S4E3: Money Magic - An Economist's
Look into Personal Finance
Your World, Your Money sits down with bestselling author & Economics professor Laurence Kotlikoff to discuss his new release, “Money Magic,” an economist's primer on personal finance for navigating career, retirement, loans, and more; challenging longstanding notions of economics and introducing base principles for pursuing financial security.
ABOUT THE SPEAKER
LAURENCE KOTLIKOFF is a professor of economics at Boston University, President of Economic Security Planning, New York Times best-selling author. His most recent book, Money Magic launched in January and is already getting stellar reviews. His columns, articles, and books cover personal finance, generational policy, climate policy, inequality, tax reform, Social Security, banking, robotization, growth, and much more.
Dr. Kotlikoff’s company markets MaxiFi Planner and Maximize My Social Security -- powerful, state-of-the-art tools designed to provide easy and safe ways to dramatically improve households' financial futures.
This episode was produced by Global Thinking Foundation USA and Hangar Studios.
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[00:00:00] Mary: Welcome to "Your World Your Money" podcast.
[00:00:06] Nolan: We'll be talking about personal finance issues in a genuine way, exploring how money touches every part of our lives.
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[00:00:55] Mary: Hi, everyone, and welcome back to another episode of "Your World, Your Money." This is your host, Mary, and joining us today is a New York Times Bestselling author and personal finance expert, sharing with us insights from his most recent book release, "Money Magic." That's a cool name. I like that name, "Money Magic." Laurence Kotlikoff has been concerned with behavioral finance since the 1990s. A professor of economics at Boston University, Kotlikoff is also the president of Economic Security Planning, a provider of comprehensive financial planning software for households and financial planners.
[00:01:36] Mary: Kotlikoff's columns, articles and books cover personal finance, generational policy, climate policy, inequality, tax reform, social security, banking, robotization and more - with "Money Magic" sharing ,from an economist's perspective, advice we won't get from our family and friends as we navigate all the variables unique to the hallmarks of personal finance. Because at the end of the day, It is still in fact, personal. Empathetic to the quirks and behaviors which influence decisions during crucial periods, such as choosing a career, preparing for retirement, buying a house, managing debt, join us as we chat with Larry and he tells us more about his advice and how it can help us every day.
[00:02:23] Mary: So, hi, Larry, welcome to the show. Thank you so much for being here today.
[00:02:27] Larry: Thanks so much for having me, Mary and colleagues.
[00:02:30] Mary: Oh, absolutely. So, just to get us started for our audience, could you introduce yourself, tell us about you, tell us who you are. And of course, tell us about your background that informs on the book that we're going to be talking about, "Money Magic."
[00:02:46] Larry: Yeah, well, I'm a professor of economics at Boston university. I've been at BU for a long time - since 1984. And before that, I was teaching a bit at UCLA and at Yale and worked at the Council of Economic Advisors down in Washington, the president's council. And... over the years, I've worked on a ton of different topics from climate change to bank reform, to public finance, social security, big macro issues... but I've always been working, even from my time doing my dissertation, on issues of personal finance. So, I decided back in 1993, to start a software company to develop economic space, financial planning software - we have a tool called maxifi.com.
[00:03:30] Larry: It's M-A-X-I-F-I DOT COM, which delivers for a very low price, economic space, financial planning to the public or to financial planners, if they want to use it with households. So, we've been selling that for 29 years, but then it occurred to me that, you know, we haven't become...Google, right? We haven't become fabulously big.
[00:03:54] Larry: And that means that a lot of people don't want to run software. And then what I needed to do was write a book and just tell people what to do, based on what I learned from running the software. And that's the source of "Money Magic." And the subtitle is, "an economist's secrets to more money, less risk and a better life."
[00:04:12] Larry: So I started that - you know, wrote that a couple of years ago and finally was published, took a bit to get it done and just came out in January. It's a book, it's self-contained, you don't have to go off and run any software and there's no real references to the software except at the very beginning and end. It's just, "Hey, we have magical ways as economists, because we do have software under the hood, to figure out how you win this game of chess."
