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Comment by t43562 | Hacker News Reader

I remember my dad encouraging me to save my dollars and not spend them on choc-99 double ice-creams ($2.13). These were soft whip ice-creams with 2 cadbury's flake chocolates stuck in the side and they seemed like the closest thing to heaven on earth to me. What my dad said seemed logical though and I saved. When I was 16 I had a holiday job that earned me many ice-cream-worths but I kept it - didn't buy a bicycle or anything. "Save your money."

These were Zimbabwe dollars, however, and in the late 1990s it all inflated away to nothing. So much for conscientious saving.

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As a childhood lesson you don't need crazy inflation for this to hold true though. Anything that takes more than a few of months to save up to just doesn't make sense as a kid. Your disposable income goes up by factors of ten every few years. You have 2$ to spend at 5, 20$ at 10, 200$ at 15. Then it slows down but you might still get to 2000$ at 25.

Saving as a kid really never seemed worth it to me.

It's about the lesson more than anything else. I really want my kids to learn how to save and be well practiced at it, even though the utility function doesn't make a ton of sense.

Learning to manage money includes making correct decisions about whether a course of action is worth it. Forcing a child to save when he'd be better off not saving teaches the right lesson about what saving is, and the wrong lesson about when you should save.

Not saving comes natural to most people. Learning to save is the hard part. Most children don't ever make enough money that saving would make financial sense. The reality is, teaching kids to save their money is more a lesson in delayed gratification than it is a financial lesson.

This is true for many children, but there’s a also a lot of kids who are too afraid to spend and enjoy their money.

It is I think as important to teach children how to spend their money, on what, and get them used to understand how much they got for their money.

As a kid I saved for a long time to buy an Atari Jaguar, and it was a eye opener looking back at the “sacrifices” I made for that result.

I don’t understand why so many people “save money” but then just keep cash under a mattress or in a savings or checking account.

If you want to win at life, you “save money” by purchasing non-cash assets like stocks.

I mean, liquid asset vs variable and tied up asset?

I'll be the first to admit to being fiscally conservative: money I can't spend and that is sunk into something else does not guarantee that I get my money back.

I'm losing money on the savings I have every year, which is why I put nearly all my savings into a fund, but then that fund dropped in value almost immediately by 30%, if I had done nothing with my money and bought a top of the line MacBook Pro with 64G of ram, I would have more "money" than I have today; but it all depends on what the value is when I sell out of the fund, there's no guarantee that I'll even get what it currently says I "have" back either.

Savings and investments are different things.

I don't understand the mindset that losses aren't real until you convert them back into cash. If you had turned your money into casino chips and were sitting at a poker table, and had just lost 30% of your chips, would you consider that your losses weren't real until you cashed out your chips? Of course, you might win your money back, and if you were a good poker player who usually came up net-positive from situations like this, you'd be well advised to keep playing.

I'm not giving you financial advice - I don't know anything about you or your investment. It just seems fundamentally wrong to me to consider different forms of money (cash, shares of an investment fund, casino chips, etc) as being distinct. Changing forms may have tax implications but it's not like the form protects you from loses in some way. If you keep your money in an underperforming investment it should be because you expect it to go up in the future, not because you are afraid of realizing a loss (which you have already suffered).

I'm not quite sure what your point is here; you are making several different arguments that don't really make sense.

> I don't understand the mindset that losses aren't real until you convert them back into cash.

stocks, cash, real estate, etc are all assets, but they behave very differently. in particular, there are some very special attributes to cash: it can be directly exchanged for almost any other type of asset, and the prices of those assets are almost always denominated in cash. simple example: my lease says I owe $1000 each month in rent, not $1000 worth of any asset, but cash specifically. if I have $10k in cash, I can definitely pay rent for the next ten months. if I have $10k worth of some s&p 500 ETF, I a) can't pay rent without converting to cash first and b) risk being forced to sell at a time when my shares are worth less than $10k. I have a good chance of making rent for roughly 10 months, but there's a lot more that could go wrong. of course, cash itself does fluctuate in value just like other assets, but we are mostly insulated from that in the short term by the fact that most legal agreements are denominated in nominal dollars, and that the prices of most material things are much stickier than financial instruments. in short, this is why the concept of unrealized vs realized gains/losses makes a useful distinction.

> It just seems fundamentally wrong to me to consider different forms of money (cash, shares of an investment fund, casino chips, etc) as being distinct. Changing forms may have tax implications but it's not like the form protects you from loses in some way.

nothing is 100%, but different assets have sufficiently different risk profiles that it's worth distinguishing between them. cash is an extremely safe asset in the short term, but almost guarantees a loss in the long term. if you can identify buckets of money that you probably won't need for a long time, it has historically been a good bet to invest them in bonds/stocks/whatever based on your tolerance for risk. it doesn't guarantee a good outcome, but it avoids the guaranteed bad outcome of holding a lot of cash for a long time.

> If you keep your money in an underperforming investment it should be because you expect it to go up in the future, not because you are afraid of realizing a loss (which you have already suffered).

agreed, and this is a common mistake that people make. but this is more people applying the sunk cost fallacy to the concept of unrealized vs realized than an issue with the concept itself.

It’s not the same: in your example with casino chips, each game you play is a bet, it’s more akin to buying and selling a stock each time. You realize your gains/losses each turn.

A better analogy is stocks vs Real Estate. Let’s say you buy a home for 200k, and sell it later for 300k. Every day in between, when you “weren’t in the market”, the potential value of your home fluctuated: it’s entirely possible that halfway in between, the top bid on that day, were it listed on the market, would have been for 6$.

Of course in reality you don’t see all these intermediate hypothetical prices, but in theory they’re there just the same as if you bought stocks and then didn’t look at prices for 10 years.

The fact that there is a price on the open market (the fluctuation of which determines your unrealized gain/loss) does not obligate you to sell at any particular moment: that’s just like owning a home and not caring how much someone would pay for it on Tuesday vs Wednesday because you don’t intend to sell it in the first place.

