I honestly must be missing something about both this article and this discussion thread.
> The Survey of Household Economics and Decision Making asks people how they would pay for an unforeseen $400 expense. If a respondent said they simply wouldn’t be able to or would have to borrow money, sell something or neglect other bills to do so, they were included in the share of people for whom coming up with the money would be a challenge, which added up to that alarming 40%. Yet the Survey of Consumer Finances, which asks respondents for their bank account balance, found the share of households who have less than $400 in their checking or savings accounts was closer to 20%.
> For some reason, many people who had $400 on hand still said they’d struggle to come up with the money. “We were scratching our heads,” Chen said.
What if that $400 (or even $1400) were for rent, or utility bills? Wouldn't it be obvious that you have to borrow money, sell something, or not pay a bill in order to use $400 of it? What's the confusing part? Also, I guess you could call your utility bills (but not your rent) debt, but that wouldn't be a normal usage.
This article, and the vast response to it (which I can't connect to the fairly empty content) is confusing to me. Are they saying something I'm not seeing?
edit: I mean, more than once in my life, I've had more than the money I've needed to cope with an unexpected event in the bank, and I sold something in order to pay for it, because no money fairy was coming before the end of the month to keep me off the street.
For some reason, I am reminded of the paradox of more hard disc space. Or more lanes on the highway. Any time to capacity is increased, it seems to get consumed and before long, you're out of space again.
This presents a difficulty that perhaps researchers and pollsters can tease out: How many of these cash-poor people genuinely are earning enough to live comfortably vs. don't know enough or don't care enough to build savings, and instead, spend up to their income? Increase their income and they'll just increase their spending and be back where they started.
It seems likely that we could take these numbers down substantially by improving financial management education. Or, simply accept that a large percentage of Americans want to live their life to the fullest that their income can allow.
I have been developing another mental model of this. I think that we naturally measure our own lifestyles by looking at the people around us. We want to feel like we're beating the average or at least not too far below average. People we encounter in our lives will try to present themselves as positively as possible, so we end up thinking that their lives are a bit more prosperous than they really are. I think this is where most of the pressure to increase our standard of living comes from.
Then you bring in competition for resources. If everyone makes similar amounts of money and everyone is trying to have a similar quality of life, we will tend to spend 100% of our incomes on our cost of living. Just like how perfectly competitive companies will naturally compete away all profits, competition for housing, education, healthcare, etc. will naturally compete away all personal savings until the average savings rate is near zero.
The only way out of this competition trap is to find some way to escape the average. Either find a way to make much more money than normal, be much more frugal than normal, or be much luckier than normal.
US median household income is about $60k, which is stagnant for about 15 years despite GDP growth [1]. The median listed housing price has increased by ~50% for the same time[2]. What could a good financial management education teach with these trends in mind?
For a newly-minted median-income household, what is a good financial decision between buying a house or renting? Buying a house with much debt and mortgage payment is risky (remember 2008?) but maybe it is a good investment until that time. Or, not buying a house and continue to pay the rent and helping someone else paying their mortgage may be the safest bet. In either case, there seems growing housing cost anyways that no financial education could help.
Maybe moving to an area where no job exists but house or rent is cheap could be an alternative that no education suggests?
IMO, financial education without considering external environment is easy. It's always like, save more and keep some cash for the risk. But what it doesn't tell people is that the risk is getting higher for the same return and more and more people deplete their income paying the premium.
My father was career Air Force. Once he was ordered to help privates who were having trouble with their finances. They were paid every 2 weeks, and it was embarrassing to the AF for them not being able to pay their bills in the wider community.
My dad phrased it as half the privates had no trouble, the other half had steak and alcohol the first week, beans and begging for handouts the second. All the privates had the same pay, lived in the same base housing, etc.
He said the feast/famine group simply could not control their spending impulses.
My buddy is similar. He's got a decent enough salary, not a lot of mortgage, should be just fine.
Not long ago he complained that he'd been eating instant noodles for two weeks straight because he was short on cash, and was looking forward to next payday. Literally the day after he called me up to tell me about the new GPU he'd bought. Payday had arrived. He'd immediately bought another 2080 Ti, so now he could run SLI! This is a guy who hardly plays games, and when he does it's like Diablo 3 or Civilization.
And guess what was for dinner at the end of that month, again...
I do impulse purchases as well. But not with purchases of that magnitude. Almost always I manage to restrain myself, take a few rounds. Almost always I end up not buying. And because of that, the very few times I allow myself to go wild, I can handle it without sweating.
Interesting, my brother is in the Air Force, too. He's had to counsel some privates who wanted to spend all their money on sports cars and tell them, no, you really should be investing that money in an IRA or something similar.
Out of curiosity, was your father able to help the feast/famine group in any way, or able to convince them to change their behaviour, short of the AF switching that specific group of privates to weekly paychecks instead of bi-weekly?
For rough numbers: The average cost of car ownership in the US is around $9000/yr and 15000 miles (24000 km). So, if an extra $25/day would ruin you, or paying $25/day to go 40 miles (65km) seems ridiculous to you, then you should not buy a car.
