4 ms·

Are they poor decision makers, or were they poorly taught financial concepts? Were they ever taught how to budget, how to see the actual cost of borrowing, etc.

Are they poor decision makers, or were they poorly taught financial concepts? Were they ever taught how to budget, how to see the actual cost of borrowing, etc.?

overcast 9y ago
Does buying something you don't actually have money for, something that requires education? I mean, that's just self explanatory.
- epmaybe 9y ago
  I don't think that's what the original commenter meant. Most people understand that, but don't know how to budget for things that ARE necessary. I myself am terrible at budgeting, yet have a huge safety net so that even if I go past my budget I am safe.
  - overcast 9y ago
    Mint was a pretty big game changer for me in the world of budgeting. But it's not as if that is rocket science. It's just good to see spending trends. You make X dollars per month, don't spend more than that. That's a basic budget everyone should adhere to for starters.
    - epmaybe 9y ago
      I actually just reset my Mint account yesterday to try and budget better! It wasn't connecting to my bank and credit card accounts before but it seems to be okay now.
- nlawalker 9y ago
  Understanding "don't actually have money" is something that requires education. With the way things are, it's very easy for someone who hasn't been explicitly educated otherwise to look around and just assume that buying all you can and making minimum payments is just how things work.
  - CWuestefeld 9y ago
    I think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns. The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too. The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean. We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it. EDIT - spelling
    - ethbro 9y ago
      It's not just people making these choices on the basis of what they observe: they're actively being influences to make poor financial choices. Advertising spending is at around $200B/yr in US media alone. ... And how much of that would you say is targeted at getting people to make good financial choices for themselves?
  - pfranz 9y ago
    I agree. It's funny to hear so much "it's self explanatory" on a forum where UX is praised and the results of the current system are obvious (with so many people with so much debt). A good friend, years ago, was paying the minimum payments on his credit card for years was complaining the balance was higher than he started. I thought it was obvious, but it wasn't to him. I really like seeing newer things on bills like, "At rate X the balance would be paid in Y months." The credit card company isn't incentivized to do that on its own. There's clearly a problem and it should be addressed both by education and better UX (likely through legislation).
    - Sleeep 9y ago
- throwaway049 9y ago
  It's very normal to buy a home, car, or other major purchase with credit. This normalises the idea of using credit, as does it's wide availability for other, less essential spending. In the UK, Martin Lewis and others are campaigning to have personal finance taught in schools. I think that's a good idea, given all the misconceptions I have encountered on the subject.
LyndsySimon 9y ago
Speaking only for myself, I'm a poor decision maker. I could easily teach a class on financial planning for young adults, but it's everything I can do to keep my own financial house in order. It's certainly not because I don't know what I'm doing wrong.
- Sleeep 9y ago
  May I offer an unsolicited tip? Multiple bank account with automatic payroll deposits are your best friend as weird as it sounds.
  - LyndsySimon 9y ago
    I appreciate it, and it doesn't sound weird at all. I've tried several solutions ranging from separate bank accounts by purpose to physical cash in envelopes. The issue doesn't seem to be one of organization but of mindset. FWIW, I strongly suspect that I've turned the corner on that in the past few months. It's amazing how difficult it is to break the habits acquired while younger and less financially secure. The mindset of "If there is money, spend it on things that you need before it's not there" has been taken me almost a decade to shed.
SilasX 9y ago
Sure, let's go through that cycle again: "People shouldn't be able graduate high school until they can understand the financial implications of a loan!" "Schools and teaching are ruined because they blow all their time teaching to the test! My little mini-me is held back from graduating because he can't calculate compound interest!"
- talmand 9y ago
  I don't think those two things are necessarily permanently linked together.
dv_dt 9y ago
I think what we see there is that humans learn a lot from social cues from their parents, relatives, and peers. For many cases this is an advantage because you don't have to explicitly break down a topic for teaching and learning - there's probably a 1000x times when this implicit learning ends up better for the group than not. But when the middle class is shrinking, then there are a lot of built up tribal approaches for handling finances which are diverging from stable choices in reality then that copying breaks down - especially if you're in a cultural group where it's taboo to some degree or other to discuss finances. e.g. You have to go to college - modern explicit caveat: studying a major that has a chance of paying back the college debt. It's a good to buy a single family house - modern explicit caveat: only if you have sufficient income stability and down payment saved - before a house was a small enough portion of middle class income that it could generally work out well in a wider range of cases. Keep up with your peers spending on social cues: vacations, new cars, etc - keeps you networked into a social group for work/business opportunities (but if the group as a whole can't sustain some lifestyle... then this becomes a negative...) etc... I don't think this is the sole problem, but I think it's a big social driver of it.

