Hi Supriya, Congrats - very exciting to see someone tackle this area. Do you have mortality data for the first week of life for the babies enrolled in the KC programme so far?
One thing that really stands out to me is the point that about people are going to be what they are going to be. This isn't about getting people to completely change course and follow a path they aren't comfortable with. Maybe a person can be swayed away from investment banker to hedge fund trader, or from private sector entrepreneur to charity entrepreneur, and these sorts of nudges feel worthwhile if we can be confident one is better than the other. But if someone has a passion for teaching I really wouldn't want to encourage them in to Wall St. if they know they are going to hate it.
A corollary of this is that I am not Earning to Give, I am Earning & Giving. There's no way I would have become a doctor, or a charity entrepreneur even if I had been convinced that was the right thing. I'm a trader because I love trading and games and gambling tests 2nd degree knowledge which I'm a lot better at than 1st degree knowledge, I would have hated some of the other options and I'm very confident I would have been bad at them. The fact that I have the option to give to effective charities allows me to pursue the career that I want and having a positive impact, which is overall an extremely positive thing for my job satisfaction and overall wellbeing.
I wrote this post a while ago and my thinking has moved on a little since then so I thought it would be worth adding further thoughts as a comment;
1) In the original post I suggest people should save more when they are young rather than give, but I don't offer an explicit rules based alternative. I think rules based giving makes a lot of sense, and helps to compartmentalize so that we don't spend time and mental energy weighing up every spending decision we make vs opportunity of EA donation. I now have thought about how to solve this problem in my own life, which is to switch from 'I aim to donate x% of my income', to 'I aim to donate x% of my spending, until I reach level Y, at which point I donate all income above my consumption level'. I like this rule because it is simple and robust from lifestyle creep. If I want to save money for buffer building etc. my EA goals won't get in the way. However, if I'm willing to pass on saving to spend money now, then I should be willing to donate in proportion.
2) I wish looking back that I had not mentioned the thing about saving for a house. As was mentioned by others in the comments this is a very specific issue and doesn't apply generally. A much more generalisable point is that savings allow us to take greater risks, especially with our career. I think there are a lot of employers who understand that some of their employees are risk averse and react to this by paying them less. I also think people who are career risk averse do not develop as far or as quickly. From the people I have dealt with in my life so far (which I appreciate is a very small sample), very few seem to get to retirement with the 'right' amount of money for their level of consumption. People either have too little or way too much. I think a good use of money is making sure you fall in to that latter category, and once you are confident you'll end up there start donating to the point that your excess above desired consumption is minimal.
3) The title Giving Later; Giving More has (I think) led many people to conclude that I'm suggesting investing money with a view to donating the original amount plus the investment returns later. This is not at all my point and I am generally of the opinion that the discount rate for donations, especially in the area of global poverty / health is much higher than one could feasibly expect to make by investing. My point is that having a buffer may allow you to have a much more productive (and therefore financially rewarding) life, and therefore the return on investment of this buffer (I believe) is far in excess of this discount rate.
Definitely, I think that the discount rate each of us applies to future donations is an extremely important factor to consider. In fact, I would be in the camp that this discount rate is likely very high - mostly in agreement with the points you have made.
Now that I have reached a point where I can start giving without affecting my life choices, I'm planning on giving away a majority of the balance as soon as I get my hands on it, rather than investing to increase future donations.
Thanks for the link, I hadn't come across it before and agree it is a very useful analysis of investing vs giving depending on one's opinions about opportunities for investment and the discount rate applied to future donations. I think this point is related to mine and very useful in it's own right, but the point I am trying to make also involves personal utility.
I'm worried about the sustainability of giving which requires sacrifice on the part of the donor - which I believe is the path of least resistance for those interested in EA at college and who end up taking the GWWC pledge at that time. I'm trying to communicate that it is possibly, and perhaps even likely, to be more productive to reach a level of wealth at which you can sustain your desired lifestyle and then give large amounts in excess of that level, rather than giving a significant % from the moment you join the workforce.
I agree that tax treatment of property varies from country to country along with several other relevant variables. I only offered an imaginary numerical example for illustrative purposes. My goal is certainly not to convince people to buy property without knowing anything about their circumstances, only to have them consider the possibility that it might be beneficial, and that running the numbers specific to their case is an exercise worth doing.
