Most of us remember Aesop’s fable “The Ant and the Grasshopper”. During the summer the grasshopper plays while the ant works, taking food back to the ant colony to store it for the winter. The grasshopper doesn’t understand why the ant doesn’t play since food is plentiful during the summer. Inevitably winter comes, food is scarce, and the grasshopper starves. The ant lives comfortably on the food stored for the winter.
What’s striking is that this children’s fable written centuries ago, is applicable today. As a financial advisor I have the privilege of meeting many people and get to know about their history and financial situation. Most people seem to fall into either the ant or the grasshopper camp.
The “ants” tend to have similar characteristics. They’ve worked consistently throughout their lives. The know what they spend, what they spend money on (i.e. they budget), and live far below their means. By the time they reach their 50s or early 60s, they have accumulated a significant amount of financial assets. They usually spend 20-30 years accumulating the assets. They drive old (paid-for) cars and joke about it. They are either debt-free or only have home mortgages (no HELOCs - home equity line-of-credit).
The “grasshoppers” also tend to have similar characteristics. Many too have worked consistently throughout their lives although more grasshoppers than ants have had spotty work histories. They don’t have a clear idea of what they spend. In fact when they estimate their spending, they tend to underestimate it by at least 20-30%. They spend most of what they earn—often they spend more than they earn. They subsidize their spending by taking on debt. By the time they reach their 50s or early 60s they have very little in financial assets but have accumulated “stuff” along the way. They drive late model vehicles and see perpetual car payments as a normal spending item. They not only have mortgages but also credit card debt, HELOCs, and are more likely to borrow from their employer-sponsored retirement accounts.
When I meet with “ants” to discuss their financial future they are often pleasantly surprised. In fact, many have moved their retirement dates up as a result. After the initial excitement, they have a sense of calm and satisfaction that their years of planning and hard work have paid off. They are excited about their future. They laugh and joke a lot during our meeting.
Contrast that with my meeting with a “grasshopper”. They too are surprised at the outlook for their financial future, although it is anything but pleasant. They are looking at working well beyond their desired retirement date. They have to make significant cuts in their current lifestyle to pay off debt and to try to save some money for when they cannot work (their ‘winter”). They regret not focusing on their financial lives much earlier. They often are anxious or a little depressed when they consider the future. We always develop an executable plan but it is a plan that offers fewer options than they envisioned when they dreamed of retirement. There isn’t much laughter (other than gallows humor) in these meetings.
Aesop’s moral of the “Ant and the Grasshopper” applies to us: “It is best to prepare for the days of necessity”. Another way of saying this is: “It is best to prepare for the days of retirement”.