Assuming that you follow good information. There’s plenty of bad and really bad financial advice out there, and tbh, if someone is already financially illiterate, they may not be able to tell the difference.
If certain parts of the internet and social media were to believed, Dogecoin was a great investment.
That’s true. Yes. I guess we need to start the education much earlier (as I plan to do with my daughter) at home and not rely on the teachers who aren’t really equipped.
For the record, this is known as hyperbolic discounting:
I’m 65 and never in all my years of schooling did I learn about finances. My father taught me. He opened a Vanguard Wellington fund with $3k when I was 21. Over the years I contributed maybe 5K. It was worth $240k when I retired 6 months ago. I always contributed to my employer’s investment program. Talking to my father and brother in law taught me a lot.
Insurance is another area where people seem to vastly overestimate risk and its associated costs. From choosing lower deductibles (at higher premiums) to buying extended warranties, the fear of possibly having a large-ish unexpected payout at some point in the future leads them to spend far more than they’re ever likely to lose if the bad stuff happens.
I’ve been noticing this called out more specifically in the last couple of years. YouTube videos now talk more about how you’re not going to “save your way into prosperity” and need to look at increasing your income.
It kind of goes hand-in-hand with mocking out-of-touch politicians that blame millennials and younger’s inability to buy a house on avocado toast, as if house prices hadn’t gone up in the slightest.
Right - the big change wasn’t from public to private, because it was for the most part, always private. SS could be conceived as a sort of UBI for the retired/elderly, not as the sole means of support.
The big change was from old-style defined benefit pensions to the various retirement investment vehicles like 401k accounts and Roth IRAs. That’s a HUGE change- my grandfather for example, worked for Union Carbide for 30 some-odd years, and was fully vested in their pension. He got some proportion of his salary back as a pension for the rest of his life, as well as access to health insurance, etc… This was regardless of how the company did, how the economy did, and so forth. Great deal for him, not always so great for the companies who provided these pensions.
Now the companies limit their liability by basically paying everyone up front by matching 401k contributions or adding some arbitrary amount of money to 401k accounts, and then basically it’s left up to the individual employee to manage their 401k investments such that they have sufficient retirement funds. It’s a shitty system in light of the rampant financial ignorance we’ve got out there- I’ve worked places that required the employees to pick the actual funds that their retirement income was place into, which is definitely something I don’t have the time or motivation to figure out- reading a fund prospectus is up there with violent diarrhea as things I want to avoid go. Most abstract it a bit more than that, and let you choose categories - small cap value, large cap growth, etc… and don’t actually require you to know the ins and outs of specific investments.
But at its core, it’s about the company not wanting to have long-term obligations to their employees. Sort of a “Well, we gave you X thousands of dollars, it’s not our fault you mis-invested it and are now eating dog food.” kind of thing. Some people likely do better than the defined benefit pension would have, but I suspect (no evidence, just a feeling) that most do somewhat worse than the pension would have, and that a hapless few do significantly worse.
Again, this is a very pressing need for better financial literacy. People’s retirements are dependent on their financial literacy and ability to understand what they’re doing with their 401k accounts. And a lot of people don’t actually understand in a full way just why it’s better to save more in their 20s when it’s harder, than in their 50s when it’s easier.
It depends on one’s utility curve. Spending a bit more every month on insurance may not affect one’s standard of living at all, while being forced to pay a huge chunk at one time may be a lot more painful, even if is just about the amount of the extra payments.
Not always, though. Here in California earthquake insurance is not commonly purchased because the premiums are very high. The advice I got is that it is far better to put away the money just in case.
I make the claim that pensions are intrinsically more efficient than individual retirement saving.
When an individual saves for retirement every person needs to save up enough for significantly longer than their expected lifespan, just in case they live that long. Since people on average live their expected lifespan, most of that is excess save for the few who actually do live that long. Maybe the rest turns into a windfall for their kids, but that’s not the goal of retirement saving.
With a pension, the pension planners need only save enough for the expected lifespan of their pensioners. The pensions of people who live longer are paid out if the surplus for people who die younger. There can be problems if the pension plan makes gross misestimation of how long people live, but there isn’t the bulk excess saving just in case everyone lives to 100.
Back when I started doing the family grocery shopping, I was eleven-twelve, I had $60 to buy groceries for a family of six for two weeks. I always did the calcuations because they didn’t have the unit prices waaaaay back then. But I’d sometime skip my dad’s choice for yucky, cheap, blackberry jam and get my favorite – raspberry (my favorite)
My boyfriend is like you. He’s not an artist but he would like to be (a foley artist or somehow in film or the music industry), but he has the same disinterest in and dislike of money that you do. It’s frustrating and dumbfounding to me. I’m personally financially literate but just enough that I know all about my own money. I do fall short when it comes to investing and stuff. That’s just from growing up poor.
