The debate over tax reform has highlighted many quirks of the tax code, but in some instances it has also highlighted quirks of the economy. Such is the case with university endowments.
What you do with regard to debt and savings can reveal much about your beliefs about the future. If you are a young person and you believe your future will be improved by getting a higher education, it makes sense to borrow money to pay for that education.If you are later in your career and you don’t expect to work forever, it makes sense to be saving or to have saved money.
This is also true at the firm level. Companies without compelling investment opportunities may retain cash until there is a good deal in front of them. The reverse is also true. Many of the prominent tech companies that we see in the headlines take outside investment and don’t make money for years in part because it is so valuable to invest their resources in more growth.
Even countries operate in this way. Nations that have significant natural resources often establish a sovereign wealth fund. With the influx of significant money, these countries can’t always invest in ways that make sense today, and by using up resources today, they have an obligation to future generations. When a country can borrow at a low rate to invest in their economy and produce higher rates of growth, they generally do.
In other words, saving money implies that you don’t have a compelling