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Old 08-05-2009, 08:43 PM   #21
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Originally Posted by ERD50 View Post
OK, so I understand that you read and appreciated all the comments about the value of the matching in a 401K and you/she have made up your minds to pay off the debt instead. So I will respect that, and not pursue that any further.
But, but but...the motorboat song.
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Old 08-06-2009, 05:57 AM   #22
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But, but but...the motorboat song.
LOL.

However in ERD defense, there are some deals that are so good that not taking them is financial malpractice. The 401K match at 50+% level is so good that you are better off borrowing the money on a credit card. (Cause eventually you can borrow the money from the 401K and pay off the card!) then passing up the deal.

I remember I had a very smart admin (she latter left Intel to study computer science at Stanford!) who wasn't taking advantage of the employee stock purchase plan. I understood her problem (single mom living in an expensive area on a admin salary) but still I was determined for her to take advantage of this deal. I told her it being better to borrow the money on the credit card deal. I eventually I said easiest way for her to double her raise was to sign up. Eventually she did and she did thank me.

Now I am not actually advocate anybody borrow money on credit card to take advantage of these programs but compared to a 7% student loan. This is a no brainer. For a person making 50K a year for a typical match 50% on the first 6%. This works out to $1500/year $125 a month. There aren't many ways for frugal young adults to save that kind of money.

The difference between starting the 401K match today instead of 3 years from now is in the neighborhood of 25K to 35K of todays dollars solely because of the free match.

At least 80% of the time when people ask for financial advice on this forum there isn't a clearly right or wrong answer. Should we/relative invest in a variable annuity in our 401K/IRA and should we take advantage of the 401K match are the rare examples where there is a right or wrong answer. Actually I think ERD is being very tactful in his request.

I appreciate that Dave Ramesy, Suze Orman and such are correctly telling a debt addicted society to get out of debt. But LadyPatriots daughter sound like they don't have the disease. They are ready for understanding debt 201, which explains debt is not per se bad or evil, merely a tool. A classic example is borrowing money for college. Lady's daughter in particular and society in general are better off by kids borrowing money to get their degree rather than working at Malls/McDonalds etc trying to save up money to pay cash for college. A 23 year old has a lot more years of being able to use her college degree than 35 year old.

Now I appreciate that parents need to let go and let kids make their own mistake, but I don't think that 401K are source of emotional conflict, like advice about boyfriends, apartments, tatoos, pets, clothes etc. Frankly, I wish my parents had known this stuff it would have saved me some money.
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Old 08-06-2009, 08:07 AM   #23
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The purpose of my original post was to share the good news of my dd's achievement, and to suggest that young adults, having experienced this recession early in their lives, might have a greater awareness of economic issues and a more frugal financial perspective. I thought perhaps others might share their observations of financial behavior in young adults.

Although I appreciate the spontaneous sharing of advice on 401k contribution vs. student loan repayment, that's not why I posted, nor did I at any time ask for such advice.

Some decisions are not based solely or strictly on numerical equations. We believe our daughter's decision is the best one for her, based on her situation, her character, and her future goals. And that's really all I'm going to share about that decision.

Thanks again to everyone who offered their good wishes for my daughter.

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Old 08-06-2009, 09:12 AM   #24
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LOL.

However in ERD defense, there are some deals that are so good that not taking them is financial malpractice. The 401K match at 50+% level is so good that you are better off borrowing the money on a credit card.
I know. Personally I agree with you and ERD about the finances. But LP has made it clear that they choose a different option. I'm not laughing at ERD (much ), I'm laughing because I've been there so often. You can't change people's minds. at least not through repetition of an argument. They have to do it themselves. I learn slowly, but I learn. You've got to respect other people's choices. Otherwise, you'd all have to do what I think is best. Of course, the world would run so much smoother then.

By the way, LadyPatriot, congratulations to you and your daughter. I'm a longtime patron of libraries, and the world certainly needs more hardworking and intelligent librarians. And if they are young and attractive, so much the better.

Seriously, congrats.
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Old 08-06-2009, 09:55 AM   #25
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I know. Personally I agree with you and ERD about the finances. But LP has made it clear that they choose a different option. I'm not laughing at ERD (much ), I'm laughing because I've been there so often. You can't change people's minds. at least not through repetition of an argument. They have to do it themselves. I learn slowly, but I learn. You've got to respect other people's choices.

