aircooled wrote: Learning about finances and doing what you have been taught are completely different things.
I guess that answer's my question to his question derp
aircooled wrote: Learning about finances and doing what you have been taught are completely different things.
I guess that answer's my question to his question derp
hehe, yeah, to clarify, I'm not talking about applying knowledge.
I'm talking about getting the knowledge to begin with.
Parents....mostly by what they did, but later took to heart what they said!
One of his favorite sayings was "If you can't save for it, you don't want it bad enough". A friend of mine used this on his daughter when she approached him about buying a new car. Her argument was that she could get one for $300 down and $199 a month and use her current 96 Mustang (Dad gave her at 16) as a trade in and pay for 5 years!!!! She is 18 and wanted him to "loan" her the $300.
"Let's go shopping!" Spent the next week hitting car dealers, both new and used, got the figures on several dozen cars ranging from the cheapo that she had quoted as her dream car up to the cars that were WAY out of reach but were "suggested" as possible cars she could get if Daddy helped.
Offered her a deal.....Pick one of the cars and show me that you can make the payments for a year by placing the money in a car fund. he would then give her a $1000 for down payment.
Rules were simple, She put any amount of money in an envelope that was thumbtacked to her bedroom door and she could also remove it if she felt like spending it on something else, but she had to write down every transaction while Dad tacked $3.00 a day to the same board.
Monthly meetings compared results and analyzed...7 months was an eye opener when she realized that Dads $3 a day was performing slightly better than her savings plan and she could not afford even the used car that Dad had picked as a punishment car as it was worse than the car she currently had.
At a year, she had improved slightly and was able to afford a car from the list that she realized would not be a better car...she could not have made the payments on even the cheapest new car!
She had adjusted her lifestyle to do without her 2 Starbucks a day and a movie a week with friends including popcorn and such may be a bit excessive....2nd I-phone in a year because she mistreate4d it hurt too.
Dad offered to try again for another year if she wanted as her car was still holding up fine and it was a shame to spend what money she had saved on something she didn't want.
Year 2 was a struggle as she adjusted to cooking eggs and bacon at home rather than a drive-thru window meal. Dad kept plugging away at his $3.00 a day...a pace that she barely met the first year. After another shopping trip she realized the car she wanted would be about $400 a month so she was determined to do it ......got a better job that offered more hours and slightly better pay.
Year 2 had some ups and downs and she averaged $295 a month but the rules had all her savings divided by 24 now so she was at about $200 a month while Dad plugged away at $3.00 a day. She did not want the cars that she could get for $200 a month as she had seen that the cars she had picked as wonderful 2 years ago were "cheap idiot" cars now....her phrase!
She had also learned that if she put the money in and then pulled it out, her purchases were subject to Dads scrutiny and often ridicule so now the car fund was off limits for impulse spending.
Well, they decided to go into year 3 as she wanted the $2000 that dad had been posting for her new car!! Being a college girl now and getting good grades and being somewhat successful in her savings plan often tempted Dad into being more helpful in the car buying plan...but he hung tough.
Year 3 she buckled down and arranged a full time job for the summer and got a slightly better part time job for the school times as well.
Added $7400 for this year for an average of about $340 a month for the 3 years. But now she realized that she had $12,000 saved to buy a car and Dads $3000 was just bonus. Realizing how hard she worked for this money has changed her. Now she is scouting for various slightly used cars so that she can avoid the new car depreciation and has looked at dozens of different types of automobiles to make sure it is what she wants for the price she wants. Current leader is a 3 year old Honda Element.
She wants a car as good and as cheap as her little Mustang, but that may be hard to match as she knows that it was a $600 car that has had about $1000 in repairs in the 5 years she has owned it.
Learning without doing is called stupidity.
Nobody.
I was born with it. I have a wicked frugal streak, and have been called a cheapskate all my life. I am not a cheapskate, but my tolerance for value, and waste is a little different than most.
my point is, i'm willing to bet the people most often consuming government services as a primary are just as likely as all of you to have learned it from the same place; their parents.
Financial behavior follows cultural trends alot more than we, and especially democrats, want to acknowledge. This is because it makes us uncomfortable to have a discussion about cultural heritage having a component in one's success in life.
I say this because I got curious and started running some numbers, thinking about the examples politicians looking to get elected like to trot out; the people who are downtrodden and oppressed by the system and will never know or have personal security unless the government takes care of them.
read on and hopefully get a kick:
Lets take a dude. A simple man of meager talents and upbringing. A highschool graduate, with no other education or skill trade. They secure a job at minimum wage at entry level, and it looks like this is all they'll be able to do with the rest of their working life to retirement.
