Why are so many people woefully ignorant of financial matters?

In My Humble Opinion
61

The education system doesn’t teach kids about money, and the parents don’t either – because they don’t know diddly squat about it sometimes, or they would rather their kids not know about their financial situation.

I was never taught basic economics, or personal finance at school. I was raised by parents who were very frugal (one lived through the Depression, the other grew up on a farm). The message was made very clear: Don’t spend what you don’t have, save what you don’t spend. They were not investors – as a matter of fact, my father had some strange ideas about the stock market – but I taught myself a lot.

Before any discussion of personal finance comes up, kids have to be taught priorities. If the parents don’t show and teach priorities, all lessons are lost.

62

Why isn’t more of this stuff taught in high school? My hunch is that there are policies in place at the state or federal level that somehow quietly discourage it. There may well be an understanding that a steady supply of people who aren’t smart about money is a needed resource for the business sector.

63

IMO, I believe that’s it. Although no announcement has ever been made about it, think about it… If the educational system teaches everyone to be financially independent, business would lose out on skilled peons, and banks will miss out on overdraft fees, late fees, etc… Basically, teach everyone to have a “career”, fuel the rat race, and boost consumerism - all great things for those that accept Visa and Mastercard!

64

Reading this, I’ve a few points.

  1. Pay off your credit cards and any high interest loans
  2. Keep a buffer account for emergencies
  3. Keep a buffer in your normal account
    eg: $1,000 at 5% interest = $50 per year less 20% tax = $40 per year
    If you slip up, you can easily lose more than that $40 in bank charges, and it is easy to slip up.
  4. Your biggest investment will be your home - pay that off as fast as possible
  5. When you have surplus money, then think about very simple forms of investment
    Being from the UK, I don’t know much about the USA, but remember buying into funds, buying pensions etc mean that you are paying someone else to look after your money
    If you invest in shares directly, then remember, it is very easy to lose money. A good company today can get badly managed and sold off for peanuts tomorrow.
  6. Never buy a fancy combined product, like life insurance combined with a savings plan
  7. Be careful from whom you take advice
65

Also, what gives you tax breaks today, might not give you tax breaks tomorrow

  • in the UK the Pension Funds lost the tax break on share income, and it has completely shafted them.
66

Not in the U.S. Mortgage interest is once of the few tax write-offs left for the average person. Unless you have an interest only loan, pay the minimum to your house payment and invest the extra money.

67

That’s a good one, too. In the US, generous deductions for hybrid car purchases just expired.

68

I am UK - they stiffed that about 20 years ago.

The one I like is possibly called an ‘Australian loan’ - you mix your mortgage and your bank account.

69

Please keep your conspiracy-mongering out of this thread. We are discuss real-world, practical advice.

Commercial banks, credit card companies and businesses have little to no influence over high school ciriculums. I think I can speak for business when I say we do want an educated, stable, hard working workforce. People who can’t get their financial shit together often bring that drama to the workplace in the form of absenteeism, loss productivity or even stealing from the company.

And as I mentioned before, “they” don’t teach that stuff in school because “they” typically don’t come from the business world. My girlfriend has a bunch of teacher friends and they have no clue what we do. All their mind can grasp is we’re Manhattan business people.

70

I copied this from a post I read on the Clark Howard message board over a year ago. It is a bit long but worth reading if you are trying to decide between paying off debt and paying into a retirement account. The advice is specific to car loans but it can obviously apply to any type of debt.

71

Oh and we did have a personal finance class that was required for graduation, but it was taught by the football coach (his only class IIRC). It was pretty much as worthless as you would expect.

And I never knew how much my parents made until it came time to fill out the FAFSA either, but I remember talking about money matters around the dinner table. I knew, for example, that they had a 30 year mortgage but were paying it off in 15 years and we went through the math of how much they were saving in interest because of that.

My mom was a SAHM and she discussed with us that because she clipped coupons, made all of our meals, didn’t need childcare, sewed many of our clothes, etc she was actually saving the family money versus her working in a minimum-wage job.

It seems like some other families were ashamed of their frugality and afraid to talk about money, but even today when my parents have more money than they know what to do with my mom still calls me up when she finds a great bargain at the thrift store.

72

I would recommend you go to the library, bookstore, or trusted internet sites and read up about 401k and Roth 401k. Also, read whatever is on your company’s intranet or in your employee handbook, to see what’s available to you personally. This is all just for explanantory information. If you can afford it, meeting with a financial advisor is a good idea, too.

73

There are a lot of internet sites that will recommend a 401k mix for your age. The most common advice is “invest as much as you can” and “take bigger risks younger, than change your mix as you get older.”

