[HN Gopher] Financial literacy is a passport to financial freedom ___________________________________________________________________ Financial literacy is a passport to financial freedom Author : JumpCrisscross Score : 86 points Date : 2021-09-04 16:42 UTC (1 days ago) (HTM) web link (www.ft.com) (TXT) w3m dump (www.ft.com) | zz865 wrote: | The problem is the facts that everyone agrees on rarely give the | best results. Best comment from the ft article: | | > A financial literate person probably would not borrow lots of | money to buy properties since around 2005 when the market was | pretty obviously overvalued. How wrong the person had been. | | > A financial literate person probably would not buy the cryptos | either, for a long time at least. How wrong the person had been. | | > A financial literate probably won't buy the MEME stocks either, | for a time at least | | > A financial literate person save money in the bank account, | only to face real rates of -4%. | | > I can't even be sure the money printers that drove asset prices | to such valuations are financial literate either | Swizec wrote: | As a former poor person from an environment somewhere between | working class and middle class (dad worked in auto parts stores, | mom as a government bureaucrat) - I credit Hacker News and the | internet at large with my relative financial freedom these days. | Yes it took 10 years to get here, but ho boy would I never have | even known to begin to start without what folks like patio11, | tptacek, et al talked about and shared on here. Ramit's | newsletter helped too but he's not on HN afaik. | | The extent of my financial literacy education growing up was | _there is always more month at the end of the money ... oh and | you should save_. The saving part never made sense to me, why | would you put money in a savings account that just gets wiped out | by taxes at the end of the year? So dumb. | | And then I learned there's more out there than savings accounts | with 0.01% interest and that you yourself can be a good | investment and just thinking about assets vs liabilities and how | you prioritize each ... oof. Whole new world! | | To be fair to my parentals, my dad did make me read Rich Dad Poor | Dad in high school or college after he started discovering this | world himself. I think that formed a good fertile ground for much | of what HN had to share. | | Point is: The environment that influences you has a huge impact | on life outcomes. Probably more than any other factor. | phaemon wrote: | Don't criticize your parents for not knowing as much as you do. | I'm sure they hoped that would be the case. | Swizec wrote: | I'm not criticizing them, I'm contrasting the impact of | environment. How many people growing up in that environment | never discover their Hacker News? | phaemon wrote: | That's fair enough. I didn't grow up in an ideal | environment, but I also did have enough encouragement to | end up where I am today. | dredmorbius wrote: | "Financial literacy" has been _en vogue_ since the 1980s. | | https://books.google.com/ngrams/graph?content=financial+lite... | | Financial solvency for the typical wage-earner has plummeted over | the same period, illustrated here by the widening gap between | productivity and median wages: | | https://commons.wikimedia.org/wiki/File:Productivity_and_Rea... | | (Household wealth would be a better measure, that data's harder | to turn up on a moment's notice. The Federal Reserve's _Survey of | Consumer Finances_ is probably among the best references, it was | last updated in 2019, and is published every three years: | https://www.federalreserve.gov/econres/scfindex.htm) | | If insanity is doing the same thing and expecting different | results, then with all respect to Mr. Jenkins and the _Financial | Times_ , it seems that what's needed are stronger wage | protections and collective bargaining power, a better social | safety net, and some goddamned reality-based assessments and | human compassion. | xwdv wrote: | If people need money so badly why wouldn't they just train for | jobs with high paying salaries as early as they can? Education is | the passport. | spaetzleesser wrote: | Pretty much any advice that has the word "just" in it was given | by people who doesn't understand the situation. This applies to | the situation here. And it also applies to work where you maybe | have been working on figuring out a problem for weeks and | somebody looks for five minutes and asks "why don't you just do | X?" | Animats wrote: | Education is now a net lose for a sizable fraction of the | people who go to college on credit. | joe_91 wrote: | It's unfortunate but most of the time people tend to imitate | what the people in their social/peer group are doing. That's | partly why parents want their kids going to good schools - | they'll pick up good habits from those around them. | | If your friends are all talking about investing and saving to | buy a house chances are you'll start looking into it too. I | know its not an excuse either but people want to be part of a | group more than anything and if that group were to mock you for | your financial literacy or none of them are bothering to be | financially savy I can see why many people are failing to grasp | some of these concepts. | | In my opinion financial literacy should be promoted via movie | stars/ athletes. The very people many poor people look up too. | I know Kevin Heart the actor was saying that this is something | he really thinks would change a lot of poor peoples lives for | the better and he's helped roll out campaigns to try and teach | people some financial skills: | https://hartofitall.chase.com/index.htm | hogFeast wrote: | That isn't an option in this part of the UK. There are almost | no jobs. And the schools there are not good (and university | isn't really an option for these people anyway, even if you get | the grades). It also isn't easy to move anywhere, there is | nowhere to move to, housing is short in any area people want to | live. | | For reference, Middlesbrough is one of the most deprived places | in Europe (inc. Eastern Europe). I know people who grew up | round there, I have been there quite a bit...it is unlike | anything you see in most developed countries (the only place I | have ever been like this was slum areas in Milan, and