This job isn't glamarous, but has a few full-time staples. It has workers comp coverage as a responsible employer, 2 weeks vacation a year, and it offers an average priced health plan. It also offers a 401k witholding, but with no employer match. The pay is usually calculated around 2000 work hours a year, and fed minimum wage is $7.25.
He'll never get promoted, and he'll never see a raise. Dude will live a rather unremarkable life. He lands this job at 18, and works until SS retirement age.
His annual income is $14,500. This is below the poverty-level established by the government, so dude will not have to pay many of the income taxes, but will still likely have around $1000 sucked up by taxes in some form. And his health insurance at todays costs will chew off another $1200 a year for non-smoker.
So that leaves you with about $1100 a month to get by on. So lets start saving! If you have no other investment opportunities, the 401k provision is the best front-line choice for almost everyone in the country. You get to sock away money before it is income-taxed.
Assume you can only save $70 a month because of your living expenses take up almost everything else. But you're fed, and you have shelter, and health insurance and a trivial amount of pocket money. (ignoring food stamps, lifeline phone and cell services for the moment).
Using online calculators (so lets forgive values a bit), and assuming NO employer match, and a very bad interest 5% outlook of growth a year(8% is more typical, but lets go worst case)
By current retirement age of 65, this person will have saved about $125,000 to draw on the rest of their life, plus social security.
If they had to rent all their life and have no equity of any kind, then this case represents what should be the absolute lowest, but many people don't even do this much to save in their life. They are never educated to do this or shown how powerful saving is.
Is this prospering? Hardly, but it is secure and mostly self-sustained in this example. These people ending up without even this kind of savings education are real and should have our compassion. But if we mis-identify the problem, then we waste resources on irrelevant material. Most are NOT symptoms of one or two major financial problems that impacted their life, they're functions of how they chose to live their life, and who they learned about money from...
check this out:
Lets have that return rate to the average 8% which is shown to be the average growth over time. All of a sudden, your savings at 65 is $315,000!! Even if Dude lives another 30 years, his effective annual income -doubles- for the rest of your life. This is on a dead end, never changing, never promoting job with no other benefits beyond your basical health coverage.
I learned from my parents and the guy I used to work on the farm for. The rest was self-taught and learned by imitating other successes.
Both of my parents were both raised poor and saved money like is going out of style. They didn't take out loans often. The only loans they ever took out were for homes. Paid cash for their first house, $20k from my grand parents (keep it in the family, pay interest at a lower rate) bought their 2nd house with the balance of the purchase in cash, and they had a mortgage for about 9 months while they owned two homes. They paid cash for the 3rd home after the 2nd sold. They always drove used cars (paid cash of course) are extremely DIY with my dad being very handy and my mom being an avid gardener and cook. Home made meals every night, cooked from scratch not boxes, mixes, or reheated from the deli. I think we went out 2 or 3 times a year growing up, tops. They still live the same way.
The guy I used to work for taught me about savings in an hour with an Excel spreadsheet and my pay records. That was an eye opener. I put money away every month that I don't touch. Its not doing much for me, but its there and I never worry about how I will get to work (engine shells out in the truck? Buy a W body and drive it for a few months while I figure out a better solution) or how to make an unexpected payment like a doctor bill or home repair.
I am a little more free with my money, but thats because my financial situation allows it. Young, single, debt free aside from student loans ($9k left), and already in middle management on the fast track to upper management has left me with a large disposable income, but I try not to dispose of it freely. Sure I have the 50" TV, the fancy cell phone, the crotch rocket and the Corvette, but they were all cash deals. It helps that I am also extremely DIY, have no monthly payments aside from cable, cell phone, and utilities, and student loans. I have a motto I live by every day, "Everything is negotiable and I never pay full price."
I am a born hustler, and was the guy to see for deals all through school, college, and work. I was working as soon as I was able to understand what money was, fixing bikes, Nintendos, lawn mowers, doing yard work, etc. Buy/Sell/Trade every day. Things I garbage pick, yard sale finds, or good deals on forums or Craigs that I flip. I never took a E36 M3 job except for 4 weeks at K-Mart when I needed rent money and money for Christmas gifts and wouldn't borrow from my parents. Thats another thing I live by. I have a lot of skills, might as well be paid to use them. I would be selling stuff or curbstoning long before you see me flipping burgers or working as a cashier again.
My parents tried to drill into our family that it was a very good idea to save for "a rainy day"....and that was about it.
I never had a checking account until my late 20s and when I got it it was all self teaching as far as the actual writing of a check and balancing of a checkbook. My father is a retired real estate broker, and again, not a lot of "in depth" knowledge/advice was passed along about how to purchase a house. In (small) defense of my father, he did help me look for that first house, but I pretty much wound up over-ruling all his advice.
