When should you go to law school?

As the new year is approaching, I will start getting back to the core of this blog- helping people with information about Education. I have decided to start with “Law School” as my first topic after a long break from Educational topics.

Both in the US and abroad, becoming a lawyer is a very worthy goal. Even people who live in countries like India and China travel all the way to the UK and the US for law degrees. Most notably, Mahatma Gandhi studied law at University College London Law School, way back in the late 1880s

President Obama and former President Bill Clinton (lawyer Presidents). It’s known that President Obama (Harvard law) had student debt. It’s unclear if President Clinton incurred student debt for his law degree at Yale.

In the US, a lot of Presidents have had law degrees, so do Senators and Congressmen/Congresswomen. It makes sense that some of the lawmakers of the country (Legislative branch) will be lawyers by profession. Needless to say, the judicial branch (the law interpreters and justice administrators)  is composed of lawyers. Given all this, it is not surprising that people in the Executive Branch (law enforcers) also tend to have law degrees. Many (obviously not all) of these people listed above come from wealthy families whose degrees were paid for by their parents.

But what if you don’t expect your parents to pay for your cushy law degree. How do you make a decision regarding pursuing a law degree in the United States then?  As far as international students are concerned, I would not recommend this pursuit if they intend to go back to their home countries. Law is country-specific and it doesn’t make sense to pursue the degree in a country where you will not be practicing it. The domestic US students should look at the employment outcomes and the cost of attendance. Remember, this is an additional 3-year degree in the US, post the undergrad, and any debt the students accumulate during law school will be in addition to their undergraduate debt. I recommend looking at the following metrics:

  1. Student Debt: A rule of thumb is that total student debt should not be > 1.5 times 1st year’s salary. Law school debt goes as high as $250,000 (if not more) and only a small percentage of graduates will be making more than $167,000 in their 1st year of work. A more conservative rule of thumb is for the student debt at the time of graduation to be less than the 1st year salary. How many of us can reasonably expect a 250K job after graduating from law school? I am not saying that this rule should be followed religiously. But this is a good indication of where your prospective law school lies on the debt/salary ratio continuum. To take an example, if the debt accumulated from your law program is $240,000 and the job you can score with this degree pays $60,000/year, the ratio is 4, which is a clear indication that on this career trajectory, you will have years and years of repaying the debt, with harsh financial opportunity costs.
  2. Job opportunities: If you want to make money from a law degree, there are two types of jobs- high paying big law-firm jobs or Federal judicial clerkships which lead to big law-firm jobs. Both are hard to get by. If you want to change the world and want to become a social justice/civil rights lawyer, there won’t be much money in it (President Obama practiced it and he shares his financial story in his memoirs). There is another path of pursuing a state and federal government job which is desirable because of both the nature of work and the Public Student Loan Forgiveness (PSLF) program. The nature of work is more desirable because it is in the Public interest even though it doesn’t pay big bucks. The money part could be offset by the Debt Forgiveness program, which means that you hold on to the job for at least 10 years and after 10 years of reduced rate loan payments, the rest of your student debt is forgiven.
  3. When and where to go then? Law Professor Paul Campos suggests the following and you can use this as a rough guideline based on what portion of the sticker price will you be paying.
    1. Paying the full price: To a handful of 3-6 top tier schools.
    2. At a significantly reduced price: 7-10 truly national schools.
    3. At no cost other than opportunity cost: Three dozen regional schools.

In conclusion, if you will be incurring debt for attending law school (aka your parents won’t be footing the bill), you will have to consider the metrics presented above seriously if you want to avoid harsh financial opportunity costs (remember, you can always go to law school without worrying about these metrics, if you can get into one and are willing to take on any amounts of debt, provided you don’t care about your long term financial well-being). On the other hand, if by virtue of the lottery of birth, you are in an advantageous position of not incurring student debt, your choices can be more flexible. You can even afford to become a public defender/prosecutor in that case without much worry, if that’s what floats your boat, without incurring harsh financial opportunity costs. 

