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Old 04-07-2008, 09:50 AM   #21
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You don't need any more math than what's required to tip at a restaurant.
Apparently, waiters/restauranteurs don't believe their clients know enough math to tip either: The last few restaurant checks I've received have a little "Tip help" on them that lists what an 18%, 20% and 22% tip would amount to. (Yes, the 15% amount is missing )
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Old 04-07-2008, 10:05 AM   #22
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You guys are right, but you're missing an important reason that financial literacy can't be taught:

Who's Going to Teach It?

The point is this: In many cases, the people teaching it will have an interest in promoting investment choices with high fees, and what they teach will be biased.
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Old 04-07-2008, 10:31 AM   #23
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Mr Thaler admits that even he finds it hard to know the right thing to do. “If these things are perplexing to people with PhDs in economics, financial literacy is not the right road to go down.”
I don't think much of his alternative ("sensible default options", indeed). Given his admission that even the experts are "perplexed", there seems little point in handing over all of the responsibility to them. And decreased choices tend to mean decreased competition: which may well lead to increased frictional costs, as Al suggests.

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One of the most depressing factors that figures into this problem is math phobia, leading to lack of interest in math and lack of confidence when approaching anything even remotely mathematical. People who could understand simplified, verbal presentations of correlation and basic financial concepts, simply will not attempt to do so. "I can't do math!!" resounds within their minds as they slam the most simplified of books shut, even books including little to no actual math/
You make a good point. It is unclear to me why the great majority of high school math classes are geared towards theoretical concepts (trigonometry, differential equations, etc.) that are of essentially no use to most people. Sure, engineers need such knowledge, but relatively few high school graduates take engineering in university. Most students simply develop a permanent dislike of mathematics, and a vague sense of inadequacy in financial matters.

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Apparently, waiters/restauranteurs don't believe their clients know enough math to tip either: The last few restaurant checks I've received have a little "Tip help" on them that lists what an 18%, 20% and 22% tip would amount to. (Yes, the 15% amount is missing)
Faced with such presumption, I would just make it easy for myself and tip 10%. That would be a true "sensible default option"!
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Old 04-07-2008, 11:19 AM   #24
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Best Wife, do monkeys know how to pick stocks?

But seriously, maybe there should be more reality shows on complete money makeovers. 90% of the people featured in "America's Money" on money.com desperately need a money makeover. It just can't be instantaneous -- e.g. over a year's span. Instead of "What not to wear," we can have "What not to buy/lease/borrow money for." I think it would be much more interesting than the gazillion "house hunter" shows on TV.
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Old 04-07-2008, 11:27 AM   #25
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Best Wife, do monkeys know how to pick stocks?
Definately. They fling their poop at the stock tables and buy the smears.
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Old 04-07-2008, 11:48 AM   #26
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My wife is one of these people who isn't lacking in the intelligence department, but it is impossible for her to understand anything about finances. She might be a great attorney, but even though she spends money every day, she has the faintest idea about the most basic concepts.

We were flipping channels on Saturday night and I came across the Millionaire Inside on CNBC and saw David Bach talking, so I stopped on the channel for a minute. He was preaching the pay yourself first idea, and my wife actually laughed and called him an idiot. She said, "What is this guy smoking? If you pay yourself before you pay your bills, you'll just end up not having enough money to pay your bills!"

I tried to explain how it works, but it was just a deer in the headlights stare. She eventually got frustrated and told me to turn the channel. I told her I had a copy of his book and she could probably read it in about an hour and have a complete new understanding of how easy it is to create wealth, but she told me to shove the book somewhere that would be quite painful.

She is like a lot of people. Some just can't understand it, others just don't want to.
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Old 04-07-2008, 12:18 PM   #27
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It appears to me that math phobia has intellectually crippled a significant fraction of women, in particular.
This may be true. My daughter is finishing up her differential equation class. She says math is easy but physics is harder to grasp.
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Old 04-07-2008, 12:20 PM   #28
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Do monkeys pick stocks? All the time, apparently:

The stock-picking monkey strikes again - BloggingStocks
and
Primal picks :: CHICAGO SUN-TIMES :: David Roeder

And presumably Mr. Monk is also financially illiterate....

