degree in hand, arteries hardened by bad food, and failing eyesight, is in a far worse position financially and even professionally than someone who decided to merely check out of the workforce for a few years and sit in front of the television or internet doing nothing.

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  4. The above comments have it right. The sad thing is, if you're Asian or Indian (or another ethnic that highly desires education) descent and have parents who complain about the old days and how tough it was back in their home country, they'll force education onto you and they will be ashamed if you DON'T pursue higher education. It's REALLY sad watching friends who are from these kinds of families who are being forced to do more education or end up getting disowned. Smarter friends end up joining the military and just leave their parents and siblings behind - though, that's not the life for everybody.

    It sounds silly at first, but if anyone is confused at how higher education is bad, I'll explain. I had many friends who dropped out of college, and even friends who dropped out of high school and just worked at a fast food restaurant. Now they're bigger managers or work at corporate offices, have good experience, skills and amazing benefits. Myself, I did chemical engineering at Waterloo, 3.9/4.0 GPA and 5 internships, but still struggling to find work. Yes, the oil and gas price crash made employment in Canada as a chemical engineer extremely difficult, but the point I want to draw is that professors there pretty much stopped taking applicants for domestic master's due to such astronomical demand. When jobs in a field are difficult to find, you find people begging for chances to do master's. Even if you do it for free thanks to scholarships, it's still lost opportunity money and you'll have less experience. BUT, want to hear something weird? I said the professors don't take domestic master's students due to there not being good scholarships available for people who are non-international students here.

    They love my resume, GPA, etc, and I've been invited to countless dinners with professors, yet somehow when I want to get the paperwork to sign to begin my master's, suddenly they say, "Not enough funding! I need 20k a year!" Yep, there's so many applicants that many of the profs would rather just have students self-fund their projects. It's REALLY scammy out there. People were telling me that they were soft rejections, but there were actually many students, a lot of them being the child of immigrants to Canada, actually self-funding their master's/PhD with the parents help because the parents somehow think that a master's/PhD would help their child get a job. Now I know why so many professors are treating me out to extravagant dinners....

    But anyways, many countries, like Canada, are mostly service-industries now. Nobody wants to do research. Hell, there are even company-sponsored funding for master's students, BUT you don't want to take those either! Many students go into a master's funded by a company, sign away all of the patents and such, thinking that they'll get hired by the company funding them. This is not the case. The company generally just wants to get cheap labour from the university, and my friend was pushed into working 60-80 hour weeks, and though his stipend was okay at a first glance, when you actually paid for tuition and used books, he'd be making less than minimum wage!

    Anyways, my point is don't be stupid and do a master's. I was talking about engineering, which is normally considered a poor field to do master's in, but I can guarantee you that these trends explained earlier will happen in other fields. Seriously, don't do it. Focus on making connections and such instead. I did chemical engineering and a master's and have 3 years of work experience from university research projects and a few companies that are now closed down. All my offers are from big, big pharmaceutical companies wanting a laboratory technician, which really only requires a high school diploma. Employers are in an age of choosiness.

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    1. Regarding one of your first points, in many cultures getting an education was a key to financial success. Unfortunately, not all degrees are the same. Many Americans don't understand this scenario either and have an elitist attitude of "well, education shouldn't be about getting a job, it's about gainings skills and learning how to think". Gee, sounds nice if paying rent isn't an issue...

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  5. Always great to read another 100Reasons post! I have been lurking on this blog for the past seven years or so, but as a financial adviser, this post really resonated with me.

    Similar to most of the audience of this blog, I come from a humanities background (East Asian Languages, to be specific). In 2014, I finished my undergraduate degree with a 3.9 GPA and was accepted into my department's post graduate program. I wish I could say that a spark of prescience served as the catalyst for my departure from graduate school, but the truth is that I grossly overestimated my academic abilities.

    With a couple thousand dollars in debt from my first semester of graduate school and nothing to show for it, I decided to apply to a financial services firm to work as an associate. They paid for my licenses (I had to take the series 7 three times) and I worked on the phones as a retail stock broker doing grunt work for two years.

    Fast forward to today, and I am a successful financial adviser. I am even beating advisers that come from business backgrounds. Not trying to brag, but my point is that humanities and liberal arts graduates have a distinct advantage when dealing with clients. As someone who studied different cultures and languages (Anon @ 3PM, Aug. 11 is spot on about Asian culture and education, by the way), I have a broader perspective and better ability to communicate than many of my business school counterparts.

    I'm not the only humanities major in finance, either. One of my colleagues and good friends is an English major from a state school. He is an even more successful financial adviser than me and is in his late 30's.