rural | areas of Eastern Europe). | | Even if schools had the teachers (most of them just don't teach | some subjects, like computer science, at all...they don't have | the staff, no-one will live there), bullying is off the charts, | sexual violence against girls in school is an epidemic, | teachers sexually abusing students is an epidemic...although | hopefully ending...I would say it is close to impossible for | most people in this situation to lift themselves out | (particularly given the parents, not just school). I know | people who went to schools around here, I know people who teach | in these kind of areas in the UK...these places aren't | developed country. | | Btw, if you grow up in an urban environment in the South in the | UK, even if the area is heavily impoverished...your school is | top-tier. The issue is complex. | blibble wrote: | this reads like something out of the Guardian | | I grew up in one of the poorest parts of England (poorer than | Middlesbrough), attended a comprehensive (non-selective) | school, and had no problem getting into a top UK university | (post tuition-fees) | | as did almost all of my friends, all of whom went to the same | crappy school in the same crappy area, and are all now | gainfully employed | | the UK is not Afghanistan | spaetzleesser wrote: | You have to keep in mind that not all people are | intelligent enough to be admitted to a top university. It's | not a path anybody can pursue. | blibble wrote: | hence including more than myself in the anecdote | | growing up in one of the poorest parts of the country: I | know of no-one who wanted to attend that couldn't | hogFeast wrote: | So the author went to Middlesbrough, saw the total deprivation | everywhere, and thought...these people just need financial | literacy lessons? | | I accept the micro point that people in these situations make bad | financial choices but the reason they make these choices, as the | survey shows which finds a high overall level of financial | literacy, is the lack of better options. | 6gvONxR4sf7o wrote: | I would encourage everyone to make a spreadsheet (or math tool of | choice) and work out how much an extra $X/mo saved and invested | buys in terms of years until retirement. That number is a really | important one in my financial planning because while you're young | a little bit goes a really long way. | | I also wonder how much innumeracy contributes to financial | illiteracy. They seem to go hand in hand in my experience. | ryandrake wrote: | This is a great way to quantify the benefits of saving instead | of spending in terms of something other than a dollar amount. | Just saying, save $ABC today and you'll have $XYZ in your bank | account when you're 80 is not as powerful as saying "Save $ABC | more every week, and you can retire two years earlier." Also, | keep in mind that a dollar saved in your 20s has a much bigger | impact on your retirement date than a dollar saved in your 30s, | 40s or 50s. I wish I would have saved every penny in my 20s, as | I'd probably be close to retirement by now. | jltsiren wrote: | It's also good to remember that each $1000 you save in your | 40s has a bigger impact than each $100 you save in your 20s. | That $1000 may also be easier to afford. | | For many (most?) people, early career is the time when the | financial pressure is the worst. Income is still low, while | expenses are not much lower than later in life. You may have | student loans to repay and mortgage down payment to save for, | and you can't delay having kids indefinitely. It's one thing | to know that each decade should double the real value of your | savings, and it's another thing to afford saving any | meaningful sum of money. | | The real choice comes when your income increases or your | mandatory spending decreases. Do you then increase your | discretionary spending, or do you save some of the extra | money instead? | vinceguidry wrote: | It's going to be tougher and tougher to preserve financial | discipline as useful advice in today's increasingly meme'y world | of GME-style overnight successes. I know a waitress that made | ~$20k on Moderna. She was doing alright before but now she's | talking about leaving the profession. | | Sure it'll be right there for her when she needs it again, but | the reality is, financial strategies only work over the long | term, and willing to keep maintaining a contribution schedule. | Everything else is betting / entrepreneurship. While there's | nothing wrong with entrepreneurship the mindset is almost | completely at odds with investment / finance. A $20k windfall is | best put down on property, not on more stock bets. | superkuh wrote: | When, like most people in existence (even in the USA or UK), | you're barely making ends meet week to week financial literacy | means something entirely different than what this article is | talking about. | | Knowing the ins and outs of the rigged game that is getting a | loan from a fractional reserve bank doesn't matter when the bank | will never give you a loan in the first place. And all the | financial literacy problems they do face, like how to deal with | predatory behavior from the "financially literate" banks | regarding overdrafts and credit cards are artificial situations | created by the banks. | | >New survey data, commissioned for the Financial Times from Ipsos | Mori, reveals striking shortcomings in financial understanding | that cement inequality. | | Becoming aware of how the banks and CC companies scam you doesn't | really stop it. Ignorance doesn't cement the inequality, | fractional reserve banking does. | agumonkey wrote: | It does help a bit, finance aware people (rich people) look at | life differently, they chase fads less and wait a bit more with | their capital.. they benefit a lot from uneducated mass going | around buying stupid stuff and throwing it 6 month later to buy | new stupid stuff. | | Now that said, being rich does allow a lot of stuff that no | education can compensate for, I agree. | JumpCrisscross wrote: | > _Becoming aware of how the banks and CC companies scam you | doesn 't really stop it_ | | I've seen educated friends do mind-bogglingly stupid things | financially. Stuff like having savings wiped out for lack of | renter's insurance, paying off a low-rate card while a high- | rate balance