Monday, August 7, 2017

97. It steals your future.

Billionaire Warren Buffet attributes his wealth to “a combination of living in America, some lucky genes, and compound interest.” With savings and time, anyone can benefit from compound interest. Its effects are extraordinary. As investor JL Collins explains, “you’ll wind up rich” and “not just in money” if you simply spend less than you earn, invest the surplus, and avoid debt. Of course, money that you save when you are young has more time to grow than money that you save later. That is why it is so important to start saving money as soon as possible. You may not be thinking about saving for retirement right now, but you should be, because retirement pensions have largely disappeared. You will probably depend on your savings someday. Life is expensive. Unfortunately, graduate students are much more likely to go into debt than to save money. This brings us back to Reason 1.

There is an adage: “He who understands compound interest will earn it; he who does not will pay it.” If you borrow money in the form of a student loan, you are obligated to pay back every penny that you borrowed plus interest. If you manage to stay out of debt, in graduate school you are still not earning a proper salary at a time in your life when saving money could do you tremendous good. Worse, you are entering a profession for which there is a long period of apprenticeship (see Reason 4), in which jobs are scarce (see Reason 8), and in which highly trained people do extremely low-paying work (see Reason 14). Your wise friends outside of academe will have built up a nest egg before your academic career has even started (see Reason 63). There is a perception that graduate school leads to a better life, but working, saving, and building wealth while you are young is a much more reliable route to success. Just remember to spend less than you earn.



25 comments:

  1. God Emperor Trump will fix the economy and MAKE AMERICA GREAT AGAIN!!!

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  2. Excellent post, 100 Reasons. Indeed, most grad students are not thinking about their future, or retirement, at all. If they do think about it, it’s in vague terms - “I want to be a professor” - with no idea of how rare, difficult, and long the road to obtaining a tenure-track position can be.

    Just go to a 20-year high school reunion. Those who went to grad school are often still trying to find a stable job, living frugally to get by, and moving to the sad places where the jobs tend to be. Those who began working right after high school or college have moved up in their company, have had several children, own their own houses in nice places, and have up to 20 more years of income saved or invested than the ones who went the grad school route. This is not the type of thing young 20-somethings think about when entering grad school. Sadly, by the time they realize how much they could have accumulated over the last couple of decades of compound interest, they cannot make up for lost time.

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    1. "most grad students are not thinking about their future, or retirement, at all"

      Guilty. At 22 I didn't care about that stuff. However, I knew that I probably would care one day, so I made a pact with myself to just get an MA to start off with, and do to it fully funded so that at least my financial cost was low. I left academia after my MA, got married, started working and then had a family. Having no loans made this doable. I still kick myself sometimes about the opportunity cost, but it was pretty low in terms of loss to my lifetime earnings.

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    2. That's an excellent summary of the situation, AnonymousAugust 7, 2017 at 6:47 PM. People are sold on following their passion and doing something that makes the world better (noble, indeed), but those who did trade jobs or something that requires college but not a Ph.D., like an accountant, are living good lives at the 20-year reunion. It's a sad and frustrating situation for those of us that pursued advanced degrees.

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  3. Once again, absolutely correct and irrefutable.

    Enrolling in school is not the equivalent of working. From a financial standpoint, it can actually be worse than short-term or even medium-term unemployment. Leaving aside the percentage of graduate students -- and it is not inconsiderable -- who truly are work-averse and remain enrolled in grad school in a deluded attempt to save face with their families and friends, it's fair to say that most of us want to become contributing, productive members of society as rapidly as possible. That means employment.

    Again, leaving aside the long-term unemployed or work-averse, for most of us any stretch of complete unemployment lasting more than a year or two is already considered quite long. And by graduate students' standards, that's barely an overture. A graduate student can expect to be unemployed (or severely underemployed -- as practical matter it makes little difference) for a period lasting five years or more. That's five years' opportunity cost with no income at all.

    But wait! There's more!