Real estate is the same as my casino example. If the price of your house changes year to year then your networth changes with it. You might not care, or even know, about the changing price because you have no intention of selling your house, but that doesn't change the reality of your fluctuating networth.

The typical advice is that timing the market is so hard that we’re usually better off just riding out volatility. JP Morgan observed that about 40% of gains between 1995 and 2015 came on the market’s ten best days, many of which came within two weeks of the ten worst days.

Or real estate. But in times when interest rates were higher, saving in the bank made more sense.

Sure, saving money isn't the best strategy, but it sure beats "spend every dime the minute you get it" which is what children are naturally inclined to do. Teaching kids to save money is the first step towards financial literacy.

It is a bad step as it is usually taught, though (that is, as and end goal itself rather than, for example, as a means to better investments). Any astute kid is going to look at the “compound interest” argument as laughable. It only works if there is sustained, substantial additional contributions over a lifetime. This is especially true for people in lower income brackets. Try convincing a kid with even modest arithmetic skills that saving $2 (or $20, or even $200) and letting it compound is “smart.”

But $2 of BTC... ;)

And what, it's down, adjusted for inflation, 40% on a 1-year basis while the dollar is down 8.5%. Literally the worst inflation hedge. If you'd bought US Series I savings bonds you'd be dead flat in real dollar terms. That's an inflation hedge.

Lord help you if you bought NFTs of Tweets.

> It only works if there is sustained, substantial additional contributions over a lifetime.

That's literally how I was taught about compound interest: saving money means making weekly/monthly/annual contributions. And that was a regular (non-honors) class in an inner-city middle school.

> Try convincing a kid with even modest arithmetic skills that saving $2 and letting it compound is “smart.”

No, that's idiotic. I think you're beating on a straw man.

That's not the only alternative though, and that's the point.

While generally true, there's the problem of what to buy and when. Then there's the problem of hindsight and the problem of that one stock everyone thought was going to the moon crashing and burning away your life savings. Then there are strategies and strategies that decide which strategy to apply and when, then you realize it isn't as easy as "just buy stonks".

The fact that it’s more complicated, or difficult, than the treatment I gave the subject in a passing comment doesn’t change the fact that it’s true generally speaking.

It is more complicated, but the rule of "if you are more than 10 years from retirement, buy VTI when you have available money" works well for an absolutely huge number of people. You can optimize things, but there are effective strategies that fit on note cards.

Because investing is non-trivial and nobody tells you how to do it.

I recommend “A Random Walk Down Wall Street” for a safe/conservative, no-bs and simple introduction.

I haven't read the book, but is the premise that asset price movements form a random walk? (They don't, and hearing it said that they do is probably my nerdiest pet peeve.)

The book really impresses upon the reader the difficulties of beating the market, and indeed talks a lot about random walks, but mostly it's about the efficient market hypothesis.

I should say that I also don't think this is the best description of how prices actually move, and over the years since I've read the book, I have come to no longer believe in the EMH. That being said, I do still think pointing people in this direction in general is the best thing I can do: even though these ideas will only take you so far, they remain academically productive, interesting, and useful... And most people would do better to approach the markets with more humility and less confidence. Those who are nerd enough to go beyond the EMH will undoubtedly do so on their own and at their own peril. :)

The book is very much in the tradition of Benjamin Graham's The Intelligent Investor, Warren Buffett's value investing style, etc.

There's lots of advice out there and it is almost all as useful as it is expensive

There is a lot of people that really want to tell others how to do it.

Bad part they are mostly scammers or charlatans that are looking how to get that money for themselves.

> If you want to win at life, you “save money” by purchasing non-cash assets like stocks.

Except when you don't.

Between 1995 and 2000 I lived in a student house in the UK and one of my housemates (who was also a student, and from my recollection almost as broke as I was back then) was really into investing into the stock market during the dot-com boom.

He bought both Lastminute.com (IPO March 2000 @ 380p/share[1], sold to Travelocity in 2005 @ 165p/share[2]) and Railtrack (IPO 1996[3], went bankrupt 2001[4])

[1] https://money.cnn.com/2000/03/14/europe/lastminute/ [2] https://www.theguardian.com/technology/2005/may/13/business.... [3] https://www.railwaysarchive.co.uk/docsummary.php?docID=740 [4] https://www.independent.co.uk/news/uk/home-news/railtrack-go...

I’d suggest that for most people, buying diversified index funds are a more appropriate strategy.

Nothing you do in life is risk free, even keeping cash under your mattress: the fact that there is risk involved does not change that this is how you make money. When you know that you’re guaranteed a loss of ~2%, at best, on cash, and that your expected real return on stocks is positive, well… That’s the point.

> I’d suggest that for most people, buying diversified index funds are a more appropriate strategy

At least in the UK, buying into index funds was substantially more expensive back then. I held shares in a retail bank for a time not long after that, for which I had an actual paper certificate! No wonder trading was expensive....

Well, you don't buy individual stocks; you buy slices of slices of everything to dissipate your risk towards variance. And you definitely don't hold cash. Holding cash has a lot of risk as well

> And you definitely don't hold cash. Holding cash has a lot of risk as well

(Sorry, genuine questions) risk of what and compared to what?

Risk of loss, theft or physical degradation. Then there’s the costs of holding cash, which are known to give you a negative yield due to inflation (nevermind bank fees or insurance costs, etc)

I assume cash was being used in the normal financial accounting sense of the word as opposed to dollar bills in the mattress.

Yes, there's inflation negative yield. But especially in the low interest and inflation rate environment that has been the case until possibly recently, the difference between "cash" (i.e. default investment at a brokerage) and other very low-risk investments (e.g. high quality corporate bonds) has been pretty minimal.

You hold cash for short or mid term optionality. If you want long term stable store of value buy gold or treasury bills

Most people who want to secure family wealth and have the option of trickle incompe buy real estate

2008 is calling and wants to talk to you.

I agree, we as a society have learnt nothing

2008 property crash was mostly a US phenomenon

One of the many, we indians experienced few years ago, where the prime minister simply announced on national tv that from tonight 8pm onwards two denominations (the highest ones at the time) are not valid anymore. I think he gave few/20 weeks to deposit old notes to banks.