But like, he doesn’t like to know how much is in his bank account. He doesn’t keep any ledgers. He hates to talk about money. It all makes him viscerally ill.
Drives me nuts but it’s one of many reason’s he’s my boyfriend not my spouse 
Anyway, glad to know there’s other people out there who have the same feelings about money that he does, and he’s not randomly insane!
With the HSA option, a lot of our employees on our point of service plan would be better off on our HDHP. The premiums for the POS are sky high with a monthly premium that is $500 higher than the HDHP for family coverage. But with the POS you don’t have a deductible, just coinsurance and copayments until you meet your out-of-pocket maximum whereas the high deductible has a high deductible. It scares people.
I’m sure the POS makes sense for some employees. If they have multiple dependents who frequently seek medical care it might more sense to be on the POS than the HDHP. I’m on the HDHP but I’m just covering myself. I’ve never spent more on medical care than I received from the company for my HSA. Knock on wood. For younger people who don’t see the doctor very often, the HDHP is probably a better choice for them than the POS. They’ll receive more in HSA funds than they spend that year.
But, it did end up mattering how well the company did. In 2008, when companies started going bankrupt, the first thing to go was that pension plan. Many who relied on it found themselves stuck, with reduced or even eliminated payments.
401k at least puts that power back into your hands, and doesn’t make you rely on both the good will and the good fortune of a company you no longer work for. It also is easier to roll over and follow you as you change jobs, as few people stay in one job their whole careers anymore.
I’d say that it also protects the employee from losing their pension if the company goes bankrupt.
That’s pretty silly. I’ve had some that gave that option, but I’ve never had to spend too much time on it.
That’s been more my experience. And it does make sense to have some options there. If you are younger, you want something a bit more aggressive, as you have more time for things to recover if it goes down. If you are closer to retirement, you want things a bit more stable, so that you don’t end up having to wait to retire because the market crashed.
If you just invest into index funds, you really can’t go wrong. I’ve never seen a 401k that didn’t have that option.
Except for people at companies like Delta or Ford, who found their pensions cut when the company hit hard times.
I don’t like the pension system, as it lets companies push the costs of employment down the road, increasing short term profit, while loading up incredible amounts of future obligations. There is no guarantee that it will pay out what it promised.
Or if the company runs into financial troubles and can no longer meet its pension obligations.
My company’s 401k actually let me split my investments between four index funds reflecting those categories, and set it up so they automatically rebalance every quarter. It seems like basic common sense to me, but when I try to explain it to coworkers I can see their eyes glaze over.
This is my daughter. She recently started her first big-girl job and we had to carefully convince her to start the 401K, put aside additional savings for any large purchases/needs that may arise, cover her rent, and then the rest of her paycheck can be used for spending on regular needs like groceries as well as frivolities. It was like pulling teeth; I tried explaining how participating in investing and putting your money to work making more money is not a classist thing but an avenue for building wealth and security, and the earlier you start the better the outcome. She still does not have a lot of interest but at least now understands the basic concepts (and things are set-up decently for her).
Meanwhile my son is majoring in Finance and he, evidently, came pre-loaded with financial acumen, so he has been helpful in explaining how smart all the advice we have been giving my daughter is. Maybe it’s better to hear it from a sibling/peer than a parent.
I’m not as bad as he is, but I can understand. I grew up barely middle class (and a lot of my childhood we slipped a bit lower), and I really identify with money being something that’s a stressor. I find myself actively avoiding money issues, and I’ve had a decent adult life and a very comfortable retirement so far! It’s not something I can reason myself out of easily.
At least, this is something I understood…I participated in any ESOP, ESPP, or 401k available to me.
He grew up upper middle class, his parents owned a few gas/service stations. And they had family money passed down. But I think his dad was totally laissez faire about money (like he is now) and his parents fought a lot about money, and eventually dad’s shitty money management lost the business. I think he learned the bad habits from his dad, who had a “you can’t take it with you” attitude, and then once the money & business were gone, everything became “oh, shit!” for his dad and their family.
So yeah even if you HAVE money, money can be a stressor for a family.
My family was poor and my parents clawed their way out of debt, so by the time I had my own money my dad was able to teach me good money management skills. But I never got investing skills because we were poor.
The best kind of correct!
It’s all dependent on who your company hires to manage their 401k program. Like I was saying, one of my employers actually had us choosing the specific funds themselves, while most have had the broader categories- IIRC there have usually been about six - large cap growth, large cap value, small cap growth, small cap value, international, and some sort of bond-related one.
I don’t really like either system; they’re both pretty insecure from the employee/retiree’s perspective. I was just saying that the defined benefit pension was, assuming the company was in good health, a better thing for the average worker than a 401k.
That’s part of my point; you and I know to do that, but not everyone does.