persists, paying hundreds of dollars in fees for | banking services they never use, _et cetera_. To say nothing of | not being aware of the myriad of government programs available | to most people in a developed country. | dheera wrote: | > savings wiped out for lack of renter's insurance | | Wait what? How does renter's insurance have anything to do | with savings? Or are these people who were keeping wads of | cash under their bed? | | Or is it that they had to use all their savings to buy back | all their stuff due to disaster or theft? (which seems weird | to me because I imagine most renters tend to have more value | in cash+securities than stuff; home owners probably are the | opposite because of the sheer value of the home) | detaro wrote: | Presumably having to spend their savings to pay for | something catastrophic renters insurance would have | covered. | tialaramex wrote: | Note that the opposite calculation applies if you have | (enough) money. | | One day, some years ago, I wrote a Facebook post | something like. "That's interesting. The sound of water | which woke me was in fact water pouring from the flat | above into the bathroom. Those of you who've always said | I should have insurance now get the last laugh". | | It turns out that the damage was relatively minor except | to walls, ceilings and carpets which were - at the time - | insured by the building owner, so, I think I spent less | than a grand on some re-decorating and it would have been | even less if the upstairs neighbour (who needed emergency | plumbing etc.) had actually done her paperwork since | that's one incident and one insurance claim excess. | | But the reason I was so calm about it was that I've done | the arithmetic years earlier, if my stuff is destroyed I | have to buy new stuff, using money, which I have, whereas | if I carry insurance I have to pay the premiums every | year, also using money, which includes a healthy profit | for the insurer. | | Now, many people have no choice because in reality a bank | owns their home, they pay a mortgage and the bank wants | no chance of you walking away from that so it insists you | also buy insurance. But I don't have a mortgage, I paid | cash, and so I don't need to carry insurance. | | This a really edge case example of the widely true but | counter-intuitive observation that being poor is | _expensive_. It isn 't at all surprising that the FT | would rather blame the poor for their circumstances than | help them. Very on brand. | JumpCrisscross wrote: | > _How does renter 's insurance have anything to do with | what's in the bank?_ | | Long story short, damage was caused to the apartment by a | house sitter. The landlord sued for the cost of the | repairs. The litigation and costs would have been covered | by a vanilla renter's insurance policy. | superkuh wrote: | That's a nice ideal and all but buying food usually comes | before renters insurance. $200 a year matters. Seriously. | To a lot of the world population that's a lot of money | they can't afford to throw away on a chance. | JumpCrisscross wrote: | > _buying food usually comes before renters insurance. | $200 a year matters. Seriously._ | | I agree. Was echoing the observation that financial | literacy and education can be disconnected. At lower | levels of income, the key lessons tend to revolve around | the cost of check cashing and payday lending, avoiding | banks that charge fees, doing your taxes and getting your | credits and refund and keeping an eye on recurring bills. | [deleted] | dheera wrote: | The other thing is, the concept of financial literacy is | changing with the times. | | The likes of Warren Buffet would probably tell you to never | touch cryptocurrency, for example, but today, as of 2021, | pretending it doesn't exist and being afraid of it is being | horribly oblivious to what is going on in the financial world | right now. | | Four years ago you'd look like "one of those financially- | illiterate hippies" for investing in Bitcoin, and become part | of the laughing stock after the 2018 crypto crash, but if you | had held onto a diversified portfolio of cryptocurrencies you'd | probably be doing _very_ well right now. | | The truly financially literate learn to _adapt_ to a changing | world, embrace and try to understand new investment vehicles, | and try to make sense of how they might shape the future. | lottin wrote: | Financial literacy means, among other things, understanding | that an investment decision can never be justified after the | fact based on the observed outcome of that particular | investment. | Traster wrote: | Doesn't this seem like a bit of a dick move. Oh yeah poor people | are poor because they're bad with money. They can't even tell | that 3% of 100 is less than PS5. Well, sure, but 70% of the | bottom quintile _are_ financially literate and are still in the | bottom quintile (whilst 10% of the best off are still financially | illiterate). | | >Some questions proved a leveller for all. Asked to compare the | relative cost of borrowing on a credit card and through a bank | overdraft with specific charges, barely half got the right answer | -- virtually regardless of wealth bracket, age, ethnicity, region | or gender. We could all do with a financial literacy boost. | | Ah yes, these multi-billion dollar businesses have constructed | businesses so convoluted that most people don't even know what | they're really getting, and instead of doing the responsible | thing - legislating against these deliberate anti-consumer | practices, let's just blame the people who are being deliberately | mislead. If my boss found out that the over 50% of the people who | use my products don't actually understand them he certainly | wouldn't be publishing a news article about how stupid our | customers are. | | If you look at the data the truth is clear - financial literacy | goes almost nowhere in explaining why people are poor. If you | look at the financial times editorial line, we would let them | have cake. | [deleted] | JumpCrisscross wrote: | > _legislating against these deliberate anti-consumer | practices_ | | Ironically, in the question posed, the overdraft was the | cheaper option. The question is flummoxing because most people | think of overdraft fees as exclusively a penalty. They are | that. But they can also be the