Friday, February 22, 2013

How an 18 Year Old Can Be Better Off Than Most 40 Year Olds Today

When you cut wood (with a chainsaw) it's pretty much pointless to be trying to listen to an MP3 player.  You can't hear it and the wires just get in the way.  You want to be safe so unnecessary equipment (scarf, headphones, etc) is just something to "not do" when chainsawing.  This leaves your brain to think and just like hiking or long distance motorcycle rides, I have come up with the occasional epiphany cutting wood, and yesterday was just such an example.

I was thinking about "my generation" and realized that most us late 30/early 40 somethings:
  • Do not have a positive net worth
  • Are in debt
  • Are working jobs we were capable of back in our 20's
  • Do not have significant retirement savings
  • Have children we can't afford
  • And are simply treading water financially
The reason for this is the reason for all financial and economics problems - debt.

Despite going to college 15 years ago most 40 year olds still have student loans or are "just now" paying them off.  Most people in my generation also thought buying "cool cars" was a brilliant idea and insist on having new cars (a habit developed and held over from middle school where you piss away money on stupid sh!t).  And then most of my generation also has credit card debt.  Not the credit card debt you pay off every month.

Oh no no no.

No, we use those 24% interest rate credit cards for long term financing of the crap we don't need, but must have.  (But it's alright, learning compounding and exponential functions in the 5th grade was for "squares" and so what we don't know won't hurt us!)

Add it all up together and you have somebody who's technically been an "adult" for 2 decades, but is also worse off when they started at the age of 18.

So how can an 18 year old avoid this fate?

Simple.  You just don't go into debt.

The hurdle is so low (if you care to "beat" your 40 year old counterpart) that you just need to avoid borrowing money and you will be in better financial shape than your average 40 year old.

I know for the younger kids out there, this seems crazy, but it it's true.  Yes, you may view a 40 year old as "old" or "wise" or "experienced."  And yes you may say to yourself (as I did when I was 18),

"Wow, you know.  40 year olds sure have their act together!  They're REAL adults!  I better listen to them!"

But the truth is they no more intelligent or experience than you are, let alone when they were 18. 

So it is here you can do yourself a HUGE favor and learn from the mistakes of others.

First (BOYS!), don't be a moron and buy a car you can't afford.  Forget crippling your financial future by taking on student loans, a car is even worse.  It's not an investment, it goes down in value.  And the truth is at the age of 18 using a car as a means to "get chicks" is a losing proposition.  The reason why is if you are going to play that game, you are going up against men with REAL cars.  Brand new Beemers.  Brand new Mercedes.  And men with checkbooks that can buy and sell you.  Girls who also play this game KNOW THE DIFFERENCE BETWEEN A 2012 MERCEDES and a 2013 MERCEDES.  And will certainly not be impressed with your pimped out Honda Civic with "sweet" fins. 

Second, don't be a moron and go to college if the price is too high relative to the earnings potential you will have after you graduate.  In other words don't major in a stupid subject.  If you go to school, graduate at 22 and you STILL HAVEN'T PAID OFF YOUR LOANS 18 YEARS LATER, you majored in something stupid and something that could have been taught at the library for free.  It OBVIOUSLY didn't generate the earnings that would rationalize the $50,000 in tuition and 4 (or 6 or 8) years of your youth.  And if you say,

"You know, college isn't all about the money.  It's about becoming a well-rounded person"

please find a sledge hammer and hit yourself in the head repeatedly.

Third (GIRLS), do not buy trinkets and crap that have no functional value.  If you're going to get a credit card and buy things, buy things like gas, utility bills, electornics, etc.  Also, how many of your mother's dresses do you borrow over the course of a year from when she went to high school?  Oh "0?"  Oh, that's right, because fashion for women is nothing but a scam for you to blow away your money on something that is going to be "obsolete" or "out of style" next year.  Instead of trying to keep up with the fads, how about your have your wardrobe be "timeless?"  Notice the pictures and fashion below are not from the most recent issue of "Glamour"

Regardless, "shopping" is not an activity or a hobby you do for fun.  "Spending money" is not something you should "look forward to doing" or should call up your friends and participate in.  It should be practical and functional, serving your needs.  Merely acquiring crap on a credit card only serves to enslave you later in life.