[00:04:37] Larry: I mean, it's like my telling you how to make moves in chess that you might encounter if you're playing somebody in chess, having run big blue in the background. Ok, Big Blue is the IBM program that beat Gary Kasparov and after big blue came along, it was clear that no human could ever compete with a computer. And that was at least a decade ago. So, now it's hopeless to play against the computer. Nobody can do it. Nobody can beat it.
[00:05:06] Mary: I have a follow-up question because I think a lot of listeners, they probably hear about economists on the news or they hear about economists in the podcasts that they listen to. And I'd love for you to share a little bit why it's so unique and so important that you take this personal finance perspective as an economist, because I think a lot of listeners, they might not see as easily that this perspective is unique in the field, but also it's unique being applied to them directly.
[00:05:37] Larry: So, the economics approach to financial planning, we've been developing it for a hundred years... it's the basis for several different Nobel prizes in economics and finance... the whole field of finance is really about personal finance, combined, aggregated up to understand how financial markets work, but at the core of it is this personal financial behavior that's supposed to be efficient and optimal, rational...
[00:06:03] Larry: and you really see how complicated it is to put it together, to come up with the machinery, to give people the reasonable correct advice. It's not just the methodology, the algorithms for figuring out how people should take the resources and then from those resources and any cash constraints they face, figure out a plan to have a smooth living standard per household member through time and then figure out a way to raise that living standard safely, by getting more benefits, lowering their taxes, and then figure out a way to just say, "okay, if I, I retired later how much will that raise my livings for me, have a higher living standard, uh, reduce the amount I need to save and let me spend more or how much risk am I really incurring to my living standard if I invest all in stocks versus less in stocks? So, all these a living standard based questions are very hard to calculate it. Let alone layering all the complications of 51 state income tax - well, we have 51 states, 42 have state income taxes, including DC. Then there's the federal income tax. There's the taxation of Medicare in the form of Medicare high-income premiums.
[00:07:17] Larry: The social security system itself is a complete users' nightmare. You need to spend years programming it. This approach is completely different from the conventional financial planning approach, which says, 'Hey, we don't want to do anything complicated. We don't want to try and go actually read the economics theory papers, going back to the work of Irving Fisher in 1920, or manakin Yari about life insurance and annuities in 1965, Bob Merton or Paul Samuelson, we don't have that background.
[00:07:48] Larry: So we're just going to make it up from the seat of our pants.' So every other week you have a different company saying they've got the latest, greatest thing, and it's all based on their perhaps approximation of what economic space planning is about, but ultimately all the tools that are out there, whether it's from Fidelity, TIA , price, any of these big companies, they have tools that are simplistic and dangerous because they're all product sales oriented. They're all set up as like a bait and switch.
[00:08:21] Larry: Let me ask you Mary, how much you would like to spend in retirement? That's the first question I ask you. That's a ridiculous question, because you should answer, you'd like to spend a trillion dollars a minute in retirement. That's your answer to be because you want more, you would like to spend more. Why not? Why stop at even a trillion? So, it's a stupid question because it doesn't connect to your resources. But once we know your resources, how much you're going to be earning through time, where your retirement accounts are right now, what your checking account is, how many kids you have to feed, whether you're married or partnered and what their income is, retirement and assets, where they have to make alimony payments, housing expenses... all these fundamental things about your positive resources, your negative kind of off the top expenses - plus we can figure out your taxes and your benefits - when you put all that together, "hey, there actually is an answer for how much you can spend, not just in retirement, but before retirement." But the key thing is you don't want to spend way up here after retirement and wait down here before retirement, you want to have a smoother ride, right?
[00:09:29] Larry: You don't want to be living high off the hog at ninety. In order to save a huge amount of money to make some broker a rich, charging fees on your assets all the time, and starve today. Nor do you want to starve in retirement and splurge today, you want to have a smoother ride. So what we're looking for is taking your resources, net of your off the top expenses, net of your taxes, plus your social benefits and any other benefits, and then putting all that information together and then figuring from it - to also take into account your cash constraints so we don't put you into debt. - How much can you spend every year? So, that everybody in the household has the same living standard. If you make it your maximum age of life, if you make it out to a hundred. So there's, the book is full of sassy. Chapter titles, like "marry for money." "[inaudible] like an economist," "my daughter to the plumber."
