Big Houses Are A Form of Saving

Moneybox
A blog about business and economics.
April 4 2013 2:20 PM

Big Houses Are A Form of Saving

Megan McArdle wants people to save more money and invest it wisely—in mutual funds. Then she moves on to a bit of scolding:

Oh, I know what you're going to say: 15% is a lot of money!  Wildly impractical for an average family!  Impossible!  And if your little family of 4 is living on $35,000 a year, I'm sympathetic.  
But most of my readers aren't.  You guys have enough money to save, which I can scientifically prove because your grandparents almost certainly lived on a small fraction of what you now do. And don't tell me things were cheaper, back in the good old days: in almost all cases their houses were smaller, less well heated, and entirely un-air-conditioned; their entertainment budgets were much leaner; their groceries heavier on the cheap and utilitarian and lighter on the tasty and expensive.  They literally had about a quarter as many clothes as the ones bursting out of your closet. Their health care was cheaper because it sucked and they died quicker.
Advertisement

There's a lot of truth to that. But it's also worth saying that aquiring large houses and filling them with durable goods is a form of saving. After all, if you find yourself needing money you can always sell the house and move into someplace smaller. In principle, having the house that you live in be one of your largest investments is a pretty terrible idea. But in the real world, very few people manage to engage in anything remotely resembling an optimal savings strategy. The American culture of homeownership has a lot of problems with it, but it does function as one of the more psychologically tractable means of precommitting yourself to saving money.

Loosely related, whenever I look at the trend in the personal savings rate I wonder to what extent the low inflation environment of the "Great Moderation" played a role. If people suffer from money illusion (which they do) then a low interest rate environment is going to make interest rates look lower than they really are, and perhaps discourage saving and encourage borrowing.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Culturebox

The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers

Education

Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
  Business
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
  Life
Gentleman Scholar
Oct. 22 2014 5:54 PM May I Offer to Sharpen My Friends’ Knives? Or would that be rude?
  Double X
The XX Factor
Oct. 22 2014 4:27 PM Three Ways Your Text Messages Change After You Get Married
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
  Arts
Culturebox
Oct. 22 2014 11:54 PM The Actual World “Mount Thoreau” and the naming of things in the wilderness.
  Technology
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Wild Things
Oct. 22 2014 2:42 PM Orcas, Via Drone, for the First Time Ever
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.