One of many, the housewives who saved money from day to day house expenses, had to come out clean to family that they are holding 1000s of currency in old now defunct notes.

And so did a bunch of folks who held black money no?

I think the official figure is, more that 99% of old money was presented to banks for conversion; but this might spill into a political or controversial conversation, I will not be pursuing it because of lack of energy.

Ah, like slices of slices of mortgages. :/

There are degrees to it. Slices of all mortgages are less risky than a single mortgage. Slices of all tech stocks are less risky than individual tech stocks. Slices of all American stocks is less risky than slices of one industry in America. And slices of all equities trades across the world is less risky than slices of America

Bet on humanity :)

> Slices of all mortgages are less risky than a single mortgage

If you've not watched The Big Short (2015)[0], it's a really excellent film.

[0] https://www.imdb.com/title/tt1596363/

The problem with an example like this is that a (hypothetical) friend of yours could have bought into Apple or Amazon or MSFT back then and had a ton of money now :) . I was about to suggest index funds but looks like the FTSE-100 has been sh$t for the last 22 years, too (~10 percent total return). No luck there for your friend even if he had invested in index funds :(

I'm afraid you've mixed up "price return" (as in the change in the level of the index - ~6200 in April 2000 to ~7600 in April 2022. (Which is a 22.5% total return)) with "total return" (as in the return when you include dividend payouts - 170% in total, or 4.6% annualized)

> you “save money” by purchasing non-cash assets like stocks

Bonds aren’t great for building wealth. But they’re fine for preserving it. Saving money via a mix of inflation-indexed and fixed-yield debt will generally preserve your purchasing power over long time intervals.

There should be a giant disclaimer, this somewhat true for inflation indexed bonds, if you can hold bonds to the maturity date. If not, all bets are off.

While that has been true for the US the past ~250 years, the US are to some extent an anomaly.

Most of the world has seen bond owners get eaten almost completely really. Almost all of Africa, large swathes of Asia, much of Europe including Germany and Russia, most of South America...

> all of Africa, large swathes of Asia, much of Europe including Germany and Russia, most of South America

Were any of these seen, contemporaneously, as low-risk?

The backfire sovereigns in the last 100 years were limited to Austria-Hungary and the Dutch, trading economies derailed by war. The others aren’t trading nations, or were well-established basket cases when they issued their debt.

> If you want to win at life, you “save money” by purchasing non-cash assets like stocks

Just be born wealthy enough to have free money to invest as a child!

I hope I did not come across as that out of touch.

The reality is, most people barely can meet their basic needs. If you hate that as much as I do, then vote for politicians that care about wealth inequality.

Depends how much money and for how long. Saving dollar bills for a coffee maker rather than buying a cup of Starbucks is a good start if that's your current station in life. If the market takes a dive and you don't have cash equivalents, you have to sell at a loss to cover your living expenses and can't buy more stock to capitalize on eventual recovery. Maybe a credit union checking account that pays a little interest is not so bad for someone with limited time / knowledge to manage too many types of assets?

Because most of people can only do that. So saving small amounts of money to build up some buffer.

When you have a buffer only then you can start buying assets.

Until web brokers started I did not even know how to buy stocks. I think most people still don't know how to buy stocks unless they are from really well-off family.

My parents were also not "financially literate" so I had to figure out all kind of stuff on my own.

Downside was for example that I got supper shitty "investment product" so I did not loos much money but if I knew better I would put my money in a better place.

Fortunately I did not get outright scammed but for a lot of people that have to learn as they go it is a real risk so "just saving" and losing some value to inflation might be best option for many.

> Until web brokers started I did not even know how to buy stocks. My parents were also not "financially literate" so I had to figure out all kind of stuff on my own.

Same

> If you want to win at life, you “save money” by purchasing non-cash assets like stocks.

"Win at life" == "save money" == "owning stocks" ???

Winning at life is about everything that is not about money. Winning at life is being able to be happy no matter how much or how little money you have. Sure, up until one point, more money can help you get happier, but if you don't have the baseline happiness, you will never become happy and "win at life" no matter what. And up until a certain point, not even more money can make you happier if you're already miserable.

I believe you’re doing what is called an equivocation? (edit: not sure exactly what it’s called, but you’re arguing against something I did not say or mean)

We’re talking about money, in a thread about money, on a post about money. At no point did I suggest that money makes unhappy people happy.

It's called a strawman argument.

And I think you did not mean "win at life" in as broad a sense as the other person interpreted it. Either that or you two have very different ideas of what "winning at life" could mean.

If you think life is hard with money, try it without.

Well, if you are not a professional investor, you'd better stick to savings accounts or invest in a index but not in individual assets. Investing as a non-professional is akin to doing surgery on you own body while not being a surgeon.

I think a particularly determined and curious non-professional can reasonably expect to be successful at stock picking, but yes, for the vast majority of folks, I agree.

Banks can fail. Stocks can fail. Currencies can fail. I'm not saying it makes sense on the whole to bury your worth in cash. But there is an amount of paranoia that confuses things.

The interest in my savings account is laughable. It's marginally better than keeping in a mattress.

The mattress doesn't charge bullshit fees. The mattress doesn't arrest you for being the wrong color.

If you’re in the west. A major bank failing and Govt + insurance not covering the losses for customers means something we have not encountered as a modern society. That’s as close to a break down of modern society as you can get. Sure it’s possible. Cash will def be great then. However this is such an extreme situation that there’s no way to know what will be good in that situation.

I would think in a situation like that, we would have something similar to what happened to job losses and the stock market cratering like in March and April 2020. Except that cratering and job losses would continue while riots and protests all across would get bigger and bigger. Crime presumably would go up a lot too.

It slips out that your family has $20K in cash at your home…who knows what’ll happen in this dystopian situation.

'you’re in the west. A major bank failing and Govt + insurance not covering the losses for customers means something we have not encountered as a modern society.'