Agreed, though most people naturally settle down at around 30-35, at which point people tend to move much less frequently. Even if you move once every 5 years from this point, I would still say that most of the time it is worth buying vs renting.
This in mind I think people younger than this should consider saving to the point where they at least have the option to do this when they reach this point in their lives/careers.
Hey Thomas, I have a spreadsheet to highlight the disparity rather than a source, I can send it to you'd if you like? As an illustrative example though let's imagine we have a 30 year old person with $50k saved up. They can either donate this to charity and continue to rent, or use it as a deposit (down-payment) to buy the same house, which let's say is valued at 500k. The numbers will depend by city, but let's assume mortgage interest rate of 4.5%, rental yield of 3% and an average house price increase of 3% per year.
If you have a 450k mortgage on a 30 year schedule, you will pay a total of $773k in mortgage repayments (450k in capital repayments and 323k in interest) and at the end of the 30 years you will own a house worth $1.21 million. If you choose to rent, you will pay $713k in rental payments over the 30 years and obviously at the end you will not own anything.
The most difficult part of this calculation is the amortization schedule for mortgages, but there are websites that will do this work for you such as this one;
Does this mean that housing is mispriced? I don't think so. Firstly there is a huge tax advantage to owning your own house vs renting. This is because you don't pay any tax on the rent you avoid paying. However, if you buy an investment property under the same terms and rent it out, you will have to pay income tax on the rent received. Second, in my example investors make 6% a year (pre-tax) owning housing in the long run. This compares with 8-10% by owning stocks in the long run. In general property is considered a safer asset than stocks, so a lower return makes sense, but given government bonds usually return 3-4% and they are much safer than property, a return of 6% or even higher seems reasonable.
Do people make a lot of money by investing in housing? This is a separate question to that of inefficiency and the answer is generally yes they do! One of the huge drivers of wealth inequality (Piketty) is that wealthy people have their money invested in long term assets like property and stocks, where the return is 6-10%. Meanwhile most working and middle class people have a substantial amount of their capital sitting in current (checking) and savings accounts earning 0-2%.
Good work, it's great to have any numbers on this at all. Given these are acquaintances I wonder could you follow up to try to get some reasons from the drifters. I would like to be able to classiy the reasons for changes in behaviour in one of the following two buckets;
1) I am lazier, more self-centred than in the past
2) I was young and naive, I know better now
In combating future potential value drift, we are considering tactics to essentially coerce our future selves. If we are confident this is because 1) then I think this coercion is merited, but if it's 2) then maybe we are compounding an error?
Very interesting and I like the central point that cash transfers aren't an automatic win and are therefore worth studying, which I hadn't considered to the same extent before.
On the education stuff, it seems like a lot of these problems could be solved if jobs were allocated based on the results of a standardized exam rather than years of schooling or some similar metric. I'm not talking about one run by schools, because it's likely the process wouldn't be trustworthy, I'm talking about when you advertise a job that requires reading, writing, or filing skills, you test for these skills with a written exam. Encouraging governments and other large employers to act in this way would surely encourage students (and parents) to actually learn rather than simply attend school as a box-ticking exercise.
I want to be careful not to put words in her mouth here, as it's been a while now, but I can share more detail on what I took out of the conversation. Basically, to have any large impact you need to change the whole chain of events rather than focus on one particular area. Taking an extreme example, consider a mining town in Britain in the 19th century, where after primary school, working class children go to work in the mines and remain there for the rest of their lives. Improving the standard of primary education they achieve will have very little direct impact on their lives, if they still end up with the same probability of ending up in the mines.
This is an extreme example, and I imagine that some (more) of the kids in the schools we contributed will progress further in education and employment. Even for those that don't, it's likely better reading and writing skills will stand to them over the course of their lives.
Still, there is a reality here that needs to be faced, there were 3 young girls who spoke at the 'closing ceremony', thanking us deeply for helping them in their dream of becoming doctors, which all 3 of them were determined to do and confident they would achieve. However, from speaking to this lady it seems very unlikely that any of these three most promising students from the school will actually make it all the way through university and medical school.
