The value of LBYM

[zippy2020]

As a Boomer I can say that very few parents in my generation knew anything about financial planning - saving, yes; but anything more complicated - nope. So if we didn't learn it from our parents, then we had to learn it on our own.

And a lot of Boomers, it has been shown, did NOT learn much on their own. So unfortunately, we shouldn't be surprised that their kids didn't pick up much info either.

I ran across this at Marketwatch, via WS Journal.

More than half of college students fail this 6-question money quiz — would you?
Marketwatch: June 5, 2019

Fewer than 1% of college students correctly answered all six questions on this quiz. Even well-educated people often don’t have a lot of money know-how.

A recent survey of more than 25,000 college students from financial firm AIG and education training company EVERFI revealed that students struggle, a lot, with even basic financial literacy about things like student loans, credit cards and more.

Indeed, when asked six personal finance questions (below), more than one in 10 got none of them right, and another 20% got just one right. Still, more than half got just two or fewer questions correct — even missing simple questions about net worth and savings.

Fewer than 1% got them all right.

============

1. If a late payment is sent to a collections agency, how long will it remain on your credit history even if you have paid it off?
A) Less than a year
B) 1 to 3 years
C) 4 to 5 years
D) 6 to 7 years


2. What is the formula for calculating your net worth?
A) Assets plus liabilities
B) Liabilities minus assets
C) Assets minus liabilities
D) Assets divided by liabilities

3. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year would your ability to buy something with the money in this account be:
A) More than today
B) Exactly the same
C) Less than today

4. Which of the following about federal student loans is not true?
A) For certain federal-loan programs, the interest on your loans is paid for by the federal government while you are in school and during grace periods
B) Your parents must sign a promissory note before loan funds are distributed
C) Entrance loan counseling for all first-time borrowers is required
D) You will have to pay back your student loans even if you do not complete your degree or find employment after college

5. If you have too many credit cards, what should you do?
A) Close as many as possible
B) Request a higher credit limit
C) Be cautious about closing cards
D) Close cards with the lowest balances

6. As a general rule, how many months’ expenses do financial planners recommend that you set aside in an emergency fund?
A) 1 to 3 months’ expenses
B) 3 to 6 months’ expenses
C) 6 to 12 months’ expenses
D) 12 to 15 months’ expenses

Answers: 1-D; 2-C; 3-C; 4-B; 5-C; 6-C

Of course, some of these questions might be debatable. Some financial planners recommend 3-6 months of expenses in an emergency fund. Wells Fargo WFC, -0.63% advises that “while the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months’ worth of expenses.” And a better answer for question No. 5 on having too many credit cards might simply be to aggressively pay them off.
- MarketWatch by Catey Hill

 

[NW-Bound]

I did not know the answer to Question 1. I never pay late, and did not have to know.

 

[SoReadyToRetire]

I think part of the problem is that kids today aren't taught anything in school about budgeting, etc. Instead, they're bombarded with things like car ads that encourage them to take on "low low payments of $299 for 60 months". Nobody stops to show them what they're REALLY paying for that car after those 5 (or now even SIX!) years of payments.

Or when you go to apply for a mortgage ... seems people are always approved for WAY more house than they can realistically handle. And if a bank tells you you can afford it, why would you NOT believe them (if you haven't been taught any better)? My DH and I applied for a mortgage at one time and were told we could afford a $400K house--UM, NO WAY!!--unless we didn't want to eat, wear clothes, drive, or ever leave that house for the next 30 years!

It's all so ridiculous. I sometimes think about creating a fun class to teach in high schools and even elementary schools that will help them to think AHEAD and think about the what-if's that can easily destroy their lives if they're not careful.

Geez, I have a 22-yr-old nephew who has already gone BANKRUPT, if you can believe that! He got a job making $20/hour, and within a week or two had bought a $41K truck, 2 4-wheelers, and a brand-new camper for about $30K!! The idea of the camper was to "live in and save money". That works fine until Fall comes to Vermont, and then you have to deal with no heat ... just foolishness.

Sigh. I'm so glad I grew up in a "poor" family (my dad was a farmer with 13 cows and 6 children, so he worked a 2nd job stocking shelves with potato chips for many years), so we learned the value of a penny from the get-go. Love you and THANK YOU, Daddy!

 

[Music Lover]

I did not know the answer to Question 1. I never pay late, and did not have to know.

Someone once asked me what the interest rate was on my credit card. They seemed surprised that I had no idea. Well, I don't carry a balance so I never pay interest so it's a non-issue. I use a credit card for convenience and for the points.

 

[Dtail]

Someone once asked me what the interest rate was on my credit card. They seemed surprised that I had no idea. Well, I don't carry a balance so I never pay interest so it's a non-issue. I use a credit card for convenience and for the points.

+1 have no idea.

 

[AirOps]

4. But 65 years old is sooooo faaarrr awaaaaay!! <- is the one I hear a lot

You'll get there eventually (most of them).

If you're lucky.

