Monday, August 7, 2017

97. It steals your future.

Billionaire Warren Buffet has said that his wealth came from “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 puts it, “you’ll wind up rich—not just in money” if you simply spend less than you earn, invest the surplus, and avoid debt. Of course, money saved when you are young has more time to grow than money saved later. That is why it's important to start saving money as soon as possible, especially now that pensions have largely disappeared. (You may not be thinking about saving for retirement, but you should be.) Unfortunately, graduate students are much more likely to go into debt than 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 must pay back everything that you have borrowed, plus interest. Even if you manage to stay out of debt, in graduate school you’re 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 (see Reason 29) 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 (see Reason 73), 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.



5 comments:

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

    ReplyDelete
  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.

    ReplyDelete
  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.

    ReplyDelete
  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.

    ReplyDelete
  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.

    ReplyDelete