This is a linkpost for https://matthewbarnett.substack.com/p/conspicuous-saving
There's already a community of people who do conspicuous saving: https://www.reddit.com/r/financialindependence/
In this subreddit people celebrate each other's saving milestones, share saving/investment strategies, share screenshots of their account balances, etc. Outside of Reddit, searching for "financial independence early retirement" would yield a variety of blogs of people in this community.
However, most people do this anonymously. A common topic in the community is friends and family getting envious when you tell them how much you've saved. Here are some examples:
Another concern I have is that, what you're proposing could make net worth the most salient feature of an individual--this information is out there in a database, rather than something one needs to spend time and effort to get to know the person to find out. This could lead to a hyper-competitive environment where individuals' worth is reduced to a number, and social status is done through rankings. That usually doesn't end well. In addition, much of the concerns about wealth inequality in today's world still apply here.
A common topic in the community is friends and family getting envious when you tell them how much you've saved.
This reminds me of Romani communities in my country. Imagine villages full of poor people, most of them unemployed. Once in a month they get social benefits -- then they organize a huge party with lots of food and alcohol, spend all their money during two or three days, and starve for the rest of the month.
Obvious idea: "why doesn't someone skip the party, save the money instead, and buy some food later?"
But the problem is, this strategy doesn't work if you are the only person in the village who tries it. As soon as the others find out that you have enough food in the middle of the month, your starving neighbors will come asking for some. Your only options are to share... or to make enemies of the whole village. So at the end, you skipped the party, and now you are starving anyway. Next time, you join the party instead.
I am not saying there are no other problems involved, such as racism etc., but this mechanism alone is sufficient to keep the entire village poor. And I see some similarity between this -- and how the communities of middle-class people keep each other away from early retirement.
Uh... I see some relation, but connotationally... The Wikipedia page describes it as "if I can't have it, neither can you", which is quite uncharitable for humans... and I suspect even for the actual crabs.
For the Romani village, the feeling from inside is "we have an obligation to help each other". Which, in abstract, is a good thing. Most people would say it is a central example of morality. Indeed, from certain perspective, those Romani villages are more moral than the civilization that surrounds them! Taking the food away from those who saved the money to make them also starve is not the intended goal; the goal is to alleviate the starving of the others, at least for a day.
The horrible thing is the Nash equilibrium of "having a huge party on the payday" in the community without strong norms for private property, and without competent leadership -- because a strong competent leader could e.g. tax everyone, and ration the money for food during the month; and keeping the village non-starving would give legitimacy to their rule. The Romani here have lost their old cultural norms, and didn't acquire the cultural norms of the majority, leaving them in the worst of both worlds. Culture can solve problems individuals can't on their own; especially things about coordination.
With early retirement for middle class, the pressure that I see is twofold. First, it's something like "don't trade good things you could enjoy now for uncertain hypothetical benefits decades later". Less charitably, short-term thinking. But in some sense, yeah, rationally you should discount the future a bit. You may die before reaching the date of your early retirement; or a revolution in your country may take your savings away. Also, doing some things will probably bring less enjoyment in old age. -- Here, my response is that I actually don't enjoy some of those things I give up too much, and that I passionately hate spending 8 hours a day in a job. So, maybe other people just have different preferences than me, so their optimums are different? Dunno.
The second concern is something like "not spending proportionally to your income is low-status". In abstract, sounds kinda stupid. But is it completely wrong? Status has an impact on your life outcomes. To put it to extreme, living literally like a homeless person would save you some expenses, but it would probably also prevent you from getting a good job, so it might actually result in less net savings. And that's just the most direct impact, ignoring the social effects. Looking attractive may help you get better friends (who may then recommend you better jobs) and a better (nicer and richer) partner. Heck, because of halo effect, looking attractive will probably get you higher salary. So, investing in looking good, physically and socially, makes sense; it's just the question of finding the optimal level. Plus my friends and relatives have a selfish motive to make me appear higher-status; being socially connected to me, my status also reflects on them. -- Here, my response is that I already lose lot of social points by being an aspie, so the benefits of buying a nicer sweater or a nicer car are probably too low to justify the costs. I am already married with children, and I don't plan to divorce and remarry or to cheat, so I don't need to impress girls with displays of wealth. (Heck, even if I wanted to cheat, having 8 extra hours a day would probably help me more; some of that time could be spent in a gym, and the rest socializing. Except, whom am I trying to fool here, I would probably spend them by the computer, heh.)
