Most people are slaves to their limbic systems.
Most people don’t have self-education or resources to seek the help they need to fix these underlying problems.
Society does them no favors. Media and advertising are designed to promote consumption. And not even healthy consumption.
The idea that we are black boxes with private worlds and perfect agency is being eroded by the empirical evidence that, at scale, we are ultimately manipulable.
I know because I wrestle with this constantly. My higher self knows what’s right and how I should spend my time and money. On a daily and minutely basis, my lower self vyes for control and often succeeds in taking the wheel. And I have to catch myself and recognize when my long term efforts are being subverted automatically and mechanistically.
I know that, over the years, my unaddressed early childhood traumas have compounded into deeply-ingrained habits of self-medicating.
It’s a constant struggle.
I am not surprised that there are huge numbers of people who struggle similarly and are not as successful as I am at managing this internal conflict.
edit: why is this article now flagged? :(
Income and expenses are intricately linked by psychology. It's almost irrelevant what your paycheck is, if you're prone to this problem then somehow expenses will always rise to meet it.
If expenses weren't actually determined by paycheck, the number of people living paycheck to paycheck would be a really small number. Everyone else would either be building a surplus each month or going further into debt.
Same can be said about many expenses. When you don't have the money, you make it work even if you can't. When you do, you gotta balance it out again. Saving your money isn't as important as saving your life. Saving your automobile might be cheaper than having to buy another later. Etc, etc.
So, just because this problem exists among a wide range of paychecks doesn't mean shit really, because paychecks scale with rent and people are suffering to make the rent as it is. I would argue for most people, the trouble isn't their attitude. It's that wages ultimately grow far, far slower than living expenses and inflation, and cuts have been made to essential expenses at the cost of degraded quality of life.
A lot of people harp on others for buying frivolously but frankly an iPhone every year would be a drop in the bucket compared to my medical expenses, maintenance and gas for my car, etc. My monthly rent is more than three iPhone XS Maxes and it's literally within a couple hundred of the cheapest thing I could find in a 20 mile radius. Don't get me wrong, it's great and I'm not complaining, but it still puts things into perspective.
Maybe I'm crazy, but I think everything that needs to be said is already covered by graphing minimum wage vs inflation. That's a lot of folks real realities today.
A lot of corporate jobs these days force people to live like rats in big cities.
This is a problem with zoning: https://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B..., not with "corporate jobs." If we fix zoning, costs will go down. Los Angeles is instructive. In 1960, it was zoned for 10 million people: https://la.curbed.com/2015/4/8/9972362/everything-wrong-with.... Today, it is zoned for 4.3 million. Has our technology gotten worse since 1960? Have we forgotten how to build multi-story structures?
No: we've just made it illegal to build enough housing.
Seattle is also instructive. About two-thirds of the city is zoned for single-family housing only: https://www.theurbanist.org/2017/10/23/the-path-to-eliminate.... Allow missing middle housing, and prices will stabilize: http://missingmiddlehousing.com.
I recently started working in central London and need to move closer soon; when I check the rent prices every time they just make me want to cry even though I've got a decent tech salary.
I think this is one of the biggest bonuses you get as a technical person; you can live with roommates and drive a beater car, if you want, and it's not a problem when getting quarter-million dollar a year jobs.
A long time ago, I had a roommate who was trying to make it as a realtor. He though his (actually quite nice) not exactly new honda accord was a big handicap for him. I mean, I don't know if it was or not; I know little about the selling side of real-estate, but I can tell you that most people who do sales or management feel that their symbols of wealth are really important to their job and their income.
Devs in SF display status in other ways. HN karma? Exits? Economists call those “hard to fake” status displays.
No, developers display status more directly, by pointing at a thing and saying "I did that" - or on a lower level, simply displaying intelligence and domain specific problem solving ability.
Of course rich people can have such problem, but if you think low wages and the lack of universal health care and free education is not the main issue you are lying to yourself.
1) Poverty, at the level where spending on a reasonable floor of basics (food, shelter, education, leisure) leaves little for savings. This is a resource constraint, and even a perfectly optimally-run household would end up living paycheck-to-paycheck.
2) Severe exogenous financial shocks that exceed whatever buffer you were able to build, and an inability to adjust consumption downwards due to sticky commitments or psychological reasons. For lower-middle and middle-class households, this is possible simply due to bad luck; one thing the US economy is pretty bad at is providing a solid way to derisk tail risks, the obvious example being healthcare. This is naturally less common the more severe the shock, and irresponsible financial management can be a contributor in some of these cases (ie not saving an emergency fund, etc).
3) Consumption rising to meet one's income. The resource constraint is irrelevant here, as above the poverty level, this is primarily about hedonism and jockeying for status. The big caveat here is that people tend to short-circuit cost-benefit analyses when it comes to their kids: neighborhood safety and public school quality can lead to people substantially (and understandably) overextending themselves wrt housing costs. I'd caution against leaning too blindly on this mitigating factor though, as there are lots of differences between living modestly in a good school district and living generally beyond your means.
There's a degree of freedom around consumption that's likely a lot more significant than your comment assumes; this seems to follow directly from the fact that someone living beyond their means at percentile X would substantially improve their financial security if they spent as much as percentile X-10 (or whatever). For all but the lowest percentiles, this is completely feasible, and yet these low-savings studies consistently find a much larger swathe of people in these categories.
The model that makes the most sense to me is that, excluding the lowest quintile, the habit of clamping consumption to income is one of the biggest factors in our low savings.
As mentioned above, the US systemically tends to put a lot more risk on the individual than a lot of societies do; you can be better off if you manage this responsibly (and aren't in the lowest income brackets), but financial illiteracy is IME rampant, even among generally well-educated people.
 Lack of access to quality education likely is, but through the mechanism of low numeracy/personal finance skills/critical thinking skills.
This is spot-on.