[00:10:22] Mary: Yeah, I remember this chapter.
[00:10:24] Larry: So, economics basically has a different answer to every question of personal finance, because we're not focused on product sales. Whereas the entire conventional planning software as a methodology that starts with a question that's trying to bait you into, "I asked you this question, you're giving me some kind of a number. I say, well, Mary, you can't really afford that unless you get a higher rate of return. So let's invest you in higher yield securities. And by the way, I'm going to charge a higher fee. Because they're going to be managing your money to make you super rich in retirement. And now I've got you locked into investing with me for the rest of your life and whether it pays off or not, that's your problem."
[00:11:04] Larry: "My problem is making money off of you." And that's the whole bait and switch of conventional financial planning, and then they're just variants on it that these people are coming up with so that people will go to them versus somebody else. But the whole system is set up to rip people off from beginning to end. And economic science doesn't have 40 different methodologies. It has one that's been developed and recognize and say, look, a rational person wants to do this. They don't want to starve when they're young and splurge when they're older, vice versa, they want to eat more. They don't want to be exposed to excessive risk when they can minimize it. They want to understand the risk before they make decisions. It's all straight forward.
[00:11:46] Mary: There's something you, you've mentioned a couple of times so thinking about this rational versus irrational, because I think there's a lot of people out there that know that economics used to be founded on this one, premise of very rational decisions, and that's all humans that are completely rational. And then behavioral finance came along and said, are we sure about that? Are we sure that's how people go about doing things? So, I would actually love for you to share a little bit about how behavioral finance has come to shape your ideology around this, and also to maybe shape some of the principles that you're talking about as you've been mentioning.
[00:12:21] Larry: So, on behavioral finance, I'm kind of of a mixed view. My basic instinct is that it's it's wrong actually. It took somebody who couldn't solve a very complicated chess problem and said, 'gee, there's something wrong with you.' So it's taken people who can't figure out these problems in their heads, figuring out how much to spend every year. Given you're 40, you might live to a hundred that's 60 years. Are you going to be able to do in your head, Missouri state income taxes when you're 72 and figure out what your deduction is and whether your social security benefits are taxable and how much are they're taxable, and you might have a pension that's been adjusted for inflation or not?
[00:13:03] Larry: I mean, these things are just beyond belief complicated and the behavioral finance people saw all of these mistakes that people were making and said, well, they're irrational. They're myopic.. They're not forward-looking. That's another way to say myopic. They're also self-centered, they're not focused on their future selves, they're schizophrenic and this and that sense that they actually don't give a damn about themselves in the future."
[00:13:26] Larry: "We don't give enough of a damn and they're also financially illiterate." So they're basically being yelled at for all these things. They've got bad behavior. That's the whole idea of behavioral finance. I mean, none of these guys in behavioral finance ever actually had to try and solve one of these problems. So apparently they never figured out that these problems are impossible to solve.
[00:13:47] Larry: So my view is that economics needs to just tell people what to do. Just like in medicine, the doctors give out prescriptions, right? They give out the medicine, they don't just say "you're sick" and leave it at that and then go and try and study your illness. They actually say, oh, well, you've got a cure for you. Well, that's what economics should be doing.
[00:14:09] Larry: So we should become a prescriptive rather than descriptive science. Now, given that there are certain insights from behavioral finance that have, have come along. For example, a lot of people think this is a, probably the most important, interesting one is that people form habits. They don't want to have their living standard drop.
[00:14:27] Larry: They get used to their lifestyle and they have friends who have the same living standards, same income levels. Basically. They don't want to see their living standard drop. So there are ways described in the book to, uh, invest in the stock market without putting your basic living standard at risk, treating the stock market like a like money in the casino. And you leave your wallet back in the hotel room, right? Your credit cards. So now you've secured your lifestyle, but any winnings you make in the casino, after you leave the casino, you can permanently raise your living standard. That's called upside investing. I discussed it in the book. So economics has developed through the insights of behavioral finance. It's given me ideas about how to help people who are focused on not having anything drop, but happy to have something - their living standard permanently go up.
