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Re: So why do most people turn off their brains when financial issues come up?
Old 12-29-2006, 04:41 PM   #21
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Re: So why do most people turn off their brains when financial issues come up?

retirebop -

For your young officers, you need to find one of those illustrations that show if Mary invested $xx dollars for just 10 years starting at age 26, she would have much more money at 65 than Joe who started several years later and invested much more for many more years.

If I find one of these, I'll post it.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-29-2006, 05:55 PM   #22
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Re: So why do most people turn off their brains when financial issues come up?

I'll have to see if I can't work something like that up in Quicken. It shouldn't be too hard;

5% contribution
5% matching
10% (lifetime avg for indexed C-fund is actually 11.64%)
starting age 25
retiring age 50
withdrawal age 60

And that 11.64 is with four REALLY lousy years in the mix of 20 years.

Then I'll do the same thing for a guy starting at 35, no other changes. And maybe one for "How much would I have to invest to equal him if I start at age 35?"

Good idea. Thanks.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-29-2006, 10:32 PM   #23
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Re: So why do most people turn off their brains when financial issues come up?

Retiredbop:


I found this example at: http://www.tuliptreepress.com/lesson1.htm


"To illustrate the power of compound interest, let's compare a hypothetical example of two savers—one who starts the process early, and the other who waits awhile. The first person begins saving at age 21. She invests $100 every month for only ten years, and stops the process on her 31st birthday. At that point, her total investment is $12,000, and she lets it sit, earning interest, until retirement at age 65.

The second person waits until age 35 to begin saving for retirement. She also puts away $100 every month, but continues to do so up until age 65. So her total investment is $36,000. Like the first person, she never touches a penny of the investment until her retirement.

So who ends up with more money? Intuition might say that the second person, who invested more ($36,000 instead of $12,000) would end up ahead. But the earlier investor has time and compound interest on her side. Assuming an annual return of 8%, compounded monthly, the first investor would end up with $300,053, while the second would only have $150,030. In other words, the first person would invest $24,000 less than the second, but would end up with $150,023 more!"

There are additional interesting illustrations later on the same page.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 09:16 AM   #24
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Re: So why do most people turn off their brains when financial issues come up?

Thanks Gindie.

While I was tinkering with this idea last night at work I discovered there are calculators builit right into our TSP page. So now I can have them sit right at their terminals and demonstrate it quickly and easily. Hoping it will have more impact if they input the data themselves than if I hand them a sheet of paper.

The federal government should NEVER have given it's employees internet access, we do little enough as it is. Did I type that out loud
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 11:40 AM   #25
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Re: So why do most people turn off their brains when financial issues come up?

I don't buy the idea that the problem is "lack of financial education." As some of you have said, it's not that difficult. I think the problem is attitude and the sense that investing is too overwhelming. People need to get a handle on the discipline hurdle of budgeting and the fear hurdle of investing.

But if financial education were pervasive in the schools and workplace, if it were normalized that everyone saved for retirement, then part of those problems would be solved. People are herd animals, for the most part, and need to feel they are doing what everyone else is doing. That would also remedy the inhibition toward talking about money and remove the stigma that maybe a person just isn't doing it "right."

I wish that more TV shows would deal with personal finance. Oprah did a few shows on debt which were excellent and reached millions. And, whatever you think of Dave Ramsey (not much!), he is doing a great job with getting the basics of personal finance into the hands of the clueless.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 12:42 PM   #26
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Re: So why do most people turn off their brains when financial issues come up?

I think people avoid addressing financial issues because these issues involve the combination of:
- Decisions
- Discipline
- Math
People don't want to face any of the above, let alone in combination !

I think people understand a lot more than they want to face.

I think there's issues I subconsciously avoid - fortunately reading this forum help me keep the big issues in front of me.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 01:03 PM   #27
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Re: So why do most people turn off their brains when financial issues come up?

Quote:
Originally Posted by JustCurious
Some very good answers have already been provided (including those suggested in the OP), but I'll add my 2 cents.

