Everything you need to know about money in 9 rules.

MPD

Don't get divorced

If money is really important to you then don't have kids.

GreatApe

Thrugelmir wrote: »

How many people can realistically save 20% of their income.

More than half the population can easily do that, however I would suggest that the correct figure to save for a lot of people in rich developed countries is 0% or perhaps even -10%

The reason is that savings accumulate over the generations and savings have a return so you only really need one generation to save the ones after that do not need to save they can have a savings rate from employment of 0% and spend the interest on the capital too and still have the same nominal amount to pass on

This is pretty much what is/has happened in the developed countries, in the UK for instance there is an annual transfer of some £200 billion from the old to the younger.

This is clearly seen with houses, a family only ever really needs to buy 2 homes (parents&Grandparents) and after that they have free housing for all generations after them. Assuming they have 2 kids per woman and the average is now less than that.

Malthusian

Thrugelmir wrote: »

How many people can realistically save 20% of their income.

Anyone in a developed country. However never mind realistic, it's a stupid percentage to save for anyone on an unskilled labourer's income (it requires far too much sacrifice, and much of it will be lost through means-testing) and stupid for anyone at the other end of the income scale (they'll never spend it). For someone like your American professor earning a medium-high level of income at a certain stage of life it probably makes sense, but to state it as a universal law is only useful as a debate opener.

GreatApe wrote:

This is clearly seen with houses, a family only ever really needs to buy 2 homes (parents&Grandparents) and after that they have free housing for all generations after them. Assuming they have 2 kids per woman and the average is now less than that.

That doesn't make any sense - you say you're assuming two children per generation but you only get "free housing" if every generation has only one child.

Even if there is only one child each time the grandchildren may not want to wait for their grandparents to die before they can own a house.

There are also other things to spend the money on other than houses. My grandparents all died when I was a teenager, and a significant part of the inheritance was as far as I know spent by my parents on my school fees. Not that it matters as when I got to the age that I wanted to buy a house, my parents had enough put by to fund a generous deposit and I had enough income to raise a mortgage.

It's very rarely going to make sense for one generation to transfer six figures worth of wealth to the next all in one go (except on death). If the parents and the grandparents were capable of earning enough income, raising a mortgage and buying their own house then the grandkids should be as well.

Malthusian

The index card is really quite confused. The last one seems to be an exhortation to governments rather than a personal finance tip. The author's statement "[the best personal finance advice] can fit on a 3-by-5 index card — so if you're paying someone for advice, almost by definition, you're probably getting the wrong advice, because the correct advice is so straightforward" is also abject nonsense on a stick.

GreatApe

Malthusian wrote: »

Anyone in a developed country. However never mind realistic, it's a stupid percentage to save for anyone on an unskilled labourer's income (it requires far too much sacrifice, and much of it will be lost through means-testing) and stupid for anyone at the other end of the income scale (they'll never spend it). For someone like your American professor earning a medium-high level of income at a certain stage of life it probably makes sense, but to state it as a universal law is only useful as a debate opener.

That doesn't make any sense - you say you're assuming two children per generation but you only get "free housing" if every generation has only one child.

Even if there is only one child each time the grandchildren may not want to wait for their grandparents to die before they can own a house.

There are also other things to spend the money on other than houses. My grandparents all died when I was a teenager, and a significant part of the inheritance was as far as I know spent by my parents on my school fees. Not that it matters as when I got to the age that I wanted to buy a house, my parents had enough put by to fund a generous deposit and I had enough income to raise a mortgage.

It's very rarely going to make sense for one generation to transfer six figures worth of wealth to the next all in one go (except on death). If the parents and the grandparents were capable of earning enough income, raising a mortgage and buying their own house then the grandkids should be as well.

