Anyone thinking that is thinking factually wrongly.
The whole and entire point of 401Ks is that they are portable. You can change jobs every couple of months and just keep putting money into your current employer’s plan, while all the money in the prior plans keeps earning.
The other key thing about 401Ks is employees can start using it from their first day on the job. Unlike traditional pensions where you may have to work there 1, 5 or even 10 years before you’re eligible for any benefit from the plan.
It is administratively annoying to keep changing plans, but it’s also administratively annoying to need to keep changing jobs.
Once you’ve left an employer you can either keep you existing money in that old employer’s 401K plan, or move it out into an IRA that you control independently of any employer or, for some new employers, move the money from the old employer’s plan to the new employers plan.
Bottom line being that your 401K money belongs to you and follows you forever.
Contrast that with the traditional pension where if you change employers often you may get zero benefit from each employer, which adds up to zero when you’re old.
Only if their heads are full of misinformation. The forgiveness is only $20,000 max, so it may make sense to load up $20,000 in student debt with the expectation of forgiveness, but if they think that they can load up as much as they can, then they are probably too stupid to pass the most basic of entrance exams.
Of course, the fact that they are told that they will amount to nothing in life if they don’t go to college, and that they need to take on this debt if they ever want to make it out of poverty has been part of what many would consider to be financial literacy.
Well, we don’t have easy bankruptcy in the US. Not for individuals of low worth anyway.
Yep, banks encouraging people to do so was an issue. They found people with low financial literacy, and took advantage of them, knowing that they would be on the hook, but that those who made the loans would make buckets of cash.
That’s going to be the case any time you have arbitrary cliffs on benefits like that. It’s not the benefits that cause the problem, it is poor attempts at means testing those benefits that does. We have a similar issue with various forms of welfare, where if you make $1 over a certain number, you lose a whole lot, meaning that people aren’t just encouraged to keep their income lower, they are required to.
But I chalk that up to lack of financial literacy on the part of those who want to limit the benefits to the less fortunate, or at least, a lack of caring about financial literacy.
So, less moral hazard and more intentional policies by the right to keep people impovershed.
Yep. We had Carter telling us to tighten our belts and save, and we had Reagan tell us it was “Morning in America” and that we should go out and spend spend spend. We chose Reagan, and he set the example by running up massive deficits to increase spending and decrease taxes.
Same with Bush II. We went in to his term with a surplus, both in govt and household savings, but the moment the market dipped just a bit he cut taxes and drove up the deficit, while also telling people to go out and spend.
Only if they are wealthy or a corporation. For most of us more average folks, that’s simply not the case.
Agreed. Those who call themselves fiscal conservatives who run up deficits are talking out of both sides of their mouths when they tell individuals to sacrifice and save.
A lot of the plans do have a period of time that you have to work there for the employer contributions to fully vest. I’ve never seen more than 5 years, and it was a progressive structure so you got 20% vestment per year. Others have been shorter timeframes, and surprisingly, when I worked for a utility company, they had immediate full vestment.
So, if you only plan on being somewhere for a couple months, it’s not as useful to take the 401k, as you may not get those matching funds. It’s still useful for saving for retirement, but a bit less so.
Hubby and I are both engineers. Finance frightens us. We pay accountants to do our taxes - much healthier and safer for us.
Paying bills on time? Got it. Only debt is a mortgage on our primary residence. Rebalancing retirement accounts? Ummm.
When we lived in the US, we met with a financial advisor to figure out how to become home owners. And when we sold our house, he helped us figure out where to invest the money, which we withdrew 5 years later, when we bought our current place.
However, we now reside in Switzerland., which has a very interesting tax feature.
There was mention of good debt. Due to imputed rental value tax, Swiss taxes, US taxes, and then mortgage rates, it’s rather difficult to calculate if it’s better to pay off the mortgage, and pay the higher imputed rental value tax, and maybe get lower US taxes, or keep the mortgage where it’s at, and avoid the higher imputed rental value tax.
In addition to that fun, mortgages here are typically 2-6 years, not 30. Fortunately getting a new mortgage doesn’t cost anything, except the higher interest rates.
When we redid our mortgage 6 years ago, our escrow* account was making more interest than our mortgage. This is no longer the case, so we might take part of the escrow* account and pay done some of the capital. Maybe.
