In between the happiness of Christmas and the promise of the New Year, permit me to introduce a sour note, a hint of a scold. If you're like, well, almost everybody, you're not saving enough. 15% of each paycheck into the 401(k) is the bare minimum you can get away with, not some aspirational level you can maybe hope to hit someday when you don't have all these problems.
I mean, obviously if one out of two workers in your household just lost their job, or has been stricken with some horrid cancer requiring all sorts of ancillary expenses, then it's okay to cut back on the retirement savings for a bit. But let's be honest: that doesn't describe most of us in those years when we don't save enough.
What describes most of those years when we aren't saving is normal life. We moved. We got married or had kids. The kids required entirely expected things like food, clothes, and schooling. Work was hard and we felt we wanted a really nice vacation. Friends and family went through the same normal life stages that we were, requesting that we travel and bring gifts to the happy events.
These things are not an excuse to stop saving, for all that I have used these excuses myself from time (and regretted it later, at length). The recession should have driven home some hard facts, but the nation's 3.5% personal savings rate indicates that these lessons haven't quite sunk in, so let me elaborate some of them.
1. You cannot count on high asset growth rates to bail out a low savings rate. In the 1990s, we believed that we could guarantee something like an 8% (average) annual return by pumping our money into the stock market and leaving it there. The problem is, this may no longer be true. For the last few decades, there have been a number of factors pushing up the price of stocks:
a. Low interest rates on bonds prompted investors to look for higher returns elsewhere
b. People started believing that over the long term, equities offered a low-risk opportunity for higher returns. Unfortunately in finance, many things are only true if no one believes they are true. If everyone thinks that equities are low risk, they will bid away the "equity premium"--which is to say, the discount that buyers expected for assuming greater risk. At which point, stocks no longer offer a low-risk excess return.
c. Baby boomers who had undersaved started pouring money into the stock market in an attempt to make up for their lack of savings.
However, stock prices cannot indefinitely grow faster than corporate profits; eventually, you run out of greater fools. And future corporate profits are going to be constrained by slower growth in the workforce as baby boomers retire, and by the taxes needed to pay for all the bailouts and stimulus we just did. Unless there's a sudden boom in productivity--entirely possible, but entirely impossible to predict, or count on--there's every reason to expect that stock markets performance will continue to grow more slowly, and be more volatile, than we got used to.
We saw a similar cycle in houses. A mortgage used to be a form of forced saving that gave you an (almost) free place to live in retirement and a little bit of value when you sold the house. We didn't realize that a number of developments had been pushing up the price of homes:
a. The development of the 30-year self-amortizing mortgage, which enabled people to pay a much higher price for a given house than they would have in the era of 5-year balloon mortgages.
b. The baby boom, which increased demand for houses as they aged
c. The run-up in inflation in the 1970s, which gave (relatively inflation-proof) real estate a boost--and then the subsequent decline in inflation (and interest rates), which gave people the illusion of being able to afford more house because the up-front payments were lower.
d. More widely available credit, which let more people take on bigger loans
e. The increasing value of (and competition for) a small number of slots at selective colleges, which put a rising premium on houses in good school districts
These trends gave people the illusion that houses were, in some fundamental way, an "excellent investment". But they're risky in all sorts of ways: neighborhoods can get worse rather than better, local economies can stagnate, the style of your home can go out of fashion.
Moreover, like the stock market, houses are still pretty expensive by historical standards, as this chart from Barry Ritholtz shows:
If you can't count on a steep run-up in asset prices to build up your retirement savings, that leaves you with one alternative: save a much bigger chunk of your income.
2. People are still living longer in retirement. The increases in life expectancy post-retirement aren't as dramatic as they were in the antibiotic era, but they're still creeping up. That means that you have to take smaller sums out of the kitty each year, so that what you have left will be enough to live on.
3. Government finances are extremely strained. The Baby Boomers are about to dump an even heavier load on them. That means yes, higher taxes--but it also means that despite their formidable voting power, retirements financed mostly on the public dime are very likely to get leaner. Especially because birthrates are falling everywhere--which means that the supply of young, strong-backed immigrants to man the nursing homes will not be as ample as it is now.
