The story goes that we are free to choose our own path through life, without undue influence or restriction.
Success or failure is largely determined by our own hand and our own decisions.
Society collectively determines what is acceptable. These preferences are enshrined into laws by officials elected to represent our collective interests. They are policed by authorities they empower to enforce them.
The general guiding principle is we are free to make as many bad choices as we like, providing our actions don’t adversely impact or injure others as a result.
We demonstrably exercise these freedoms every day: reality television, social media, gambling, alcoholism, smoking, obesity, intolerance, discrimination, student debt, working unsatisfying jobs, enduring long commutes, payday loans, large mortgages, underfunded pensions, and supporting football teams that regularly disappoint to list just a few.
Freedom to choose
But here is the thing.
As George RR Martin’s character Ned Stark so eloquently put it:
“everything before the word ‘but‘ is horse shit”
Our everyday execution of those freedoms is constantly subject to influence and manipulation.
Endless, often conflicting, combinations of the carrot and the stick seek to incentivise or discourage our behaviours.
We are free to choose for ourselves, but it is our nature to follow the path of least resistance. At times we are unwittingly puppets on a string, dancing to the tune of puppet masters.
- Marketers.
- The media.
- Employers.
- Family and friends.
- Politicians and community leaders.
- Our own inner saboteur: self-doubt and lack of confidence.
How many of our decisions are objectively made based solely on our own beliefs and preferences?
How many decisions are at least partially made due to externally applied influence or coercion?
gifts: generosity or duty?
Consider the expectation and obligations associated with gift giving.
My lady wife is a habitual card giver.
She invests vast amounts of time finding the perfect greeting card. Writing a thoughtful message. Usually hand delivering it to the recipient.
Christmas, birthdays, anniversaries, graduations, starting jobs, leaving jobs… whatever the milestone there will be a card. Often accompanied by an equally thoughtful gift.
She also gets mortally offended when people don’t reciprocate. Or when they phone it in with a supermarket greeting card or a gift voucher.
She gets offended often.
By contrast, my brother doesn’t do cards.
He rarely acknowledges milestones.
Any gift given is the grudging result of a careful evaluation of cost versus fallout from not giving one.
He is rarely offended!
Personally I fall somewhere in the middle of this spectrum.
I rarely do cards, yet happily acknowledge the major life milestones of people I care about.
My preference is to enjoy a nice meal or a drink with someone. I prefer not to give gifts that will add to the clutter of their home, or undermine their diet/exercise goals.
If I’m brutally honest, many of the gifts I give are out of duty or obligation rather than selfless benevolence.
I lack the courage of my brother’s convictions, preferring to avoid the conflict rather than simply ignoring it.
That said, I regularly feature prominently on my lady wife’s “shit list”!
Correlation or causation? You be the judge.
Freedoms reproduced
Now let’s move on to one of the biggest decisions a person can make: bringing another life into the world.
Television courtroom dramas teach us that to have done the deed, a protagonist must have had means, motive, and opportunity.
We have the means. Almost all of us are born with the requisite equipment necessary to make a baby.
A somewhat bigger hurdle is the opportunity. Finding somebody who likes us enough to let us make use of that equipment can prove challenging.
The final element of the trilogy is the motive. How much is having kids worth to you?
My old cricket coach used to say “smart people reproduce, idiots breed”. He was usually referring to the four best players in the team, who were brothers yet didn’t own a complete set of kit between them.
Many organised religions encourage their followers to have lots of children. Given many kids inherit their parent’s beliefs, this expands the customer base and grows the brand.
Meanwhile economic realities such as high housing costs, childcare fees, and low wage growth have combined to make having lots of kids an unviable financial decision for many people… even if they wanted them.
Governments also play a major part in influencing this decision.
The Chinese approach
At one end of the spectrum was China during the “one child policy” years.
Parents were incentivised to have a single child.
Depending on the region they lived in, these dangled carrots included receiving an additional month’s wages every year until the child’s 14th birthday.
If an equivalent incentive was offered in the United Kingdom, the median household would receive incentives worth nearly £28,000 in today’s money.
The stick used to punish parents who had multiple children without permission could be severe.
Parents could be fined up to 50% of their combined annual income every year until the child’s 14th birthday.
The United Kingdom equivalent financial penalty to the median household would have been up to the equivalent of £167,300 in today’s money.