Hi Supriya,
Congrats - very exciting to see someone tackle this area. Do you have mortality data for the first week of life for the babies enrolled in the KC programme so far?
Congrats, what a great achievement!
edit: afterthoughts...
One thing that really stands out to me is the point that about people are going to be what they are going to be. This isn't about getting people to completely change course and follow a path they aren't comfortable with. Maybe a person can be swayed away from investment banker to hedge fund trader, or from private sector entrepreneur to charity entrepreneur, and these sorts of nudges feel worthwhile if we can be confident one is better than the other. But if someone has a passion for teaching I really wouldn't want to encourage them in to Wall St. if they know they are going to hate it.
A corollary of this is that I am not Earning to Give, I am Earning & Giving. There's no way I would have become a doctor, or a charity entrepreneur even if I had been convinced that was the right thing. I'm a trader because I love trading and games and gambling tests 2nd degree knowledge which I'm a lot better at than 1st degree knowledge, I would have hated some of the other options and I'm very confident I would have been bad at them. The fact that I have the option to give to effective charities allows me to pursue the career that I want and having a positive impact, which is overall an extremely positive thing for my job satisfaction and overall wellbeing.
I wrote this post a while ago and my thinking has moved on a little since then so I thought it would be worth adding further thoughts as a comment;
1) In the original post I suggest people should save more when they are young rather than give, but I don't offer an explicit rules based alternative. I think rules based giving makes a lot of sense, and helps to compartmentalize so that we don't spend time and mental energy weighing up every spending decision we make vs opportunity of EA donation. I now have thought about how to solve this problem in my own life, which is to switch from 'I aim to donate x% of my income', to 'I aim to donate x% of my spending, until I reach level Y, at which point I donate all income above my consumption level'. I like this rule because it is simple and robust from lifestyle creep. If I want to save money for buffer building etc. my EA goals won't get in the way. However, if I'm willing to pass on saving to spend money now, then I should be willing to donate in proportion.
2) I wish looking back that I had not mentioned the thing about saving for a house. As was mentioned by others in the comments this is a very specific issue and doesn't apply generally. A much more generalisable point is that savings allow us to take greater risks, especially with our career. I think there are a lot of employers who understand that some of their employees are risk averse and react to this by paying them less. I also think people who are career risk averse do not develop as far or as quickly. From the people I have dealt with in my life so far (which I appreciate is a very small sample), very few seem to get to retirement with the 'right' amount of money for their level of consumption. People either have too little or way too much. I think a good use of money is making sure you fall in to that latter category, and once you are confident you'll end up there start donating to the point that your excess above desired consumption is minimal.
3) The title Giving Later; Giving More has (I think) led many people to conclude that I'm suggesting investing money with a view to donating the original amount plus the investment returns later. This is not at all my point and I am generally of the opinion that the discount rate for donations, especially in the area of global poverty / health is much higher than one could feasibly expect to make by investing. My point is that having a buffer may allow you to have a much more productive (and therefore financially rewarding) life, and therefore the return on investment of this buffer (I believe) is far in excess of this discount rate.
Definitely, I think that the discount rate each of us applies to future donations is an extremely important factor to consider. In fact, I would be in the camp that this discount rate is likely very high - mostly in agreement with the points you have made.
Now that I have reached a point where I can start giving without affecting my life choices, I'm planning on giving away a majority of the balance as soon as I get my hands on it, rather than investing to increase future donations.
Thanks for the link, I hadn't come across it before and agree it is a very useful analysis of investing vs giving depending on one's opinions about opportunities for investment and the discount rate applied to future donations. I think this point is related to mine and very useful in it's own right, but the point I am trying to make also involves personal utility.
I'm worried about the sustainability of giving which requires sacrifice on the part of the donor - which I believe is the path of least resistance for those interested in EA at college and who end up taking the GWWC pledge at that time. I'm trying to communicate that it is possibly, and perhaps even likely, to be more productive to reach a level of wealth at which you can sustain your desired lifestyle and then give large amounts in excess of that level, rather than giving a significant % from the moment you join the workforce.
I agree that tax treatment of property varies from country to country along with several other relevant variables. I only offered an imaginary numerical example for illustrative purposes. My goal is certainly not to convince people to buy property without knowing anything about their circumstances, only to have them consider the possibility that it might be beneficial, and that running the numbers specific to their case is an exercise worth doing.