3. Most of the financial industry's advertising/sales force is designed to convince people that they are better off just handing their money over to a high paid advisor who knows exactly what to do. This message is very effective because it is reinforced by #1 and #2 above.
Thank god that the advertising works. Otherwise, a few folks on this board (possibly including myself) may be out of jobs.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 01:06 PM   #28
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Re: So why do most people turn off their brains when financial issues come up?

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Originally Posted by brewer12345
There is an entire field of academic enquiry into just these types of questions: "behavioral finance." If you are interested, tehre are some fairly readable books on the subject. Interesting stuff, and knowing about it helps you avoid the same stupid mental traps people tend to fall into all the time.
There are dozens on Amazon. Which are the good ones?
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 01:56 PM   #29
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Re: So why do most people turn off their brains when financial issues come up?

LBS, aka, lazy brain syndrome.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 02:06 PM   #30
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Re: So why do most people turn off their brains when financial issues come up?

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Originally Posted by frayne
LBS, aka, lazy brain syndrome.
I think you're right. No sure-fire cure for that either.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 08:12 PM   #31
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Re: So why do most people turn off their brains when financial issues come up?

I suspect its a combination of early mis-education plus a lack of interest. Most of us begin a financial education with Money, Kiplingers, or Smart Money on the table of the waiting room in the dentists office. Follow this with the 25 fund choices in your 401k plan, which the employers human resources will not help you with due to fear of lawsuits (if they know any more than you do). It takes serious reading to weed out the financial porn and self promoting books.

I work in a university library and can find plenty of "tips to make you money" type books next to Grahams ' Intelligent Investor'. Plus many personal finance books are overwhelming in details the average person either doesn't need or want to know (at least to start with). It takes real work to fing Graham, Bogle, and Bernstein.

Most people have the problem of being to by the annuity salesman that they are doing the right thing and having no background to judge otherwise.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-30-2006, 09:02 PM   #32
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Re: So why do most people turn off their brains when financial issues come up?

You know, if financial independence was lauded as an admirable goal (instead of people thinking something is wrong with you if you don't slave away earning a living), more people might be attracted to the concept.

It's a cultural thing and so deeply ingrained. Somehow our American ancestors thought work made people more worthy Christians/better people, and leisure was immoral and corrupting.

But other western cultures have seen things very differently. The Greeks thought work was debasing, and leisure time was the most precious time, and that was when a man could be the most purely and honorably productive in "noble pursuits" without the corruption of having to earn a living at it. The English "middle class" in the 1700/1800s tried to achieve financial independence because that was the key mark of the "better classes". If someone in a higher class had to earn a living they would try to hide that shameful fact.

Interestingly enough, Thoreau (1850s) rejected the American work ethic, seeing the need to earn a living as being a straitjacket on the soul. He was a major proponent of LBYM and simplifying in order to free oneself from the onerous duty of having to earn a living.

Anyway, my point is that if someone thinks you "should" work most of your life, there is little incentive for gaining financial independence, so they don't educate themselves in that direction.

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Re: So why do most people turn off their brains when financial issues come up?
Old 12-31-2006, 12:48 AM   #33
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Re: So why do most people turn off their brains when financial issues come up?

Its funny, I work for a Dow Component Financial company and they ended up cutting back on our 401(k) choices to four. One Large cap, one small cap, one money market and a group of Target funds because people thought that the 15 or so choices were too confusing. At least they still offer a self managed mutual fund account.

Even in our group, which is 1/3 PhD economists, there is little discussion of the plans. And, even though we are compensated pretty well, I helped one of my coworkers increase her percentage from 6 to 7% online. She was proud of herself until she asked how much I was saving and I told her the max.

But as everyone else has said, people have better things to do.
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-31-2006, 01:07 AM   #34
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Re: So why do most people turn off their brains when financial issues come up?

I don't understand this either. People spend so much of their time working to make money, yet they won't put time into figuring out how to invest so they can secure their future.

I was talking to a friend who had just turned 50. I asked him if he was socking it away for retirement. He said he didn't want to tie the money up for that long. Yikes !!!
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Re: So why do most people turn off their brains when financial issues come up?
Old 12-31-2006, 03:52 AM   #35
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Re: So why do most people turn off their brains when financial issues come up?