This is of course an average. Where you live and what sort of car you choose matters a lot. Putting aside luxury, and new cars and focusing on just transportation… there is a tradeoff between average daily cost of ownership and reliability. If you can say "sorry, won't be to work on time, my car died" without jeopardizing your income then you can live the exciting life of the $500 car. My daughter's friends who do this get by on something like $4-5/day to pay for the car (excluding "mandatory" insurance, which is around $3/day, they pay that sometimes, or not depending on their work situation). Fix the small things, maybe with help from friends, sell it to the scrap yard and get another when the big repair comes.
I'm not surprised and the problem starts with buying a car.
I've always purchased fairly low cost used cars but I recently went to a dealership for the first with someone who was getting a new car (for themselves).
It boggles my mind how reluctant the salesman was to give the "real" price of the car. He also made it sound like it was a nearly impossible task just to get the actual amount the payments would be. He explained how it would take days, require making a charge and would have to get permission from his manager to even start the process. It was a total joke.
They also did everything in their power never to mention the real price of the car with interest applied on the payments, but it's such a non-ignorable amount. It could easily end up being 20-25% on top of what the listed price is from interest.
It really striked me as a situation where if you weren't detail oriented and let the salesman convince you into the purchase without running the numbers yourself you could easily get yourself in a lot of financial trouble.
My dad and I tried to run a blog investigating things like this and giving advice. We've both been able to keep our car costs remarkably low. He's currently driving the most expensive car he's ever owned which cost him 10k (high mileage truck) and I'm still driving a 1993 Nissan SUV I bought a few years back for $900. Even when factoring in cost of repairs for both cars and bad gas mileage, we've saved thousands and thousands versus driving new[er] cars.
I don't think we were being condescending, but all of the posts were met with outrage that we dare suggest such things. People would say things like "I need a reliable car to get to work, and if it's not new, it's not reliable."
Car ownership can only be financially ruinous if you value your time at no cost.
I live in a city with excellent public transport, and still, purchase of a car really improved my quality of life. Instead of 45-60 minutes using public transport, I can get to my dad's house with 13 minutes of driving. A recent example where I picked up a PC monitor from Samsung's service center and returned it to the store I bought it from for a replacement took 1 hour total instead 3 hours lugging the 27" monitor through public transport or spending two days worth of income on taxi rides.
The monthly TCO of my car amounts to around 4 times the cost of the public transports' monthly pass, and that doesn't account the money spent on taxis or ride hailing apps. I consider it worthwhile for the immense benefits I'm getting.
>I suspect over the course of a lifetime car ownership could easily be the most ruinous financial baggage that a lot of people incur.
Not everyone in America needs or wants a car (NYC, etc). But everyone needs a roof over their head, and so I would vouch that the most ruinous financial baggage is....rent.
In my area minimum rent starts around $700/mo, but I have friends in the Bay paying $2000+/mo. $2000 a month! You could buy 2 beaters every month with that! Your first car broke down because it cost $900? Don't worry, just buy another for $900 and still have $200 left over...
I recognize repairs are expensive for cars that are $30k or even $20k, but there is nothing mandating you to keep that car or to not trade it in for a sub-$5k beater. The only counterargument here would be safety, and if you have kids, I guess that justifies the price tag.
Kids or not, though, you still need to pay rent, and if you're lucky enough to own a house, you still need to pay a mortgage.
It also could be the thing that lets them find a job and avoid financial ruin.
Public transit sometimes works, but it almost always increases how long it takes to get somewhere. If I was struggling to make ends meet by working two jobs and had kids, public transit would likely add so much time to my commute, that I'd have to choose between a second job, and having any time with the kids.
Frankly, I think car ownership is one of the most freeing things we have in modern life. It opens up doors that would be closed if you relied on other forms of transportation. Being able to go where you want, when you want, is very valuable.
Doesn't America offer some of the most affordable car prices?
This might be a bad example, but I am pretty sure that luxury German cars like Mercedes/BMW are cheaper to purchase/register in America than Netherlands/Denmark due to taxes.
If I do not have car it will increase my commute time at least 3 times. I may manage to come late to work due to flexible IT job but most people do not even have that option.
Considering job situation in general in this country people have to commute wherever they get job. I feel this is just fantasy that all of us can live near public transit.
What makes you think this? There are lots of sites/people who do "total cost to own" and the numbers they come up with aren't ruinous amounts as far as I can tell.
Two of my friends surprisingly told me they live paycheck to paycheck on salaries well into the six digit range. When I asked why, they both said "that's just how they've always lived." So having the discipline to save a little is clearly a challenge for them, despite having a very good income.
It's weird that the converse holds as well: I know someone who managed to save up $20K in 2 years on a grad student salary of $30K/year, in the Boston metro area. That's a third of his income on a salary well below the median.