Happy law school hunting!

How to motivate your children? Find the secrets here.

How do you motivate someone who is living a comfortable life? We will find out today what drives you and your children and what can you do to influence a child’s motivation.

Recently, my friend interviewed me for his YouTube channel and we discussed parenting differences, especially between how we were raised in the East and how we are raising our children in the West. Since that interview was a casual chit chat, we did not go deep into the nuances of parenting and education. My core message was that the Western education system emphasizes on internal motivation and drive versus external pressures. But this message is simplistic and naive unless we qualify it with more details. We need to describe how internal motivation correlates with the enjoyment of work and how parenting styles can influence internal motivation.

Delving a little deeper into parenting styles, there are four types as you can see in the diagram.

Parenting (1)

The four Parenting Styles: Yes, I drew this diagram for you instead of committing any copyright violation.

 

Authoritarian: This style is very common in Eastern cultures and is also prevalent in the West in traditional families. This style is focused on obedience and punishment. For eg., the parent with this style is more likely to say “You do this because I said so and I am your parent”. This parenting style is low on sensitivity.

Uninvolved: I have not seen many uninvolved parents in my social circles but I am aware that there are plenty of such parents in both the East and the West. These parents are neither interested in enforcing rules nor interested in connecting deeply with their children. This parenting style is low on sensitivity as well.

Permissive: This is another common parenting style. These parents are sensitive but they don’t enforce rules. The children become entitled and run over their parents.

Authoritative: This is considered the best parenting style. The parents are sensitive and also enforce rules. This parent is most likely to explain why the rules exist in the first place. They are also more likely to build internal motivation in their children.

Whether you enjoy what you do depends on many constraints and factors- your responsibilities, your financial commitment, and the availability of desirable work in your geography. These are external constraints and factors but there are also internal factors- the most important of which is internal motivation. Imagine, you grew up in relative prosperity and the external factors were not enough to motivate you. How can you motivate yourself or how can your parents motivate you?

The theory of internal motivation: Daniel Pink in his groundbreaking book Drive writes about this theory in great detail. The idea is that parents and educators can help build internal motivation in children. We are not naive to suggest that the children can build internal motivation for all their tasks and goals. We still need to apply external factors of carrots and sticks for humdrum activities around cleanliness, routine, and discipline. However, for educational and career goals, building an internal drive is the way to go, if external circumstances like money is not a roadblock. If the parents and educators fail to build internal drive in children, they will have to eventually resort to putting external pressure on children if they want them to become financially independent. An example of this would be kicking a child out of the house after college if the now-adult child doesn’t exhibit a drive to become financially independent (Of course, they can stay at home with parents till the time they are not doing it to avoid building their own careers). The question is which strategy works better- focusing on external pressures right from an early age or focusing on external pressures only if you were unsuccessful in building internal motivation in children?  I would argue that it depends on the economic circumstances of the family and the opportunities available in that culture or country. For eg. if the children are highly motivated to pursuing useless college degrees, it’s a parent’s responsibility to inform them about the financial implications of such decisions. The parents should also choose to not pay for such degrees and warn their children about the long term consequences of high student debt.  If despite such warnings, children choose that path, then they should be informed that the consequences of their decisions are only theirs and not their parents’.

With this background information, let’s come to the meat of the issue- how to inculcate internal motivation?

The Right Mindset: Researchers call it The Growth Mindset. The idea is that if parents and educators praise the effort of children instead of their inherent abilities, children become internally motivated to put effort. What happens is that this reinforces in their brain that success and failure are functions of effort and not some inherent ability. Such kids are less likely to say things like- “I did not get the Math gene“. When they see failure as not an inherent ability problem, they push themselves harder to grow in any given discipline. They are likely to try hard problems even if they might fail since they don’t see failing as a reflection of their character.  Authoritative parents are more likely to engage in such exercise with their children.