So, I don't think that "if I can't have it, neither can you" is the correct description of how most people feel from inside. Though, of course, some people may be like this. But most probably feel that early retirement is not realistic... and if you achieve it or get sufficiently close, they will just conclude that you are an exception but that it was not realistic for them.
I think the fundamental problem in that village, which would not be helped much by skipping the party and saving, is that because they're mostly unemployed there just isn't enough money.
If they cancelled the party and all saved enough to avoid starvation for the rest of the month, I bet they still wouldn't be able to save much for the longer term. They'd starve less but also have less social fun. It might be better, it might be worse, but it wouldn't stop them being poor.
I do agree that there's a similarity between their situation and that of insufficiently-saving middle-class communities. I just don't buy the "sufficient to keep the entire village poor" bit; I think what keeps the village poor is the fact that so many are unemployed and (I'm guessing) those who are employed mostly don't have very lucrative jobs.
Another concern I have is that, what you're proposing could make net worth the most salient feature of an individual--this information is out there in a database, rather than something one needs to spend time and effort to get to know the person to find out. This could lead to a hyper-competitive environment where individuals' worth is reduced to a number, and social status is done through rankings.
It seems like most social environments are already like this to some extent. People are ranked according to the school/job they are at, and the grades they got. The first thing is public information, and the second thing can generally be inferred by the first.
I agree that we shouldn't try to make people feel like their social status is reducible to a single number. But if people already think that their social status is reducible to a single number, we might as well think about what number it ought to be, rather than just pretending that the number doesn't already exist.
I also don't know why it's better that social status be reducible to a set of numbers rather than just one number.
In addition, much of the concerns about wealth inequality in today's world still apply here.
I actually think my proposal should be enthusiastically supported by those concerned with wealth inequality. For one, it makes people's wealth much more salient, which will probably make people more willing to redistribute wealth once they viscerally understand just how well some people are doing.
People are ranked according to the school/job they are at, and the grades they got.
Watch out for https://www.lesswrong.com/tag/typical-mind-fallacy in this. There may be some groups for which this is true, but it hasn't been my experience in any of the US or UK work or social subcultures I've been part of. Those things are inputs to evaluation and discussion, but are only very weakly correlated with any dimension of ranking.
In my experience, there is a very wide range of jobs (and former jobs!) that contribute to high status, and outside of academia, I don't know anyone who cares about schools a small number of years past graduation/exit. I don't recall anyone EVER caring about grades after school is done.
There may be some groups for which this is true, but it hasn't been my experience in any of the US or UK work or social subcultures I've been part of.
Sure, many different social environments use different measures for status. In the post I talked about how people rank themselves based on wealth. Here, I mentioned how some people use school and jobs.
My main point was that we already have status rankings. It's true that we don't have a total order, global status ranking. But locally speaking, I don't see what's wrong with introducing a new metric for ranking status. I'm reminded of something I saw recently as a response to social anarchists who want to abolish hierarchies: people will just create new hierarchies along different axes in response to the revolution. We might as well just ask which hierarchies are best to have.
This is interesting, but I think largely misses the point that elephant-in-the-brain-style signalling is often about sending the signal "I can afford to waste resources, because I've got great confidence in my ability to do well in the future without them".
Saving just doesn't achieve this - it achieves the opposite:
"Look at all my savings; I can't afford to waste any resources, since I have little confidence in my ability to do well in the future without them".
It makes evolutionary sense to signal ability rather than resources, since resources can't be passed on (until very recently, at least), and won't necessarily translate to all situations. By wasting resources, you're signalling your confidence you'll do well whatever the future throws at you.
If you want a signalling approach that improves the world, I think it has to be conspicuous donation, not conspicuous saving.