It'd be interesting to see how savings rate correlates with income, both across groups and as one individual's income rises over time. I suspect that you'd find some correlation (though probably not as much as you'd expect) across the whole population, but when tracking an individual, their savings rate probably will remain largely constant whether they're making $30K/year or $300K/year.
I’m making well into six figures and I don’t have any significant liquid savings. Child care for two kids, student loans, rent, new minivan, it adds up quickly. I have a bunch of money in my 401k, but I’d be struggling pretty quickly if I were laid off with no severance.
1. If you're a single person, even in the Bay Area, I have no idea what you're spending that money on; and
2. In 10-20 years when those same people are no longer a "culture fit" I wonder if they'll rue their frrivolous ways.
So being poor or being close to it affects people in different ways IME. For some, this means spend as soon as you have it or it'll just go away (eg there is a noticeable uptick in large TV purchases around the EITC). Others will live ridiculously frugally. Some will be super-driven. Others almost defeatist.
In my case there was a time growing up when we were "poor". This is Australian "poor" not American "poor", which is a whole different thing. I don't mean homeless either. Just money was really really tight, as in baking bread because we couldn't afford to buy it, that sort of thing. This actually wasn't obvious to me at the time.
Many who have been "poor" IME never escape the feeling that even in times of bounty everything may still disappear tomorrow. There is much less sense of security. I really think this is one thing that many people who have always had money just don't understand. And I don't mean "wealthy". I just mean they never grew up in an environment where they had serious money worries.
Anyway, the income potential in Australia in software is substantially lower than the US. I was fortunate enough to get a job in Big Tech (NYC) some years ago. I noticed that I'd feel "bad" when I "wasted" $20 on something, like a shirt I didn't end up liking.
A few years ago I ran the numbers on how much I'd saved since coming to the US and honestly I was shocked, as in up until that point I had no idea just how little of my income I was actually spending. And this is a holdover from that psychological lack of financial security. To put this in perspective after paying all living and food expenses, my discretionary purchases and so on that I was still saving 30-40% of my gross income (including 401k). I'd say my income is pretty typical for Big Tech, nothing extraordinary.
Thing is, I actually have no idea what I'd the rest on if I decided to live paycheck to paycheck. So when I hear stories like yours I'm honestly befuddled.
The reality is that although there are people out there that end up dire financial straits through no fault of their own (job loss, health issues, etc), an awful lot of people end up in poor financial condition just due to lack of impulse control.
It's not hard to do. Most people think nothing of spending $100 at the bar on a weekend, but do that every weekend, that's >$5000 which is a chunk of change even for well off people.
I read somewhere that it's typical to spend about 5% more than you earn if you don't track your finances / budget. Having lived both a budget focused and YOLO lifestyle, I'd agree. It just kind of happens - restaurants, vacations, other luxuries that ultimately end up having a pretty minor impact on one's perception of quality of life.
As software developers, we have pretty analytical minds. It's kind of absurd if we don't place some occasional focus on simple things like personal finance and retirement planning.
There's a difference between "all I'd need to do to put a thousand or more dollars aside each month is to not party hard each weekend" and "all I'd need to do to put a thousand or more dollars aside each month is to not pay rent or not buy food" though, isn't there?
The definition of "couldn't handle" is wrong. Most people could handle it, it just would mean extra debt - but so what? Average US credit card debit is over $5000. Who cares about savings when you can just get more debt?
The fact that credit card debt is at 18% during a historically low interest rate environment also implies that a lot of people simply don't pay back their debt.
The flip side of it is that people are willing to work for lower wages, because a steady income - even if it is low - means you can get more debt!
Finally, of this money that shouldn't even exist in the economy drives up prices for everything, the best example for this of course is student loans versus the cost of education.
I think when people come across extra funds they just use it to upgrade their life. Maybe they buy the nicer soft drink and snack, they spend more time at the bar with friends, they decide to buy audio equipment or another computer monitor, or they incorporate an extra prepared meal into their regular routine. There are so many small ways to spend money that make us feel like we're living a better life, but when the dust settles the improvement was only temporary.
I am living in India now and I realize how many things are very hard to get here. If India had a market like America, I am pretty sure most people in India would love to go into debt to experience the products and service which market has to offer.
Here if I've to get something, either I've to import and pay import duties and IGST which effectively doubles the price of product and it's headache to deal with customs. Often it's not possible to find interesting products on local market as a techy.
> living in India now and I realize how many things are very hard to get here.
What are the things is hard to get in India?
There are tons of people in India spend/go into debt to buy a fancy motorcycle, card or cloths or house. Millions of people are in Debt. Thousands of farmers suicide every year because of debts. They may not buy the same thing as Americans, but a lot of people do live paycheck to paycheck.
I would struggle to pay an unexpected 400 bill and would definitely put it on my credit card. This seems like a smart decision to me.
When I put that bill on my credit card it affords me an extra 30-60 days to come up with the money.
I am in the process of paying off debt, acquiring money generating assets. I would eventually like to be in situation to pay a bill like this, but it seems better pay off as much debt as possible. I guess if I lost my job I would be in bad situation, it is hard to start making money without taking some risks.
