[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.
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