Why are some people better with money than others?

In My Humble Opinion
1

Do you have a “rainy day” fund? Do you ever need to borrow money to get by? Have you gone through phases in your life where you’re skint and then other times when you’re flush?

I’m really struggling to understand how my partner’s entire family are hopeless with money, I’ve gone through times in my life when my income has been extremely limited but I was never in debt and I always spent less than I made.

Dopers - help me understand why some people are great with money and other people are always struggling. If you had to choose, would you rather work part-time but never be able to pay the bills or work fulltime and be comfortable financially but time poor?

Thanks!

2

I suspect part of it is just because, for any given skill, some people are going to be better at it than others. This is true of pretty much every other skill that people have, why would managing money be any different?

In the case of whole families that are bad with money, I’d guess it’s because people generally learn money skills and attitudes from their parents and other family members. It’s very difficult to teach a skill you don’t have. The ineffectiveness of “do as I say, not as I do” may be in play, too. If parents are always telling kids to save money, but never give up anything they want to save actual money, the message the kids are going to get is that saving money isn’t so important.

3

Some people just simply aren’t good with money and I don’t think there’s much more to it then that.
Case in point:
An employee of mine mentioned that she got a few parking tickets at her boyfriend’s house for parking overnight on the street in front of his house so I asked her why she didn’t just get a parking permit from the [his] city. She said “Those are bullshit, they’re $30 a month, in [her city] they’re only $10 a month”. As I didn’t really feel like arguing I let it go.

Fast forward to a few weeks later when she calls me for a ride to work from her boyfriends house because her car is booted because she has so many unpaid and late parking tickets. On the way to work the conversation went something like this:
Me: “What do you owe right now in tickets?”
Her:“It’s bullshit, because the late fees add so much to them but I only have like 4 or 5 un paid tickets”
Me: That’s not what I asked, I just want to know what the total is that you owe.
Her: Altogether, with the late fees, about $250.
Me: And how much did you say the parking permit is?
Her: $30 a month but it’s bull-
Me: Just stop and think about this, you owe $250 for 4 or 5 nights worth of parking there, but that $250 could have paid for 8 months worth of parking permits if you had just gone down to the police station and asked for a permit instead of waiting for the cops to give you a ticket.
Her: But it’s bullshit, in [her city] they’re only $10 a month.
Me: Yeah, but you’re the one that doesn’t have a car.

To this day if I bring that up, she’ll still argue that she was in the right to rack up all those tickets and late charges because the permits are too expensive. I think she thought that tonight she wouldn’t get a ticket.

I’ve seen other people make equally terrible financial decisions and just can’t seem to be talked out of them. I usually try to stay out of it when it’s just an acquaintance since I don’t want to get in the middle of anything, but when I see a friend about to spend $300 on something and I know they can get it for $200, I really hope they at least take a look at my suggestion. But I’m at a point in my life where if you don’t want to get your HDMI cables from monoprice or do some of your shopping on Amazon or at least attempt to park legally, I really don’t care, it’s your money.

4

I think it’s because some people just don’t think long-term. Some aren’t looking past their next paycheck, except for the beer and cigarettes it will buy. They don’t think about saving, or investing, or anything else. It’s immediate gratification, and NOW. Others do think longer - they save for a car or house or education, and make it come true.

I think Anne Neville’s comments about parents influence is generally true, but it can be a little different from how she puts it. I know when I was a kid, I was always “the one who will go to college”, and my older sister was “the one who will get married right out of high school”.
as kids, we heard that for years, and it came true. Financially, I’m head and shoulders and a left lung out in front of most of my siblings, and I think it’s in part due to the fact that it was just assumed that I would be the one to get an education. My sister is the one living from paycheck to paycheck. So keep that in mind when you’re talking to your kids - you can create a self-fulfilling prophecy all too easily. Give 'em something positive to strive for!

5

Some of it is also values. Some people value financial security - I do. I’d rather have money than a new iPad because I sleep better at night. Other people only value money as a tool for getting stuff, and they value the stuff.

Some of it is the understanding of time. If my brother in law has money, he spends it. He takes a trip, he buys something he wants. There is an intellectual awareness that he might want it for something else later - and might want it in bigger quantities, but its purely intellectual knowledge with very little practical purpose. My understanding of time and its relation to money is completely different. I have five years before my oldest starts college. I have twenty years until I retire. And these are money events.