[00:15:18] Mary: So, I want us to talk about the book for sure, but I have a question about something that you said, so. You were mentioning that economics could be much more prescriptive, a lot more like medicine, and I'm sure we could go down a whole rabbit hole. I'm sure we could. You probably even have a whole class on this maybe, or a whole couple of classes on this. But in short form, I'm very curious, how could being prescriptive through economics, how do you see that working in the United States? Do you think it could work?
[00:15:47] Larry: Oh, it could. We're we're actually working on it now. Um, and the software. Already maxifi.com already incorporate some aspect of planning for people. I mean, just planning for people, but also trying to optimize based on their own preferences. So one idea, one thing is to say, well, let's just make sure everybody has a smooth living standard, but then you have differences across people. Some people are more risk averse, less risk averse. People want to have their living standard rise and retirement for a while, then maybe decline. So the software is developed to try and give people options, but going beyond that to more complicated decisions down the road, like how long to work out hard to work in a given year and also how much you consume while you're working and when you're retired.
[00:16:32] Larry: Well, we can write down mathematical functions that have parameter values. Things in the, in the formula that says, well, "Mary has a stronger preference towards leisure than Joe. "And so we can up that preference parameter and some other parameters you're more risk averse. And then we can. Say, okay. Given your situation, given even given the uncertainties you're facing by your labor earnings, as well as your returns on your assets, we will, in a few years be able to say, Mary here's exactly how much you should work. Here's exactly when you should retire. And we're going to update your plan every year as new information comes in about things that are uncertain, like your earnings or whether you've been fired, but we're going to optimize for you. Economics is pretty close to the point where, I mean, our software already embeds a lot of this to begin with.
[00:17:22] Larry: So I know that we can get there. So we can basically tell people what to do once they answer a series of questions about how much were, for example, risks you can tolerate. And that's probably as good as we can get. I mean it's much better than somebody saying, well, you know, I don't like machines telling me what to do. Well, if you can't figure out your Missouri taxes, when you're 72, now that you're currently 31, uh, if you can't look ahead and make that calculation, you need a machine to tell you what to do. I'm sorry, because otherwise you're going to spend too much or too little or work too hard, too little.
[00:17:57] Mary: Oh, I couldn't agree more. Every time somebody tells me that they, they don't like their phone or they don't like the computers I'm like, but do you like, turbot like, do you like doing your taxes on your computer? Do you want to do those by hand? And they're like, okay. So I couldn't agree more. Coming back to "Money Magic," the book covers topics, spanning everything from choosing a career and pursuing higher education.
[00:18:20] Mary: I particularly enjoyed the chapters on choosing a career and purchasing a home in retirement. So these are all major financial milestones, if you will - traditionally, traditionally financial milestones. So, in terms of where we are today, with the cost of housing and the housing market and inflation, these are all common anxieties and a lot of them are anxieties of millennials and there's going to be different anxieties for different generations. So what would you say money magic is offering to push back against some of these milestones or advice to overcome them and maybe give generations an opportunity to break them down a little bit?
[00:19:01] Larry: Well, I think, you know, there's lots of advice throughout the book for millennials, for every age group, for people thinking about whether or not they should borrow for college. I mean I have a chapter called, "Don't Borrow For College." It's way too risky. You know, 40% of the kids don't get through college. So if you're going to go to college, figure out a way to do it. And I talk about ways to do it without going into hawk that can be with you till the end of your life. There's two and a half million people in their sixties who still have student loans to repay, who will die with a student loan and whose social security benefits will be garnered, reduced because they haven't paid their student loans.
[00:19:36] Larry: Shocking, but this is like modern day debtor's prison. And it's all set up by uncle Sam. He's in charge of the federal student loan program. So you want to stay out of debt, but if you're in debt and you have, uh, the ability to put money into your retirement account versus pay off your student debt... Well, you want to put money into your retirement account, with the employer's plan up to the point where you can secure the employer contribution. Beyond that - and this is opposite of what anybody else would tell you - you want to pay off your student debt. You want to pay off your credit cards even first, because there any credit card balances you're paying 18% interest on that's for sure. 18% return. When the market is yielding, like 2% return on a long-term investments.
