Tuesday, September 14, 2010

Personal Finance - the salary question

My parents came and visited Minnesota over Labor Day weekend. The trip included Prairie Home Companion at the Fair, a roadtrip to Red Wing and a Twins-Royals game at Target Field. Also, we all went out to eat a few times. During our last meal (our grand finale as my Mom would call it) at Salut on 50th and France we had an interesting conversation about personal finance. Specifically the topic of salary came up.

I would describe our family as having good communication on finances. Not great, but good. My Dad and I talk pretty regularly on stocks and certain strategies. He has provided not only an excellent financial example, but also has provided sound advice. Also, he got me hooked on Money magazine, which is now one of those things I look forward to every month. Let's just say that I am happy to have been brought up in my family.

There is one thing that hasn't been discussed often in my family and that is the salary question. I think I might have told my parents my starting salary at Target and maybe let my salary at Honeywell slip at one time. However, I have never once known what my parents made, which never concerned me as a kid, but now I find slightly surprising. It is one of those things that is not talked about and is a topic that makes my parents uncomfortable.

Why is that? Why is the topic of salary such a tough subject? The only reason I think it is such an important question is that people place so much importance on it. In some ways people can define themselves by their salary. They literally place their worth on what they are worth to a company. This shouldn't be the case for a number of reasons, but from a strictly financial perspective salary is only part of the total equation. Knowing someone's salary doesn't mean you know how much they spend, how much they save or what their parents have or have not provided for them. There are plenty of people that immediately come to mind who either don't have a salary or have a very small salary who live in expensive houses and go on wonderful trips.

One advantage to people sharing salary information is that it empowers you in salary negotiations with your current or future employer. If you know the going rate for someone of similiar background then you might be pleansantly surpised (your salary > friend) or might realize that you should ask for more money.

Of course the reason people don't do that is because of social norms. There aren't many people out there who want to make others uncomfortable. This is a real concern if the salary question might lead to answers of amounts that are very different. However, I think most of those amounts should be anticipated. A cashier at Taco Bell obviously makes less than than a dentist. If the difference is that large then it probably doesn't matter one bit if either knows each other's salary. Where it does make a difference is when people are in the same or similar fields. And for that I propose something unique: I will tell anyone who asks my salary as long as you also tell me your salary. I don't take great joy or discomfort in my salary and don't think I will have any problem disclosing that information to a trusted friend. Maybe I will? If I do have reservations then I will admit that I am wrong and as M would probably tell you that doesn't happen too often.


Jenny said...

I'm with you on this Kevin, to an extent. My only counterpoint is that co-workers doing the same job shouldn't share salaries. Your company may "value" each of you differently, and knowing you are worth less than your co-worker could be a huge emotional blow. Even if it is as small as a few thousand dollars, a person could stay awake at night thinking of all the reasons they should be getting paid just as much as their co-worker, who is doing the same job.

On the other hand, this is exactly how companies hold people down (think of women who STILL get paid less than their male counterparts) and keep them "happy" doing jobs they'd easily pay more for, but don't have to. So there, I've just made my own point moot.

I agree that a person's worth shouldn't be wrapped up in their salary. As you said, investments, savings, and debts play a huge roll in how people actually live their lives. Doctors come out of medical school making very little, with HUGE student loans. It takes a long time for those loans to dwindle and salaries to raise for them to live the "doctor's" life, and even then they work all hours and literally get sh*t on at work. Then there's teachers, who do a job that is SO important, but their salaries are low. I would value a teacher higher than a Financial Analyst, but that is not how their salaries line up. Then there are those who use credit as a way to trade up their lives, and never think of the day when it will all come due. Maybe if they knew that everyone else buying that fancy new car made $20k more than them, they wouldn't feel so compelled to buy it? (or perhaps that would make them want to buy it more?)

I want to agree with you, that is doesn't matter as much as we think and should feel okay sharing this information about ourselves, but at the same time I would hesitate to put my salary out there. I'll check in with you in a few months, and you can let me know how your experiment is going. I think I could join in, maybe almost.

Kevin Malphurs said...

Great comments Jenny. So far my experiment has led to one salary swap. I won't let you know who or how things compared, but I will let you know that I judged it as a success.

If you are up for it then just let me know and we can swap salaries. The information you would give to me would be confidential (even to M) just as I would expect the same on my salary.