I recently saw a meme about a young woman who won $1m in a lottery and instead of opting to receive the lump sum, she opted to receive $1,000 per week for the rest of her life. It was tagged with the term “financial illiteracy”, and was dogpiled by people who thought she must be the stupidest person alive. I disagree.
[Quick note: sometimes these memes are wholly fabricated, too, but I think my thoughts are still valid, so hear me out]
The problem with money is that people often don’t zoom out to look at the bigger picture. I’ve probably heard dozens of friends repeat the tired and weak adage “renting is throwing money away”, but the phrase itself cleverly ignores the massive role of risk that’s inherent in a mortgage. These sorts of pithy statements are often repeated because they are conceptually simple, easy to grasp, and easy to repeat, but they do a terrible disservice to the complexity of the world. In other words, they don’t zoom out to look at the big picture.
Memes and political cartoons are a terrible way of arguing. They make a statement, but they never qualify what they are saying, which is a natural limitation of the medium. What the meme about the young lottery winner didn’t address was how taxes would have affect her earnings. Was she winning a clean $1m, or would it have looked more like $500k after taxes? Moreover, it said nothing about her own self-awareness, whether she was “good” with money or “bad”, notwithstanding the difficulties of those definitions.
Being in my mid-30s and having once managed to accumulate several hundred thousand dollars in the space of about 5 years (mostly following basic principles, but otherwise being slightly lucky), if I were to win a clean $1m, I know exactly what I would do with it, and it would be a combination of putting some in a large emergency savings account, and the rest in an index fund, with high certainty that this would pan out massively for me in the long run. But by this point in life, for a non-specialist, I also know a decent amount about taxes, the hidden cost of things, tradeoffs, time, withdrawal rates, and the tradeoffs of various investments. I also know that I’m not tempted to spend large sums of money. Earlier this year, I withdrew $18k from a 401k and put it in my bank, and it’s lasted me nearly 6 months. (I mean, sure, I bought a new phone, paid a chunk for one year of cybersecurity training, more or less had to buy new tires, etc., I’m not saying I don’t buy expensive things from time to time, but I don’t even know what I would buy first if I won the lottery: the acquisition of stuff is simply not my modus in life).
For that young woman, a guaranteed $4k per month for the rest of her life could be the best decision. She might not know anything about investments, she might be tempted to blow a large payout over several years, or she might have abusive parents or friends who would have siphoned the big payout away from her. We don’t know any of that from a stupid meme. But just because it’s not “optimal” in the eyes of the world, doesn’t mean it was a bad decision. If she completed her studies and got a job, she could even dump most or all of her job earnings into retirement and secure her future even further (insofar as you can “secure” your future at all). Life is not a series of numbers, and the person with the most money at the end of their life doesn’t get to take any of it with them. There’s also the risk of being seduced into marriage with somebody who planned all along to leave and take half with them. There are a million ways to be parted from your money. But if you are so fortunate as to win so much in the first place, why criticize the safe bet?
This is why I don’t like judging people’s finances. Yes, sometimes people make really stupid or ill-thought decisions with their money, but who hasn’t? Nobody is born into this world knowing everything, and while I otherwise really encourage people to think critically about money, life, and the future they want to live, hyper-optimizing is not some kind of virtue.