I posted in a different thread on a similar topic the other day about how recent tax policy shifts helped me increase savings and pay less than 10% effective tax last year. My post was downvoted and flagged.
If you already have wealth, the economy is working pretty well for you. If you’re in a low paying job, often times with irregular schedules and less than even 20 hours a week, you’re in a world of pain.
I’m not sure what the solution to the problem is. Just discussing it at all has become so controversial.
> If you’re in a low paying job, often times with irregular schedules and less than even 20 hours a week, you’re in a world of pain.
Who is to blame if you are only working a low paying job only 20 hours a week? By all means, it's not an easy world out there. But... wealth + opportunity isn't going to just fall from the sky?
Maybe I am guilty of looking at things the wrong way? Curious to hear your thoughts. Hope I don't get downvoted... :/
Largely a result of NIMBYism keeping home construction figures near economic centers low, resulting in a huge demand-supply imbalance, forcing renters into a bidding war for access to those markets, causing much of the surplus to go to landlords.
Also, the treatment and legislation of housing as an investment asset class rather than as a life necessity.
And then there's the healthcare industry, swallowing much of the real wage gains in recent decades in the form of rapidly rising insurance costs (cleverly decoupled from peoples' paycheck, so they feel like it doesn't cost them anything).
And, of course, designing most of our cities to require that people maintain enormously expensive personal cars, or waste hours per day navigating sub-par mass transit systems.
There are myriad other causes (advertising, consumer culture, extremely expensive infrastructure, government writing blank checks to universities, etc etc), but I think these are the majors.
Looks like this article is trying to reconcile the multiple conflicting studies on this topic, especially around some of the wording of the questions. Here's the key takeaway:
"Many of the people who have $400 or more available to them likely have already earmarked that money for another obligation (and so, in other words, the cash isn’t really available to them)."
So if you're not in a good position, what little money you have in savings is already going to go somewhere else by the end of the month, and adding an expense on top of that would require an additional debt of some kind. It's still not clear to me, though, how credit cards factor into this since many people put any significant expense on their credit card rather than writing checks/handing over cash.
This research seems pretty obvious, or at least it doesn't tell me anything that's surprising.
All I get out of it is that if your policy is to ride really close to the edge (between income and spending), and if you have credit available to you, then there will be times when you take on debt.
OK, but what else would you expect? Some people are meticulous about finances, and some people aren't. Do you expect the people who aren't meticulous to constantly track both credit card balance and bank balance, then stop making credit purchases the moment they don't have the cash to back it? By definition, it's the sort of thing they don't typically do. With no process to prevent it, of course sometimes the credit card balance will grow larger.
In other words, this doesn't really show that debt is the cause of the inability to come up with $400. It might be, if someone cannot reduce their expenses or increase their income, which of course is true for some people. But in general all it means is that they haven't, not that they can't.
>For some reason, many people who had $400 on hand still said they’d struggle to come up with the money. “We were scratching our heads,” Chen said.
What exactly made them scratch head? I mean if you have 400 in account, doesn't mean you can just willy nilly spend it on unexpected expense. Maybe this 400 have to last you till the end of month
Americans are tremendous spenders. Pay someone 100k a year, they'll spend 101. Then complain it's their student loans that are weighing them down.
Seriously, since the great recession the American economy has absolutely boomed. If someone hasn't made money in these last few years, it's most likely going to be their own fault.
Debt literally is the problem. Specifically the creation of the money supply only by a select group of corporate banks. The practice of fractional reserve banking means they literally create money out of thin air as debt when they "give" out loans. This means that there will always be significantly more debt and money owed than money in circulation. And literally all of the value of the newly created money goes to the corporate banks.
The problems in our society stem from this universal basic income for corporate bank persons.
The article repeatedly mentions credit cards as debit but not mortgages (or rental expense). But it seems unlikely that credit cards are the biggest debt/financial-obligations people hold.
Mortgages tend to be equal to rent in the long run due to efficient market reasons. Credit card debt is especially ruinous because unlike mortgages and car loans, there's no asset for the bank to go after if you default. As a result the interest rates are naturally higher because the people who roll over their balance month to month have to pay for the people who go bankrupt at a casino.
>Pay off all your debt and student loans if you have any
"Why are you so depressed? Just don't be sad, idiot!"
>Ask your parents to help you out
What if my parents are as broke as I am?
>Go back to school if necessary
And take on more debt that I'm supposed to pay off?
>Laziness is your enemy
My enemy is a system hijacked by the rich to smash and grab as many systems and institutions that are supposed to help poor people as possible.
>Take advantage of your resources and network
I have no money. All my friends are poor. If I didn't go to college, where am I supposed to find these rich friends to get me job references? If I can't afford to go to a bar or a simple restaurant, how am I supposed to spend time with anyone who could help me out?
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I'm not actually the person above. But you must understand why people do not like these common tips you give. It is not because they are lazy, but because they do not have the escape hatches you have/had. They are angry that you think everyone has the luxury of getting a personal bailout from your family members, or that everyone owns a car like a BMW.