    A five-year stretch of unemployment is bad enough, right? But during this time, the graduate student actually has recurring, unavoidable expenses -- tuition, books, travel -- that would put pressure even on an employed person.

    Hence, at the end of the day, the graduate student, with his or her worthless degree in hand, arteries hardened by bad food, and failing eyesight, is in a far worse position financially and even professionally than someone who decided to merely check out of the workforce for a few years and sit in front of the television or internet doing nothing.

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  4. The above comments have it right. The sad thing is, if you're Asian or Indian (or another ethnic that highly desires education) descent and have parents who complain about the old days and how tough it was back in their home country, they'll force education onto you and they will be ashamed if you DON'T pursue higher education. It's REALLY sad watching friends who are from these kinds of families who are being forced to do more education or end up getting disowned. Smarter friends end up joining the military and just leave their parents and siblings behind - though, that's not the life for everybody.

    It sounds silly at first, but if anyone is confused at how higher education is bad, I'll explain. I had many friends who dropped out of college, and even friends who dropped out of high school and just worked at a fast food restaurant. Now they're bigger managers or work at corporate offices, have good experience, skills and amazing benefits. Myself, I did chemical engineering at Waterloo, 3.9/4.0 GPA and 5 internships, but still struggling to find work. Yes, the oil and gas price crash made employment in Canada as a chemical engineer extremely difficult, but the point I want to draw is that professors there pretty much stopped taking applicants for domestic master's due to such astronomical demand. When jobs in a field are difficult to find, you find people begging for chances to do master's. Even if you do it for free thanks to scholarships, it's still lost opportunity money and you'll have less experience. BUT, want to hear something weird? I said the professors don't take domestic master's students due to there not being good scholarships available for people who are non-international students here.

    They love my resume, GPA, etc, and I've been invited to countless dinners with professors, yet somehow when I want to get the paperwork to sign to begin my master's, suddenly they say, "Not enough funding! I need 20k a year!" Yep, there's so many applicants that many of the profs would rather just have students self-fund their projects. It's REALLY scammy out there. People were telling me that they were soft rejections, but there were actually many students, a lot of them being the child of immigrants to Canada, actually self-funding their master's/PhD with the parents help because the parents somehow think that a master's/PhD would help their child get a job. Now I know why so many professors are treating me out to extravagant dinners....

    But anyways, many countries, like Canada, are mostly service-industries now. Nobody wants to do research. Hell, there are even company-sponsored funding for master's students, BUT you don't want to take those either! Many students go into a master's funded by a company, sign away all of the patents and such, thinking that they'll get hired by the company funding them. This is not the case. The company generally just wants to get cheap labour from the university, and my friend was pushed into working 60-80 hour weeks, and though his stipend was okay at a first glance, when you actually paid for tuition and used books, he'd be making less than minimum wage!

    Anyways, my point is don't be stupid and do a master's. I was talking about engineering, which is normally considered a poor field to do master's in, but I can guarantee you that these trends explained earlier will happen in other fields. Seriously, don't do it. Focus on making connections and such instead. I did chemical engineering and a master's and have 3 years of work experience from university research projects and a few companies that are now closed down. All my offers are from big, big pharmaceutical companies wanting a laboratory technician, which really only requires a high school diploma. Employers are in an age of choosiness.

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    1. Regarding one of your first points, in many cultures getting an education was a key to financial success. Unfortunately, not all degrees are the same. Many Americans don't understand this scenario either and have an elitist attitude of "well, education shouldn't be about getting a job, it's about gainings skills and learning how to think". Gee, sounds nice if paying rent isn't an issue...

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  5. Always great to read another 100Reasons post! I have been lurking on this blog for the past seven years or so, but as a financial adviser, this post really resonated with me.

    Similar to most of the audience of this blog, I come from a humanities background (East Asian Languages, to be specific). In 2014, I finished my undergraduate degree with a 3.9 GPA and was accepted into my department's post graduate program. I wish I could say that a spark of prescience served as the catalyst for my departure from graduate school, but the truth is that I grossly overestimated my academic abilities.