The non-financial penalties were far worse.
The parents could lose their jobs and/or forfeit their land.
Forced abortion and sterilisation were not uncommon in some parts of the country.
Those additional unauthorised children may be ineligible for basic services like education and healthcare.
Given the horrific down sides, you would have to really want it to chance having a multiple child without prior approval.
The Hungarian approach
At the other end of the spectrum is Hungary’s recent policy decision to try and grow their population organically, rather than via immigration.
The government offered married women under the age of 40 an interest-free loan if they promise to have a baby. The value of the loan is worth more than two year’s average household disposable income.
If an equivalent policy were to operate in the United Kingdom this loan would be worth roughly £48,000.
Loan repayments are suspended for three years upon the birth of the baby.
If the woman has a second baby, one-third of the loan principle is forgiven. Repayments are suspended for a further three years.
The family receives housing subsidies worth roughly five times the average household disposable income on the birth of the second child.
The state will also reduce the family’s mortgage principle, a grant worth roughly 4% of the average Budapest home value.
The United Kingdom policy equivalent of those subsidies would be worth more than £135,000.
A third baby would result in the remainder of the loan is forgiven.
The housing subsidy increases to nearly eight times the average household disposable income.
The state makes a larger contribution towards the family’s mortgage, worth roughly 16% of the average Budapest home value.
At this point the United Kingdom policy equivalent value of those subsidies would be worth more than £190,000, plus the £48,000 forgiven loan.
If the family had purchased an average value house, then the combined baby incentives would have more than paid for it!
Finally, should the Hungarian woman still be feeling super maternal and give birth to a fourth child, she will be exempt from paying all income tax, for the remainder of her life!
Independent or influenced?
Having children is an expensive undertaking, both financially and in terms of time.
The Hungarian incentives ease some of that financial burden.
By contrast the punitive penalties in the old Chinese system strongly discouraged people from having larger families.
Individuals generally remained free to make their own choices about whether they have children.
Externally applied puppetry heavily influences that decision however.
Two sets of rules
Another area where our free choice is heavily manipulated by externalities is property ownership.
In the United Kingdom the government wants people to own their own homes.
A house is the largest investment many people will ever make. It forms a large portion of household wealth for they majority of the population.
On the way in, the government offers a tax-exempt “Lifetime” individual savings account targeted at first home buyers. The government will match 25% of the contributions to these accounts, up to a given annual limit.
On the way out, owner-occupied properties are exempt from capital gains tax.
Yet the government doesn’t want individuals owning lots of property.
Anyone already owning a properties incurs a stamp duty charge of up to 15% of the price of any additional property purchase.
Rental income is taxed at a higher rate than dividends from shares.
A conventional business can deduct financing expenses from revenue before calculating any tax that is due. The same is true of margin lending for stock investments.
When it comes to investment property however, the government is in the process of phasing out the deductibility of financing costs.
Capital gains tax is levied on the sale of investment properties.
Applying this combination of incentive and penalty, the government influences people’s behaviours when it comes to making asset allocation and investment decisions.
Keeping up with the Joneses
The government isn’t the only manipulator when it comes to housing decisions.
Housing budgets
Banks and mortgage brokers tell people how much they can borrow based upon their income levels, as opposed to their housing requirements.
For many naïve house-hunters, this borrowing limit defines their budget. Few stop and how much house is actually enough, and whether it is sensible to devote such a large portion of each pay packet towards servicing a home loan.
Money pits
Much of our perceived social status is derived from where our home is located, how it is decorated, and what model car is parked outside.
There are whole industries dedicated to feeding this status chasing.
Few of these renovation or decorating projects add any financial value to the property. Indeed many are simply expensive vanity exercises, capable of transforming even the most reasonably priced home into a bottomless money pit.
Of course everyone should feel comfortable in their own homes, their safe place to escape from the big bad world.
The question is where each person draws the line between their genuine personal desires versus the influence of puppeteers.
Puppetry of pensions
A final example of puppetry at work is aged pensions.
Investing for the future is a prudent undertaking that everyone should pursue.
The government heavily incentives pension contributions.
“Free money” contribution matches from employers.
Tax-deferred pension contributions. Contribute tax-free during high earning years. Draw down later, when in a lower tax bracket.
