Personal finance ignorance among the otherwise intelligent

[marko]

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.

 

[Dtail]

I'm sure I'm the outlier here but in 1st grade a lady from the local bank came by and had us open a savings account (likely illegal now...forcing kids to deal with one bank); she also came by each week to collect our nickels to add to our account. (Hi Miss McMahon!)

In 6th grade we were taught how to balance a checkbook. In 7th grade we were taught about compound interest.

In high school we had some guy come in every month or so from an investment house and explain the basics of the stock market (I must have been asleep a lot; witness my questions on this forum!), how to read a balance sheet, inflation, the differences between bonds and stocks etc. We even had an investment club where we played with fake money/investments.

Of course this was a private school.

It does sound like more of an outlier, but that would be a good teaching.
BTW - I also went to a private school, but was not taught this background.

 

[armor99]

Last night, we had dinner with a friend, whose father was a Goldman Sachs bond trader in Manhattan for 32 years. She grew up with limousines and even helicopters on demand. I know that her privileged upbringing causes less sympathy but she is a hard-working attorney and fully responsible person, whom we love as an amazingly good friend. We always assumed our friend would inherit many millions someday, and she might have assumed that, too. It turns out, she learned last week that her father was essentially wiped out through a margin call last year when the Covid recession struck. Beyond that, she doesn’t know how he was invested. He’s developed depression and other maladies and his remaining assets are being spent down so that he can go on Medicaid! We were shocked and saddened by her story.

This was in the same week that my 81 y.o. DF, thankfully, reached out to me before liquidating his brokerage account with Bankers Life to buy some exotic whole life policy that his Bankers Life agent was trying to pimp him. In that process, I discovered this agent has my dad invested 100% in a single high fee growth tech stock mutual fund. Apparently, this agent works the modest-income retirement community my DF lives in. As gently as I could, I explained the risks of this portfolio and he agreed to ask his agent if Bankers Life carries target date or retirement income funds. Sickening.

My dad is an engineer who has worked his entire life, and even continues part time employment at 81. He is good with numbers but could never be bothered to read a basic book on personal finance. He does seem to have avoided debt, thankfully, and he owns his little condo outright. He once had an IRA, which he liquidated 30 years ago to buy a cabin, which is now long gone.

Sadly, no matter how I slice the numbers he’s finally provided me, he’s looking at a 50% lifestyle reduction once he finally stops working. I’m just slack-jawed by these two examples of financial irresponsibility. Serenity Prayer time, I guess.

So very sorry to hear all of that. As an engineer myself, I can relate. It is not an intelligence thing. It is a lack of planning thing. I did not come from a home where saving and investing was stressed. I am so very grateful when I was 29 a good friend woke me up. And that was all it took for me. Just needed to pay a bit of attention to it. When my portfolio reached two commas, I called to tell him how much he had helped me.
We should start a bill in Congress to make financial literacy (and retirement planning) mandatory to graduate high school. There is not reason this is any less important than reading or math… and in some ways even more important…

 

[Midpack]

Some people are convinced that managing their investments is too hard.

Isn't that the oddest thing? I think most of us, when we were kids, thought that "grown-ups" were actually grown-up. Then, on becoming older, we noticed that a lot of adults seemed to behave in much the same way as children. It took me much longer to realize that many otherwise functional and mature adults, have minimal control over their financial lives. That was an eye-opener for me.

I guess it just comes down to the fact that we all have abilities in different areas. Still, I wish I could get through to some folk, how easy managing your own retirement finances can be.

I can admit that I thought successful investing was beyond my ability in my early 20’s, and I’m extremely comfortable with numbers, economics, etc. Retail brokers go to great lengths to convince investors they can’t do it for themselves even today, and active traders make it look “too hard” as well. If I hadn’t read Peter Lynch, then Jack Bogle, Dr Bernstein and others like them early in my investment education I probably wouldn’t have figured it out. I was with a full on retail broker from 1987 until 1991, it took me 4 years to understand investing didn’t have to be rocket surgery. For those without an analytic/numbers background I’m sure it looks bewildering…

 

[Sunset]

Another reason why I took over managing my parents investments since 2018, as they are 91 and 88 y.o.

