# Basic Financial Literacy - why is it SO uncommon? **URL:** \ **Category:** Miscellaneous and Personal Stuff I Must Share\ **Created:** [March 29, 2023, 3:10pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841 "2023-03-29T15:10:24Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [March 29, 2023, 3:10pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/1 "2023-03-29T15:10:25Z")
After hanging around here two decades and some change, I’ve run across a lot of threads that remind me that people (in the general sense) have very little financial literacy. They often get into crippling debt, take sucker deals on things like mortgages, and do other financially questionable and often frankly stupid things. And even among those who are aware of the basic concepts, you _still_ get some funny notions. Like for example, the not at all uncommon idea among those of a certain little-c conservative (non political) outlook, that ALL debt is by definition, bad, and should be avoided at all costs, and/or paid off as soon as humanly possible. Which isn’t true- sometimes financing something is a better deal than saving up and paying cash, and sometimes debt isn’t all bad- for example, if you have student loans worth 20k @ 2% interest, and you come into a windfall of 20k, you’re financially going to be better off investing that 20k at _anything_ higher than 2% and just paying the debt off over time. Why is this stuff so uncommon? I mean, explaining the last example to some people causes them to give me looks like I’m explaining the finer points of how to sacrifice babies to summon demons or something like that. And yet it’s basic math - investing X at 3% and paying X at 2% means that you’re _making 1%_ over time. And if you compound that, it’s far more over time. But they’re usually in the “Debt is bad, no exceptions” mindset. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [March 29, 2023, 3:25pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/2 "2023-03-29T15:25:36Z")
When your parents are clueless, talking about money is a social taboo, and the school system ignores the issue it’s kinda predictable the public are clueless. The fact this makes it much easier for businesses of all sorts to take advantage of that public is considered a feature, not a bug, by many powerful people. The cure is straightforward: stop doing all the things I just described and instead do the opposite. Good luck w that crusade. ---
**Author:** ![Dung\_Beetle](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dung_beetle/32/7945_2.png) [@Dung\_Beetle](https://boards.straightdope.com/u/Dung_Beetle)\ **Post date:** [March 29, 2023, 3:34pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/3 "2023-03-29T15:34:48Z")
> [@bump](#): > > if you have student loans worth 20k @ 2% interest, and you come into a windfall of 20k, you’re financially going to be better off investing that 20k at _anything_ higher than 2% and just paying the debt off over time. I understand, but never would have thought of that. Hi, my name is Dung Beetle and I’m financially illiterate! I’m lucky to have a husband who knows everything I don’t. He’s got a mind for math, etc. He was talking about insurance or escrow or some such thing once and I asked him how he knew this stuff. He looked at me like I was crazy and said he just figured things out by doing them, and sometimes made mistakes. ---
**Author:** ![AHunter3](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ahunter3/32/368_2.png) [@AHunter3](https://boards.straightdope.com/u/AHunter3)\ **Post date:** [March 29, 2023, 3:42pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/4 "2023-03-29T15:42:20Z")
I’ll join the Financial Illiterates Anonymous group. Part of the problem is that beyond a certain point I can’t make myself care. It’s like “Oh I’m supposed to keep track of my actual expenditures and deposits and do the math on the interest rates and balance my figures against my bank statement. Or I can just pay what they say I owe. Yeah, here, whatever, please don’t rip me off too bad”. It’s definitely the math. I’ll challenge items on my credit card if I don’t recognize them. It’s not that I can’t do math. It’s that I don’t _like_ to do math. ---
**Author:** ![snowthx](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/snowthx/32/10660_2.png) [@snowthx](https://boards.straightdope.com/u/snowthx)\ **Post date:** [March 29, 2023, 3:45pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/5 "2023-03-29T15:45:43Z")
Another example is long-term savings. If your place of work has a 401K plan, you should participate in it for tax savings, and if the company matches any amount of what you contribute, that’s free money, on top of the tax savings, and all of that compounded over time adds-up. But, I know at my company participation in the 401K plan is not as high as one may expect, even with free money in the offing. I try to explain this to people, and I am no financial wiz, and I get the deer/headlights response “but, my take-home will be less??”. Agree that unless young people are provided guidance on financial issues and strategies by parents or friends/family members, they are missing a huge part of adulting. ---
