Personal finance ignorance among the otherwise intelligent

[TexasPE]

Junior Achievment Provides Financial Literacy Training for Teens

We even had an investment club where we played with fake money/investments.

Of course this was a private school.

JA (Junior Achievement) still provides this training.

https://jausa.ja.org/programs/?gcli...a_Fr-5Q2Cf_B1fGgbESfist2ADoC6svBoCPB8QAvD_BwE

 

[NW-Bound]

"Personal finance ignorance among the otherwise intelligent"

Just because someone is intelligent does not mean he knows everything. Knowledge of financial matters is not different than culinary knowledge, or horticulture.

If a person is interested in cooking, he will spend time to read cookbooks, watch cooking videos, and practice cooking himself. If a woman likes gardening, she will get her hands dirty in planting, and spends time daily to tend to her plants.

It's not intelligence as much as having an interest. It applies in all endeavors.

Me, I just like money. But I hasten to say I like many other things too.

 

[RobLJ]

None of my family--parents or grandparents--owned a single stock, although they were savers. The Okie granddad saved enough on his postal worker salary to buy an acre in Colorado and built his own cabin. The Mass granddad saved 15% of his salary in savings bonds. That was it.

I heard their stories of the Depression--particularly vicious in Southern Oklahoma--and compared it to the inflation and stagflation, so read Galbraith and a few others on both the Depression and inflation in high school and college. From there, particularly after getting my tenure track job (in literature), I read a few basic books on investing, mostly a diverse mutual fund portfolio rebalanced periodically. After I had a stash I further diversified (and lost some discipline in terms of yearly rebalancing, but the diversification helped a lot in '02 and '07/08). It worked. Now I'm working on resimplifying the portfolio in case I die first, since DW isn't interested in investing (she was an accountant).

As many have said, it's not a function of intelligence but interest and willingness to invest some time. I think for most, just a simple 3-8 fund portfolio will do perfectly fine, which was advocated by the first book I read.

I have learned a lot on this forum and I particularly appreciate the critical posts that examine issues from all angles.

However....despite all of your best efforts, I still haven't decided whether to roll-over into a Roth or how long to wait to take SS (as long as the market holds up and I don't need to sell too many stock funds is the best I've come up with). There are a lot of really talented analysts on this forum on a series of issues (who many times disagree, which is also very educational). I did realize that we'll do OK, no matter if we do roll-overs or not.

 

[Librarian]

My parents were state/federal employees. No college degrees.
Put 2 kids thru state college.
We never wanted growing up--always fed & clothed.
Usually had a summer vacation to visit cousins in another state.
My parents admit they were unable to save any significant money until their 50s (we were born when they were 21 & 25)--so basically when kids were out of the house.
They were blessed with terrific pensions as public servants.
Mom retired at 55 (tho went back for 15 years, lol), Dad at 65.
But 20-25 years later their personal wealth is over $1M plus a $250-300K home (tax valuation vs what it would likely sell for now). They have traveled a bit so enjoyed their money as well.

Fast forward to us--2 public school teachers. We are blessed to have an incredible retirement fund thru our state. But we too found until the kids were out of the house (youngest is junior at state college) we too struggled to save significantly.
Admittedly, we knew that our retirement was very good (value of about $1M+ each upon retirement) & our children had 529s from their paternal grandparents. Did it make us complacent & enjoy our $? Yep, definitely.

We & each of our children are about to receive a nice chunk of change from the dissolution of my husband's family partnership. He & I already agree ours will be invested & we look at it as our extra safety net--our retirement will more than pay the bills & allow us to travel (so still save).
We have spoken to our children that this looks like A LOT of $, but it could easily be run through w/o a plan. We have encouraged them to invest in a home but only one is really in a position to do that (one in college, one COVID derailed his career plans so he isn't sure yet exactly where he is going). Hopefully we have made it clear the power of a PLAN & compound interest...

 

[teachme]

Reading some of the predatory financial advisors in this thread seems to mimic the recent movie "I Care a Lot". If you have not watched it you should and maybe recommend to financially ignorant friends.

 

[eleighj416]

Fresh out of high school , they start getting solicitation from credit cards to build up credit. Many don't have a clue on financial responsibility and are on the road to being a slave to debt which continues to fuel our economy. Debt free is like a foreign language to many I know.

“Debt Free” is foreign term to the vast majority of people! I am amazed at the number of people who retire while still having a mortgage over their head.

 

[srblanco7]

“Debt Free” is foreign term to the vast majority of people! I am amazed at the number of people who retire while still having a mortgage over their head.

Moreso I'm amazed by the number of people who earn a solid living and yet still consider car payments, boat payments, 401k loans, etc. as a "normal"

 

[Dtail]

"Personal finance ignorance among the otherwise intelligent"

Just because someone is intelligent does not mean he knows everything. Knowledge of financial matters is not different than culinary knowledge, or horticulture.