It's worked for me -- I didn't have a solid handle on my finances when I moved out of my parents' place, so I lowballed and found a place I knew I could afford even with a pretty pessimistic view of financial discipline.
Nine years later I'm living in the same place, and I've gotten a raise every year, so I'm making quite a bit more than I was back then. Driving an even more economical car. Eating better -- buying groceries instead of eating out all the time.
I could fritter it away, let my ISP bleed me dry with a $162 cable+internet+whatever+modem plan when the $30 plan works just fine and I bought my own modem. I could shovel $95/mo to Verizon, but I'm on Ting and I use wifi whenever possible, and my bill averages $26 and I own the phone.
I could send $8/mo to Hulu and $15/mo to HBO and $11/mo to Netflix and $13/mo to Amazon and $10/mo to Spotify and $10/mo to Pandora and.... how many more are there?! But I don't feel like my life would be improved by having all those. (I do Spotify, but none of the others. In the event that I feel like rubbing my nose in a pile of TV, there's this thing called broadcast.)
I feel like there's a never-ending stream of these things, with their pundits on the morning show and Weekend Edition making you feel like you're missing out on life if you don't watch at least one show on every such service. And Disney+ is coming...
To me, it's that incremental monthly spending that inexorably, insidiously, increasingly, gobbles up every spare dollar the middle class can scrape together. I've been literally counseling my friends on how to talk their cable providers into a lower rate.
Many of them didn't know that was possible.
Cancel your shit, people.
The only point you missed was saying that you only spend $5 a day on food.
Tell me this dear sir or madam...
1) How many kids do you have?
2) How much did you spend on healthcare in the last 5 years?
Financial shocks exceeding savings coupled with a system which requires drawing on high APY credit in order to absorb those shocks I think is a more likely culprit.
Just one event like that can have a family struggling to stay afloat and carrying thousands per year in interest payments on top of everything else.
The point that person is making is, if a person who makes more than the minimum wage is to reduce spending to 90% of the current spending they would be better able to absorb these unforeseen financial shocks.
> How many kids do you have?
This is another thing I notice (outside and in the article too). A lot of people who live paycheck to paycheck have 3 or more kids. Naturally more kids increase costs. Now I am by no means saying people shouldn't have more kids, but that number should depend on their financial situation too.
Like huge medical bills?
This was a big reason that drove our move out of NYC. No matter how much you made, unless you were a billionaire (good luck with that), you were on a treadmill. Nothing you had would be enough. You could spend yourself broke trying to fit in, even if you make a lot of money.
Dallas, where we currently live, has this too, but it's a much bigger city, so you have to want to find those hotspots.
so, certainly, that's not all of it. we all have the wealthy friend who lives paycheque to paycheque.
But... let me tell you, saving money is a whole lot easier when you make 10x the minimum to support yourself in the area than it is when you make 1x the minimum to support yourself in the area.
Furthermore, paycheck to paycheck living outside of poverty and disability is rarely the result of a one time mistake, it's usually due to an inability to budget and save day-to-day. Which is the reason they end up with more debts than assets.
Not to mention people who can't afford their house can often not afford to take care of their house, which reduces its value.
Rents finally started to skyrocket where I live, so buying finally made sense for us to try to lock in our housing exoense. But even then, the upkeep occassionally makes me wonder if I did the math right. Like can I put off buying a new roof another year? Or will that eat up my maintanence budget for the next couple years?
Plus many people want to live in an already established neighborhood.
Also both new homes I’ve bought were in existing neighborhoods. Not all new homes are in new developments. I’m fact, I would avoid those like the plague. HOA hell + possible mello roos if in California.
Portland happens to be among the metros with the smallest new house premium at 14%. Thats still $28,000 premium on a 200,0000 house.
Sure "not all new homes" are in new developments, but the vast majority of them are. Most neighborhoods simply don't have empty lots to build on, they don't exist, any new homes are teardowns.
Besides, I never said all new homes were cheaper so I’m not sure why you’re even trying to argue it. Shop around and you’ll find a deal.
But yes I do fully agree, I would much rather be broke with a large income than a low one.
That's because our metric for school and school district quality largely is a measure of effects of socioeconomic status of the students, not anything the schools actually produce. So, yes, the schools in areas that have a higher buy-in cost have better marks, because they have on-average students better set-up for success.
That doesn't mean the students in that district, if individually moved to a different district, would do worse, it just means that the students who would do worse independent of district are lesd likely to have parents that can afford to live in the “better” district.
If you have the ability to kick out any student who is disruptive you can turn any school in any area into a high quality school.
The evidence doesn't really support that, though; students in a “bad” district don't have worse performance than students with similar background in a “better” district (whether because of distraction or any other reason), “better” districts just have more students with backgrounds which are correlated with educational success, of which the strongest factor is parental education.
According to that report the important factors are student and teacher discipline and school atmosphere, and on can easily understand why all of these might be better in an affluent suburb.
Sure, but we’re talking about what explains variation between school districts in the same state in the US, not variation among OECD countries. I'm not saying that education policy and practice can't have a difference and doesn't globally, I'm saying there is virtually no evidence that the difference within districts that people in the US might be choosing between is driven by much of anything beyond background.
Do you think smart people would bother to spend a fortune on education (either directly via private schooling or indirectly by housing) if the school didn't matter? Follow the money, not the rhetoric.
More directly I have spent sometime helping out in different schools and I have seen with my own eyes the consequences of a single disruptive child on the learning environment - all the teachers time is sucked out dealing with this one student. I can't imagine trying to teach in a classroom with 3 or 4 disruptive students.
Yes, because smart and well informed are not the same thing, and even smart people who have access to systematic information are not immune to dismissing that information due to cognitive biases, particularly confirmation bias.
Quality of school district is also a well worn socially acceptable cover for avoiding proximity to those disliked for reasons of race or class, and smart people can still be racist and/or classist, and are more, not less, likely to seek socially acceptable cover for that.