cost of financing the overdraft. | toomuchtodo wrote: | A wealthy friend, once while parked in a restricted parking | spot, was told they can't park there. They responded, "I can: | the fee is $200." | JumpCrisscross wrote: | It rhymes, but it's different. | | Overdrafting is literally in your deposit agreement. If | you've ever looked at a restaurant or hotel's books, they | often make copious use of overdraft financing. Your | relationship with your bank is a commercial one; your | relationship with your community is civic. | | If your credit card will charge $100 interest if you don't | pay the balance at the end of the month, your next pay | check clears in a week, and your bank charges $30 for an | overdraft, it could make financial sense to overdraw. | [deleted] | gruez wrote: | >>They responded, "I can: the fee is $200." | | >your relationship with your community is civic. | | That's true, but attaching a dollar value to it makes it | transactional, which makes people feel more okay with | breaking the law. It's similar to a story I heard on | freakonomics: a daycare was tired of parents picking up | their kids late, so they instituted a fine (trivial | amount like $10) in hopes of disincentivizing parents | from doing so. Late pickups actually went _up_ after the | fine was instituted. | csomar wrote: | > and instead of doing the responsible thing - legislating | against these deliberate anti-consumer practices | | Sure. We'll write a 3.504 pages terms and conditions, so that | the consumer never bother to read it even if he is able to | understand what it means. | Animats wrote: | Financial literacy is only a necessary condition, not a | sufficient one. | 13415 wrote: | Having extra money to invest helps a lot, or so I've heard. | cardosof wrote: | Back in 2016 I've coded a small app for basic | investment/retirement calculations because a friend asked for it. | Building it made me aware of many things I honestly didn't give a | damn, and since then I've been able to save, invest and be in | general much less worried about my retirement. | notafraudster wrote: | I'd like to see this claim validated experimentally. My guess | would be that any observational claim would be confounded badly | by the kinds of factors that select people into financial | literacy (whether that be regional factors that drive both | opportunity and availability of financial education; personal | factors that drive wherewithal to seek education or interest in | financial literacy). | | My sense would be that there are cases where people are taken for | a ride -- extremely bad decisions around payday loans, high APR | leasing, bad use of credit, gambling, etc. -- but it's unclear | whether or not most of these come from a lack of financial | education or rather a sense of struggle and fatalism around pre- | existing lack of economic opportunity. Likewise, we can all name | people we know who are single mothers and are diligent about | credit and clip coupons and have great savings tricks, but for | the most part this headroom might be enough to stave off drowning | but it never enables freedom because the costs and salaries don't | enable freedom. | | By contrast, I know plenty of 6 figure earners who more or less | don't give a shit and still manage to be more or less free. Some | of them will reap what they sow come retirement time by virtue of | having not invested well, but when we say freedom we typically | mean something more here and now. | | I'd love to see a longitudinal RCT that actually uses a paired | subject design to look at the impact of a 2-4 year financial | literacy component to education. My guess is that the effects, | though probably positive in sign, would be marginal in magnitude. | | The article motivates this as "people on benefits spend them | without budgeting", but another way to look at this is that 30 | years ago, people on benefits had access to a robust council | housing market, the ability to climb the property ladder, career | advancement prospects even in unskilled labour, and a better | public pension system than now. Maybe financial literacy has | declined, maybe scams have increased, but it seems like the | biggest free variable is the degree of comfort state support, | even if budgeted well, provides. This is pretty well documented; | Ken Loach's I Am Daniel Blake covers this, the well-regarded "Up" | documentary series is unintentionally almost entirely focused on | the effects of the erosion of the welfare state, | deindustrialization, and the death of blue collar opportunity... | phaemon wrote: | Wow. Although there are elements I disagree with, that said is | a very well argued and explained point. | | I suspect there are few here that will read through it though. | Might be better as a blog. | giantg2 wrote: | The biggest thing in my mind, which you sort of imply, is that | you need money to be ale to utilize that financial literacy. I | dont care how financially literate someone is - if your making | $7.50/hr and have no capital to invest, then it's pointless. | xyzelement wrote: | // your making $7.50/hr and have no capital to invest, then | it's pointless. | | Not pointless at all. It makes a difference whether you enter | a vicious or virtuous cycle. | | Imagine - Bob and Alice bothake 7.50. Bob is financially | illiterate and doesn't have a bank account, so he pays a | ridiculous fee to a check caching place every time. He also | doesn't know to file his taxes so that he can get essentially | all his taxes back since he makes so little. | | So let's say Bob makes $6 after taxes and the check cashing | fee. | | Alice meanwhile is savy enough to have a bank account and | file a tax return so she keeps all 7.50 of it. | | At the end of the year, Alice has an extra $3,120 compared to | Bob assuming 40 hours a week for 52 weeks. If she then saves | it or invests it, she'll start making some return on it. | Compared to Bob who has nothing. | | My mom and I were very poor when we came to the US and we saw | many people live like Bob but we recognizes that with a | little thinking we can do much better than that. | | My wife grew up wealthy-ish and never had to learn this | stuff. She's a hard worker and always made more than she | spent and she never really had to learn how to be smart and | efficient with money. But if you