The book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by money columnist Helaine Olen is 10 years old but it is well-worth reading. Even the bits available to preview on Amazon have much to offer this thread. One of her points is “financial literacy” courses in the K-12 system are mandatory in every US state already. She also notes that these have often been the creation of financial institutions who have their own motives, including wooing investors. She further notes that much of the financial “advice” taught in schools and given to adults is, as some have noted in this thread, needlessly complicated and unhelpful and holds out false promises. Again, this is about getting and profiting from customers, not helping people. Another point she makes is financial institutions have consistently and successfully opposed legislation that would demand they offer simple financial instruments and write everything in plain language. One takeaway may be, it’s not so much “literacy” that’s missing but that some have a vested (pun intended) interest (ditto) in making this much more complicated and risky than necessary. And of course all of this is moot if people are spending all their income on housing and food and transportation, and for that, we may blame the shift in wealth distribution since the 1970s. Blaming victims by assuming they are financially illiterate, lazy, whatever, misses some important stuff.
Oh, the podcast “If Books Could Kill” does some interesting work in debunking the classic get-rich book “Rich Dad, Poor Dad,” if you’re interested–their take on it goes further than just that book.
My brother went from
scraping up a living trying to cozy up to a few people with $10m+ to invest who aren’t willing to pay more than a fraction of 1% in fees and costs
to
making a very good living selling crap high cost products to a large number of people who have very little to invest, but are convinced that there is magic in investing and that only a few shamans know that magic.
People who just invest in a portfolio of index funds of stocks, bonds and maybe REITs are the bane of his existence. These are people who sweat every basis point (one hundredth of one percent) in costs and fees. How are you gonna get rich off that?
The other thing to tell him is: “You made the government a smaller interest free loan this year. Good job!”
The thing is, most of what Bogle suggested was common sense type stuff, if you’re not actually part of that ‘fraternity’.
To wit (from bogleheads.com)- the “Bogle method” consists of investors who:
(1) save a lot, (2) select an asset allocation containing both stock and bond asset classes, (3) buy low cost, widely diversified funds, (4) allocate funds tax-efficiently, and (5) stay the course/
Every single one of those things is not some sort of magical money voodoo, it’s just sensible stuff.
But it gets back to my original question- WHY isn’t that stuff common sense? All that stuff at least from my perspective falls in the “not being an idiot” bucket. I mean, if there are two things you hear constantly when investment stuff comes around, it’s that you need to diversify, and that you don’t need to freak out at ups and downs in the market- you’re in it for the long haul.
Doing things like investing in specific companies, etc… are more akin to gambling than investing in my book; it’s one thing if you have enough scratch to get a significant ownership stake, but if you’re just buying $1000 in Diageo stock, you’re essentially rolling the dice, versus doing something that would be considerably more likely to give you long-term results, like say, investing in some kind of index fund or ETF that’s diversified and tracks the market pretty closely.
I don’t think either (2), (3) and (4) are common sense to most people.
Most people do not understand that beating the market is virtually impossible unless you have either insider information or front-running ability. They honestly believe that there are folks out there who will help them best the market to the tune of 3/4/5% enough to cover the loads. Those folks are VERY convincing.
Most people have no idea what tax efficiency means and even less about how to implement it. Again there are people willing to exploit this for a fee.
And unnecessary. Quite a few people I know seem to think that investing is a competition, and if they don’t beat the market then they are losers. All they need to do is plan on getting market returns and use that figure to devise how much they need to invest to reach their goal. One popular financial radio host put it this way: If an S&P 500 fund averages 7% return, and that 7% allows you to reach your goal, then why take the risk of trying to get 10% or more?
I suspect it’s less about beating the market per se and more the assumption that they want to maximize their returns, that there simply must be some arcane cabal of financial gurus who can consistently beat the market, and therefore they are losing out if they don’t as well.
Several millionaires have made their fortunes taking advantage of such beliefs.
The discussion of tax brackets reminds me of how some people thought Trump had raised their taxes because their refunds were smaller. Never mind that the withholding tables changed.
Because everyone believes they should be above average. If a monkey throwing darts will average 7%, I’m at least a couple hundred basis points smarter than a monkey, so I should be at least 9%.
The idea that this is impossible in any reasonably efficient market is just unacceptable to most people.
I work in FINANCE. Half my coworkers have Finance degrees. They no more believe in efficient markets than the homeless, alcoholic on the bench in front of the building.
That is somewhat true, but there are also man, many, many people and sources out there them they can’t and that they should go with index funds. Hell, target date funds were created for that purpose. Many people absolutely hear both sides, and then choose the one that tells them what they want to hear.
Because the people telling porkies are 100X more compensated than the people telling truth. In this case there’s literally no money in telling the truth.
That really has no bearing on what I said (if I’m understanding you correctly). I certainly agree that some are giving sub-optimal (to say the least) advice and raking in money from it. But there are definitely people, that when they hear both the good and bad advice, will choose the bad advice - even when they are shown the numbers, studies, etc. that show the other path is historically better (ie, better to match the market than try to beat it). And they do it because they tell them what they want to hear (they will make more money than/are smarter than everyone else).
We pay our employees well, put quite a bit of money into their 401ks, and there is a financial advisor assigned to us who is available to talk to any employee at any time about their investment options. If they run out of money at 92 (or if I run out of money at 82) is not really the employer’s responsibility (in my view). It’s not exactly “tough shit,” but I guess it amounts to the same thing.
That’s not right, a randomly chosen target date fund in my 401K costs 0.15% which for sure is about a 3rd the cost of the “High Yield Bond” fund. But it is 15 TIMES more expensive than the index fund at 0.01%.
Target date funds are NOT index funds, and will cost you money in the long run.
I think a lot of people’s conception of the stock market is set by Hollywood, and that conception is that there’s all this crazy action out there, and if they just do it right, it’s a way to get fantastically rich.
In light of that, making market returns over a long period seems stodgy and boring, even though that’s exactly how the stock market actually works- few people are getting fantastically rich, but lots of people are making 3-8% returns on their investments, and past a certain amount of money, that’s not chump change.
This leads to unscrupulous people selling that dream, rather than selling the boring truth.
You can see just in this thread “financial literacy” covers a wide range of topics.
- You have personal finance - basically just making a budget and living within your means
- Credit management - Understanding what your credit score is and how to maintain it
- Debt management - Credit cards, interest rates, minimum payments
- Mortgages and other loans
- Taxes
- Retirement savings
And that’s before we get into more complex stuff.
My friend who works on Wall Street told me “People always ask me for stock tips. Do you think if I knew what the market was going to do I’d still be working?”
By and large, people who get rich on Wall Street do so by selling financial products or underwriting transactions like mergers or IPOs, not because they consistently make good stock picks.
I suppose I just take all this stuff for granted because my wife and I both have MBAs and work Wall Street jobs. But I guess it’s like how some people are “bad at math”.
And even on Wall Street, there are plenty of people who don’t seem to know shit about personal finance, spending their bonus check as fast as they can cash it.
There are plenty of people, at every income level, who struggle with (or just don’t even consider) that very basic rule:
Reminds me of this quote:
It’s unfathomable to me how someone could blow through over $100M. But if you are used to earning on average almost $10M a year over 12 years, you can’t keep spending like that 20 years after retirement.
Most people don’t understand basic accounting or the difference between assets, liabilities, revenues, and expenses. Often people with lots of money are worse because it’s just some amorphous blob of money.
People also don’t really understand financial risk either. It’s why you see people squirrel money away in coffee cans in the back yard or under the mattress instead of an FDIC insured bank where it can earn interest, is protected from fraud, and is readily accessible.