Did a lot of people wrongly (as it turned out) think that in the 2008 Great Recession?
Even knowing this plenty of people put themselves in precarious financial situations when buying a home.
People will pay more for the basic needs until they can't any more. Mostly with housing.
I don't know how to fix it, but I guess it would be enormous taxes on land owned but used by somebody else and selling land to someone else. Basically making real estate and finance only viable as charitable institutions (or something at least significantly in that direction). More or less impossible, but that's life.
The market based solution is already present in city streets today with mentally ill, drug addicted, and others (under employed) living in tents and cardboard (or their illegally parked vehicles).
Once their UBI payday loans are properly directly deposited to a bank to repay last week's debt, they can once again return there. The idea that the most downtrodden will be better with their finances than 80% of the rest of the population is laughable.
Rental means paying the costs of property plus paying profit to someone who is already well off enough to front some capital (or at least to get a mortgage) plus paying profits for the bank ... how could renting ever be reasonable priced in a system that requires those without capital to pay those with capital just because those with money already have enough money.
We just about made a profit on the flat - about £10 a week, but we didn’t have any times of no tenant, or any unexpected major bills.
Eventually price recovered enough that we could afford to sell (below what we paid, even ignoring inflation).
Not all landlords are raking it in.
landlords aren't guaranteed to make money. it's true that monthly rent is almost always higher than the monthly mortgage payment on that property, but the landlord can only profit if, in the long run, the difference between the rent and the mortgage is greater than the overall cost of maintenance and possible devaluation of the property.
personally, I could afford to put a down payment on a mortgage if I really wanted a house where I live, but for now I am happy to pay extra for the ability to relocate at the end of the lease and to avoid the risk of actually owning a house.
When rent is taken care of (cause there isn't rent), along with food, water, electricity, communication and more, what is there to 'buy'?
Clothes, cars, boats, planes, watches, electronics, vacations, fancy meals, you name it...
Also, I have to point out, if you had made that list a hundred years ago, electricity wouldn't have been on it. Luxuries have a way of becoming necessities.
Perhaps a more relevant example: Look at the bottled water industry. Even if all our creature comforts are provided for free, someone will pay for a "premium" version.
These people are going further into debt. It's just that this debt is usually not in the form of cash.
Need an oil change? Well, I can put that off for a while. Need to go to the doctor? Well, I can put that off for a while. Need to renew my license? Well, I probably won't get pulled over for it this month. It's amazing what necessities you can postpone, if you're willing to take on personal technical debt, in the form of risk.
This is how people at the lower end live "paycheck to paycheck". It's not just that they're dumb and spend every penny as soon as they get it. It's that they bend as many of the rules as they can, in order to maximize the cash they have on hand for the rules that can't be bent.
This perfectly illustrates the problem the GP brings up. People have no concept of what agency is.
I would argue $2000/month is a very significant benefit to a survivor. It’s also inflation adjusted.
We aren't bacteria. We don't have to behave like bacteria, irregardless of one's relationship to authoritarianism or social conformity.
And we should not forgive, let alone celebrate, people who do behave like bacteria.
You could, with similar effect, make the same statements about bacteria in response to "People should live" or "People should thrive".
Everyone deals with these kinds of intrapersonal conflicts and issues on a different breadth and scale, one way or another. It's this coupled with economic distress or anxiety, in addition to a massive income and wealth inequality, that produces the kind of conditions and struggle that people and families go through, like those described in this short article.
Sure, there are varying degrees of this issue. You have costs of living which vary depending on location, wages and salaries which vary by location as well as the occupation itself.
Despite this, it's still a grave mistake to simply pass many of this off as "they should get a better-paying job" or "they are living beyond their means" as some of the comments on the WaPo article itself suggests.
For the former, anyone who uses such an argument has in some form or fashion accepted the belief that some jobs should not pay a livable wage. It does not make any sense that anyone working a wage job full-time is still financially in poverty. This has nothing to do with the individual, but instead has everything to do with economic policy. That is not to say that, for example, fast food workers should not make as much as teachers. OK, then pay the teachers more. The bottom line is that no one who works a full-time job should be in poverty.
For the latter argument, this is mostly part of an ongoing cultural trend of laying all responsibility on the individual, regardless of systemic variables. The idea that in such an unequal society, where people exist who literally make more in a single day than others in an entire lifetime, we should instead scrutinize the people struggling economically, is just plain disingenuous.
The economy is broken and getting worse. More and more people are realizing it.
Somehow, along the way, many people lost all compassion. I am really not sure what do they have to gain from being a-holes to genuinely struggling people. (Not everybody wants to change profession at 40-50 and they should not be forced to.)
As you said, nobody who is working full-time should be below the poverty line. Nobody.
But it does show how far we are from getting there when people can't even agree that people with jobs shouldn't be living in poverty.
What's a "livable wage"? The whole point of assessing whether people are "living beyond their means" is precisely to figure out if they're keeping their expenses within that 'livable wage' threshold. I think you'll find that most people with money-related issues ("poverty" in this context should be reserved for actual, true deprivation, which is vanishingly rare in the US! Social exclusion/marginalization is real, but it's a very different problem, with different ways of addressing it) are in fact not doing enough to keep their expenses in check.
If 12% of your people are living in poverty as defined by your government then there may be something systematically wrong.
I think a lot of us suffer from this at different scales. I've always found it difficult to work on things that will pay off in the future, even if I plan something I just don't seem to be able to carry through a long term project to the end unless I'm in an environment where there's accountability such as deadlines on projects at work.
I'm very prone to instant gratification, which is why I can easily lose most of my spare time in video games, netflix, youtube etc.
The way I manage it in the short-term is the two-week test. If I want a thing, and that thing is >10% of my remaining disposable income (which I budget every two weeks), I tell myself "if I still want this in two weeks, I will buy it or start saving for it then."