Good for you!

I have helped a couple of older relatives by explaining how AUM fees of 2% is real money that amounted to thousands per year they could be spending on themselves, and still own the same funds.

I've noticed some insurance agents will HAPPILY sell an 85 yr old man, an annuity that starts paying out in 10 years !! Talk about optimistic at best.

There are lots of folks hungry to prey on old people and get their money. It's scary.

 

[racy]

... Serenity Prayer time, I guess.

"...Trusting that He will make all things right
if I surrender to His will...."

Good luck with that...

 

[daylatedollarshort]

We've seen various friends and family blow through millions of dollar windfalls (inheritance, life insurance and stock options). That is partly why I'm still frugal and invest conservatively.

 

[Aerides]

"...Trusting that He will make all things right
if I surrender to His will...."

Good luck with that...

I think it's pretty obvious the OP was going for the line about accepting the things one cannot change, etc...

 

[CSdot]

This was in the same week that my 81 y.o. DF, thankfully, reached out to me before liquidating his brokerage account with Bankers Life to buy some exotic whole life policy that his Bankers Life agent was trying to pimp him.

Now I am curious. How much Life Insurance was the salesman trying to get him to buy, and how much does that amount of (whole life) Life Insurance cost per year to maintain for someone who is 81 years old?

No way can it be cheap or cost effective for your father, and I have a hard time believing the insurance actuaries would allow his heirs to come out ahead on this bet.

 

[CardsFan]

So very sorry to hear all of that. As an engineer myself, I can relate. It is not an intelligence thing. It is a lack of planning thing. I did not come from a home where saving and investing was stressed. I am so very grateful when I was 29 a good friend woke me up. And that was all it took for me. Just needed to pay a bit of attention to it. When my portfolio reached two commas, I called to tell him how much he had helped me.
We should start a bill in Congress to make financial literacy (and retirement planning) mandatory to graduate high school. There is not reason this is any less important than reading or math… and in some ways even more important…

Bold by me.

While I agree with the sentiment, I am tired of the "congress should do....' mindset.

Congress has no such mandate regarding public schools, and they need to stay OUT of that business.

Maybe we need more Civics classes teaching what Congress CAN and CANNOT do, according to the law of the land.

 

[RobbieB]

I agree. Congress can't even abide their own budget and they should teach about personal finance?

 

[Nick12]

I agree. Congress can't even abide their own budget and they should teach about personal finance?

That's part of the problem. Educated professionals can't balance a budget and children usually follow what elders do.

 

[RetiredAt55.5]

I guess it just comes down to the fact that we all have abilities in different areas. Still, I wish I could get through to some folk, how easy managing your own retirement finances can be.

I think its also an interest level thing. Over the years, I've spent a fair amount of time educating myself - reading financial books, surfing the internet and forums, etc. Half the "education" is learning what not to do, like chasing the latest hot stock or panic selling.

I'd be pretty good at plumbing if I devoted that much time learning about plumbing, but I don't want to put the time into that.

I've noticed that when I try to point people to good financial books, it's painfully obvious they don't want to put the time in. They just want quick answers, without understanding the whys.

 

[Bamaman]

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.

 

[GravitySucks]

I'm sure I'm the outlier here but in 1st grade a lady from the local bank came by and had us open a savings account (likely illegal now...forcing kids to deal with one bank); she also came by each week to collect our nickels to add to our account. (Hi Miss McMahon!)

In 6th grade we were taught how to balance a checkbook. In 7th grade we were taught about compound interest.

In high school we had some guy come in every month or so from an investment house and explain the basics of the stock market (I must have been asleep a lot; witness my questions on this forum!), how to read a balance sheet, inflation, the differences between bonds and stocks etc. We even had an investment club where we played with fake money/investments.

Of course this was a private school.

Public school for me and everything the same up to high school when I was trades tracked.