Now that "Flip This House" on tv seems to have changed its focus from "Look what you could to too!" to "Look at what these fools are doing!" it probably is time to have a show featuring real live people starting their nest eggs. "My First 401K" or something....
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Old 04-07-2008, 01:04 PM   #29
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This may be true. My daughter is finishing up her differential equation class. She says math is easy but physics is harder to grasp.
Mine too!! Women in my family always make straight A's in calculus/diff eq. (Men too!)

But at least in my generation, math phobia is apparently a problem for a significant fraction of American women in the general population (not all). I don't have a link to back up that statement, though I suspect it may be common knowledge. I have known several women that I would classify as "math phobic" so I have anecdotal evidence. I think it has to do with their upbringing, though I am not sure. My family always expects both boys and girls to excel in math, so I never had any doubt that I would. Some other women my age were not so lucky.
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Old 04-07-2008, 02:12 PM   #30
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Most students simply develop a permanent dislike of mathematics, and a vague sense of inadequacy in financial matters.
Boy, that was me!

OTOH, one of the two most useful classes I took in high school was a basic financial class; the difference between a savings & checking account, what compound interest is, rudimentary investment stuff, and some basic business law issues aimed at the consumer level. Stuff everybody needs to know, but no one had ever told me.

The other most useful class was typing, but I only took that one because I knew it would be full of girls.
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Old 04-07-2008, 03:01 PM   #31
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Interesting thread. My math & physics instructors in high school were all female. There were several fellow female engineering geeks in the Engineering Club. I am in the camp of "I really do not care to learn the finite nuts and bolts of detailed personal finance"... I don't even balance a checkbook! (don't understand the concept!) I can tell you exactly how much is there - where everything comes from and goes to...but that sit down, number crunch - add "this" - subtract "that" until a majic number appears like my grandfather and father did? Not a clue! Nor do I automatically know my ROR's without checking the statements and playing with a calculator. People tell me I am financially savvy! Go figure!

Another eye opener? Many folks I meet who work in accounting/finance only know their little niche in the corporate financial section - and very little about personal finance. fascinating!
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Old 04-07-2008, 03:07 PM   #32
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I think math is secondary. First comes a simple rule that fortunately my wife and I were raised with: "spend less than you make." (Also known as LBYM.) This requires being in control of your desires for material things. Add to that consistency and the ability to make important decisions without emotionalism. Then, perhaps, comes math as your savings increase and you seek to optimize your investments. Unfortunately, even from this viewpoint, less than 10% of the population is qualified to manage their own money. The sad truth is that money management is intensely personal: everybody is going to do it their own way, even if that means ignoring it or delegating the authority to a high-fee "professional." I'm fairly conservative politically but a firm believer in social security: Most of the population genuinely needs a safety net. Unfortunately it's a fairly weak net these days....
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Old 04-07-2008, 03:07 PM   #33
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The point is this: In many cases, the people teaching it will have an interest in promoting investment choices with high fees, and what they teach will be biased.
I did a fair number of seminars in my career as an FA, and never did a product-push seminar.

One of them was "Smart Women Finish Rich" by David Bach........I got some good clients from that one..........
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Old 04-07-2008, 03:58 PM   #34
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I really don't think it is as bleak as you portray. Honestly, if someone can read "The Wealthy Barber", they're about 80% there.

You don't need any more math than what's required to tip at a restaurant. Every payday, have 20% of your money put into a savings account. When that gets to be more than 6 months living expenses, start putting it into a few Vanguard mutual funds. Which ones? Who cares, just pick a couple that sound good. Total Market Index? Perfect. Reit something or other? Cool. International thingamajig? Awesome.

When the statements come, just throw them in a big filing cabinet without opening them. What ever you do, do not turn on CNBC.

Ten years later, the person following this plan is going to be in pretty good shape.

We spend an awful lot of time on this board discussing the optimal investing strategy. We talk about asset classes, rebalancing, buckets, expense ratios, etc., but just starting is 80% of the issue. All of those things are important, but unless they are handled terribly, they will work out ok. It's not ideal if people end up in mutual funds with a 2% expense ratio, but they'll still end up great compared to doing nothing.