*Escrow account: I don’t pay the mortgage directly. I put money into the escrow account and the mortgage is paid from that. It’s not exactly a classic escrow account as it is only used for the mortgage. We pay wealth tax on it, but it’s not included in our online bank account overview as we can’t doing anything with it unless we do something in person.
Add exchange rates to the mix (relevant for calculating US taxes based on Swiss salaries and taxes paid), I think I have a bit of an excuse for being financially challenged.
Today’s rate: 1 USD = 0.91 CHF
When we moved here: 1 USD = 1.75 CHF
Reading this thread reminds me that I should review our health insurance deductibles for 2024. Something to do in October.
Blurgh. US tax payments are due in March (ends up being April or May), June, September and January. Swiss tax payments are due on March and December. I’m always paying taxes.
That’s this program. But once the examole is set, there are people who will believe that their student loans will either be forgiven, or allowed to be carried with zero interest, or be tolerant of many missed payments, or whatever.
Absolutely. That and student loans also encouraged colleges to water down degrees, offer garbage degrees to peolle who aren’t equipped for hard degrees, drive up tuition and blow the money on armies of administrators.
What are the consequences of bankruptcy in the US?
Why low financial literacy? Historically low interest rates made a lot of borrowing rational for the individual, even if it was terrible for society. There are a lot of financially literate people who get themselves in deep financial trouble. Poor executive function and the inability to defer pleasure into the future has a lot to do with it.
I grew up poor and surrounded by poor peoole. It doesn’t take a lot of financial literacy to understand that saving is good, living beyond your means is bad, and credit card debt is bad. Almost everyone understands those basic facts. But a lot of peoole just don’t have the discipline to follow through. I saw it my whole life. I know people who made more money per year than I did, but were desperately broke becausevthey spent every nickel they had, plus every one they could borrow. High income just allowed them to dig a deeper hole.
Poor people are constantly deprived of things that society tells them are necessary for ‘the good life’. For some of them, the pressure to borrow to ease that pain right now is overwhelming.
Consider a related phenomenon - obesity. Some peoole are obese through no fault of their own because they have a medical condition. But others are obese because they cannot resist the short-term enjoyment of food for the longer term goal of being healthier or better looking. Almost all of them are aware of the basic facts of overeating, and understand that to reach their goals they must eat less.
Except for a small percentage, it’s not a ‘food literacy’ problem, it’s a discipline and executive function problem. And people fall for woo-woo and garbage diets not necessarily because they are uneducated, but because they can’t resist the promise of a pain-free way out of their dilemma.
Another example: The large number of type II diabetics who will not manage their blood sugar properly. My mother kept drinking and eating terrible food after her diagnosis. I’d bother her about it and she’d just get mad at me. She’d always say that she was going to do better ‘right away’, but she had to ease into it, or she was having a bad day and ‘needed’ to relax and have some comfort food and a drink, whatever. She was always going to do better tomorrow. She kept that up even after going almost completely blind from macular degeneration.
The world is full of people doing things they know they shouldn’t do, but do it anyway because they are willing to trade future pain for instant pleasure. Some of them would benefit from more education, but for many that’s not the issue.
I don’t recall it that way at all, but that’s probably a topic for another thread.
So, once an example is made, people will make up entirely different things than that example actually represents? That doesn’t make sense to me.
I always find it amusing that out of all the people that profit off our broken education system, it’s always the students who are the ones who should be held accountable to it.
Yeah, they really ought to get rid of business degrees. Those are the most useless of all.
Depends on a number of factors, but generally it just restructures your debt, not wipe it out. They figure out how much you can pay, and you pay it after they take everything you own that’s not on a fairly short list of exemptions. It’s expensive, you have to pay thousands of dollars to a lawyer, who obviously will get paid up front.
It lets you move on without being dug deeper into a hole with no way out, but it certainly isn’t easy, and it doesn’t clean your debts.
But bankruptcy is more a state matter than a federal one, with each state having its own rules. The tendency is that the more conservative states have more generous bankruptcy rules, with Florida being infamous for having extremely generous ones.
It doesn’t matter if the interest rate is low if you still can’t afford the payments, especially if the interest rate isn’t fixed and can increase, which is the sort of loans that were offered.
The banks had a bunch of money they wanted to lend out, and all the qualified borrowers already had a mortgage, so they went looking for less qualified borrowers who wouldn’t know to read the fine print on the bill of goods being sold to them.
