5 ms·

> Poverty/wealth is, on the whole, a consequence of chosen behavior. That's very true, but an equally important factor is compound interest, which tends to amp

by lutusp 13y ago

> Poverty/wealth is, on the whole, a consequence of chosen behavior. That's very true, but an equally important factor is compound interest, which tends to amplify what might initially be very small differences in wealth. I once wrote an article (http://arachnoid.com/example/#Compound_Interest_Example http://arachnoid.com/example/#Compound_Interest_Example) in which, as an example, at age 20 a prudent person invests an inheritance of $20,000 for his retirement at age 60, expecting to withdraw $45.00 each week for walking-around money. In the experiment, if the investor withdrew 38 cents more each week, he ended up flat broke at age 60. If he withdrew 38 cents less, he doubled his money. Another factor is that being poor is expensive, there's no other way to put it. When a rich person uses a credit card, he gets a free 30-day loan. That service is being paid for by those at the bottom, who have a constant balance on their cards. A poor person has to buy insurance for his house and car, because they're both on bank loans, and the banks require insurance (and the bank loans sometimes double the cost of the purchases). A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses. Let's face it -- overall, being poor is a very bad business policy. But the point is that an old adage about the rich getting richer and the poor getting poorer is backed up by simple economics.

ctdonath 13y ago
being poor is a very bad business policy I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. The smarter you are with money, the easier it is to acquire more of it; likewise the reverse. Pretty much everyone understands the primary principle: spending > revenue has, on the whole, obvious results. Rectify that. Yes, you can...you must.
- lutusp 13y ago
  >> being poor is a very bad business policy > I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. Yes, I agree actually -- I was being a bit ironic in my original post. There's plenty of personal responsibility in poverty, at least in Western, democratic countries. People could take a number of constructive steps to better themselves, like shred their credit cards, don't fall for some of the more obvious economic traps like borrowing money for unnecessary possessions, thinks like that. And I also completely agree with your other point -- that understanding how money works is critical.
smsm42 13y ago
>>> A poor person has to buy insurance for his house and car, We're doing pretty good here if a poor person is implied to have a house worth insuring (implying either ownership or rental of sufficient value, containing sufficient assets) and a car, and is eligible for bank loans for both. In some countries, a person rich enough to have a house, a car and to qualify for bank loans for both is considered pretty well-to-do. >>> A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses. I'm pretty sure most people, not only poor people, use car insurance. It's more convenient and usually (unless you drive exotic or super-expensive cars) cheaper than surety bonds that are usually required, and same with cash deposits (since cash deposited at DMV can't be used for anything else). For businesses having massive fleets, OTOH, it may make sense to self-insure since they get the same risk distribution as insurers, but without the middleman. >>> overall, being poor is a very bad business policy It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job. http://www.cato.org/publications/commentary/why-get-welfare http://www.cato.org/publications/commentary/why-get-welfare http://www.cato.org/publications/white-paper/work-versus-welfare-trade http://www.cato.org/publications/white-paper/work-versus-wel... >>> rich getting richer and the poor getting poorer is backed up by simple economics. It may be but it definitely is not backed up but what you said. The thing is that statistics that talk about "rich getting richer" makes you assume that same people that were rich 20 years ago got even richer now, and same people that were poor 20 years ago are even poorer now. In fact, nothing in this statistics point to it - what statistics can tell you is that some people were rich 20 years ago, and some different people are rich now, but it usually says nothing about how many of people rich today were rich or poor 20 years ago. It is completely normal for a person to be piss-poor while being a young student and become quite well established when retiring. Usually it comes from working hard and making a number of right choices on the way. Including, yes, saving diligently and having long-term view, which leverages the power of compound interest - but for this you need the right behavior.
- e12e 13y ago
  > overall, being poor is a very bad business policy >> It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job. Wait, what? If you have the choice of making more from welfare, than from a job, picking the (hypothetical) better financial option is an incentive for you to stay poor? How's that? If the alternative is to make less doing more work -- surely minimum wage is more of an "incentive" to stay poor? (Lets not get into the discussion of "rich" welfare receivers and such, I'm just curious how you could see choosing the option to make more money as an incentive to stay poor, vs making less doing something else -- now if the person had the option to get a decent job, then that'd be diffrent?)

by lutusp 13y ago

ctdonath 13y ago

being poor is a very bad business policy I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. The smarter you are with money, the easier it is to acquire more of it; likewise the reverse. Pretty much everyone understands the primary principle: spending > revenue has, on the whole, obvious results. Rectify that. Yes, you can...you must.

lutusp 13y ago
>> being poor is a very bad business policy > I contend the reverse is more often the case: bad [personal] business policy is a primary (though not exclusive) cause of poverty. Yes, I agree actually -- I was being a bit ironic in my original post. There's plenty of personal responsibility in poverty, at least in Western, democratic countries. People could take a number of constructive steps to better themselves, like shred their credit cards, don't fall for some of the more obvious economic traps like borrowing money for unnecessary possessions, thinks like that. And I also completely agree with your other point -- that understanding how money works is critical.

smsm42 13y ago

>>> A poor person has to buy insurance for his house and car, We're doing pretty good here if a poor person is implied to have a house worth insuring (implying either ownership or rental of sufficient value, containing sufficient assets) and a car, and is eligible for bank loans for both. In some countries, a person rich enough to have a house, a car and to qualify for bank loans for both is considered pretty well-to-do. >>> A rich person can buy things in cash, and then self-insure using his assets to cover accidental losses. I'm pretty sure most people, not only poor people, use car insurance. It's more convenient and usually (unless you drive exotic or super-expensive cars) cheaper than surety bonds that are usually required, and same with cash deposits (since cash deposited at DMV can't be used for anything else). For businesses having massive fleets, OTOH, it may make sense to self-insure since they get the same risk distribution as insurers, but without the middleman. >>> overall, being poor is a very bad business policy It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job. http://www.cato.org/publications/commentary/why-get-welfare http://www.cato.org/publications/commentary/why-get-welfare http://www.cato.org/publications/white-paper/work-versus-welfare-trade http://www.cato.org/publications/white-paper/work-versus-wel... >>> rich getting richer and the poor getting poorer is backed up by simple economics. It may be but it definitely is not backed up but what you said. The thing is that statistics that talk about "rich getting richer" makes you assume that same people that were rich 20 years ago got even richer now, and same people that were poor 20 years ago are even poorer now. In fact, nothing in this statistics point to it - what statistics can tell you is that some people were rich 20 years ago, and some different people are rich now, but it usually says nothing about how many of people rich today were rich or poor 20 years ago. It is completely normal for a person to be piss-poor while being a young student and become quite well established when retiring. Usually it comes from working hard and making a number of right choices on the way. Including, yes, saving diligently and having long-term view, which leverages the power of compound interest - but for this you need the right behavior.

e12e 13y ago
> overall, being poor is a very bad business policy >> It's bad business, but you may have a lot of incentives for it, given that welfare subsidies and services you may get in many US localities pay more than minimum wage job and in some localities more than average wage job. Wait, what? If you have the choice of making more from welfare, than from a job, picking the (hypothetical) better financial option is an incentive for you to stay poor? How's that? If the alternative is to make less doing more work -- surely minimum wage is more of an "incentive" to stay poor? (Lets not get into the discussion of "rich" welfare receivers and such, I'm just curious how you could see choosing the option to make more money as an incentive to stay poor, vs making less doing something else -- now if the person had the option to get a decent job, then that'd be diffrent?)