6 ms·

I always wonder what proportion of that group is due to insufficient income, and what proportion is due to terrible financial literacy.

whalesalad 7y ago
Yeah there were times that even when I was making a ton of cash at a startup, living in SF, a $400 emergency could kick my ass too because I was such a financial idiot.
mAEStro-paNDa 7y ago
I'd suggest that these groups are less distinguishable, or that there is more overlap of these groups, than you may think.
- josephorjoe 7y ago
  Indeed. Most of my family falls into both categories. One the one hand it is infuriating to see them pay more for everything they buy because they are paying interest on everything they buy partly because they buy stuff they don't need or buy it sooner than they need to. On the other hand there are incredible cultural pressures in america to spend spend spend and get newer/better stuff than you need (cars, houses, phones) and almost no cultural pressure to be prudent and responsible. Probably doesn't help that there is a whole 'industry' whose only function is to capture 5-35% of the income of the poor and distribute it to the rich.
  - war1025 7y ago
    What industry are you referring to?
    - josephorjoe 7y ago
      Credit card, payday loans, etc. To a lesser degree car loans. It often does make sense for many people to take out a loan to buy a car, but car loans tend to be described to people in terms of 'monthly payment' rather than total cost, which makes it easier for people to make bad decisions (e.g., buying that new $30,000 SUV w a 5 year loan instead of the used $15,000 sedan w a 2 year loan).
mrandish 7y ago
Yeah, even when I was younger and only had irregular, low paid work, I never had less than a few thousand dollars in cash available in case of emergency. Sure, I had to defer things I wanted to have that but it there was more than once that it kept my life from going off the rails when an emergency did arise.
- slashcom 7y ago
  Indeed it may somewhat be a result of financial illiteracy, but today's young people are significantly better educated than previous generations (https://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States#/media/File:Educational_Attainment_in_the_United_States_2009.png https://en.wikipedia.org/wiki/Educational_attainment_in_the_...). With the cost of education, healthcare, and housing all rising significantly faster than inflation, it's possibly just harder for many to save up that emergency fund. Indeed, it's particularly difficult to justify having an emergency fund if you're also facing five figure 8% interest student loans.
  - tspike 7y ago
    The education system does do a poor job of educating people on financial matters, however.
  - malvosenior 7y ago
    There was just a post on HN the other day about how the top priority for Millenials and Gen Z is travel, so I would say that the younger generations are not significantly better at financial literacy and in fact may have expectations even more out of line with their financial reality than other generations. https://news.ycombinator.com/item?id=19963476 https://news.ycombinator.com/item?id=19963476
  - war1025 7y ago
    A difference I've noticed between myself and many of my friends is that I view savings as "Money you don't touch", whereas they view it as "Money you haven't spent yet" That difference in perception leads to me having a constantly growing bank balance, while they have developed a habit of saving then splurging, repeatedly. Which isn't really building wealth, but more buffering for large pre-planned expenses.
the_gastropod 7y ago
I don't think these things are necessarily mutually exclusive. A fair bit of financial literacy should enable someone to save at least some income even at minimum wage (barring catastrophes and good old fashioned bad luck). The lifestyle you'd need to save on a minimum wage is pretty unsavory, though, and not many would enjoy living that way forever.
- imsofuture 7y ago
  And of course, billions of dollars are being spent to convince you that you shouldn't actually live that thrifty lifestyle, even if you are able to.
  - brighter2morrow 7y ago
    This is the bigger thing. "Go to the movies, buy Netflix, buy Amazon Prime" etc etc etc. There's so much more things the financially illiterate feel compelled to buy these days.
- zanny 7y ago
  I feel like this might be coming from a position far above minimum wage, because in practice the poor aren't that stupid. You get trapped in cycles of incredible housing expenses keeping you in constant short term debt and the lack of income leading you to constantly seek new revenue sources, but being in that condition is inherently expensive and money in is always trying to fill up a bucket with a hole in it.
  - bluGill 7y ago
    Back in my college days I was able to live on minimum wage, including paying tuition. I knew several other people doing the same thing and even supporting a family on their income. Their housing expenses where a lot lower than you would believe possible: they lived in a tiny apartment in the bad part of time: they had a warm place (hot in summer: no AC), a dry roof, a kitchen and bathroom. We all had a cheap car, with enough money set aside to fix it as required. Of course we were the minority. Most people live exactly at their means (including whatever they can borrow). I understand, I like more space as well: I like my toys as much as everybody. I just believed my future was better if I didn't get myself into debt now.
imsofuture 7y ago
Both being hallmarks of capitalism, does it really matter?
- war1025 7y ago
  It matters because giving someone who can't manage money more money doesn't improve anything. Further, being semi-financially literate is probably a prerequisite for clawing your way out of poverty.
- mfatica 7y ago
  Financial illiteracy is a hallmark of capitalism?
  - imsofuture 7y ago
    Extracting as much money as possible from the financially illiterate absolutely is.
    - SkyBelow 7y ago
      Extracting resources from those who don't protect those resources is core behavior in most evolved animals. That we do it with money instead of other resources due to capitalism does not change that the root problem is on a deeper level than even human nature.