I think my folks wanted us to have a more secure life than they did (growing up during the Depression) but at the same time, for some reason they were somewhat secretive about finances. For example, I had no idea how much our family's electric or phone bills were, or that we even had to pay property taxes yearly....much less, how much those taxes amounted to.
An interesting article about this same subject from The Economist.
Portions of the article speak to your "cultural heritage" example.
sadly, I learned from my parents. Being an ex-military family we never had much and it was impossible to save as the money my father got from SS after getting disabled in the Navy was JUST enough to allow us to squeak by.
I am getting better.. but the temptation is always there to spend what I have now.. it has gotten me into a LOT of trouble financially over the years
aircooled wrote:
I don't see why it would be much different.
Learning about finances and doing what you have been taught are completely different things.
Indeed... I know the rules.. and try my best to follow them... but occasionally I'll break them as well. I see it as a balancing act: Remember the Past; Plan For Tomorrow; Live For Today. Too much effort put into any one of them seems to get me out of sorts.
My mother is very financially responsible... a trait inherited from her Quaker father...
My father has the financial responsibility of a 12 year old... and that would be an insult to some 12 year olds...
madmallard wrote: By current retirement age of 65, this person will have saved about $125,000 to draw on the rest of their life, plus social security.
Um. Don't sound like much to me. And the "life" you outline doesn't sound much like living either. So if you never go to a movie, never eat a meal out, never buy a car, never get cable TV, never get married, never have children and never sufer any unforseen expense you can put together a miserable existance on minimum wage and retire, alone, in a E36 M3ty apartment until you die.
Eeek.
fast_eddie_72 wrote:madmallard wrote: By current retirement age of 65, this person will have saved about $125,000 to draw on the rest of their life, plus social security.Um. Don't sound like much to me. And the "life" you outline doesn't sound much like living either. So if you never go to a movie, never eat a meal out, never buy a car, never get cable TV, never get married, never have children and never sufer any unforseen expense you can put together a miserable existance on minimum wage and retire, alone, in a E36 M3ty apartment until you die. Eeek.
Seriously whats the social security on someone who make minimum wage there entire life. Like 100 buck a week. My personal opinion its impossible to live on minimum wage unless single and you have little to no ambition about life.
Slightly off topic
The wife and I have three times that in retirement savings both 30 years old and we still worry about having enough when we retire. If I actually get 8% over the life of investing I would be astonished. I do most of my calculations at 3-3.5% as a more realistic number once you factor the maintenance costs of the accounts.
On Topic
As for the first question. My parents taught me how to leverage debt to your advantage when I was growing up. Always worked out for them but I saw many people fail to do it successfully for me to follow. Nothing but a mortgage and car payments (The cars I could pay off in cash but 0.9% though BMW)
I learned mostly from my 'rents and then some more in the school of hard knocks.
There has to be a balance; a few years ago there was a story about some woman in New York who died and left a fortune of around $3 million to a girls' school. Along with the bequest was a copy of her diary. It outlined how she had saved the money by going without lunch etc and investing it all in Coca Cola stock. There were excerpts from the diary, for instance she punished herself for a supposed extravagance by denying herself certain foods for dinner, i.e. she punished herself. She lived in a hole in the wall 1 bedroom apartment and would not turn the heat on. Didn't sound like much of a life to me.
Short answer: Did not learn a thing from anyone. (In fact, still waiting for that birds and bees talk mom and dad) Sure wish I had though!
Learned from my parents. I may not have much money, but my credit is spectacular and I'm in the market for a house. 
Short answer: my parents were a great example, but they were ineffective at explaining it other than "save for a rainy day."
Long answer: the older i get, the smarter my parents were.
i'm the youngest of six, we all went to catholic school 1-8 and 4 of us also did 9-12. everything we ever had was used, most likely picked up broken and DIY fixed with a coat hanger. i mowed lawns as a kid, and for every dollar i put in the bank, my dad would put a dollar in the bank to go with it.
i didn't think we were poor until i went to high school in upper northwest DC with sons of doctors, lawyers, politicians, ambassadors, etc. then some of my classmates made it very clear to me on a daily basis that i was poor.