I say this as someone in your own position. I have a good car, good apartment, parents who helped pay my student loans, and they even covered my lawyer fees when I tried to start my first LLC.
I am in a luxurious position that millions of my fellow citizens would envy. Yes, of course my parents worked hard, they came to this country in 1999 with $0 in their pockets and worked their way up to managerial positions eventually being able to buy a house in a wonderful neighborhood with three (three!) non-beater cars.
I like to think that I work hard. But the opportunities given to me by having good parents, a strong financial background, being in a calm, safe neighborhood, and especially having a pass-me-down car? Those were free. I didn't work for those. It was complete luck that I ended up with parents who gave me these things.
Does anybody ever need to take on copious amounts of student debt? I feel like I have some friends who have bachelors and were able to do it debt/scot free, and then I have friends who have $80k in debt with little to show for it because that's what they chose.
> Pay off all your debt and student loans if you have any.
Paying back student loans seems like a bad idea, what if the Democrats win and forgive student loan debt?
You'll be left holding the bag.
> For example, you could get an MBA.
With another student loan?
> If I can do it, so can you.
Perhaps, but if I was living paycheck to paycheck, I'd be in "good company" with the federal government, local governments, corporate America and the majority of the general population. That's a pretty big interest group. I have a feeling there's a big debt jubilee coming up...
[+] [-] pessimizer|6 years ago|reply
> The Survey of Household Economics and Decision Making asks people how they would pay for an unforeseen $400 expense. If a respondent said they simply wouldn’t be able to or would have to borrow money, sell something or neglect other bills to do so, they were included in the share of people for whom coming up with the money would be a challenge, which added up to that alarming 40%. Yet the Survey of Consumer Finances, which asks respondents for their bank account balance, found the share of households who have less than $400 in their checking or savings accounts was closer to 20%.
> For some reason, many people who had $400 on hand still said they’d struggle to come up with the money. “We were scratching our heads,” Chen said.
What if that $400 (or even $1400) were for rent, or utility bills? Wouldn't it be obvious that you have to borrow money, sell something, or not pay a bill in order to use $400 of it? What's the confusing part? Also, I guess you could call your utility bills (but not your rent) debt, but that wouldn't be a normal usage.
This article, and the vast response to it (which I can't connect to the fairly empty content) is confusing to me. Are they saying something I'm not seeing?
edit: I mean, more than once in my life, I've had more than the money I've needed to cope with an unexpected event in the bank, and I sold something in order to pay for it, because no money fairy was coming before the end of the month to keep me off the street.
[+] [-] soVeryTired|6 years ago|reply
I guess the key word here is unexpected - as in, outside of what you've budgeted for.
[+] [-] 11thEarlOfMar|6 years ago|reply
This presents a difficulty that perhaps researchers and pollsters can tease out: How many of these cash-poor people genuinely are earning enough to live comfortably vs. don't know enough or don't care enough to build savings, and instead, spend up to their income? Increase their income and they'll just increase their spending and be back where they started.
It seems likely that we could take these numbers down substantially by improving financial management education. Or, simply accept that a large percentage of Americans want to live their life to the fullest that their income can allow.
[+] [-] dougmwne|6 years ago|reply
Then you bring in competition for resources. If everyone makes similar amounts of money and everyone is trying to have a similar quality of life, we will tend to spend 100% of our incomes on our cost of living. Just like how perfectly competitive companies will naturally compete away all profits, competition for housing, education, healthcare, etc. will naturally compete away all personal savings until the average savings rate is near zero.
The only way out of this competition trap is to find some way to escape the average. Either find a way to make much more money than normal, be much more frugal than normal, or be much luckier than normal.
[+] [-] nemonemo|6 years ago|reply
For a newly-minted median-income household, what is a good financial decision between buying a house or renting? Buying a house with much debt and mortgage payment is risky (remember 2008?) but maybe it is a good investment until that time. Or, not buying a house and continue to pay the rent and helping someone else paying their mortgage may be the safest bet. In either case, there seems growing housing cost anyways that no financial education could help.
Maybe moving to an area where no job exists but house or rent is cheap could be an alternative that no education suggests?
IMO, financial education without considering external environment is easy. It's always like, save more and keep some cash for the risk. But what it doesn't tell people is that the risk is getting higher for the same return and more and more people deplete their income paying the premium.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://fred.stlouisfed.org/series/MSPUS
[+] [-] WalterBright|6 years ago|reply
My dad phrased it as half the privates had no trouble, the other half had steak and alcohol the first week, beans and begging for handouts the second. All the privates had the same pay, lived in the same base housing, etc.
He said the feast/famine group simply could not control their spending impulses.
[+] [-] magicalhippo|6 years ago|reply
Not long ago he complained that he'd been eating instant noodles for two weeks straight because he was short on cash, and was looking forward to next payday. Literally the day after he called me up to tell me about the new GPU he'd bought. Payday had arrived. He'd immediately bought another 2080 Ti, so now he could run SLI! This is a guy who hardly plays games, and when he does it's like Diablo 3 or Civilization.