4. Employers are not kind to older workers. I wish this weren't so, but I'm very much afraid it is. People who say "I won't be able to retire" may not be given a choice in the matter. Like most modern economies, we've cut a societal deal where you're underpaid in your twenties, and overpaid in your fifties and sixties . . . and as a result, it's very tempting to fire those overpaid oldsters when times get tough.
And once you're forced out in your fifties, it is very, very hard to find a new job of any sort, much less one that pays what you're used to. Even if you're willing to take a big paycut to work a less prestigious job, employers are reluctant to hire the overqualified--particularly since 99 times out of 100 the overqualified 55-year old simply does not have the stamina or the life flexibility of the single twenty-somethings who are applying for the same job. And physically, you may not be able to do many of the low rent jobs that paid your way through college: by the time you're sixty, you're quite likely to have back, joint, or skeletal problems that make it hard to stand on your feet all day or lift heavy objects.
The upshot is that you can no longer plan on "making up" anemic retirement contributions later. You have to start making them--right now.
5. Emergencies seem to be lasting longer than they used to. Before the 1990s, unemployment used to crater sharply during recessions, then recover quickly along with demand. We had our first "jobless recovery" under Clinton, and now we've got two more under our belt. That means that the old advice of three to six months worth of emergency funds are no longer enough. 8 months to 1 year is more realistic.
When I write these posts, I generally get two types of responses: people who smugly tell me that they are saving 30% or more of their income (way to go!) and people who tell me that it is simply not possible for them to save t15-20% of their income.
You know better than I, of course. But most of the research on consumer finance shows the same thing: people can usually save a lot more if they make saving a priority. Most people don't. Savings is an afterthought--it's the residual of whatever hasn't been spent on clothes, groceries, cars, dinners out, school trips, travel soccer team, college tuition, vacation, etc. Unsurprisingly, there's frequently no residual. However, if people decide how much to save, and then budget their consumption out of what is left, they suddenly realize that they could drive an uglier car, take the kids out of dance class, live with the kitchen the way it is, stay home for a week in August instead of going to Disneyworld, and so forth. And those people are not, as you might think prospectively, made desperately unhappy by these sacrifices. Savers are actually happier than the general population--in part, one assumes, because they're less worried.
Many people tell me they can't save because children are so expensive. Children are indeed very expensive. But they're getting more expensive every year, and that's because we're spending more money on them. We're spending more money on houses to get them into good school districts, on activities so that they have every chance to get into Harvard (or the NHL), on clothes and cell phones and video game consoles and the list is endless, plus then there's that tuition to Harvard or some sort of even-more-expensive smaller private college.
These expenses are optional, not mandatory. And before you tell me about how unhappy your child will be if you do not buy him all of these necessities, think about how unhappy he's going to be if you have to move in with him. Better yet, volunteer for some outreach to the bankrupt seniors whose kids wouldn't let them move in, and see how their lives are going.
This is not to criticize. Saving is hard, which is why, just like you, we're trying to figure out how to hit even more ambitious savings goals in the New Year. And consumption is fun. That's why most people struggle to save very much.
But a lot of people are going along on autopilot; they're saving 5% because it seemed safe when they were 25 and so what if they're now 37? They look at the neighbors spending a fortune on cars and school activities and figure that if it's safe for them, it must be safe for me too. But this is the opposite of the truth. If your neighbors aren't saving much (and trust me, they aren't), that means a less productive economy in the future--and more people trying to claim a very limited supply of public funds. You don't want to be among them.
It helps to remember that the object is not to turn yourself into a miser; it's to make your spending patterns sustainable. Your splurges will actually be a lot more fun if you know that they aren't putting you at risk of bankruptcy, foreclosure or a retirement in poverty.
If you're not saving enough--and you know who you are--don't decide today that you're going to save 15%, and then forget about it tomorrow when you realize how daunting a task that will be. Instead, try this: divert an extra 5% of your income into a 401(k), IRA, or other tax-advantaged savings plan. If your 401(k) is stuffed but you don't have much of an emergency fund--or if, for some reason, you don't qualify for tax-advantaged savings--have 7% of every paycheck diverted to a bank account which isn't linked to your other accounts. It's a slow week at work, the perfect time to fuss with HR paperwork.