Yep. I made far less than most of my friends, but I currently have a mostly paid off house, a successful business, and a rapidly growing savings portfolio, while they just have memories of the good times they had blowing their money.
Which is why there are entire industries out there to prey on them. Payday loans and rent to own centers just being the most prominent.
And no, not all those of lower income are financially illiterate, which is why not all those of lower income are taken by these scams. Just as not all those of higher income certainly aren’t financially literate, as you can see by them making lots of money but never having any.
And some people are obese because their job is physically and mentally exhausting, but isn’t actually a good cardio. So they don’t have the physical energy to do proper exercise, nor the mental energy to avoid partaking in temporary pleasures.
Fortunately, people wrote stuff down so that we don’t have to rely on our own fallible memories.
Out here in CA most government pension plans have full reciprocity. So hopping between say a city job in central California, a county job in SoCal or a municipal job in NorCal is usually quite feasible without any invested time lost (benefits vary of course). It’s a very limited freedom, but still something given CA is so large and government jobs are fairly diverse.
I believe federal law requires the vesting period be no more than five years maximum. And that vesting is for the employer’s contribution. Any contribution you make to your 401(k) is yours and that doesn’t change no matter how long you’re employed at that company.
I wouldn’t bet much money on it - there are many different ways state government pensions and local government pensions intersect and its not the sort of issue that recent politics would affect.* In NY many county and municipal governments participate in the same plan as state employees - but they don’t have to. NYC has its own pension system. You can transfer time between the systems, but the benefits are slightly different. California apparently does not allow you to transfer time but you apply for retirement from each plan and benefits will be coordinated.
North Carolina allows transferring credits between systems. In Georgia , the same agency administers plans for both state and local government employees so there is very likely some degree of reciprocity.
* Recent politics might affect benefits or the existence of a pension going forward but it wouldn’t affect what happens when an Atlanta government employee goes to work for the state government assuming that a pension still exists.
IMO the financial services industry contributes to financial illiteracy by making the subject seem more complicated than it is. Their goal is to get people to throw up their hands and let financial managers handle their money, for a yearly cut.
Most people can do their own basic long-term wealth building. If you can do your taxes and pay your bills, you can handle basic investing.
When I got my first professional job, I didn’t know anything, so I approached older colleagues who seemed to. It was very enlightening (and less complicated than I expected) to understand the difference between the higher management fees charged on actively-managed funds (which add up over time) and lower index-fund fees. And the difference between long-term, buy-and-hold investing versus stock picking. And periodic re-balancing of asset classes.
The industry wants you to think you can benefit from the services of their expert stock pickers, but lots of data says otherwise.
It’s mostly because of the desire of instant gratification. If you have any sort of job where it’s possible to contribute to a 401(k) plan, then you probably are making enough to contribute to it - as long as you are willing to live below the means that you could if you didn’t contribute to it. The problem is that people want to live better now. The issues with money simply boil down to that in the end. I definitely see where people are getting an idea that money in the future is worth far less than money now due to it being a useful evolutionary adaptation. People being unable to control their eating is also an evolutionary adaptation from a time when food was not as plentiful as it is now. I’d say in general most of the problems of humans today stem from ideas about the world that were advantageous in the environment where we evolved. Not everyone has the will power or cognitive ability to ignore what evolution wants them to do.
Yes. But as was explained to me when I was young–and as I have explained to countless young colleagues, friends, and family over the years–the tax deferral makes the bite less painful. Knowledge can help us manage scarcity.
I’m always reminded of the bet that Warren Buffett made in early 2008…that his million dollars in an index fund over 10 years would beat a professional money manager who invested in hedge funds. After those 10 years (which included the 2008 market crash), his index fund (Vanguard Admiral) gained 125.8%. The five hedge funds, picked by a firm called Protégé Partners, added an average of about 36%.
But recall the purpose of the Protégé partners funds was not to enrich the clients. It was to enrich the Protégé Partners. How’d they do on their investment? See also:
Ever try the retirement income planners from these companies? They are designed to scare you. Increase your income and savings and they increase the amount you need to retire so you’re always behind.
The worse the investment, the more complicated they will make is sound. For instance, as investment products, life insurance and annuities are generally some of the worst, and a document for one is usually quite long (35+ pages isn’t unusual) and full of terms like waivers, riders, and exclusions designed to confuse customers.