- RhodesianHunter 7y ago
  Yep, only capitalism has poor people and people with poor financial literacy. rolls eyes
  - imsofuture 7y ago
    I didn't even sort of say that.
peterwwillis 7y ago
It seems more like a cumulative effect than one cause. Rising costs [of housing, health care, education, etc], stagnant wages, loss of retirement support, increased dependence on credit, recessions, and a continued disposable consumerism, all have an effect not just on personal wealth, but what one's wealth can do. And I don't think people were significantly more financially literate 20 years ago.
deleted 7y ago
[deleted]
michaelchisari 7y ago
When you know someone who is $400 away from absolute ruin, it's reasonable to ask them whether this is due to personal failings or external forces. When 40% of your population is dealing with it, you have an economic problem that needs to be addressed on a policy level.
- war1025 7y ago
  40% of the population isn't $400 from ruin. They just can't easily absorb unexpected expenses. Given the frequency of unexpected expenses, the majority of the population obviously figures out how to get by. If 40% of the population was that close to "absulute ruin" there would be rioting in the streets.
  - Kye 7y ago
    They mostly do it with emergency funds from friends and family who are not necessarily any better off, selling things off, and putting off essential maintenance. Sometimes they can get by this way for a long time, but it's not sustainable.
    - michaelchisari 7y ago
      Or if all else fails, putting it on a high interest credit card.
- badpun 7y ago
  Why? This was always the case in world's history, and we survived. If it was possible to address it with policy at a relatively low cost, then I'd be up for it, but something tells me that there is no policy that can make 100% (or even 90%) of people make rational life choices. Which means that the only option left is cleaning the messes caused by irrationality, and that's very expensive.
minikites 7y ago
This is as disingenuous as the Fox News graphic citing a study that 99.6% of "poor" households own a refrigerator. Growing up poor impacts a lot of your future decision making priorities; poor financial literacy is often a symptom, not a cause. The personal finance "industry" (racket) preys on the anxious and blames the victim: https://slate.com/business/2016/05/the-latte-is-a-lie-and-buying-coffee-has-nothing-to-do-with-debt-an-excerpt-from-helaine-olens-pound-foolish.html https://slate.com/business/2016/05/the-latte-is-a-lie-and-bu...
- war1025 7y ago
  My comment is disingenuous? How?
  - minikites 7y ago
    In the way I described, you're reversing cause and effect in many cases and putting the blame on people for being in a situation mostly out of their control. Poor people aren't poor because they spend all their money on avocado toast and fidget spinners, they're poor because wages have stagnated and the costs of housing, education, and healthcare have skyrocketed. The "welfare queen" stereotype of a poor person recklessly spending money doesn't reflect the evidence. https://en.wikipedia.org/wiki/Welfare_queen#Gender_and_racial_stereotypes https://en.wikipedia.org/wiki/Welfare_queen#Gender_and_racia... It costs a lot of money to be poor in the USA: “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet. This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.” ― Terry Pratchett, Men at Arms: The Play
westurner 7y ago
> I always wonder what proportion of that group is due to insufficient income According to the Social Security Administration [1]: 2017 Average net compensation: 48,251.57 2017 Median net compensation: 31,561.49 The FPL (Federal Poverty Level) income numbers for Medicaid and the Children's Health Insurance Program (CHIP) eligibility [2]: >> $12,140 for individuals, $16,460 for a family of 2, $20,780 for a family of 3, $25,100 for a family of 4, $29,420 for a family of 5, $33,740 for a family of 6, $38,060 for a family of 7, $42,380 for a family of 8 Wages are not keeping up with corporate profits. That can't all be due to automation. The minimum wage is only one factor linked to price inflation. We can raise wages and still keep inflation down to an ideal range. Maybe it's that we don't understand what it's like to live on $12K or $32K a year (without healthcare due to lack of Medicaid expansion; due to our collective failure to instill charity as a virtue and getting people back on their feet as a good investment). How could we learn (or remember!) about what it's like to be in this position (without zero-interest bank loans to bail us out)? > and what proportion is due to terrible financial literacy. The r/personalfinance wiki is one good resource for personal finance. From [3]: >> Personal Finance (budgets, interest, growth, inflation, retirement) Personal Finance https://en.wikipedia.org/wiki/Personal_finance https://en.wikipedia.org/wiki/Personal_finance Khan Academy > College, careers, and more > Personal finance https://www.khanacademy.org/college-careers-more/personal-finance https://www.khanacademy.org/college-careers-more/personal-fi... "CS 007: Personal Finance For Engineers" https://cs007.blog https://cs007.blog https://reddit.com/r/personalfinance/wiki https://reddit.com/r/personalfinance/wiki ... How can we make personal finance a required middle and high school curriculum component? [4] "What are some ways that you can save money in order to meet or exceed inflation?" Dave Ramsey's 7 Baby Steps to financial freedom [5] seem like good advice? Is the debt snowball method ideal for minimizing interest payments? [1] https://www.ssa.gov/OACT/COLA/central.html https://www.ssa.gov/OACT/COLA/central.html [2] https://www.healthcare.gov/glossary/federal-poverty-level-fpl/ https://www.healthcare.gov/glossary/federal-poverty-level-fp... [3] "Ask HN: How can you save money while living on poverty level?" https://news.ycombinator.com/item?id=18894582 https://news.ycombinator.com/item?id=18894582 [4] "Consumer science (a.k.a. home economics) as a college major" https://news.ycombinator.com/item?id=17894632 https://news.ycombinator.com/item?id=17894632 [5] https://www.daveramsey.com/dave-ramsey-7-baby-steps https://www.daveramsey.com/dave-ramsey-7-baby-steps