"as soon as i'm done with school, i'm going to buy what i want, when i want! berkeley being poor!"
and as soon as i got my BSME i started spending every penny of what i made, didn't really save anything, and in 1996 i realized that i was still poor, i just had more stuff. and of course more debt, because i bought a lot of stuff on credit cards. i had zero savings and was truly living paycheck-to-paycheck even though i was making decent money.
that changed (some) when i started saving for a down payment on my first house. as soon as i bought the house (i was 30), i started putting money into my 401k.
a year later, i bought a '95 integra GSR. i still hadn't gotten over the "i want it now, berkeley being poor" mentality that was actually keeping me poor. $371 per month for 48 months for a car i didn't need.
fast forward several years from there. i read dave ramsey's "financial peace" and started living it a little bit here and there. paid down credit card debt, sold the GSR while it still had resale value (~2001) and bought a beater '94 sentra.
fast forward to today: almost one year ago i sold my last house at a 20% loss and bought a smaller place in a lesser neighborhood. my current mortgage is $800 LESS per month than my previous mortgage, and i'm on a 15-year note rather than the previous 30-year. the difference in monthly note makes up the loss in less than 7 years. over the life of the current loan versus the previous, the difference is $375k-ish, after taxes. that's how i'm going to be able to pay for my kids' educations, assuming they want it and work hard enough to warrant it. my house will be paid off before i'm 60, and my kids will be able to finish undergrad debt-free.
the kids are 9 and 6. they might not be able to write the formula, but they definitely understand compound interest because i'm teaching them. and they understand opportunity cost because i'm teaching them that as well. they are picking up my DIY mentality, just as i picked it up from my dad. the recent farmed-out $700 alternator replacement on mama's minivan was a great teaching tool for all of the above.
am i rambling? 
I learned about it from a combination of a ten-week public school Consumer Finance course in the eighth grade and balancing my parents' checkbook for a few years when I was a kid.
The big things I learned are:
1) Avoid high-interest (10%+/year) debt at almost any cost, even over a few months it'll hammer you - $10000 borrowed for six months at 15% costs about $750 and that is a real monthly budget-wrecker.
2) Take risks for the long term, a couple percentage points over 20 years can be the difference between doubling and quadrupling your original investment.
3) On the other hand, over the short term and if you've got good credit a couple percentage points doesn't matter. Being $10000 ahead in the money market account at 1% per year for six months is all of $400 better than having a $10000 loan at 6% for the same time. I will take a loan, paid off rapidly, to buy a car in the winter when it's cheap, the summer price premium matters more.
4) Calamities and contingencies make up a bigger fraction of your budget than you'd think. Blowing up a $5000 furnace puts a $400 a month hole in your budget even if you can spread the pain over a year. $3000 worth of roof work, needed yesterday, wipes out being $500 a month ahead for the last six months.
5) Income matters a heck of a lot! $10000 extra a year, after taxes, nets you around $600 a month. Draw up a budget then think about how much easier it would be with six hundred more bucks a month.
6) Income matters a heck of a lot, part 2. Reserve capacity allows you to avoid bad decisions. The high interest loans, the fire sales, the raiding of the IRA, the car bought on a weekly basis, all that jazz. We were a lot more careful with our money when just my father worked - and we were knocked back badly with every unexpected expense, and were crossing our fingers whenever it was going well. When my mother went back to teaching it made the finances more complicated and less controlled, but all of the options were better.
fast_eddie_72 wrote: Um. Don't sound like much to me. And the "life" you outline doesn't sound much like living either. So if you never go to a movie, never eat a meal out, never buy a car, never get cable TV, never get married, never have children and never sufer any unforseen expense you can put together a miserable existance on minimum wage and retire, alone, in a E36 M3ty apartment until you die. Eeek.
Thats the point of the example. (the only issue with your examples I have, the exception is getting married where you qualify for even more tax cuts together.)
This is the absolute rock bottom example that assumes a non-advancing employee with no increase in skill or work value, AND an unlikely decades' worth of bad market performance on the 401k to disrupt things further.
This example also doesn't take into account any welfare opportunities like stamps, etc.
It is just to make a point that this is a perfectly sustainable life where you have security of shelter, nourishment, health, and care in your old age.
All possible on self reliant minimum wage thru simple savings.
The point of the example was not to show something glamaorus or prosperous, but to challenge everyone's thinking that living on tight budget demands or lower income jobs; that only the 'lucky' or 'fortunate' get to save for retirement and don't need social security.
That $125,000 that Dude ends up with in the worst case scenario of savings is still enough to continue to have the same income he had all his life for another 30 years while he's retired. And at that time, he qualifies for medicare, so he continues to be 'secure.'
I can't think of any other country where someone being self-reliant has the ability to have this level of secuirty while still considered 'impoverished'. And I had to really break the numbers to make it that low; if you just change the interest back to the average of 8% on that savings, that dollar figure jumps to $315,000.