And guess what was for dinner at the end of that month, again...
I do impulse purchases as well. But not with purchases of that magnitude. Almost always I manage to restrain myself, take a few rounds. Almost always I end up not buying. And because of that, the very few times I allow myself to go wild, I can handle it without sweating.
[+] [-] antognini|6 years ago|reply
[+] [-] otoburb|6 years ago|reply
[+] [-] jopsen|6 years ago|reply
Most people have a limited number of good choices in a day: https://en.m.wikipedia.org/wiki/Decision_fatigue
Maybe other concerns/issues were causing some of them to run out of good decision bandwidth.
Note. I'm not claiming that all poor decisions can be explained this way.
[+] [-] Edmond|6 years ago|reply
I suspect over the course of a lifetime car ownership could easily be the most ruinous financial baggage that a lot of people incur.
[+] [-] jws|6 years ago|reply
This is of course an average. Where you live and what sort of car you choose matters a lot. Putting aside luxury, and new cars and focusing on just transportation… there is a tradeoff between average daily cost of ownership and reliability. If you can say "sorry, won't be to work on time, my car died" without jeopardizing your income then you can live the exciting life of the $500 car. My daughter's friends who do this get by on something like $4-5/day to pay for the car (excluding "mandatory" insurance, which is around $3/day, they pay that sometimes, or not depending on their work situation). Fix the small things, maybe with help from friends, sell it to the scrap yard and get another when the big repair comes.
[+] [-] nickjj|6 years ago|reply
I've always purchased fairly low cost used cars but I recently went to a dealership for the first with someone who was getting a new car (for themselves).
It boggles my mind how reluctant the salesman was to give the "real" price of the car. He also made it sound like it was a nearly impossible task just to get the actual amount the payments would be. He explained how it would take days, require making a charge and would have to get permission from his manager to even start the process. It was a total joke.
They also did everything in their power never to mention the real price of the car with interest applied on the payments, but it's such a non-ignorable amount. It could easily end up being 20-25% on top of what the listed price is from interest.
It really striked me as a situation where if you weren't detail oriented and let the salesman convince you into the purchase without running the numbers yourself you could easily get yourself in a lot of financial trouble.
[+] [-] ngngngng|6 years ago|reply
I don't think we were being condescending, but all of the posts were met with outrage that we dare suggest such things. People would say things like "I need a reliable car to get to work, and if it's not new, it's not reliable."
[+] [-] ferongr|6 years ago|reply
I live in a city with excellent public transport, and still, purchase of a car really improved my quality of life. Instead of 45-60 minutes using public transport, I can get to my dad's house with 13 minutes of driving. A recent example where I picked up a PC monitor from Samsung's service center and returned it to the store I bought it from for a replacement took 1 hour total instead 3 hours lugging the 27" monitor through public transport or spending two days worth of income on taxi rides.
The monthly TCO of my car amounts to around 4 times the cost of the public transports' monthly pass, and that doesn't account the money spent on taxis or ride hailing apps. I consider it worthwhile for the immense benefits I'm getting.
[+] [-] nexuist|6 years ago|reply
Not everyone in America needs or wants a car (NYC, etc). But everyone needs a roof over their head, and so I would vouch that the most ruinous financial baggage is....rent.
In my area minimum rent starts around $700/mo, but I have friends in the Bay paying $2000+/mo. $2000 a month! You could buy 2 beaters every month with that! Your first car broke down because it cost $900? Don't worry, just buy another for $900 and still have $200 left over...
I recognize repairs are expensive for cars that are $30k or even $20k, but there is nothing mandating you to keep that car or to not trade it in for a sub-$5k beater. The only counterargument here would be safety, and if you have kids, I guess that justifies the price tag.
Kids or not, though, you still need to pay rent, and if you're lucky enough to own a house, you still need to pay a mortgage.
[+] [-] jerrac|6 years ago|reply
Public transit sometimes works, but it almost always increases how long it takes to get somewhere. If I was struggling to make ends meet by working two jobs and had kids, public transit would likely add so much time to my commute, that I'd have to choose between a second job, and having any time with the kids.
Frankly, I think car ownership is one of the most freeing things we have in modern life. It opens up doors that would be closed if you relied on other forms of transportation. Being able to go where you want, when you want, is very valuable.
[+] [-] MuffinFlavored|6 years ago|reply
This might be a bad example, but I am pretty sure that luxury German cars like Mercedes/BMW are cheaper to purchase/register in America than Netherlands/Denmark due to taxes.
[+] [-] geodel|6 years ago|reply
Considering job situation in general in this country people have to commute wherever they get job. I feel this is just fantasy that all of us can live near public transit.
[+] [-] diminoten|6 years ago|reply
[+] [-] proee|6 years ago|reply
[+] [-] nostrademons|6 years ago|reply
It'd be interesting to see how savings rate correlates with income, both across groups and as one individual's income rises over time. I suspect that you'd find some correlation (though probably not as much as you'd expect) across the whole population, but when tracking an individual, their savings rate probably will remain largely constant whether they're making $30K/year or $300K/year.
