CG Economics 2016-2017: Gunnar Economic Profile

Gunnar Fairbairn

Ralph Drayton

Economics

12th November 2016

Interview Answers

1. Sam, 71, male.

2. Live in own home

3. BA History, MFA English

4. Retired stock broker/former teacher

5. 85,000 (Retirement, Social Security, Mandatory Distributions)

6. Wage is basically reasonable

7. Middle class

8. About the same. They both worked and had the benefits of belonging to unions.

9. Delay in buying first house. No help from family getting a down payment, and timing delay was several years that peer group proved to do much better by starting earlier.

10. Govt. was helpful in forgiving educational loans in exchange for teaching.

11. Dreams and fears of the economy have had little to do with things.

12. Yes

13. The moment you receive your first paycheck, pay yourself first: 15%. Do this every month. Your employer may make this convenient by offering a 401K. If you save your money each month and don't have a 401K start purchasing a small piece or real estate, a lot, an acre of farmable land, something you can get $ from, by renting it to a goat, or whatever, even a small house. Do this early in your adulthood. Don't make excuses about $$$.

Intellectuals Succeed: An Economic Profile of a Teacher & Former Stock Broker

Retired Decently

I interviewed a retired man in his early seventies and found that thanks to a few personal finance decisions made early on he now enjoys a comfortable retirement. In no way was he rich, but he thought ahead from the time he went to college. Upon examining what he attributes to his success, such as personal finance forethought, union pensions, and education its easy to see how he came to financially healthy retirement. I intend to examine those decisions and apply some of what I’ve learned in economics this year in reflecting on his economic profile.

Though he says he was lucky for the government forgiving his student debt in exchange for teaching I think his academic boldness was bound to put him on better financial footing than most people. In 1950’s it wasn’t a requirement to go to college and college educated workers didn’t make substantially more money. He went though and got a BA History, MFA English, which added a ton to his human capital in the labor force.

Though a bit blurry this chart shows lifetime incomes of those with a bachelor’s degree, high school diploma, some college, associates degree, and above. With a bachelors and a masters, he stood in the best position to have the highest possible life income on average. Getting a masters was risky in terms of student loan debt, but the amount of people going to college before the 1950’s was much lower. Also less money was being spent on renovating them for a growing student base making Sam’s education much cheaper with inflation adjusted numbers. The federal government also forgave that debt in exchange for teaching. That’s a very good deal.

He taught history at Catlin Gabel for a number of years, but also became a Stock Broker. Its general knowledge that Stock Brokers make a lot of money and know well how to save for the future. Also the pay is much different from that of teacher. In one of these fields he was part of a union or both because didn’t specify. I expect it was a teacher’s union. His wife at the time was part of a union too. So even with raising three kids he would enjoy job security, healthy pensions upon retirement, and a higher than average pay as displayed in the chart below.

Race, gender, and class is another factor in dealing with the cost of raising a family and one’s general overall income. In class we discussed systemic poverty once and I don’t think there was any danger of him falling into that cycle. He started out middle class and prepared for upper middle class with education and considers himself middle class now. He is white and male and predominantly men like him get paid more than black male counter parts. Though the gaps are well exposed now, the race and gender gaps played to his favor back in the 1970’s and for the majority of his working life. Today 73% of white families own homes compared 45% to 47% for Blacks and Latinos. Owning a home is great investment because with the rise of inflation overtime you end up paying less then what you bought the home for in some cases. Inflation rises devaluing your debt, but raising the value of your home. Buying that first home was a bit of struggle he remarked in the interview, but he eventually did get one as he says here “Delay in buying first house. No help from family getting a down payment, and timing delay was several years that peer group proved to do much better by starting earlier.” It seems here he missed out a bit financially among his peers, but he was still able to the make investment, which most definitively benefited him in the long run because he owns his home today.

With the background of an academic and several profitable careers behind him his retirement pay had to at least be “reasonable” as he puts it. He now makes about 80,000 a year in retirement, which is above the national average income of 51,000 a year and certainly more than minimum wage. His advice out of this interview is advice my parents also have given me.

“The moment you receive your first paycheck, pay yourself first: 15%. Do this every month. Your employer may make this convenient by offering a 401K. If you save your money each month and don't have a 401K start purchasing a small piece or real estate, a lot, an acre of farmable land, something you can get $ from, by renting it to a goat, or whatever, even a small house. Do this early in your adulthood. Don't make excuses about $$$.”

Under the belief of dollar cost averaging the first part makes a lot of sense. Investments will grow over time and continuous investment results in more invested when it is cheap then its expensive. A 401k would balance his income in stock and bonds and the stock would provide a nice profit with consistent investment that usually yields higher returns due to people buying more when a stock is low and less when a stock is high. He seems to also be ahead of the trend when it comes to saving for ones retirement not through a home, but through a bank account.

Assuming these retirement accounts are managed by big corporations whatever they invest in his bound to grow just due to the size of the overall principle. Meredith mentioned that a large portion some estimates being 40% of the stock market is invested in funds, money managers, and overall passive investing. Considering this and how volatile the stock market growth is today compared to when my grandfather was investing I’ve generally come to the belief that where these passive investors and money managers see value other should join the bandwagon because they bring a sizable investment principle with them and may just dictate the market.

Some questions I have from this interview still are why did he get that masters in fine arts with little economic pressure fifty years ago? As a former stock broker how does he see the market today? How did the opening up of the investment world to more people effect the market in his view? Does he worry about wage slowing, but stock market gains rising?