Finally, eliminate your rent or mortgage as much as possible. 

10 years ago I would have said "independence" is the most important characteristic and trait of a young person, commanding younger people to move out of the house as quickly as possible.  Now, forget it. Stay at home as long as you can.  Live off of your parents as long as possible.  Save as much money as possible.  And then, when your parents finally kick you out, find the cheapest place to rent possible.  Realize the less stuff you have, the smaller an apartment you need.  And if you insist on buying a house, again, find only what you need.

If you do these four simple things (all of which fall under the umbrella of "avoiding debt" aka "spend less than you make") you will be in better financial shape than most 40 year olds.  And not only will you be in better financial shape, you'll not have suffered wasting 4-8 years of your youth on a worthless degree, "scrambling climb the corporate ladder," let alone suffer the humiliation of filing for bankruptcy. 

This has been a PSA from Cappy Cap.


Roberto Severino said...

Common sense is something clearly missing from The Lamest Generation. Thanks for the post, Cap. I left this comment on Eddie Fitzgerald's blog the other day, and I thought it would make just as much sense to pot it here.

"My generation sucks in comparison. I even call it "The Lamest Generation" because you sure don't have war heroes being glorified anymore or people who have actually done anything important in their lives that will live on 60-70 years from now. What the hell does my generation get instead: skyrocketing college tuition as a result of government subsidized student loans and too much demand for college, America's morality and pride destroyed by 9/11 and the Iraq and Afghanistan Wars, one of the worst financial crises since the 1930s, The Kardashians, weak men, sissy Taylor Swift garbage, recycled comedy films, Angry Birds, a ton of badly drawn cartoons, and a lot of other crap I don't even want to mention here. I am actually ashamed to be honest even though not everything that The Lamest Generation has given us has been utter garbage, like the kinds of technology being made now that's making it far easier than ever before to share ideas, which is innovated upon the previous ideas that The Yuppies and Gen'Xers came up with.

I am probably a lot like you, but I emphasize the anti-socialist, anti-communist side of me the most while avoiding standard labels like conservative, libertarian and all that nonsense. I don't like using the word "capitalism," but prefer the term pro market instead. I am also against cronyism, corporatism and crony capitalism, so if you want to believe that I am partially influenced by hippies, go ahead."

newrebeluniv said...

I would agree with you in all but one place. Mortgages. Here is where math is important.

If you believe that inflation is going to sharply rise out of proportion to the intrest rates, then a borrowing a boat load of money now makes economic sense. you will get to pay it back in inflated dollars in the future. It's like free money that the government stole from people who saved it so you could spend it.

Also, you need a place to live. Paying a little more to live in a neighborhood where your stuff won't get stolen every week and you won't be in danger of an ass whipping every day can pay off in the long run.


Bobbye said...

So it is here you can do yourself a HUGE favor and learn from the mistakes of others.

That is called Wisdom, and is of great value.

maturity is taking responsibility for your decisions.

great advice you are giving, and yes an 18 yr. old can be both wise and mature.

Glen Filthie said...

I am late 40's but I sympathize. I went to the school of Hard Knocks after I got out of high school and learned to scrimp up front for the payoff in the future. Kid's:gone. Mortgage: gone. Student loans: I paid up front. Car loans: 6 months left on a new '08 truck - can pay it off now if I want to but why? 0% interest!

I DID buy my dream vehicle when I got out of school and drove it till the doors fell off. Bought another new one after that. I get off the beaten path and I need reliability - and too often with used vehicles you inherit a bagged-out piece of junk, or something that wasn't properly taken care of. Bought my ATV and boat brand new too, went into debt for them and paid them off ASAP. Properly functioning machines are not a luxury in my life, they are a requirement.

