Do you think that most people are financially illiterate?

Discussion in 'Business & Economics' started by Seattle, Apr 3, 2021.

  1. Seattle Valued Senior Member

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    How many people do you think are financially literate? If someone is in too much debt is it generally because they just had no choice or is it because they made poor decisions?

    Is one generally in control and therefore responsible for their life or is one generally not in control and therefore not responsible for their life?
     
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  3. wegs Matter & Pixie Dust Valued Senior Member

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    Too much debt can be due to poor choices, over spending and/or also no other choice because many don’t have enough cash for necessities. The healthcare system in the US, is leading many into debt due to high medical costs and being under insured or uninsured. I’m not sure anyone wants to be in debt, but for many, it’s a reality.

    I have a few friends who always seem to be carrying high debt because they lack self control when it comes to expensive purchases that aren’t needs, but rather wants. Most items are jewelry, expensive cars, designer purses, etc. Racking up credit card debt to appear successful isn’t a good idea, but all part of “the American way,” for many.

    I don’t think the term “illiterate” fits here, as the reasons people find themselves in debt aren’t always because they don’t “know how” to save etc.
     
    Last edited: Apr 3, 2021
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  5. Seattle Valued Senior Member

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    I definitely agree about the medical care cost and something needs to be done about that. The biggest expense in life shouldn't be healthcare insurance premiums.

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    On the other hand many people go to see the doctor too often. For basically healthy people (most people most of the time) you don't need to see a doctor as the outcome doesn't change.

    I was thinking in terms of illiteracy due to a video I saw about people getting into student debt without realizing whether it was worth it, what the interest rates were, how the loan was structured for repayment.

    One person had been paying for 10 years and still owed about the same in terms of principal. The problem with a case like that is that you aren't paying enough each month for the size of the loan that you took out.

    Of course the reason for that is that you wouldn't be able to afford the payments otherwise which simply means that you borrowed too much.

    The alternative choice is that you didn't get the loan.
     
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  7. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

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    I'm not sure about the US, but in the UK there should be nothing that leads an individual into debt other than their "bad" choices.
    Maybe that's me being naive, as I've been fortunate to be well above the bread line, and never had a minimum-wage job etc. But let me explain:
    We offer free health care. It's not ideal, but if you don't have insurance / medical cover, you'll still be seen by your GP, still (eventually) get your surgery, and if it's an emergency then you'll get it straight away. All at no charge.
    We offer council housing. It's better than nothing, that's for sure. It's often not ideal, in horrible places, cheap, tacky, run-down, but it's a roof over one's head. And cheap.
    We offer unemployment benefit: if you're not working you can get a certain amount per week. It's not much, but then you're not working. It's c.£75 a week, I think. It should hopefully cover living expenses for an individual. It doesn't, and shouldn't, cover holidays abroad, a cigarette/alcohol habit, expensive clothing etc.

    So with that in mind, what can lead someone to being in debt: it is simply living beyond one's means, and buying something now and agreeing to pay for it later.
    It's sad that people can't afford what they want, but that is the society in which we live. Affording the basics is what government should (in my liberal and socialist view) provide (albeit only to those who can't afford the basics, not to those who choose not to work to afford them). But beyond that it is up to each individual to live within their means.
    Those I have least sympathy for are those earning a modest salary (e.g. £20-30k) but living as if they're earning much more (e.g. £40-50k), who then complain that they're in debt. At some point the line of credit comes to an end.
    Is that what is meant by "financial literacy" - not just the understanding but the wherewithall to implement sound financial planning?

    Anyhoo - to the OP: surely society is built upon the presumption that we are all responsible for our actions - financial as well as non-financial. Being in debt is therefore presumed to be noone's fault other than the one who is in debt. One could argue it comes from a lack of education of relevant financial matters, or from simply not being intelligent enough to understand. But then we're into the wider ethical debate of responsibility, which would cover financial and non-financial matters.

    Sorry - bit of a stream of consciousness. 11pm after a bottle of Rioja can do that.

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  8. sculptor Valued Senior Member

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    as/re
    Do you think that most people are financially illiterate?

    That's a bit of a trick question as it starts off with a bias.(against debt?)

    Personally---I do not like, want, nor have debt(I had some for real estate)
    However---I ain't really debt free = property taxes, income taxes, homeowners association dues, etc... all must be paid the same as paying interest on debt.

    Some people do not mind having debt. They are much happier being able to get what they want when they want it- and, if that entails incurring some debt, they really do not mind it.
    Also, I knew a man who went into debt to gear up for a production project. Unfortunately, when the contract was not renewed, he still had the debt at a fraction of the income needed to service it---but, it was good while it lasted.

    If these folks can get what they want by using debt
    perhaps
    avoiding debt makes me the financially illiterate one?

     
  9. Seattle Valued Senior Member

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    Being financially illiterate could include not knowing how to use debt as well as not having debt when interest rates are low and house appreciation is high. It could also just include (I suppose) the lack of discipline of hoping that things will work out in the end without doing anything to make that so.

