You speak English, a futured language, and what that means is that every time you discuss the future or any kind of a future event, grammatically, you’re forced to cleave that from the present and treat it as if it’s something viscerally different. Now suppose that that visceral difference makes you suddenly disassociate the future from the present every time you speak. If that’s true, and it makes the future feel like something more distant and more different from the present, that’s going to make it harder to save.
If, on the other hand, you speak a futureless language, the present and the future, you speak about them identically. If that suddenly nudges you to feel about them identically, that’s going to make it easier to save.
Futureless language speakers, even after this level of control, are 30 percent more likely to report having saved in any given year. Does this have cumulative effects? Yes. By the time they retire, futureless language speakers, holding constant their income, are going to retire with 25 percent more in savings.
Can we push this data even further? Yes. Think about smoking, for example. Smoking is, in some deep sense, negative savings, right. If savings is current pain in exchange for future pleasure, smoking is just the opposite. It’s current pleasure in exchange for future pain. What we should expect then is the opposite effect. And that’s exactly what we find. Futureless-language speakers are 20 to 24 percent less likely to be smoking at any given in time compared to identical families. And they’re going to be 13 to 70 percent less likely to be obese by the time they retire.
In a fascinating episode of NPR’s TED Radio Hour titled The Money Paradox, behavioral economist Keith Chen shares some absolutely astounding research on how the tenses in a language influence that culture’s attitudes about saving and spending money.
In the 17th century the Dutch became among the wealthiest people in the world as Dutch merchants traded goods all over the world. A smart and enterprising Amsterdam merchant could expect profits of 400-500% if a voyage to the Far East or India succeeded. With this new influx of wealth many Dutch needed new ways to spend their new found wealth. In the mid 16th century the tulip was introduced to Europe from the Ottoman Empire. After several decades of study by botanists, it was found that tulips thrived best in the Netherlands. By the 17th century tulips began to be planted all over the country.
The tulip trade thrived to the point that by the 1630’s people were even making careers out of growing, breeding, and selling tulips. The flower became a status symbol among well to do and wealthy Dutch as breeders created tougher and more beautiful species of flowers. Eventually the tulip became more than just a mere flower, but a source of wealth and prestige for the Dutch upper class.
In the 1630’s the tulip became a securities instrument as investors pumped their money into tulip growing and breeding. The profits made in the tulip business attracted more and more investors who sought to get rich quick. Eventually the price of tulips began to skyrocket. The mania began on November 12th of 1636. Between Nov. 12th and February 13th, 1637, tulip prices rose 2,000%. During that time it was recorded that one tulip transaction involved 40 bulbs being sold for 100,000 guilders. By contrast a ton of butter cost 100 guilders and the average laborer earned around 150 guilders a year. Left and right people were making ridiculous tulip transactions. In one transaction 12 acres of land was traded for a single SemperAugustus bulb. A transaction of 2,500 guilders was made for a single Viceroy bulb. Some rare bulbs could cost as much a luxury houses. Some people risked all of their savings to buy just one rare bulb, which was hoped to bring fortune and wealth as the price continued to rise and rise.
By the height of tulip mania, the average tulip was selling for 5,000 guilders per bulb. By the spring of 1637, the price of tulips became so inflated that the vast majority of Dutch buyers and investors could not afford to buy a single bulb. Tulip auctions ceased to sell their bulbs as buyers could not come up with the money to cover the inflated costs. Overnight, demand for tulips crashed to zero. Between February and April of 1637, tulip prices crashed to 1/20th their price at the height of the mania. Investors lost everything as their precious bulbs became instantly worthless. Many people had their entire wealth wiped out in what would become one the first economic bubbles in history. Those who burrowed money to invest were doubly screwed, as they now owed thousands of guilders to creditors and lenders. By summer of 1637, the price of tulips dropped to the point that hundreds of bulbs could be bought for a single guilder.
Carlos “Charles” Ponzi was an Italian immigrant who came to America seeking opportunity and fortune in the early 1900’s. After a few decades of hard luck, Ponzi came up with a scheme that would make him millions through the arbitrage of international reply coupons. If you are a person or company who sends letters overseas, and you want the person whom you’d sent the letter to mail a reply back, its often a good idea to pay that person’s postage with an international reply coupon. An international reply coupon is a coupon that can be exchanged for stamps in any country no matter what the postage rates.
In 1918 Ponzi found a way to buy international reply coupons for a discount from foreign countries, then redeem them for a profit in the United States. Now if your wondering, “could you really make much money from buying and selling postage stamp coupons?” The answer is, obviously not, but the international reply coupons were not the crux of Ponzi’s scheme.
