Spend til the end!

By Jim Stergios
July 7th, 2008

Ross Kerber in today’s Globe has a playful profile of Boston University Economics professor and Pioneer Academic Advisor Larry Kotlikoff. LK is indeed “one of the country’s toughest critics of mutual fund companies and other financial firms.” Is it possible that all the gnashing of the teeth and self-flagellation about Americans’ consuming too much and saving too little is, uh, hype?

When my financial advisor friends call me (two times annually to “check in” and make sure I don’t forget that I am going to have trouble walking, to embarrass my children by spilling food all over myself and ultimately die), I have to agree with the message of “Spend ’til the End.” (Buy here!)

Kerber summarizes the argument well, noting that Kotlikoff agrees that many (around two-fifths of Americans may not save enough), but that the problem lies in his observation that:

Many people end up setting aside too much money for retirement, at the expense of enjoying their youth more.

A better strategy, he argues, would be for individuals to study their own situations - including mortgage debt, private pensions, and future Social Security payouts - so they can understand how such things will affect their standard of living, before and after retirement.

And how can you disagree with the closing line of the article where Kotlikoff urges us to “price [our] passions.”

Related question regarding savings rates… Often we hear that the US saves the least among industrialized nations. Does anyone know how borrowing for home purchases figures into those calculations? The reason I ask is that it seems to me that if we are comparing the US savings rate to that of, say, Japan or Italy, where the percentage of homebuying households is far lower, we will necessarily suffer in the comparison. S/he who knows how international comparisons of debt and savings are calculated, please speak up!