Example: I really wanted the custom truly-wireless IEMs that Bragi makes. However, they are $599; not a cheap purchase at about 50% my two-week disposable. Instead of buying them outright (I could, but that would affect disposable income for going out and stuff), I sat on it for several months while I tried other headphones. The urge to get them didn't go away, so I got them. What would have been an impulse purchase became a planned and extremely-worthwhile purchase.
My self-control isn't bulletproof, however. Our five-year old vacuum stopped working the other day. I tried repairing it several times, all to no avail. I got tired of having dirty carpet (our apartment is all carpet except for wet areas), so I went to Best Buy and got a new one. While I was there, I saw a Bissell Carpet Cleaner that looked really useful, as our carpets haven't been cleaned since we moved in three years ago. Both combined were about $500, but I impulse-bought it because dirty flooring drives me nuts. While I'm really happy with this purchase (there are few things more satisfying than seeing all of the gunk in your carpet vacuumed up), it was definitely impulsive, and my more responsible self should have waited on it.
For disposable income purchases, we budgeted out income, necessary expenses, savings, travel, etc., everything that requires long-term planning. The surplus (a fairly small portion) we then divided out into a per-person, per-day allowance.
I use a simple Google Form to record discretionary purchases, tracking the results in a Sheet, to account for whether this discretionary budget has a positive balance.
This has the nice effect of translating dollar values into time values, and giving a reference point for trading off the relative hedonic value of small frequent purchases vs. large infrequent purchases.
>This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness
They don't care about security updates and all that shit. They don't care about new features. Just not an efficient use of money.
I have an iPad Pro and a MacBook Pro. I only just switched from an iPhone this year. I'm not anti-Apple. But the idea that low-wealth individuals should buy anything but an older Android is ridiculous. I can still use a Nexus 4. It still works.
Some people are naturally more conscientious than others. Their moral burden is lighter. Life is unfair like that, but the answer isn’t to exonerate the rest of us from moral responsibility for managing our own affairs. On the contrary, those moral sentiments are most important for those who struggle with self-discipline.
Which is not to say that it’s wrong to try to organize society to give people a better chance at succeeding in their moral struggles. But at the end of it all, every man must carry his own cross.
In the allegory, the charioteer is the reasoning part of a person, the base pegasus was the 'appetites'/greed/hedonistic and the more 'limbic' parts of the person, the noble pegasus was the thumos of the person. Thumos is a very different mental model for us moderns, but was common for the ancient greeks. Think of it as 'spiritedness', but the word as used by Plato had elements of victory/political/hotheadedness/manliness baked into it . The pegasuses weren't just 'good vs. evil', as even the thumos pegasus could get out of hand for the 'reasoning' charioteer, and the base pegasus was needed to tell the person to eat, to have intercourse, to react to danger, etc.
I point this out to give the parent commentor another mental model to help process things in life. We're MUCH more than just the 'higher' and 'lower' parts of ourselves. Plato thought of himself as a tripartite soul, and in typical Plato fashion, totally forgets about things like humor that can't be included in his Chariot Allegory. I'd encourage others to look into other traditions and philosophies to see of any other mental models work for them. 'Eudamonia' is something we all should reach for; not every mental tool is one-size-fits-all.
Excuse me, but would you mind not repeating this meme in the future? The "limbic system" is actually at the core of human consciousness and cognition, and at the core of what "reasoning" really is. The story of the brain as having a "rational human part" and an "emotional animal part" is a myth and a canard.
If you could rephrase or reconsider, you'd have the thanks of everyone in the neuroscience lab where I work ;-).
I would just like to point out what I call "The IT bubble". We all make money here. Most of us make good money. Our social circles are filled with people making money.
Most people do not have this privilege. Below a certain threshold there is no such thing as budgeting/finances. It's just survival. You're not gonna budget because you can't save enough to do anything real with it, so you use it to make your life just a little easier.
In my country (Slovenia, aka. EU member country) over 70% of people make less than the "average pay" and most of those make minimal pay.
At least here the problem isn't financial illiteracy. The problem is that they (a) make way too little to live off and (b) worker protections have eroded past any sane point.
This is the crux of the reality that many face, yet is often ignored by pundits.
Raving about budgeting is missing the point: you can't budget what isn't there in the first place.
When there is something left over to budget, saving $20-$50 a month isn't going help with the problems of "a dollar is worth less every year and wages haven't kept up with inflation or cost of living in decades" and "if someone in my family gets sick or injured, we will likely take on debt that will bankrupt us".
For example, medical expenses can, and do, bankrupt people. No amount of saving $20 each month will pay off many medical bills. It's the reason that medical expenses are the top cause of bankruptcy, followed by job loss.
The problem is that budgeting is portrayed as a panacea to poverty or an altar on which the poor are chastised for their suffering.
IT isn't for everyone nor should it be. What would the world look like if everyone worked in IT? Well our paychecks would be a lot lower for one.
Another thing I'd love to see, would be for banks to fundamentally reorient themselves to be their customer's advocates/financial guardians, instead of being yet another party encouraging people to borrow more than they ought to. Wishful thinking, I know. My bank knows how much I make, it knows how often I get paid, it knows how much I spend and on what - they have all the info they need to develop a plan to ensure my financial security and advise me where I can do better. Why don't they and why isn't it a standard part of opening account(s)? I'd love to see more innovation around encouraging proper saving habits and budgeting, like what simple.com is doing - but it needs to go even farther than what they currently have, IMHO.
But you probably won't. Instead, you'll go for something that is a third of the price, and it'll last you about 10 years.
In particular: cars are far more reliable and efficient than they were even 10 or 20 years ago.
I'm surprised sometimes, really, at what a wealth of stuff is around us, and how quickly these things switch between being coveted sinks of money and 'just take it off my hands, free'.