Enjoy a tax-exempt lump sum, accessible at an arbitrary age.
Yet how many people would voluntarily lock away a huge chunk of their net worth, potentially for decades, if it weren’t for these incentives?
How much of the money currently saved for the future would be consumed today? In the pursuit of those status seeking housing choices, holidays, and other costs of supporting (or inflating) our current lifestyles?
How freely made are your choices?
There is no doubt puppetry is an ever present influencer.
Sometimes it is harmful.
Other times it is for our own good.
The important thing is to be aware of when and how we are being influenced or manipulated.
Only then can we make well informed decisions, that are genuinely our own free will, consistent with our own personal set of values and lifestyle preferences.
References
- Budapest Business Journal (2019), ‘Orbán reveals radical family support package‘
- Global Property Guide (2018), ‘Average Price For Second Hand Dwellings‘
- Gov.uk (2019), ‘Lifetime ISA‘
- Gov.uk (2019), ‘Stamp Duty Land Tax‘
- HaltCatchFire (2019), ‘Does having three kids worth a free house?‘
- HM Land Registry (2019), ‘UK House Price Index‘
- HM Revenue and Customs (2017), ‘Policy paper: Restricting finance cost relief for individual landlords‘
- Hungarian Central Statistical Office (2019), ‘Average gross earnings amounted to HUF 329,900, Earnings, January–December 2018‘
- Li, J. (1995), ‘China’s One-Child Policy: How and How Well Has it Worked? A Case Study of Hebei Province, 1979-88’, Population and Development Review, vol 21, no. 3, pp563-585
- Magyar Nemzeti Bank (2019), ‘MNB House Price Index‘
- Martin, G.R.R. (2017), ‘Game of Thrones‘
- Meekings, S. (2015), ‘China’s one-child policy: Your stories’, BBC News
- Menglu, S. and Ruiyao, L. (2016), ‘China: The one child law is gone, but not the fines for breaking it’, AsiaNews
- Office of National Statistics (2019), ‘Average household income, UK: Financial year ending 2018‘
- Organisation for Economic Co-operation and Development (2019), ‘Better Life Index: Hungary‘
- Tasch, B. (2015), ‘The consequences of violating China’s one-child policy were sometimes horrific’, Business Insider
- Tsintolas, A. (2013), ‘China’s One-Child Policy: Rewards for Complying‘
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PendleWitch 2 March 2019
Hi Indeedably,
How can you post so much, while you’re working?!
“…genuinely our own free will, consistent with our own personal set of values and lifestyle preferences.”
Can there ever be such a thing though? I know I won’t buy that car that’s advertised relentlessly during ‘Endeavour’, but some other advert may have snuck in my brain without me knowing 🙂
Decorating: I’ve been closely involved with a large tin of white lately. Fairly cheap except for the wear and tear on my ageing bones.
Thanks for all the info you dig up – not just this but all those ONS stats. (And I chose not to comment on your northern accent parody!!) Those Hungarian incentives are astonishing.
Puppetry and pension. That’s probably where the FIRE people stand apart from the others. We ARE investing like the govt wants, but my initial reason was seeing the state pension age go up and up. (My mum nicely retired at 60.) Eventually I realised I didn’t have to retire when the govt told me I could. Luckily, I never was a big spender.
{in·deed·a·bly} 2 March 2019 — Post author
Thanks Pendlewitch.
Truth is the blog posts are me masterfully procrastinating from doing on my final assessment piece for school.
> Can there ever be such a thing though?
I think so. The incredibly rare occasion that my brother buys a gift would be an example of this in real life.
It is one thing to be influenced into a particular make/model when you were going to buy a car anyway, perhaps you pay too much for features you don’t need. Or perhaps you pick the one that will impress your friends or make your relatives jealous. Not great reasons, but the origin of the purchase idea was your own.
It is something else to get talked into one of those late night informercial “get a six pack while sitting on the couch eating potato chips” pieces of exercise equipment. Nobody ever woke up one morning and independently thought to themselves “I really need a piece of crap sit up machine“. The origin of that idea was planted in their head.
You’re very welcome.
I much confess I used a Yorkshire accent translator, then toned down the results so that an international reader might stand a fighting chance of comprehending at least a small portion of what that drunk freelancer was saying. Is there nothing the internet can’t do?!?