It's a common occurence u developing countries, people hedge against it by holding foreign currencies and tangiable assets like land. Its not that rare for people to live through multiple devaluations and currency collapses. Ofcourse you don't go around telling people about tour wealth

As krisoft said. In such an unprecedented and extreme situation, foreign currencies would likely not mean much either. The world is globalized. America defaulting on such a huge thing would likely bring down most of the world’s economies and currencies. Possibly some isolated countries would fare better. They’d still be effected like crazy too, but they’d be something.

Yes assets like land would help. However with banks failing like this, someone with more guns and aggression than you or I could come to our homes and take them from us in areas where LEO are not being paid and thus not doing anything.

With the failing banks and such, tracking down who owns what will be much more difficult when things get better. Changing failing bank documents can’t be the hardest thing in this situation.

> Cash will def be great then.

In case of the banking system collapsing in a modern developed country? That’s such an extreme situation I’m not sure if holding cash would be the right hedge against it. That sounds more like a canned food and flour bags kind of time.

If a bank fails, the deposit insurance also fails and the government can’t step in either that will undercut the trust in all other banks too. I would expect a chain reaction of follow-on bank collapses and hyper-inflation.

Yes you’re right. I didn’t think through how of course cash will not mean much. Thanks for helping shape up my thinking about this.

Money is a representation of energy. If you used it like you would electricity you would be better off. Sure, store some in batteries but know that they dissipate over time. Stocks should only be purchased when you want to literally invest in a company or industry because you think it has major growth potential, not for speculation. Non-cash assets could also mean precious metals as they have conversion power over any fiat currency. As we're watching the neo-liberal global world order collapse with the war in Russia I think gold and silver will win out over any other non-cash asset. However it still doesn't make any money. The way to make money with money is to buy things that appreciate in value over time. Real estate is one of the most available things that fit this category. My parents bought a house in Florida last year at the "top of the market" and their property is now worth about 20% more. And if they rented it out they could recuperate some of the capital outlay that they invested.

> As we're watching the neo-liberal global world order collapse with the war in Russia

How do you imagine that happening? Does it look like to you that the west is going to loose so bad that all the investments loose their value? Or you are banking on a nuclear winter?

The strategy you suggest is clearly good, but the percentage of people who can afford to think beyond ‘if the car breaks down I need some money’ and imagine a retirement is probably smaller than we both think.

But it's a lesson in the same category as "You'd better learn how to do equations on paper and long form because you won't always have a calculator with you." If the underpinning is obvious bunk, it does nothing to reinforce the desired behavior and can in fact be counterproductive.

The reason to do long form math on paper is to get a feeling for the mechanics of math so that you can extrapolate it to more complicated math. The reason to save is that there are minimum barriers to cost for investiture in capital, and capital pays dividends and grows in a way consumables don't (unless it doesn't! Nobody wins in a civil war).

Really saving makes sense then in a contextual way of keeping some in case there is something you want. It gets across ideas of opportunity cost.

We put our children's savings (money for good school results, birthday money, eid money, etc.) into 3 separate envelops, equally: SPEND, SAVE, CHARITY.

SPEND: They are encouraged to spend 1/3rd of the money. Whatever they want to buy. They have become online discount shopping experts, whether getting rubiks cubes, roller blades or harry potter merchandise.

SAVE: 1/3rd goes into savings, which we will let them tap once they need it. Not sure when: once they are 17/18 perhaps? In all cases, it will be a big payout compared to the amounts they are used to "spend".

CHARITY: And 1/3rd goes to charity envelop. So whenever an opportunity comes up, they can use that towards any charity event. Good thing is that they usually spend it all in one go. Great!

My mom had a similar system. She had also split savings into long term and short term. So

LT - 40% ST - 30% Spend - 20% Charity - 10%

I don’t recall what the term was for short term, maybe a few months.

Something about it worked. Today I follow a similar system, tho percentages are different (spend obviously higher) and no charity.

I guess this is the type of modelling CNBC used for millenial spending in their infamous tweet[0]; I don't know many people that actually donate >10% of their income to charity.

0: https://twitter.com/CNBC/status/1076173906455810050?s=20&t=Z...

What you want to do is set up a charity in a Third World country and give them a steady stream of money that goes to the governmental leaders for their own personal projects, like a school or something. Do this for a few years and then you're positioned to get control of the country's natural resources at well-below market prices due to, ah, corrupt local leaders willing to sell out their country's interests in exchange for more 'charity'.

See: Bill & Melinda Gates Foundation, etc.

I get the first part of your plan, but do you have some sources for the second part?

How is that foundation exploiting the first step, in practice?

Nice given the time frame do you plan on further dividing save into save/invest at some point? In other words is the big payout coming only by the total amount saved + interest or by potentially greater returns through something like an index fund?

I like that this balances out the usual puritanical "must save at all costs" attitude. I feel my family was way in that direction due to circumstances (own a place to live with zero property tax, but very little pension/income). But now even though I do well for myself, I end up doing illogical things like never using an unopened set of oil paints. I feel that teaching to spend money/resources is also important (I could have used it at the very least!).

I hope by “charity event” you mean “an opportunity to give” and not an actual “event”.

https://www.socialvelocity.net/the-problem-with-nonprofit-ev...

I feel most of my saving habits came from RPG games, not from my parents (although they did try to teach me that too).

Your comment reminds me of this interesting article: https://crpgaddict.blogspot.com/2010/06/game-economies.html?...

In many rpgs as you progress through the game the need for expenditure diminishes to zero. Different case if it is mmo or designed around grinding though.

Feel like you would like this[0] article that goes extremely into MMO economies.

[0]: https://www.desogames.com/virtual-labor-and-lessons-from-eco...

Spending all your money on health potions and in preparation to fight (the|your) boss, accidentally over-leveling, and not needing them at all?

Perhaps we're getting a lot of that lesson from games like Royale High in Roblox. I was amazed at what a detailed budget/spending plan the kid wrote up in her journal for all the things she was hoping to buy for the in-game currency. And how many days it would take her to save up for it. Oh well, at least the inflation or opportunity loss from not investing is not as much of a factor there.