[00:20:24] Larry: Uh, you're going to 18%. Short-term is even lower. It's like 1% short term when you can earn 18%, there's a 17% arbitrage right there. So, paying off your debts, paying off first, the credit cards and the student loans and the mortgage... But if there's inflation, inflation can also work to your advantage. So, I would certainly pay off the credit cards because there's just interest rates, way too high, the student loans and the mortgages when inflation is raging, like it is now, it helps you because it's going to pay, you have to pay back in watered down dollars.
[00:20:56] Larry: So, I would pay them off, but maybe not so quickly as you would otherwise, because inflation is actually a good thing if you're a debtor. That's a bad thing, if you're a creditor. So, as for housing, getting into some kind of house and housing... there's tax advantages to owning a home that have nothing to do with mortgages that are described in the book, it is true that the price of a house is quite high right now.
[00:21:20] Larry: The housing prices are high, they're credibly out the wazoo. On the other hand, presumably the house is going to stay even with inflation. And what are you going to sacrifice? If you didn't take , have that money in the house. You said, let's say, "I'm going to take the $300,000 and put it in the stock market."
[00:21:38] Larry: Well, the stock market's highly risky. It could fall in half, over the course of this year. A lot of people think it will. Other people think it's going to stay up. So, it's too risky. If you're young and you've accumulated $300,000 to buy a house, you don't want to be putting it at risk. If you leave it in the checking account, it's going to lose probably six, 7% because of inflation and purchasing power. So you put it in the house and then you say, well, what am I, what can I otherwise be investing in that could yield something that's safe. And for sure, while you could buy a one-year inflation index bond, they're called tips treasury inflation, protected securities, which are discussed in the book.
[00:22:15] Larry: Well right now, they're yielding like negative three and a half percent. So, for sure, you could lose three and a half percent for short. So, if you bought a $300,000 house, maybe a couple of years ago was worth 150,000, but at least if you don't think that house is going to drop in value, which I don't think it will, you're not likely to lose your investment and you're least likely to maintain the real value of your investment. You're going to beat the negative three and a half percent because what you bought will stay even with inflation, I also wrote a piece. I have a SubStack. Larry Kotlikoff dot com. It's a newsletter I just started. Anybody can sign up. I wrote a piece about "buy now to beat inflation." So the idea is, look, if you're going to go buy toilet paper, why not buy next year's supply of toilet paper?
[00:23:00] Larry: If you have a place to house it and not because you're panic, panic buying, but the toilet paper is likely to keep up with inflation. So if you bought that next year's toilet paper today, buy, you know, a couple hundred rolls, whatever. Buy today, put it in your basement. A year from now, the price will probably go up with inflation. In real terms, you will have exactly what you purchased. Your real return will be zero. The market is saying that the real return on tips is negative three and a half percent. Immediately. You have an arbitrage. So that's why, you know, you've got a locked in, guaranteed for sure. Uncle Sam guaranteed, negative 3%, three and a half percent.
[00:23:41] Larry: What a great deal of uncle Sam is yielding. So we have to be careful against inflation. All these decisions. Economists has something to bring to the table and you will not hear it from your uncle. You won't hear from your broker, from your cousin who just started his CFP certified financial planning practice. You won't hear any of this. You'll hear things you shouldn't listen to.
[00:24:06] Mary: I think it's really important. Again, I'm a little biased because I love economics and this is what I want to do... so I'm a little biased and I agree. I'd love to join this crew. I'm so ready to. I think it's so important to include that into the conversation. And I love how you said that, um, you know, you're not gonna hear this from your dad or your uncle or your brother, because I think a lot of times we listened to the advice of the people in our community. And what you're describing. I think it needs to permeate more into communities. And so, I actually have a much bigger question around how personal finance is changing, but on that note of permeating into communities, and obviously I'm thinking about gen Z and millennials, because hi, this is where I am.