whalesalad 7y ago

Yeah there were times that even when I was making a ton of cash at a startup, living in SF, a $400 emergency could kick my ass too because I was such a financial idiot.

mAEStro-paNDa 7y ago

I'd suggest that these groups are less distinguishable, or that there is more overlap of these groups, than you may think.

josephorjoe 7y ago
Indeed. Most of my family falls into both categories. One the one hand it is infuriating to see them pay more for everything they buy because they are paying interest on everything they buy partly because they buy stuff they don't need or buy it sooner than they need to. On the other hand there are incredible cultural pressures in america to spend spend spend and get newer/better stuff than you need (cars, houses, phones) and almost no cultural pressure to be prudent and responsible. Probably doesn't help that there is a whole 'industry' whose only function is to capture 5-35% of the income of the poor and distribute it to the rich.
- war1025 7y ago
  What industry are you referring to?
  - josephorjoe 7y ago
    Credit card, payday loans, etc. To a lesser degree car loans. It often does make sense for many people to take out a loan to buy a car, but car loans tend to be described to people in terms of 'monthly payment' rather than total cost, which makes it easier for people to make bad decisions (e.g., buying that new $30,000 SUV w a 5 year loan instead of the used $15,000 sedan w a 2 year loan).

mrandish 7y ago

Yeah, even when I was younger and only had irregular, low paid work, I never had less than a few thousand dollars in cash available in case of emergency. Sure, I had to defer things I wanted to have that but it there was more than once that it kept my life from going off the rails when an emergency did arise.