6

I wonder about that too. I know some people who appear to make decent money (though they’re not rich) and who are obviously living paycheck-to-paycheck (or worse). Their credit rating is crap, they’ve confessed that they were worried about being foreclosed on (even though they bought their modest-but-nice house long before the mortgage crisis and it wasn’t at all outside of what you’d expect them to be able to easily afford). More than once they’ve mentioned driving around town paying bills because they were due THAT DAY and they just got the money together to pay them.

I don’t get it. They aren’t stupid people, and they work hard at good jobs. But their money sense just is not there.

7

If your my mother-in-law, then you think that you deserve to have nice things, nevermind the fact that your husband lost his well-paid marketing job in the 1980s recession, you got used to that standard of living and you’re not going to change now.

If you’re me, then you were a bright child with a good understanding of maths, but no one ever sat you down and showed you the true cost of paying interest on loans. And no one ever spoke about how much money mum and dad made or didn’t make, it just wasn’t something that was discussed in the home. And you were in the top stream at school, so instead of taking home economics, you took Latin. And then you only really realised what was happening in your late-20s and it then took you until your early-30s to claw your way out of that debt.

8

People don’t always make rational or logical decisions (I know, this is shocking to some of you). This is true of everything else in life, so of course it carries over to money.

The most rational course of action for your employee would be to get a parking permit. But she might see that as “letting the city win” or “admitting that the city was right” at this point, so it’s not just a question of money for her.

Or maybe that is the only way she knows how to live. I live below my means now, but I know I’d have serious trouble if Mr. Neville or I weren’t making a decent paycheck. I didn’t grow up in a family that had to account for every penny, and I don’t know how to do it.

9

I have often thought that the most important Maths class was the one where they taught us about Compound Interest. Dad took advantage of that to teach each of us in turn about loan fees. I’ve met many people who didn’t have an accountant at home so they didn’t know that much detail when they started looking at buying their first car or a house or trying to decide whether to start inverting in a retirement fund, but IME even those whose memories of the class on Compound Interest were extremely fuzzy knew that “it is important to ask for advice from experienced people before getting your first loan”.

Someone who’d never had that class and whose parents lived from paycheck to paycheck is the financial equivalent of a wolfboy, they don’t know about money management because they have never been properly exposed to it.

10

A lot of people seem to think that being good at math is the only skill required to be able to manage money, so the kids who are good at math must automatically know how to manage money. I’ve known lots of people who were good at math but not good at money management (if you major in astronomy and physics in college, you meet some of these people). Understanding exponential growth may be necessary (or at the very least useful) for understanding money management, but it is not sufficient. There are other skills that are required, and we’re not teaching those skills to all kids in school.

Thinking that math skills are enough also doesn’t take into account that money isn’t just numbers in our society. If you think it is just numbers, try asking a few people how much they make. There are a lot of parents who are not willing (or able) to discuss how much they make or what they spend money on with their kids. If the kids don’t have that talk with their parents, and they’re advanced enough in math that they aren’t taking the class in school that covers money management, it’s likely they’re not having that discussion with any adult in their lives.

Even if we did all have a thorough and frank discussion of finances with our parents, or get good lessons on it in school, that might not be enough. I don’t think there was any such thing as an interest-only mortgage when I was in high school- if there was, they weren’t common. My parents or my school could not have told me why such a mortgage might be a bad idea, just because there was no such thing in their experience at that time.

11

The couple I know who are bad with money seem to have the biggest problem with self denial. They have some needs that they can’t afford but instead of chipping away at the needs they blow small piles of money on the wants. You can easily find enough money for the stuff they need in all the electronics, furniture, clothing and food that they wanted.

When I was not doing well financially it was blindingly obvious to me how to do it. Deny myself. I didn’t buy anything, I didn’t go anywhere, I hardly ate anything. Every penny counted. I got out of debt extremely quick and then got to the point of having tons of savings.

I truly think I have the capability to hate myself more than this couple does. They love themselves, they take care of themselves, they pamper themselves. They can’t imagine being as hard on themselves as I was.

12

Different tastes in recreation can come into play here, too. When I want to pamper myself, I make sure I do not have to leave the house for a full day, or shop online for anything. I’d rather stay in and re-read a favorite book or play a favorite computer game. I might get takeout food delivered, but that’s going to be the only spending that happens, if I get to choose how I spend my day. There probably will be naps, which are obviously cheap. Not buying anything or going anywhere, for me, is not self-denial. Quite the opposite.