 

[cyber888]

Had a similar experience. My immediate neighbor just told me yesterday he was fired from his job and they they will have to sell their house. He’s around 30s and just had a kid. And he and his wife has student loans. His wife does not work. So they will move to an in Law house while he looks for a new job. I really felt bad for him and his family

 

[bobandsherry]

I think part of the problem is that kids today aren't taught anything in school about budgeting, etc.

I'd say that's a bit of a stretch statement. When I went to school there was a requirement to take Consumer Economics, covered exactly same topics you mention. Checked with more recent grad from high school, past 4 years and yep, still required class. The problem is, despite offering the class kids don't think it's important and just do the minimum to pass. I remember one 13yo kid who told me money was really that important, to which I informed him that money is like air, you don't think about how important that is until you don't have any. My son told me recently that he now understands what I meant. [emoji16]

 

[trumpeting_angel]

It can be hard to feel sorry for them when the fix could be so simple (LBYM). But if you don’t learn it at home, growing up, and it isn’t taught in schools, and almost everything in the media is carefully designed to push you toward consumption - many people can’t really see past that! And they are surrounded by like-minded people!

As a society, we have done nothing to change this. Indeed, our economy thrives on consumer spending.

 

[Nemo2]

Indeed, our economy thrives on consumer spending.

I certainly encourage other people to spend....especially on products made by companies whose stocks we own.

 

[CRLLS]

Regarding learning LBYM at the family level, When I was a younger, I would see my father sit down and pay the bills every month. I say every month because he got paid once a month. I guess that would teach one to budget and follow that budget. My mother also got the grocery budget once a month. Towards the end of the month we got to find out what depression meals were.

BTW, Family finances were not required classes in my high school in the late '60's.I don't think my kids had to take it either. Classes were focused on taking the required curriculum for College, 2 yrs of foreign language 4 years of English, a few years of science etc. Oh yeah, the 4 years of Gym (like that helped!)

 

[Dawg52]

Seems like the vast majority of people (except on this forum) are terrible at money management like the couple you describe. It's sad.

Many years ago I managed a mfg. plant with ~100 employees. A large percentage of them did not participate in the co. 401k plan even though the company matched dollar for dollar the first 3% and $0.50 per dollar on the next 3%. I talked to a number of them about why they weren't taking advantage of free money and got three basic responses:

1. I need every last cent I can get my hands on to live. (This was reinforced when we had a glitch in the payroll system resulting in a 24 hour delay in the auto-depositing of paychecks. Panic and a near riot ensued.)

2. I don't trust the company to keep their hands off any money I contribute to the plan. They might swipe all my savings.

3. I won't ever be able to retire so I don't need to save/invest for the future.

From the viewpoint of the employee they were being asked to take a 6% pay cut. The concept of delayed gratification was so incomprehensible it completely masked the value of added compensation.

All true. I saw this with fellow employees.

I had a friend with my old company that had close to $60k in his 401k plan and decided to file for hardship. He basically cashed in all his chips so he could buy a new car and musical instruments. This was in the day when hardship filing was somewhat loose. And he eliminated contributing to the plan all together. I don't think he ever got back into the plan. Now he is 65 and retirement is just a dream. I think his wife inherited some money from her parents so perhaps there is some hope for him.

 

[NW-Bound]

I recently asked my 30-year-old younger son how he's doing with saving. He said he has been maxing out his 401k, which his employer matched 100% up to 10K. And he said he also saved in an after-tax account. He's doing great, but did not know about Roth IRA, so I told him.

I have often told my children to save if they want to retire in the 50s like we do, instead of working till 67. I added that they might just raise the full SS age to 70 for them. Imagine having to work at 70. If that does not scare them, I don't know what will.

 

[The Cosmic Avenger]

I recently asked my 30-year-old younger son how he's doing with saving. He said he has been maxing out his 401k, which his employer matched 100% up to 10K.

Who does your son work for, and are they hiring??

 

[NW-Bound]

It's a smaller engineering corp. No, they are not hiring, and in fact just announced a salary freeze and a small layoff.

Now, the above news make my son more careful in his spending.

PS. I took the occasion to tell him about the concept of FIRE, particularly the FI part. I explained to him that once you achieve FI, you may or may not want to exercise the optional RE part if you like your job (like I did). He said he would not delay any minute. Said he liked his work fine, but he liked putzing around more.

 

[joylesshusband]

I think part of the problem is that kids today aren't taught anything in school about budgeting, etc.

Why do you shift this basic responsibility from good parenting to the schools' "inadequate" curriculum?

Have you raised kids?
Did you leave their skill development entirely to the schools?

 

[FLD3C]

Is the problem a lack of knowledge or a personality type that favors immediate gratification?
IMHO the high frequency of INTJ personalities here favors personality as the major factor in determining who spends and who saves.

 

[audreyh1]

The real problem is that these type of people are allowed to breed indiscriminately.

Well, that's how nature created us. And few nations have controls on human breeding. We've already overwhelmed the planet.

I don't sweat this issue, because apparently us LYBMer's are in the minority, and that's just how it is. You can perhaps help guide a friend or two, or a younger family member, but the general population? Forget it!