I am in far better shape than I was at 18 but I was smart up front about money. I credit a depression-era grandmother/financial consultant for my current good fortune.

I knock on wood often too.

Southern Man said...

Good advice form 18 year olds: don't buy a car (debt) to get girls (MORE debt!)

Good advice for 40 year olds: kick the kids out at 18.

Anonymous said...

These are good points. I'm in my early 50's, and my wife and I have always saved at least one of our incomes. We didn't drive anything fancy or have boats or other toys. But now we have something more important - the last laugh.

We can retire in about 5 years comfortably, once the kids go to college (that's already saved up for also). They get the same deal that I did - a state university of my choice, anything over and above that, they come up with the extra. The university that I went to gives in-state tuition to alumni's children.

I'll take the peace of mind over any "thing".

Anonymous said...

"If you believe that inflation is going to sharply rise out of proportion to the intrest rates, then a borrowing a boat load of money now makes economic sense."

Which is why a margin account is much more lucrative than a stupid mortgage. You can cheer inflation on with gusto when you have leveraged utility stocks or bonds just ready to explode.

It's much easier to win with a 5% dividend yield in your favor, instead of a rapidly "diversifying" housing market. Winners rent.

Phileas Fogg said...

I've already gone to college, and I'm seriously considering the military as an option to knock out my debt. What do you think about this?

I'm in my senior year, so I'm not too old, yet.

Jane the Grad Student said...

Absolutely true. I had a conversation with a young lady who was headed off to college and thought her parents were being vaguely unreasonable for suggesting she stay in-state; she just hand-waved it with something about "I'll get student loans." I was about 35 at the time and told her the SINGLE biggest difference between my adult friends who had "made it" (comfortably supporting themselves and family, etc) and those who were still struggling was whether or not they had taken out student loans. She honestly didn't know that...

As for me, I wished MANY times that my parents had been honest enough (and that I'd pulled my head out of the sand enough) to insist on a state school vs. telling me, "You just worry about getting in, and we'll take care of the rest..." then sticking me with a $22,000 tuition bill (after my financial aid fell thru so there was no way I could get out of it) IN ADDITION to all the student loans. Frankly, that alone is motivation to stick it out and finish my PhD (STEM field) when I feel like quitting-- two more years to get a job that pays double what I'd get if I left now.

The Great and Powerful Oz said...

I'm quite a bit older than you, but probably a slower learner.

I drive a 25 year old diesel Mercedes that I bought for $1800. Maintenance is higher than a new car, but my annual cost is less than car payments on a brand new Kia. I still need to get the front seats reupholstered, which will run a few thousand dollars, but it's already a car that impresses people. Kids, pick your own path, a 30 year old car that has been well restored is often way more impressive than a 3 year old car. Want a sports car? Pick up a Porche 914 and do a restoration. You'll turn a lot more heads by not following the pack.

Want a college degree? Do serious research into CLEP and DANTES/DSST tests. For less than $5K you can knock out 60 to 90 hours of college credit. Once you get there, paying for a year of full time school is a lot easier than 4+ years.

John Henry said...

"But the truth is they no more intelligent or experience than you are, let alone when they were 18. "

That is only true if the 40 year old is a person who has refused to grow up and has failed to learn from the past 20 years of mistakes and also from successes.

If you aren't on your game by age forty, I fear you will forever be living a spartan life and only able to pick up chicks from hell that no one else wanted.

Smarter chicks will know that a forty year old who is living like a pauper and is still obsessed with picking up chicks is a LOSER.

Anonymous said...

First week of school at Universities and Colleges, the banks set up booths giving out credit cards with a $500 limit. They should be treated just like the local crack dealer. The damage they do is horrendous. Most kids quickly run up the limit and make the minimum payment for years to ensure they keep their credit rating.


