Ted Audio Collective Hi everyone you are listening to After Hours.
I'm Young Mi and I'm here again tonight with Mi here in Felix.
Hey guys. Hey, how are you?
I was meaning to ask you, are you ready for the holidays?
I think I am. You are?
What does that mean for you?
So our families are far.
So Lisa's family, my wife's family is in Los Angeles and my family is in Switzerland.
So this is one of these years where we go back to Switzerland to try and celebrate Christmas, which will be really nice.
And part of it is, you know, you have how you have these holiday traditions, things you remember from when you were a kid.
And they don't really make all that much sense now, but you still keep them until it's going to be really wonderful.
Oh, that'll be nice.
That's fantastic. What about you?
I'm never ready for the holidays, but I'm very excited.
We released recently this horribly commercial thing, which I absolutely love, which is Elf on the Shelf.
If you don't have kids who are younger, Elf on the Shelf is spectacular.
There's a movie that goes along with it.
You basically get a doll and then you hide the doll around the house.
And so every morning, the kids are running around trying to find Elf on the Shelf.
It's one of the kind of really crass commercializations of Christmas, which is spectacular.
That's what I love about Elf on the Shelf.
I have to say for myself, one of the nice things about the kids getting older is the older they get, the less commercial the holidays become for us.
Because it becomes so much less about gifts and just about where are we going to go?
What are we going to do?
Where are we going to be?
So I'm looking forward to it.
It should be great.
Both of you guys brought stuff in to talk about this week.
Me here. Yeah. So I thought we could think a little bit about student debt.
It's a huge issue. It's becoming a big political issue.
And there's a lot of misconceptions about it.
So I thought we should just kind of sort through what we think about student debt.
I'm not sure how to think about it.
Great. All right. And I have a topic that I am so curious to see what you think about this fire movement.
People retiring crazy early in their life.
You know, I'm 23 and retired that kind of thing.
Oh, that's an acronym, right?
Fire is an acronym.
So fire is a financial independence retire early.
I have read about this.
Oh, this will be fun.
Okay. I hope you're not telling us something, Feeler.
Yeah, so I thought we could think a little bit about student debt and for lots of reasons.
It also happens to be our business.
We're in the education business at least.
We'll try to put that on the table.
But it's getting really interesting.
So first, the numbers are getting staggering.
So it's about 1 .6 trillion dollars of student debt in this country in the United States.
People are calling it a financial time bomb.
Other people think it's not a problem at all.
So I'd love to get your thoughts about that.
Put that number into perspective, 1 .6 trillion dollars.
How does it compare to other kinds of debt that the household holds?
Now, if I'm not mistaken, Eclipse's credit card debt, which is really staggering when you come to think of it.
But it's also highly heterogeneous.
So for example, the average student debt is something like 32 ,000 dollars for people who hold student debt.
But the median is something more like 16 ,000, 17 ,000 dollars, which means there's some people with a way out on the table.
You have to do a real deal with 100K plus.
It's also highly heterogeneous in terms of who has it.
So people who went to for -profit colleges are much more likely to have it.
It disproportionately impacts African Americans and Hispanics.
So it's got a whole bunch of disproportionate impacts that are interesting.
On the other hand, there are people who claim we don't have enough student debt, which is a way of saying the premium to college education continues to rise.
So the returns to it are really quite large.
And for some people, the puzzle is why aren't more people taking on debt to go get those premium?
The second reason to talk about it is there's really these interesting policy things that are happening.
One, we started with income -based repayment about seven, eight years ago.
And that is a scheme for forgiveness.
And that's even more interesting because this U .S.
government has become the largest lender in the student loan market.
So that means I get a loan, but I already know I will never have to pay more than, say, 10 % of my income to repay the loans.
And that particular period, it can just be forgiven.
So that is a, I don't think, I know, I didn't understand it when it first came out, how transformational that is.
And the numbers are ballooning, which has given rise to proposals to curtail it, but also people who don't think it's generous enough.
And of course, now there are proposals to erase one -time amnesty for all student debt.
So I don't know, I think it's just a fascinating area.
And I want to know, first off, is this a big problem or is it being overly inflated?
And if it is, what do you think we should be doing about it?
I think that that just ground us a little bit in how we think about this issue.
If you and I talk about car prices, of course, we will never, ever, ever talk about sticker prices because everybody knows sticker prices are totally irrelevant in education.
We're mesmerized by sticker prices.
So there's these claims out there that the increase in the price of education is twice as fast as, say, even health.
And that all has to do with sticker prices.