A good example is the cast aluminum bracket supporting the drum in modern front-loading washers. It commonly corrodes and breaks, and is often the reason why the machines get replaced. It's about a $120 part that will give your $1500 washer another 3 years of life -- as long as you're willing to put some free labor in.
A few decades ago, it was a remarkable achievement to get a car to 100,000 miles. Now, if a car falls apart that quickly, you probably swear off the entire brand for making unacceptably shoddy products.
I’m sure there are examples of the phenomenon, but cars aren’t it.
That refrigerator had a real cost (adjusted for inflation) that's just as high as "heavy-duty", "pro" units that you can buy today and that will last you just as long (adjusting for survival bias)
The largest bank in Norway has introduced some tools to help people make sense of their financial situation, and to help them save up money.
First and foremost is a budgeting tool, where they show you where money came from and where it went for each month. It has a lot of preset filters for labeling your transactions, and you can add your own. Top level view is "salary, rent, food" and similar, and then you can drill down a few levels. I found it gave a nice overview and allowed me to quickly pinpoint some small but frequent silly expenses I could cut down on.
They've also introduced a "saving game" of sorts, where you can set your own saving goal, like $2000 for summer vacation or whatever, and whenever you use your debit card they'll transfer a configured percentage of whatever you're purchasing into your savings account. So for example if I buy a coffee for $3, they add $0.3 to my savings account, deducting $3.3 from my main account. They've made some easy way to keep track of your goal etc.
They also added a special savings account where you get much higher rate than a regular savings account, with the twist that you can only deposit money into it using a monthly auto transfer (maybe also the above "game", can't recall).
The budget tool I found nice, the saving tools I don't really need, but I see how it could be helpful to some to make it easier to save.
Of course the above won't work miracles if the income simply won't cover required expenses...
"Dude, maybe you should sell this car that you're paying $450 per month for and get a $7000 used car."
"Did you know that between starbucks and happy hour you spend an average of $120 per week, and that amounts to 10% of your take-home pay?"
"You currently spend $2500 per month on rent. If you downsize from 2 bedrooms to 1, you can save $X over the next 3 years."
Looks like you don't any savings. How about a new line of credit or a personal loan? The interest rates are microscopic!
(Literally, the rates are printed in microscopic text. Speaking of which... How about taking out a personal loan, to cover the cost of a shiny new microscope? Click here to get started!)
This too will be co-opted by the greedy who look to profit in the short term, even if just to profit in the app. The boom bust cycle just shows up too many times in history not to be caused by a failure in the human psyche.
I agree, though I fear that this would only affect people that care enough. It's hard enough to incentivize students to get their work in on time, let alone learn how to balance a budget. Also, our society links spending money with personal self-image. (Buy this Lexus so that your kids love you. Buy this Armani cologne so that you can have weird sex with hot models in anonymous oceans. Etc.) Separating the two would require much more than personal finance classes.
> Another thing I'd love to see, would be for banks to fundamentally reorient themselves to be their customer's advocates/financial guardians, instead of being yet another party encouraging people to borrow more than they ought to.
Banks offer this service if your balances are high enough. Chase Private Client (and/or Sapphire Banking; not sure if they are the same now) assign you a personal banker that can help you maintain and improve your financial health, for example. JP Morgan Private Bank assigns you an entire (shared) team for this purpose; they can even act as middlemen to authorize purchases for you if the amounts are high enough. The former (CPC) requires a minimum balance of $75,000; the latter requires $1-10M (they don't publish their minimum requirements for this).
It sucks that you have to be financially stable for banks to help you, but it would be unprofitable for banks to offer this service to everyone with an account (have you ever waited for a teller during peak hours?). Banks are starting to use "machine-learning" based platforms to provide generalized advice platforms, though, so that people can have some resources to help them achieve financial well-being. Nowhere near enough, but it's something.
If your economical model is to take advantage of people going overdraft you can be certain the bank won't try to help clients. If the bank can make more money by having clients with more money that would probably work better, now I'm not sure how that would scale.
It's not limited to personal finance, although that's part of it). Our education system does a terrible job of teaching folks about what makes our society tick (social sciences are essentially ignored) and how people should strive to act in order to best cope with it (basically, adopt middle-class values to the best of your ability. Don't eat that marshmallow!), while wasting untold amounts of time and effort on ridiculous bells-and-whistles that nobody will ever have any use or even appreciation for (like, what did author X really mean when they used that particular simile at page <n> of work Y?) Keep it simple, FFS!
What would it actually do for a big bank, if it were the exception rather than the rule, that their low/middle-class account holders had enough savings to cover several months of expenses and small/medium emergencies without relying on credit, had a reasonable portfolio of retirement investments, and on their way to being in a financial position to get involved with other kinds of investments, eventually?
The banks could automate all the best practices of personal finance for most their account holders, to make all of the above happen for their average customer. Software is cool like that.
- They could divert a percentage of all deposits to emergency funds by default.
- They could set aside money for expenses, based on your cash-flow history by default.
- They could set aside spending money, also based on your cash-flow history by default.
- They could manage a persons credit debt (think pay minimums while savings/cushion is built, then use the extra cash flow from savings goals into debt payments).
- If the customer dip into savings because your car broke down or something - starting filling up the emergency fund again.
- If credit debt is paid up, savings goals are hit, they could start automatically put portions of savings into low risk long term investments (IRA's etc).
(Simple.com does some of the above kind-of but its a manual process - but quite nice compared to what 21st century online banking has been, so far)
And I'm sure there's much much more - and for the people who do really well, then they can funnel those people into more customized investment approaches. Are market forces so screwy, that all this would actually be bad for the banks bottom line, in the long run?
No one is mentioning the insane debt levels we are currently holding in this country at every level in this thread.
You're right! It's absolutely in the best interest of a bank to help create a prosperous, happy, long-term customer with investable funds.
