X marks the spot


10 July, 2016

Making Changes 402 (value according to my Dad)

This one is dedicated to my dad's wisdom

Let us imagine a typical boomer retiree. He saved 50 currency units 40 years ago. With the expected compounding interest of 7.2% this financial asset is now 'worth' 800 units but who to?

Generation X and Y now live in a world of zero interest rates. Why would we exchange currency units for a financial asset with no expectations of compounded growth? My government forces us to "put money into our pensions" at 2% of income. The joke is that we earn less than the boomers. We have zero expectations of the asset doubling in value each decade. The joke is on any boomer valuing their financial assets at par.

As my dad's says, ' it is only worth what someone is willing to pay for it.'

Disposable income is tight on a millennial, expect around 100 currency units, not the 800 your government approved financial adviser will be legally bound to tell you.

So, where has the wealth gone? Well, CPI inflation has taken whatever the government failed to spend. The boomers can take comfort in the fact that their illusion of wealth is still believed, for the moment.