[00:24:54] Mary: This is, this is my world. So, thinking about what you were talking about, With inflation and our, our magical negative 3%. That's just joyful. My soul is singing to that. One of the things that I think is really interesting is how millennials and gen Z... their investing patterns versus investing in assets that their parents or the older siblings might have invested in the investing patterns of young adults are very, very different.
[00:25:24] Mary: So, to get us started into this place of how personal finance is changing and how you see it changing as an economist, talk a little bit about how you see investing, changing with young adults and how they're kind of maybe missing out, because you're talking a lot about investing in like a house and a lot of young people aren't doing that they're investing instead in Bitcoin where they're investing in... I don't know, chia. Well, I was like, let me just pick another one out of the blue. So talk a little bit about this.
[00:25:53] Larry: Well, I think unfortunately, every generation gets conned and my generation, a lot of people got conned by Maddoff. Go back to the 1920s. There was Ponzi, it was an Italian con artist. I would say we have a lot of politicians are con artists. So, it's easy to get conned. And if you want to put a little bit of money into Bitcoin or any of the 20,000 other cryptocurrencies. Not all of which can survive and none of which - none of may survive - put a a hundred bucks, but don't put a thousand bucks or... when you can do something like buy toilet paper and keep it safe for a year.
[00:26:32] Larry: And so you don't have to worry about buying toilet paper in a year. The lessons of economics and finance are based on science. It's like the lessons of physics don't change from one generation to the next. Okay, now it is true that physicists are figuring out new things, but the basics aren't changing and electrical engineering, the basics aren't changing. The basics of economics and finance have been developed, starting in the 1920s and through the fifties and sixties and seventies and there's finance departments all around the world in business schools, thousands of people working to try and improve, but not... it doesn't fundamentally upset anything. The only thing that's really changed was this behavioral finance. That's been the only big innovation. And I think it's basically been a fraud. To tell you the truth. So what I would tell younger people, I have two sons, one's a 23, one's 33. And they know enough to know, because they've been tortured by their economist father a little bit.
[00:27:30] Larry: It's okay. But you know, it's just like anything, you can get addicted and then you can lose your shirt and you don't have to be a millennial to make stupid mistakes. Okay. That's a strong statement. I mean, I'll just give you an example of, I was just talking to the other day, a lady calls me out of the blue. She had just inherited $10 million, 5 million, another 5 million million was about to come in.
[00:27:55] Larry: She was a psychotherapist and some high school. Did not understand how to handle this money. So, she called and didn't want to have a better lifestyle because she didn't want to drive around in a Mercedes when her friends were driving around in a Civic. So, she just didn't know how to handle this. And I said, well, the first thing to do, if you maybe want to give it away to charity.
[00:28:14] Larry: And she said, yeah, she'd like to give a lot of way, do a little bit of traveling, maybe improve her home a bit. And I said, well, look, the first thing to do is get the money safe, get it out of the stocks. You've got it almost an a hundred percent in stocks. Let's make it safe and then diversify it.
[00:28:30] Larry: Basically, it makes mostly by long-term tips, which are yielding better than negative three, three and a half more like zero. So, you have enough money so that if you don't earn any money after inflation, you'll be fine. And after talking to her for like an hour and a half, getting around to this idea, she says, well, she has a, her brother she'd have to check with her brother and her brother has a CFP managing their money or an RIA registered investment advisor has been helping that their parents.
[00:28:58] Larry: And they liked the guy and she talks to the brother gets back to me and I was saying, "look, I'll help you for free. You're an interesting person. Let's just get you safe. Let's get you set up and then you'll be on your way. "And she talks to her brother and says, we're going to stick with this broker, the broker.
[00:29:18] Larry: She has no idea how much the broker is charging her. It could be 1%. Now 1% of $10 million is a hundred thousand dollars a year for nothing for possibly, for potentially just endangering our money where she could lose. The stock market fell 53% in 2008 to 2009. It fell 50%. That's just the entire stock market at between 2000 and 2002, it fell 84%, 86%.