It appears their Prime Minister isn’t a big fan of immigration! For those planning on having a large family anyway, the incentives are akin to winning the lottery.
Sounds like winning to me, well done!
Peter 3 March 2019
Love your blog, very thoughtful articles, also it has a certain aesthetic / mood that makes it very unique! As a Hungarian reader I’m not sure how much the housing incentives will actually benefit future parents, the government had a similar endeavour in the previous years (named CSOK), which lead to a 50% rise of house prices, probably even more in Budapest.
On the other hand the current incentives also include extended nursery care and a kind of maternity pay that can be claimed by grandparents if the mother chooses to go back to work, which seems to be a good idea.
I agree that those middle class parents who already planned to have a big family are the main beneficiaries.
Keep up the good work, greetings from Hungary 🙂
{in·deed·a·bly} 3 March 2019 — Post author
Thanks Peter, very kind of you.
You raise an excellent point about house price inflation.
I must admit my first thought when I heard about the Hungarian housing incentives was to wonder if they were really just state sponsored subsidies to the local property developers, like many of the first home buyer schemes on brand new homes that are offered in several countries? However the incentives are also available on pre-owned homes, so I concluded that wasn’t a primary driver for them.
Anyone who had stockpiled real estate prior to the incentives being announced would have done very nicely out of the resultant price surge however.
Folks who take their profits on the resulting price bump, and invest them in childcare centres, will do very nicely indeed. There will be a demographic tidal wave coming!
Caveman 3 March 2019
Thoughtful as always indeedably. To take the idea of free will even further, if we believe in the laws of nature then we are all, ultimately the product of our environments. Arguably, with enough information about our lives and surrounding and enough processing power we should be entirely predictable.
At the crude level we observe ourselves, it’s largely true that many of the outcomes in your life will be set before birth. After you are born, each year that goes by rapidly locks in more of those outcomes. As a consequence by the time you leave school it is the rare person that can significantly their future paths.
Against that you are right that Governments and others can try to change our behaviour through carrots or sticks. But, to break us out of our ingrained habits those nudges will need to be significant to have a real effect. As Peter points out in his comment, despite the massive incentives from the Hungarian government it appears to still be having a limited impact.
{in·deed·a·bly} 3 March 2019 — Post author
Thanks Caveman.
I agree influencing people to start doing something they aren’t already (e.g. healthy eating, regular exercise) is very hard once habits are ingrained.
Yet playing the longer game, and influencing people early, seems to work much more effectively. For example comparing the proportions of teenage/early 20s folks who regularly drink or smoke cigarettes, to those of their parents or grandparents generations, and the results are fascinating.
Of course vaping gilds these results somewhat, an example of a modern marketing success story that I fear society will come to regret in years to come!
Sam 3 March 2019
Indeedably, for me it is the keeping up with the Joneses that I find most interesting or at least never questioning why one is doing something, but just going along with it, just because it is the done thing. We were having an indulgent lunch in the pub yesterday and the couple on the next table had just been to look at a wedding venue. She had a large diamond on her finger and I could hear them discussing what sounded like ludicrous prices all just for one day. Now, maybe I am a cynic as I have got to 49 and managed to avoid getting married, but I just wanted to say to them, keep it simple and save the enormous amount it is going to cost for enjoying the rest of your lives together rather than just the one day, as amazing as it may be. For me, we need to question the expectations of society, of our friends and family and dare to be different.
{in·deed·a·bly} 3 March 2019 — Post author
Thanks Sam, I think you have a sound approach there. It isn’t so much about being different as being true to what is important to ourselves.
Your wedding example is a great one.
The social norm of the diamond engagement ring with an eye-watering price tag is the outcome of a successful an advertising campaign. Yet few question the value or sense of mindlessly conforming to it.
A bride’s understandable desire to play princess for a day has become hopelessly conflated with one-upping her friends and relatives.
This has created an “arms race” like competition towards financial oblivion for the unwary. Couture clothing, over the top venues, paying for celebrity guests to attend, and so on. The movie “Crazy Rich Asians” portrayed this in action very effectively.
Nick @ TotalBalance.blog 4 March 2019
Interesting read, as always.
For the past couple of years, I’ve become more and more aware of the puppetry and thus often question everything I see/hear.
It has (apparently) transformed me into a bit of a neurotic basket case, as I scrutinize every decision that I make – because, “am I doing this for the right reasons”?