Here is a start:

http://money.cnn.com/2006/07/18/pf/expert/expert.moneymag.moneymag/index.htm

74

In general: diversify! Do not put all of your eggs in one basket. I had an aunt and uncle who both worked for Nortel. They had a large amount of their savings tied up in Nortel stock. When the tech bubble burst, its stock went from a hair over $120 per share to somewhere around $5. :eek:

Another cautionary tale: here in Canada, there’s a particular type of company called an “income trust”. Basically, all of the profits of an income trust are paid to the shareholders as dividends. This allowed the income trust to take advantage of a tax loophole and pay no corporate income tax on their profits. When several large Canadian companies announced plans to convert to an income trust, the Canadian government quickly changed the tax rules so that income trusts would pay corporate income taxes. The income trust market instantly lost billions of dollars. A lot of retirees, who depended on income trusts for their retirement income, were hurt badly by this.

75

The reason it usually isn’t taught in high school is because the people, through the school boards, have in their infinite wisdom decreed that we teach every other frakking thing in the Universe parents are supposed to teach their children!

That said, I would like to note that in the Econ classes I teach (2 sections this year) we skip the Laffer Curve and high-end stuff they will never encounter in their lives and spend as much time as possible on Practical Economics. This includes credit-cards (bad), saving (good), budgeting (more good), check-book balancing, how having a kid early can doom you to the bottom of the heap for the rest of your life, and stuff like that. I’ve been told by returnees that that particular class was the one thing they remembered as being useful from high school.

76

BTW, we paid off our mortgage early. Our 401ks are well funded and much of the mortgage money is now going into 529s for the kids. I wanted the change to cash flow - I didn’t want to lose jobs in a recession and down market and have a mortgage over our heads and investments not worth as much as we paid for them. The mortgage is a guarenteed return (and we make too much to qualify for the interest deduction anyway).

Last time we had an employment scare the stock market was down, the unemployment rate was high and one income was inadequate to support our expenses.

77

“Household Economics” should be a required course for graduation from high school. It’s a fundamental skill that has tremendous impact on your life. Why it’s not is truly baffling to me.

Everyone kid who graduates should know how to balance a checkbook, know how to calculate the future value of money, understand how inflation works and how it affects a person’s long term financial situation, the difference between stocks, bonds, and other investment tools, the basics of taxation and tax planning, how to plan for retirement, and how to prepare a family budget.

If that doesn’t take a full semester, they can cover automobile depreciation, the cost of raising children, the true cost of credit card debt, and practical tactics for living within your means.

78

Amen. I’m loving this thread, and I’m going to look into opening a 401k this week. And I’m also going to look into doing something with the several thousand we have sitting in our bank account. Citibank has something called a “Preferred Money Market Account,” which is what we have, but I don’t think it’s the same thing that everyone else is talking about. It’s basically a regular savings account, and we can transfer money into it from checking (or vice versa) any time.

Going back to families and education: My dad grew up with Depression-Era parents, and he took their financial teachings to heart. He took me with him when he bought his last car, and he made the down payment in cash, then immediately wrote a check for the rest. I’ve inherited a lot of his attitudes, so I’m very frugal, but I’m also very hesitant and kind of scared. Anyway, I’m learning…

79

Here are my suggestions (but, like everyone said, do some reading and decide for yourself) You should have short term savings, short term investments, and long term investments.

Short term savings should be in a high-yield savings account. You can earn 5+ percent in several of the online banks, all FDIC insured. It should be 3-12 months of living expenses, depending on how flexible your spending is, and how secure your income is.

Short term investments, like for a house down payment in a few years, should be kept in something similar, or in a CD or some bonds. Low-risk, slightly higher return than the savings acct.

Long term investments is for 10+ years. It should be a mix of stocks, bonds, real estate, etc. Probably weighted toward stocks if you’re young. There are hundreds if not thousands of books written about how to divide up your investments, but if you invest regularly, split evenly between domestic stocks, international stocks, bonds, and real estate, you’ll do fine.

Should you pay back student loans? It depends. Are you getting a tax deduction for interest? How does the rate compare to what you could make in a safe investment? Make sure to factor in the taxes that you’d pay on the investment earnings.

How much should you budget for a car? As little as possible. Cars are depreciating assets, so buy just as much as you actually need.

My mom was really good about talking to me about finances. She told me about the importance of retirement investing, and about her mutual funds, and to stay away from credit cards unless I had the money to pay them off immediately. She told me that she was mad at her mom for not teaching her about these things, until she figured out that her mom didn’t really know. About a year or two ago, when I finally started making enough money to have more than I needed to live on, I started reading about investment and recommended some books to her. Now we go back and forth and talk about asset allocation and investment strategies, and recommend books to each other.

80

I disagree with the notion that people are ignorant because “it’s not taught at schools”. They’re largely ignorant because it’s not practiced at home, at least openly.

Money and finance was drilled into me as a kid by my grandparents. We made ledger entries, set up savings accounts, and discussed investing. They had money because they saved money, and they made sure that I knew how to figure simple calculations like compound interest at an early age.

So, like many things, this starts at home. Leaving it for others to do is a losing proposition.