Do you have any idea what kind of fee is involved? I thought it was just a thing that some banks were offering. I have a couple employees that use that, and I thought it was a bit odd.
If it’s free, then whatever, get your money a day early, I have no problem with that. If it costs even a cent though, then it isn’t worth it.
I assume that it is a loss that is assumed by the company voluntarily as an employee perk. Probably some decent tax incentives involved.
I’m an engineer, I can math. But If I have a $20K student loan debt at 2% , and get a sudden windfall of $20K, I’m going to pay off that debt immediately, not play money games and invest it at +2% for x years while servicing the student loan and eventually coming out ahead. Why? Because I’d rather not service that fucking student loan for x more years. I have better things to do with my time. I have other debt to manage and removing a big chunk of it immediately free up more resources for that and other things. Plus I already have other investments, retirement savings, etc. From a purely numbers on paper perspective, is it the best thing to do? Maybe not. But in my real world perspective, it’s what I’d rather do.
I’m also ignoring that most real-world student loan debt is at a percentage rate higher or on par with a realistic return on investment.
Agree 100% with this. The rest of you and I going back and forth are details.
One thing I will say is the cost of housing has gotten to be a lot more of a problem for a lot more of the USA than it was back when you may have been working min wage jobs while still saving money. And the cumulative effect of 20-30 years of low but non-zero inflation up until recently has seriously eroded the value of the min wage.
So although you proved by your own actions that in the WAG 1970s-1990s you could save, that doesn’t necessarily mean the same is as true today. When my first wife and I got married she had “student loans”. ~$40K IIRC at 2% fixed APR. Those are not the same “student loans” as kids today with $100K at 7% base with a variable topper.
So I’ll suggest that wherever the dividing line is between “I don’t save” and “I can’t save”, over the last 20-30 years a lot of marginal folks have been moved by circumstances beyond their control and certainly beyond their ken into the “can’t” category. And that is a national crisis in the making.
I think that that in particular was a bad example, as most people don’t have access to loans that are lower interest than a reasonably safe return on investment.
OTOH, if you have student loans that you are paying on, and they are the govt 6.2%, then you’d be better off contributing to your 401k than you would be using that extra money to pay them off.
But it’s close to a wash, really, and it’s not going to make a huge difference which one you prioritize.
If you have high interest loans, pay them off first.
One of the things that the OP didn’t use as an example is that people who have debt often have different types of debt. Different interest rates and different collaterals.
I’ve seen people who will pay extra on their mortgage, while letting their credit card balance roll over. That’s the sort of financial illeteracy that bothers me.
I’m not that old. I didn’t even graduate high school till the late 90’s.
But, I was spartan, and still am. I worked for an hourly paycheck long enough that whenever I consider buying something, I think about how many hours I had to work to earn that money. I bought a house when I was 22, and took on roommates to help pay it off. Ten years later with record low interest rates, I refinanced, and now do pay less than half for my mortgage that rent goes for a 1bdrm around here.
The point is, I made a plan. I suffered quite a bit to stick to my plan. I spent quite a bit of time thinking that I had made a mistake and that my plans weren’t going to work and I was going to end up homeless and destitute. My friends would go out to the bars and movies and they’d have the latest phones and games, and I’d spend the night in with a book.
I did break from that plan, thinking I wasn’t going to make it work. So, I ended up with $40k in student loan debt trying to do something different. That was a mistake. But one that I have mostly recovered from.
But finally, I was able to scrape enough together to get a business running that now meets all my needs, and the friends who went out while I stayed in are complaining about their rent going up.
There are many who are actually impoverished who fall into that category, and society needs to address that. The rest can save, they just would really rather get the latest iPhone.
Sorry to have prematurely aged you and turned you into a Boomer. One is impolite, the other is inexcusable.
I suppose with your history I’d say that you are the exception that proves the rule. You did almost everything right, net of the detour to college. And it worked. Everybody else is living the “rule” of financial illiteracy: short-term thinking and long-term screwage.
Congrats on a job well done. Seriously.
Yeah, either @Just_Asking_Questions is talking about something different from what I’m thinking of, or he’s misunderstanding what the feature is.
