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The Financial Education Fallacy

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So many "financial literacy" fallacies that have been perpetuated by the likes of Bank of America, Wells Fargo, etc. who have provided most of the funding for the financial literacy industry.  The intention is to shift the attention to the individual and not the structural issues within our economic system.  Facts such as that the income for a family of four, when adjusted for inflation, has not budged since 1973 (Federal Reserve numbers) or that if the minimum wage had increased proportional to the growth of GDP from 1980 to the present it would be $22/hour.  There are a myriad of other facts and insights that go to the heart of our economic system that financial firms that have gained/gamed the most would rather avoid and shift the onus on "individual responsibility".  The financial literacy industry works to perpetuate the myths that support the system whose rules have been fixed, and continue to be fixed, to benefit those who have the most influence to shape the game.  

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1 hour ago, sangha44 said:

So many "financial literacy" fallacies that have been perpetuated by the likes of Bank of America, Wells Fargo, etc. who have provided most of the funding for the financial literacy industry.  The intention is to shift the attention to the individual and not the structural issues within our economic system.  Facts such as that the income for a family of four, when adjusted for inflation, has not budged since 1973 (Federal Reserve numbers) or that if the minimum wage had increased proportional to the growth of GDP from 1980 to the present it would be $22/hour.  There are a myriad of other facts and insights that go to the heart of our economic system that financial firms that have gained/gamed the most would rather avoid and shift the onus on "individual responsibility".  The financial literacy industry works to perpetuate the myths that support the system whose rules have been fixed, and continue to be fixed, to benefit those who have the most influence to shape the game.  

Recently for work I had to research a rumor about children and credit scores, and I noticed all the information provided by CRAs had to be tempered with reminders of this - responsibility is not what you can or should hinge decisions like this on.

 

Since this whole thing (pandemic) happened, I found myself thinking about that a lot. If a person read this, and looked at the CBs advice, they'd think "well, I'm responsible, there's no way this could backfire."

 

A bunch of people probably followed the advice based on CB advice about it, and now they've just dragged their kids into the effects of a recession because it was not an issue with responsibility but like ... a force majeure. 

 

Framing this in terms of responsibility alone hinders any real understanding of how credit and credit issues occur, because responsible people can be taken to the hospital and treated and rack up bills or get into a car accident or get affected by a pandemic where they're eligible for UI but it's 8 weeks later and UI is still being processed. 

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2 hours ago, sangha44 said:

{I}f the minimum wage had increased proportional to the growth of GDP from 1980 to the present it would be $22/hour.

This all is well and good and makes for a good sound bite or above-the-fold headline, but I would contend pinning a minimum wage to something like GDP or other economic factor (CPI, DJIA, inflation, whatever) would create this increasing cyclic feedback loop where eventually the amplifier - in this case an economy - would overheat and fail.

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5 hours ago, sangha44 said:

So many "financial literacy" fallacies that have been perpetuated by the likes of Bank of America, Wells Fargo, etc. who have provided most of the funding for the financial literacy industry.  The intention is to shift the attention to the individual and not the structural issues within our economic system.  Facts such as that the income for a family of four, when adjusted for inflation, has not budged since 1973 (Federal Reserve numbers) or that if the minimum wage had increased proportional to the growth of GDP from 1980 to the present it would be $22/hour.  There are a myriad of other facts and insights that go to the heart of our economic system that financial firms that have gained/gamed the most would rather avoid and shift the onus on "individual responsibility".  The financial literacy industry works to perpetuate the myths that support the system whose rules have been fixed, and continue to be fixed, to benefit those who have the most influence to shape the game.  

So we should load up on Bank of America and Wells Fargo stock, and maybe an index fund that tracks GDP growth?

 

What other expectations should we index to 1980, when the Fed Funds rate approached 19% and inflation was 13.5%?