This prediction does not seem too probable to me. Are there any studies showing signaling not-wasted wealth is useless? (Of course, wasting resources will probably be a stronger signal as you can essentially "double-spend" saved resources.)
Oh I'm not claiming that non-wasted wealth signalling is useless. I'm saying that frivolous spending and saving send very different signals - and that saving doesn't send the kind of signal tEitB focuses on.
Whether a public saving-signal would actually help is an empirical question. My guess is that it wouldn't help in most contexts where unwise spending is currently the norm, since I'd expect it to signal lack of ability/confidence. Of course I may be wrong.
When considering status, I think wealth is largely valued as an indirect signal of ability (in a broad sense). E.g. compare getting $100m by founding a business vs winning a lottery. The lottery winner gets nothing like the status bump that the business founder gets.
This is another reason I think spending sends a stronger overall signal in many contexts: it (usually) says both [I had the ability to get this wealth] and [I have enough ability that I expect not to need it].
Thanks, I now better understand your point. There is something I don't understand though; Most people have no such ability to just recreate wealth, and they can achieve a higher QoL if they do save. But what I see in society seems to be that a lot of people are trying to fake their level of wealth creation ability. I.e., it seems to me that the signal is indeed pretty costly, but somehow people are Goodharting it anyway without regard to the fallout. This is a point that makes me confused.
It's not entirely clear to me either.
Here are a few quick related thoughts:
Of course none of this makes it any less of a problem (to the extent it's bringing down collective QoL) - but possibly a difficult problem that we'd expect to exist.
Solutions-wise, my main thought is that you'd want to find a way to channel signalling-waste efficiently into public goods - so that personal 'waste' becomes a collective advantage (hopefully).
It is also worth noting that not all 'wasteful' spending is bad for society. E.g. consider early adopters of new and expensive technology: without people willing to 'waste' money on the Tesla Roadster, getting electric cars off the ground may have been a much harder problem.
But suppose everyone was required to show off their account balances. As an example, imagine a system where anyone could easily look up the wealth of anyone else, via some database. Then people would probably shift towards conspicuously saving more and conspicuously spending less.
Given that such systems exist in the real world in Nordic countries, it would make sense to look at them when discussing them.
I was able to find articles that talked about Norway's system that requires people to disclose their tax return to others, and other articles that talked about how you can view someone's salary in Sweden. I don't know if these were the policies you were referring to. If they were, then I must say that these are interesting systems and worth reading about, but not they're also not quite what I am proposing, since they don't seem to be about encouraging people to save money.
As a side note this seems like it would be really efficient. A McMansion is basically a single family home, built essentially for the purpose of providing housing plus about double to triple the materials and labor adding essentially 'bling'. Tons and tons of just stuff, often badly thought out with cheap materials, for the sole purpose of convincing visitors that the owner is wealthy. See here: https://mcmansionhell.com/
It has occurred to me that a home designed for the needs of the present occupants, with a 'stock ticker' that announces the net worth of the owner to any visitors, would serve the same purpose more efficiently. Or a machine that uses air to push $100 bills through pneumatic tubes in a loop so that visitors can directly see some of the owner's assets.
My guess is that "people want a plausible excuse for their signal" commonly cashes out as "people sincerely believe that the plausible excuse is the real reason". If so, then few will choose to have their wealth made visible to all, because the only advantage it brings is signalling, a thing they won't admit even to themselves that they care about much. Further, because it's obvious that the only advantage it brings is signalling, making that choice itself looks like bragging, which will discourage people from doing it.
To be successful this would need some sort of mechanism making wealth-visibility the default. But that might not be enough, because probably rich people would be most likely to opt out, making opting out itself a signal of wealth.
(A couple of other issues: 1. Not all wealth is in the form of things with an immediately available price. What is the wealth-looking-up system going to do with houses, privately-held companies, artworks that were last traded 50 years ago, etc.? 2. The privacy implications are worse than you may think: if the system gives a snapshot of a person's wealth, then you can track how that changes from day to day. You can work around that to some extent by reporting some sort of smoothed and/or deliberately noise-corrupted value, but doing that in a way that genuinely doesn't leak more information than you want it to is tricky.)
