FREE NEWSLETTER
HOW WE THINK ABOUT money affects almost every aspect of our lives. All the landmark decisions we make have a thread of money influence running through them. I’m talking about college, career, marriage, kids, the people and places we associate with—even how we spend our time. If we don’t make these decisions intentionally, we’ll drift downstream, carried by the current of the most popular money management ideas.
That brings me to a study recently published by the Journal of Retirement and entitled, “The Life-Cycle Model Implies that Most Young People Should Not Save for Retirement.” The life-cycle model refers to an economic theory devised by Nobel Prize winner Franco Modigliani and Richard Brumberg in the 1950s. It essentially says that people want to always be able to spend enough to keep up their lifestyle. In other words, we don’t want our spending level—whatever it is—to ever take a sharp dip.
The Journal study assumes this approach is the benchmark for rational behavior. It then factors in a premium to account for the contention that people value consumption more during their younger years.
Accepting this perspective, the researchers discuss a few more supporting economic assumptions and assert that people in their 20s shouldn’t save for retirement, but rather spend every dollar they make and then some. According to this theory, to enjoy a higher rate of consumption in their 20s, people are better off waiting to begin saving for retirement until they’re middle-aged—when presumably they have more income.
Four questions immediately come to mind: How can you justify sacrificing that many years of compounding? Aren’t you giving up compensation if you don’t contribute enough to your employer’s retirement plan to get the full match? What about the risk that your income won’t grow in the future as expected? Will the non-saving habits practiced in the formative years of adulthood become too entrenched to reverse?
Bottom line: I don’t think the study offers good advice. I could devote the rest of this article to rebutting its recommendations by drawing on core tenets of personal finance. But I’m not going to do that because I think there’s a better question to ask. We tend to overlook it because we’re too busy analyzing the merits of this strategy or that.
Here’s the real question: What’s the best plan for living?
I’m challenging not only the above unorthodox research, but also conventional personal finance wisdom. Both accept the same basic financial framework without so much as a second thought. I’m asking: Do I really want to plan my life around satisfying my desires for earning, spending and accumulating money? Or is there a better plan?
To help further clarify the question, let’s go back and look at the Journal of Retirement study from the beginning. The first sentence of its abstract states, “Retirement policy is often predicated on the belief that more saving is always better, at least at the margin.” The purpose of the study is to challenge whether this is true—a worthwhile inquiry. But its whole effort to respond is predicated on the decision to hold up the life-cycle model of consumption as the benchmark for rational behavior.
I’m saying: Don’t gloss over that big assumption. It’s the most important variable of the whole equation. If it’s true that we don’t need to save as much as we’re often told, can we leverage that freedom for something other than extra spending?
Our relationship with money is more than just technical. It’s also spiritual, emotional and psychological. The four sides are inseparable. Because we typically deal with the technical side when we discuss money, we risk ignoring everything else.
Can you name the person who’s had the greatest influence on your financial thinking? Likely it’s someone who has spoken from a technical point of view—an important matter no doubt. But what if I asked you who’s had the greatest influence on the spiritual, emotional and psychological sides of your financial thinking?
My contention: This question warrants even more careful consideration. The technical aspect is valuable, but it’s the spiritual, emotional and psychological parts of our relationship with money that eventually exert more influence on our lives.
I am a follower of Jesus, and one of my most consistent prayers is that my thinking—all of it, including financial thinking—would be pleasing to Jesus, and would resemble how He would think if He were living my life here today. I study the Bible to better understand what that looks like.
Jesus’s idea of what’s important differs from the world’s conventional wisdom. He says there’s a new kind of life available—a better plan for living. I write about this in my book How to Love Money: Four Paradoxes that Breathe Life Into Your Finances. If you’d like to read it, you can download it at no cost from my website.
When I reflect on my life, I see a constant tension. How much will I let my desire for money influence my life plan? I’m not saying that spending is always bad and that choosing to do without is always good. By nature, my wife Sarah and I are both pretty frugal, and we recognize that we could probably benefit from being more extravagant at times.
At the same time, I can confidently look back on a handful of key decisions we’ve made over a three-year span that set the tone for our family for years to come. All went against the grain of conventional money wisdom. We both made career moves that left money on the table, while continuing to give to our church and a few favorite charities from line one of our budget, rather than from the leftovers. These decisions led to a season of earning less income, saving less for retirement and giving away a greater percentage of our income. As a result, our spending took a dip. But I can tell you: We couldn’t be happier with the outcome.
It’s hard to capture with words the sense of joy and empowerment that comes from knowing that we don’t need nearly as much money and material possessions as we’re typically told. Choosing to have less felt counterintuitive to the natural desire to always earn more, spend more and accumulate more. We were able to opt for less only because we had a conviction that there’s a better plan for living.