Of course, this seems like it would only apply to banks that manage investments effectively - which is the bigger ones. And they'd have to do so at least as well as specialist investment management funds, otherwise anyone who this bank helps become wealthy will invest with someone else. And they'd have to be able to successfully help people become wealthy at scale, instead of making it marginally easy for people to keep their heads above water.
Also, it might be worth considering that many people are at least somewhat uncomfortable with the idea of a robot managing all their finances for them. I use a bunch of automation to do a lot of the stuff you've mentioned, but it's all stuff I set up myself for the control that gives me.
Being as good at low-cost effective investing as Vanguard while convincing people to be happy with robots managing all their money and making people wealthy over time seems like it could be a tall order.
> Are market forces so screwy, that all this would actually be bad for the banks bottom line, in the long run?
Depends. How much are you willing to pay, each and every month, for this set of features? So far you seem to want it for free, with the idea that it could become profitable for this bank's investment arm three or four decades down the road. That's a rather long timescale to gamble on and a fairly substantial set of costs against a known successful business model.
Again, you're completely right! It's so painfully obviously in the interests of banks to encourage their customers to be happy, wealthy, long-term customers that it's very odd that they don't seem interested in investing in it. Are they just all collectively oblivious? Or could there maybe be something else worth considering?
The market cant see past the next quarter. Long term thinking requires visionaries that can sell the idea, without them you get 3÷ growth at any cost (including signing up customers for services they didn't ask for, Wells Fargo). Banks are late up with Too Big To Fail these days to care about the long term.
Financial advisors are required to get an overview of my finances, financial competence, what goals I have and what my risk tolerance is. Customers also should have time to think about decisions.
Banks financial advisors are basically salespeople for their own services, but that's well known and the service is free.
Many (most?) people are not taught financial responsibility and how to budget or run a household in school or at home, I believe that it is this lack of knowledge that really inflicts long term harm and feel that it should be required in both high school and college. My parents never knew how to manage money and so I never learned. I am taking the time to educate my self now, but you never even know you are missing out until life hits you in the face one day.
The greatest indicator of where you will end up financially continues to be where you started from.
Ain't that the truth. I've spent 10 years at ~$1300/month paying my student loans down. I'm two years from done, but that would have been half a mortgage paid off! To be fair, though, I knew squat about personal finance coming out of college, so I probably would've burned the money some other way.
We are also told from a young age that going to college is a requirement for getting a good job, perpetuating the cycle. Higher education has a great PR department.
After all, most businesses are started in middle age by those who likely have built up the resources (including financial acumen) and network to capitalize. It’s fallacious to continue to pigeon-hole affluence as only coming from trading on information asymmetries from higher education.
This quote links to a report from the Federal Reserve, which contains this gem:
When asked about their finances, 74 percent of adults said they were either doing okay or living comfortably in 2017—over 10 percentage points more than in the first survey in 2013.
In other words, the survey finds tat 4/10 people can't cough up $400, yet 3/4 say things are fine for them personally.
Later in the report:
To assess actual financial literacy, respondents are asked five basic questions about finances (table 34).
The most missed question (42% of responded answered correctly):
Considering a long time period (for example, 10 or 20 years), which asset described below normally gives the highest returns [Stocks, Bonds, Savings accounts, Precious metals] [Correct answer is Stocks]
I suspect that the view of things being fine financially may be a case of ignorance is bliss.
Goals force you to think beyond paying for your cable subscription!
The biggest issue as far as I can tell is that it's easy to 'lose' at any stage. You can make a ton of decisions starting from about age 15-20 that influence your degrees of freedom at age 40 (in the article there's a family of 3 that seemingly have little savings, for example).
If you were born to a non wealthy household, the reality is that you simply don't get to go through life not focusing on money. Your income, investments, and career have to be at the forefront of your mind, always. And even then there's a ton of chance involved.
There has to be a better way.
You know, it's funny - most of my friends who were "well enough" are the same ones who'd blame people for not working enough thus not being "successful". Modern conservatives, if you like.
Nah, I am well enough because I was intelligent enough to see beyond the horizon of my abilities back then (you could also say I was idealistic enough to be reckless and believe in that distant future).
Most of the poor people of my background never had that chance, to see beyond that horizon. They gave up earlier than they should have - but can you blame them?
Because as I've already said in my first paragraph those who are "well enough" in the first place, today are as blind to their privilege as much the poor are blind to what they could have if they worked enough.
I am in a good place now. Probably even better than those who were "well enough", but the price for that is the realisation of how lucky I am and how much I wish the world wasn't this way.
This is true and it's immensely disheartening that we live in a world where this is true.
Each time I get paid (every two weeks) I have my employer deposit the sum into the bills account, and I've set up a recurring transfer on the same day into the spending account. I essentially pay myself a portion of my paycheck. I allow myself to swipe my spending card for just about anything: gas, eating out, games, clothing, etc. But if I decide to use my bills card, that's a conscious choice. I know, right there in the moment, that I'm breaking my own rule.
It's kinda shocking how effective this was. Once I had enough of a mental barrier to make me aware of my spending habits, I suddenly felt like I was in control. Once I had a significant buffer built up in bills, and could start reliably skimming the extra into savings, all the financial stress also started to melt away. "It's okay. I've got a bit of a buffer if stuff goes wrong. I can do this."
And since you have a card for each account, they can wipe out your savings too, making it harder to replenish your checking account.
You'll most likley get the money back, eventually.
I carry only an ATM card (PIN required), no debit card that debits directly from my bank account.
(note that this isn't just a hypothetical vulnerability, my company had to give a paycheck advance to an intern who lost her debit card in a bar, had her account wiped out and couldn't get money back from her bank in time to make rent)
Of course, a better mitigation would probably be to set up two-factor on the card. Chip and PIN is supposed to protect against this, but in my experience so far, merchants that don't support it get away with a "credit" swipe and a signature, mitigating the security benefits of requiring the pin in debit mode. This is a good critique of the system I've set up, and I'll do some research and see if I can lock it down to deal with these risks properly.
