subjective rate of time preference, the results are in.

Well, the results are in. In the end I got 45 respondents from a number of locations across the US and 2 international residents as well. I’ll put up what I got and try to give a brief explanation about my thinking into what I asked. In a later post, I’ll try to discuss some thoughts I have been kicking around on this general subject.

Demographics: Turns out my blog (and perhaps by extension, myself) is almost perfectly isolated from anyone outside the 30 to 49 age brackets. I guess, given that I’m sitting right about the middle of that range, that’s somewhat appropriate? (I reckon it also may say a bit about how boring it seems to some under 29ers to take a survey about their financial proclivities?)

Also apparent is that my respondents are by and large pretty well to do. 65% with incomes of $50,000+ is representative of something like the top 30% of the income distribution for individuals in the US. So, I guess there’s some skewing upward to my stats here.

Debt. Kind of all over the place. Obviously with a sample size skewed by personal networks and small size, it’s hard to draw too many conclusions (actually, I’ll just stop saying this now and you can assume it goes without saying for further discussion down the page). However, among those in the lowest income bracket debt tended to be largely no debt to sub-$5k. Whether that reflects lack of access to credit or sensible behavior or just data noise I’m not sure.. At one point about 15 years ago, I had a sub-$30k income and about $12k in credit card debt. I don’t recommend it.

Within the $30k to $50k income bracket, 80% carried some debt load. Pretty evenly split from less than $5k to more than $10k. This is the income range where I suppose access to credit starts playing a larger role in peoples’ lives.

$50k to $70k, 30% still managed no debt, over 30% had more than $10k debt and the rest were mostly under $5k.

Over $70k in income is where the debt picks up steam. Over 60% in this bracket had greater than $10k in debt, while a mere 15% had no debt. Seems like the more you make the more you borrow, at least up to a point, though I have a suspicion that, at least in this country, it’s what you could describe as a norm.

One curiosity is how few respondents had debt between $5k and $10k. 9% to be exact. Seems like perhaps this is an unstable level of debt. Like maybe you are either doing well enough without or things just got out of hand. Or on your way up or down through this range. Perhaps it’s also a reflection of a few big ticket attractions that often come with higher incomes, namely car notes, student loans (particularly for advanced degrees) and second mortgages.

The savings rate below is not a good sign. I am currently wading through a first attempt at something like proper retirement planning and I can tell you, $5k per year for people thinking they need the amounts that follow is not likely to work out so well. Figures such as these definitely seem to me to bolster arguments for opt-out retirement plans and perhaps something stronger than the current tax incentive structure to entice savings. Like maybe (purely riffing here) a negative tax credit up to some annual amount based on 15% of income up to $100k/year (or something). With all the talk of “entitlement reform” (sounds so sensible!), some sort of Pigouvian incentive beyond what isn’t currently working would perhaps be in order.

Well, the question below seems to indicate that people recognize the problem, such as it may be.

With the question below I received a little feedback to the effect that it was limiting or sort of hard to answer. I suppose I knew that going in. The idea, for me, was to try and use some sort of simple clichés that, as UCs Brad DeLong likes to say in lecture “are part of our common culture” to tease out some sort of general ideas on the thinking people identify more or less with, and to also allow somewhat direct contradictions, since many elements of modern life seem to invite such contradictory behaviors.

The amount of “I can’t count on Social Security when I retire” responses bodes REALLY poorly for the future of the Social Security program and the impending attempts to cripple or destroy it. To half of respondents (and I would guess that from the tenuous connection to my social network that a majority of these people very much support the program) the battle is already over. That speaks volumes about the mental landscape of the US, small sample size or no. 42% of people over the age of 40 responded as such and these are people for whom benefits are only about 15 to 25 years away. One of the responses I was curious about was how many people might respond both that they can’t count on SS and the they ARE counting on it. Only a couple did.

Another contradiction in clichés that I was curious about was how many people were feeling both “A penny saved is a penny earned” and “You can’t take it with you.” On this count, 13% of people were able to hold both views, which I suppose isn’t really totally contradictory, but they do sound kind of funny together in the sense of the kind of thinking they are usually used to characterize. A significant plurality of people expect to inherent money from their parents, which is something I’m going to mention in the next post (but in a nutshell, this kind of “dynastic” thinking may drive both the thriftiness of parents and the high time preference, i.e. low savings emphasis, of children in a reciprocal fashion).

These were all just questions that I hoped would give insight into some of the general feelings about daily spending and more monumental spending and just how much time people spend thinking about such things. My curiosity was based on how much time I DO spend thinking about such things while spending or considering spending. Namely, I think about them almost ALL THE TIME. The last question gets to the heart of “subjective rates of time preference” as a concept. When economists discuss this, they usually speak in terms of “discounting” the value of future spending at a positive rate. In a nutshell, the fuzziness of the future (not counting things like “my rent is due in 6 days”) makes it easy to think that you’ll start saving in a while, but for now these current needs are important. It’s also why all the savings gurus use the cliché “pay yourself first!” to mean “don’t think of saving as an option.” It’s more like “pay your future self first” really. The issue of discounting future consumption comes into play all over the economy from analysis of poverty to climate change to balancing government budgets to cost benefit analysis of resource use to even the dollar “value” of future human lives, in relation to the cost of safety devices and initiatives and remediation of workplace hazards, product defects and the like.

It’s certainly worth having a consultation with your future self the next time you feel those pangs of guilt over running up the credit card or what have you, because despite one’s best efforts, future you will almost certainly end up being around.

One final comment. I’m sort of semi-un-anonymizing a respondent by nation, but I was struck the by answers from my one apparently blissed out Canadian responder. I might flatter myself that perhaps it’s someone from the Worthwhile Canadian Initiative “scene” (mentioned in my original post with this survey) but whoever it is, seems like they probably wouldn’t be too worried about sharing the good news. Assuming answers in good faith, score one for Canada. I don’t think anyone else came in quite so well sorted out. Here are the results:

Age: 50+   /   Income: $70,000+   /   Debt: none    /    Savings: $10,000 – $16,500 per year   /   How much needed to retire: $500,001 – $750,000   /   Saving for retirement, how are you doing?: Just about right.   /   Cliché of choice: A penny saved is a penny earned.   /   The idea of spending money on things makes him/her: invigorated/satisfied   /   Does that affect whether you spend or not?: Yes (Ed: presumably in the affirmative!)  /   Do you think about the future when you spend money today?: Yes

I’d give that response a gold star. Go Canada!

More on all this later! Thanks for reading.

UE

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About theunlikelyeconomist

theunlikelyeconomist is in the midst of the long slog to attain a PhD in economics.
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