If the utility isn't there why teach it? Feels like it won't connect. Better to teach them to have self disciplined and minimalistic isn't it?

> even though the utility function doesn't make a ton of sense.

What if it never makes sense?

One thing I didn't realize until embarrassingly too late in life is that savings should only function as a buffer for emergencies. Anything else is just burning your money since there haven't been savings accounts that consistently beat inflation even in the US.

I was fed these same myths as a kid, and earnestly believed that part of success in life was to have a huge savings account one day. I remember well all those "power of compound interest" talks in grade school, about how working hard and saving was the path to wealth. But that's all a complete myth.

The real irony is that anyone who has built themselves serious amounts of wealth typically does so by making high risk/high reward choices. Teaching kids to play it safe and building saves, different desires to the future etc. doesn't make any sense in the world we live in. It's ultimately bad advice. No one I know who ended up very successful did so by living conservatively and within they're means. They're people who aggressively pursued improving their conditions, often times because they were forced too precisely because they didn't have a savings.

The lesson of "save money, life within your means and make conservative choices" sounds nice, but in the world we live in today this is a recipe for short terms austerity and long term decline.

> No one I know who ended up very successful did so by living conservatively and within they're means. They're people who aggressively pursued improving their conditions, often times because they were forced too precisely because they didn't have a savings.

This also seems like bad advice. You can aggressively pursue higher earnings and simultaneously spend conservatively (on anything that does not contribute directly to higher earnings). You seem to be setting up a false dichotomy.

That said, I agree that at least in free market economies, high risk / high reward + tremendous luck is a requirement for extreme wealth generation.

> that anyone who has built themselves serious amounts of wealth typically does so by making high risk/high reward choices.

You have the logic backward. If it was "typically, anyone who made high risk/high reward choices has built themselves serious amounts of wealth", it would be good advice, but what if most of those people failed terribly? An example is pursuing a career as an artist/sportsman which are common high risk/high reward aspirations of children which most people fail at.

I also had that same late lesson in saving being useless. Luckily, I learnt it by buying a house which appreciated fast and showed what a disaster savings would have been.

> Luckily, I learnt it by buying a house which appreciated fast and showed what a disaster savings would have been.

The better way to learn this is to be able to look at a graph like this: https://inflationchart.com/spx-in-m3 understand it, and make an informed decision taking in to account your personal risk tolerance.

Probably, but that's why it's luck, not sat down and planned life.

I don't think people really mean savings accounts when talking about saving money consistently instead of spending it as an adult. Same goes for compound interest. Regardless, even just putting it in a savings account surely is not "burning your money" if the alternative, spending it directly, brings little utility.

I knew a guy who had saved his way to millionaire status when he retired. His salary was in the high 5 figures. He never bought anything, lived like a hermit, and just socked it all away in a savings account (back when savings accounts earned decent interest).

Kind of an extreme way to live but it used to be possible.

IMHO the saving you do as an adult is a very different kind of activity from the saving you learn to do as a child. Saving as a child is more about delaying gratification by not acting on one's desires; saving well as an adult is more about taking action by making prudent financial decisions. I'm not sure if learning the former really helps you much with learning the latter, though it is a useful lesson in its own right.

Even among people who seem financially stable, I've been surprised how many of my peers spend money as soon as they see it and have never had more than $X000 at the same time ever. The lesson of delayed gratification is actually a pretty big factor in being able to save up money as an adult.

yeah, it's a bad lesson. We should teach kids to be smart with money, not doing something just because.

Alternately teaching them to spend it as fast as possible is a good lesson for high inflation.

Did they really learn the right lesson if they come out of it with the conclusion saving is useless?

One of the biggest factors for success in life is the ability to cope with delayed gratification and to show restraint.

Yes, opportunity cost is huge for kids, and they might rationally spend all money immediately. But that's still not what we encourage...

So we'll put our finger on the scale and adjust situations to make saving beneficial.

It’d make more sense if your parents directed your savings to the stock market or in some other asset. Saving by itself is worthless if you can’t put the money to work.

As a first order approximation they should maybe offer you a bond with 5-10% yield per week, month or year (depending on your age)

The lesson isn’t how to invest, it’s how to not spend.

Isn't the "go up by a factor of ten" pattern you describe more of your parents spending behaviors (until you are old enough to get odd jobs by yourself) than anything else?

The concept of "save money and put your loose change coins into a piggy bank" could be much older than how much disposable income kids[1] today have. My hypothesis: Maybe the intended lesson was more coherent with the reality a century ago.

Here is the first graph I found with a search engine of USD purchasing power: https://www.statista.com/statistics/1032048/value-us-dollar-... . After the Napoleonic wars until WW2 or so the purchasing power of 1 U.S. dollar spend most of its time increasing followed by sudden drastic drops in value during ... the Civil War and WW1.

[1] Or a random HN user got as a kid.

>Saving as a kid really never seemed worth it to me.

Also saving during 20s for this reason - if you're just starting out in a career and expecting your income to rise rapidly the money you save on interest is going to be irrelevant.

Depending upon a rapid rise of income is a very good way to wind up buried in debt at the slightest complication makes it not come when expected. There are a few times when it can work like say medical school's debt stack.

Saving in my twenties gave me good returns despite issues starting my career but that involved some exceptional circumstances from getting in on Tesla relatively early.

It's pretty universal as a kid, as someone in their 20s? Much less so. Sure, if you're getting a degree in CS and will land a 150k a year job soon, saving anything significant from your $14 an hour parttime job as a student makes little sense. But I was making $50k in my late twenties and was not going to jump in income significantly, I saved quite a bit and was able to buy a house and later stocks which have appreciated a few hundred thousand since then. Now starting my 30s with around $80k salary. Saving is a lot easier now, but the housing market got a lot harder, too. Inflation-adjusted I don't even make that much more. But with the few hundred thousand equity, at a 7% annual return my retirement at age 65 could be reasonably locked in at >$3 million, even without saving an extra penny. Saving in my 20s made a big difference. Outside of a few fields like tech, most people don't see crazy income growth to not have to bother with saving/investing in their 20s.