**Author:** ![Llama\_Llogophile](https://avatars.discourse-cdn.com/v4/letter/l/49beb7/32.png) [@Llama\_Llogophile](https://boards.straightdope.com/u/Llama_Llogophile)\ **Post date:** [March 29, 2023, 3:47pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/6 "2023-03-29T15:47:09Z")
In my case it’s a combination of disinterest and spite. I’ve always been very careful with money. I’m a very good saver, always pay off my credit card, never paid a bill late in my life and I don’t spend extravagantly. Yet… when I went to buy my house years ago I found I didn’t have a very good credit rating. Made no sense to me. I have behaved completely responsibly, serviced every loan I’d ever taken out and yet that counted for nothing apparently. So you know what? Fuck them in the neck. Meaning the people and systems that perpetuate that sort of nonsense. I’m not playing. I did finally buy my house, I plan to die in it and have as little to do with the financial system as I can. On top of that, whenever I try to research things like investments and such, two things happen: 1. I find the system is so complicated I feel I have no chance of making good decisions. Reminds me of trying to figure out a complicated bus system in an unfamiliar city. You get on the A bus, only to find out you really need the A-1 bus which left three minutes ago to get to your stop. 2. It’s boring. I have no desire to play around with money. I’m actually reading a book about the history of money right now, which has been both interesting and a slog. I don’t know how people in finance do it. Seems like such an empty, joyless thing to devote one’s life to. ---
**Author:** ![NinthAcolyte](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ninthacolyte/32/13676_2.png) [@NinthAcolyte](https://boards.straightdope.com/u/NinthAcolyte)\ **Post date:** [March 29, 2023, 3:47pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/7 "2023-03-29T15:47:42Z")
> [@Dung\_Beetle](#): > > > [@bump](#): > > > > if you have student loans worth 20k @ 2% interest, and you come into a windfall of 20k, you’re financially going to be better off investing that 20k at _anything_ higher than 2% and just paying the debt off over time. > > I understand, but never would have thought of that. Hi, my name is Dung Beetle and I’m financially illiterate! I also would never have thought of that. One thing is that, for low-income folks at least, debt is _scary_ (and humans tend to weight risk over reward when making decisions.) We’re not worried about investing 20K vs paying off a 20K debt because we’ve never _had_ money to invest. The debts that we have are things we barely manage to stay a step ahead of, and when we mess up and don’t pay them on time, we get threatening phone calls and letters or threats of being taken to court. There’s a sense of freedom, a sense of being out from under the axe that comes with paying off a consumer debt. Obviously it’s an entire different ball game when you are actually managing _wealth_, or for government or corporate debt. But those are ball games the majority of us have never and will never play, so it’s unsurprising that we don’t know the rules. > [@bump](#): > > you’re financially going to be better off investing that 20k at _anything_ higher than 2% and just paying the debt off over time. […] it’s basic math - investing X at 3% and paying X at 2% means that you’re _making 1%_ over time. And if you compound that, it’s far more over time. But they’re usually in the “Debt is bad, no exceptions” mindset. See, all this assumes that the hypothetical borrower has the cash to _make_ the payments on the 20k debt. For a huge chunk of Americans, making the minimum payments on their debts takes every spare cent in their budget. That’s the boat I’m in. If I suddenly had a chunk of cash precisely big enough to cover my debts, I would pay them off even if I could find an investment at a better rate - because I’m so tired of barely making ends meet. I need relief _now_. ---
**Author:** ![doreen](https://avatars.discourse-cdn.com/v4/letter/d/858c86/32.png) [@doreen](https://boards.straightdope.com/u/doreen)\ **Post date:** [March 29, 2023, 4:05pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/8 "2023-03-29T16:05:26Z")
> [@NinthAcolyte](#): > > I also would never have thought of that. One thing is that, for low-income folks at least, debt is _scary_ (and humans tend to weight risk over reward when making decisions.) We’re not worried about investing 20K vs paying off a 20K debt because we’ve never _had_ money to invest. There’s also the fact that for a lot of people the choice isn’t between paying off student loans at 2% interest or earning something more than 2% on an investment. It’s between paying off loans or keeping money in a savings account earning less interest that is being paid on the loan. In which case the financially smarter move is to pay off the debt with a 4% interest rate instead of keeping the money in a savings account earning 0.05%. And a fair amount of people won’t - because if they use the $2000 they have in the savings account to pay off the car loan/credit card they won’t have the $2K to use in an emergency where a credit card can’t be used. There’s a not-always-recognized difference between not being financially literate and having non-financial factors in your decision making. ---
**Author:** ![Dung\_Beetle](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dung_beetle/32/7945_2.png) [@Dung\_Beetle](https://boards.straightdope.com/u/Dung_Beetle)\ **Post date:** [March 29, 2023, 4:05pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/9 "2023-03-29T16:05:49Z")
> [@Llama\_Llogophile](#): > > when I went to buy my house years ago I found I didn’t have a very good credit rating. When I went to buy my first car, I had no credit whatsoever. So I went to Sears, filled out an application for a Sears card, and bought a $20 box fan. When the bill came in the mail, I paid it right away in full. Ta da! I now know that wasn’t the right way to go about it. ---