Obviously, if your tastes run that way, that’s going to be cheaper than if your idea of pampering yourself is to go shopping.

That kind of taste isn’t always a good thing, though. I hate hate hate comparison shopping. I’m already not happy that I had to come out of my cozy little cocoon to go shopping, and now I have to go around to a bunch of different stores to look at the same damn thing? I don’t even like it much when I have the internet so that I at least don’t have to go to different physical locations to comparison shop.

13

The class on Compound Interest wasn’t about exponential growth.

In was about “exponential growth in the context of ‘a small % over a long time adds up to a TON’”. It was about the only Maths class I had which was Math Applied To Real Life, as opposed to all those other classes where teachers looked ill at any student who asked ‘what is this for?’, or those where some imaginary farmer milked imaginary cows to make imaginary cheese. The “putting things in context” is what made it important and what even the people who wouldn’t recognize the expression “exponential growth” took home - which was the idea.

14

Reminds me of the marshmellow study and delayed gratification.

A big part of “managing money” is delayed gratification and not going out and blowing it all on stupid stuff as soon as it gets in your hand.

If you can delay gratification, this is a pretty good indicator that you will do better in life than those that can’t.

15

Thank you so much for your opinions and explanations, it looks like there are a lot of different reasons why people are bad with money - which actually makes a lot of sense.

This came up because my partner and I are about to have our first child together (like a month away - yikes!) and recently it feels like his entire family have been coming cap in hand to us, well actually they make us come to them but still, and I’m a little nervous because I don’t see it ever getting better and I don’t think we can afford to prop them all up forever, especially when my income is about to take a medium term hit.

He has one brother who is constantly “borrowing” money and for the first time this year I’m insisting actually pay us back - he’s 45 years old and it’s time to stop enabling him. Also, his partner of 5 years is always buying expensive toys for herself with “her” money - shouldn’t he be hitting her up first?

His mother makes the worst investment decisions - I’m talking facepalm shockers - like the time she invested a significant sum (it was an inheritance) in the bridging finance arm of a “Spanish bank”, which was offering a 30% pa return on investment GUARANTEED, but the deal was if you called the actual bank they wouldn’t know about the deal (that’s how exclusive it was) and if you told anyone about it or sought any advice they wouldn’t let you participate in it - so roll up roll up and empty your pockets folks!

His 80+ father, who’s on the pension with his wife, and is constantly beyond broke and also “borrows” money when times are tough (I don’t have the heart to make him pay it back). Times get tough for them though because his wife - who is bat shit crazy - has 5 kids, who have 5 kids who have 7 sacks with 7 kittens in every sack etc and she is constantly buying expensive gifts for her 1,000 grandchildren and helping out her GROWN ASS CHILDREN, not one of whom has 2 cents to rub together.

So the latest catastrophe is that father in laws car is kaput and they’re planning on buying one on their credit card - did someone order a recipe for disaster?

Obviously we’d be pretty terrible people if we let that happen, but at the same time with 7 offspring between them we’re pretty unhappy about the idea of being the only ones to contribute. I also think it sets a really dangerous precedent, the rest of the family can just breathe a sigh of relief and let us bail the parents out for the rest of their lives, while they continue to come begging (so basically we’d end up subsidising the entire brood). Oh and there is no inheritance down the track, they’re already mortgaged to the hilt and anything there is left over will go to the stepmothers family.

We have savings - we also have a mortgage - but that’s because we live a pretty modest lifestyle so when things like children come along we can afford for me to work part-time for a while and so that when we retire we won’t be in the terrible situation his parents are in. We also work really hard and live within our means, so out of all of those people, 3 parents and 7 adult children (+ spouses and children) only one has any money skills whatsoever? And, truth be told, my partner only has those skills because I put him through a crash course on not being a moron when we got together - he had a “grand default” credit rating when I met him, which is pretty bad, and he believed that he and his parents were good with money.

It’s really important to me that we teach our child good money skills, as much as working and saving suck, all of that family are constantly stressed about money and I think that’s much harder to deal with, they certainly don’t seem very happy about it. And that’s where my confusion kicked in - if it was making them happy to live that way then fair enough but it obviously isn’t, I couldn’t understand why someone would choose a lifestyle that made them so unhappy.

So thanks again for your input, I still don’t know what we’re going to do about the car thing, or raising our kids with the right attitude to money, I guess I’ll just have to hope that we’ve got the right stuff to work it all out. :slight_smile:

16

It took me until my mid 30’s to realize that I HAD to fix the way I dealt with money. I had realized earlier that it was wrong and have been trying all their lives to teach my kids better money skills but it wasn’t until 40 was looming that I finally started making the changes in my own life.