Anonymous said...

John Henry:
Quite right. The female lizard brain is very perceptive (unlike the male lizard brain, where libido can override almost every intelligent thought, at first).

The female forebrain will try to override the lizard brain but those micro-expressions that cannot be rehearsed give everything away. And, well, the fact that a middle aged man is obviously skulking around trying to game young women in a bar is kind of a giveaway to...that's not what successful middle aged guys do.

Anonymous said...

Cappy, I am joining the Air Force. Do you approve?

Captain Capitalism said...

Yes, I approve.

Green Steelhead said...

I posted this on RooshV forum after some whining by other Red Pillers who hated minimalism.

I have been there and done that with "stuff." I was 20 and buying a new computer and a used car on credit with little income, which began a long 19 year march of credit cards, car loans and home mortgages. You are TOLD that you need the shit to get yourself to school or work and back again, that you need the stuff to fill your apartment and your home. You acquire more....especially when you throw a woman in the mix (girlfriend or wife that NEEDS the stuff, and make sure it matches). As the purchases grow and accumulate, so does your debt load and obligations.

Propelled by the burden of heavy debt loads and liabilities PLUS keeping a family fed, I worked my 30's away, slaving for douchebag bosses and owners, praying for a cost of living increase and MAYBE a bonus if the dicks in the Board Room didn't fudge the books and show a loss. If a bonus came, you were thankful that the government left you with less than 50% of the bonus after taxes. Think you are getting raises or bonuses on merit? Maybe if you are lucky and have the right bosses. Usually, if there is a profit, the bosses have a pool of money, and they gather in a special meeting to throw the crumbs to their favorite employees. I know...I have been in the room when it happens.

You work harder and longer to get funds to pay on your outstanding debt and liabilities, for retirement, for maintaining your family and stuff. The kids and wife give you shit tests for working harder and longer; the clients and bosses get more demanding as they "do more with less," which means you need to do more for less. After all, you should DO IT because you should be HAPPY you have a job. So, suck it up and stop being a damn diva with an entitlement mentality. Trust me, I heard this out of a President's and a Vice President's mouth at my last two jobs.

You want more stuff?

You are being played for a sucker.

You don't need all the crap, and if you do need something, you don't need it to be new. You don't need more than the basics: food, water, clothes, transportation and shelter. I would advocate reducing your crap because you know what? It all breaks down. It all needs care and maintenance. It all takes resources. It all takes your blood, sweat, tears, creativity and WORK to make it all happen, and do you REALLY want to be like a freaking hamster, spinning on your own self-made wheel? Spinning away to pay the banks. Spinning away to pay the government. Spinning away for shit that you THOUGHT would be great, only to come face-to-face with the grim reality that 1) you could lose your job with an economic downturn and 2) the people that you are supporting hate you for the work you are doing to pay for their shit.

The banks are not your friend. They don’t care about whom you are or what you do. They don’t care about your situation. You took out a credit card, loan or a mortgage, and they want to get paid. If something changes and you can’t pay, you will be assaulted by collectors, served with foreclosure papers, or visited by the repo man.

So....go ahead and buy a ton of stuff. If you have the cash and can afford it, the PLEASE go ahead and enjoy it.

Otherwise, don’t get leveraged up the ass and wonder what happened and why you are a slave to some corporate douchebag boss or banker.

I learned the hard way. I do not own my house; I rent. I could lose my job, but I could find something that pays a lot less and pay my bills. I will not become a slave to the lender again. I will not comply. I am 40 and almost free from my little hamster wheel.....then I will be truly free.

Dan said...

Southern Man said:

"Good advice for 40 year olds: kick the kids out at 18."

Please write me when you are forced to live in a nursing home so that I can celebrate the occasion with a high-end whore.

Anonymous said...

One wise aphorism has stuck with me for years, although I don't remember where I heard it:

The things you own can sometimes end up owning you.