Sent from my LM-Q850 using Early Retirement Forum mobile app

 

[Nick12]

Bernie Madoff pulled off one of the biggest cons convincing high net worth highly educated and successful in their field to fall hook, line and sinker in his scam.

 

[rt-texas]

Got interested when I started my own business. Knew that I was going to have to up my game with understanding everything. The lady who was my Dad's accountant when I was growing up took care of me both with the business and taught me about personal finance; SEP's, Corporate taxes and Social Security etc. Also gave me lots of book recommendations for homework.

Without her I can only imagine where my wife and I would be. I knew nothing before her and I grew up in a house that was always financially stressed and honestly thought that was normal.


Bless you Pat!

 

[tb001]

It’s interesting to hear so many talk about the medical profession specifically. That was my first thought when I saw the title of the thread.

I distinctly remember graduating from undergrad and thinking on my first ‘real’ salary (all of ~30k in the Bay Area) that I could finally have a nice apartment and buy real furniture. Reality hit fast and I was quickly making the rounds at garage sales to furnish my apartment.

I think med students end up living a suspended life for so long that by the time they’re done with residency and have a good job, they go through similar magical thinking and overspend on the life they feel they should have. And have huge loans on top of it. After delaying for so long, I can understand wanting to be in the same place as their peers.

 

[Nick12]

It’s interesting to hear so many talk about the medical profession specifically. That was my first thought when I saw the title of the thread.

I distinctly remember graduating from undergrad and thinking on my first ‘real’ salary (all of ~30k in the Bay Area) that I could finally have a nice apartment and buy real furniture. Reality hit fast and I was quickly making the rounds at garage sales to furnish my apartment.

I think med students end up living a suspended life for so long that by the time they’re done with residency and have a good job, they go through similar magical thinking and overspend on the life they feel they should have. And have huge loans on top of it. After delaying for so long, I can understand wanting to be in the same place as their peers.

Medical professionals may get used to the saying " I will see you in court! " which adds to the stress of theIr roles in the medical field.

 

[chassis]

Last night, we had dinner with a friend, whose father was a Goldman Sachs bond trader in Manhattan for 32 years. She grew up with limousines and even helicopters on demand. I know that her privileged upbringing causes less sympathy but she is a hard-working attorney and fully responsible person, whom we love as an amazingly good friend. We always assumed our friend would inherit many millions someday, and she might have assumed that, too. It turns out, she learned last week that her father was essentially wiped out through a margin call last year when the Covid recession struck. Beyond that, she doesn’t know how he was invested. He’s developed depression and other maladies and his remaining assets are being spent down so that he can go on Medicaid! We were shocked and saddened by her story.

This was in the same week that my 81 y.o. DF, thankfully, reached out to me before liquidating his brokerage account with Bankers Life to buy some exotic whole life policy that his Bankers Life agent was trying to pimp him. In that process, I discovered this agent has my dad invested 100% in a single high fee growth tech stock mutual fund. Apparently, this agent works the modest-income retirement community my DF lives in. As gently as I could, I explained the risks of this portfolio and he agreed to ask his agent if Bankers Life carries target date or retirement income funds. Sickening.

My dad is an engineer who has worked his entire life, and even continues part time employment at 81. He is good with numbers but could never be bothered to read a basic book on personal finance. He does seem to have avoided debt, thankfully, and he owns his little condo outright. He once had an IRA, which he liquidated 30 years ago to buy a cabin, which is now long gone.

Sadly, no matter how I slice the numbers he’s finally provided me, he’s looking at a 50% lifestyle reduction once he finally stops working. I’m just slack-jawed by these two examples of financial irresponsibility. Serenity Prayer time, I guess.

Thanks for the post. Sorry to hear of your friend’s and father’s situations

I think lack of financial understanding is rampant. Many people in my circle are examples. I think the people on this site are at minimum in the 90%ile of financial knowledge, or higher.

 

[Markola]

Now I am curious. How much Life Insurance was the salesman trying to get him to buy, and how much does that amount of (whole life) Life Insurance cost per year to maintain for someone who is 81 years old?