Autonomy, Competence, and Relatedness:

Autonomy: Kids have to be given agency and sense of controlAgency means that children feel that they have a say in the matter and this improves their internal locus of control. This helps kids in owning up to their responsibilities instead of blaming external circumstances. A funny example from my culture would be, if you had the autonomy to marry whomever you wanted to, you cannot blame your parents for a bad marriage. You would be internally motivated to own up to your responsibilities instead of blaming your parents for a bad match, which you can if you were married away in a traditional arranged marriage. In a traditional arranged marriage, it’s easier to blame the parents for ruining your life. A more relevant example would be choosing classes, interests, sports, and careers. All other things being equal, a child is more likely to be motivated if she had a say in choosing what she wanted to do with her life. Again, Authoritative parents are more likely to take their kids’ opinions into consideration, over Authoritarian parents. Permissive parents on the other hand can run the danger of going completely by their kids’ whims and impulses.

Competence: When parents and educators help children build competence, that increases children’s internal drive. The better they get at something, the more motivated they are to work towards it. But competence should not be the sole focus, at the expense of Autonomy and The Right Mindset. If you don’t believe me, read Andre Agassi’s autobiography “Open”. While he was highly competent and his father helped build that competence, it was done against his will (complete lack of Autonomy) and he detested playing Tennis and felt miserable throughout his career, despite the external theatrics.

Relatedness: This is about having adults show genuine interest in their children’s work. While this may sound like an external motivator, it helps build internal motivation because humans are social animals. For eg. a child tends to enjoy a subject if he likes the teacher. Educators and parents who connect well with children build a strong sense of internal motivation for learning that subject or discipline. Sometimes, scientists also use the word Purpose. When humans feel strongly about a Purpose, they tend to be internally motivated towards that Purpose.

Optimal Amount of Dopamine: Finally, we are talking about the neurotransmitter Dopamine. You might ask how, as a parent or an educator, can I influence the amount of a neurotransmitter in a child’s brain. Dopamine flows when the external rewards are a surprise because Dopamine works on a principle, the scientific term of which is called “reward prediction error”. When an unexpected reward is received, then Dopamine flows, and internal motivation increases. The keyword here is unexpected. If a reward is expected, then it erodes internal motivation. Dopamine also flows in an optimal way when challenges and skills are of a match. When a task is more challenging than your skills, then you tend to get frustrated. When a task is less challenging than your skills, then you get bored. Hence, as your skills improve, your challenges should be raised as well, so that the optimal flow of Dopamine happens and the internal motivation sustains. This can also happen when the other pieces of The Right Mindset, Autonomy, Competence/Mastery, and Relatedness/Purpose fall into place and Flow ( a term for describing the state of experience when challenges and skills match and it leads to intense absorption in the activity) is experienced.

That was a long discussion on internal motivation and it warrants all the nuances since it is a very difficult topic, especially in situations where external motivation is not enough to keep people interested in their careers and jobs. I personally believe that life is not one size fits all and all solutions should be contextual. But at the same time, I also believe that we should understand the latest science behind motivation instead of just operating with a single-minded approach of carrots and sticks, which might work in some contexts while not work in others. It is also important to understand your goals since that will help you in choosing the right strategy for your child. Enjoy the journey and you will, especially if you are internally motivated!

 

 

 

 

 

Coronavirus and investing

Amid the Pandemic, this is a great time to remind ourselves of the long term thinking when it comes to saving money and investing. The keyword being “long term”. Those who have started very recently might be getting dissuaded by the humongous drop in the market and I am very mindful of that.

I started earning reasonable money in 2008. Anything I earned before 2008 was mostly stipends from Graduate school and minor internships here and there. When the 2008 financial crisis happened, I did not have any sizable portfolio invested in the market. I had just started a family (my daughter was born in April 2008) and my wife had started school. We were paying all those bills and were still saving money. That first year, we just saved money in our savings account since we wanted to buy a house ASAP while the market was at its knees. We bought our first home in December 2009. The next couple of years went mostly in paying the bills, child care, wife’s tuition, traveling and the new mortgage. We started stock market investing seriously only in 2012, although I was still buying ESPP (Employee Stocks) at a discount from my employer before then, which can be considered single stock investing. In December of 2014, we sold our first home and signed the contract for the new home we live in now.