Agreed, though most people naturally settle down at around 30-35, at which point people tend to move much less frequently. Even if you move once every 5 years from this point, I would still say that most of the time it is worth buying vs renting. This in mind I think people younger than this should consider saving to the point where they at least have the option to do this when they reach this point in their lives/careers.
Hey Thomas, I have a spreadsheet to highlight the disparity rather than a source, I can send it to you'd if you like? As an illustrative example though let's imagine we have a 30 year old person with $50k saved up. They can either donate this to charity and continue to rent, or use it as a deposit (down-payment) to buy the same house, which let's say is valued at 500k. The numbers will depend by city, but let's assume mortgage interest rate of 4.5%, rental yield of 3% and an average house price increase of 3% per year.
If you have a 450k mortgage on a 30 year schedule, you will pay a total of $773k in mortgage repayments (450k in capital repayments and 323k in interest) and at the end of the 30 years you will own a house worth $1.21 million. If you choose to rent, you will pay $713k in rental payments over the 30 years and obviously at the end you will not own anything. The most difficult part of this calculation is the amortization schedule for mortgages, but there are websites that will do this work for you such as this one;
http://www.amortization-calc.com/
Does this mean that housing is mispriced? I don't think so. Firstly there is a huge tax advantage to owning your own house vs renting. This is because you don't pay any tax on the rent you avoid paying. However, if you buy an investment property under the same terms and rent it out, you will have to pay income tax on the rent received. Second, in my example investors make 6% a year (pre-tax) owning housing in the long run. This compares with 8-10% by owning stocks in the long run. In general property is considered a safer asset than stocks, so a lower return makes sense, but given government bonds usually return 3-4% and they are much safer than property, a return of 6% or even higher seems reasonable.
Do people make a lot of money by investing in housing? This is a separate question to that of inefficiency and the answer is generally yes they do! One of the huge drivers of wealth inequality (Piketty) is that wealthy people have their money invested in long term assets like property and stocks, where the return is 6-10%. Meanwhile most working and middle class people have a substantial amount of their capital sitting in current (checking) and savings accounts earning 0-2%.
Good work, it's great to have any numbers on this at all. Given these are acquaintances I wonder could you follow up to try to get some reasons from the drifters. I would like to be able to classiy the reasons for changes in behaviour in one of the following two buckets; 1) I am lazier, more self-centred than in the past 2) I was young and naive, I know better now
In combating future potential value drift, we are considering tactics to essentially coerce our future selves. If we are confident this is because 1) then I think this coercion is merited, but if it's 2) then maybe we are compounding an error?
Very interesting and I like the central point that cash transfers aren't an automatic win and are therefore worth studying, which I hadn't considered to the same extent before. On the education stuff, it seems like a lot of these problems could be solved if jobs were allocated based on the results of a standardized exam rather than years of schooling or some similar metric. I'm not talking about one run by schools, because it's likely the process wouldn't be trustworthy, I'm talking about when you advertise a job that requires reading, writing, or filing skills, you test for these skills with a written exam. Encouraging governments and other large employers to act in this way would surely encourage students (and parents) to actually learn rather than simply attend school as a box-ticking exercise.
I want to be careful not to put words in her mouth here, as it's been a while now, but I can share more detail on what I took out of the conversation. Basically, to have any large impact you need to change the whole chain of events rather than focus on one particular area. Taking an extreme example, consider a mining town in Britain in the 19th century, where after primary school, working class children go to work in the mines and remain there for the rest of their lives. Improving the standard of primary education they achieve will have very little direct impact on their lives, if they still end up with the same probability of ending up in the mines. This is an extreme example, and I imagine that some (more) of the kids in the schools we contributed will progress further in education and employment. Even for those that don't, it's likely better reading and writing skills will stand to them over the course of their lives. Still, there is a reality here that needs to be faced, there were 3 young girls who spoke at the 'closing ceremony', thanking us deeply for helping them in their dream of becoming doctors, which all 3 of them were determined to do and confident they would achieve. However, from speaking to this lady it seems very unlikely that any of these three most promising students from the school will actually make it all the way through university and medical school.