3 ms·

> like monitoring your credit, your spending, creating a budget, pay off credit card in full, pay down high interest debt ASAP, avoid pay day loans, don't spend

by mbesto 9y ago

> like monitoring your credit, your spending, creating a budget, pay off credit card in full, pay down high interest debt ASAP, avoid pay day loans, don't spend money on stupid things, invest in high quality index funds, etc. IMHO this all starts with the fact that many people I've encountered simply do not understand the difference between income and assets. In fact, I run into this all of the time on HN with people here who say "I can't believe that's a billion dollar business". I would love for them to do this experiment and ask the common person what the Time Value of Money is. I bet the results are way worse. I'm convinced that there are serious externalities to all of the financial innovation that has happened in the last 40 years that we simply choose to ignore and it hurts the common man.

pge 9y ago
I think the Time Value of Money is one of the most important concepts any lay person should understand but most don't. I came out of college (an Ivy league school) as a physics major with zero understanding of finance. At my first job, one of the first things my boss asked me was, "What would you pay me today in exchange for me paying you $100 in one year?" That, of course, led to a lesson on the time value of money. Not a difficult concept to grasp, but despite a great education, I had never had an occasion to think about it and understand it. Once you get that concept, everything else about finance and investing is pretty straightforward. I wish every high schooler had a basic finance course that started with that same question. Then moved on to personal finance basics like understanding interest (credit cards, car loans, mortgages, etc) and net worth (assets) v. income.
- toomuchtodo 9y ago
  There is a great set of Khan Academy videos on the subject. https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi...
candu 9y ago
In the US, at least, this is possibly because a not-insignificant number of people have zero or even negative net assets: https://en.wikipedia.org/wiki/Wealth_in_the_United_States https://en.wikipedia.org/wiki/Wealth_in_the_United_States It's hard to comprehend something you've never had (or, in some cases, even imagined you could have). I have friends who live paycheck to paycheck. For them, budgeting, saving, investing, long-term financial planning, etc. are completely foreign ideas. Part of this is an intergenerational legacy of poverty: their parents weren't in a position to think about these things either, so they were never raised to think about it - and so, like many North Americans, they spend money they don't have on things they don't need, work punishing hours at close to minimum wage to make up the difference, and are left with no time / energy afterwards to learn better. To compound the issue: even if they did have the time / energy to learn better, they can't secure the kind of credit that would enable them to quickly pay off their high-interest debts. It's deeply frustrating to watch, but this is what one step above abject poverty looks like. You have a lot of (well-meaning!) people telling you "just do X", without realizing that X often requires you have up-front capital, good credit, spare time, or any of the other things people in more stable financial situations take for granted. (I've been that person a few times, advising them to do things that to me are common sense - only to find out that, for them, those "common sense" steps are impossible.) In that sort of environment, it's meaningless to ask someone what the time value of money is; they have more serious structural problems with their finances that no amount of high-level philosophizing will solve.

by mbesto 9y ago

pge 9y ago

I think the Time Value of Money is one of the most important concepts any lay person should understand but most don't. I came out of college (an Ivy league school) as a physics major with zero understanding of finance. At my first job, one of the first things my boss asked me was, "What would you pay me today in exchange for me paying you $100 in one year?" That, of course, led to a lesson on the time value of money. Not a difficult concept to grasp, but despite a great education, I had never had an occasion to think about it and understand it. Once you get that concept, everything else about finance and investing is pretty straightforward. I wish every high schooler had a basic finance course that started with that same question. Then moved on to personal finance basics like understanding interest (credit cards, car loans, mortgages, etc) and net worth (assets) v. income.

toomuchtodo 9y ago
There is a great set of Khan Academy videos on the subject. https://www.khanacademy.org/economics-finance-domain/core-finance/interest-tutorial/present-value/v/time-value-of-money https://www.khanacademy.org/economics-finance-domain/core-fi...

candu 9y ago

In the US, at least, this is possibly because a not-insignificant number of people have zero or even negative net assets: https://en.wikipedia.org/wiki/Wealth_in_the_United_States https://en.wikipedia.org/wiki/Wealth_in_the_United_States It's hard to comprehend something you've never had (or, in some cases, even imagined you could have). I have friends who live paycheck to paycheck. For them, budgeting, saving, investing, long-term financial planning, etc. are completely foreign ideas. Part of this is an intergenerational legacy of poverty: their parents weren't in a position to think about these things either, so they were never raised to think about it - and so, like many North Americans, they spend money they don't have on things they don't need, work punishing hours at close to minimum wage to make up the difference, and are left with no time / energy afterwards to learn better. To compound the issue: even if they did have the time / energy to learn better, they can't secure the kind of credit that would enable them to quickly pay off their high-interest debts. It's deeply frustrating to watch, but this is what one step above abject poverty looks like. You have a lot of (well-meaning!) people telling you "just do X", without realizing that X often requires you have up-front capital, good credit, spare time, or any of the other things people in more stable financial situations take for granted. (I've been that person a few times, advising them to do things that to me are common sense - only to find out that, for them, those "common sense" steps are impossible.) In that sort of environment, it's meaningless to ask someone what the time value of money is; they have more serious structural problems with their finances that no amount of high-level philosophizing will solve.