Personal finance ignorance among the otherwise intelligent

[Major Tom]

Quote:

Originally Posted by jollystomper One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. For example, searching for "S&P 500" for today comes up with these headlines: "Dow drops more than 250 points amid global economic recovery concerns, S&P 500 slides" "Why economists think bond yields are falling, slamming the S&P 500 and the Dow" "Stocks pull back from records as growth concerns reignite" "Dow, S&P 500 and Nasdaq log worst day in 3 weeks amid unrelenting slump in Treasury yields" "S&P 500 Closes Lower as Volatility Returns Amid Growth Jitters" Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

+1

One of the funniest financial headlines I've seen in a while was yesterday, when one of the major "news" networks posted the following -

"S&P500 Poised For A Rebound"

This was the day after the S&P500 experienced a calamitous 0.2% drop

[NW-Bound]

The market is not completely rational, because investors are not.

If people were all rational, we would not have all sorts of silly conspiracy theories running rampant on the Internet.

[marko]

Quote:

Originally Posted by freedomatlast Great post, marko, IMHO, one of the best of the year!

Thnaks. I've mentioned here a few times that when DW was working some of her coworkers making $500k to $800k+ a year would bum fifty bucks from her a few days before payday. They didn't even have a hundred bucks at the ATM in the lobby. But they all would spend their weekends on Nantucket!

[friar1610]

Quote:

Originally Posted by jollystomper One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. For example, searching for "S&P 500" for today comes up with these headlines: "Dow drops more than 250 points amid global economic recovery concerns, S&P 500 slides" "Why economists think bond yields are falling, slamming the S&P 500 and the Dow" "Stocks pull back from records as growth concerns reignite" "Dow, S&P 500 and Nasdaq log worst day in 3 weeks amid unrelenting slump in Treasury yields" "S&P 500 Closes Lower as Volatility Returns Amid Growth Jitters" Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

[marko]

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Originally Posted by friar1610 You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

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.

[OldShooter]

Quote:

Originally Posted by jollystomper One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media. It gives the impression that investing is a scary thing. <snip> Nothing along the lines of "markets have minor pullback but are still much higher for the year" or even "market down today, but that is nothing unusual, ups and downs are normal". It can easily impact the view of someone assuming these headlines are by the "experts" and who is not willing to delve deeper.

I think this is very insightful and tracks the behavioral finance research (Thaler, Kahneman, etc.) They have studied individual investors and found that investment results are negatively correlated with the frequency that the investor checks their portfolio.

The explanation, they believe, is our human aversion to risk. Constantly seeing negative market fluctuations has a bigger impact on the investor than the positive fluctuations he is also seeing. As a result he tends to trade more and to sell positions that he should be holding. The less-interested investor simply slides along in bliss, buying, holding, and getting superior results.

Thaler's "Misbehaving" is a worthwhile read for any investor as all of us are less logical and more human than we understand. It's all in the genetic wiring.

[Nick12]

Quote:

Originally Posted by friar1610 You are absolutely right! During yesterday’s not-so-catastrophic sell-off I noticed a few headlines that would have made you think it was the Second Coming of the Great Depression. And that the whole world was dumping stocks and seeking refuge in Treasurys. Click bait.

Some panic for little reason. The market is back up sharply today in positive territory.

[Chuckanut]

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Originally Posted by Nick12 Some panic for little reason. The market is back up sharply today in positive territory.

+1

Wake me when the market is down over 20%.

[JustCurious]

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Originally Posted by Amethyst And spent hours on the phone talking of nothing.

My teenage daughter still does that.

[Markola]

Quote:

Originally Posted by jollystomper One interesting aspect that I believe contributes to personal finance ignorance are how things like market drops are headlined in the general media.

Even Judy Woodruff on the PBS Newshour does it. “Today the S&P 500 did blah, blah, blah based on fears of a blah, blah, blah.”

They really shouldn’t do it, because it detracts from their credibility.

[TexasPE]

Quote:

Originally Posted by marko 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/?gclid...BoCPB8QAvD_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]

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Originally Posted by Nick12 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]

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Originally Posted by eleighj416 “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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by eleighj416 “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]

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Originally Posted by srblanco7 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.