To be successful this would need some sort of mechanism making wealth-visibility the default. But that might not be enough, because probably rich people would be most likely to opt out, making opting out itself a signal of wealth.
Yeah, that does seem tricky. My guess is that you might be right that rich people would be the most likely to opt out. But I'm not so sure. Opting out might be more akin to countersignaling in that the only people who are doing it are either people who are actually poor and therefore don't want to be embarrassed, or very wealthy people who want to signal that they're above it all. If that's the case, then being in the system still serves some purpose for people in the middle of the distribution.
few will choose to have their wealth made visible to all, because the only advantage it brings is signalling, a thing they won't admit even to themselves that they care about much
"Accountability" is the word normal people use when referring to pursuing success though conspicuous signaling. People already do opt in to "accountability" for different goals they have. I think the main reason they won't do it with wealth is for privacy.
A couple of other issues: 1. Not all wealth is in the form of things with an immediately available price. What is the wealth-looking-up system going to do with houses, privately-held companies, artworks that were last traded 50 years ago, etc.?
Of course, the database wouldn't have to be perfect. It's perfectly fine for people to have other goods that aren't represented in the database, since the operating assumption of the database is just that people should more readily signal wealth that they've saved -- not that they should perfectly signal their wealth.
The privacy implications are worse than you may think: if the system gives a snapshot of a person's wealth, then you can track how that changes from day to day. You can work around that to some extent by reporting some sort of smoothed and/or deliberately noise-corrupted value, but doing that in a way that genuinely doesn't leak more information than you want it to is tricky.
Yeah that makes sense. Another possibility is that you show low resolution information, such as the amount in their account rounded to the nearest $10,000. I think that something like that would have the same problem as current conspicuous behavior, which allows people to estimate someone's economic status via noisy variables like, "how many cars they bought recently" and "how big their house is." Ultimately, I think that being able to opt-out is the crucial part here that makes these concerns less pressing.
The likely result of public wealth information in third world countries is that you will get robbed or that relatives come to get a "loan" they never pay back. Any status signalling would be minuscule by comparison. So independently of whether this proposal would be a good idea in rich countries, your example doesn't help to motivate it.
The ultimate explanation for the low savings rate seems to be that people are myopic. In other words, people implicitly care more about having stuff now, rather than later. But that too can't be the full picture.
What makes you think that this isn't the full picture (or most of the full picture?)
Myopia is the ultimate explanation, but it's also incomplete. As explained in the linked paper, there's a wealth of data showing that people spend a lot on consumption that doesn't seem to raise their physical welfare. For example, people a lot on funerals even in places where people aren't getting adequate nutrition.
Maybe we have strong instincts for conspicuous consumption for signaling purposes, so that even if on paper another mechanism should provide the same signaling value, maybe it wouldn't reduce conspicuous consumption as much as we'd expect (although possibly still worth it!)
Anyone has an idea how a company could provide such value? (ie. signaling wealth, with plausible deniability about the intentions, while investing the wealth)
What if you make charitable donations accessible in that database? That could create even better status signalling incentives.
It may be worth mentioning that increasing national savings rates can have some unintended consequences.
We Ukrainians have an anecdote which I think might be somewhat relevant here.
"Dad, they said on TV that vodka would cost more! Does that mean that you're going to cut your drinking?" "No, honey, it means you're going to cut your eating."
same is true with time; hobbies might be a lot about signaling wealth ("I'm so rich I can do non-productive activities"); retiring early actually sounds like a good signaling mechanism for this; retiring early likely(??) have better externalities than conspicuous consumptions, but ideally you would want people to be able to fully signal their wealth at 0 cost (whether time or monetary), and so retiring early for signaling purposes still seems to have a negative externality
another way to signal wealth might be by having a lot of children; and that one seems like it has positive externalities, and so removing the need for signaling wealth might reduce number of children
I'd like to see studies on how having your wealth publicly known changes those factors
This hypothesis predicts that people who have a publicly known wealth spend less, controlling for other factors. Maybe we should start by studying this. (Seems high expected value to me!)
