Kids Versus Savings Fallacy
In the previous post, I described “savings fallacy” — the tendency to think about the stock of money as an actual resource. In reality, money is independent of physical resources (houses, cars, bushels of wheat), and serves only to:
distribute stock of present resources,
direct society’s production capacity to influence future stock of resources.
In this post, I want to describe a very specific variation of this fallacy that I had for a long, long time, with regard to having kids.
Upfront clarification: I focus only on if-then-else economic consequences, and make no attempt at passing judgement about appropriate reproductive decisions. This is an “is“, not “ought“ post, descriptive, rather than prescriptive. It also describes but a tiniest, thinnest slice of the relevant human experience.
I used to have the following model of “life in an old age“:
I could spend time and effort to raise kids, such that, when I can no longer support myself through my work, my kids could pitch in.
Alternatively, if I choose to not have kids, I can work harder to save a larger retirement pot.
I didn’t thought much about this, the above was just an intuitive model vaguely occupying my mind. In particular, I remember seeing an image much like the one above one day, and thinking “yeah, that’s right“. I suppose that a lot of people have a similar model! Do you, dear reader?
As I understood relatively recently, this model is very misleading, due to the fallacy of composition. Imagine a society where everyone picks the “work harder“ side, and no one is having kids. When everyone ages, it suddenly turns out that there’s no fresh bread to have anymore. Although people were industrious when young, now there’s simply no one to work the short-term supply chain that produces fresh bred. This is the fallacy of savings — although you can save some goods over the long periods of time, like canned food or land, the bulk of the material world around us is perishable, and requires constant upkeep. Even “durable” goods like houses or bridges require large teams of people looking after them.
On an individual level, saving works, but it is important to understand that, when you “save”, you are not setting aside your effort for later. Rather, you get a promise that someone else’s effort will support you in the future. And, for this promise to work, there needs to be this “someone else” in the future!