So I give you two numbers that I find interesting.
For public two -year colleges, the sticker price now is $3 ,260 a year.
Average financial aid is $4 ,800.
So the net is negative.
For a public four -year college, it's close to $9 ,000 is tuition.
And about not quite $6 ,000 is financial aid.
So looking at the actual prices of education, the change is much less dramatic.
Having said this, as you pointed out, if it's a great investment opportunity, yes.
Let's create circumstances under which everybody has access to investment opportunities that are really promising for individuals and for society.
I think the conversation needs to be around what's the best way to do this, what's the part that the government needs to play, and what's the part that the private sector, private banks can do.
So what do you think about this amnesty issue?
Let's forgive all student debt.
So one is, it would be really expensive because it's a really big number, and it essentially goes to affluent people.
What I don't understand is how did this ever become a progressive idea?
This is just helping people who don't need to help.
Yes, if there is a fraction of people in trouble who need to help, I'm all in favor of helping.
But as a general proposition, it's a gigantic waste of resources.
And very regressive as you pointed out.
Very regressive. So I actually think it's not a crisis per se, but I do think there's a scandal lurking in these numbers.
And I think the scandal is hiding in the heterogeneity that you talked about.
And the scandal is not where people think it is.
So if you graduate from a four -year either public or private college and you end up with a degree and you have $60 ,000 in debt, the truth is if you look at the numbers around people who end up that way, they end up just fine.
And most of them pay off their debts.
They're totally okay.
They're totally fine.
There are a few outliers that the media likes to write about.
But that's not the problem.
The problem exists at the other end of the spectrum.
Ironically, the people who have less than $10 ,000 of debt that are going to these for -profit colleges with really poor outcomes, they are dropping out before they get any kind of degree.
These for -profit colleges are jacking up their tuitions in part because they know that anyone that they enroll can take out these federal loans.
And I think that's where the scandal is because you're seeing really predatory behavior in this one pocket of higher education.
And I mean, I was reading recently that students who enroll in for -profit institutions, half of the ones that take out debt end up defaulting.
Half. 50 % end up defaulting.
And these are - But do they earn their degrees?
They do not earn their degrees.
Yeah, they do not. That's a big issue.
That is a huge issue.
They don't earn their degrees.
But in addition, a lot of the instruction is terrible.
In fact, if you look at the business models of some of these for -profit schools, they spend more money on marketing than they do on instruction.
By far. And so you have these business models where they're essentially jacking up tuition because they know that anyone that they recruit can - Easy access to credit.
Easy access to federal taxpayer money.
Yeah. And then who's stuck with the burden.
Yeah. And then if you look at who enrolls in for -profit institutions, these are the most vulnerable of the - So they are non -traditional students.
They're from low socioeconomic backgrounds.
Yeah. I feel it is scandalous.
But let me, I want to agree and disagree a little bit.
So I totally agree that there's so much action in the for -profit side.
I totally get that and agree.
And that's why I like the Obama administration's focus on the for -profit industry as opposed to a blanket kind of a story.
So just to back up though, so what Obama did is he began to put constraints and cut off federal aid that went to schools that had poor records.
That had poor records.
But all of that has been rolled back.
Has been rolled back.
Good to Trump. And I think that is the right way to go in many, many ways.
Having said all that, I think we would be remiss if we did not admit that even in the not -for -profit space, there's bad behavior.
Yes. And the results on the returns to college education are on average and there's a lot of heterogeneity and there are people who are really hurting from having taken out loans to pursue education that has not paid off for them in the not -for -profit space.
I'm not saying we're as guilty as for -profit, but I think we have to understand that there are a lot of students who are coming out of elite institutions, non elite institutions that are finding life with the degrees.
They have very difficult and that's a real problem and it's our problem.
But okay, but what I will say is that the heterogeneity you see in that segment is not random heterogeneity.
In other words, even there, you can identify the pocket.
So for example, one of the things that's really exploded among universities are master's programs.
Master's programs are complete cash cow for universities and some of these master's degree programs have a pretty good track record for accelerating careers, but some of them are just absolutely abysmal, but not just abysmal but predictably abysmal.
Yeah, so this is non -random pockets of the education space.
So here's my question for both of you then, is a solution having the federal government be much, much more stringent about who they hand this debt out to in other words, right now they really are pretty indiscriminate if you want to get a federal loan and you're financially eligible.
They'll just give it to you.
You could imagine a scenario where there's just much more accountability and they need to know what program you're enrolling in and they need to see the track record of that particular degree program and only when they see that are they willing to give you that loan.
