danieldwilliam | On What I Would Do If I Came Into a Lot of Money

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On What I Would Do If I Came Into a Lot of Money

What would I do if I came into a significant amount of money? I was asked this a wee while ago and these are my sort of serious musings.

The answer really depends on how much money I came into.

£1 million.

A million isn’t enough to retire on. Not quite. More accurately, it is not enough for MLW and I to retire on and still have the same level of material comfort in perpetuity.

A million invested in treasury bonds at 3.5% would yield £35k. Split between MLW and I with some judicious tax management we’d probably not pay any income tax and pocket the whole £35k. £35k is a nice income but between two of us it’s not exactly living in the lap of luxury. There would still be the mortgage to pay.

Also, with inflation running at 5% we’d really need to tuck away some of the income and re-invest it to maintain the value of our investment over the coming years.

We could invest in a more risky balanced portfolio and perhaps make 5%. We’d pay a little tax, still tuck away a little against inflation and probably have about £40k a year to live on between the two of us. It’s getting there but there’s a risk that we could lose a big chunk of the capital and have to go back to work after some years of idling.

I could, of course top up my income by writing, *ahem* literature for discerning adults.

Three options remain.

We could invest the capital and not touch the income and retire in about ten years.

One of us could give up work.

We could keep working, buy a big house on Gray Street, invite my mum to live in the granny flat and have several more Captains.

Personally, I’d probably vote for door number 3.

£10 Million

Now this is retiring in affluent luxury. Post tax and inflation income about £300-400k. That’s proper house in the city, house in the country, flat in Barcelona terratory.

So, taking Door Number 3 as a given (That’s safe, you’ve won that and it’s yours to keep what ever happens) what would I do with myself with such a handsome living and plenty of time.

I’d go travelling. I’m very aware that apart from living in Australia I’ve not seen too much of the world. So I might pack up the Captain and the rest of his Crew, MLW and the au pair and take a turn around the world.

I would certainly spend some time in Australia reconnecting with my family out there.

I’d help my sister out financially over the long term as she’s not well.

Then once I’d returned I’d need to find something to do.

Options would include .

Doing a PhD in something really intersting. Probably to do with low carbon economies.

Offering my services as a person of some small intellect to one of two politcal parties, one of two constitutional reform societies and / or a handful of environmental charities with the added advantage that I could buy in some admin help of my own.

£100 Million.

See above for Door Number 3 (with the possibility of having two crews and two au pairs).

I think with £100 Million one could just about buy an election. Not the next one or the one after. The election I would buy would be a Referendum on adopting the Single Transferable Vote. This assumes that by the time I come into this fortune the Scottish Independence referendum had been and been lost.

If I came into it tomorrow I’d set up a think tank to critically evaluate the case for independence from a broadly supportive point of view i.e. assuming that the whole thing is a not a grade A cluster fuck from start to finish how does an independent Scotland feed and clothe itself. Naturally I would be CEO of this august body and I would hire a really good executive assistant to make sure I turned up and a really good coach to make sure I worked well.

£1,000 Million

See £100 Million but I’d buy the STV election early. I’d buy a couple of newspapers and rent a load of bloggers and get cracking on installing democracy in the UK.

I would also bank roll substantial educational initiatives in Scotland. I’d try and fund each of the 11 universities in Scotland up to the standard of the Russell Group and I’d pick Aberdeen and Edinburgh to begin with and try and lift them up to Oxbridge standards.

As an alternative I might create a large number of generous bursaries so Scottish students could pick the domestic courses and institutions that suited them and therefore only those Scottish universities that supported a good student experience would get hold of my cash.

I’d want the focus to be on science and engineering and business and economics. It’s not that I don’t think the Arts and Humanities are worth studying. I think Scotland has a business creation problem and improving the number of economically investable spin-offs from universities in Scotland along with the business tool-kit of Scots I think would give us a long term and self re-enforcing boost.

I’d be tempted to create a charitable trust to send working class teenagers to Eton so large that 51% of Etonians were working class. Then I’d promise / threaten to do the same to all the other public schools in the UK. Just for laughs.

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Wow, you've thought about that a lot!

