CG Economics 2016-2017: Paul: An Economic Profile

Paul: An Economic Profile

By Adolfo Apolloni

Paul is a 60 year old male who works as a teacher at the Catlin Gabel School. He has two Bachelor’s degrees and a Master’s degree from Lewis and Clark College and works as a teacher not for the wage but for the joy of teaching. He has taught since 1980 when he started as a teacher in the Beaverton School district. Teaching attracted Paul as he wanted a job that was not monotonous, a job that would constantly engage him and the two options he saw in this regard were teaching and computer programming but he felt he did not have the math skills to program.

Paul finds his current economic situation to be decent although he sees himself as less affluent then his parents. With a wage of about seventy-four thousand dollars a year plus benefits, he feels economically he receives a living wage for a family if both parents are working as is his situation. However despite what he sees as upper-middle class status, he feel less well-off due to greater anxiety about his future. In his profession, there is no profit sharing or similar systems that allow for boom years. Therefore, he has never had bonuses to build a large rainy day fund. While teaching’s steady wage does assuage fears of the bust part of the cycle, he still has less of a financial cushion in his life and thus greater insecurity.

Looking back on his life, he does not regret his decisions but does note their great financial impact. By becoming a teacher he took a job with fewer benefits and a lower wage. As a teacher, his salary has grown more slowly and after 18 years of work, his salary maxed out, and he no longer received annual raises. Furthermore, there are no bonuses in education for winning awards like teacher of the year or for productivity in general. Furthermore, when he decided to raise a family, he also took another financial burden. Children are expensive and therefore financially restricting but like teaching, the joy a family brought to his life outweighed any costs.

Looking towards the future, economically he feels relatively secure. He has saved for retirement and while he wishes he could have saved more, his advisors and all the financial calculators tell him that he is ready. Furthermore, he knows he has significant assets in housing and can probably fulfill his dreams of being able to visit his daughter at his liberty and live comfortably both now and in retirement. Of course he also fears a great economic slowdown. With his funds all in retirement investments he fears that the global economy will slow and fears that the presidency of Donald Trump, in particular his interest rate policies, will have a serious effect on his investments and therefore retirement.

Paul has largely lived a life with sound economic principles in mind. He has saved for retirement all his life and has purchased a home to ensure that he has a sound asset in retirement. In fact, he currently owns two homes, one in Bend, and a condominium in Portland. The condominium in Portland is where he lives while working, and the home in Bend is for vacation and possibly retirement as he enjoys being close to nature and winter sports such as skiing. He chose to buy homes because his parents taught him that, whenever possible, one should purchase a home to create value and build an asset base for the family.

He feels that for the most part, economically the government has also been a positive contributor to his life. The bailouts during the financial crisis in his opinion shored up the economy and even though growth is anemic, the economic situation would be far worse without government intervention. Furthermore, Social Security and Medicare are programs that he sees as personally beneficial as Medicare offers him peace of mind from a health care standpoint in old age and Social Security acts as a partner in funding his retirement. Of course, the government could probably have helped him more but overall he sees the government as decently beneficial.

In advising the next generation on their economic future, he had a few pieces of advice. One was not to become a teacher unless one is absolutely certain they are willing to sacrifice significant income. His second piece of advice was to start an IRA as soon as possible and start saving for retirement. In fact, if possible he suggests starting it with one’s family before college if possible. Compound interest is a powerful tool and therefore saving early is a powerful tool in addition to the other positive affect which is that practice makes perfect when establishing a pattern of saving.

In some ways I see Paul’s story as when of someone whose life centers on his family. His happiness and quality of life seems to come from having the means to enjoy his life with those he cares about whether it is visiting his daughter, or spending time with his wife, enjoying nature around Bend which is one of his favorite pass times. He gave up a higher income and more overall wealth to do what he loves, teaching so his life story reflects that in his life, there are more important things than wealth. That was his decision based on opportunity costs as the costs of giving up his passion and time with his family were not worth a different career.

Paul’s financial situation was accurately characterized as upper-middle class. With his own income at 74,000 dollars, he is already well above the median household income and considering that his wife works as well, economically compared to the average American they are well off. However he doesn’t feel that 74,000 dollars would be a livable wage for his family the way they want to live their life if his wife did not work. This makes sense for him as he wants to live a life that is not average for America. They own a house and a condo, they put their daughter through a private college without loans, and enjoy being able to do whatever activities they want, whether it be skiing, traveling, hiking, or many other choices. This is an expensive life and since he has set his benchmark high, it took as household income well above average to meet it.

Looking at the investment and retirement side of Paul’s life he has made many pragmatic investment decisions. By starting saving for retirement at a young age and investing his retirement, he took advantage of investment returns. If we look at the S&P 500 since 1980, when he started working, it has increased over twenty fold causing his investments to accrue significant value and allowing Paul to build a sizable retirement account. Furthermore, because he grew up in a household that taught him the value of owning property as an investment for retirement, he choose to purchase his house, building another valuable asset. Since home values have doubled nationwide since 2000 and grown even more in Portland despite the housing bubble, Paul’s practical decision to own a home paid off.

Paul also has a very pragmatic and realistic view of the U.S. government which seems to be few and far between in the modern era. With a congress with a less than 20 percent approval rating, it seems that Americans focus on the negatives of the U.S. while Paul instead focuses on the positives, he looks at what the government does whether it be Social Security or handling the financial crisis as seeing the situation as much worse without the Government’s effort. I appreciate this viewpoint as everything the government does has flaws, especially with twenty-twenty hindsight but without government action, the situation in the U.S. whether it be retirement or the economy could be far worse.

His fear though that this recover will not continue is also grounded in economic indicators. He sees the recover as stemming from a glut of low interest rates and fears that if raised, the recovery will slow and his investments will fail to accrue enough growth to fully fund his retirement. This perspective is backed up by the federal funds rate. We can see that an extraordinarily low federal funds rate has driven down interest rates and increased borrowing and growth. This fear could be well founded as this level of continued low interest rates is unprecedented and entirely parallels the current recovery.

What I found most surprising about Paul’s story was his wish for the boom and bust cycle. I would expect someone to appreciate a steady income and an assured job, but he sees it as one that leaves him in a less well of situation. I guess, his experience has been one where the highs are higher than the lows are lows in this private sector cycle and with this cycle one is able to make out ahead of those who lack it. Of course this relies on restraint and willingness to save heavily, but Paul’s childhood with this experience leaves him wishing for the same ability to use the highs to save for the future as his parents had.

Paul has made pragmatic and long term life decisions around saving and investing that will leave him well off in retirement despite living on a modest although sizable income. By wisely setting aside income from every pay check he has built the retirement account that all Americans dream of and are advised to create. While perhaps a life in a different profession would have allowed him to be further prepared and allowed for a more luxurious life, he maximized his utility by loving his family and working with children and was willing to sacrifice as his daughter and teaching were worth the opportunity cost. Paul’s life is highly rational and I see it as a contrast with that of most Americans. However, his extreme pragmatism yields to one thing, his family, which he values of above all. That is why he is best represented by an image exemplifying the importance of family.