 

 

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I don't think 1980 is the point, the point is more that wages for most people are not the same way in line with housing prices etc. Student debt is way up, and it's difficult for people to buy or rent homes in a lot of areas in the US. 

 

I don't think any of the economic discussion there is to entirely replicating the exact financial conditions of any given year, but addressing the issue that each year more and more of the population cannot afford to live in a place and buy food.

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9 hours ago, smartlypretty said:

I don't think 1980 is the point, the point is more that wages for most people are not the same way in line with housing prices etc. Student debt is way up, and it's difficult for people to buy or rent homes in a lot of areas in the US. 

 

I don't think any of the economic discussion there is to entirely replicating the exact financial conditions of any given year, but addressing the issue that each year more and more of the population cannot afford to live in a place and buy food.

Arguments about people prioritizing discretionary spending over housing, and then not being able to afford housing, don't get anywhere with me.

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9 hours ago, cv91915 said:

Arguments about people prioritizing discretionary spending over housing, and then not being able to afford housing, don't get anywhere with me.

As well they shouldn't, but in my region it's well documented that that's not even in the same galaxy as the issue.

 

Housing is not in line with what people earn full stop. The house I live in was obtained through a mixture of voodoo, against the grain stubbornness, a massive disaster, and buying during the lingering fear of trauma. 

 

Where I live, a really basic house is close to half a million dollars, and I don't live anywhere fancy. Rent is also very expensive. People can, of course, move to Cleveland or something, but it's not ideal to have a whole island where people earning under $200K can't live in a structure with a roof. 

 

Unless we're counting food as discretionary, I'm talking about paying for a house, food, and the ability to get to and from a job (it doesn't even have to be a car). The math does not work. 

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22 minutes ago, smartlypretty said:

As well they shouldn't, but in my region it's well documented that that's not even in the same galaxy as the issue.

 

Housing is not in line with what people earn full stop. The house I live in was obtained through a mixture of voodoo, against the grain stubbornness, a massive disaster, and buying during the lingering fear of trauma. 

 

Where I live, a really basic house is close to half a million dollars, and I don't live anywhere fancy. Rent is also very expensive. People can, of course, move to Cleveland or something, but it's not ideal to have a whole island where people earning under $200K can't live in a structure with a roof. 

 

Unless we're counting food as discretionary, I'm talking about paying for a house, food, and the ability to get to and from a job (it doesn't even have to be a car). The math does not work. 

 

18 hours ago, smartlypretty said:

Student debt is way up, and it's difficult for people to buy or rent homes in a lot of areas in the US. 

 

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I fail to see the issue. Student debt affects people in basically all areas. 

 

Areas like mine, near major metropolitan zones, are notoriously prohibitively expensive. Someone could have zero student debt, make a decent amount of money, and not be able to afford housing here. If you add student debt, it's harder.

 

In other parts of the country, the same person might be able to live more affordably and be crushed by massive student loan payments. These are well-documented issues that have little to do with financial literacy and everything to do with unsustainable costs of living. The taxes on houses where I live are between $15-25K a year for very average houses.

 

There are actually other factors besides housing and student debt exacerbating these issues. Wait til you find out about health insurance premiums.

 

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6 minutes ago, smartlypretty said:

I fail to see the issue. Student debt affects people in basically all areas. 

 

Areas like mine, near major metropolitan zones, are notoriously prohibitively expensive. Someone could have zero student debt, make a decent amount of money, and not be able to afford housing here. If you add student debt, it's harder.

 

In other parts of the country, the same person might be able to live more affordably and be crushed by massive student loan payments. These are well-documented issues that have little to do with financial literacy and everything to do with unsustainable costs of living. The taxes on houses where I live are between $15-25K a year for very average houses.

 

There are actually other factors besides housing and student debt exacerbating these issues. Wait til you find out about health insurance premiums.

 

Do you know how the market works?  If people can't afford to buy things in meaningful numbers, the price goes down until they can.

