Gen Z Investor: The AI economy is TRAPPING young investors!

So, there's, you know, there's a lot of talk, especially in Silicon Valley, about the permanent underclass these days. I actually think you should enjoy it while you're there. I think the underclass can be a lot of fun. Um, so that's half in jest. But yeah, I think a lot of particularly young people are super, super, super stressed about not having enough money or status yet. And I take the flip side of that, where there's actually a lot of fun stuff you can do and a lot of fun opportunities you have when you're what I would call like pre-rich and pre-status, where you know you're living with your roommates, you're not making that much money yet, you can have a basically unlimited fun for $100 in New York or San Francisco or LA or whatever. Um, it's actually very okay to spend money on the fun things when you're young and you shouldn't feel bad about that is kind of my take there. You know, there's a whole subset of fun life experiences that 25-year-old you can have that you can't have later. So, you shouldn't feel ashamed for actually wanting to lean into that.

So, I think I'm almost positive Nikita Bier, former head of product at Twitter or formerly known as Twitter X, the everything app, a couple years ago he tweeted, he was commenting to somebody else and I think it was a little bit sarcastic, but he basically said every year of your 20s you should value at $10 million, basically meaning you shouldn't sell your time in that period for anything less than that. I think 10 million is a little bit high, but I think the direction of you should really value your time as a premium when you're young because you have max optionality, you're healthy, you don't have many responsibilities, and you can basically do anything. So putting yourself in life circumstances that remove that optionality for any number less than a really big number probably doesn't make sense. So yeah, I mean, my whole life philosophy and frankly book philosophy is like you can have a lot more life enjoyment or utility for a smaller amount of money when you're young, and the amount of money it takes to get that same level of enjoyment only goes up as you get older. So, it's okay to spend that marginal amount of money on cheap thrills because you're probably going to be glad you did 30 years later.

That's true. And I think that makes total sense. Um, but at the same time, a thousand bucks put away per month or every quarter, you could probably make more utility of it as a young person just to spend it on, you know, frankly, random stuff.

So, well, all of that is true, but also I think overfixating on, again, this is going to sound... I was on Scott Galloway's show a couple of weeks ago, and I made a comment about this where people in the comments section were basically saying I was out of touch, but I actually think there's way too much focus from like personal finance gurus on optimizing your downside, like how much should you contribute to retirement, all this stuff. Like yes, you should contribute to retirement and you should take if your company has a 401k match, you're leaving free money on the table by not at least contributing enough to get that. Like I am all in on that. But I actually think the solution to most personal finance problems is figuring out how to make more money and then doing that. Whether it's aligning yourself on a career path, whether it's especially when you're young, you have a lot of free time. So, you know, my take is not go full hedonism and just get drunk all the time and blow all your cash. You shouldn't feel bad about spending money, but you have a lot of excess free time where you can work on side things that generate money, too.

And I think about it like this, like there's a certain amount of like spending money where you get more and more enjoyment and then it flattens off, but you can keep making more money well past that point where you shouldn't cut off your... like let's say spending $50,000 a year gives you this much enjoyment. Spending $100,000 gives you this much and 200,000 gives you this much where like it starts declining. If you're making 50,000, you get 50,000 enjoyment, they net out. But if you can get your income up to 100, 200, 300K, you can maintain your peak level of life enjoyment while increasing your savings rate by increasing income. So my actual like financial advice is both don't cut out things that you want to do when you're 25 because you're worried about not saving enough, but if you are worried about that, there's actually only so many costs you can cut. Like at some point you have to pay rent, you have to pay for food, and you should spend money on some things that you find enjoyable, desirable. So, the math gets much easier if you can increase income than it does if you can keep cutting cost.

And it sounds a little bit woo-woo, but there is such a... I think there's a lot of truth to just your mindset on being an optimist versus a pessimist. And over focusing on the downside is inherently pessimistic because you're preparing for the worst. Having an optimistic mindset that things will work out and I can make things work out, I think can, you know, help you make more money. I think it unlocks everything. If you believe that anything is possible, you have a better shot of fulfilling that belief that anything is possible. Um, so we're in this very weird moment where young people especially complain that they can't afford anything and we talk about the permanent underclass. Everyone's worried that they're not going to make it because of AI, whatever it is.

Yep.