OK lets up it to 3 homes

If there are 30 years between the generations.
Grandma dies at age 80-90 and passes it on to the grandchild aged 20-30
Of course grandma might pass it onto her children rather than grandchildren but all that will happen then is that the grandchild parents rent it out for 30 years and earn a huge amount of rent they save so they have now far more wealth to pass down onto their own kids

So long as women have 2 children all that is needed is 3 homes and every subsequent generation has free housing. But the locals in the UK are having closer to 1.75 children so the grandchildren will typically get more than 1 house of wealth handed down to them

In the uk some £200 billion is gifted/inherited annually. That is about 1 million homes equivalent transferred from the old to the younger each and every year

Malthusian

GreatApe wrote: »

OK lets up it to 3 homes

If there are 30 years between the generations.
Grandma dies at age 80-90 and passes it on to the grandchild aged 20-30

What about the other three grandchildren?

Or does each grandchild get 1/4 of the value of a house? That'll be a very nice deposit, but it's not free housing.

So long as women have 2 children all that is needed is 3 homes and every subsequent generation has free housing. But the locals in the UK are having closer to 1.75 children so the grandchildren will typically get more than 1 house of wealth handed down to them

Not only are you still ignoring the fact that 1 house split among 4 grandchildren != free housing (unless they're happy to live in a house 1/4 as nice as their grandparents), you're also ignoring the fact that those 1.75 children are unevenly distributed. Maybe the grandparents have two children, and one of their children has no children and the other has three.

So the grandparents' house is still split four ways. But when the parents die, one of their children has given them no grandchildren to pass their wealth on to. Should they disinherit them?

GreatApe

Malthusian wrote: »

What about the other three grandchildren?

Or does each grandchild get 1/4 of the value of a house? That'll be a very nice deposit, but it's not free housing.

A mother has 2 children and 4 grand children.

She gives each grand child 1/4th of the house, or the equivalent sum in £££

Each grand child has 2 grand mothers, so gets 1/4th of a house x 2 = half a house worth

Each grand child partners up with someone else grandchild who also has 2 grand mothers giving 1/4th of a house each

So the grandchild household gets the equivalent of 1 full house for free


Or you can say it this way, if women have 2 children each then the population is flat, if the population is flat no additional housing is needed (not quite correct but close enough) so there is no cost for additional housing and the stock of housing is just transferred (hand me downs). The important thing to note is that in the uk, local women (born in the uk) have about 1.7 children each. So the grand kids will not only get 1 free house but many will get 2 free houses worth

Not only are you still ignoring the fact that 1 house split among 4 grandchildren != free housing (unless they're happy to live in a house 1/4 as nice as their grandparents),

already explained above, each grand child has 2 grand mothers and their partner also has 2 grand mothers. So 2 grand mothers + 2 grand mother in laws x 1/4th house each = 1 full free house (or the equivalent sum)

you're also ignoring the fact that those 1.75 children are unevenly distributed. Maybe the grandparents have two children, and one of their children has no children and the other has three.

I did not ignore it I thought it stupid to post the two dozen most likely combinations of children and thus grandchildren to grandparent ratios. It is obvious if a parent has fewer children they will get a bigger inheritance each and vice versa. Just giving the example of 2 kids per women is enough but if you wish to set out the case for a woman having 1 kid, a woman having 2 kids and woman having 3 kids and a woman having 4 kids and then again with their kids having 1,2,3 or 4 kids to see how the flow works then feel free

So the grandparents' house is still split four ways. But when the parents die, one of their children has given them no grandchildren to pass their wealth on to. Should they disinherit them?

I would :rotfl:

They have to give me grand kids to take to the park and feed the pigeons with or they get nothing :beer:

steampowered

Thrugelmir wrote: »

How many people can realistically save 20% of their income.

People who earn reasonable amounts and live within their means.

If someone is earning low salaries and renting, fair enough it is very difficult to save.

But for people who are earning reasonable amounts a 20% target should be very achievable.

steampowered

bobbymotors wrote: »

2. Don't borrow unless it's something you have to have in order to live

Sometimes it is necessary to spend to invest in yourself (e.g. education), and it is also necessary to borrow in order to start or run a business.

The key is don't borrow to fund frivolous spending.

michaels

GreatApe wrote: »

They have to give me grand kids to take to the park and feed the pigeons with or they get nothing :beer:

Do pigeons eat children?