    With a couple thousand dollars in debt from my first semester of graduate school and nothing to show for it, I decided to apply to a financial services firm to work as an associate. They paid for my licenses (I had to take the series 7 three times) and I worked on the phones as a retail stock broker doing grunt work for two years.

    Fast forward to today, and I am a successful financial adviser. I am even beating advisers that come from business backgrounds. Not trying to brag, but my point is that humanities and liberal arts graduates have a distinct advantage when dealing with clients. As someone who studied different cultures and languages (Anon @ 3PM, Aug. 11 is spot on about Asian culture and education, by the way), I have a broader perspective and better ability to communicate than many of my business school counterparts.

    I'm not the only humanities major in finance, either. One of my colleagues and good friends is an English major from a state school. He is an even more successful financial adviser than me and is in his late 30's.

    Therefore, I urge my fellow humanities/liberal arts grads to not give up. It might be too competitive to get a (low-paying) job in academia, but there are lots of other things you can do to make a decent living, regardless of how long you have been on the academic hamster wheel.

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    1. >>there are lots of other things you can do to make a decent living, regardless of how long you have been on the academic hamster wheel.

      This should be point #98. You Have More Options Than You Think You Do. I was dead set on leaving after my MA despite being asked to stay, and even then, I was terrified about trying to find work. It was 2009 so the market was in the toilet. I wasn't getting call backs, interviews, nothing. I almost submitted that PhD application. I was convinced I had no skills, no future, nothing. And I WANTED to leave academia. I was DONE.

      Long story short is that I eventually got a job and built up a career from there. If I could start a great career with a Humanities MA right after the country imploded, anyone can. I got certifications through work, and now I'm even back in graduate school for a professional degree - this time it's great, because I get to study fun stuff part time while keeping my job, and my employer is paying for 100% of it. Man I should have done it this way the first time.

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    2. You mean a "succesful financial advisor" like the ones who were unable to forecast the housing bubble in 2007 and dragged millions to loss mitigation and foreclosure?

      I am curious about one thing. You call yourself a "succesful financial advisor" and you encourage people to undergo 4 years of study and 100K in debt for a worthless degree arguing that they will fail to get a job but at the same time they will be able to get a crappy job with low pay that pays for the debt generated by the worthless degree acquisition?

      May I have your name, so that I will NEVER hire you?

      PS: I deleted my original post due to a typo.

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    3. ...That isn't even close to what I actually said. My post was aimed at people who already had their "useless" degrees and felt like they could never get a good job. I wasn't implying that you should study something without good prospects.

      Clearly you have a very superficial knowledge of the financial crisis. For one, yes, there were advisors out their who figured out what was going on and were able to properly guide their clients. For another, the blame for the crisis does not rest solely on the financial industry. It rests on the following (in no specific order):

      1) The credit ratings agencies, who misled the public about the creditworthiness of various institutions, such as Fannie Mae, Freddie Mac, Countrywide, and AIG.

      2) The large investment banks, who took the bad loans doled out by the above companies, packaged them into securities, then resold them to large institutional investors while skimming off hefty commissions.

      3) The financial institutions (such as Freddie Mac, Fannie Mae, Countrywide, etc.) who underwrote bad loans to people they knew would never pay them off. They then resold these loans to the above investments banks for nice commissions.

      4) The American public, who was sold on the idea that it is their birthright to take out a mortgage to own a home valued at more than 6x their gross annual income. This said public also thinks it's their right to take expensive vacations, buy nice cars, and get their hair done every single week on credit. You might laugh at this statement and I realize I'm generalizing here, but I talk to enough people every day who blindly spend money to assert that this attitude towards spending is still prevalent and was a major cause of the crisis.

      5) The American educational system, perhaps due to the influence of large corporations, which has failed to properly educate people about money.

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    4. There is nothing to learn about finance other than two things:
      1) earn 2, spend 1.
      2) develop the virtues of moderation and austerity so that rule 1) is a piece of cake to follow.