So it's a two-part question. On the first part that young people feel like they can't afford anything, I think that the real issue is not lack of... there is as far as housing, housing costs going up. I think that is a singular issue that's a problem beyond cars, food, expenses going out, whatever. Um, like rent in Manhattan is really, really expensive. Rent in San Francisco is really, really expensive, especially compared to pre-COVID. Even when you adjust for inflation, if you're paying $4,500 for a studio in Manhattan, that's pretty crazy for like a 400, 500 foot apartment. But there's also this whole, particularly in high cost of living cities, you have this mix of people who are covering their entire lifestyle on the money they're making. And then there's this whole long tail of like parent subsidized lifestyles and everybody's operating. I'm sure like I'm sure you have had and have friends who like mid to late 20s have a kick-ass apartment but they don't work for a hedge fund or haven't sold a company. It's like how are you affording this? And there's probably some family help which I don't shame at all. I think, you know, if you're in a spot where your family can help afford you to live in New York and have a higher standard of living, sick, like especially somebody's in their first job, they aren't making much money yet, you can put them in a better apartment. Cool. Um, but if you're the person who is trying to figure out how to budget your own lifestyle and you feel like you're behind because your friends have way nicer apartments despite you having a good job, it's really worth keeping in mind that not everybody's financial situation, especially family financial situation is the same, or some people are going into credit card debt to maintain that level of lifestyle. And I think having a clearer view or a clearer perception of not everybody is coming from the same situation and playing the comparison game against people who don't have the same life setup as you is really, really dangerous. And I think that's what starts causing this anxiety of I feel like I'm falling behind despite doing everything right. One, the internet isn't real life and you're only seeing the top 1%. And like the average person is just probably not living at all like what you think they are because that's not what you're seeing online. And two, a lot of people you are around might have different financial backstops than you do, which is fine, but you shouldn't feel like you're falling behind.

Um, but getting into the sports gambling thing, yeah, you start feeling these pressures of I'm 26 or 25 and I feel like I haven't earned enough money yet and I should be more successful and I should have hundreds of thousands of dollars, millions of dollars saved up. And then you start seeing the big hits of somebody made like every football season somebody does a 12-leg parlay where they pick the game, three Josh Allen over/under passing yards, and then they pick the color of the Gatorade in the Super Bowl. They turn $7 into $4 million or whatever. So you think, okay, well that guy was an idiot and he did that, so I can probably do that, too. And you know, it was DraftKings and FanDuel. And now we have prediction markets, which is great because we made an asset class that's sports betting except it doesn't call itself sports betting, but most of the volume on those prediction markets is, you know, sports betting. Um, and yes, some people are going to win. It's a small minority, but like there will be some people who make millions of dollars off of this. And there are going to be a small subset of people who do have some edge in some weird niche market where they make a lot of money. But the both median and average user is going to lose money and there's the opportunity cost of that money is that money could have... yes you could have put that money in stocks which is a better investment. You also could have just spent it on fun stuff like if you blow $10,000 on Polymarket or Kalshi or DraftKings or whatever and you could have gone on like two ski trips with your friends, that's stupid because you got no... you did not make money from that. You got no life fulfillment utility from that. You just gambled and lost.

And um this cycle like I remember during COVID it was people trading meme stocks. A lot of people made money on GameStop. A lot more people lost money. It's the exact same user behavior. It's just it's shifted from GameStop and AMC and Virgin Galactic and Tesla to the Golden State Warriors and LA Lakers and which song is going to win whatever award on the award show. Um, but it's dangerous because you just keep setting yourself further and further back and it's a negative loop where if you lose $10,000, you get in your head that, oh, now I need to earn that back. So, you make a more aggressive bet. Like, the more money you lose, the further out on the risk curve you go until you really blow something up you can't get back.

Totally. So that, you know, there's all these issues.

It's insider trading and then like market makers and professionals who are just... they are going to do way better than like the collective hive mind of retail.

Yeah. So again, my high level financial advice is don't overfocus on the downside because you'll just make yourself anxious and spiral and it's kind of a self-defeating mindset. And the entire... the best way to increase your savings rate is to put yourself on a career path where you'll make more money over time. Now assuming that you agree with that and you are intentionally chasing what I would call like a high slope career path which could be anything. It could be, you know, there's working in finance, tech, consulting, entrepreneurship, whatever. I do think that for my advice to make sense, you have to agree with me that like going after a career path that increases income is good and that's what unlocks the rest of the equation. Um, but on the stage specificity of life, you know, like we are 29. 29-year-old Phil is not the same person as 24-year-old Phil and he won't be the same person as 35-year-old Phil. 24-year-old Phil was not married. 29-year-old Phil is married. 35-year-old Phil might have a kid, right? Like there's different versions of you that all of a sudden has different responsibilities. You have different desires, different priorities. Your social group is totally different. There's a difference between living in New York at 24 with three roommates and a two-bed apartment, but guess what? You put the fake wall in the middle and you make it work and everybody has a twin or full bed. You're having a blast and living with your wife and then having a kid, right? Where both the amount of money it takes to maintain the lifestyle that you want and the things that you want in that lifestyle are just totally different. So, as a general rule, the younger you are, the more that you're probably going to enjoy the cheap thrills, whether it's you live in New York and it's going out with your buddies and like blowing it out on a Friday night at some dive bar in Murray Hill or like when I was 24, I decided... you and I have a similar experience where we both spent some time abroad. You were in Hong Kong, right?