And the whole point of that split is that there is no large amount of money in either checking account at any given point. If someone takes zeta0134's "fun budget" for a two weeks, it shouldn't be any more of a ding than a extravagant night out.
The magnetic strip is never used(haven't been used the last 10 years, at least), a PIN is always required at PoS and for many issuers an electronic multistep authentication process is required to order anything online with the card.
And if something still where to go wrong then you'll get your money back.
Well... most of the time, unless the bank claims it was your fault because chip-and-pin is infallible... then you have to fight the bank for your money.
So far, it has helped us immensely in keeping our spending low. We still have the occasional lapse where we end up spending too munch every once in a while, but all in all, it has been a net positive since we started this. I'll give all the credit to my wife, who thought of it. I'm pretty horrible with money, myself.
What an amazing time we live in where with just a name you can track down people's LinkedIn, their general location, etc.
The couple in the article have just made financial decisions that are simply put, shitty.
I assumed both pairs didn't have anything sorted out until they were 30 and outside of extreme medical debt, gambling debt, etc couldn't find out how they're living pay to pay without sheer irresponsibility.
They're living in a place they can't afford. They need to get rid of their second car or work with the flexible schedule the SO has to drive him to work.
Lani needs to pick up another gig, she explains the work isn't consist, great, Uber the hours you're missing.
These articles remind me that we are our greatest enemy, not the situations we're put in but how we function in those situations.
I think it's the norm for people not to make much money in their 20s, particularly in southern California.
If you’re smart, you can go the MD or STEM route and end up in tech or finance, or if you can get into a target law school that feed into well paying NYC/SF firms. If you can’t do that, then electricians, plumbers, and mechanics make a decent amount starting very young. If you give up your 20s in SoCal, you better be doing something to hit the ground running fast with $150k+ pay.
However, if you sacrifice your 20s obtaining skills no one wants to pay for, then yes, you will not make much in your 20s.
These typically entail large student loans, which make it difficult to save much in one's 20s.
"If you can’t do that, then electricians, plumbers, and mechanics make a decent amount starting very young."
These are good options, but realistically there are only so many of these jobs to go around. They also require vocational training, which costs money, or the good fortune to obtain an apprenticeship.
"If you give up your 20s in SoCal, you better be doing something to hit the ground running fast with $150k+ "
Most people will never achieve that salary in their lifetime (speaking in real terms).
Unfortunately, I don’t know the situation the trades are in from firsthand experience, but from the contractors I hire, they are constantly jacking up prices due to lack of licensed workers, so even if it’s not sufficient pay to entice enough people to do the job at this moment, I would say the future looks good for them.
If that’s not doable, then unfortunately SoCal, and CA in general, probably isn’t an economical place to live in the long term. Just like living in Manhattan or London or SF is a luxury, so is a desirable location like CA.
Edit: I’m not saying this is ideal, but that is the advice I would give to someone at the start of their life deciding on whether or not to live in SoCal, even if they grew up there. Perhaps the situation will reverse once all the people who are willing to suffer through the living conditions that lower paid positions offer, but I don’t see the situation bettering itself before that happens and the supply curve for labor shifts enough to force living wages.
And it’s so simple (not easy, but simple) too: build more to reduce housing costs which is effectively a raise for most people. We’d need to stop treating housing as a primary investment vehicle though.
Take a look at the NAR's housing affordability index. Basically 100 means the median family income is exactly enough to quality for a mortgage on the median home price, higher is better. If you look at the HAI by metro area there are a very small number of places where the index is below 100, and almost all of them are in CA. The vast majority of cities seem to have reasonably affordable housing.
1. Minimum wage and poverty level are not increasing in relation to the power of the dollar. (1) (2)
2. Welfare of all sorts have been cut since the '80s with Reagan's attack on a felony fraudster [Welfare Queen] (3) (4)
3. Zoning regulations actively kill and impede lower rents and booming cities. (5) (6)
4. Employer-linked medicine harms and kills people, via lack of medicine and through monetary lack of means. (7) (8) (9)
5. The citizens have been sold a bill of bad goods with the "Debt Sentence" of educational debt. (10) (11)
The problems are numerous, and these cards have been stacked against us. Any one of these could topple, and take out multiple areas/people/economies. And just like the Great Depression, not even the banks getting together will be able to save us. Many of these are laws that would have to be changed at the local/state/federal level, which I do not see happening in 20 years.
You need to do 47 hours of minimum wage work today to get the same amount of purchasing power as 40 hours of work in 2009.
I had gotten to a point where I had been living paycheck-to-paycheck for about two years, and the company I worked for went bankrupt due to the CEO running away with all of the money that was supposed to be used for our paychecks (yes, really), leaving me jobless and broke.
I wasn't good at saving money, and I got debt collectors coming for back credit card debt, and a lawsuit from my landlord because I wasn't able to pay the rent, all culminating with me bursting into tears at the airport because I realized I didn't have enough credit left on any of my cards to pay for the hotel pre-bill for the interview I was flying to at Amazon.
Fortunately I was able to find another job, and my wife and I set some ground rules about saving money and paying off debts, and since then I've been able to save enough money to have a down payment on a house, and even though I still use credit cards, I treat them like glorified debit cards, and rarely keep the balance higher than $200.
It's easy to get into an unmanageable cycle of debt when you live paycheck to paycheck; fortunately this happened early enough in my life to where I was able to learn my lessons early enough to keep a buffer of money in case the worst happens. I feel bad for people when this stuff happens, since I wouldn't wish that level of depression on anyone.
But now, on the federal level, you have a president who is shutting down the government over a $5 billion dollar “wall” that everyone in the know is saying won’t be effective - including John Kelley. On the state level, pensions are in danger because of politics, the voters, and the unions.
