People walk past a store window, take a look at the hot new gizmos and gadgets on offer - iPads, laptops, gaming consoles and such - and all they see when they wonder if they can afford one of those, is the sticker on the device that has their fancy. An iPad starts at $500; and that's all anyone thinks about when they look at the product. Sometimes, if they feel particularly responsible, they could think about the hundreds of dollars worth of apps that they'll buy and add that to the cost of the iPad. But there's a lot more to buying gizmos and gadgets than just that. They don't count the value of the money whose use they forgo. The thing is, that people don't actually calculate what that money is worth to them. If they did do that, they wouldn't believe how much it worked out to.
Consider that you are willing to spend $500 on an iPad2. In a moment of lucidity, you decide that you will forgo the iPad2 and also the $500. You tell yourself that you will invest it instead. Invest $500 in the stock market for 25 years - which is when you will probably be retiring - and at a conservative rate of return, you can probably expect to see $2500 then. What would you like? A toy that will probably last you a couple of years today or $2500 on the day you retire? You could actually do that for every single thing you spend money on. Are you thinking of buying a new suit for $1000 just for the heck of it? Invest that, and you'll probably see $5000 in your kitty the day you retire. Even $75 for lunch at a fairly nice restaurant can add up to something pretty substantial if you put it away in an investment fund for that long. And this isn't just an unconventional view from some crackpot personal financial planner. It comes from Warren Buffett.
Piously tell anyone how their fancy gizmos and gadgets, their cars, their clothes, their trips out, actually cost them five times what they spend on them, and you really can't expect that they will clap their hands in wonder and congratulate you on your farsighted planning. They'll react with hostility and wonder how you can be so miserly thinking 20 or 30 years in advance for every little thing that you reach into your wallet for.
The truth is though, that the makers of gizmos and gadgets like the iPad, depend on us to just do exactly what is bad for us. They expect we will take one look at their fancy shiny slabs of glass and be drawn to them like moths to a flame. And we are. We just don't get it - we just don't have enough money to live our whole lives the way we are living now. We're way short of money. Almost 80% of America's retirees are chronically short of retirement funds. A retiree doesn't have any income; whatever you earn today is what is going to keep you alive for the 20 or 30 years that you live past retirement. You aren't earning for today. You are earning for today and the 30 years you will live without an income. It might seem strange that well-educated, well-placed citizens of the world's richest country should have to hold themselves back from simple pleasures like these. Whether or not it makes sense to look at it, this is for real. And the sooner we realize it, the better.
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