It's simple and to the point, but when you think about it, it is true on many levels. I say that to people I know who have a penchant for acquiring things they don't need or won't use very much. Hopefully I get them thinking about what their reasons really are when purchasing something they only want but may not need.

adiaforon said...

Solid advice, but let me add the following:

1. As someone who recently paid off the rest of his student loans (which weren't that much, for both a BA and and MA), taking out loans is nearly unavoidable nowadays, so that necessitates going to as cheap a school as you possibly can and learning the general stuff from the Net. Neither the Net, blogs, nor YouTube were available to me when I was in my early 20s, so I was at a disadvantage then.

2. I majored in a "stupid" subject back in the early 90s, but I've also lived through four economic downturns (i.e., early 90s recession, the 1997 Asian financial crisis, the 2000 tech bust, and the 2008 meltdown), so I could have paid those loans off much earlier had I steady employment at a salary that would have enabled me to live decently and make it to work on time and feed myself. Shit happens. Such is life. If you made the mistake, just keep going and hope for the best.

Anonymous said...

This is my position, and others may disagree with it but here goes:

There exist three significant tiers within education (along with some subtiers, but we'll leave that aside for now. These are the elite schools, the meh schools, and the mass schools.

The elite schools are the only way you get into prestigious employment (think Facebook or Goldman Sachs) without INSANE connections. In the American prestige ladder, you move sideways or down, and where you go to university is really your only big shot at moving up, followed to a lesser extent by where you go to grad school, if you go. These correspond to roughly the top 40 or 50 schools, with the prestige factor growing in degree until you hit the schools like Harvard, Yale, or Stanford, at which point you're pretty much good to go wherever. Within the top, I dunno, ten, it doesn't really matter what you major in because your school's name value carries so well. That's why you see Harvard liberal arts majors at Goldman Sachs. A typical example of this would be Vanderbilt. If you get into one of these, you should generally go there and if it's one of the top handful, then you should take out loans with a smile on your face. If you turn down a school like Stanford to save money at Directional State U, you are a fool.

Beneath them you have the meh state schools. They aren't great on the whole, but if you want a middle-class life, they can probably help you get there if you major in the right thing. These are roughly the next hundred, depending on your major and geographic area. The people you'd talk to largely went there. A typical example of this would be ASU. If you have to take on debt to go here, do so, major in something useful for which there is a decent demand in your area, and enjoy your life.

Then you have the mass schools. The community colleges and the low-end state schools. I couldn't give you a typical example because you haven't heard of one. At the bottom end of this you have schools like DeVry and Phoenix - which no employer with options takes seriously. Frankly, if the only college that will take you is one of these, you should accept that you are not college material and move on. Go to trade school, you'll do better in life. A mechanic has a better life than a graduate of Podunk Communiy College who does the same job he did in high school. There is something to be said for cheap credits at the community college and then transfering, but some employers look poorly on that.

MOST IMPORTANTLY, remember that this is a BS prestige game, but you have to play it. The reason you play it is because modern HR uses your school as a very easy filter to decide if you get an interview. It's not right that the really smart kids at meh schools get shafted this way, but that's reality. I was one of those kids. I grew up SURROUNDED by people telling me that which college and which major didn't really matter. Idiots from crap midwestern cities like my hometown think any decent college is good enough, and it is so incredibly ignorant. When/if I have kids, you can bet your life I will pull any strings and push however hard is necessary to get my kids into an Ivy or similar.

Anonymous said...

Tyya's dad won't take anything tolerable at the assemblage up - no ice cream, no sweets, no cookies. But when the saleslady puts a assay sticker on Tyya's nose, Daddy is at the pattern instant stiff to suborn something textile

Travis Sanon said...

If you kick them out at 18 then that means that they get in to debt (I.e. rent, food, transportation, taxes, etc.). I doubt they could get anything better than a minimum wage job unless they're damn good at entrepreneurship