Matt Christopher White is a CPA and CFP® who writes about money and apprenticeship to Jesus. He’s the author of “How to Love Money: Four Paradoxes that Breathe Life into Your Finances,” available at MattChristopherWhite.com. Matt is equally comfortable talking about Luke 6:43, Section 643 of the Internal Revenue Code and the 6-4-3 double play. There’s no place he’d rather be than with Sarah and their two girls, Lydia and Eliza, at their home in the foothills of the Smoky Mountains. Follow Matt on Twitter @WriteMattWhite and check out his earlier articles.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Consuming less and philanthropy are wonderful, honorable goals, no argument there. But the HUGE elephant in the room your article and others don’t address is the important security that money buys.
Setting aside one’s belief in Jesus and/or afterlife, this can be a cruel, cold world. If you don’t have or can’t count on family members with the skills, temperment and willingness to be a strong legal, medical or care advocate for you, it takes a LOT of money to protect yourself – or risk neglect and abuse at the hands of others should you age poorly or be hit with a devastating mental or physical challenge.
From daily help with so many tasks to safe medical care, it takes $$$ to buy elder care managers, home health support, legal trustee guidance/responsibility and the help of other professionals who can monitor your safety and ensure you’re being treated humanely.
Thanks for reading and commenting, CJ. This is a great conversation, and I know I can’t do it justice in the comments section, but I wanted to share a couple thoughts. In the context of the argument I’m making in the article, I view consuming less and philanthropy not as goals in themselves but as a natural outflow of a new kind of life. If you read the 4 gospels—Matthew, Mark, Luke & John—you’ll see Jesus use the term the kingdom of God or the kingdom of the heavens. He says the good news He came to bring is that this new kind of life is available now—because of Him, through Him. It’s not something that has to wait for the afterlife. It’s a matter of the heart, so when it comes to money, there’s no bright-line mark for spending or saving levels. As you mention, there’s a need for prudent financial preparation, but I do view the type of security it provides as limited.
Most in their 20’s don’t have enough to save very much. It’s great you live your life based on your following of Jesus. Unfortunately, in my opinion, the last 6 years have dampened the ‘what would Jesus do’ because of how religious institutions and their leaders (especially evangelicals), accepted and made excuses for Trump’s misdeeds, in the name of Jesus. How many times did we hear “we all make mistakes, and Jesus forgives’. Sounds like excuses to me, because as long as they got political policies they liked, they accepted his immoral ways. I do not think that is what Jesus would do. And now that he has lot his political powers, based on the losses by his supported candidates, and he can no longer be of any use to them, the Evangelicals are speaking out against him and not supporting him. Really? Again, just my opinion.
Matt, thanks for the thoughtful article. It is easy to be carried along with the flow of our culture and not pause on reflect on questions which should be central to life. More isn’t always better. And it is more blessed to give than receive.
You’re welcome, Kevin. Thanks for reading and commenting.
Not to mention that excessive consumption has enormous environmental impacts. Toxic pollution causes cancer and many more health problems.
I am 74 years old and the confluence of age and Covid have made clear the error of my ways in not traveling more when I was younger. Of course, I had no money, was married with a small child, paying for a house and struggling to build a career. Perhaps worse, I was building a career in the investment industry and was regularly telling clients to spend less and save more. I followed my own advice, saved diligently, retired comfortably and began to realize some of our delayed travel dreams. 2019 brought an end to these plans and now, a few more years of age make clear the limits of our future ability to travel. I am disappointed, but were I able to go back in time and advise my younger self, I’m not sure what would change. Traveling when you are younger would be wonderful, but it requires both time and resources which most of us don’t accumulate until later in life.
I feel that dilemma too. I’ve also been deterred from traveling much during child rearing years.
I agree in theory that spending more in younger years is a better use of money then saving because budgets are so tight that $20 to a 20 something is a lot different that $20 at 50. It goes a lot further for the younger person. In theory. Where this breaks down is human factors. Most 20 somethings won’t optimize the funds they spend vs. save for enhanced enjoyment, probaby just fritter it away. So they would be better off saving. Similar to the Dave Ramsey recommendion to pay of small debt first, even if it is at a lower interest rate. I do agree that many over save and should spend more to enhance life currently rather than accumulate a huge sume in retirement, which for many, they will not spend. They will then hand it over to their aged 50+ children, who by then, don’t need it. Make memories, enhance life now!
Yeah, I think there is something to that. I hope to see more research challenging the common, blanket encouragement to always save more for retirement.
I’ve never ascribed to the concept that incremental spending increases incremental happiness. That’s a foundational view for most people but in my experience my mega-rich friends are no happier than my median income friends. As they say, money can’t buy love. And that’s OK because God doesn’t charge us for His love.