Raising and displaying your status is no different from other things you can buy. You can choose to save and invest, and use your saved money to display more status in the future. Saying "people prefer buying status to saving money" is no different from saying "people prefer buying fancy cars to saving money". Pointing out that people are buying status as well as cars doesn't explain why they consistently prefer to buy status now rather than save for status later.
Also, people definitely do buy fancy (i.e. expensive) cars. And houses, clothes, jewelry, etc. You say that people "don't want to be seen as bragging", but when someone wears a $100,000 diamond wedding ring, what else is that but bragging?
A fancy car, house, or suit can claim to be more comfortable and feature-full than a cheap one, but rings all feel pretty much the same to wear. The whole point of conspicuous consumption is that people do like to brag. And we do have expensive ornaments without another function, like jewelry.
Rings doubtless all feel pretty similar to wear, but they aren't the same to look at. "I bought this ring because it's beautiful and I like to adorn myself with beautiful things."
Does a $100k ring actually look more beautiful than a $10k ring? I doubt it. But if the person buying the ring can persuade themselves to believe it, they can buy the ring without consciously bragging or having the intent to brag.
Saying "people prefer buying status to saving money" is no different from saying "people prefer buying fancy cars to saving money". Pointing out that people are buying status as well as cars doesn't explain why they consistently prefer to buy status now rather than save for status later.
Yeah, I should clarify that I don't think the myopia explanation and the conspicuous explanation are at odds with each other. Ultimately it's myopia that causes people to spend rather than invest right now. But we might also want to know why people are spending so much on the things they do, so that we can figure out how to encourage them to save instead.
Also, people definitely do buy fancy (i.e. expensive) cars. And houses, clothes, jewelry, etc. You say that people "don't want to be seen as bragging", but when someone wears a $100,000 diamond wedding ring, what else is that but bragging?
In the case of cars, people will say, "I have a car so that I can go from point A to point B." A house "is there so that I have shelter to live in." Clothes are "to protect me from the elements."
The only example you mentioned that doesn't seem to have to have an alternative motive is jewelry. But even in the case of a diamond ring, people usually say that they're buying it so that they can show how much they care about their partner, not that they're trying to show how wealthy they are.
In the case of cars, people will say, "I have a car so that I can go from point A to point B." A house "is there so that I have shelter to live in." Clothes are "to protect me from the elements."
Luxury / sports cars aren't for going from A to B faster. Luxury houses and designer dresses aren't for shelter or protection from the elements.
Jewelry (and expensive watches, etc) does have an additional element where in some (many) societies, it's the traditional default for a man to buy them for a woman. So when you see a woman with an expensive ring, you might think "rich husband" instead of or as well as "rich wife". And indeed, historically, men often owned most or all money (and land, animals, ....) while women could own jewelry (and expensive clothes, tools, art, ...). So several things are being signaled. But displaying wealth is still important - otherwise more people would sell their expensive rings after consummating the marriage.
I wonder how blockchain tech might affect this? e.g. a lot of my savings are currently invested in cryptocurrencies; I don't purposefully link my addresses to my name but it's probably possible for someone to figure it out if they wanted to. As blockchain becomes more mainstream/safer, I would expect this to start applying to more people.
I think there are a few glaring problems with this model, though I like the direction of analysis.
Basically, signaling and group behavior is way more complicated than this acknowledges, and for policy (or even nudge/assistance/charitable) planning there are a lot of elements of human behavior that need to be treated as adversarial rather than just a bad random equilibrium. Unfortunate behaviors have many causes, and are "sticky" when culturally reinforced, almost as if there were an opposing player keeping you in the least convenient world.
Me and my partner Titania are living on 2500-3000usd a month all-inclusive. Our income is quite a bit more than that lol. We are hoping to get this lower.