are poor, you HAVE to figure | that stuff out or you are dead. Financial literacy matters. | Broken_Hippo wrote: | Only... it isn't like this at all. | | Bob messed up his math some time ago and now can't get a | bank account: Alternatively, most banks in his area charge | fees to poor people - enough that it pays to have a prepaid | card because the fees are lower than a bank. Heck, it might | even be through the employer because more and more | employers have stopped offering paper checks. | | Bob probably pays someplace like H&R block for his taxes. | It is really, really difficult to miss that it is tax | return time if you are poor, so most folks will file if | they think they are getting some back. People finally get | their cars fixed and are able to go to the doctor or | finally buy some shoes. | | Or Bob might not. If Bob and Alice do not have children, | they won't get much back in taxes, assuming they make | minimum wage and work 35-ish hours a week. They might even | owe if they are married - assuming that two full time jobs | will still put the couple in a higher tax bracket. (Unless, | of course, they have fixed this in the last decade, but I | doubt it). If Bob avoids filing, it is probably because | either he owes or doesn't think he'll get enough back to | pay the folks to do it. | | Alice might make similar choices due to fees and things. Or | she might find herself in a similar situation simply | because she got sick and lost pay or lost a job - | especially if she wasn't taught how to deal with being | poor. It doesn't always matter if something is better long- | term if you are struggling month to month, and you don't | always get a say in how vicious your cycle is. | tellersid wrote: | Wages and prices are relative and there is always going to be | groups of people at the bottom that are not going to have | capital to invest. | | So what? What is your point? There is no way around this | fact. Of course this does not apply to them but so what? You | must think this can somehow not be the case to even mention | it. | | Of course you are not going to get to financial freedom | making the lowest wage possible? So what? | anm89 wrote: | I see responses like this all the time and to me they are so | bizarre. | | It seems to imply that the only valid way to accrue knowledge | is by going to the high priests at the university systems and | performing the sacred study rituals because self obviously this | is the one true way of producing knowledge. | | Should i put my hand into an open flame? I dont know,tough to | say without performing a meta study of existing flame | temperature studies to confirm what the best journals think. | otherwise theres just no way to know so I'll just have to test | it out. | | Im not against science or the scientific method. In fact im | extremely pro. but it's not the only way to come come valid | conclusions about things. | | im going to go ahead and suggest that on average learning about | finance is going to be helpful for people to manage their | finances. call me a crackpot but It's not particularly | important for me to verify this belief with a study. | | and all of this is before you get into the issues with the non | trivial number of junk papers published in social science and | psychology journals and the like that at best seem to say that | even in cases of more difficult questions where more rigorous | methods are valuable, this system of knowledge production fails | a non trivial amount of the time. | rflrob wrote: | Experiment is surely not the only way to acquire knowledge, | but it's one of the easiest ways to reduce the frequency of | tricking yourself into reinforcing what you wanted to believe | to begin with. As you say, the system of knowledge production | is imperfect, so let's try to use rigorous tools more often, | not less. | | I think we all agree that financial literacy is probably, on | average, good. But, as the parent post said, the magnitude is | unknown. Is it the "passport to financial freedom", in which | case it's probably reasonable to spend a lot of class time in | school on it? Or is it just nice to have, and outcomes are | mostly dependent on other factors, in which case we could | just as well use those classroom hours for something else. | This is a hard thing to disentangle from good survey data, | and nearly impossible from the kind of anecdotal reporting in | most of the article. | | Personally, I think some of the article cuts against its own | thesis. " Leanne Fielden fits the bill for the disadvantaged. | She is an unemployed woman living in the deprived | Middlesbrough region. [...] Her profile belies her own | financial expertise. "I'm fortunate that I've worked for | Barclaycard and Visa. I often help family and friends with | money issues," she says. So she herself has no fear of | finance." If financial literacy were a magic bullet, why is | she disadvantaged? Let's not motte and Bailey this argument | from the title ("financial literacy is a passport to | financial freedom") to the more defensible position of | "financial literacy is helpful, in most situations". | josephcsible wrote: | > extremely bad decisions around payday loans, high APR leasing | | Are taking those things actually the extremely bad decisions | themselves, or are they necessary consequences of previous | extremely bad decisions? For example, if you let your last car | get repossessed, and you live/work somewhere with poor public | transit, then what choice do you have other than a BHPH car | with sky-high APR? | ceejayoz wrote: | > if you let your last car get repossessed, and you live/work | somewhere with poor public transit | | Exactly! Why don't the poor just stop doing these things? | [deleted] | hhs wrote: | > I'd like to see this claim validated experimentally. | | In 2020, there was a meta-analysis of 76 RCT studies reviewing | the impact of financial education programs on financial | knowledge and human behaviors [0, 1]. | | Based on the abstract, the authors write: "The evidence shows | that financial education programs have, on average, positive | causal treatment effects on financial knowledge and downstream | financial behaviors. Treatment effects are economically | meaningful in size, similar to those realized by educational | interventions in other domains and