My question is, would that level of accountability make things better?
So if I had to design a system, I would design it with pretty liberal participation of private banks.
Yeah, and I think where the private banks come in and where they would actually do a good job is exactly what you described.
You know, looking at the kinds of programs, what is the likelihood that you can actually afford this kind of education and then I think I would think about where is it that the private sector falls short?
So for instance, we know that banks willingness to lend varies dramatically with the business cycle.
You know, in the middle of a recession, there's not going to be loans that makes no sense to have educational loans dry up during a recession because, you know, if you happen to be born at the wrong time, you're going to go through college years during a recession.
So there is a role for the federal government.
There is to step in when market forces are to know our failure.
So another example are people who want to pursue degrees in social work, for example, or something where you know, the financial outcomes are not going to be great.
Law school and public sector.
Yeah, but isn't the better way to do that then on tuition assistance?
So I mean, I think the difficulty about all this is that it kind of goes to our ideas of debt right and like forgiving debt and making it something that goes away.
Like why don't we just do tuition assistance a lot more?
I think they don't do it because in the event that you change your mind, so you say I'm going to go to law school and I want to be a public defender.
Well, what if you change your mind and you do something really lucrative.
They can't claw back the money from you, right?
I was thinking about the social work pieces, right?
So those pieces, I think they can work.
Yeah, I don't think any of the current solutions, I don't believe in loan forgiveness on a mass scale for exactly the reason you said Felix, it's massively regressive.
Even income based repayment is kind of problematic in many ways.
Yeah. But I still basically think the bigger problem is the returns to college education are really high and we want more people to get those returns and borrowing enables that and that should be and is in fact a fantastic thing.
Well, the returns to higher education in some pockets.
In some pockets, sorry you're absolutely right.
Before we go, I just want to make sure we all put our cards on the table.
Did you all graduate with a lot of debt?
Oh, yeah. I did too.
I did not. You did not.
European Public University.
There you go. Did it make you make better choices, worse choices or didn't have an impact?
I don't think it had an impact.
I mean, I just viewed it as a tax on my paycheck for years and years and I do remember that day when I thought I'm going to pay this thing off and I remember writing that last check and thinking did you feel bitter about it or did you feel like an investment?
Those were simpler times.
So I felt like it really did feel like it was a gift.
I'm like I'm a child of immigrants.
So you know, my whole life has been a gift in many ways and so I felt like it was a gift.
Yeah, I didn't have any resentment at all.
What about you? I had a lot of debt.
I didn't have resentment and oddly, I feel like it had somewhat of a positive effect.
You know, meaning well, I think there's something to constraints in life, right and they are powerful because they can shape your behavior in positive ways.
They make you think about the world in a more focused way.
It made me make more pragmatic choices and I think maybe that was good.
This is a great segue to our next topic.
Holy plan. Okay, Felix, you have.
I have a super interesting topic you probably read about this.
So there's what's now called a fire movement.
Fire stands for financial independence or retire early and is all these stories about, you know, some kid late 20s.
Apparently enough financial means to retire and so the basic intuition is actually quite straightforward.
The advice that they give is save a large fraction of your income sometimes as much as 50 % early on in your life and then within just an astonishingly short period of time, you will have the financial means to what they call retire, but it's not retirement in the sense that you're not going to do any
work for the rest of your life.
It's just you're financially independent and I want to read you a short passage from one of the blogs that advocates this lifestyle.
The blog is called Mr.
Money Mustache. No idea where the name comes from.
But this person says, okay, so imagine two people, two person household, you have $50 ,000 in take -home pay.
If you save 10 % of that income, it will take you to get to that point where you don't have to worry about money.
You are on track to having to work for 51 years, but simply cutting cable TV and a few lattes would instantly boost their savings to 15 % allowing them to retire eight years earlier.
Are cable TV and Starbucks worth having two income earners each work an extra eight years?
And then if you do this even more extreme, if you say 50 % of your income, you start working at 23, you're done by 40.
I think in America, the average savings rate is 3%.
Is it something else?
Well it's highly heterogeneous and it's negative for many people.
I mean, most Americans don't have any savings.
Yeah, okay. That's actually what I love about this movement.
Actually, my first reaction Felix was this is crazy and it's extreme and I don't like extreme things.
My second reaction was underneath it all, they're saying save more and that's a great message for the vast majority of people.
And so if you boil it down to that, that is a good message.