For everyone: please include the implied rent from non-financial assets when listing numbers like this. For example, my (southern California) house would rent for about 2500-3000 /month, but I bought it 10 years ago and my cash-flow expense for mortgage + taxes + repairs is half that. Similarly, if you own a car you should include its depreciation in your monthly spending numbers. And if you want to get really precise, include the depreciation on your appliances and wardrobe as well - that's only on the order of $10,000 in original purchase price, but if you're going hyper-mileage on your expenses, it's not neglectable.
Once you have dealt with signaling, one other huge problem remains. I have met just one person IRL who actually invests (my brother). Everyone else isn't aware safe investment options exist and they just put everything in the bank account.
Also, in my experience, middle-aged and older people tend to downplay their wealth and not brag about it (why? Not entirely sure). Younger people instead seem more braggy... but most young people aren't very wealthy. This is just my experience though. I wonder if it is actually common.
Also, in my experience, middle-aged and older people tend to downplay their wealth and not brag about it (why? Not entirely sure).
I think a lot of people have made the observation that old people care less about status than young people. I'm not sure why that might be, but I could come up with some possible evolutionary explanations. My general hypothesis would probably be something like, young people have much more to lose by being low status. They want to get a promising career and have the best romantic partner. For old people, the stakes are lower.
It's well known that people around the world can be really bad at saving money. Pre-pandemic, Americans saved an average of 7.6% of their income, electing to spend the rest. If people saved more money and invested it, then they'd be able to retire earlier, be wealthier, and therefore probably be better off. Yet, people visibly aren't choosing to do that, so what's going on here?
One possibility is that most Americans are just scraping by, and can't afford to drop their spending without something really bad happening to them, like starving to death. That hypothesis may be true for some, but it can't possibly be the case for most. The savings rate does rise with income, but not nearly as much as you'd expect if there was some baseline standard of living that most people try to meet while saving the rest.
The ultimate explanation for the low savings rate seems to be that people are myopic. In other words, people implicitly care more about having stuff now, rather than later. But saying that the problem is just myopia leaves some important details out.
Omer Moav and Zvika Neeman have a neat story (predictably: signaling), and it goes something like this. Assume that all people desire high status, and the arbiter of your status is how other people perceive your wealth. If you conspicuously spend money on a fancy car, people will readily see that, and assume that you are wealthy. By contrast, if you lock your money away in a vault, no one will observe it, and therefore will not raise your status. The result is that people will spend their money frivolously rather than investing it, even though if they invested their money everyone would have more wealth.
To introduce their case, they present some anecdotes that highlight just how absurd this problem might get,
A recent New York Times article (Moonshine or the Kids), illustrates the magnitude of such spending. It describes the financial situation and spending habits of a poor family from the Republic of the Congo. According to the article, the Obamza family is eight months behind on the $6 per month rent and is in danger of being evicted, they have no mosquito nets, even though they have already lost two of their eight children to malaria, and they cannot afford the $2.50 per month tuition for each of their three school-age children. Yet, Mr and Mrs Obamza spend $10 per month on cell phones, and Mr Obamza drinks several times a week at a village bar, spending about $12 per month. As the Obamzas are not an outlier, the reporter concludes that if the poorest families spent as much money educating their children as they do on wine, cigarettes and prostitutes, their children’s prospects would be transformed.
If this theory is right, as I believe it probably is, then it seems like there's a rather natural policy solution: make everyone's savings more visible.
Theoretically, everyone could go around and show people their retirement account in order to show off. However, as observers have pointed out before, that solution won't work because no one wants to be perceived as bragging. People want a plausible excuse for their signal. People want to be able to say, "I bought this car because I need to go from point A to point B, obviously. Not to signal that I am wealthy enough to buy it."
But suppose everyone was required to show off their account balances. As an example, imagine a system where anyone could easily look up the wealth of anyone else, via some database. Then people would probably shift towards conspicuously saving more and conspicuously spending less.
Many will be concerned with privacy, and that's valid. We could alleviate the privacy concern by allowing people to opt-out.
In The Elephant in the Brain, Kevin Simler and Robin Hanson mention that policies which are realistic about people's selfish motives are more likely to work than ones which pretend humans have more virtuous motives. My proposal is essentially an attempt to apply that advice in the real world. What might go wrong?