    Therefore, I urge my fellow humanities/liberal arts grads to not give up. It might be too competitive to get a (low-paying) job in academia, but there are lots of other things you can do to make a decent living, regardless of how long you have been on the academic hamster wheel.

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    1. >>there are lots of other things you can do to make a decent living, regardless of how long you have been on the academic hamster wheel.

      This should be point #98. You Have More Options Than You Think You Do. I was dead set on leaving after my MA despite being asked to stay, and even then, I was terrified about trying to find work. It was 2009 so the market was in the toilet. I wasn't getting call backs, interviews, nothing. I almost submitted that PhD application. I was convinced I had no skills, no future, nothing. And I WANTED to leave academia. I was DONE.

      Long story short is that I eventually got a job and built up a career from there. If I could start a great career with a Humanities MA right after the country imploded, anyone can. I got certifications through work, and now I'm even back in graduate school for a professional degree - this time it's great, because I get to study fun stuff part time while keeping my job, and my employer is paying for 100% of it. Man I should have done it this way the first time.

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    2. You mean a "succesful financial advisor" like the ones who were unable to forecast the housing bubble in 2007 and dragged millions to loss mitigation and foreclosure?

      I am curious about one thing. You call yourself a "succesful financial advisor" and you encourage people to undergo 4 years of study and 100K in debt for a worthless degree arguing that they will fail to get a job but at the same time they will be able to get a crappy job with low pay that pays for the debt generated by the worthless degree acquisition?

      May I have your name, so that I will NEVER hire you?

      PS: I deleted my original post due to a typo.

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    3. ...That isn't even close to what I actually said. My post was aimed at people who already had their "useless" degrees and felt like they could never get a good job. I wasn't implying that you should study something without good prospects.

      Clearly you have a very superficial knowledge of the financial crisis. For one, yes, there were advisors out their who figured out what was going on and were able to properly guide their clients. For another, the blame for the crisis does not rest solely on the financial industry. It rests on the following (in no specific order):

      1) The credit ratings agencies, who misled the public about the creditworthiness of various institutions, such as Fannie Mae, Freddie Mac, Countrywide, and AIG.

      2) The large investment banks, who took the bad loans doled out by the above companies, packaged them into securities, then resold them to large institutional investors while skimming off hefty commissions.

      3) The financial institutions (such as Freddie Mac, Fannie Mae, Countrywide, etc.) who underwrote bad loans to people they knew would never pay them off. They then resold these loans to the above investments banks for nice commissions.

      4) The American public, who was sold on the idea that it is their birthright to take out a mortgage to own a home valued at more than 6x their gross annual income. This said public also thinks it's their right to take expensive vacations, buy nice cars, and get their hair done every single week on credit. You might laugh at this statement and I realize I'm generalizing here, but I talk to enough people every day who blindly spend money to assert that this attitude towards spending is still prevalent and was a major cause of the crisis.

      5) The American educational system, perhaps due to the influence of large corporations, which has failed to properly educate people about money.

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  6. Warren Buffet's argument is so fallacious that its smell can be perceived from light years away.

    Compound interest does not to anything. If all those who make a salary placed a fraction of their salary in the bank to give compound interest, the interest rate would drop to 0, simply due to an excessive offer of money lenders to the bank. A banker has 1 lender, he needs to offer a fairly attractive interest. The same banker has 10 thousand lenders, he can choose, hence he can offer a low interest rate.

    Money doesn't breed money. Work breeds money.

    The problem with grad schools is that due to all the 96 reasons depicted up to date (and other that are too long and specific to ellaborate), grad school is inefficient work and in many cases useless (even in the STEM fields there is a massive proliferation of useless PhD theses).

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  7. Great reason to avoid grad school.

    You spend so much time in grad school being overworked and underpaid that you can't afford to plan for the future (unless you come from a wealthy family). There's also a huge chance that after graduation, you will join the adjunct workforce, which continues to steal your future.

    The Ivory Tower has effectively brainwashed people into thinking that it's the academe or bust, that there's no career prospects outside of its walls. It astonishes me that year after year, idealistic students think that they are an exception to the rule, that they can somehow overcome the adjunctification of the academe. "The life of the mind" is not worth starving for.

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  8. Anonymous 9/14 7:05 has summed the whole thing up brilliantly: "The life of the mind is not worth starving for."

    It isn't just material things, either. You can also end up starved for romantic relationships, children, long-term friends, geographic stability, professional satisfaction, proximity to family, and long-term plans of any kind. Take it from someone who's been there—mainly by following a spouse through it.

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