The irresponsible part about this message comes from this idea that 50 % is the number, you know, buried in there is a really really important assumption, which is you're able to get like a 5 % return forever for the rest of your life.
Okay, so this idea that you can like lock in a 5 % real rate of return forever, that's kind of irresponsible and that should It's historically been true though, right?
Well, but there's a lot of volatility to it.
So I think when you boil it down, I love the message, which is frugality is important and we've lost that thread.
On the other hand, there's this irresponsible piece which is they don't talk about rates of return enough and they don't talk about insurance enough.
What's your sense young me so unlike me here, I love extreme things.
So I like it. I do like it with the caveats that you described, but here's what I would say.
Number one, I think it's bewildering how contemptuous financial experts are of this.
Like the stories I've read about this always has some counter -quote from some financial expert, you know, and they just go after this like this is evil or something.
Yeah, that's terrible.
Here's what I like about it.
We've always had conspicuous consumption, like ridiculous conspicuous consumption and we need a counterbalance to that and the counterbalance should also be extremely ridiculous in some ways and this is sort of conspicuous parsimony, conspicuous frugality, conspicuous at the other end.
So the first thing I'll say is that the second thing is is every market force right now pushes us toward more consumption like every market force and our obsession with productivity and GDP is more and more and more.
And then on top of that, so much of our consumption activity, we talked about this when we did the episode on retail, has become completely frictionless like buy something without even stopping the register, push a button, things come and as a result, all of our consumption has become so easy.
It's thoughtless. It's impulsive.
You don't have to put any energy or thought into it.
What this does, it forces you to think, do I really need that cup of coffee?
Do I really need, you know, and I think imposing that kind of constraint, these things have got to be healthy, right?
Well, I mean one of the really powerful metrics I think here is what does additional consumption, additional spending imply for the number of years you have to work?
You know how when you retire early before you reach retirement age, financially speaking, because you miss out on Social Security, it's super expensive, and yet the vast majority of Americans retire early.
And so that says there's in our collective imagination, there's something extra special.
In a way, they make it sound like all, Oh, it's all about frugality.
But in a way, it's like that most precious of things.
Time, a life without financial pressures, I get to do what I really want to do.
And the part that I like, you know, five percent yes or no, what I like is they've now translated this into a metric.
So there's literally an Excel spreadsheet where you say, if I save an extra $200 a month, that will allow me to retire by this many years earlier.
I think that is super powerful.
I think it's marketing genius.
Yeah. The only thing about that Felix, and this is I think what fire movement gets wrong in a way.
And this is going to sound entitled.
So I'm just going to start off by saying that, which is I think it understates the value of work.
So I think work is very meaningful and we get a lot of rewards from our jobs aside from money.
But I think people systematically underestimate how important work is of any kind.
Well, okay, this is where it might be entitled, but I think even there, young me, there is evidence about happiness post retirement that would suggest that people who have activities and work that is meaningful of any kind are happier.
Yeah, but you could fill your life even though you've retired with work.
That's meaningful, right?
That's true. I guess the part in which the first part of the acronym is actually much more important than the retired.
All it says is if you're stuck in a job or if you get, you know, how we read all of these stories, how people get treated at work.
We think, oh my God, why would you put up with that?
And the answer is, of course, financial pressures.
So imagine a life in which it's literally true for every single day that you get up and you go to work because you want to be there.
Yeah, nothing to do with the underlying economics.
That's pretty spectacular.
Yeah, to me, what's revealing about our culture is, you know, as I said earlier, the amount of annoyance this provokes and people and I was thinking, you know, in some ways, this is the ultimate form of rebellion.
You know, if you think of rebellion as doing something that is counter cultural, like our entire culture is geared toward us valuing consumption, productivity work.
And so when someone opts out of that, it just feels super offensive for reasons we can't quite imagine what it would mean for management.
Suppose you run a company and you know that the moment people have some really unpleasant, deeply offensive interaction, they're not going to show up tomorrow.
That would be like it would be completely different than that.
I think in a way, the way most people think about consumption is they consume what they want and then the residual is savings, right?
So you consume, consume and then whatever is left you put in the bank.
This is like the flipping of that.
Yeah, that's so cool, right?
Which is 20 % savings or whatever the number is.
Yeah, and then you consume what's left.
Yeah, and it flips the kind of typical consumption decision -making and that to me is really very powerful, which is not just savings as a residual, but savings as the primary thing and that's really interesting.
And the statistics, I don't know how reliable they are, but to at least interesting claims.
So they would say that say you go close to the median income somewhere $60 ,000.