Are they poor decision makers, or were they poorly taught financial concepts? Were they ever taught how to budget, how to see the actual cost of borrowing, etc.?

overcast 9y ago

Does buying something you don't actually have money for, something that requires education? I mean, that's just self explanatory.

epmaybe 9y ago
I don't think that's what the original commenter meant. Most people understand that, but don't know how to budget for things that ARE necessary. I myself am terrible at budgeting, yet have a huge safety net so that even if I go past my budget I am safe.
- overcast 9y ago
  Mint was a pretty big game changer for me in the world of budgeting. But it's not as if that is rocket science. It's just good to see spending trends. You make X dollars per month, don't spend more than that. That's a basic budget everyone should adhere to for starters.
  - epmaybe 9y ago
    I actually just reset my Mint account yesterday to try and budget better! It wasn't connecting to my bank and credit card accounts before but it seems to be okay now.
nlawalker 9y ago
Understanding "don't actually have money" is something that requires education. With the way things are, it's very easy for someone who hasn't been explicitly educated otherwise to look around and just assume that buying all you can and making minimum payments is just how things work.
- CWuestefeld 9y ago
  I think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns. The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too. The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean. We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it. EDIT - spelling
  - ethbro 9y ago
    It's not just people making these choices on the basis of what they observe: they're actively being influences to make poor financial choices. Advertising spending is at around $200B/yr in US media alone. ... And how much of that would you say is targeted at getting people to make good financial choices for themselves?
- pfranz 9y ago
  I agree. It's funny to hear so much "it's self explanatory" on a forum where UX is praised and the results of the current system are obvious (with so many people with so much debt). A good friend, years ago, was paying the minimum payments on his credit card for years was complaining the balance was higher than he started. I thought it was obvious, but it wasn't to him. I really like seeing newer things on bills like, "At rate X the balance would be paid in Y months." The credit card company isn't incentivized to do that on its own. There's clearly a problem and it should be addressed both by education and better UX (likely through legislation).
  - Sleeep 9y ago
throwaway049 9y ago
It's very normal to buy a home, car, or other major purchase with credit. This normalises the idea of using credit, as does it's wide availability for other, less essential spending. In the UK, Martin Lewis and others are campaigning to have personal finance taught in schools. I think that's a good idea, given all the misconceptions I have encountered on the subject.

LyndsySimon 9y ago

Speaking only for myself, I'm a poor decision maker. I could easily teach a class on financial planning for young adults, but it's everything I can do to keep my own financial house in order. It's certainly not because I don't know what I'm doing wrong.

Sleeep 9y ago
May I offer an unsolicited tip? Multiple bank account with automatic payroll deposits are your best friend as weird as it sounds.
- LyndsySimon 9y ago
  I appreciate it, and it doesn't sound weird at all. I've tried several solutions ranging from separate bank accounts by purpose to physical cash in envelopes. The issue doesn't seem to be one of organization but of mindset. FWIW, I strongly suspect that I've turned the corner on that in the past few months. It's amazing how difficult it is to break the habits acquired while younger and less financially secure. The mindset of "If there is money, spend it on things that you need before it's not there" has been taken me almost a decade to shed.

SilasX 9y ago

Sure, let's go through that cycle again: "People shouldn't be able graduate high school until they can understand the financial implications of a loan!" "Schools and teaching are ruined because they blow all their time teaching to the test! My little mini-me is held back from graduating because he can't calculate compound interest!"

talmand 9y ago
I don't think those two things are necessarily permanently linked together.

dv_dt 9y ago

I think what we see there is that humans learn a lot from social cues from their parents, relatives, and peers. For many cases this is an advantage because you don't have to explicitly break down a topic for teaching and learning - there's probably a 1000x times when this implicit learning ends up better for the group than not. But when the middle class is shrinking, then there are a lot of built up tribal approaches for handling finances which are diverging from stable choices in reality then that copying breaks down - especially if you're in a cultural group where it's taboo to some degree or other to discuss finances. e.g. You have to go to college - modern explicit caveat: studying a major that has a chance of paying back the college debt. It's a good to buy a single family house - modern explicit caveat: only if you have sufficient income stability and down payment saved - before a house was a small enough portion of middle class income that it could generally work out well in a wider range of cases. Keep up with your peers spending on social cues: vacations, new cars, etc - keeps you networked into a social group for work/business opportunities (but if the group as a whole can't sustain some lifestyle... then this becomes a negative...) etc... I don't think this is the sole problem, but I think it's a big social driver of it.