An Economist Looks at School, Marriage, Divorce, and Moving in with Your Mom

Laurence Kotlikoff is a world-class economist who can convince you to pay off your mortgage and make you snort out your nose laughing at the same time; Money Magic is his compendium of life hacks aimed at leaving the reader wealthier and happier.

Money Magic is really two books: the first, easy to understand personal finance strategies aimed at the general reader, and the second, life issues of Byzantine complexity that will be best appreciated by financial professionals. Kotlikoff is a gifted prose artist, but the subjects covered are so diverse that the book has a reference-book quality that does not lend itself to casual reading.

The sections on the financial aspects of divorce and alimony, for example, are mind-numbing in their intrinsic complexity, a difficulty that cannot be overcome by Kotlikoff’s considerable writing skills. The applicable laws vary widely from state to state and factoring in their interaction with the Social Security system drives the analysis of an individual case into major migraine territory.

On the other hand, while the mathematics of mortgages are also complex, the analytical outcome is not. Pay the darned thing off, and not just for the usual rationales – peace of mind and the gap between the interest rates of mortgages and safe investments – but also for a less recognized reason: increased cash flow to the homeowner, as a result of the tax-exempt imputed interest paid by owning your house free and clear.

The book’s most compelling and heart-rending chapter, “Don’t Borrow for College,” details the epidemic of debt that hobbles a growing number of young Americans and condemns an unfortunate minority – and sometimes even their parents and grandparents – to a lifetime of what amounts to indentured servitude. Kotlikoff points out that it makes no sense to borrow to attend an elite $70,000-plus per year institution, a fate that mainly falls upon students from middle-income families – the rich can afford it, while the talented student from a low-income family usually pays only a small fraction out of pocket.