Ponzi claimed that he was able to turn a 400% profit by trading international reply coupons, so much so that he convinced a number of people to invest in his enterprise. An man with a silver tongue, he convince thousands of people to invest in his get rich quick scheme, which he called the “Securities Exchange Company”. Part of the allure of Ponzi’s investment scheme was that he offered incredible profits; a 50% return on investment after 45 days, a 100% return on investment after 90 days.
So was Ponzi really turning a 400% profit by selling postage stamp coupons? Of course not, the whole business was a huge scam. Rather than truly investing the money of his clients, he simply pocketed the cash and paid off old investors with money from new investors. So if a person invested $100 with a guarantee of a 100% profit, that person would expect a sum of $200 to be paid out. What Ponzi did was pocket the $100, then convince three other schmo’s to invest $100 dollars each. He would then take that $200 to pay off the first investor, while pocketing the other $100. The picture above shows how the scheme works, notice how it looks like a pyramid, and the base gets bigger with each cycle. This cycle would continue, with Ponzi pocketing thousands of dollars of investors money, while recruiting new investors bring more cash into the scheme so he could pay off other investors. Thus no one would ever suspect that he wasn’t really investing in anything.
Today such a scheme is called a “Ponzi scheme” in honor of Charles Ponzi. Conducting a Ponzi scheme is illegal and considered fraud by the Securities and Exchange Commission. The reason why is because a Ponzi scheme is mathematically impossible to operate and destined to collapse. As the scheme grows, the fraudster will need to recruit more and more new investors who are willing to invest greater sums of money to pay off old investors. The fraudster will find that each wave of new investors has to be exponentially bigger than the last for the scheme to work. Eventually, the fraud will find that he will need every man, woman, and child on the entire planet to invest all of their money in the scheme. Needless to say, a Ponzi scheme is unsustainable.
By 1920, two years after he had began his scheme, Ponzi was living a life of luxury and making $250,000 a day. However the cracks in his scheme began to show when he had difficulty paying off his investors. This launched an investigation into his business. During the investigation it was discovered that the US Postal Service was not selling international reply coupons to Ponzi. Despite the discovery, Ponzi’s charm and silver tongue convinced many people to continue investing. Finally in August of 1920 Charles Ponzi was in a situation where he had to pay off his investors, but he did not have any more money, nor could be recruit new investors to infuse more cash into the scheme. Instantly, the entire scheme came crashing down. The next day Charles Ponzi was arrested for fraud. He plead guilty and spent 14 years in jail. After his release he was again arrested for partaking in real estate fraud, and thus spent even more time in prison. He passed away in 1949. Thousands of people who invested in his scheme lost all their money. Altogether Ponzi’s scheme lost his investors over $20 million.
Today the legacy of Ponzi continues. In 2008, the wealthy stockbroker Bernard Madoff confessed to the authorities that his stock brokerage company was a giant Ponzi scheme. Altogether losses from the Madoff’s Ponzi scheme amounted to a whopping $65 billion, the largest Ponzi scheme in history. Currently Bernie Madoff is on year 6 of his 150 year federal prison sentence.
Here’s a little math: Vanguard’s Jack Bogle says over long stretches of time, like when you’re saving for retirement, you can expect the stock market to return about 7 percent. That’s actually great because at 7 percent your money doubles every 10 years. For this example, let’s say you invest $10,000.
So you can make serious money … but you have to factor in say, 2.5 percent inflation. “All of a sudden the real return is not 7 percent but 4.5 percent,” Bogle says.
And then you add the fees from the mutual funds if you’re paying people to pick stocks. Some fees you can see, others are harder to see. “The mutual fund managers take very close to 2 percent, so that 4.5 percent now drops to 2.5 percent,” he says.
Then if you have an investment adviser they might charge 1 percent. You get the idea. All these fees on your investment have cut your hypothetical return by more than $130,000.
Why Living With Mom And Dad Is Better Than Having Your Own Place
Last week Pew Research Center report revealed that more young adults live at home now than during the “Great Recession.” This news was met with a variety of responses in a slew of blogs and articles: confusion, disbelief, curiosity, smugness, and irritation were just a few of said responses. And some even postulated that this is the “new normal.”
The research shows that, while employment rates have improved, and wages are closer to being where they were pre-recession, 86 percent of 25- to 34- year-olds live independently in 2015 compared to 88 percent in 2010.
Chicago Tribune financial columnist Gail MarksJarvis addressed the offending demographic directly in a piece tilted “Dear Millennials, You’re Ruining the Economy.“ “Adult children curled up on their parents’ couches don’t need to buy their own furniture.” Marksjarvis wrote.
She may have a point, but there are legitimate financial reasons to move back home. In fact Millennials living at home might be smarter than the rest of us who are writing high rent checks each month.