    I know someone (and may have mentioned it before) that worked at one company for 20 years before he was laid off. He had access to a matching 401k for all those years (his employer would have matched what he contributed...so free money) and yet it turned out that he never contributed anything at all.

    That might be considered financially illiterate. You could even make the argument that not having debt is illiterate if you don't own a house, interest rates are very low, home appreciation is high in most larger cities so that is almost free money as well.
     
  10. Sarkus Hippomonstrosesquippedalo phobe Valued Senior Member

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    There's a difference between not knowing how to use debt, and not using debt. And I don't think simply not using debt makes one financially illiterate: that could simply be one's attitude to risk.
    For many they may understand that the money they put into such schemes will be matched, but they may rather want/need/prefer 100 in their pocket now than 200 in 30 years time. They may prefer to spend 100 now than have a more comfortable retirement. Some may have the attitude that they would rather enjoy their life now as much as possible and simply not worry about a future that may never happen. The worst thing for them might be to save for a comfortable retirement at the expense of far greater fun prior to retirement, only to find out the day after they retire that they have an illness that will kill them within a month. Sure, an extreme example, but it serves the purpose of highlighting that this issue is not simply about financial literacy but many other possible aspects. Some may simply not be able to afford to put anything into such schemes, needing to spend every penny they earn on living, child support, alimony etc. Such schemes favour those with disposable income, not so much those on the breadline.

    And not taking debt when it is cheap... sure, if you can stomach the risk of things going south, of interest rates suddenly hiking, or suddenly being made redundant. Again, not so much a matter of financial literacy but simple risk appetite. The addage is that money makes money, and if you can afford to make cheap debt work then as long as it fits your risk profile I guess one would question why you wouldn't. But I wouldn't go so far as saying not taking debt = financial illiteracy, which is what I took from your post (apologies if that wasn't your point, though).
     
  11. Seattle Valued Senior Member

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    I don't have debt so that wasn't exactly my point

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    but I was just continuing the discussion. What you do isn't proof of illiteracy, it can be an indicator.

    If you are always broke, don't have a house, no money in the bank and you make as much as most of your friends who do have those things...it might be an indicator of financial illiteracy even if it's true that you just made a different choice to maximize now vs later.

    Most people who do have those things also have a life. From my experience and observations those who save/invest do live life and are more likely to do foreign travel as opposed to blowing 100 every weekend on beer (for example).

    As I mentioned elsewhere, I saw a video where a college graduate was talking about how bad a financial decision she made regarding student debt. She felt that she wasn't financially literate when she made those decisions.

    She figured any education was worth whatever she had to pay. She had paid for 10 years and still owed almost the full debt. Of course the only way that can happen is if your payments aren't high enough to reduce the principle.

    The only reason they would be that low is that the amount that you borrowed was too high for you to afford the actual payment that would reduce the debt. Therefore you borrowed too much.

    People buy cars and then are upset with how much they actually paid over the term of the loan due to interest. That shouldn't be a surprise.

    People can also think that they chose a more enjoyment life over more money for retirement but they can also still be "illiterate" in not realizing the time value of money meaning that a little money invested in the early years can mean a lot of money in the future.

    It's not a matter of saving 100 now vs 200 in 30 years. In the stock market is would be more like 100 now vs 800 in 30 years. Regarding the person who didn't contribute to a 401k for 20 years. Even if money was "tight" when you are being offered free money that still doesn't make sense.

    If 100 turns into 800 imagine with matching that it now turns into 1,600 and that's just from a one time investment. If it was 100/month (so 200/month) you would be "rich" with little effort.

    Someone who isn't saving/investing at all is likely blowing that amount on things that don't even matter (in hindsight) to them.
     
  12. wegs Matter & Pixie Dust Valued Senior Member

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    If someone is always broke, doesn’t own a home, and has racked up a lot of debt buying “toys” etc, that’s not necessarily an indicator of illiteracy. It’s a lack of self control and feeding into the idea that it’s okay to be in debt if he/she wants to purchase something but honestly can’t afford it.

    Credit gives the illusion that one can afford something but really, they can’t. Not alll debt is bad (mortgages, etc) but living beyond one’s “means” is why many in the US anyway, are suffocated by debt, imo.
     
  13. Seattle Valued Senior Member

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    I agree although both can be true and frequently are IMO. An example is when someone says "I'd rather live for today, tomorrow isn't guaranteed" which is true and is a (subjective) choice but then goes on to say "anyway I don't have a lot of money to invest and 20k in 20 years isn't going to be life changing" without realizing that what they think will only be 20k in 20 years could be 100k or 200k depending on where they invested it and how that market did.

    There are plenty of people with modest incomes that end up with substantial sums just from putting a little money in the market for a long period of time.

