The Actuarial Mind

[Andy the Actuary]

Accountant:

Do you drink beer?

Actuary:

Yes.

Accountant:
How many beers a day?

Actuary:
Usually about 3.

Accountant:

How much do you pay per beer?

Actuary:

$5.00 which includes a tip.

Accountant:
And how long have you been drinking?

Actuary:
About 20 years, I suppose.

Accountant:
So a beer costs $5 and you have 3 beers a day which puts your spending each month at $450. In one year, it would be approximately $5400 correct?

Actuary:
Correct.

Accountant:
If in 1 year you spend $5400, not accounting for inflation, the past
20 years puts you're spending at $108,000, correct?

Actuary:
Correct.

Accountant:
Do you know that if you didn't drink so much beer, that money could have been put in a step-up interest savings account and after accounting for compound interest for the past 20 years, you could have now bought a Ferrari?

Actuary:
Do you drink beer?

Accountant:
No.

Actuary:

Where's your Ferrari?