I just want a nice 3 bed house outside the city with a garden and two workshops (obe for my pottery and one for the Boy) and some money to live on while the Boy finishes his course until a job comes up for me again. I'd give my sister some money to pay off her debts while she finishes studying, help out a couple of friends who are really struggling and then give the rest to charity, mostly Oxfam probably. Although if I won enough, I'd set up education funds for university students and give money to libraries too.

There is a risk that I've actually spent so much time thinking about this that in the event of actually coming into a lot of money my life would become empty.

Why Oxfam?

Because I think they make a huge difference to a lot of people who literally have nothing. Because I've never got over seeing the famine in Ethiopia on the TV news when I was about 5.

I dunno, if I won 10s of millions I guess I'd set up a charitable foundation and do more research about where best to give the money, and probably get involved in financing microloan schemes and stuff as well as just donating money.

I like microloans.

I think the images of the famine were really powerful. I don’t think anyone of our generation won’t have been affected by them.

They do seem like a wonderful idea. I keep wondering about getting involved with Kiva as I've heard good things about it but I'm not sure I could cope with looking through reams and reams of projects that I'd love to help but can't afford to at the moment. Maybe once I know where my next wage packet after April is coming from.

Kiva do look good.

I think I should punt a little "investment" that way.

Was there some particular reason why you asked why Oxfam other than curiosity BTW? Have I missed something about them wasting money left, right and centre, or dodgy ethics or something?

I'd probably support MCF and Amnesty too actually. If I could do one single thing in this world, I'd dearly love to get rid of the death penalty everywhere.

Edited 2012-02-03 15:19 (UTC)

No particular reason for asking about Oxfam – just curious about what you prioritise and why.

My mum, who used to be an aide worker, was a little sceptical about the efficiency of aid agencies generally but no reason to think Oxfam are any different than any one else.

Ah, yes, my friend who used to work for Dfid is deeply cynical about how much help aid is. I don't know what the answer is, I just know that from my privileged position in the world, giving food and water, education/training and hopefully a means to provide for themselves in the future, to people who have absolutely nothing seems like a good way to reduce the amount of suffering in the world. I guess things are always more complicated though.

Sorry for butting in, but there are a few things here that made me think.

First is, Glasgow has it's own community bank, the Glasgow Credit Union, and I keep meaning to put my savings in it. They give out small loans at realistic rates, to the sort of people who would otherwise have to get pay-day loans, at 1,000% APR.

Second, apparently there's been a lot of harm done by microloans in India - more oranisational than deliberate, but a bit worrying

Third, something Amartya Sen is fond of saying is that no functional democracy has ever had a famine (he says that 19th C Ireland was not a functioning democracy) which leads me to think that we should be creating democracies. It's not that simple, and Sen's brilliant book Development as Freedom spends a lot of time examining how aid can be used to develop freedom.

Thanks for making me scratch my head :)

No problem. I guess we should take heart from the fact that people study this stuff for years and still don't know what to do for the best. Most things are better than nothing I hope.

I belong to the Co-op, I keep meaning to move more of my savings to them. And write to them about their use of palm oil in their own brand ingrediants...

I’m confused by the payday loan thing.

I see that the interest you are charged for borrowing money is going to be based on how risky it is to lend to you. As the old joke goes* A Bank will only lend you money once you have proved you don’t need it. So, for a given amount of money someone who is poor is going to face an higher interest rate than someone who is rich. Some of that interest is going to go towards the cost of covering loans that default.

Some of the interest rates I’ve seen advertised for pay day loans beggar belief. One, two, sometimes four thousand per cent.

One would expect the same risk adjusted return from any investment i.e. after gaining the extra interest but losing the extra default on a risky investment, you should, in the long term, have the same cash as someone who chose a less risky investment. Some quick back of the spreadsheet calculation imply that compared to putting your money into gilts at 3.5% lending to someone at 1,000% has only a 1 in 10 loan repayment, at 4,000% the loan repayment rate in only 1 in 40. That means that for every 40 loans made I would expect 39 of them to never be repaid.**

That seems like a very high delinquency rate. I think if the delinquency rate was really this high I’d have heard about.

So, I’m missing something. Either the delinquency rate is really really high, or the admin costs are much more than I would expect or these firms are making supernormal profits. If they are making supernormal profits I’d expect lots of new entrants and for the profits to be competed away to the true costs plus a normal profit.