You'd be completely surprised about how many households still live paycheck to paycheck at that level of income.
Yeah, I think it would be great if every household had in their head what their number was.
If you just thought about it.
You know, we're a 20 % household, you say 20 % of our income or we're 50 % or we're 3 % household, but at least having a conscious awareness of what that number is and having that being part of your financial planning.
And the interesting thing when you use the word number because the way most people use that phrase young me is I need X million dollars to retire is that's my number, but I think you have it exactly right.
The number that people should be focused on is are we a 20 % family?
Can we is 20 % the right number for us?
That's the number discussion.
People should be having.
It's like the sleep number.
Yeah, it's like the sleep number.
How much sleep do you get exactly?
Yeah, I'm not going to ask you guys what your number is.
Okay, pigs. Did you guys bring in pigs?
So I had the occasion to be in Bentonville, Arkansas, and I stayed at a hotel that's called 21c.
It's a new line of boutique hotels that I think is really distinctive.
They basically take the hotels and they make them into museums of contemporary art.
So this contemporary art everywhere inside the museum and it's fantastic.
Wow, you know because hotels are so boring.
Yeah, and they're so generic.
This is like a really interesting idea and so they have like literally in the lobby is scattered and on floors you see contemporary art everywhere and they kind of figure out the recipe for a great hotel, which is A, they have a great restaurant with regional cuisine.
That's fantastic. And then to it's interesting to be inside the hotel like it's fun and interesting.
So it's called Hotel 21c and it's a chain and they are in some really weird cities like they're in Bentonville and Des Moines.
I love that too. Yeah, and they're going to Miami.
That's another part of the strategy, which I think is totally fascinating and it's run by a guy who's basically has an amazing collection, but he's kind of creating this business concept in the hotel industry and he's doing something really novel.
So Hotel 21c is my recommendation.
Excellent. Perfect.
I'm going to go next.
I have a book. It's a children's book.
Okay. Actually, it's a cross between children's and YA young adults.
I have to tell you some of the most really some of the most gorgeous writing is in this genre.
The book is called the truth as told by Mason but all and it's by Leslie Connor and one of the reasons I love reading books that are written for young people is that you know how when you're young your world is very small and then you get to be our age and we're thinking about the world and all this stuff
and then you get old and your world drinks again.
This is an opportunity to go into a small world and just really immerse yourself.
And by the way, this book was a 2018 National Book Award finalist.
So it's about a kid who is learning disabled and he's the sweetest most earnest good kid you can imagine.
And he suffers a tragedy and that is his best friend.
His only friend dies tragically and what he does not know is that he is a prime suspect in this kid's death.
And you know it as the reader and the book is told through his eyes and you can tell by the things that he's experiencing what's happening, but he doesn't know this and it's so beautiful.
It's so moving. I was absolutely transported.
It's a kind of book you can read in one sitting so I highly recommend it.
That's great. Okay.
Felix. I have something for it's mostly meant for young people but I think it should be on everybody's phone.
It's an app called TikTok.
Do you have TikTok on your on your phone?
Oh, you've been spending time in Asia.
Yes, so it's remarkable for two reasons.
So basically, let me first explain what it is.
So the app essentially allows you to upload video to some sound background typically a pop song or some some and you lip -sync and it's super short for copyright reasons mostly.
So it's just like 15 seconds, but now they mimic or they play out scenes against any sort of sound you can possibly imagine.
So this morning actually I heard something really hilarious.
It was this maybe 12 13 year old girl and she had a dialogue of two men talking about the fact that one of them was drinking beer, even though it was only 11 in the morning.
It's like, how come you drink beer at 11 in the morning and you see the girl who sort of acts out the scene and she because it's all lip -sync do you actually have a sense that this is her voice if you want to see young people at their creative best TikTok is your place really fantastic in Asia.
Is it here? It's huge in it.
So the other thing why it's remarkable.
I think at least to my knowledge, it is the first time that a Chinese app has really become a global brand and musically they bought musically at about a billion dollars or so, they're locked into a legal fight with Tencent because Tencent is afraid that this is the one thing that might might break the hold
of WeChat on everybody who is young, but I think for you know more sort of from a voyeuristic point of view is like just like just spend like 10 minutes and see what people do.
It is amazing and young me just to be clear this comes from the guy who is too busy to have Twitter.
He's spending all this time on TikTok.
It's so much better than Twitter.
I agree. I agree with you.
It sounds better. It sounds better.
Okay, that's it for tonight.
Thanks everyone for listening.
This is After Hours.