Now humour me for a second as we now include a few considerations I purposely left out. Dude still has access to the same civil ammenities everyone else does. Which means he has access to literature and periodicals through his library, internet thru his library, public broadcasts, civic center/ community classes which are often free of charge, police & fire rescue protection, wireless internet in many cities now(even Tifton, GA), etc etc etc.
When you do add welfare, he gets basic cable, food stamps, a cellphone with long distance included and home phone with local, stipend for public transit in many states, certain community college complete financial aid depending on the state, often can use community centers without dues granting pool and exercise facility access, sometimes housing itself with sec. 8...
So I have to ask, minimum services now consists of many things Americans did without largely before the 40s (and also before federal minimum wage.) Perhaps we can view it as a bit sobering to look upon our standard of living now as something that is rather remarkable when viewed thru that lense? This is certainly not an 'ideal lifestyle,' but it most certainly is a lifestyle thats not cruel and unusual, AND you can still put together retirement savings under.
madmallard wrote: That $125,000 that Dude ends up with in the worst case scenario of savings is still enough to continue to have the same income he had all his life for another 30 years while he's retired. And at that time, he qualifies for medicare, so he continues to be 'secure.'
he made $14,500 per year. if i divide 125,000 by 14,500, i do not get 30.
AngryCorvair wrote:madmallard wrote: That $125,000 that Dude ends up with in the worst case scenario of savings is still enough to continue to have the same income he had all his life for another 30 years while he's retired. And at that time, he qualifies for medicare, so he continues to be 'secure.'he made $14,500 per year. if i divide 125,000 by 14,500, i do not get 30.
Yeah - assuming 6% interest (REALLY aggressive for a retirement lump sum) on the remaining balance, I get that it runs out in year 13. Unless you were counting SS income as part of the 14,500.
Yeah, I'm unclear here too. Are we talking about how great it is WITH SS and Medicare or how we should be able to get by without them? I agree, with the services we have in place now, it's a reasonable existance. I still say, without them, I'd put a gun in my mouth... if I could afford one. And I also say that you're making a big assumption that a minimum wage earner can just wonder into some place and get a job wtih health care unless you're also assuming the reality of a fully implemented health care reform law.
In other words, if you're making an argument for keeping these social programs, then you're doing a good job.
fast_eddie_72 wrote: Yeah, I'm unclear here too. Are we talking about how great it is WITH SS and Medicare or how we should be able to get by without them? I agree, with the services we have in place now, it's a reasonable existance. I still say, without them, I'd put a gun in my mouth... if I could afford one. And I also say that you're making a big assumption that a minimum wage earner can just wonder into some place and get a job wtih health care unless you're also assuming the reality of a fully implemented health care reform law. In other words, if you're making an argument for keeping these social programs, then you're doing a good job.
I told you, this is about managing ones savings for retirement. People want to make out all too often, especially around election time, that being destitute but for the intervention of the government is the rule, and not the exception.
They want you to believe these people are impossibly impoverished, and that everyone else is out-of-touch for them being able to save for retirement.
I want to smash that idea, and I crafted a pretty harsh example of conditions that are largely unrealistic, and was still able to have savings for retirement without direct aid.
Factoring in direct aid, and removing the unrealistic conditions I put together there is practically no reason people can't handle their own retirement comfortably unless they are ignorant of this information, or their life choices cause it.
(though i will point out, if you'd kill yourself if you didn't have access to all these things, are you at least a little greatful you weren't born sooner before these things?)
Well, I understand what you want to do. But here's reality. If you or I wound up in that situation, we'd probably do what you outline here.
If mom is a crack head and dad got shot in a drive by a few years ago (not making this up - in my extended family... well, not a drive by. I think he drank himself to death) you're not in a great frame of mind. Some vague relative takes you in and you live in a building that should be condemed with yoru five siblings. There's no scraping by in that scenario on minimum wage, let alone save for retirement. And those kids aren't going to grow up to be mature, celar thinking, responsable adults. And, yes, they have health problems 'cause mom was on the pipe when she was pregnant non-stop for about five years.
So what do you do? Can you say "well, your mom and dad made some bad decisions, so I guess you're just gonig to die"?
The world's just not as clean as your exercise makes it out. And those are human beings. Should I have to take care of them? No, I shouldn't. But I don't think it's right to just tell them tough luck. And no, it's not a rare situation. There's a lot of people living really f'd up lives right here in America. And if you take a macro look at it, you have to wonder why such a great country has so many people in such tough shape. Did they make bad decisions? Yeah. They did. But I don't know that I'd have done any better if I had their life experience.
You can't take a person who was raised by responsable adults and expect their level of sensability from people who basically raised themselves. It just isn't going to happen.
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