slashcom 7y ago
Indeed it may somewhat be a result of financial illiteracy, but today's young people are significantly better educated than previous generations (https://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States#/media/File:Educational_Attainment_in_the_United_States_2009.png https://en.wikipedia.org/wiki/Educational_attainment_in_the_...). With the cost of education, healthcare, and housing all rising significantly faster than inflation, it's possibly just harder for many to save up that emergency fund. Indeed, it's particularly difficult to justify having an emergency fund if you're also facing five figure 8% interest student loans.
- tspike 7y ago
  The education system does do a poor job of educating people on financial matters, however.
- malvosenior 7y ago
  There was just a post on HN the other day about how the top priority for Millenials and Gen Z is travel, so I would say that the younger generations are not significantly better at financial literacy and in fact may have expectations even more out of line with their financial reality than other generations. https://news.ycombinator.com/item?id=19963476 https://news.ycombinator.com/item?id=19963476
- war1025 7y ago
  A difference I've noticed between myself and many of my friends is that I view savings as "Money you don't touch", whereas they view it as "Money you haven't spent yet" That difference in perception leads to me having a constantly growing bank balance, while they have developed a habit of saving then splurging, repeatedly. Which isn't really building wealth, but more buffering for large pre-planned expenses.

the_gastropod 7y ago

I don't think these things are necessarily mutually exclusive. A fair bit of financial literacy should enable someone to save at least some income even at minimum wage (barring catastrophes and good old fashioned bad luck). The lifestyle you'd need to save on a minimum wage is pretty unsavory, though, and not many would enjoy living that way forever.

imsofuture 7y ago
And of course, billions of dollars are being spent to convince you that you shouldn't actually live that thrifty lifestyle, even if you are able to.
- brighter2morrow 7y ago
  This is the bigger thing. "Go to the movies, buy Netflix, buy Amazon Prime" etc etc etc. There's so much more things the financially illiterate feel compelled to buy these days.
zanny 7y ago
I feel like this might be coming from a position far above minimum wage, because in practice the poor aren't that stupid. You get trapped in cycles of incredible housing expenses keeping you in constant short term debt and the lack of income leading you to constantly seek new revenue sources, but being in that condition is inherently expensive and money in is always trying to fill up a bucket with a hole in it.
- bluGill 7y ago
  Back in my college days I was able to live on minimum wage, including paying tuition. I knew several other people doing the same thing and even supporting a family on their income. Their housing expenses where a lot lower than you would believe possible: they lived in a tiny apartment in the bad part of time: they had a warm place (hot in summer: no AC), a dry roof, a kitchen and bathroom. We all had a cheap car, with enough money set aside to fix it as required. Of course we were the minority. Most people live exactly at their means (including whatever they can borrow). I understand, I like more space as well: I like my toys as much as everybody. I just believed my future was better if I didn't get myself into debt now.

imsofuture 7y ago

Both being hallmarks of capitalism, does it really matter?

war1025 7y ago
It matters because giving someone who can't manage money more money doesn't improve anything. Further, being semi-financially literate is probably a prerequisite for clawing your way out of poverty.
mfatica 7y ago
Financial illiteracy is a hallmark of capitalism?
- imsofuture 7y ago
  Extracting as much money as possible from the financially illiterate absolutely is.
  - SkyBelow 7y ago
    Extracting resources from those who don't protect those resources is core behavior in most evolved animals. That we do it with money instead of other resources due to capitalism does not change that the root problem is on a deeper level than even human nature.
RhodesianHunter 7y ago
Yep, only capitalism has poor people and people with poor financial literacy. rolls eyes
- imsofuture 7y ago
  I didn't even sort of say that.

peterwwillis 7y ago

It seems more like a cumulative effect than one cause. Rising costs [of housing, health care, education, etc], stagnant wages, loss of retirement support, increased dependence on credit, recessions, and a continued disposable consumerism, all have an effect not just on personal wealth, but what one's wealth can do. And I don't think people were significantly more financially literate 20 years ago.

deleted 7y ago

[deleted]

michaelchisari 7y ago

When you know someone who is $400 away from absolute ruin, it's reasonable to ask them whether this is due to personal failings or external forces. When 40% of your population is dealing with it, you have an economic problem that needs to be addressed on a policy level.

war1025 7y ago
40% of the population isn't $400 from ruin. They just can't easily absorb unexpected expenses. Given the frequency of unexpected expenses, the majority of the population obviously figures out how to get by. If 40% of the population was that close to "absulute ruin" there would be rioting in the streets.
- Kye 7y ago
  They mostly do it with emergency funds from friends and family who are not necessarily any better off, selling things off, and putting off essential maintenance. Sometimes they can get by this way for a long time, but it's not sustainable.
  - michaelchisari 7y ago
    Or if all else fails, putting it on a high interest credit card.
badpun 7y ago
Why? This was always the case in world's history, and we survived. If it was possible to address it with policy at a relatively low cost, then I'd be up for it, but something tells me that there is no policy that can make 100% (or even 90%) of people make rational life choices. Which means that the only option left is cleaning the messes caused by irrationality, and that's very expensive.