StockMarket

As of March 21st, 2020, Dow Jones in the last 40 years has grown by 2365%, yes you read that right- two thousand three hundred and sixty-five percent. If we were crunching this number on Feb. 12th,2020, this number would have been 3700% since Dow Jones was at its peak ever of 29,551.42

I want to share from the experience of these 8-9 years of investing so that people don’t lose faith in this downturn. Yes, there will be a big reduction in everyone’s portfolio and it will hurt. But, we will still turn out to be winners in the long term.

I will use my 401K account to bring the point home. My 401K shows me that my portfolio’s return this year (YTD) has been -27.3% and that sounds horrible. Despite that, there is a silver lining. Every pretax dollar I ever contributed to my 401K is still cumulatively up by 45% (as of March 21st, 2020). There are two victories here. One, the fact that I have not paid taxes on this money and two that instead of keeping this money in my checking account (or under the mattress) or worse yet spending it away, this money has grown by 45%. If I use simpleton Math and average out my marginal tax brackets since 2012, the taxes would still have been close to 35% (remember California has high taxes). This is an 80% victory despite today’s low market valuation. For all this gain to be wiped off, the market has to fall 45% more (close to 2010 levels), which is extremely unlikely, although not impossible.  For the Math folks, the reason it only takes 45% fall to wipe off 80% gain is that 45% of 1.8 is ~ 0.8.

There are a few things to remember here in summary. Always have some portion of your portfolio in cash so that during a downturn, you won’t have to touch your portfolio invested in the market. Second, money invested for the long term in the market will always win over not investing or not saving altogether. If someone started investing in 2018, their portfolios will be showing negative results since inception but if they ride out this bear market and keep investing during the bear market if they can, there will always be a bull market on the other side of the horizon (over long periods of time, the stock market only rises cumulatively (see the image), despite the peaks and troughs on its journey)). So unless it is an emergency, please don’t pull out of the market at this time.

This is a message of hope to all my readers. Take care of your health and well-being and don’t touch your 401K and your face :-), unless necessary.

Get Wealthy Slowly

Well, the title isn’t exciting, is it? An exciting title would have been “Get Rich Quick” but I am here to show you that “Get Wealthy Slowly” is a more exciting proposition. I will give some reasons as to why it’s exciting, even though it sounds boring.

We will get into the why before the how.

First question: What is the difference between rich and wealthy?

Most people don’t realize but these are two very different things. Being rich means having good material things in life; like a nice house, great cars and a membership at the country club. One can be rich without being wealthy. A wealthy person, on the other hand, has plenty of assets. She may drive a Honda Civic but she might have a couple of million dollars in assets to her name (it’s not necessary that she drives a Honda Civic but the example was chosen to make the point). Wealth comes from accumulating assets, notwithstanding your income. Feeling rich comes from spending, it doesn’t matter whether you have borrowed that money or are living paycheck to paycheck despite a very high income.

top-1-percent-net-worth-by-age

Table 1: Look at the age and the Top 1% Net Worth column to understand who is considered the top 1% in America at various ages

The First Why? Why do we want to be wealthy?

There are some good reasons for the desire to be wealthy and there are some poor reasons for the same. There are lots of myths about wealth which we can bust along the way.

  1. Good Reasons
    1. You want financial security for yourself and your family.
    2. You enjoy fine things in life in moderation.
    3. You want to leave a meaningful positive impact in the world. This one is tricky because a lot of work we do leaves a negative impact in the world, even though we are working towards a good cause. An example would be to send tons of wheat and rice to Africa in an effort to eliminate hunger while destroying the self-sufficiency of the farmers by depressing the selling price of their crops and driving them out of the market. The positive impact, in this case, could be achieved differently by helping the farmers become more efficient instead and also helping improve the distribution channel. So, you have to think deeply about how you can use your wealth to positively impact the world.
  2. Bad Reasons
    1. You are enamored by the “rich” lifestyle and that’s your prime motivation.
    2. You have a strong sense of FOMO and that drives you to become wealthy. BTW, if baby boomers are reading this, FOMO stands for “Fear Of Missing Out”.
    3. You think that endless material consumption will keep you satisfied or in other words you want to enjoy the fine things in life ALL the time.
    4. You want to mask your other insecurities with wealth.
    5. You are doing it chiefly for social validation or because of envy.