That's great - but did this saving involve sacrificing on experiences you've had ? Setting yourself up for retirement at age 20 sounds like a miserly life.

It's generalizing of course, but I've noticed this in friends I grew up with. They had avoid debt mentality, saved a bunch of money compared to their income, etc. The money they saved up didn't really enable anything significant, and they had to miss out on a bunch of stuff to make the budget.

Now we're in our mid 30s they have a bit of money stashed up, still single, still trying to figure out what they want in life. I've paid off the debt I've racked up in 20s, make considerably more than them (in no small part thanks to the more risk taking behavior) and the experiences I've had helped me move forward in life.

You only get to go through youth once, even if you have millions in 40s-50s it won't make you young again. You'll be making money your entire life.

Childhood savings is about encouraging discipline and responsible thinking about money.

My kid saved about $200 in savings in elementary school. He parlayed that into a diversified stock portfolio, now around $4k several years later.

Wow I wish I had $200 to spend at 15

The rest of your comment makes sense. I didn’t really start saving until my late 20’s. It just made waaaay more sense to invest any disposable income in myself.

So far so good. Thanks to those early investments in myself I’ve been able to save more in the past ~5 years of my career than my cumulative earnings of the first 10 years.

Time preference is a big component in life success. There's not a lot of practical ways to discuss this with a small child, so "save up for the bigger/better toy" is what you get. If you have better ways to teach this lesson to your kids, I highly recommend doing it.

As an adult, 'wait a year' is quite reasonable, but kids live in dog years, when i was a kid 'wait a month' felt like i have to wait untill i grow old and get reincarnated

Start with shorter time horizons. Do your kids earn an allowance? Pay them interest. Every dollar they still have at the end of the week, give them a dime. Be creative.

It's not about maximizing utility or ROI: it's about learning delayed gratification.

Wish I had this logic when I was 16 and working my awful minimum wage jobs. Sure, that money ended up in an IRA eventually, but $1k gets made much faster as a software engineer than it does frying chicken wings for minimum wage, to the point where the trade off from having a bit of fun in high school or college would vastly outweigh the small gains I made.

I remember thinking my friends and peers were wasteful for spending their earned money on a new graphics card or even buying a $2 drink when they stopped at the gas station instead of saving what was required for necessary expenses, setting aside a little bit for fun, and saving everything else. Turns out I was the fool.

I am happy for that habit of saving, but I wish I had more perspective and reduced my savings rate to focus on having a buffer instead of saving for retirement at 16. I guess that's what growing up is for.

Was your future as a software engineer guaranteed when you were a kid? :)

Personally, I never would have had an opportunity to go for a high paying job if I hadn't saved up a lot of money at a time when I was earning little. So not only was a high paying future not a sure thing, it was probably only possible because I didn't act as though it were.

It's easy to take for granted all the luck and skill that our past selves benefited from, making past caution seem foolish in hindsight. Seldom was it actually guaranteed.

Saving for a (an achievable) goal is though. I bought stuff that I had to save for as a teenager that I still have and use. (Speakers & AVR come to mind.)

I agree about the sort of 'goalless' saving that I do now though.

I liked it (saving and later also investing), I think at one point I even bugged my bank for better rates on my tiny account once I'd figured out how to compute compound interest on my dad's calculator (and realized it was programmable).

Not that I don't need a job anymore, but it did serve me well (the stock market rising continuously for 10 years might have helped too). I definitely wouldn't talk anyone out of it with that sort of reasoning, maybe the only benefit is sparking an interest in math and computers.

Funny side note: the State of Illinois spent a decent amount of public funds trying to decide whether to charge me with $100 trillion in currency fraud. The state crime lab said the currency I owned was the "most sophisticated piece of currency forgery" they had ever encountered.

It was a single (real) $100 trillion bill from Zimbabwe that I carried in my wallet for fun. I assume they thought for some reason it was US dollars?

https://www.banknoteworld.com/zimbabwe-currency/100-trillion...

Did they at least give it back to you?

I don't know how much they sell for now, but I was lucky to get one for $20 when they were normally going for $40 on eBay.

I forgot the exact result, but I once calculated the value of a 100 trillion Zimbabwe dollar bill when it was printed, and it came to something like 0.06 USD (6 cents).

I just checked ebay. Real ones sell for $100-200 US.

There are also fakes, most of which admit in the description that they are fakes, and include extremely large numbers like 10^33.

The highest number that you can get cheaply and that is not fake seems to be the 50 billion. They sell for about five dollars, which given the economics of ebay is probably as low as you can expect.

The one trillion ones are more rare, as Germany if I recall correctly stopped printing them for Zimbabwe soon afterwards.

At one point I had a hundred stack of them somewhere.

They didn't give it back. I'll have to give them a call. This was 8 years ago, but I know they still have it. I didn't know they'd gone up so much in value. I don't think I'd want to sell it though. I remember paying about $10 + shipping for it.

I bought a couple of those and got them framed as a gift. The owner of the frame shop was concerned about me leaving them with him, until I pointed out that I was going to pay him more for the frame than they were worth.

That sounds insane. Did no one just do a quick Google search and see that you can buy them all day long all over the internet? I think we need some more details on why they were going through your wallet and how and why they even considered a charge in this case.

I was arrested for something totally unrelated. It was only later my lawyer showed me a piece of paper one day titled 'ILLINOIS STATE CRIME LAB' which detailed the analysis they had done. There were like 9 factors they analyze fake currency on (e.g. paper, ink, metal strip, holograms, hidden dots, etc) and my bill matched for 8 of the 9, which is what prompted the comment about it being such a sophisticated fake, I guess.

I'll try and get a copy. This was 8 years ago, but the lab will probably still have a copy. I felt like Dr Evil... one hundred trillion! All I could think of was this skit:

https://www.youtube.com/watch?v=U0hTrnaa8aE

I did the same thing for many years, until in 2013 the Cyprus bailouts woke me up...at that point I went all in on Bitcoin out of anger of the banking system, and haven't changed anything since.