minikites 7y ago

This is as disingenuous as the Fox News graphic citing a study that 99.6% of "poor" households own a refrigerator. Growing up poor impacts a lot of your future decision making priorities; poor financial literacy is often a symptom, not a cause. The personal finance "industry" (racket) preys on the anxious and blames the victim: https://slate.com/business/2016/05/the-latte-is-a-lie-and-buying-coffee-has-nothing-to-do-with-debt-an-excerpt-from-helaine-olens-pound-foolish.html https://slate.com/business/2016/05/the-latte-is-a-lie-and-bu...

war1025 7y ago
My comment is disingenuous? How?
- minikites 7y ago
  In the way I described, you're reversing cause and effect in many cases and putting the blame on people for being in a situation mostly out of their control. Poor people aren't poor because they spend all their money on avocado toast and fidget spinners, they're poor because wages have stagnated and the costs of housing, education, and healthcare have skyrocketed. The "welfare queen" stereotype of a poor person recklessly spending money doesn't reflect the evidence. https://en.wikipedia.org/wiki/Welfare_queen#Gender_and_racial_stereotypes https://en.wikipedia.org/wiki/Welfare_queen#Gender_and_racia... It costs a lot of money to be poor in the USA: “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles. But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet. This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.” ― Terry Pratchett, Men at Arms: The Play

westurner 7y ago

> I always wonder what proportion of that group is due to insufficient income According to the Social Security Administration [1]: 2017 Average net compensation: 48,251.57 2017 Median net compensation: 31,561.49 The FPL (Federal Poverty Level) income numbers for Medicaid and the Children's Health Insurance Program (CHIP) eligibility [2]: >> $12,140 for individuals, $16,460 for a family of 2, $20,780 for a family of 3, $25,100 for a family of 4, $29,420 for a family of 5, $33,740 for a family of 6, $38,060 for a family of 7, $42,380 for a family of 8 Wages are not keeping up with corporate profits. That can't all be due to automation. The minimum wage is only one factor linked to price inflation. We can raise wages and still keep inflation down to an ideal range. Maybe it's that we don't understand what it's like to live on $12K or $32K a year (without healthcare due to lack of Medicaid expansion; due to our collective failure to instill charity as a virtue and getting people back on their feet as a good investment). How could we learn (or remember!) about what it's like to be in this position (without zero-interest bank loans to bail us out)? > and what proportion is due to terrible financial literacy. The r/personalfinance wiki is one good resource for personal finance. From [3]: >> Personal Finance (budgets, interest, growth, inflation, retirement) Personal Finance https://en.wikipedia.org/wiki/Personal_finance https://en.wikipedia.org/wiki/Personal_finance Khan Academy > College, careers, and more > Personal finance https://www.khanacademy.org/college-careers-more/personal-finance https://www.khanacademy.org/college-careers-more/personal-fi... "CS 007: Personal Finance For Engineers" https://cs007.blog https://cs007.blog https://reddit.com/r/personalfinance/wiki https://reddit.com/r/personalfinance/wiki ... How can we make personal finance a required middle and high school curriculum component? [4] "What are some ways that you can save money in order to meet or exceed inflation?" Dave Ramsey's 7 Baby Steps to financial freedom [5] seem like good advice? Is the debt snowball method ideal for minimizing interest payments? [1] https://www.ssa.gov/OACT/COLA/central.html https://www.ssa.gov/OACT/COLA/central.html [2] https://www.healthcare.gov/glossary/federal-poverty-level-fpl/ https://www.healthcare.gov/glossary/federal-poverty-level-fp... [3] "Ask HN: How can you save money while living on poverty level?" https://news.ycombinator.com/item?id=18894582 https://news.ycombinator.com/item?id=18894582 [4] "Consumer science (a.k.a. home economics) as a college major" https://news.ycombinator.com/item?id=17894632 https://news.ycombinator.com/item?id=17894632 [5] https://www.daveramsey.com/dave-ramsey-7-baby-steps https://www.daveramsey.com/dave-ramsey-7-baby-steps