He’s making it sound like some sort of payday loan, but if it’s the same thing I’m thinking of it’s really just a “perk” my credit union offers. My official payday is on Friday, but since it takes a couple of days for an electronic funds transfer to complete payroll actually kicks off the direct deposit on like Wednesday to make sure the funds reach employees’ bank accounts by Friday. My credit union sees that the direct deposit had been initiated, and instead of waiting for the process to complete before making the funds available in my account, they basically say “We know your employer’s good for it, we’ll go ahead and make the funds available on Thursday even though the transfer isn’t technically complete.” So effectively I get my pay one day early.
Where did I give that advice? Where did I say “people who work at a company that offers matching contributions to a 401K and have the financial flexibility to allow for such a deduction from their take home pay should refuse to take advantage of it,” even as I specifically described how I personally always maxed out my 401K-equivalent even when my employer offered no such matching funds?
Please re-read what I actually wrote, and then quote the part where you think I said that, so I can see if I have misstated my position. Because I do so hate it when I do that.
I am describing a system, one of many IMHO, that I think looks good on a cursory review, but which on closer examination serves only to further inequality and deprive workers of agency under the guise of “personal responsibility.” My condemnation of a particular system is not, however, advice to refuse to participate in it to the extent it still exists and is beyond my or any other individual worker’s ability to influence. I might level a similar criticism at tying health insurance to employment: just because I think it’s a shitty system doesn’t mean I’d tell someone to go without or refuse to use the company insurance even if that is the best they can get in a bad system.
Anyone reading what you said would take it that you don’t think that 401k’s are a good deal for lower earners.
I assumed you were not one of the lower income earners that you were talking about, and were instead one of the higher earners that you said actually benefited from it.
Well, at some point, people have to take responsibility for their finances. If they aren’t saving at all for their retirement, then they are not doing so. And if they are saving for retirement, an employer matching 401k is the best vehicle to do so.
Sorry if I misunderstood your point. You had a whole lot negative to say about 401k’s and about how they were not a good deal for lower income earners, so I took that to mean that you were recommending against them.
Yeah, they aren’t loans and you can’t keep moving payday a day earlier. They work because in order for me to be paid on Thursday, my bank must have the information by Wed ( and my employer probably sends it out Tuesday). Some banks make it available Thursday , others Wednesday and I am sure there are some that make it available Tuesday. The debit cards that advertise apparently make their money off the merchant fees when the debit card is used.
I’m wondering how this worked mechanically. You somehow transferred money to someone to by the stock, then sold it and got your money back in seconds?
A big part of the problem isn’t math - it’s the inability to defer pleasure into the future instead of having the pleasure now and deferring the cost into the future.
This is especially true when you are poor, because there’s often great pressure on you to buy stuff. The kids don’t have the things they want, the spouse complains about the crap furniture, etc. So when you come into some money, the tendency to spend it to ease the pain a little can be overwhelming.
There are a lot of people out there with loaded credit cards charging 28% interest. Every single one of those people knows it’s a bad idea to carry a balance on a credit card. They aren’t ignorant. And yet, they do it anyway. It’s more of a self-control issue than a knowledge issue. Like people who eat crap food and become overweight. They aren’t ignorant of the effects of eating all that crap food. They just can’t help themselves. Nutrition education doesn’t do much except for those who already have the discipline to eat properly.
I had a friend who had all his credit cards loaded to the max, and was struggling just to make the minimum payments, rent, and the payment on his truck. Then his truck broke down, and instead of getting it repaired he let a salesman talk him into buying an $80,000 truck he couldn’t afford. He got an 8 year loan, and his old truck still had a couple of years left on its financing, so they took in his other truck, gave him whatever for it, applied it to his old loan, and then made a new loan for the new truck and the balance owing on the old one, stretching it out to 8 years to keep the payments roughly the same. Of course that’s 8 years at high interest. He’ll pay almost double for the truck in the end. His kids will be teenagers by the time it’s paid off. Had he just fixed the other truck, his payments would have been finished in a couple of years.