No way can it be cheap or cost effective for your father, and I have a hard time believing the insurance actuaries would allow his heirs to come out ahead on this bet.

I don’t know the payout amount but my dad said BANKERS LIFE (I want to get the word out about these people) wanted him to buy a “Single Premium Whole Life Policy” by liquidating nearly all of his $82,000 brokerage account. I’m sure my dad would have made my brother and me beneficiaries but it’s more important to us that he has some money live on. That policy had all kinds of bells and whistles and it was guaranteed to return 4.5% per year (woopee do). And they said he can always get his money back (uh huh.). Fortunately, he called BANKERS LIFE back and told them he would not proceed.

 

[FREE866]

I think lack of financial understanding is rampant. Many people in my circle are examples. I think the people on this site are at minimum in the 90%ile of financial knowledge, or higher.

I agree. Especially when it comes to the stock market. I have friends that have literally lost hundreds of thousands of dollars in the market over the last decade. Constantly trying to time it and get sucked into the headlines of the day as a strategy for long term investing.

 

[friar1610]

I think med students end up living a suspended life for so long that by the time they’re done with residency and have a good job, they go through similar magical thinking and overspend on the life they feel they should have. And have huge loans on top of it. After delaying for so long, I can understand wanting to be in the same place as their peers.

I am not a doctor but among the financial web sites whose podcasts I listen to is The White Coat Investor because it’s very common-sense. One of the things Jim Dahle, the founder of the site/podcast tries to disabuse young doctors of is just what’s described above. He preaches continuing to live like a resident until student loans are paid off to get back at least to zero net worth (from a negative worth) before even thinking about starting to live in a manner befitting the high income of the medical profession.

 

[Markola]

With your friend's father - is he also in his 80s - and retired? He may have done something at this age in life, which he would not have done in his 50s. It is my understanding that the ability of some to handle their finances declines with age. (I am trying to take this into consideration by having some income on auto pilot as we age.)



Some, never had the ability to handle finances in the first place, i.e. they could have spent a great deal of time fostering their careers without giving their retirement assets/ income adequate thought.



With your Dad, I hope he postponed SS? Can that cover his basic expenses? You may be able to supplement him with little treats w/n your budget from time to time. (i.e. taking him out to lunch once a week), buy him some high end groceries, if his dishwasher blows, replace it . . .

Thank you. You seem on the right track about my friend’s father’s mindset. Yes, early 80s, was on his second marriage and the new DW was a high consumer/high maintenance type. Apparently, they’d been living beyond even their considerable means for some time, so the DF rolled the dice for one last big win. Instead, he got the devastating margin call and two years later he has dementia and is in a facility, so one wonders if he should have had his hands on the controls at all.

As salt in the wound, DW #2 told my friend last week that she no longer loved DF, was selling their home and would be moving back to Manhattan, essentially abandoning him to his subpar memory ward in NJ., or leaving him to my friend to manage from Minnesota somehow. I don’t see how DW II could legally keep the proceeds from the sale of their residence while her spouse is on Medicaid but my friend thinks the Medicaid laws in NJ are more generous than elsewhere. All kinds of life lessons in this story.


My dear see money-spend money father, of course, took SS at 62, even though I suggested that he wait. Yes, I’ll be glad to help him however we can.

 

[chassis]

Regarding the GS bond trader in the original post. That’s on him. It’s bad decision making and he knows it. It remains a very unfortunate for him and his family.

I am headed down the path to help an elderly family member exit a 3% AUM fee RayJay account. Earlier this year I encouraged another elderly out of a 1% AUM fee advisor relationship that he had been in for 25 years. He is glad it is finally done.

Peter Lynch is spot on - anyone can do it (be a successful stock investor).

Last, think about the 10,0000 hours to mastery concept from Malcolm Gladwell. Whether it is 1,000 hours or 10,000 hours, how much time does the average 50 year old have accumulated in his/her lifetime on personal financial management skills? I think not many hours for most people. Skills take time. Taking time is work. Work is sometimes hard. But it pays off, literally and figuratively.