Myth Buster #1: Having a lot of wealth will make you incredibly happy

There is absolutely no doubt about it that wealth can solve a lot of problems. If you don’t have to worry about money for your children’s education and your family’s retirement, your stress level absolutely goes down. But, it has been biologically as well as psychologically proven that we humans adapt hedonically very quickly. This means two things. First, we get used to the good things in life and they do not increase our average happiness beyond a certain point. Second, any additional wealth beyond a certain point does not bring any additional happiness. Our happiness levels actually stay pretty stable for the most part of our lives. This means that acquiring your first million dollars might increase your happiness to a certain level since you are out of major worry zones but going from ten to eleven million in wealth doesn’t do much for us.

BillGates

Bill Gates in 2019

Myth Buster#2: Wealthy people are geniuses or really bad people

While it is true that some wealthy people are geniuses (read my article on geniuses here: Are you a genius? ) and some are rotten apples, while some others are both; these myths are not necessarily true. Yes, you have Bill Gates and Martin Shkreli on two ends of the spectrum while Jeff Epstein straddles both the boundaries; but most wealthy people are of average or above average intelligence and average moral character. The demonization of wealthy is as wrong as the worshipping of them. Just because someone is wealthy doesn’t mean that they have good advice to offer or we should look up to them. Neither should we look down upon them for their wealth. 

The Second Why? Why “Get Wealthy Slowly” and not “Get Rich Quick”

The biggest reason is the scientific research done in this arena tells us that it is more satisfying for ourselves and less detrimental to society and the environment as well. People who consume resources slowly and mindfully tend to enjoy those resources more and have a more satisfying relationship with wealth. Hence, people who invest in assets while consuming a smaller portion of their income, tend to have a more satisfying material experience. And these are the people who are building wealth slowly. On the other hand, in the get rich quick scheme, success is harder but once you succeed in getting rich quick by scoring a windfall or a high-income gig early on and don’t rein in your consumption, you will be trapped on the hedonic treadmill and you might be adversely impacting the environment at a faster pace (Please don’t forget that it’s not ONLY global warming but the overall impact of the human economic activity on ecology has been terrible. Of course, we can never avoid the ecological impact but can keep it in check with better technologies, controlled population, and mindful consumption ). You might also be jeopardizing your health along the way. Keeping these things in mind, I recommend “Get Wealthy Slowly”.

But how?

If you have read Warren Buffet’s biography, you have heard the term “The Snowball Effect”. If you notice the Table 1 above, you might see that with the progress in age, the wealth of the top 1% grows more than linearly. This is the compounding effect as used in the term Snowball. Wealth invested in an asset which grows at 10% in the first year, increases by 11% on the original base in the second year and 12.1% in the third. As a rule of thumb (following the rule of 72), a 10% growth rate doubles the asset’s value in (72/10)~7 years. Hence, a person who is investing $30,000 per year in assets (which is growing at say 12%), starting at age 22 and increasing his investment by 10% each year, would have a net worth of $3.2m by the age 40. Look at the table above, this person is top 1% in America (This person is also at the $1.35m level at age 35). With engineers making 6 figures as starting salaries at age 22, this is very doable. You don’t have to strike it big in a startup or win a lottery to achieve this feat. This is slow and sweet and relatively mindful to the planet. If you are saving $30,000 in the first year of your career, you are certainly not a consumption-driven person.

I hope you enjoyed the post. Let me know if you would like to learn more about the math behind all this magic.