[00:29:44] Larry: And the great depression... there have been years where it's got a huge variability and, uh, she wants to have the guy take care of it because her brother says it's okay. Now that's not thinking for yourself. So, I would say millennials need to think for themselves and not do what their fellow millennials or Z'ers are doing, just because it's hip or in vogue, or because somebody has made a fortune. That person that has made the fortune may end up dead broke in two days because they haven't realized that they were super lucky and to get out for good for the rest of their lives.
[00:30:20] Larry: But they'll think that they're going to make it, that this is easy money is going to continue forever and they could go broke in two seconds. And I've seen it happen. And I've seen it happen with adults who are top economists at top financial institutions.
[00:30:37] Mary: And this goes back a little bit to the thought that I had before about the economist perspective, seeping more into communities, because I'm also thinking about a lot of communities where in your friend's case, it was, you know, she inherited this massive amount of 10 million. And I think about a lot of young people that we work with that, they don't have that much money. And they think to themselves, well, I won't be able to save enough to buy a house in this market. And so the alternative to them is to invest in something very, very risky, but they see the high returns and that's what they see.
[00:31:11] Mary: And that's what they're understanding. Coming back to that idea, just to emphasize with your story and, and thinking about young people, letting that this economist's perspective, seep in a bit more into more communities and into more situations. And I think it'll, it'll do a lot of favors for a lot of people. Well, I think younger people need to realize that their biggest asset is their earnings capacity, their earnings power. This is a market where, you know, you can go from, I bumped into a waitress who told me that she'd had six jobs in six months because every time she gets a job, she gets a raise and then she starts looking around for another restaurant that wants to pay her more and she switches. And so she's had an enormous increase in her salary, just because she's been aggressive. That's what we all have to be really regardless of age. But particularly when we're younger, we have to realize that we can a, work anywhere and live anywhere else. You know, potentially.
[00:32:09] Mary: Something I really appreciated about the book. I think that, and maybe this is me being a little bit jaded, who knows. I'm sure listeners will tell me. But when I think about a lot of the things that I'm told to do for my age group, it's really about, you know, finding something that I love to do. And there's oftentimes like there's a lot of messages that I hear that it's like, find something that you love to do. Almost at a cost to yourself. And sometimes in many cases, it is at a cost to your future and yourself. And so something I really appreciated is your book, "Money Magic." It's very straightforward and it's a bit of a hard hitter. There are a couple of times I was like, Oh, I'm going to have to - all right. That's a choice. We're going to go make that. And I absolutely appreciate that. And I know that, again, coming back to this idea that economics should permeate more, that is a very economic approach. It's like, this is actually just how it is.
[00:33:10] Mary: I love that people tell you to this one thing or this story, or this is what's currently popular, but this is actually just... this is the fact of it. And so I personally really enjoyed that. So that story, that anecdote that you were sharing, I thought back personally, for those who can't see me, I was thinking back, I was like, oh yeah, there were a couple of times in the book where I was like, that's a truth. That's a hard hitting truth. And it's well-received hello? Good morning.
[00:33:35] Larry: Right. Well, I do talk about finding occupations and jobs that everybody else hates that you love or that you're okay with. Like, becoming a mortician. Most people would shy away from that. So that means that the market pays a very high premium for being a mortician, but maybe you've grown up with a lot of very talkative relatives and you just would like some peace and quiet, you know?
[00:33:59] Larry: So you go on and off and the idea of being mortician doesn't bother you. And maybe you can also help people find solace in these situations... or fitting people with artificial legs, prosthetics artificial limbs... that pays a lot more, last I checked than fitting them with a hearing aids. So, if you're thinking about becoming an audiologist, maybe you should think about doing this other job that involves - I discussed in a book that most people would shy away from, but you might be very, you know, uh, good with people.
[00:34:31] Larry: You realize that helping people with this bigger problem is much more satisfying. And it would work out for you. If you try it, talk to people and go sit in. And I'm trying to say, be aggressive about shopping for other occupations, for talking, for talking to people, because most of the jobs we get are via context. So I talk about, you know, look, if you want to become a grant administrator at a university nearby and they pay pretty well. Well, call up the head of grant administration and say, could we grab lunch or coffee? Cause I would like to become you. And would you like to tell me about you and everybody wants to talk about themselves...