I understand, harley. I tried to make myself clear when I said I respected that she didn't want any further challenges to her position, but I was still interested in the numbers behind the decision (which she did not provide ). Perhaps some people thought I was not being honest with that statement. Maybe this explanation will help:

As clifp stated so well (I will comment on that post more fully later), a good 401K match comes about as close to a right/wrong decision as you can get. Why am I so interested in why people turn away free money? Here is why - suppose a friend or family member mentioned that they were turning down a 401K match. I would want to know how to approach them to present the information in the best way, to get them to understand the benefits of the 401K match. This forum provides some "practice" for that, we get lots of views from lots of different people. So these discussions not only challenge my own thinking, but help me develop ways to best present the facts to someone in the same position. I am honestly trying to understand the thought process behind their decision, so that I might more effectively counter it in the future.

Sure, at some point you give up (as I did with LP), but if you truly care for someone, you want to give it your best shot to get them to see the light. It is for their own good. If I ruffle a few feathers here with comments like I made, I'm sorry, but I honestly believe that the net effect is positive. I have to be true to myself, and what I know to be fact. A match is free money to those who accept it, it is as close to a free lunch as we can get (paid for in part by those who refuse it).


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But, but but...the motorboat song.
Aw c'mon... I said "However" not "But"! Doesn't that sound so much better?

BTW, LP - often times a post starts out one way, and forum members note something else of interest/importance buried in there. Often the side topic is more useful than the original comment/question, or takes on a life of its own. Sorry if I offended, I tried my best to phrase my responses gently, it's always hard to tell how posts are received w/o the inflection and body language and real-time feedback of a face-to-face conversation.

-ERD50
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Old 08-06-2009, 10:11 AM   #26
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ERD50, stop being an engineer! Yeah, I know, I can't turn off that part of my brain either.

You are seeking the optimal solution to the problem of pay down loan vs. invest in 401k with match. Based on a rational analysis using math, the highest net present value lies with investing in the 401k. Unfortunately, not everyone uses this same rational system of analysis. Emotion comes into play, and the feeling of being debt free trumps mere mathematical analysis of what is best financially. To some it is "feel good, sleep at night". To some it is a badge of honor to be debt free.
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Old 08-06-2009, 11:01 AM   #27
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...Although I appreciate the spontaneous sharing of advice on 401k contribution vs. student loan repayment, that's not why I posted, nor did I at any time ask for such advice....LadyPatriot
Your daughter is choosing one of two quite responsible options for her finances--pay off debt or save. Amazing for a 24-yr.-old, either way she goes.

Sometimes this forum is like a debate club--had you posted she prefers red to blue, you might be hearing many reasons why blue is better than red.

I love your description of your daughter's high school persona! I'm going to look at our public librarians a little differently from now on
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Old 08-06-2009, 11:10 AM   #28
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Congratulations on raising such financially savvy daughters!
I love all the various opinions given by everyone here....you take the best and leave the rest!
Heck, if I would have listened to everyone who was against me leaving my corporate job to have a new career in massage therapy.....I would still be miserable! However, when I made the jump, I had a better understanding of all the risks/questions/potholes that I would encounter which saved me a lot of surprises!
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Old 08-06-2009, 02:30 PM   #29
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I remember I had a very smart admin (she latter left Intel to study computer science at Stanford!) who wasn't taking advantage of the employee stock purchase plan. I understood her problem (single mom living in an expensive area on a admin salary) but still I was determined for her to take advantage of this deal. I told her it being better to borrow the money on the credit card deal. I eventually I said easiest way for her to double her raise was to sign up. Eventually she did and she did thank me.
I just have to comment on this little side-topic. It's one of my favorite "opportunity knocks" stories.

I suspect that your ESPP was structured very much (if not exactly) like ours was. I know of at least one mega-corp with this plan in place, and ours seemed to be a carbon copy of it (why re-invent the wheel?). When I first saw the plan, I kept looking for the "gotcha", the "fine print". I couldn't believe it, it was all gravy, it was a "gift", there was no "gotcha". IIRC, it went something like this:

A) Sign up for 6 months at a time. You took a payroll deduction for the amount you invest up to 10% of your gross.

B) At the end of 6 months, you get the company stock at 15% below the lowest of EITHER the price at the beginning or the end of the period. That was the part I had to read 27x to believe.

C) You could sell the stock as soon as it was credited to your account ( a matter of days).

Wow. The only risk I could scratch out of this was - if the stock dropped more than 15% from your purchase price between the few days from closing to the time you could sell. One could short that much stock, or buy a put to protect themselves, but I assumed that any delta would average out, so I just accepted that small risk. I ALWAYS sold immediately when it hit my account.

