The Conversation: Mandatory, Discretionary, Frivolous

My title comes from the New Yorker article that many have written about: The Death of Kings by Nick Paumgarten. Paumgarten's title is from Shakespeare's Richard II and is quoted by an English major turned master of Wall Street when he is fired. He also thinks of a story by Kakfa. So is endorsed the theory--long espoused by teachers of the humanities, and college loan officers at fancy liberal arts institutions--that college is a good investment and that liberal arts degrees are intrinsically enriching to the recipient. (In spite of my snide tone, I do still share those sentiments.)

I found the tone of this article quite portentous. There was also a strange cast of characters, most notably a seriously ill market "divvy" (the term is from those Jonathan Gash novels, in which a "divvy just has a feel for what is an authentic antique and what not).

So, the essay was rather rough going for me, as I felt mired in the portentousness. But there was some excellent personal finance advice. Michael Cembalest, chief investment office at J.P Morgan, wrote, in an internal memo I'd love to see (google search being in vain) on "the Conversation."

The conversation can take place between a husband and a wife, or a parent and a child. Its subject is affordability; its only requirement is honesty, and rudimentary math. In some cases, the Conversation, or the underlying reality, can lead to estrangement or divorce; an absence of money will expose differences in values and taste.

Cembalist divided [his expenses] into the categories "mandatory" (mortgage, taxes, transportation), "discretionary" (distilled spirits, gym memberships) and "frivolous" (electronics, jewelry, art works). He then outlined some of his decisions: "cheaper booze, cheaper jewelry," and so on.

The useful nugget here is the third category: frivolous. I think this is a useful addition to the usual dyad of "needs" vs. "wants." So under "need" (or "want") may be college education. But the third category enables us to say that private school tuition might be frivolous for our income. Under"want" might be vacation, but we can decide whether to go to Montreal (reasonably priced for us, since we go to New England every summer and Montreal is a short drive) or Antarctica (kind of expensive!).

This also provides a better way to distinguish between "good" and "bad" debt. The usual suspects for good debt are housing and education. I hardly need to point out that some versions of these can be "frivolous."

So I guess that the now-notorious Edmund Andrews had that Conversation with the spouse. How much better to have it before you get married!

As Nick Paumgarten notes, "The numbers do not lie or flatter."

On a frivolous note, dear Readers, what frivolities do you partake of? And which ones do you look forward to?