are at least three times as | large as the average effect documented in earlier work. These | results are robust to the method used, restricting the sample | to papers published in top economics journals, including only | studies with adequate power, and accounting for publication | selection bias in the literature." [0] | | [0]: https://repository.upenn.edu/prc_papers/676/ | | [1]: https://www.oecd.org/financial/education/webinar- | financial-e... | paganel wrote: | > My guess would be that any observational claim would be | confounded badly by the kinds of factors that select people | into financial literacy | | That'a what I think, also. It's easy to boast of "financial | literacy" when one is living a quiet and comfortable middle- | class life with almost no financially-related existential | dread, it's a totally different conversation when you're living | day by day. I'm on mobile and too lazy to search but there was | an article linked on this forum a few years ago written by a | young lady (in her early 20s, I think) describing how after | working 10-hour shitty shifts and coming back home to a very | poor household one doesn't think of ETFs and carried interest, | but more about "let me have a few cigarettes, some fast food | and a coke so that I could forget for some moments about my | condition as a poor person". | | More on that, I think this insistence on "financial literacy" | is a very dirty play by today's middle class (of which I'm a | part, I confess) so that it won't accept responsibility for the | condition of the poor classes, it's a sort of "it's their fault | for being poor because they are financially illiterate, there's | nothing much that we can do, the system works, the main proof | being that we're not poor". | gruez wrote: | >More on that, I think this insistence on "financial | literacy" is a very dirty play by today's middle class [...] | so that it won't accept responsibility for the condition of | the poor classes [...] | | I'm not sure why you went straight for the "people are doing | it because they're bad people" explanation. Why can't it be | something less sinister, like creating anti-poverty programs | that make the recipients self-sufficient, rather than | subsidizing them for the rest of their lives? | paganel wrote: | "anti-poverty programs" are a scam. What will really reduce | poverty (at least in the Western world) is a total rethink | of the housing policies. Unfortunately the middle classes | are against that, because most of their wealth consists of | real-estate. Or a real de-segregation of the school-system | (which is both race-based and especially social-based). The | middle classes are against that, cue their desperate search | for property in "good school districts". Or an abolition of | all the regressive taxes, the cigarettes smoked by the poor | are taxed to high-hell while the middle-classes pay almost | no taxes for the money put aside for their pensions or to | purchase their (first) house. The middle classes will vote | out of power any politician who will dare to touch these | tax privileges of theirs. When all these circumstances will | change I'll be the first to say that "the middle classes | really want to help the poor", otherwise I just can't. | zozbot234 wrote: | > What will really reduce poverty (at least in the | Western world) is a total rethink of the housing | policies. | | Very much true in urban areas, but rural poverty is a | thing too. Housing is a key piece of the puzzle but | hardly the full story. | xyzelement wrote: | >> let me have a few cigarettes, some fast food and a coke so | that I could forget for some moments about my condition as a | poor person". | | Just to state the obvious, this is ONE way to think but it's | not how people who climb their way out of poverty think. | | Eg - consider dirt poor Chinese immigrants to the US. They | aren't thinking about coke and junk food, they are thinking | about how to improve their family's lot and their kids' | future, which is why they actually manage to. | | I grew up immigrant and very poor. So I "get it" but I also | know first hand that when you are poor, toy can't afford to | be stupid or careless to boot. | ResearchCode wrote: | I don't think those groups smoke less than the majority | population. Perhaps more. | quadrifoliate wrote: | As another immigrant who came to the US dirt poor, I can | absolutely say that I consumed cheap fast food as an escape | from constantly thinking about how to improve my lot and | climb out of poverty. | | I bet that has had a non-trivial negative effect on my | health. | | Once I was more financially comfortable, I began making way | more of the optimizations that most middle and upper class | folks in the US treat as just "standard good practices", | like maxing out your 401k, putting it in market-tracking | funds, not picking stocks, etc. | ozim wrote: | Top comment is kind of true, the one you are replying to I | don't really agree as well. | | Top comment for me is saying about that it is putting blame | on poor people for being poor like "you want to afford | apartment, just stop drinking Starbucks lattes every day". | | We know world does not work like that and a lot of dirt | poor immigrants are not hitting jackpot or getting super | rich by being frugal. Lots of people are not getting into | being financially independent by simply being frugal. They | mostly get by and that is it, some get better of course. | | On the other hand the comment you reply to is advocating | that, well people have shitty jobs, they go back home and | they don't have enough energy to do anything with their | life but just smoke/watch tv, whatever. Which is advocating | for wrong things. | | I totally understand if someone tried at lest something to | make his life better, quitting smoking, not drinking lattes | every day, even if he failed we cannot say he is just a | lazy bum - at least there was some effort. | | Who I don't sympathize with are people who will nag day in | and out how bad their life is, but they would blame | whatever is out there and who never would attempt to do | something but would just indulge in smokink/drinking/tv | series. | JumpCrisscross wrote: | > _one doesn't think of ETFs and carried interest_ | | This is more financial savvy than literacy. | | Financial literacy is