Quote:
Originally Posted by BunsGettingFirm
There are dozens on Amazon. Which are the good ones?
It's 10 years old, but The Millionaire Next Door has timeless advice on the subject of Economic Outpatient Care.

There's also Gilovich's "How We Know What Isn't So", "Why Smart People Make Big Money Mistakes", and "Heuristics & Biases". You can see that Gilovich is in a bit of a rut but he's working with the founders of the field.

There's also Charles Ellis' "Winning the Loser's Game", although perhaps the only real investor psychology is his description of how most people play "not to lose" instead of to win.
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Re: So why do most people turn off their brains when financial issues come up?
Old 01-01-2007, 08:15 AM   #36
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Re: So why do most people turn off their brains when financial issues come up?

"Interestingly enough, Thoreau (1850s) rejected the American work ethic, seeing the need to earn a living as being a straitjacket on the soul. He was a major proponent of LBYM and simplifying in order to free oneself from the onerous duty of having to earn a living."

but note he liked to eat out at Ralph Waldo Emersons house, plus borrrowed the land his cabin was on.
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Re: So why do most people turn off their brains when financial issues come up?
Old 01-01-2007, 08:31 AM   #37
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Re: So why do most people turn off their brains when financial issues come up?

Quote:
Originally Posted by rmark
but note he liked to eat out at Ralph Waldo Emersons house, plus borrrowed the land his cabin was on.
Emerson was so worried about his finances that he bought large numbers of Thoreau's books. Thoreau was actually pretty well off financially especially when his cost of living was put in the equation.

Walden Pond is still required for high school reading, at least when my kids were in high school. It was probably one of the less disliked of their required reading. It may just have been because it is a thin book. They were exposed to LBYM. It seems to have taken hold on my son but my two daughters didn't get the point from what I have seen.

Thoreau did go to jail for refusing to pay his Mexican-American War tax. I shouldn't bring that up because it will just cause this thread to be hijacked to another political rant by someone.
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Re: So why do most people turn off their brains when financial issues come up?
Old 01-01-2007, 08:55 AM   #38
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Re: So why do most people turn off their brains when financial issues come up?

Thoreau had no wife or kids and he died at 45. He only lived at Walden Pond a couple of years. He may be remembered more for "Civil Disobedience", than Walden.

I have been a fan of Thoreau since I was in my 20's but not everyone can live like he did at Walden Pond. If he were alive today and had the same beliefs I think we would find him on government assistance and frequenting the charity hospitals. Or living off friends which he did then.
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Re: So why do most people turn off their brains when financial issues come up?
Old 01-01-2007, 12:39 PM   #39
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Re: So why do most people turn off their brains when financial issues come up?

for me, figuring out finance is like reading a good book to get to sleep. i never did care much for it but i know i gotta get some rest.

it isn't my lack of math comprehension, i'd already had boolean algebra, calculus and even physics in high school (not that i remember any of that now). but i've always been more comfortable letting my brain wrap itself around possiblilties than actually providing concrete application. i took a few courses in college & did really well in economics but only fair in accounting. i never cared to keep my crayons within the lines or my numbers within the columns. my checkbook is neither balanced nor overdrawn.

it does seem many live lives insideout, quick to flaunt their most personal relationship with god before their less intimate association with cash. and then, what is the most obvious expression of themselves, their sexuality, they cover from view with sacred cloth. i'm hardly shy about any of that. so don't be surprised if you find me asking dumb questions about all this finance stuff. if you ain't caught on yet, i have no shame.

"our truest life is when we are in dreams awake" ~~ henry david thoreau
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Re: So why do most people turn off their brains when financial issues come up?
Old 01-01-2007, 09:09 PM   #40
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Re: So why do most people turn off their brains when financial issues come up?

Quote:
Originally Posted by BunsGettingFirm
There are dozens on Amazon. Which are the good ones?
I started reading "Rational Investing in Irrational Times" by Swedroe. It's been interesting - and has some "behavioral finance" topics.

I got it from a library
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