**Author:** ![Salem](https://avatars.discourse-cdn.com/v4/letter/s/8c91f0/32.png) [@Salem](https://boards.straightdope.com/u/Salem)\ **Post date:** [March 29, 2023, 4:09pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/10 "2023-03-29T16:09:23Z")
Because “debt is bad” is exactly what many of us were taught growing up and the way things were for many years. This whole credit system that is in play now is different than it used to be and, quite frankly, is ridiculous. You HAVE to have a credit card/loans or you’re a “ghost” with no credit? Who do you think that benefits? The people giving out the loans and credit cards and pushing the whole suddenly beefed up credit rating system! What a surprise. I still prefer to pay for something outright and don’t want to be forced to get a credit card that I don’t want just so I appear in they system as credit worthy. I paid off my mortgage a year early and my credit rating sank like a stone. Ridiculous. ---
**Author:** ![Odesio](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/odesio/32/20003_2.png) [@Odesio](https://boards.straightdope.com/u/Odesio)\ **Post date:** [March 29, 2023, 4:12pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/11 "2023-03-29T16:12:44Z")
> [@bump](#): > > Which isn’t true- sometimes financing something is a better deal than saving up and paying cash, and sometimes debt isn’t all bad- for example, if you have student loans worth 20k @ 2% interest, and you come into a windfall of 20k, you’re financially going to be better off investing that 20k at _anything_ higher than 2% and just paying the debt off over time. I get why financially it’s better to invest the cash and pay off the debt over time. But I can also see value in wiping the debt out just for the peace of mind it brings. I think sometimes people get value out of making decisions that aren’t financially the most optimum decision. But you’re wider point is correct, not all debt is bad. > [@snowthx](#): > > If your place of work has a 401K plan, you should participate in it for tax savings, and if the company matches any amount of what you contribute, that’s free money, on top of the tax savings, and all of that compounded over time adds-up. But, I know at my company participation in the 401K plan is not as high as one may expect, even with free money in the offing. My company offers a 401k plan, and participation for younger people is very low. During orientation, I emphasized that putting in 6% may simultaneously seem like too much or too little, but over the decades your account will grow. I wish I had started a 401k when I was in my twenties. ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [March 29, 2023, 4:14pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/12 "2023-03-29T16:14:21Z")
_When you’re up to your neck in alligators, it’s hard to remember that your initial objective was to drain the swamp._ If you’re living paycheck to paycheck, at a dead end job, with little prospect of stability, it’s hard to worry about long term financial planning. I’ve been fortunate enough never to be in that position, but I know people who have. ---
**Author:** ![Buck\_Godot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/buck_godot/32/6573_2.png) [@Buck\_Godot](https://boards.straightdope.com/u/Buck_Godot)\ **Post date:** [March 29, 2023, 4:15pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/13 "2023-03-29T16:15:06Z")
Also math is hard. Beyond basic arithmetic most people view math as something that they were forced to do in school, but which, so long as they aren’t trying to calculate the time at which two trains collide, they never have to think about again. So if you start talking to them about the effects of compound interest, their eyes glaze over and they give up. ---
**Author:** ![snowthx](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/snowthx/32/10660_2.png) [@snowthx](https://boards.straightdope.com/u/snowthx)\ **Post date:** [March 29, 2023, 4:19pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/14 "2023-03-29T16:19:55Z")
I think there is a difference between consumer debt, where you buy stuff on your credit card that should be able to be paid-off each month, and strategic debt such as a mortgage, where over time the value of a home may rise, turning the debt into an investment that pays-off later. I agree if you are living paycheck-to-paycheck and are just barely keeping the family’s head above water, taking on any debt is risky and it’s a safer play to just make sure nothing goes in arrears. ---
**Author:** ![Buck\_Godot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/buck_godot/32/6573_2.png) [@Buck\_Godot](https://boards.straightdope.com/u/Buck_Godot)\ **Post date:** [March 29, 2023, 4:24pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/15 "2023-03-29T16:24:08Z")
Yes, and the problem that the OP is alluding to is that many (most) people don’t know the difference, and so assume that all debt is bad. ---