mostly learning how to not get screwed. | Understanding the cost of check-cashing services. Knowing | that you should not be paying a monthly fee for a basic bank | account. Learning how to file a tax return and collect your | credits and refunds. Knowing how to opt out of overdraft | protection. Knowing how to compare credit card offers. | Learning about sending money home via money order versus | TransferWise versus Bitcoin. | | These are powerful intellectual tools. If you're born into | the middle class, you got them informally. If you weren't, | you likely didn't. That's an oddity somewhat orthogonal to | the economic plight. | zozbot234 wrote: | People who are living "day-to-day" need financial literacy | the _most_. The point of being financially literate is not | learning about ETF 's and carried interest, but how to climb | out of the stress-inducing "day to day" trap as quickly and | effectively as possible. | | There's quite simply no excuse for 'existential dread', if | you're not in actual North Korea-style extreme poverty you | can build a precautionary buffer of savings and escape all | that stress. | space848 wrote: | Another piece of financial literacy that should really be taught | in every high school is the Kelly Criterion. Even a basic | understanding of the concept can improve many people's | risk/reward over time. | | And while it's often mentioned in the context of high-risk bets, | it's equally applicable to low-risk savings / investments (how | much of savings to keep in cash vs the general stock market, | given X% estimated inflation). | | Surprisingly, I've come across a large number of people in (seed) | investment circles, active investors and entrepreneurs who didn't | know about it. | | https://en.wikipedia.org/wiki/Kelly_criterion | danuker wrote: | There is a book that taught me a great deal: Systematic Trading | by Rob Carver. | | In it, he notes that betting/investing at the Kelly criterion | implies you are quite confident in your abilities to forecast. | | For a margin of safety, invest less, say, half-Kelly. That way, | you allow for unknown-unknowns. | [deleted] | TrackerFF wrote: | I'm not completely sold on the hype of financial literacy. | | Main reason being this: Most schools teach basic nutrition, i.e | that eating less/more food than you need, can/will result in | losing/gaining weight. In this day and age, it is common | knowledge that eating junk and being sedentary will cause | obesity. And even if there are groups of people that don't know | this, obesity has hit all socioeconomic classes - not only poor | people. | | Likewise, I don't think that if we suddenly teach everyone | financial literacy, we're suddenly going to poverty plummeting. I | don't think poor people are poor because they don't know how to | pay their bills on time, invest in index funds, or that having a | maxed out 35% credit card will make your debt outgrow a 8% | savings fund. | | I think poor people are poor because they're trapped in low-wage | jobs, and are often forced to use more expensive services, as | well as being victims to centralization and ever-growing rents. | | edit: With that said, I think basic financial knowledge should be | school curriculum - but I don't think it's going to be the magic | bullet. | mettamage wrote: | > I don't think poor people are poor because they don't know | how to pay their bills on time, invest in index funds, or that | having a maxed out 35% credit card will make your debt outgrow | a 8% savings fund. | | I know people that don't know: | | * How to recover their bank accounts (they told me it's | impossible, so I recovered it for them) | | * What an index fund is. Even when I do tell them, it seems to | be a bunch of hocus pocus to them. | | * Ok, I don't know people with credit card trouble. Dutch | people tend to not have credit cards. | | There are enough people that don't know a single thing about | finance. Most of these people are 60+ and middle class. At | least, that's what I have seen in my world of anecdata. | TrackerFF wrote: | I see that - and I think it's quite a cultural thing. Most of | the people I know in such positions, are also 60+ and have | either retired, or on their path to retiring. | | Here in Norway most of the older folks either retired at 62 | or 67, so being acutely aware of things like diverse | investment portfolios, strategic credit card usage, etc. | weren't really a thing. They'd get their pensions, and live | normal lives. | kiba wrote: | _Likewise, I don 't think that if we suddenly teach everyone | financial literacy, we're suddenly going to poverty plummeting. | I don't think poor people are poor because they don't know how | to pay their bills on time, invest in index funds, or that | having a maxed out 35% credit card will make your debt outgrow | a 8% savings fund._ | | Cause of being poor and in financial distress is | multifactorial. Some of the problem can be blame on poor | spending habits and lack of education. | ZephyrBlu wrote: | I disagree with your conclusion in relation to the points you | presented: | | > _I think poor people are poor because they 're trapped in | low-wage jobs, and are often forced to use more expensive | services, as well as being victims to centralization and ever- | growing rents_ | | That might be another issue, but in terms of what you have | presented I think the issue is that knowing isn't enough, | executing on the knowledge matters more. And most people can't | execute, which is why people are still fat. | xenocyon wrote: | The article talks about financial literacy as it pertains to | ordinary folks. | | But - perhaps more relevant to the HN audience - I have noticed a | surprising amount of financial illiteracy among the tech-savvy | middle-to-wealthy class as well. A lunchtime conversation with my | coworkers showed that most put more faith in their own instincts | with picking stocks than in index or mirror funds (something that | evidence shows is very unlikely, but people like to believe). | Another time, I found that a majority of my coworkers were filing | their stock-option taxes incorrectly. | | Though no doubt wealthy folks _are_ more literate (including | financial literacy) than the poor, my suspicion is that most of | the difference in financial outcomes comes to the fact that poor | people