Basically it’s like any other skill it needs to be taught and practiced.

17

I don’t think math skills are even all that relevant. For the record, I am absolutely HIDEOUS at math – somewhere on the spectrum between between math-phobic and dyscalculic – and I am good at managing money. It’s pretty simple, math-wise. I know how much I get in my paycheck. I spend less. If I’m not sure if I can afford something (because math is hard) I err on the side of waiting for a bit until I am sure. I avoid debt. I pay down debt I have at the fastest rate that is reasonable. By the way I haven’t balanced my checkbook in 15 years. Too mathy, and I don’t write checks anyway.

“Math skills” really have nothing to do with money skills; while understanding interest is important, it is a pretty simple concept. I can’t calculate compound interest, but I can understand it conceptually, and I think that applies to most people who manage money reasonably well.

The fact is, I’ve been naturally thrifty since childhood and I’m the only one in my family who is this way. My parents have owned a struggling business most of my childhood and adult life. I think I looked at that and said to myself “cash flow problems are too stressful, that’s not how I’m going to do it.” To my parents’ credit, they said “no” to us all the time (in a nice way!) and we were expected to buy our own amusements and pay for our own hobbies beyond the basics; both I and my brother worked from a young age. I remember when I was 16, I had a working student job on a horse farm upstate (no pay, but room, board, and daily riding instruction). My parents made me buy my own safety helmet - $98 in 1991 dollars. That’s a lot of babysitting money. You better believe I made a careful decision about my purchase.

On the other hand, my brother at the same age range enjoyed “status” purchases and name brands and always blew his money as soon as he earned it. He didn’t live “beyond” his means but just barely within them. He probably didn’t start being serious about financial responsibility in terms of saving for the future until he was in his late 30s. So it just isn’t the case that there is a predetermined outcome based on your childhood experiences. Some of it is natural inclination and is maybe related to how one feels about risk.

I’ve said this before, but IMHO anyone can have a rough spot financially but “perpetually broke” people who have good incomes are trying to buy feelings with their money, when money only actually buys goods and services. if you’re using external things like money to try and buy self-respect, you will never have enough money, or any real self-respect.

18

From what I’ve seen up close, people with poor money skills don’t seem to realize that all the myriad little expenses add up to real money. It’s as if anything bought with coins or small bills “doesn’t count”, yet it does. I have a friend who has never been unemployed, and has on several long occasions raked in some serious cash. Yet he’s always out of money and doesn’t own anything of value. Money just slips through his fingers, with nothing to show for it. Stuff like always buying the most expensive frozen pizza / TV dinner, when the least expensive option would cost one half that, or getting one’s workshop t-shirts from overseas at 30 bucks a pop, when plain color t-shirts with no funny quotes on them can be had at 3 bucks a piece from the local k-mart. These kinds of mundane choices add up into thousands of dollars over a single year, and explain why I’m never broke and he always is.

19

I think it is a combination of the inability to delay gratification, along with the unwillingness or inability to associate backwards.

“I want that, I’ve got the money, I’m going to buy it.” Then when the mortgage is due, they don’t recognize that the reason they don’t have the money now is because they spent it on something else last week.

And credit cards. Show a piece of plastic and sign your name, and you can get whatever you want. And you can always make the minimum payment. Then, eventually, you can’t.

Regards,
Shodan

20

Fortunately, after a while, it’s positive reinforcement.

But I’m ahead of myself, aren’t I?

IMHO, it’s largely due to how you’re raised. The OP’s family-in-laws? They were raised in an environment where money was wasted - that’s what the kids saw growing up, this is what they considered normal as kids, so they continue their “normal” existence through their adulthood until either (a) they can’t afford to, or (b), they die.

The thing that’s nice about saving and investing, which so few people get into, is when your investments start spitting out cash - significant amounts of cash. Sure for the first 10+ years or so it might seem a life of denial, but once you start receiving dividend checks, rents, etc, you will start to see quite a nice positive feedback to all that hard work - your money is making money.

Try to do that with your new car. Or that trip to China. :wink:

But really, it’s largely the environment you grew up in. I’m pretty good with money and I grew up in an environment where I would help my grandfather log his rent checks, dividend checks, bond coupon payments, etc.

All IMHO, of course.