My parents were frugal and hated being in debt (mortgage OK). They had to get by on a modest salary - mostly one earner. The aversion to debt stuck with me somehow, but I know that it doesn't always stick with children of frugal parents. I'm a much bigger spender than they, but that's because I made a lot more money.

I remember one day the President of the company telling me as we walked between buildings that he loved seeing those pricey cars in the parking lot because he knew the employees would be working hard. I immediately though to myself - no way he'll or any company will ever trap me with a bunch of loan debt!!!

 

[audreyh1]

Answer to Audreyh1.....

Yes, it is misspelled. It should have an 'F' where the 'T' is........

E.g. scha·den·freu·de

See Wiki here

Just wanted to make sure I hadn't missed a new word!

 

[RobbieB]

I leaned nothing about home, personal or business finance in school. Nothing about budgeting either.

I learned all I needed from Pops and it was a whole 4 lines. Less than 100 words. It's not tough stuff.

 

[Amethyst]

When I opened my first checking account with my first full-time job after college, I only knew what to do because my Mother had explained it to me. My parents paid me a little bit for chores and yard work, and I started working part-time at 17, so I knew about saving and "budgeting" for things I wanted. But investing? That was a scary mystery, not mentioned in the home. In fact I was very impressed with my first real S.O., aged 19, because he subscribed to the WSJ and seemed to know all about the stock market. It just seemed like such arcane knowledge for a teenage boy to have.

It's odd, because I had a pretty good public school education otherwise, even in retrospect. NJ public schools even had sex education in junior high before many other U.S. school systems instituted it. I learned a lot of important stuff in 7th grade health class (age 11) that my Mother had not explained to me

I leaned nothing about home, personal or business finance in school. Nothing about budgeting either.

I learned all I needed from Pops and it was a whole 4 lines. Less than 100 words. It's not tough stuff.

 

[NW-Bound]

I leaned nothing about home, personal or business finance in school. Nothing about budgeting either...

+1

In high school, I learned Physics, Chemistry, Euclidean Geometry, Analytic Geometry, History, Geography, Literature, Biology, Foreign Languages, Calculus, etc...

... I learned all I needed from Pops and it was a whole 4 lines. Less than 100 words. It's not tough stuff.

My parents did not explicitly teach me anything about finance. I simply observed that when people ran out of money, they were in deep doo doo. And I did not want to be deep in doo doo. As simple as that.

I wish my parents were knowledgeable about investing despite being thrifty, in order to give me some tips. It was not their fault, given their background.

 

[gwraigty]

I'd say that's a bit of a stretch statement. When I went to school there was a requirement to take Consumer Economics, covered exactly same topics you mention. Checked with more recent grad from high school, past 4 years and yep, still required class. The problem is, despite offering the class kids don't think it's important and just do the minimum to pass.

We didn't have such classes offered when I went to school decades ago. Such classes weren't offered in the district my kids graduated from a few years ago, a different district than I'd attended. Obviously, some schools offer this, and good for them! Not all though.

 

[Jkstrudwick]

LBYM

Wanting to respond to a comment that was in this string:

Neither has a good job nor any prospect for retirement in the conventional sense. They haven't had health insurance in decades.

What impresses me is the view of health and retirement by most people in this forum. “Retirement in a conventional sense” is what we are working to achieve and yet the vast majority of Americans are content to rely on SS and Medicaid and become a burden on the government and seccessive generations.

For those who have worked and saved judiciously: congratulations! Your reward will be higher taxes in retirement as your retirement savings (401 K) and SS will all be taxed as your elected representatives have determined that you have more than enough when compared to those who choose to spend now without any thought to their future.

 

[RxMan]

Wanting to respond to a comment that was in this string:

Neither has a good job nor any prospect for retirement in the conventional sense. They haven't had health insurance in decades.

What impresses me is the view of health and retirement by most people in this forum. “Retirement in a conventional sense” is what we are working to achieve and yet the vast majority of Americans are content to rely on SS and Medicaid and become a burden on the government and seccessive generations.

For those who have worked and saved judiciously: congratulations! Your reward will be higher taxes in retirement as your retirement savings (401 K) and SS will all be taxed as your elected representatives have determined that you have more than enough when compared to those who choose to spend now without any thought to their future.

That’s becoming more and more common in the United States. Those that live responsibly are punished to make up for those that don’t. I’m personally doing what I can so that myself and my wife will never be a burden on society. Not everyone shares that mindset.

I didn’t have one personal finance or money class in school growing up and miraculously I learned fiscal responsibility anyway. My parents taught me and I made an effort to educate myself. It’s shocking but it works.

I think we are in a critical time in the United States because there are many people who just lack in personal responsibility. There is an expectation for a safety net from society not due to poverty or bad luck but rather a lack of being a responsible adult.

You can’t legislate away irresponsibility. But creating an environment that rewards bad behavior will result in an increase in that bad behavior. I’m just hoping that I won’t have to pay dearly in my golden years for others lack of personal responsibility.