When I have advised
in previous columns
that people in their 20s shouldn't worry about saving money, I'm flooded with hate mail, some of it pretty nasty, some of it well reasoned. After upbraiding me for failing to understand "the magic of compound interest," the point most people make is that people need to save in order to prepare for the worst.
What happens if your car breaks down and you need money to get it running again? What happens if you lose your job and need to support yourself? What happens if you get arrested and need to bail yourself out of jail?
If you get in trouble and need to bail yourself out, the last thing you want is to spend your own money. The best way to avoid that is to make sure you can't afford to fix whatever the problem is. Young people are better positioned to pass off the cost of emergencies than any other group.
I'm sure some of you are saying, "Here he goes again, another facetious column about why you should behave irresponsibly, and this one probably won't even make
Page Six of the
New York Post
I assure you, I'm not kidding.
It doesn't make sense to save money in preparation for problems that you may not have to pay for yourself. The person who puts money away for emergencies is giving up opportunities for free money.
Want more? Check out TheStreet.com TV video. Cliff Mason tells Farnoosh Torabi why an emergency savings account does you no good in your 20s.
Everyone has a safety net. You have friends, you have family, you have the state and if all else fails, you have your credit card company. When you were really young, your parents took care of everything. It's probably unreasonable to expect them to do the same once you get out of college, but if you're lucky enough to have parents who will cover all your expenses, you're being irrational if you don't let them.
I'm not suggesting you rely on Mom and Dad to support you, but if you do have some kind of emergency that requires money, let them step up to the plate.
Every financial hardship is an opportunity -- an opportunity for your parents to show you how much they love you. Nobody's going to label you a parasite if you ask for help when you're in trouble -- that's the beauty of it.
Whenever I'm told to put money in my 401(k) plan, the main reason is that the matching funds most employers provide amounts to free dough. How come no one ever makes that argument for handouts from your family?
My friend Dan is a master of this. He was on the debate team at Harvard -- in fact at one point he was the captain (ladies, take a number) -- and he was always traveling all over the country to debating tournaments. Without fail, he would mysteriously run out of cash every time he was a 1,000 miles away from school, and his parents would happily wire him hundreds of dollars every time.
Once when he was at school, he got dehydrated and started developing a distended stomach; even though he had health insurance, he used it as an excuse to ask his parents for more than $1,000. They obliged, demonstrating they're great people who care about their kids.
You don't have to tap your parents if you get into trouble. I don't know many people who would ask their parents for bail money or lawyer's fees, but then again I don't know many people who ever needed to get bailed out of the can. That said, it's probably a situation where you'd want to ask a friend first. Not everyone will have friends who are wealthy enough, or gullible enough, to get you out of trouble, but you shouldn't be afraid to ask. My friend Luke has pulled this stunt with me several times, and I always cave, illustrating what a terrific friend and great guy I am.
Lose your job? We've got a tight labor market, so you probably won't be unemployed for too long, but you need to recognize that you've got a great opportunity to swallow your pride and start collecting unemployment benefits. You can get half your salary, up to some maximum amount. In New York, it's $405 dollars a week for six months. Think of your period of unemployment as a really long, really awesome paid vacation.
Suppose all this fails: Your parents hate you, your friends are broke and the state can't find it in its cold heart to give you a hand. Then wouldn't it be a good idea to have some money set aside?
I still don't think so.
The chances are slim that you'll have no safety net whatsoever, and in the unlikely event that you do find yourself in this situation, your credit card company will be happy to bail you out. Yes, credit card companies are the Great Satan. Yes, they'll gouge you on the interest. Yes, this would be a really sub-optimal place to be.
But there are few emergencies a credit card can't deal with, and at the end of the day, you might prefer paying off some extra credit card debt for a few months to always being prepared for the worst.