Trading personal futures – Discounting or investing in the future?

How much do you value yourself?

Or, another question, how much do you value your present self compared to your future self?

Most of us are based towards the present. We discount the future and over-value the present. This is not entirely unreasonable. Life is finite. We have no guarantees that we will even have a future at all. Still, if we are sensible, we will aim to, as economists say, “smooth” our consumption (that is enjoyment of life) as much as possible over our entire expected life span. For most of us, that lifespan will be a good 70 – 90 years. This means borrowing, that is spending some of our expected future income (assuming we expect our future income to be more than our present income) today makes good sense. As such, most of us borrow money when we are young to invest in education, housing, businesses and other assets, betting that the future value of the asset will be worth more than the future value of the debt we are taking on.

The question however, is how much of our future happiness, wealth and enjoyment we are prepared to sacrifice on the altar of now.

Furthermore, we now have the option to trade our own futures as debt or as equity.

Indeed new financial instruments allow you to trade shares in your future self as easily (indeed even more easily) as you can obtain a home lone or take on student debt.

These equity alternatives to personal debt obligations turn flesh and blood humans into tradable financial instruments. These instruments include human capital contracts and income sharing agreements that allow college graduates to sell stakes in their future earnings in exchange for cash up front. Personal tokens or crypto currencies pegged to individual human’s productivity are another alternative to taking on credit. In other words, you can now sell shares (equity) in yourself.

Now, debt and equity can both be traded as investments to other individuals or organisations. They both have the same immediate effect for the seller – immediate cash that can be used to enrich the present. However, debt and equity have very different future effects for both buyer and seller.

For sellers, debt is an obligation; they are required to pay it back according to the agreed terms, or face blacklisting or bankruptcy. That said, the obligation is limited to the value of the loan terms. For buyers, debt is a low-risk investment.

With equity, sellers are trading away a right, they make no promises that they will deliver returns, and they are under no obligation to produce a return for the investor. The buyer takes on all the risk. That said, the equity buyer also gets an almost unlimited share in the upside of their investment. In other words you could end up paying rent on your own life to a landlord who owns a piece of your own body (labour) and soul (time).

(Interestingly, this means debt is a good option if you expect your personal future value will be more valuable than your present value. By the same logic, depending on the price you manage to get, selling shares in your future makes most sense if you believe that the future value of those shares will be less than the value you are selling them for today… Either that or if no one is willing to lend you money because they don’t believe that your future value will be sufficient to pay back the debt… After all there is a reason that risky start ups sell equity shares while profitable blue chip companies take on debt… )

Now come the questions. Is trading away your future to fund your present by selling personal shares:

  • Consumption smoothing, or mortgaging the future?
  • Innocent investing in people, or insidious indentured labour?
  • Democratising access to capital, or neo-serfdom?
  • Encouraging young people to over or under value their future potential?
  • Progressive and pragmatic, or symptomatic of society’s pathological bias towards the present?
  • Or a bit of all of the above?

What are you worth to your future self?

What is the future worth to you?

Will you discount the future, or will you invest in it?

(Of course, the same line of thinking applies not just to individuals but to society at large.)

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