simply have less capacity to save than middle /wealthy, | and more severely feel the impacts of poor decision making. | ZephyrBlu wrote: | > _A lunchtime conversation with my coworkers showed that most | put more faith in their own instincts with picking stocks than | in index or mirror funds (something that evidence shows is very | unlikely, but people like to believe)_ | | Very unlikely in what circumstances? E.g. 5 year period, 20 | year period, holding the same stocks the entire time, etc. | jakelazaroff wrote: | _> Though no doubt wealthy folks are more literate (including | financial literacy) than the poor_ | | I'm not sure this part is true. One of the privileges of being | relatively wealthy is that you don't have to pay as much | attention to your finances if you don't want to. You don't have | to worry about budgeting if you know you have enough income to | cover your expenses. You don't have to pore over every inch of | your insurance policies if you know you generally have enough | money if you get hurt. | | Of course, you do need enough awareness to live within your | means. But generally speaking, you probably have enough | financial headroom that you can make suboptimal financial | decisions and still get by. Many poor people don't have that | luxury. | dragontamer wrote: | Not all poor are stupid, but many stupid people are poor | because of their financial decisions. | | For example: I have a friend who has bought at least 5 new | cars in the past year despite making less than a third of my | income. He has no self control and just wants the latest and | greatest. | | My group of friends all roll our eyes collectively whenever | this person starts talking about a new car. Just on schedule, | roughly 1.5 years after the last car. | | But hey, at least this person has a job these days. There was | a time where he was unemployed and still was pulling these | shenanigans. | | --------- | | On the other hand: I had a great talk with a nice old lady | the other day about reducing risks by making a bond ladder. | She didn't know the term was called bond ladder, but she's | been using CDs and other instruments (not equities) to build | up her savings while reducing interest rate risks. | | I know she's poorer than me, based on how she scoffed at the | amount of years I thought it'd take to save up for various | purchases (car, house, etc. etc.) near the end of the | discussion. (Talking exact numbers is a faux pas and I didn't | mean to. But if I say something like "and I think my new $20k | car will take 1 year of savings", the reaction of myself, as | well as the other person, will set the expectations of income | innately) But she was clearly highly financially literate, | maybe a bit lower on the risk spectrum than I'd personally | be, but she'd hold her side of the conversation about | equities, bonds, CDs, and other instruments. | jakelazaroff wrote: | Some people struggle because they make poor financial | decisions, sure, but I'd bet that's the exception rather | than the rule. There's a post about being poor(ish) that's | shown up on HN a few times [1]. I think far more people in | that situation are financially savvy, acutely aware of the | pros and cons of their limited options, simply because | there's so little margin for error. | | [1] https://residentcontrarian.substack.com/p/on-the- | experience-... | selimthegrim wrote: | I mean CD ladders were not a bad idea in the era of | nontrivial interest rates... | dragontamer wrote: | Yeah, given her age and the time period she lived in, it | certainly was a workable strategy. She was clearly | retired at this point and was proud of her nest-egg and | was willing to talk to me about it ("impart her wisdom"), | which I definitely appreciated. | | It really wasn't until the end of the discussion when I | appreciated how different our income levels were. A | lesson I'll remember later: its easy to forget income | levels, as well as assume other people's income levels | based off of conversation topics. Something I'll work on | in the future. | alserio wrote: | What resources would you suggest to help your coworkers? | fassssst wrote: | The book A Random Walk Down Wall Street is a good start. | alserio wrote: | Thanks | blibble wrote: | the amount of people I've met that say "they can't do numbers", | and are proud of it always surprises me | | (and this includes people like lawyers) | | then if you ask them if they would be proud to be illiterate | the answer is always a forceful no | | why the difference? | nine_zeros wrote: | I know enough non-tech educated people who don't invest in | anything. They have no inclination to. They have no one to | guide them. Even when someone tells them to invest, it is a | concept too hard for them to grasp. | | Not everyone is looking to make money. Sometimes circumstances | won't allow them to understand it. By the time they do, it's | already too late. | vbtemp wrote: | > They have no inclination to. | | One shtick I have is the "Young person, why don't you have a | brokerage account"? | | I know so many people, who are not so young any more, who are | professionals and with solid salaries, who will do things | like have credit cards, have cars they finance, a coinbase | account, maybe a robinhood account, certainly a facebook and | instagram account.... but no Schwab, Vanguard, or other basic | Individual brokerage account. | | They have the income and technical know-how to make | complicated online accounts and make use of financial | services.. but even though it takes ten minutes to make a | Vanguard account, and 2 business days to credit it and buy | boring index funds... so few people who can (ie have money | and knowledge), actually do... or even have much interest. | It's sad and fascinating at the same time. | nine_zeros wrote: | I understand their perspective though. Some of them are | very driven people. They are just not interested or | oblivious to the power of wealth. | | Some of them only care about career ladder. They must climb | and optimize for that. Others care only about fame. Some | clamor for benefit of their children. | | It's true money can bring a lot of freedom. But to many | people, it is not the be all end all. ___________________________________________________________________ (page generated 2021-09-05 23:01 UTC)