In the past, I noted how student debt can limit your options if you want to go work at a startup. When you take out student loans to get a degree, you open up some doors that are closed without the degree but close doors that would require you to work on a small salary for a short period of time. Even if you want to and are perfectly comfortable with taking a high-paying job after college in order to pay off your student loans, the path of highest immediate monetary rewards can psychologically limit somebody who is expecting deferred experience.
The story often goes like this:
“Sure, I have to take out $45,000 in loans and I will have to take a drab job I don’t love to pay them off for a few years, but after a few years of working at Deloitte or Ernst & Young, I can then go launch my own venture! I’ll have the connections, the pay, and a degree to fall back on should things go awry. This calculation makes more sense in my mind than not finishing the degree in order to take an earlier opportunity and avoid the debt.”
Or the more elite version (probably sans student loans):
“Sure, I don’t want to go work 80 hours a week in Manhattan as some analyst, but after a few years I will have made enough money to go ahead and launch my own project! I’ll just put in my time now, build the connections and the resources and then break out on my own!”
These are both fine enough plans as they are and could work well for somebody with a resolve of steel, but these plans will end up failing most people. Why? Because of most people can’t slow down the hedonic treadmill once they’ve started on it. If they find themselves in an elite institution and with a high-demand credential and skill set, they’ll also have to work on breaking free of the golden handcuffs set in place to keep them in their careers.
When we take a job that provides us with a salary well above our former pay (oftentimes 0 for recent grads), we find ourselves making quality of life adjustments that mirror this increased pay. We buy a new suit, move into a new apartment, might upgrade our car and our electronics, and generally move up to a more comfortable tier of living. As we fall into place in our careers, we move further and further up on the treadmill. A studio apartment becomes a one bedroom apartment, which becomes a condo, and then a home. A subcompact beater becomes a sedan, which becomes a sedan and a minivan. Our small wardrobe of work clothes and a few leisure outfits multiplies.
We justify these adjustments as minor upgrades in our psychology. We are earning more money, after all, so why not spend some of it? A $35,000/yr job turns into a $45,000/yr job, then into a $60,000, $100,000, and onward. The satisfaction from one steak dinner out per month soon becomes weaker, so we try a steak dinner and a wine tasting, and then two per month, then a fancy date, then two fancy dates. We don’t notice how each minor change in what we perceive as an upgrade in quality of life starts to add up, and soon we are leaps and bounds ahead of where we started.
This doesn’t even factor in additional costs if we are looking to marry and raise a family. Raising a child in an apartment brings with it totally different demands than raising a child in a house — and the apartment-living time puts the psychological demand in place for a house. When before we may have set a little extra money aside to launch our next big project one day we are now stuck putting it aside to prepare for the down-payment on the mortgage.
The psychological experience of shifting from one minor upgrade to the next isn’t unlike going from a breezy walk to a quick run on the treadmill. Going from 0.3 mph to 0.5, then to 1, 2, 3, 7, and faster doesn’t seem like much at the time — it certainly feels much easier on the body and mind than going from 0 to 10 in a sprint. When we go from near the bottom in our quality of life expectations to the middle and then the top, we rarely sprint from one category to the next. Instead, we slowly pick up pace and barely notice the differences between intervals.
Imagine sprinting down a treadmill and suddenly the speed changes to less than half the pace you are at. Most runners may trip over themselves. Instead of doing something so quick and hasty, they choose to slowly decrease their pace until they are at the breezy walk again. Going backwards isn’t too dissimilar to quickly slowing down the run.
When we take huge pay cuts and suddenly change jobs to do something new, most people find it an intensely psychologically jarring experience. Even if they can decrease the cost of living (most can’t) to reflect a 50% pay cut, the psychological adjustments that have to take place jump so many intervals at once that it takes time to adjust.
This is relevant to our recent graduates in the hypothetical above. After several years of working up their career ladders, maybe paying off some debt and setting a small savings aside, they’re ready to launch into that venture with that friend from college or go open up their own business. Except to do so, they will have to take a 50% pay cut and will lose all their benefits. They may appear prepared when thinking of this in the vacuum, but many won’t take the risk for the more fulfilling route. They imagine themselves going from a sprint to being forced immediately into a breezy walk. The pace of life simply cannot make such a leap in their minds so quickly.
Corporate executives certainly work this way. They like the idea of taking a riskier job at lower pay in a vacuum, but many fewer will actually pursue it themselves. Golden handcuffs and the pace of the hedonic treadmill keep them in their jobs.
What started as a pursuit to pay off student loans or carry through on the value of that elite degree (I’ve heard Penn students justify taking a job they’ll hate on Wall Street because “anything less is a waste of an Ivy League degree”) ends up trapping them into a way of life that they find considerably less valuable and worth pursuing than the one they thought they were merely deferring, not throwing off entirely.