On the bright(?) side, at least it seems like banks and credit unions are willing to work with people who are affected by the shutdown. I’m sure they wouldn’t be willing to work with someone who couldn’t make a payment because a startup couldn’t achieve “product market fit”.
Yikes. I'm not exactly living paycheck to paycheck, but I can relate to this.
It's really funny - my wife and I make quite a bit of money - whatever twisted form of capitalism we currently live in has been designed in such a way to extract most of it away from us. One begins to wonder what the point of going to work and earning money is other than to line the pockets of corporations that have effectively taken ownership of our government.
You don't need that car. A car half the price would have been plenty good enough. But you did it anyhow.
You don't need fancy breakfast cereal that costs twice what the generic stuff at Aldi costs.
You don't need all those electronics and toys. You don't need to eat out that much.
If you made less money, you'd do less of the above right until you simply couldn't afford any of it.
And you'd continue to be about as happy as with all that money, assuming you were still paying for the necessities.
I'm not trying to convince you to give up those fancy drinks. I'm just explaining that you could choose to live more frugally without almost no repercussions, but you won't.
This obviously isn't a binary, but I've been consistently fascinated with the inability of the people I know (generally middle- to upper-middle class) to shift their consumption downwards to meet a goal. Not everyone wants as much leisure time as I do, but I know tons of people with all sorts of reasons they'd like to save more, and every one of them consumes more while making less than me (when I'm working). I used to think the issue was that I grew up without a lot of disposable income, but now I know people with similar backgrounds whose floor on consumption rises in lockstep with their income.
That is to say, I don't disagree with your analysis here, but for God's sake _why_ do people do it?
 Contracting is obviously possible, but it often constrains the type of work you can do.
My ideal doesn’t change when my income rises, I’m just finally able to pay for the things I’ve wanted all along.
At least, that was true before. I guess I’m finally at a level where something remains for saving.
Note that I'm also talking about a _floor_, not about discretionary income. What you consider "must-have basics" is different from what I would consider to be so, which is different from what a billionaire or a villager below the global poverty line would. To some degree this is normal, but the degree to which it gets in the way of the other goals of the people I'm talking about, I don't understand it.
I'm specifically talking about the many, _many_ friends of mine who have goals other than immediate consumption, and for whom immediate consumption is preventing those goals even when those other goals are higher-priority. Yes, I know revealed preferences are a thing, but in extremis the concept relies on a completely unrealistic Homo Economicus model of people. Hyperbolic discounting, innumeracy, an innate desire to keep up with the Joneses even when you disavow any such desire: these are all surely contributors, but I guess I'm surprised at the degree to which their sum skews consumption behavior.
Real estate is limited by the supply of desirable land. Location, location, location.
I'm fairly sure that student loans do not scale with locale. That payment is the same no matter where you move to after graduation but it's easier to earn it in a high cost of living (unless housing costs are so high that your free cash flow is less).
My theory, is that life is full of stress, and throwing money at problems can make some causes of stress diminish. Whereas a minimum wage worker will shovel his own driveway, a higher paid office worker may typically have a snow plow contractor on retainer (for them it is worth the trade off, especially with long office hours). Same story with vehicle or home repairs. Which is why you don't really feel stress free until your income exceeds the threshold to handle most stress items with money instead of your own labor.
If we wanted a legitimate middle class, the textbook definition of one, the per-capita incomes in such a class would need to average around 100k for the whole US. Then you would make enough to invest enough to be making an appreciable amount of your money from investments and thus be "middle" class.
The average income is still a bit more than a third that, so the average is still decidedly a member of the working poor.
Money doesn't stop buying happiness until... coincidentally... you start making about enough money to be middle class. I'm not surprised at all that those below that threshold are buying happiness at the expense of future stability or prosperity.
I always assumed it was th middle of the income distribution.
I'm using the academic definition, where if the upper class earns their wealth through investments and the lower class through labor, the middle is a mix of the two.
Humorously even the wikipedia article mentions how the middle class in the US is framed as a political tool of manipulation...
I think that people should both be free to make childish mistakes and still succeed(without putting themselves in the hole) and i also fear for a medical emergency that tosses me back in the hole outside of my own fault.
My only point is that I think healthcare and higher education are necessary to exist in the modern world, therefor they are a right, and our government - and tax payers - should provide these things to everyone.
Not buying a car and riding the bus saves hundreds of dollars per month but costs hours a day. Eating out saves the effort of cooking and washing dishes. Hiring a maid might be used out of laziness or to eek out more family time.
I have to remind myself to try to focus on what really makes my life better. Usually that involves estimating time+money+intangible factors. And if it will still be useful in a year.
The problem is, nobody wants to live like that today. As soon as we have more income, we "need" more - more clothes, more toys, a better car, a nicer house in a better neighborhood. As we get more income, our "needs" change, driving our expenses to almost exactly match out income.
This is especially true when you have kids. If you can afford it, you're tempted to give your kids those ski lessons... that summer camp... that vacation to Disneyland... a car when they turn 16. It feels heartless to say no when you could say yes. But if you say yes to all of it, you'll spend as much as you can afford (and maybe a bit more besides), because there's always something more you could give your kids.
Note well: This is not a criticism of those with low incomes who are struggling to make it. It's a criticism of those of us with fairly high incomes who still struggle to make it.
For a few things a 1950 standard of living is literally illegal. Medical care - no NICUs. Seat belts, leaded gasoline, crumple zones.
There is no certainty that you’d double your money in 10 years.
If not, what’s the difference? The are both offering a good.
at no other time before or since did a working class population have it so good.
I think it's evolved, not designed. A (arguably the) key element of capitalism is that a dollar extracted from an individual transaction is a dollar that can buy capital to scale up the extraction. That means exponential (actually logistic, I suppose) growth scaling with how much an entity can extract.