Then his wife complained about the new truck while they still had crappy furniture, so he took her to The Brick to buy a new living room suite - on a new Brick credit card. Hey, one year, no payments no interest! What a deal! Of course they’d pay it off at the end of the year!
Of course they didn’t, and now they’ve added a 28% brick loan to their credit cards and fancy truck payments. And they are flat broke all the time, and will be that way for years.
My company’s SIMPLE IRA at Fidelity costs nothing to administer. (7 employees.)
I am saying the reality of being a low-income earner may preclude taking full advantage of 401K, and the benefits of a matching contribution scheme would by extension be largely illusory. IF you don’t have the money to contribute to a 401K, it doesn’t matter how good a deal they may or may not be. Kind of like the saying “and if I had wheels, I’d be a wagon”: the underlying condition is not met, so why keep going on as if it is? I don’t have wheels, so I can’t be a wagon. If someone doesn’t earn enough money to put towards retirement, then they can hardly benefit or get “a good deal” from a 401K with matching contributions.
All that to say, not contributing to a 401K, even with matching contributions, doesn’t necessarily make one financially illiterate. There are actually people out there, some of them even relatively high-income earners saddled with debt, who do not have the luxury of putting money towards retirement savings, and so do not get the benefit of matching 401K contributions, whether or not such schemes are a good idea.
Do you see my point?
That I also happen to think that the trend towards privatization in retirement is, like privatization of healthcare, a bad thing is secondary and I suppose beyond the scope of this thread.
I would never presume to think that all people have the privilege (as it is in our society) of being able to do more than anything than just subsist on their finances. Again, not a huge fan of the “personal responsibility” mantra as a cure-all to systemic problems. Systemic problems call for systemic solutions. And if (IF!) people really are so financially illiterate, then maybe it’s time to remake society to accommodate people as they are not people as we wish they would be. Doesn’t mean I’m against nudging people towards what we wish they could be, only that it’s premature to ignore the present reality of how people actually are.
This isn’t entirely true since if you can earn 2.5% and pay taxes at a 25% marginal rate, you will be doing worse.
The one financial fact that I have hardly ever convinced anyone of is that apartment renters are subsidizing home owners. How is that? Well if you have say, a half million and invest it and get enough to pay rent, you can pay rent with it, but it is taxed. If instead you invest it in a house (or condo) you are again earning your rent but it is hidden and those very real earnings are not taxed. And this is without even mentioning deductibility of mortgage interest, which doesn’t happen in Canada.
This became especially clear to me when a friend living in Mass and teaching in a university there took a sabbatical in Colorado and found someone there who was spending a year in Mass to exchange houses with. It was even up; no money changed hands. Yet a tax expert told him (years later) that both of them should have declared the value of a year’s rental on their tax returns and the fact that no money changed hands was irrelevant. Rent money is not deductible even if you use it to earn income (from the other party). If this isn’t obvious, I cannot explain it better.
I had a boss who was like this. She couldn’t even contribute 1%.
But her husband had to fly to Alaska to pick up the pure breed dog they bought for their daughter. When he was working a crappy security guard job because he was fighting his company about some issue (there was a lawsuit involved IIRC), so they could only afford to live way out in the boonies. Close to his job, of course, but his wife had to drive over the mountains to get back and forth to work. She’s diabetic and once passed out driving home and drove down the side of a mountain. Sigh. I was so glad she decided she was too afraid of the potential outsourcing that didn’t happen for 20 more years and quit. Oh, and hubby was an obnoxious creep.
Reading this topic I think the only thing made clear is that maybe “Basic Financial Literacy” is not quite as basic as it seems.
I can only speak for myself, but - if I were financially literate, I would be in a completely different line of work. I am a musician/actor/writer because that’s what I’m good at, not because of the financial rewards.
I accept gigs for a combination of three reasons - 1) The artistic merit of the project. 2) The potential for the project to lead to other projects. 3) The remuneration. Ideally, every gig will have a bit of each, but the third is the least important. I have done shows like ‘Les Misérables’, where the remuneration was good. I have done shows where the remuneration was minimal, but it was a good thing to have on the resume. I’ve done shows that held no interest but for the money, which I needed at the time. Those were awful.