**Author:** ![WildaBeast](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wildabeast/32/6_2.png) [@WildaBeast](https://boards.straightdope.com/u/WildaBeast)\ **Post date:** [March 29, 2023, 4:27pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/16 "2023-03-29T16:27:39Z")
> [@bump](#): > > ALL debt is by definition, bad, and should be avoided at all costs, and/or paid off as soon as humanly possible. I think part of the reason people think that it because it was only was relatively recently that interest rates dropped low enough enough to make it actually advantageous to finance instead of paying cash. Before 2008 or so, as a general rule it usually was better financially to avoid debt if you could. My parents reached adulthood in the 1970s, when interest rates were very high, and it definitely was better to avoid borrowing, and pay off your debt early if you could. So that was the lesson they learned, and that was what they taught me. And I remember in high school in the 1990s one of my teachers demonstrating the compound interest formula. Besides being a math lesson, there was very much an additional lesson of “See how much you’ll have to pay in interest on a $100K mortgage over 30 years? That’s why it’s better to pay it off early if you can.” But anyway, to add another one to this thread, no, getting a large refund at tax time is _not_ a good thing. It would be better to have the extra money in your paycheck and invest it anywhere, even a savings account paying 0.5% interest, than to get it back from the IRS later with no interest. A lot of people don’t even seem to realize that they can control how much tax gets withheld from their pay. They just think “the government” takes however much money they want from their pay, and they have no say in the matter. ---
**Author:** ![DavidNRockies](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/davidnrockies/32/6279_2.png) [@DavidNRockies](https://boards.straightdope.com/u/DavidNRockies)\ **Post date:** [March 29, 2023, 4:32pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/17 "2023-03-29T16:32:32Z")
> [@LSLGuy](#): > > The fact this makes it much easier for businesses of all sorts to take advantage of that public is considered a feature, not a bug, by many powerful people. This. Your obligation as an American citizen is to shut your mouth, put your head down, work yourself to death, and buy everything you see. If our schools were really world leaders in teaching STEM, I’d be a passionate advocate that we also require proficiency in statistics, logic, financial literacy, and a foreign language. > **[Consumer Debt Grows to $16.84 Trillion in Q2 2023 - Experian](https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/)** > > Consumer debt balances increased for most types of consumer loans from mid-2022 through mid-2023. Learn more about how debt levels changed overall. ---
**Author:** ![Maserschmidt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/maserschmidt/32/18829_2.png) [@Maserschmidt](https://boards.straightdope.com/u/Maserschmidt)\ **Post date:** [March 29, 2023, 4:33pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/18 "2023-03-29T16:33:11Z")
> [@Odesio](#): > > My company offers a 401k plan, and participation for younger people is very low. During orientation, I emphasized that putting in 6% may simultaneously seem like too much or too little, but over the decades your account will grow. I wish I had started a 401k when I was in my twenties. I can’t recall what my company match on 401K was when I retired, but for a long while it was something like 50% on the first 3% you contribute…any time I got a new manager into the company, usually in their 30s, I’d point out the massive return that implied on that first 3% contribution…but often they didn’t go for it, preferring the cash flow. ---
**Author:** ![Crafter\_Man](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crafter_man/32/458_2.png) [@Crafter\_Man](https://boards.straightdope.com/u/Crafter_Man)\ **Post date:** [March 29, 2023, 4:34pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/19 "2023-03-29T16:34:00Z")
> [@AHunter3](#): > > I’ll join the Financial Illiterates Anonymous group. Part of the problem is that beyond a certain point I can’t make myself care. I’m sorta in this group. I understand compound interest, and the importance of saving & investing. But nothing beyond that. Not because I can’t learn it, but because I have absolutely no interest (pardon the pun) in the topic. I find it _incredibly_ boring and intellectually unstimulating. ---
**Author:** ![DavidNRockies](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/davidnrockies/32/6279_2.png) [@DavidNRockies](https://boards.straightdope.com/u/DavidNRockies)\ **Post date:** [March 29, 2023, 4:38pm UTC](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841/20 "2023-03-29T16:38:25Z")
Quick anecdote: I was a VP of a publicly-traded company that had an **[Employee Stock Purchase Plan](https://www.morganstanley.com/atwork/themes/equity-compensation/how-does-espp-work-your-guide)**. If the stock price was $1.00, you could buy X number of shares for $0.85/share. I would ask company employees if they were going to avail themselves of this benefit next time around. “Nah. I really don’t have the money” was a VERY common response. You can buy a share of stock for $0.85 and immediately turn around and sell it for $1.00. We go into debt for the most inane and useless crap, but for an immediate ~18% ROI? Meh. I’m good. [Next page](https://boards.straightdope.com/t/basic-financial-literacy-why-is-it-so-uncommon/981841.md?page=2)