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  6. Warren Buffet's argument is so fallacious that its smell can be perceived from light years away.

    Compound interest does not to anything. If all those who make a salary placed a fraction of their salary in the bank to give compound interest, the interest rate would drop to 0, simply due to an excessive offer of money lenders to the bank. A banker has 1 lender, he needs to offer a fairly attractive interest. The same banker has 10 thousand lenders, he can choose, hence he can offer a low interest rate.

    Money doesn't breed money. Work breeds money.

    The problem with grad schools is that due to all the 96 reasons depicted up to date (and other that are too long and specific to ellaborate), grad school is inefficient work and in many cases useless (even in the STEM fields there is a massive proliferation of useless PhD theses).

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    1. One reason that there are so many useless Ph. D. theses in engineering is that many of the research topics were also useless. The only thing that matters in academe is whether what one is investigating can be funded

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  7. Great reason to avoid grad school.

    You spend so much time in grad school being overworked and underpaid that you can't afford to plan for the future (unless you come from a wealthy family). There's also a huge chance that after graduation, you will join the adjunct workforce, which continues to steal your future.

    The Ivory Tower has effectively brainwashed people into thinking that it's the academe or bust, that there's no career prospects outside of its walls. It astonishes me that year after year, idealistic students think that they are an exception to the rule, that they can somehow overcome the adjunctification of the academe. "The life of the mind" is not worth starving for.

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    1. I used to think that success in academe depended on hard work and talent. It's nothing of the sort.

      Instead, it's completely political. One can have impressive qualifications but if, say, a grad student's supervisor doesn't like that person, any chances for an academic career are nearly zero.

      Without that support, one should plan on doing something else. Academe is little more than a root-bound closed shop and entry is by invitation only.

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    2. Even if one does complete one's graduate degree, the alternatives to academe can often be disappointing.

      Most of the jobs I had in industry didn't need more than a B. Sc. In fact, most of what I worked on didn't even require that much education. Unlike Einstein, unfortunately, I didn't have enough idle time during the day to ponder earth-shaking ideas.

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    3. The Ivory Tower is more concerned about who it can keep out than about who is qualified to enter. The easiest way to join that club is to be chummy with someone on the inside.

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    4. @Anonymous September 29, 2017 at 5:51 AM

      The problem with PhD programs is that they prepare people for a very specific kind of job (tenure track positions at Ivy League or R1 institutions) and those jobs are few and far between. This article effectively sums up the issue: http://www.slate.com/articles/life/education/2015/02/university_hiring_if_you_didn_t_get_your_ph_d_at_an_elite_university_good.html

      This is why it is incredibly irresponsible that lower ranked PhD programs with terrible job placement rates continue to accept applicants. They know damn well that these students have no chance in hell of getting a tenure track position. Basically, they are training their students to become contingent employees who won't have any job security, benefits, or money. A permanent underclass.

      You're absolutely right - most industry jobs do not require a PhD. My friend who manages a think tank actually said that he stopped hiring PhDs because of their sense of entitlement. Despite the fact that a PhD does not prepare one for a job at his company, applicants with PhDs would demand more money even though they did not have any industry experience. It is a huge misconception that a PhD prepares one for industry jobs.

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    5. While I was finishing my first graduate degree, I started working for a certain company. One reason I actually applied there was because that I could have made use of what I'd learned as a grad student.

      Did I? Of course not. The company was looking for cheap labour and made sure that I worked on the stuff that nobody else wanted to touch.

      If it had been my first job, I might not have minded so much, but I had already spent 2 years in industry and I was registered. The type of things I ended up working on were more appropriate to a rookie with a brand-new B. Sc., not someone with experience and close to finishing a master's degree.

      For some reason, my division supervisor couldn't figure out why I might have been dissatisfied. Apparently my being told one thing and then getting something else didn't qualify.

      I was eventually fired. Maybe they thought I didn't appreciate the "privilege" of working there.