And in the 41 years of my career, I’ve watched work and money dry up, venues close, recordings become worthless… I retired for a while, but I only lasted 8 months - I missed the stage, I missed singing, I missed my colleagues, I missed working in other languages, and my family was sick to death of seeing me every day. So, I went back.
It’s not just that my chosen career is not financially rewarding, though - I have never been good with money. I don’t know where that comes from. It’s not from my family - my father was good with his money, my mum was very good with her money. I’ve never appreciated money for anything other than the stuff it can buy.
It is perhaps an aspect of my (undiagnosed) ADHD, OCD, or whatever other initials ought to be applied to me. I’ve never been to a shrink, but in conversations with my oldest, I display many of the symptoms that he talks to his therapist about. I’m able to function with whatever’s going on with me, and I suspect some of my creativity is wrapped up in it, so I wouldn’t want to get rid of it even if they found it.
So now, add in that finance is a game that I’m not good at, don’t enjoy, and yet, I’m forced to play it anyway because society or something. It’s very much like team sports in Phys. Ed. in school - it’s hard to enjoy something you’re not good at in the first place. Throw in the mockery from people who are good at it, and one isn’t very motivated to improve. Then top it off with it being compulsory, and you have a good formula for developing a severe aversion.
And that’s how it is with me and finance. I never seem to have enough money, I only enjoy it for the things it will buy, the system is biased towards the people selling stuff who do want to make money, and I just don’t have the interest to go through the math and answer the question ‘Is a bag of 12 apples a better deal than the single apples sold by weight?’ I don’t know, and I don’t care. I’m standing in a store that underpays its workers, has automatic check out machines, buys in bulk, and that over-charged us for bread for a decade - I know they’ve figured out how to rip me off no matter what I do!
It isn’t even an aversion to math - I did very well at geometry, and the mathematics in learning Karnatak percussion techniques are something I work through happily. (How many measures will it take to resolve groups of 5 in a subdivision of 3 in a time signature of 7?) But start talking about the advantages of the 3 year lease at some amount vs. the 2 year lease at a different amount, and I’m done.
As a design teacher, I had a lot of “returning students” in their 40s and 50s (and a couple in their 60s).
I swear, most of them had a switch in their brain that, when they heard “computer”, immediately switched off.
Otherwise competent, intelligent people who would say:
“I’m just sitting here, because an alert box came up.”
“What did it say? Did you do what it said?”
“What what said?”
“The instructions in the box.”
“Oh, I didn’t read it. I figured it was computer stuff.”
Same for “financial stuff.”
I generally agree with you (and paying rent on a home is a particularly direct example of a renter subsidizing a homeowner), but here again I would be careful to distinguish between “not taking advantage of a system that benefits homeowners [or people with money in general]” (my paraphrase) with “financial illiteracy.” Because not everyone has the privilege of entering the housing market, for a number of reasons other than financial illiteracy, including:
(1) Lack of funds to cover the down payment.
(2) Insufficient credit history to get a mortgage.
(3) Zoning ordinances creating overly large minimum lot sizes, plus plain old market forces in the construction industry, leading to the death of the “starter home” and the rise of the McMansion, thus further pricing low-to-moderate income earners out of the housing market.
…just to name a few (and completely sidestepping, for the sake of brevity and staying on topic, the history of racial discrimination in the housing market).
Drawing on yet another personal example, even as someone with the money and credit history to pay for a typical home in just about any part of the country, including SOCAL, my lifestyle has prevented me from establishing long-term domicile anywhere. Just kept getting moved around and moved around and moved around (I moved 10 times during my first 11 years in the Navy before I just gave up and said "Flup it! Just send me to Norfolk…) so while (in my case) I had to use my generous housing allowance to pay rent all over the world (from Japan to Bahrain the long way around), others, who managed to mostly stay put (especially those in nice places like San Diego or Hawaii), were able to pay that housing allowance to themselves and build equity in a home. The difference between me an them is not that I am more or les financially literate, but only circumstances.
I take care to consider how others who make what appear to be at first glance poor or “illiterate” financial decisions might likewise be influenced by circumstances over which they have little or no control, and which may not be immediately apparent to me based on my different lived experiences.