[+] [-] empath75|6 years ago|reply
[+] [-] cletus|6 years ago|reply
1. If you're a single person, even in the Bay Area, I have no idea what you're spending that money on; and
2. In 10-20 years when those same people are no longer a "culture fit" I wonder if they'll rue their frrivolous ways.
So being poor or being close to it affects people in different ways IME. For some, this means spend as soon as you have it or it'll just go away (eg there is a noticeable uptick in large TV purchases around the EITC). Others will live ridiculously frugally. Some will be super-driven. Others almost defeatist.
In my case there was a time growing up when we were "poor". This is Australian "poor" not American "poor", which is a whole different thing. I don't mean homeless either. Just money was really really tight, as in baking bread because we couldn't afford to buy it, that sort of thing. This actually wasn't obvious to me at the time.
Many who have been "poor" IME never escape the feeling that even in times of bounty everything may still disappear tomorrow. There is much less sense of security. I really think this is one thing that many people who have always had money just don't understand. And I don't mean "wealthy". I just mean they never grew up in an environment where they had serious money worries.
Anyway, the income potential in Australia in software is substantially lower than the US. I was fortunate enough to get a job in Big Tech (NYC) some years ago. I noticed that I'd feel "bad" when I "wasted" $20 on something, like a shirt I didn't end up liking.
A few years ago I ran the numbers on how much I'd saved since coming to the US and honestly I was shocked, as in up until that point I had no idea just how little of my income I was actually spending. And this is a holdover from that psychological lack of financial security. To put this in perspective after paying all living and food expenses, my discretionary purchases and so on that I was still saving 30-40% of my gross income (including 401k). I'd say my income is pretty typical for Big Tech, nothing extraordinary.
Thing is, I actually have no idea what I'd the rest on if I decided to live paycheck to paycheck. So when I hear stories like yours I'm honestly befuddled.
[+] [-] refurb|6 years ago|reply
It's not hard to do. Most people think nothing of spending $100 at the bar on a weekend, but do that every weekend, that's >$5000 which is a chunk of change even for well off people.
[+] [-] rofo1|6 years ago|reply
It's amazing; it's like they are under some kind of spell and can't see right before their eyes, just when it comes to this.
Frugality and being content with what you have goes a long way. People should stop comparing themselves to other people.
That explosive emotional combination of greed and envy is behind so many bad financial decisions.
[+] [-] katzgrau|6 years ago|reply
As software developers, we have pretty analytical minds. It's kind of absurd if we don't place some occasional focus on simple things like personal finance and retirement planning.
[+] [-] kartan|6 years ago|reply
Would you say that they are in that 40%? Or is it a different case?
[+] [-] luckylion|6 years ago|reply
[+] [-] gridlockd|6 years ago|reply
The fact that credit card debt is at 18% during a historically low interest rate environment also implies that a lot of people simply don't pay back their debt.
The flip side of it is that people are willing to work for lower wages, because a steady income - even if it is low - means you can get more debt!
Finally, of this money that shouldn't even exist in the economy drives up prices for everything, the best example for this of course is student loans versus the cost of education.
[+] [-] dgzl|6 years ago|reply
[+] [-] gingabriska|6 years ago|reply
Here if I've to get something, either I've to import and pay import duties and IGST which effectively doubles the price of product and it's headache to deal with customs. Often it's not possible to find interesting products on local market as a techy.
[+] [-] thekingshorses|6 years ago|reply
What are the things is hard to get in India?
There are tons of people in India spend/go into debt to buy a fancy motorcycle, card or cloths or house. Millions of people are in Debt. Thousands of farmers suicide every year because of debts. They may not buy the same thing as Americans, but a lot of people do live paycheck to paycheck.
[+] [-] frankbreetz|6 years ago|reply
[+] [-] tracer4201|6 years ago|reply
If you already have wealth, the economy is working pretty well for you. If you’re in a low paying job, often times with irregular schedules and less than even 20 hours a week, you’re in a world of pain.
I’m not sure what the solution to the problem is. Just discussing it at all has become so controversial.
[+] [-] MuffinFlavored|6 years ago|reply
Who is to blame if you are only working a low paying job only 20 hours a week? By all means, it's not an easy world out there. But... wealth + opportunity isn't going to just fall from the sky?
Maybe I am guilty of looking at things the wrong way? Curious to hear your thoughts. Hope I don't get downvoted... :/
[+] [-] ericd|6 years ago|reply
Also, the treatment and legislation of housing as an investment asset class rather than as a life necessity.
And then there's the healthcare industry, swallowing much of the real wage gains in recent decades in the form of rapidly rising insurance costs (cleverly decoupled from peoples' paycheck, so they feel like it doesn't cost them anything).
And, of course, designing most of our cities to require that people maintain enormously expensive personal cars, or waste hours per day navigating sub-par mass transit systems.