Note-- this is about the plan I put my wife on in 2004 when we first started dating. She was frozen by all the choices in her 401k, so I just picked four Vanguard index funds and told her to put her money in those ( 40% S&P500 index, 20% small-cap index, 20% mid-cap index, 20% REIT index). Four years later and it's become a decent amount of money. In twenty years it will be a massive amount of money. It's not perfect, but it is good enough.

A very EXCELLENT point. And one that should be pointed out a bit more intensely. Anyone that is mentally competant (and by that I mean people that can drive a car, vote for the president, and own property), can gather enough information for themselves if they truly want to, to be able to retire somewhat comfortably. To really understand the ins and outs of flight mechanics certainly does take a PHD. But the basics can be learned using plain language in harldy any time at all. It is much the same way with finances. A person may not understand all of the fancy terminology, but if broken down the ideas are not too complicated. In addition, you do not need to know every little part of finance, just the pieces that you need to use for yourself.
I believe the primary reason for financial illiteracy is a DIRECT failure of the public educational system. I had not a single class on it at either the HS or college level. I beleive that such courses should be just as mandatory as english or mathmatics. I believe that the traditional three legs of reading, writing, and arithmetic, should have finance added to it. People are often frightened of things they are not familiar with. If you start young enough talking about investment, retirement, etc, then these topics would not longer hold the fear that they do now.
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Old 04-07-2008, 04:16 PM   #35
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One of the two most useful classes I took in high school was a basic financial class; the difference between a savings & checking account, what compound interest is, rudimentary investment stuff, and some basic business law issues aimed at the consumer level. Stuff everybody needs to know, but no one had ever told me. The other most useful class was typing.
I believe it. Such classes ought to be taken by every student. Sadly, there seems to be a prejudice that they are only for dummies, with the smart (i.e. college-bound) students taking the theoretical courses.
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Old 04-07-2008, 04:20 PM   #36
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I've known a number of people who were highly educated and very good with numbers but their financial lives were an absolute train wreck. I finally understood that they did not have control of their behavior. They were very impulsive and/or undisciplined. There was an inability or an unwillingness to look 5, 10 or 20 years down the road and see the results of poor money decisions made today. I know others who are less educated, yet they are on their way to substantial wealth because they have common sense, LBTM, and have a long term game plan with long term goals. Simple addition and subtraction serve them well.
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Old 04-07-2008, 04:34 PM   #37
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I've known a number of people who were highly educated and very good with numbers but their financial lives were an absolute train wreck. I finally understood that they did not have control of their behavior. They were very impulsive and/or undisciplined. There was an inability or an unwillingness to look 5, 10 or 20 years down the road and see the results of poor money decisions made today.
Sounds like a cop-out to me. "I would like to save and invest, but I just can't manage it; I have no self-control".

There are exceptions to every rule, but generally speaking, people do what they want to do. Fat people remain fat not because they are impulsive or undisciplined, but because they enjoy eating more than they want the health and lifestyle benefits of losing weight. Similarly, the people you're talking about probably understand full well the consequences of their actions, but they value keeping up with the Jones more than the freedom of financial independence.
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Old 04-08-2008, 04:51 AM   #38
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Some sort of rudimentary Personal Finance class should be a required High School subject for students. It should cover the basics from personal budget, loans, up to very basic investing concepts.

Seems like a no-brainer. It would not turn people into investment geniuses, but ir could outfit them with some basic concepts. It is fundamental skill that every American needs.
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Old 04-08-2008, 08:50 AM   #39
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Some sort of rudimentary Personal Finance class should be a required High School subject for students. It should cover the basics from personal budget, loans, up to very basic investing concepts.

Seems like a no-brainer. It would not turn people into investment geniuses, but ir could outfit them with some basic concepts. It is fundamental skill that every American needs.
I tried to do one with the local high school, but the School Board nixed it...........
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Old 04-08-2008, 08:51 AM   #40
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I tried to do one with the local high school, but the School Board nixed it...........
Really? Why?
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