The important thing is to pay yourself first. Savings should be the first thing you do, not the last. After you've saved, then you budget your consumption. I won't tell you what to cut, because when you confront your new, slightly leaner budget, you'll be perfectly able to calculate what's no longer worth the money to you. I think you'll be pleasantly surprised to find that after a few weeks or a few months of initial pinch, you won't remember that you miss the money much.
If at the end of the year, you still aren't saving enough, then you can do the same thing again--pull another 5-7% out of every paycheck. Within a few years, you'll be at a healthy level of savings, without excessive fiscal pain.
But the most important thing is this: don't start looking for reasons you can't. If you hunt hard enough, you'll find them. Unfortunately, those reasons aren't going to do a damn thing to pay your house payment if you get laid off, or keep you in prescription drugs when you retire.
The country has seen periods of turmoil before. But this time may be different.
I am usually an optimist when it comes to Turkey’s future. Indeed, I wrote a whole book about The Rise of Turkey. But these days, I’m worried. The country faces a toxic combination of political polarization, government instability, economic slowdown, and threats of violence—from both inside and outside Turkey—that could soon add up to a catastrophe. The likelihood of that outcomeis increasing amid Russia’s bombing raids in Syria in support of its ally, Syrian President Bashar al-Assad, which threaten to debilitate the moderate rebels and boost the extremists in Syria’s civil war, while leaving Turkey to deal with two unruly neighbors: Assad and ISIS.
Of course, Turkey has gone through periods of political and economic crisis before. During the 1970s, the country’s economy collapsed, and the instability led to fighting among right- and left-wing militant groups and security forces that killed thousands of people. Then, in the 1990s, Turkey was pummeled by triple-digit inflation and a full-blown Kurdish insurgency that killed tens of thousands. Turkey survived both those decades. The historian in me says that Turkey will be able to withstand the coming shock this time as well.
What went wrong with the conversion ministry, according to Alan Chambers, who once led its largest organization
In 2001, Alan Chambers was hired as the president of the world’s largest ex-gay ministry, Exodus International. That same year, U.S. Surgeon General David Satcher issued a report that stated, “there is no valid evidence showing that sexual orientation can be changed.”
Like most conservative Christian leaders at the time, Chambers considered the countercultural nature of his work a point of pride. During the latter part of the 20th century, Exodus and similar conservative groups promoted the idea that gay people could—and should try to—become straight. Ex-gay leaders traveled to churches and appeared on television news programs citing a litany of examples of happily married “former homosexuals” to demonstrate that sexual orientation is a choice and that change is possible.
Forget the Common Core, Finland’s youngsters are in charge of determining what happens in the classroom.
“The changes to kindergarten make me sick,” a veteran teacher in Arkansas recently admitted to me. “Think about what you did in first grade—that’s what my 5-year-old babies are expected to do.”
The difference between first grade and kindergarten may not seem like much, but what I remember about my first-grade experience in the mid-90s doesn’t match the kindergarten she described in her email: three and a half hours of daily literacy instruction, an hour and a half of daily math instruction, 20 minutes of daily “physical activity time” (officially banned from being called “recess”) and two 56-question standardized tests in literacy and math—on the fourth week of school.
That American friend—who teaches 20 students without an aide—has fought to integrate 30 minutes of “station time” into the literacy block, which includes “blocks, science, magnetic letters, play dough with letter stamps to practice words, books, and storytelling.” But the most controversial area of her classroom isn’t the blocks nor the stamps: Rather, it’s the “house station with dolls and toy food”—items her district tried to remove last year. The implication was clear: There’s no time for play in kindergarten anymore.
The Red Planet once had an ocean and a magnetic field. A new mission is setting out to discover what happened to them.
The question of whether there is life on Mars is woven into a much larger thatch of mysteries. Among them: What happened to the ancient ocean that once covered a quarter of the planet’s surface? And, relatedly, what made Mars’s magnetosphere fade away? Why did a planet that may have looked something like Earth turn into a dry red husk?
“We see magnetized rocks on the Mars surface,” said Bruce Banerdt, the principal investigator of the InSight mission to Mars, which is set to launch in March. “And so we know Mars had a magnetic field at one time, but it doesn't today. We would like to know the history—when that magnetic field started, when it may have shut down.”