The math: A 15% purchase discount means you sell at 17.6% above your purchase price ($100 stock purchased at $85 is 100/85 = 17.6% gain). 17.6% done 2x a year is 38.4% MINIMUM compounded annual return, practically guaranteed! Often, the stock rose over the period, so you took the gain on top of that! I'd have to dig it up, bit it was thousands, usually many thousands of dollars of pure profit each year, at very, very low risk. THAT felt good!

So yes, if you could not handle a 10% reduction in your paycheck, you could put that on your CC and keep paying it down with the profits. You would never suffer a cash flow reduction, and you would be out of debt and enjoying the profits in a short while.

I kept talking this up with my co-workers, and I was shocked at how hesitant people were. "I can't afford it", with no more thought; "I already own too much company stock" (you are going to sell it within days!); lethargy; suspicion. I got to the point where I was begging people to do it, I told them I would put up the money, and they can keep half the profit. I would have loved to get dozens of people to do this, the profits would have poured in ( I def would have bought/sold puts for a few days with that much exposure). But I really would say it to make the point of what a great deal this was. Yet, so many people passed it by. It really was not "investing" - it was a company benefit. I told people, you don't voluntarily give up a raise, or your health insurance, do you? So why give this up? But people did.

One of my employees followed my lead, but it took a lot for him to convince his conservative wife. He started out with a small deduction, but went up to the full 10% the next period. He thanked me, and still emails me occasionally for financial feedback

When opportunity knocks, do you listen?

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Old 08-06-2009, 02:41 PM   #30
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When opportunity knocks, do you listen?
To further sidetrack the thread...

Up till this year we had 100% matching contributions on 401ks up to 6% of salary. Immediately vested 100% from the day you put your money in. In other words, you lose about 4% from your take home pay and get 12% of your salary deposited into your 401k. Sweet deal that almost all took. But some few, who could afford it by their own admission, declined to participate at all, just because they didn't feel like messing with it. After tax savings, you get an immediate 200% return on investment, yet some folks don't care! Opportunity knocks and they don't listen.
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Old 08-06-2009, 06:24 PM   #31
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It boggles my mind that anyone would make a fully informed decision to avoid a 401k match. I could comprehend if they couldn't afford it, or if they were unaware of its benefits, or even if they were too lazy to sign up for it. But this is like walking past $20 bills on the sidewalk every day and then saying "I'm glad I didn't pick up those $20 bills."

Oh well, more FIRE for the rest of us...
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Old 08-07-2009, 05:37 PM   #32
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I understand and agree with the arguments for a 401k match, but it's clear that wasn't LP's question and she has already responded twice pointing out that the financial argument wasn't the sole factor in her DD's decision.

It might be an interesting exercise to some to figure out why such an obvious decision is made "incorrectly", but I think these people might be overlooking the non-financial aspect. Asking the same question in different ways only seeks to antagonize the poster.

No offense intended, I just see LP's point and I'm an over-analytical engineer.
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Old 08-07-2009, 05:58 PM   #33
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No offense intended, I just see LP's point and I'm an over-analytical engineer.
But doesn't it bug you when you see sub-optimal decisions?

(couldn't help but further antagonize)
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Old 08-07-2009, 10:59 PM   #34
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But doesn't it bug you when you see sub-optimal decisions?

(couldn't help but further antagonize)
Five engineers were asked the philosophical question - "Is the glass half full or half empty?".

The first engineer said: "The cup is over-designed for that amount of liquid. A cost reduction opportunity exists.", (while mentally reviewing surface area versus volume formulas for cylinders).

The second engineer said: "The cup is under utilized."

The third engineer said: "Let's review the requirements documents."

The fourth engineer said: "Looks like marketing promised the customer a change, and forgot to tell engineering."

The fifth engineer was more succinct: "It depends."

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Old 08-07-2009, 11:44 PM   #35
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... but it's clear that wasn't LP's question and she has already responded twice pointing out that the financial argument wasn't the sole factor in her DD's decision.
Well, just to continue on the over-analytical front ...

Actually, it was not clear at all that that was not her question. The first post had no question (other than the rhetorical one) at all, it was all observation. And she mentioned that the daughter did ask the question of 401K versus loan pay-off. So it seems reasonable that if people were to comment at all, they would comment on anything that was part of the post, and especially on one where questions were asked by the daughter.

Her second post included information on their decision process, which appeared to be flawed (or miss-communicated). Again, it seems reasonable for people who want to help and/or learn to ask about that.

Her third post included some additional (but not complete) information on their decision process, which still appeared to be flawed (or miss-communicated). So, the conclusion offered that "she really wants to get out from under that loan as soon as possible", may still be based on some bad assumptions, and for all we know she would not feel that way if it was a completely informed decision (remember, we do not know, and still don't know the 401K terms at this point).