I hope this works out for you in the long term; BTC isn't the most stable platform, but it could certainly be more stable than some national currencies.

In fact it is „more stable than some national currencies“

If you don't look at the price, it's the most stable and predictable service and protocol in the existence of the internet (maybe after the internet / IPv4). It's uptime is 99.987%, last time it was down in 2013, and the cool thing is that even if it gets down, it has self healing property in the case of network separation / sybil attack.

https://www.buybitcoinworldwide.com/bitcoin-uptime/

I dare you to find another internet service (or even banking service) with the same stability.

Also the same software that I downloaded in 2013 still works (although I'm not using it, I have the option to not upgrade).

There was a bail in last month in my country (Hungary) as well: all people who stored their money in Russian banks lost their money over $100000, just like in Cyprus in 2013. They did't even know that their bank was Russian owned. I'm not playing the game of russian roulette with my money anymore.

The problem is Bitcoin Core may have (will have) unknown vulnerabilities and those might not get patched correctly once discovered.

Yes, this is true, I'm mostly worried about the elliptic curve signature part, as everything else could be fixed with an emergency hard fork (except SHA256).

Sadly OP_CAT operation is disabled (or substring equality operation), which would make lamport signatures available again for high value transactions. I would love it if lamport signatures would be enabled again (it would be quite easy to do), but I'm afraid that there isn't enough concensus to do it at this point, because some people would think that it's wasteful, and also lamport signatures are dangerous, as they can be used only once.

Well, I've had BTC transactions drop out of the mempool (so, they were not executed, but you don't know that immediately, you only know days later), and transactions that worked took between a few minutes and more than half a day. The fees ranged from virtually nothing to around 50 USD. I certainly would not call that predictable and stable. I mean, you don't even know when the next block will arrive.

I would be suprised if a valid normal transaction with 50 USD would drop out of a mempool. What was the transaction weight? If you send the transaction data, I would be interested to look at it.

I'm usually overpaying (20 satoshis/byte, usually under $1 for a $2000 transaction), and I always get into the first block, but I never pay $50 fee.

> If you don't look at the price, it's the most stable and predictable service and protocol in the existence of the internet

Well, when you put it like that you just convinced me to put my savings into SMTP. Obviously you've identified the key features of a store of value.

According to legendary quant Nassim Nicholas Taleb so called cryptocurrencies are so fundamentally volatile that they cannot be considered currencies: https://arxiv.org/abs/2106.14204

Parents didnt call it a currency..

Bitcoin is an unbelievably stable platform with an uptime of 99.98% with only 13 years to draw from. It's been sticking with it's algorithmically defined inflation rate with perfect predictability, unlike any other currency or scarce asset like gold, which depends heavily on incentives to mine and accessible reserves.

Don't mistake the volatility of the USD price of bitcoin (which is based on the erratic, unpredictability of human emotions and massively distrusted market decision making) with the complete and utter lack of volatility of the actual underlying system.

The mathematical certainty of the issuance of BTC won't really mean much if nobody wants to trade it for goods. BTC's volatility is not just volatility w.r.t. USD.

The value of anything as a medium of exchange and store of value always depends entirely on whether or not a critical mass of people want to use it as such. Once you establish that a thing satisfies all the properties of money, or close enough, then the only question is network effect. Even if minor theoretical improvements could be made, it has to be 10-100x better to overcome runaway network effect.

Sea shells and bags of salt were drastically better money than mentally keeping track of favors owed in a small tribe, because we could expand our exchange of favors beyond dunbar's number to cooperate with people we don't intimately know. Gold was much better than sea shells and salt because it's globally scarce and durable. Paper backed by gold was much better than raw gold, namely because it is drastically easier to trade, transport, and fractionalized.

The technical nature of bitcoin isn't special and it can be trivially forked, modified, and a new network started for near zero cost. That's exactly what coins like litecoin and dogecoin did. Copy paste bitcoin code, change the name and some constants, and boom, new money. What makes bitcoin special, and why there can only be one dominant cryptocurrency long term, is network effect. I don't care about litecoin and dogecoin, because barely anyone uses them relative bitcoin. Barely anyone is developing and building on them as a foundational layer. The only reason anyone cares about dogecoin these days is because one eccentric billionaire has a hard on for it, and that's way too small of a bus number to store a significant amount of my wealth in.

The same holds true for any network protocol. I can copy paste libraries for TCP and make modifications that I think will make it far superior to the current form and release it to the world! And nobody except hobbyists will use it because standard TCP has an unassailable network effect. You have to have an extraordinarily compelling reason to change, and even then it will take decades (see IPv4 to v6 transition for example).

The thing about bitcoin, is that it is the first truly digital money. Fiat currencies like the USD have been trying for decades to pretend to be digital, and they'll probably try harder to use blockchains to make it better, but ultimately it's still fundamentally stuck with an analog foundation defended by guns and tight cliques of trusted human gangs, which makes it globally weak relative to bitcoin. That's why bitcoin has a 10-100x advantage over dollars long term. It's natively digital, open, and permissionless from day one.

> an analog foundation defended by guns and tight cliques of trusted human gangs

Question: when one exchanges Bitcoin for a real-world good or service, what enforces the good or service be provided? And on the flip-side of that question: if one provides a good or service before Bitcoin payment clears, what guarantees payment?

Look to dark net markets for answers. They have to solve this problem in one of the most adversarial and dangerous environments possible, with zero legal recourses to mediate disputes.

The key thing they do is include a third party in the transaction, usually the market itself, who mediates disputes along with a reputation system for sellers. They mostly do it in a centralized way, where the market holds your payment until the buyer confirms or the seller can prove they held up their end. This is a problem because the market can and often does exit scam, so some do this in a decentralized way with 2 of 3 multisig transactions, where if the buyer and seller have no dispute, they can release the money, but if they do, a third party arbitrator can come in and mediate.

Also, higher layer payment protocols like the lightning network effectively clear instantly and trustlessly, with no need to wait for any block to be mined, and are great for minor value transactions.

Finally, replace bitcoin with gold in your question, and ask why that worked for thousands of years.