If a person is interested in cooking, he will spend time to read cookbooks, watch cooking videos, and practice cooking himself. If a woman likes gardening, she will get her hands dirty in planting, and spends time daily to tend to her plants.

It's not intelligence as much as having an interest. It applies in all endeavors.

Me, I just like money. But I hasten to say I like many other things too.

Bolded by me - Hey there, men (me) also like gardening. lol I know it was just an example.
Yes, your example is correct. I have spent a lot of time invested in learning about gardening and now have a beautiful garden.

 

[Dtail]

“Debt Free” is foreign term to the vast majority of people! I am amazed at the number of people who retire while still having a mortgage over their head.

I will agree that typically having debt in retirement might not be a good idea.
We are mortgage free, but with current mortgage rates there are folks on this site who feel they could earn more money in the markets than what they are paying on their mortgage loan.

 

[eleighj416]

Moreso I'm amazed by the number of people who earn a solid living and yet still consider car payments, boat payments, 401k loans, etc. as a "normal"

I totally agree.

 

[chassis]

I will agree that typically having debt in retirement might not be a good idea.
We are mortgage free, but with current mortgage rates there are folks on this site who feel they could earn more money in the markets than what they are paying on their mortgage loan.

There are UHNW people in my circle, very high financial acumen, who have mortgaged their principal dwelling to deploy capital in the market. They can squash the mortgage like a bug if there ever was a need to do so. It's a small piece of their net worth. They aren't retired.

Mortgage debt for the sake of deploying capital in the market is a legitimate and low risk strategy if the mortgage is a low percentage of net worth, for retired or not retired people. If a person has a 1% withdrawal rate on their net worth, and the withdrawal rate and net worth account for the mortgage balance and payment, the mortgage is simply a means to and end - capital growth.

 

[audreyh1]

“Debt Free” is foreign term to the vast majority of people! I am amazed at the number of people who retire while still having a mortgage over their head.

It is not a requirement to retire with no mortgage. That can be a perfectly rational decision and not something dire “hanging over their head”. If annual retirement cash flow let’s them easily pay the mortgage then it’s a perfectly good option and probably taken because the mortgage rate is super low.

 

[healthyandfun]

I know this thread is about people who are clueless about finances, but I thought some might be interested in how I came to investing. Early in my career I moved far away for a job. I was friendly with the people in my apartment complex and one who was a fellow educator invited me in for a discussion. She showed me her 403b statement and explained how it worked. She recommended I start one with my first paycheck. Later at the new employee workshop on benefits, they passed out the particulars on the 403b and a speaker explained the details. I read everything. I asked the people I worked with about it. One said “I don’t earn enough to contribute.” Another much older teacher took me aside later and encouraged me to participate. She brought her statement to show me and she had a tidy sum in it. I signed up the next day and contributed every paycheck for thirty years. As I received raises, I would increase the contribution. I became interested in personal finance and read many books. Now, many years later, I have far more money than I ever thought possible. I thank my lucky stars that that neighbor talked to me. Sometimes a chance encounter can make a huge impact, but one does have to be receptive and take action.

 

[ProspectiveBum]

It is not a requirement to retire with no mortgage. That can be a perfectly rational decision and not something dire “hanging over their head”. If annual retirement cash flow let’s them easily pay the mortgage then it’s a perfectly good option and probably taken because the mortgage rate is super low.

I recall that long-time poster Nords, who with his DW had 2 military pensions, was an advocate of this approach.

 

[chassis]

I know this thread is about people who are clueless about finances, but I thought some might be interested in how I came to investing. Early in my career I moved far away for a job. I was friendly with the people in my apartment complex and one who was a fellow educator invited me in for a discussion. She showed me her 403b statement and explained how it worked. She recommended I start one with my first paycheck. Later at the new employee workshop on benefits, they passed out the particulars on the 403b and a speaker explained the details. I read everything. I asked the people I worked with about it. One said “I don’t earn enough to contribute.” Another much older teacher took me aside later and encouraged me to participate. She brought her statement to show me and she had a tidy sum in it. I signed up the next day and contributed every paycheck for thirty years. As I received raises, I would increase the contribution. I became interested in personal finance and read many books. Now, many years later, I have far more money than I ever thought possible. I thank my lucky stars that that neighbor talked to me. Sometimes a chance encounter can make a huge impact, but one does have to be receptive and take action.

@healthyandfun That's a great story, thanks for sharing it.

 

[HawkeyeNFO]

Years ago I went to a conference with 2 doctors I worked with (I was in Admin) - both were very intelligent and very nice men, not ego-maniacs. One night at dinner they talked to each other about investments, what they were doing and what others had told them to do. Not once did they include me in their conversation. I’m guessing they assumed I couldn’t add anything and didn’t have any money.

I knew about what they made and I made only about $10,000 less than them, but my expenses were far less. I just listened and by the end of dinner I realized I knew more than they did about investing and had more money than they did. I just smiled and ordered another beer.

That Sir, is AWESOME!