I wonder what I’m missing here.

*One of my granddad’s favourite.

** Obviously there are admin costs in here as well and there is clearly more of admin burden in making 40 small bespoke loans than in making 1 standard loan to the Government.

Have a look at this website:

http://www.wonga.com/money/how-to-wonga/

They would argue that they only lend for a maximum of one month, so APR is not representative. On a short term loan, the admin as well as the interest is high, so compounding it is even higher than for a simple loan.

Don't get me wrong - I think these type of loand should be banned, but they have their arguments straight.

OTOH, loca credit unions will make much more reasonable bargains, but you actually need to discuss your (literal) shortcomings with them. All you need to do on Wonga is fill in a very simple form.

Cheers.

I'd not factored into my rough calcs the cost of the moving the money which at £5 per transaction is going to be 5% of a £100 or an APR of about 70% (I think).

i can feel a spreadsheet coming on.

I'm kinda of for banning them myself but I have the usual worries about prohibiting things that people seem to want until there is a workable legal alternative *and* the illegal alternatives have been gotten rid of.

What kind of harm has resulted from the microloans in India?

Things like this:
http://www.npr.org/2010/12/31/132497267/indias-poor-reel-under-microfinance-debt-burden

and this

http://www.bloomberg.com/news/2010-12-28/suicides-among-borrowers-in-india-show-how-men-made-a-mess-of-microcredit.html

This:
http://forbesindia.com/article/financial-inclusion/beyond-micro-lending/19062/1

Re: And on a slightly brighter note...

danieldwilliam.livejournal.com - 2012-02-06 13:32 (UTC) - Expand

This sounds like the system has been subverted rather than the basic idea is flawed.

Democracy for the win.

An interminable conversation with my dad about whether prosperity begets democracy or democracy begets prosperity.

I think the creation of the two probably go together, along with a bunch of other facts and I think trying to achieve one without the other is going to be much harder work then trying to achieve both simultaniously.

I was heartened by some footage of a riot in China recently.

Never be heartened by a riot! :)

(no subject)

danieldwilliam.livejournal.com - 2012-02-06 11:59 (UTC) - Expand

The way mum puts is that aid agencies, governmental or voluntary seemed to spend a lot of time and effort “Swanking about the place in big Land Rovers” and not enough time and effort actually doing the job they say there are there to do.

However, that is an argument for making aid agencies better at their job not for not helping.

Yes - and I think most management, anywhere, would rather swank about in Land Rovers than get their hands dirty.

Did I say management? I don't think I meant to. I think mum's complaint was that the workers were swanking about in Land Rovers.

Management swank about in helicopters.

The other thing that comes into play here is that I can donate my time and skills to more local charities - I fully intend to do voluntary work over the summer - but I don't have it in me to be an aid worker.

Yeah - cash is better easier to send a long way than people.

There is also a question of how much effort you are willing or able to put in.

I can easily bung some cash to an overseas aid charity which is equivalent to a day of volunteering work. I’m not in a position to take a year off and ship out to the Third World. I am in a position to help out in a local charity with a bit of time. (Well not really yet because the Captain is still wee.)

Doing aid work can be pretty hard going I think. Depends where you end up.

My mum has done 3 (maybe 4) stints. One in Mozambique, one (?) in Tanzania and one in Grenada.

Mozambique was just nuts – full of AK47’s, landmines and people with HIV and nothing anyone did appeared to make any difference to anything. Pretty disheartening.

Tanzania I think she found hard going for different reasons – she was pretty much alone in rural Tanzania and I think got a bit lonely.

Grenada was different. Stable, if disorganised, civil society. Poor but not impoverished. MLW and I went out for a week’s holiday. Rum cocktails on the terrace whilst watching the gin palaces sail along the coast.

One could argue that Grenada doesn’t really need much in the way of aid. Mum’s stint out there was a bit of weird skills transfer gig – the hospital had been given a fancy machine by a grateful visitor but didn’t have anyone who knew how to use it. I can see me doing some kind of skills transfer stuff when I’m retired. It would be a good thing to do and a nice way to get to know a country but I’m not keen on going anywhere where people are waving machine guns about

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