And I was backpacking around Europe and Latin America, but I think we would both agree that we had a certain type of lifestyle in our early 20s that you probably couldn't replicate now and you also probably wouldn't want to, but it's considered a formative experience that you did it at that point. Um, that's what the stage specificity of life is. There's certain experiences that have an expiration date when you wouldn't get max enjoyment out of them. And the time to go after some of those experiences is probably going to be sooner than you feel financially comfortable to do so. But that doesn't mean that you shouldn't do it.

Yeah. And it's also like that's not a thing that everybody wants to do. It's a thing that we wanted to do. And the broader takeaway is I do think everybody has some thing that college them or fresh out of school them wanted to do and they've kind of just kept pushing it off. The cost to do that thing is probably lower than you think. And the consequences of doing it when you're young are much lower than you think. The consequences of blowing your life up at 24 and going somewhere weird aren't that high because a year later you can always redirect. At 34 they could be much more catastrophic where the money you're leaving on the table or the position you put your family in is just much worse and you know what I mean? So yeah, there's just this whole subset of like young person thrills that younger you should go after.

I mean I think like Bill Perkins in his book Die with Zero, um, like Bill Perkins has been incredibly successful. He runs his own hedge fund. He started a few companies. He's produced movies and he's a pro poker player. Talking about people who have won life, I would put him probably top five or 10 most interesting people alive right now who I think have very cool paths. Um, but in the first chapter of his book, he discusses in his first job, he was working on Wall Street, not making much money. His best friend took a payday loan, went to Greece for like 3 months, then came back, and he's now been like a very successful energy trader. And Bill did not do that and didn't really travel abroad much until he was 30. And his takeaway in hindsight was that he should have taken the trip too because it actually just would not have impacted his career that much and by the time he had the money he was comfortable doing it, that specific type of trip was gone. Um, so I don't know, like I've talked to enough older people that wish they would have done more weird interesting stuff when they were young when it was easier to do that with their lives and they didn't, that it sort of reinforces my belief that I made the right decision doing that.

There's, I mean, what's the phrase, youth is wasted on the young? Which everybody's grandparent has told them when they were 12. And I'm like, what are you talking about? I don't know what any of this means. Anyway, it's good to... it's nice to be rare people who did recognize the, you know, fragility of youth and actually did something with it.

I still think it's the right move. I do think... I think we have had, again, I actually think most of this whole like just broader feeling of anxiety and like I'm never going to get there in life is downstream of housing costs are way too high. I think if housing... if the ability to buy a home was easier and rent prices were lower, I don't think you have any of these problems because that's actually the one big purchase that at least in America we have defined as this is one of the final milestones into adulthood, like buying a home, getting married, having kids, right? And an ability to buy a home also like there's this, you know, there's a lot of talk about declining fertility rates, blah blah blah. I think that because marriage and home ownership are so uniquely intertwined, I'm, you know, I'm not going to... I don't know which one I would say is like the leading cause of the other one, but I do think there's a relation between delayed marriage and family formation and an ability to afford a home. Like, yeah, it's, you know, if you look at prices in Manhattan, the ability to buy a three-bedroom apartment in like the Upper West Side or whatever is going to cost millions of dollars, which this is the prime real estate in America. That's somewhat understandable that that happens. But people are feeling this everywhere, right? And it's because older generations will never want to vote in legislation. Like there's no way to increase supply without prices coming down. Supply and demand is like the most basic concept in economics. If you have more of a thing, the price of any individual thing drops. Older people tend to vote more, to go out more. If there's like videos that go viral on Twitter all the time of like local San Francisco, Bay Area town halls and city council meetings and the median age of somebody attending that is probably 65 or 70. People who have owned their home in the Marina and they bought it for $400,000, it's worth 4 million, do not want like multifamily facilities getting built there. So, I actually think that like one thing that would help a lot is younger people actually getting more involved in local politics and pushing for policies that benefit them to build more housing. If you want affordable homes, you need more units. All that being said, um, I still think getting in a career that seems like a high leverage career, high slope income, and then putting money back still works, but you might not be able to buy a home as early as somebody did in the past. Like home ownership at 28 or 29 is a lot harder now. You can still get there in your late 30s if you stay the course. Um, but it's tough because, you know, everybody's comparing themselves to the tech entrepreneur who sold their company at 28 or the person who joined the upstart fund that did really well, right? Like the hardest thing is like I'm friends with... they've had a crazy year, but Situational Awareness, the hedge fund. I have a buddy who works there and they had a really good first year, right? Like I have no idea how much money anybody made there. You join an upstart fund, they have a good year, you make good money, and it's like, wow, this is really cool. And it's also really easy to compare yourself to that outcome. But that's like one example out of thousands of people I know. Um, I think people overfixate on the outlier winners within their social circle and that's a really big source of anxiety. I think especially if you live in a city like New York, you know, New York or San Francisco, you're going to be in this very densely populated place of outlier individuals that make a bunch of money when they're really young. So then it feels like you're so tremendously behind.