Her fourth post reiterates that "being debt-free is important to her". But, w/o the 401K terms, we still don't know how to compare the "importance of being debt free" with whatever matching the 401K provides. So, helpful people are still left wondering if it is an informed decision.

It is not until her fifth post, after ~ 20 helpful responses, that she specifically states she did not ask for any advice on the matter.

At that point, the thread took on a life of it's own

So, if she really did not want to get feedback on that at all, why provide any info on the interest rate on the loan? Why even entertain it, if their mind is made up? It seems like an irrelevant financial detail to them anyhow. It probably would have been better for her to respond with something like "DD hates owing money on anything, she would rather be thrown in a broken glass filled septic tank with poisonous snakes than owe money to anyone. Nothing can change this, not even large sums of money".

But heck, in the OP she said her daughter *asked* about it, so she certainly *considered* it - what the heck would sway them away from it then? What could be more powerful than a 401K match?

Geez, thinking about the fact that DD asked, now I'm even more curious than I was originally. I really, really don't get this.

Oh well.

-ERD50
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Old 08-08-2009, 12:35 AM   #36
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ERD50,

Oft times once you lead a horse to water it still will not drink. Maybe the horse has indigestion or maybe it is not thirsty. If it croaks a half hour later then you can say I told you so! Whatever the cause this horse aint gonna drink. So be it.

I kinda feel sorry for LP, she has gotten a lot of sand kicked on her from this. She just wanted to share what she felt is good news and some of us decided to tell her what to do. Shame on us . We need to accept others choices, even though we know better!
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Old 08-08-2009, 03:25 AM   #37
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ERD50,



I kinda feel sorry for LP, she has gotten a lot of sand kicked on her from this. She just wanted to share what she felt is good news and some of us decided to tell her what to do. Shame on us . We need to accept others choices, even though we know better!

I don't feel too sorry for her, if the worse financial thing her daughter does is not sign up for a 401K, than she has raised some pretty smart kids young adults. . Beats the heck out of the 24 year old with 100K in student loans, that Grandma's house is pledged as collateral.
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Old 08-08-2009, 01:42 PM   #38
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ERD50,

I kinda feel sorry for LP, she has gotten a lot of sand kicked on her from this. She just wanted to share what she felt is good news and some of us decided to tell her what to do. Shame on us . We need to accept others choices, even though we know better!
What clifp said.

Plus, I don't think anyone "kicked sand in her face". Just the opposite. People tried to help her make an informed decision and most likely improve the financial well being of her daughter. And as clifp has pointed out, this one seems so straightforward, it seemed that our information was not getting across (see my earlier loooong post), and I think that may have led to what looked like people being on the "forceful" side of it.

In fact, I personally take some slight offense in you saying what we did was "shameful". But that's OK, I am not about to make a big deal about it or go off in a huff.

I think the "informed decision" is key - what she does after being informed is up to her of course. It just was not clear to us that she was getting the information or not.

So what do you suggest? Next time a person's post contains something we may be able to help them with, just be quiet so we don't possibly risk offending them? Please don't do that for me - I welcome helpful advice. I even welcome un-helpful (but well intentioned) advice, because sometimes it makes me re-think my position, or makes me think "outside the box" and triggers an even better idea.

This ain't tea with the Queen - it's a jungle out there, and I think we can benefit from each other's views.

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Old 08-10-2009, 10:53 AM   #39
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To continue with what ERD50 said, this is not a "1 and done" situation. The decision to pay down the loan instead of getting the 401k match is not a permanent decision. It can be undone and the position on this decision can change at any time in light of new evidence or a reevaluation of existing evidence.

I also like to have my position on things challenged since I know my knowledge and expertise on many topics is limited. After looking at what others have to say, I can always stick with my original course of action. But I don't like to act with blinders on.

Maybe the OP is experiencing cognitive dissonance between her beliefs regarding the pay down loan vs fund 401k and the arguments being put forth in this thread. Perhaps she has already rationalized her decision, and doesn't like seeing evidence or arguments that show the weakness or logical inconsistencies in her position.
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Old 08-10-2009, 11:32 AM   #40
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I tried my best to phrase my responses gently, it's always hard to tell how posts are received w/o the inflection and body language and real-time feedback of a face-to-face conversation.

-ERD50
I would say that in this case, it's fairly easy to see how the post was received.


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Although I appreciate the spontaneous sharing of advice on 401k contribution vs. student loan repayment, that's not why I posted, nor did I at any time ask for such advice.

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