> replace bitcoin with gold in your question, and ask why that worked for thousands of years

Guns (well, swords and truncheons before that) and tight cliques of trusted human gangs, mostly. And I think I'd argue the dark net markets work the same way: holding reputation as currency, they provide an incentive for the users not to cheat, but if they cheat, there's no recourse except "Well, guess I'd better find another market." And that's if we discount the few but notable instances of them using actual violence to enforce their norms... Ulbricht of Silk Road got arrested for attempting to put an actual bounty on someone's head.

The blockchain system provides a simple way to very publicly and reliably declare the exchange of meaningful numbers between two pseudonymous identities. Everything else about the market that blockchain exists in is the same grabasstical process that humans have used for exchange of resources throughout all of history.

"BTC will eventually crush dollars" and "BTC is not volatile because 1BTC = 1BTC" are very different claims. Even a bitcoin maximalist should recognize that the value of BTC when trading for good and services has swung dramatically over time. Maybe that will happen less over time but the volatility of BTC w.r.t. USD is an important thing to consider and discuss when talking about its use as currency.

Of course. That's why at the moment I only use it for very long term savings and speculation on the future state of civilization.

You need to hold a bit of your local fiat because that's still the most important thing to have for immediate term purchases. Have enough of that and a fiat based income steam such that you don't have to worry about the short term fluctuations of the market price.

Saying that bitcoin has a stable algorithmically defined inflation rate is a hilarious redefinition of terms. Over the last year, one Bitcoin lost approximately 40% of its purchasing power relative to a basket of consumer goods and services. The year before, the opposite happened with bitcoin increasing in purchasing power by a factor of 5-10x.

,,A historical look at the origin and uses of the word inflation, arguing that although the term has become nearly synonymous with "price increase," its original meaning - a rise in the general price level caused by an imbalance between the quantity of money and trade needs - is the definition driving many of those who advocate an anti-inflation policy for the Federal Reserve.''

Austrian economics still uses the original meaning of inflation (increase in monetary supply), while Keynsian economics uses the change in consumer price index, or more broadly the change in prices.

I prefer to always distinguish the two by writing monetary supply inflation and price inflation instead of just writing inflation, as this conflict between definitions always comes up.

Inflation (at least in it's common usage) tracks the price of goods, not the supply of currency. While those traditionally affect each other strongly you cannot say that bitcoin has a stable or well defined inflation/deflation curve because the price of goods denoted in bitcoin are extremely volatile.

You can say that the monetary supply is very predictable, but that doesn't do much good if the price of goods fluctuate.

The word is 'inflation' is overloaded to mean both depending on the context.

It can mean inflation of the price of things, which may be driven by supply constraints OR demand changes OR currency debasement. This is notoriously difficult to calculate a single value for, because all goods and services can oscillate wildly in prices in both direction. Electronics and mass produced things are a strongly deflationary good because they're constantly becoming less scarce while food, education, health care, and housing are significantly inflationary in price, because they're not getting less scarce at faster than demand.

It's impossible to give single CPI style inflation number that isn't deceptive in some way, because to do so, you have to put every person in a box and declare a "standard" basket of goods that everyone is expected to consume. But reality is messy, so my basket of good is likely going to be quite different from yours. Everything from diets, the types of education and housing we choose, the transportation choices available to us, our reproductive choices, and the hobbies we pursue can be radically different, which can mean that your "true price inflation" can be radically different from my "true price inflation" and both radically different from official and heavily manipulated government CPI numbers.

Inflation can also mean the inflation of the currency supply. This is the more traditional definition, and it gives a simpler way to understand whether prices for goods and services are rising because of changes to supply and demand, or if the prices of goods are rising because there's suddenly a lot more units of currency available to chase those scare real things. And of course, when it becomes clear that it's the currency getting rapidly debased, people start hoarding the actually scarce goods and resources, because the money is becoming toilet paper, and that's bad for all of us, because hoarding scarce real world resources that we don't need right now is bad for all of civilization.

> This is the more traditional definition

In this sentence traditional can either mean "old" or "common". If you meant "old", then I agree, but currently it is not the more common one.

For the sake of clarity, if you only meant the more narrow definition of currency supply inflation in you parent comment then it's probably good to say so.

Pff tell me about it. I made the choice of buying real estate instead. My tenant has everything serviced for them. They lost half on the stock market, but fortunately own crypto. Also lost a bit on crypto but they earn plenty. My estate doubled in 10 years and the rent they pay paid for two more properties, but i have to deal with the hassle of fixing pipes and such - all in all i pay in maintenance a month worth of rent, but the stress of calling contractors is too much - sometimes i need to get my arse out of the pool to dial people. Also have to spent few hours total a year. I just cant. Should sell everything and invest in crypto. My Porsche is too boring - need a lambo so it loses value sooner. After all what else can you do other than keep money in the bank. Buy estates and turn highly paid tech serfs into tenants? Hah. Best chase nfts.

My parents encouraged me to save money, but for my birthdays so I could buy a new cool Lego kit. My parents and relatives would chip in on the day, but I would keep count during the year to make sure I was close enough.

Looking back I think that was a good middle ground. At least as a 5-10 year old it was a quite concrete target yet also showed me the benefits of saving money.

I try to teach my kids two lessons around money. One, don't spend all of your money. Save some of it. Basically get in the habit of having some amount of money without feeling the need to spend it. Two, when you do have an amount of money that you're not spending, invest it with broad diversification. That lesson is obviously are more complex one that comes later, but it's a likewise important piece. Both to avoid the money inflating away, but also to avoid conflating the ideas of investment and speculation.

Should taught you how to dollar cost average on assets instead of just hoard the currency

Maybe next gen parents will

Thanks for sharing. A book “The Psychology of Money” talks about this. How people handle money (successful or not) is very different depending on whether or not they experienced inflation as a child.

Never store your long term savings in a thing that someone who isn't you and never will be you can theoretically print an infinite amount of.

Even if you completely trust the people in charge today, you just can't ever be certain that they'll be in charge forever or that the environment won't change in a way such that they break your trust.

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