There are a few leading theories about what decimated the planet’s magnetism. One of them is that huge asteroids bombarded Mars until its magnetic field turned off. That storm of asteroids may have included one enormous rock in particular, even bigger than the one believed to have wiped out Earth’s dinosaurs. Another theory explores the possibility that Mars’s ancient magnetic field only ever covered one of its hemispheres, an idea that would also explain how the planet’s magnetism weakened over time. “The presence of a magnetic field is key to understanding the history of Mars’s atmosphere, which of course is key to habitability on Mars’s surface,” Banerdt told me.
Many high-school graduates must choose between two bad options: a four-year program for which they’re not academically or emotionally prepared, or job-specific training that might put a ceiling on their careers.
Two years ago, my nephew was set to graduate from Maryland’s Towson University with a degree in political science. After six long years, both he and his parents were ready to breathe a sigh of relief—he had made it to the finish line. He had never been excited about school, and his parents had worried about his lack of enthusiasm, wishing he could be engaged in something that ignited his curiosity and provided him more of a motivation to focus, something more hands-on and practical. But they also knew that without a bachelor’s degree, my nephew’s ability to move into a rewarding career, earn a middle-class salary, and enjoy some economic security would be very limited. And they worried that if he didn’t complete that degree before he turned 25, he likely never would (a reasonable concern, given national statistics on college completion). Determined to launch him into adulthood with the strongest possible foundation they could, they persuaded him to go to college and crossed their fingers.
“Vaccine hesitancy” is a delicate way of phrasing a serious public-health problem. The World Health Organization defines it as “delay in acceptance or refusal of vaccines despite availability of vaccination services.”
There’s a tendency to treat these vaccine-hesitant people as a monolith, the “anti-vaxers” who are putting everyone at risk. But people who don’t vaccinate aren’t just a homogenous mob of parents who fear toxins and want their kids to be exposed to chicken pox “the natural way.” There are a variety of reasons why people decide not to vaccinate, and a new paper by researchers at Rutgers University and Germany’s University of Erfurt and RWTH Aachen University, published in Policy Insights from the Behavioral and Brain Sciences, breaks down the psychology of four different types of non-vaccinators, in the hopes of finding effective strategies to change their minds.
Humans have a tendency to cluster based on shared interests, but the changing demographics of cities and towns present the possibility to forge new levels of connection.
In the 1980s, when I was living in Durham, North Carolina, I attended a church in a neighborhood undergoing transition. St. Stephen’s Episcopal Church had been built to serve Hope Valley, an upper-class neighborhood, an early 20th-century enclave strategically positioned on the other side of the Durham County line, allowing residents to avoid racial tensions in town. By the late 1980s, however, change was afoot in Durham County. Huge planned developments sprang up, complete with schools, private pools, and associations. The new communities bore old-fashioned words like “chapel,” “farm,” or “woods” in their names, to give them an air of tradition. The old Hope Valley neighbors, who could be an exclusive lot, had a hard time with these pop-up communities, seeing the new people as interlopers and the new developments as intrusions on the landscape. At the church, a tribal war broke out between those who sought to maintain the old neighborhood and the newcomers who had begun to attend the church. In the short term, the old-timers won. It was, in a word, unpleasant.
National Geographic Magazine has opened its annual photo contest, with the deadline for submissions coming up on November 16, 2015.
National Geographic Magazine has opened its annual photo contest, with the deadline for submissions coming up on November 16, 2015. The Grand Prize Winner will receive $10,000 and a trip to National Geographic headquarters to participate in its annual photography seminar. The kind folks at National Geographic were once again kind enough to let me choose among the contest entries so far for display here. Captions written by the individual photographers.
Why Illinois had different drinking ages for different genders
Until quite recently, drinking in America has been strongly associated with maleness. According to one study, as late as 1990 only 80 percent of Americans thought it was acceptable for a woman to be drinking at a bar with friends, compared with 85 percent who thought it was fine for a man to do so.
We can thank many things for the change in social norms: The increase in college attendance among women, feminism, and of course, Sex and the City and its river of cosmopolitans.
But some places were ahead of their time. I recently came across this map, which shows that until 1961 in Illinois, the drinking age was lower for women than it was for men. It was the only state where women could knock one back at 18, but men had to wait until 21.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.