 

[HawkeyeNFO]

Bad news is good news.

 

[trumpeting_angel]

The discussion has veered from our financial educations, but mine is a little different. I am in my 60s, and was raised by Depression kids who well remembered Grandpa being out of a job for years, raising their own food and fishing, and making do. They were extremely frugal.



My dad had a job at the American Bankers Association, and on the side he wrote a personal finance column and later, the Time-Life Book of Family Finance. In 8th grade I learned to type, and began typing his columns to earn a little spending money. I learned about the advantages of mutual funds over individual stocks, the value of compound interest, and of LBYM.



Such a valuable junior high (and entire childhood) experience!

 

[TheWizard]

“Debt Free” is foreign term to the vast majority of people! I am amazed at the number of people who retire while still having a mortgage over their head.

I did, due to divorce in my late 40s.
But it was a modest amount, re-fied at around 3.5%.
My payment was less than $1000/month but I always paid a nice round $1000/month to reduce principal a bit faster.

This allowed me to keep lots of old and new money in investments, which gained lots more than 3.5% most years.

Then after 5-6 years of retirement, poof, that mortgage was paid off. That was around 2018.
So I effectively got a $1000/month increase in my retirement income at that point.
That was a nice inflation fighting boost...

 

[audreyh1]

The discussion has veered from our financial educations, but mine is a little different. I am in my 60s, and was raised by Depression kids who well remembered Grandpa being out of a job for years, raising their own food and fishing, and making do. They were extremely frugal.

My dad had a job at the American Bankers Association, and on the side he wrote a personal finance column and later, the Time-Life Book of Family Finance. In 8th grade I learned to type, and began typing his columns to earn a little spending money. I learned about the advantages of mutual funds over individual stocks, the value of compound interest, and of LBYM.

Such a valuable junior high (and entire childhood) experience!

That is very cool!

 

[Mr. Tightwad]

Bolded by me - Hey there, men (me) also like gardening. lol I know it was just an example.
Yes, your example is correct. I have spent a lot of time invested in learning about gardening and now have a beautiful garden.

If someone enjoys gardening, the activity is called gardening.

If they don't like it, its called yard work.

I do yard work.

 

[MRG]

True to a certain extent. But one could argue that those who fear the market, "the next Depression" and the headlines are already those with little financial acumen. You could see it as more of a symptom of financial ignorance than a cause; it confirms their bias.



These are the people who call the market a "casino" because their idiot uncle lost $500 in the market 50 years ago.

+1
My sister and her husband have zero investments. They had to tear the walls apart at his father's house after he passed, he'd walled in the money he'd saved over his life. He'd never seen the depression just stories about it from his parents. While this sounds like the act of a demented old guy he was like that at 40, not the demented part just afraid of what he didn't understand.

Sadly his son and my sister seem to have inherited his financial paranoia.

 

[MarieIG]

+1
My sister and her husband have zero investments. They had to tear the walls apart at his father's house after he passed, he'd walled in the money he'd saved over his life. He'd never seen the depression just stories about it from his parents. While this sounds like the act of a demented old guy he was like that at 40, not the demented part just afraid of what he didn't understand.

Sadly his son and my sister seem to have inherited his financial paranoia.

Maybe he was hiding his money from your sister and her husband . . .

 

[MarieIG]

And then there's just overall financial clueless-ness.

My SIL who's husband makes an easy 7 figures a year and lives in a 3.5MM house.

One day we were all chatting tangentially about financial differences and she said: "Well, you know, someone working in a grocery store could afford to live in my neighborhood".

We sat there with our mouths open for a few seconds and then said: "No, no they couldn't...you'r house is worth over 3 million dollars; your property taxes are more than they make in three years". She said: "Don't be silly. Of course they could! Anybody can afford to live here; we're nothing special" She meant it.

Marie Antoinette I suppose.

I see a trust in the future . . .

 

[MarieIG]

My wife worked for a number of doctors, and they were generally of this scenario:

They lived in the country club neighborhood in a very nice home. He drives an older Escalade, and the wife has a luxury new SUV. Their 2.3 children went to private schools, and later to private colleges. The daughter went on to medical school, did her residency at Cleveland Clinic, married a young general surgeon and they're doing very well. The father has had to fund 100% of his pension because he's self employed, and he continues to work at 69 years old because he didn't invest well. And he could sure use some of that $1.25 million he spent on private schools and $75K a year private colleges.

The father would like to retire, but he's just not in any position due to the high lifestyle he led, and the expenses that come with that lifestyle. And he will continue to work into his 70's in a job he really no longer likes. The paperwork trail a physician has to follow is incredible, and he hates taking orders from non-medical people at The State on how to do his job.

The thing is that nobody ever took time to tell that Medical Doctor that he's going to be middle class in the economic scale.

Lots of people, with less income than physicians have to fund their retirement.

It seems that his problem was living an inflated lifestyle. (At least with his daughter he got a "return on that investment" in that she finished school and is doing well financially.)