[00:35:10] Larry: I mean, my wife tells me I talk about myself all the time. And to shut the hell up. So, they will take you out to lunch. They'll pay for lunch, they'll pay for the coffee and you will learn about whether this job is for you. And you might say, well, gee, that sounds like a lot of pushing a paper, but you're going to start reading the grants and all these different fields. You're going to learn so much about a grant in psychology, a grant in poetry, a grant in physics or astronomy, economics... you will learn. Because you'll have to look at the documents about what the cutting edge of sciences of academia is. That's an enormous learning opportunity if you look at it that way.
[00:35:56] Larry: So, every profession has its pluses and minuses, and, um, you may not mind the minuses and love the pluses.
[00:36:04] Mary: So, I want to ask this last question that we always ask. So, you can pull from your book, "Money Magic", and for our listeners, we'll absolutely be linking it so you can find it or you can listen to it, however is best for you.
[00:36:16] Mary: So, you can pull from the book or you can pull from your economics background, or you can pull from your coding background. But what would your final words be for our listeners? What would your final pieces of advice or notes that you want to leave them with be today?
[00:36:33] Larry: Well, your younger audience... Don't borrow for college. If you have borrowed for college, read the book and it's discussion of how to pay off these student loans and don't get trapped into putting money into retirement account into stocks, which are highly risky. When really a risk adjusted basis are yielding negative three and a half percent because that's, if you take . Your money out of your stocks and you put it into inflation index bonds for this year, you'll be in three and a half percent negative after inflation. For sure. So, you do want to get into housing. Housing remains cheap. You do want to buy things now rather than later. You do want to look intensely all the time for better jobs, for better occupations. You want to be on the market 24/ 7. You want to be on the housing market, 24 /7.
[00:37:18] Larry: You just bought this nice house. Maybe if you look, and you've got a job that you can do remotely, maybe you can find an even cheaper house. That's half the price, 500 miles away and a nice community. Know, I discussed in the book moving to Providence from Boston, which I, Boston, I loved, I gave him lots of top jobs and other much more prestigious universities to stay in Boston because I love Boston. And then my wife says, let's move to Providence. It's a lot cheaper. And I said, no way is a lot cheaper. She said, look, and it turned out it's a third cheaper per square foot. So now I'm commuting a bit. It's a pain in the ass. But it's worth it. Look carefully about getting married or shacking up with mom or shacking up.
[00:38:03] Larry: Do not spend a lot of money on housing. Get house rich. Don't be house poor. There's a chapter called, "Get House Rich." So there's lots of things we can do to safely raise our living standard. They don't involve Bitcoin or Doge Coin or whatever it's called. Or Ethereum or any of this things. Cause all that stuff, not all of it can survive and not any of it may survive. So let's invest like an economist. And that's another chapter title.
[00:38:36] Mary: Well, I think that's the best note to leave people on. All of those notes. And at the end of it, invest like an economist and think a little bit more like an economist. Not everybody on the planet has to think like an economist every day, but think a little bit more like one. We'll get a little bit farther. Thank you so much for chatting with me and sharing about the book "Money Magic," which we will link in the show notes for any of our listeners. So, thank you so much, Larry.
[00:39:01] Larry: Thanks so much, Mary and colleagues. It was a great fun. Let's do it again.
[00:39:08] Nolan: You've been listening in with Your World Your Money. You can find us at ywympodcast.com and stay updated on Instagram @GlobalThinkingFoundationUSA.
[00:39:19] Mary: Our podcast is produced by Amber Yang and Hangar Studios, and fact checked by Tb Bui.
[00:39:25] Laquita Ann: Be sure to rate and review us, and you can reach us with questions, feedback, and topics, suggestions at email@example.com.
[00:39:35] Mary: Many thanks again, to Hangar Studios and Global Thinking Foundation USA.
[00:39:40] Nolan: And thank you for joining us. We'll talk to you soon.