    Some spend a lot of energy complaining that the government needs to help them in some way when they could have actually helped themselves and wouldn't have to worry about how life isn't fair and how if only the government had helped them.

    I can look around in my own family, neighbors, friends at people who came from very average (humble) backgrounds, didn't hit the jackpot regarding a high paying job, and ended up with decent wealth statistically speaking (which isn't hard to do).

    Instead so many complain about kids who inherit something from parents when that is actually what everyone should be educated to try to do. It's not the wealthy who passed down great wealth that people need to worry about. It parents passing down $100k or so to kids after they pass away.

    If everyone managed this meager goal each generation would be a little better off (for example). It's hard to die with nothing since you never know when you are going to die so most everyone should be able to do this if they are being responsible even for their own lives.

    I have a friend who grew up in the inner cities. He says his mom always said I won't be leaving anything since you can't take it with you when you go and therefore I'm going to spend it all! Of course that doesn't say much about how you feel about your kids.

    He now makes sure that there will at least be something to pass on to his kids. That doesn't mean that kids now won't have to or want to work. Most kids are older adults by the time the parents die. It just provides some intergenerational stability and it also just teaches kids to be financially responsible for themselves and for their kids.

    It's a counter-balance to "let's spend it all and become consumer pigs"

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    People are frequently their own worst enemy IMO. It's a race to the bottom in the name of "equality".
     
  14. RainbowSingularity Valued Senior Member

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    questions all very different and subject to income range
    local economy and national wealth level
    also subject to regulatory & systemic systems of money(pay day lending social compliance financial compulsory's etc)

    completely different subject and is a philosophical question which you can use inside political frame works and social culture overt systems of compliance like religion, fascism, socialism, tribalism, war etc.

    Question 1
    in which country to what level ?
     
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  15. Dennis Tate Registered Senior Member

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    I believe that the movie "The Big Short" starring Steve Carell illustrates the idea of how most of us in Canada or the USA are significantly in control and our getting too far into debt is largely our own fault but........
    many of the people who lost homes in 2007 to 2009 were truly victims of something beyond their own personal control.


    https://en.wikipedia.org/wiki/The_Big_Short_(film)



    True.... each situation that all eight billion of us face is unique and by the way thank you for introducing me to the film, The Big Short.
     
  16. Seattle Valued Senior Member

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    What were they victims of exactly?
     
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  17. Dennis Tate Registered Senior Member

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    For example, in the movie an immigrant family agreed to pay a high level of rent in a newer home to a home owner who did not make the mortgage payments when the market corrections of 2007 and 2008 hit hard and interest levels on certain types of debt rapidly increased.

    The actual home owner of the house that they were renting was taking on too much debt to acquire more an more real estate and they soon ended up unable to make the mortgage payments and then the immigrant family were put out on the street even though they had paid their rent in full faithfully.
     
  18. Seattle Valued Senior Member

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    As renters they can move elsewhere, right? Rents were probably even falling at that point.
     
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  19. Dennis Tate Registered Senior Member

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    In the movie we get the impression that in 2007 and 2008 rents would tend to increase as real estate investors who had stretched themselves too thin were scrambling to pay mortgages that had taken a serious jump as the credit worthiness of various types of real estate was finally seen to be highly vulnerable for the owners of the mortgages to be unable to repay the banks and other lending institutions.

    Something somewhat similar happened to NDP Premier Bob Rae of the province of Ontario. Once he was elected he went to New York to borrow the money to pay for what he had promised during his campaign. The bankers did not like his policies so they told him that if he were to keep his promises they would take the credit score for the Province of Ontarion down from AAA to AA and Premier Bob Rae knew that this would nearly bankrupt his provincial government....... so....... he gave in to the banks...... left the NDP ..... and joined Canada's Liberal Party.
     
  20. Seattle Valued Senior Member

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    Your statement was about those negatively effected by the mortgage crisis though no fault of their own. You then mentioned renters who are always at risk of having to move.

    Now you are talking about Bob Rae. Your conversations often seem to be a series of non-sequiturs.
     
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  21. Dennis Tate Registered Senior Member

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    I was mostly talking about a surge in interest rates leading to people losing their homes because they cannot pay their mortgages. The movie was about deliberate corruption in the USA by high level bureaucrats and political leaders as the numbers that predicted a major hit to the real estate market was coming soon. I liked the movie and you might as well. It is on Netflix.

    I believe that the USA and Canada could well see something similar happen again in the near future as optimism increases and the era of extremely low interest rates probably ends.
     
  22. Seattle Valued Senior Member

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    For anyone with a fixed mortgage this wouldn't affect their mortgage.

    There will be higher interest rates at some point and that will affect the stock market and it will affect (lower) the current real estate prices or at least slow down the growth rate.

    The government won't/can't willingly let it get too high given all the debt that "we" have. The debt is already way too high. With substantially higher interest rates servicing the debt wouldn't be feasible without depreciating the dollar drastically and killing the economy.

    The debt does have to be dealt with however.
     
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