      However, looking back over the years, that outfit was one of the biggest mistakes I ever made.

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  8. Anonymous 9/14 7:05 has summed the whole thing up brilliantly: "The life of the mind is not worth starving for."

    It isn't just material things, either. You can also end up starved for romantic relationships, children, long-term friends, geographic stability, professional satisfaction, proximity to family, and long-term plans of any kind. Take it from someone who's been there—mainly by following a spouse through it.

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    1. I concur.

      While I was a grad student, I was almost entirely focused on my work. I didn't have much time for a social life and, even if I did, there was little chance for long-term relationships. Most women I went out with wanted stability and financial security, and being a grad student certainly didn't provide that.

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  9. Reason #98. Homelessness

    https://www.theguardian.com/us-news/2017/sep/28/adjunct-professors-homeless-sex-work-academia-poverty

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  10. Here's another way grad studies can steal your future.

    Imagine spending most of your allowed time on your degree only to find out that your supervisor admits that he was never interested in your thesis project in the first place. That happened to me.

    My first thesis project was taken out from under me after I'd spent a year on it. The committee that my supervisor had cobbled together cancelled it in the first meeting we had. (One of the members behaved in a rather childish manner, leading me to believe that the whole thing had been planned.)

    I spent the next 3 years getting little accomplished, partly because my supervisor conducted himself in a lacklustre manner. I started my residency with 2 years left when he admitted that he never liked what I was working on. (Gee, thanks.)

    In response, I rolled up my sleeves and kicked him out of the way, so to speak, as he had shown himself to be next to useless. I had to push him to set up my candidacy exam as well as my thesis defence.

    I finally got my degree, but I couldn't get a job with it after that. It wouldn't surprise me if any companies or universities I applied to contacted him about me, even though I didn't want to use him as a reference.

    In the meantime, he was busy "mentoring" his favourite grad student because he was "concerned" about her prospects. In reality, there were indications that their relationship was less than arm's length, if you get my meaning. She now has tenure at a university elsewhere in the country.

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    1. Your story sounds like where mine was headed before I switched advisors. In the process of switching it finally came out that not only did my former advisor not really care for my project, they insisted that I didn't know anything about the region. It's amazing what some of these people can concoct when they want to make someone look bad. I wish I could get into specifics but I think that people in this program hate it so much that they probably come on here.

      Now that I'm officially on year four I couldn't tell you what keeps me here. At a certain point when you're damn near broke and you don't have a lot of support, you find yourself banking on non-monetary prestige, like strangers who think what your doing is "cool." The problem is, we all kind of know that this prestige is empty and fruitless. Yet, here I am still trying to claw my way through this degree for really no other reason at this point than to finish.

      I've said it before and I'll say it again: Academia is really for people who can play Russian roulette with money. I can't speak for all fields, but for what I do in the social sciences and humanities, it's certainly held true in my experience. I never expected to be in my late 20s looking to my parents for the occasional bail out because my stipend is $20K plus possible summer work. Independent wealth would be a great asset to have in grad school, though most of the insanely wealthy people I know never went for a PhD. That should tell you something. As 100 reasons has said in previous posts, "The smart people are somewhere else."

      I wish my undergrad self (who had many mentors encouraging me to continue on to grad school) had truly understood just how much I was going to have to put off to do this degree. I really could not have foreseen how this was going to be until I was knee deep into the experience. I wish I knew that a combination of being broke and demoralized would bring me to this weird state of inertia where things don't really get better or worse, they just start to stay the same. As this blog illustrates, there really isn't one factor that brings you to feel disillusioned by grad school. Finances are indeed a problem, but they certainly one of, well, 100+ problems. :P

      Lately I've started to identify a profound sadness and anger in many professors eyes that I hadn't ever recognized before. I think that's really what scares me the most...the folks who seemingly got "that job" and "that paycheck" appear almost universally sad and defeated. I can't speak for other people's experiences, but this is what I have encountered.

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