There are myriad other causes (advertising, consumer culture, extremely expensive infrastructure, government writing blank checks to universities, etc etc), but I think these are the majors.
[+] [-] mdorazio|6 years ago|reply
"Many of the people who have $400 or more available to them likely have already earmarked that money for another obligation (and so, in other words, the cash isn’t really available to them)."
So if you're not in a good position, what little money you have in savings is already going to go somewhere else by the end of the month, and adding an expense on top of that would require an additional debt of some kind. It's still not clear to me, though, how credit cards factor into this since many people put any significant expense on their credit card rather than writing checks/handing over cash.
[+] [-] adrianmonk|6 years ago|reply
All I get out of it is that if your policy is to ride really close to the edge (between income and spending), and if you have credit available to you, then there will be times when you take on debt.
OK, but what else would you expect? Some people are meticulous about finances, and some people aren't. Do you expect the people who aren't meticulous to constantly track both credit card balance and bank balance, then stop making credit purchases the moment they don't have the cash to back it? By definition, it's the sort of thing they don't typically do. With no process to prevent it, of course sometimes the credit card balance will grow larger.
In other words, this doesn't really show that debt is the cause of the inability to come up with $400. It might be, if someone cannot reduce their expenses or increase their income, which of course is true for some people. But in general all it means is that they haven't, not that they can't.
[+] [-] vgaldikas|6 years ago|reply
What exactly made them scratch head? I mean if you have 400 in account, doesn't mean you can just willy nilly spend it on unexpected expense. Maybe this 400 have to last you till the end of month
[+] [-] RickJWagner|6 years ago|reply
Seriously, since the great recession the American economy has absolutely boomed. If someone hasn't made money in these last few years, it's most likely going to be their own fault.
[+] [-] superkuh|6 years ago|reply
The problems in our society stem from this universal basic income for corporate bank persons.
[+] [-] tempsy|6 years ago|reply
[+] [-] TomMckenny|6 years ago|reply
[+] [-] whatshisface|6 years ago|reply
[+] [-] ponzifighter483|6 years ago|reply
1. Downgrade everything you own. Car and house are the main things. You don’t need that BMW. Get a shitty Toyota.
2. Sell the house and move back in with your parents. If you have too much pride, then downgrade to a smaller place. Pocket the savings.
3. Pay off all your debt and student loans if you have any. Ask your parents to help you out. Swallow your pride.
4. Work towards a better job. Go back to school if necessary. For example, you could get an MBA.
Laziness is your enemy. Take advantage of your resources and network. If I can do it, so can you.
[+] [-] nexuist|6 years ago|reply
What if I have a shitty Toyota?
>Sell the house
As if I could afford a house, lol...
>Pay off all your debt and student loans if you have any
"Why are you so depressed? Just don't be sad, idiot!"
>Ask your parents to help you out
What if my parents are as broke as I am?
>Go back to school if necessary
And take on more debt that I'm supposed to pay off?
>Laziness is your enemy
My enemy is a system hijacked by the rich to smash and grab as many systems and institutions that are supposed to help poor people as possible.
>Take advantage of your resources and network
I have no money. All my friends are poor. If I didn't go to college, where am I supposed to find these rich friends to get me job references? If I can't afford to go to a bar or a simple restaurant, how am I supposed to spend time with anyone who could help me out?
-
I'm not actually the person above. But you must understand why people do not like these common tips you give. It is not because they are lazy, but because they do not have the escape hatches you have/had. They are angry that you think everyone has the luxury of getting a personal bailout from your family members, or that everyone owns a car like a BMW.
I say this as someone in your own position. I have a good car, good apartment, parents who helped pay my student loans, and they even covered my lawyer fees when I tried to start my first LLC.
I am in a luxurious position that millions of my fellow citizens would envy. Yes, of course my parents worked hard, they came to this country in 1999 with $0 in their pockets and worked their way up to managerial positions eventually being able to buy a house in a wonderful neighborhood with three (three!) non-beater cars.
I like to think that I work hard. But the opportunities given to me by having good parents, a strong financial background, being in a calm, safe neighborhood, and especially having a pass-me-down car? Those were free. I didn't work for those. It was complete luck that I ended up with parents who gave me these things.
Luck, not work. That's privilege.
[+] [-] MuffinFlavored|6 years ago|reply
Does anybody ever need to take on copious amounts of student debt? I feel like I have some friends who have bachelors and were able to do it debt/scot free, and then I have friends who have $80k in debt with little to show for it because that's what they chose.
[+] [-] gridlockd|6 years ago|reply
Paying back student loans seems like a bad idea, what if the Democrats win and forgive student loan debt?
You'll be left holding the bag.
> For example, you could get an MBA.
With another student loan?
> If I can do it, so can you.
Perhaps, but if I was living paycheck to paycheck, I'd be in "good company" with the federal government, local governments, corporate America and the majority of the general population. That's a pretty big interest group. I have a feeling there's a big debt jubilee coming up...
[+] [-] unknown|6 years ago|reply
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