 

No matter what we do or don't do, fully 20-30% of the population won't be able to find its ass with both hands.
 

You could give everyone in the US a million dollars today, and by tomorrow there will be people who have nothing left.

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On 5/9/2020 at 9:32 AM, sangha44 said:

So many "financial literacy" fallacies that have been perpetuated by the likes of Bank of America, Wells Fargo, etc. who have provided most of the funding for the financial literacy industry.  The intention is to shift the attention to the individual and not the structural issues within our economic system.  Facts such as that the income for a family of four, when adjusted for inflation, has not budged since 1973 (Federal Reserve numbers) or that if the minimum wage had increased proportional to the growth of GDP from 1980 to the present it would be $22/hour.  There are a myriad of other facts and insights that go to the heart of our economic system that financial firms that have gained/gamed the most would rather avoid and shift the onus on "individual responsibility".  The financial literacy industry works to perpetuate the myths that support the system whose rules have been fixed, and continue to be fixed, to benefit those who have the most influence to shape the game.  

was that as painful to write as it was to read? I'm not saying there are not structural issues but focusing on the minimum wage is not very relevant. I would hope most people strive to exceed that as a an income level.

 

What rules in particular are "fixed?"

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Posted (edited)

I worked for minimum wage when I was 15 and started my first job operating a dishwasher in a small commercial bakery.

 

After working my ass off for four Saturdays in a row I got my first raise.

 

The only other time I made minimum was when I was 21 or 22 and in college.  I was a valet at a racetrack.

 

This job paid an even lower minimum wage than positions where employees didn't receive tips, but I always made multiples of the higher minimum wage that untipped workers received.

 

And when patrons at the track had good days, so did we.  Many times I left with $100 or more in tips after a five-hour shift.

 

 

Edited by cv91915

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2 hours ago, cv91915 said:

Do you know how the market works?  If people can't afford to buy things in meaningful numbers, the price goes down until they can.

 

No matter what we do or don't do, fully 20-30% of the population won't be able to find its ass with both hands.
 

You could give everyone in the US a million dollars today, and by tomorrow there will be people who have nothing left.

I do and you're right, and I agree with the proportion of people who will blow through money. This issue is more pronounced where I live, and it frustrates me a lot because as a person in a decent job with a salary that would go pretty far most other places, the main thing people tell me if I want to buy my house is to get married. It's very difficult for one well-paid person to buy a very modestly priced house here. 

 

Most of my friends at my age (late Gen X) had to move to the South or live with family in shared properties because of the cost of housing here. I could buy a house in other places, but people like teachers and anyone making under $150-175K annually can't afford to live here without an assist of some sort - inheriting a house, living with family, sometimes combining high incomes. 

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12 hours ago, smartlypretty said:

I do and you're right, and I agree with the proportion of people who will blow through money. This issue is more pronounced where I live, and it frustrates me a lot because as a person in a decent job with a salary that would go pretty far most other places, the main thing people tell me if I want to buy my house is to get married. It's very difficult for one well-paid person to buy a very modestly priced house here. 

 

Most of my friends at my age (late Gen X) had to move to the South or live with family in shared properties because of the cost of housing here. I could buy a house in other places, but people like teachers and anyone making under $150-175K annually can't afford to live here without an assist of some sort - inheriting a house, living with family, sometimes combining high incomes. 

There are only 5 or 6 counties in Florida with a median home price higher than $300,000.

 

0 between 300,000 and 400,000

 

and only 1 over $500,000.

 

Source: National Association of Realtors data from Q4 2019.

 

And those are median numbers (half of the housing stock is below that).

 

Take a $300,000 home ($240,000 mortgage),  This will run - max - $1,100 a month right now.  Add $250/month for property taxes and $150 a month for insurance, and you're at $1,500/month.  

 

With a conservative 43% back-end ratio, that would require $3,500 a month in gross income ($42,000 a year).

 

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