I sense that this new “habit” sometimes conflicts with my otherwise pretty confident self, and I often wonder, If I would simply be better off continueing the life as a puppet 😉
We’re always under the influence of someone – whether it’s from our parents or our spouse, or lately I’m feeling a huge influence from my kid (for better or worse). It seems the older I get, the harder it becomes to continue on whatever path your parents once set you on (again, for better or worse).
I’ve actually taken it so far that I’ve gotten myself a “life coach” (not really, but she’s something similar). Hoping that she can help me discover my true calling and my true path/passion in life 😉
When you’re on a FIRE quest, spending money on “personal development” is a little tough – but it’s an expense that I’ve discovered is necessary for me to remain true to myself…
{in·deed·a·bly} 4 March 2019 — Post author
Thanks for sharing your experiences Nick.
I think it is fine to do things that make you happy, providing you understand why you want to do them in the first place.
Do I want that Tesla because they are fun to drive? Or is it because I want to impress [whomever]? Or did they have a great marketing campaign? Or an amazing discount offer? Or do I just worship at the altar of Elon Musk?
The first option would be valid. The others are made under influence. It doesn’t make them poor choices, but it is important to recognise where our motivations are coming from.
You’re absolutely correct about the influence exerted by close family. A spouse’s carrot and stick combo can be a fearsome thing to try and withstand!
Good luck with the coaching, I hope you find what you are looking for.
[HCF] 4 March 2019
I cannot really count for how many things I have to say thank you because of this post.
First of all the brilliant Ned Stark quote, I was not aware of this. Second for including my link and third that you wrote down the facts using proper sources and proper words 🙂 If you would even state that you found my writing thought-provoking it would make me really happy.
Also, it makes a good contrast with the Chinese example which did not come into my mind so far. It sounds horrible but I cannot judge as I have never lived in a country with that kind of problem. It sounds that it was for their greater good but who knows.
I also have my doubts about the results of this package in Hungary. What Peter stated is clearly visible that the biggest winners so far are the real estate investors and the building sector. However, I doubt that the intention was purely one reason or the other. I think it is more of a mixture of good will, political marketing, and economy booster. All at once. I think their thinking is that they cannot really predict the outcome but whichever scenario will happen they win anyway. Or more possibly they will have small/medium wins on all of these three fields (patriotism, politics, economy).
Puppetry… it is always around us. It is not a question if you get influenced by it but if you know that you are under its effect or not. It has many faces and sometimes it is extremely hard to recognize. Being influenced is not always a bad thing but it is important to know if the imparted things aligns with your personal values or not. For example we are influenced in this little personal finance community by each other and if I take into account the effect on my life I count it as a positive thing.
[Insert Saw meme here with the text “the choice is yours”] 🙂
After all, I don’t believe in total freedom. Every one of us is subject of both physical laws and our human-created laws. Different countries have different sets and you can choose which one can you live with. Some of my friends called me mad when I stated that “true freedom is when you can choose your barriers”.
PS: This english accent thing fascinates me every time. For some reason the classy British english annoys me like hell but I enjoy all kinds of other accents despite it makes a little bit harder to understand. And while writing this I am listening to The Rumjacks, where the frontman is an Irish guy born in Scotland and singing in an Australian band 😀
{in·deed·a·bly} 5 March 2019 — Post author
High praise indeed HCF, thank you kindly!
Thanks also for talking me through the finer points of the Hungarian baby incentives. Rarely have I seen the same behaviours rewarded in so many concurrent ways.
I think it is important to know where the boundaries and barriers are located. Then the individual can consciously choose whether to obey them, or crash through them. Either way, it is a well informed decision!
Quincel 22 January 2020
This is a pedantic point to raise on an old post, but the following isn’t quite right:
The additional rate for a second/third/additional home is 3%. The up to 12% is just the standard SDLT rates for anyone who isn’t a first time buyer. That’s why the gov.uk page calls it the rates ‘if you’ve bought a home before’, but that isn’t quite the same thing as ‘if you currently own a home’.
(I really do accept this is pedantic and doesn’t detract from the point that section is making.)
{in·deed·a·bly} 22 January 2020 — Post author
Well spotted Quincel, thanks for keeping me honest.
The text has been amended to correct my error.