This is a well documented phenomenon.[0][1] The state of being in poverty has a significant effect on your cognitive processes evaluating risk and reward and future planning. For people who grew up in poverty, those programmed biases can be extremely challenging to overcome and limit their upward mobility. There's also the aphorism that it's "expensive to be poor." The boots metaphor and all that.
As to building wealth at a good rate, doing that from a state of relative stability vs a state of relative poverty are two entirely different scopes. "Escaping poverty requires almost 20 years with nothing going wrong." When 5 years of savings can be wiped out by a car repair that means you can't get to your job, you can lose 5 years of progress in one bad event.[2] The problem with that statement is whether it "is possible to live within your means." It can be exceptionally challenging and complicated to live within your means while impoverished but still move upwards and respond to emergencies and disasters. And it's doubly much to ask that kind of complex planning from someone affected by the deleterious cognitive effects of poverty documented above.
[0]http://behavioralscientist.org/can-neuroscientists-help-us-u... [1]https://blogs.scientificamerican.com/sa-visual/this-is-your-... [1]https://www.theatlantic.com/business/archive/2017/04/economi...
> Mani et al. (Research Articles, 30 August, p. 976) presented laboratory experiments that aimed to show that poverty-related worries impede cognitive functioning. A reanalysis without dichotomization of income fails to corroborate their findings and highlights spurious interactions between income and experimental manipulation due to ceiling effects caused by short and easy tests. This suggests that effects of financial worries are not limited to the poor.
Comment on "Poverty Impedes Cognitive Function" (PDF Download Available). Available from: https://www.researchgate.net/publication/259207757_Comment_o...
All kinds of ways to do this. Younger kids could be shown how regular investment compounds over time using games that pay out the reward at the end of the school year. Older kids can do mock investments in mutual funds, etc.
I still don't know what I'm doing, but I've got a nice nest egg, I seek knowledge on how best to handle my excess money, and my wife and I are executing her higher interest school loans.
I really don't feel I have that much more knowledge than I did. I simply have the will to plan for my future life. In my early 20s I just didn't care (for various reasons).
Kids learn all sorts of things that they ignore. As a race, we seem to be really good at shooting ourselves in the foot.
Related to education though, I feel that these patterns of ignoring what is good for you is what is really at fault here. This has wide reaching implications in my mind, and is the cause of anti-intellectualism in America that is quite concerning. We just don't.. care, as a society. Until we do, I don't foresee education on finances drastically improving quality of life.
Note that I of course will always back education, I'm definitely not advocating against it. I just see this as part of a really large problem, and I've got no idea how to solve it.
I think your idea of having younger kids start learning this early (before its "uncool") is key. My sister says 1st grade is probably a little too early. I think maybe 3rd-6th might be right to start introducing the concepts.
Anything would be better than what we're doing now.
There are a significant number of exceptions to this idea. If you dig a deep enough hole (drug problems, felonies, etc) it's hard to just keep a roof over your head.
And sure, "it's their fault", but for a lot of people the die was cast when they were very young.
(Update: I should clarify that this may be a U.S. problem vs a first world problem. The safety net here is abysmal, speaking as someone who has spent way too much time and money helping a friend manage.)
Depending on their severity, addictions, felonies, learning difficulties and health problems (and many other things) could all be legitimate limiters on wealth building.
I'm in the [100k, 200k) range, and I've had to reevaluate my finances. I used to live pretty comfortably on less than half my income. I had no credit card debt, my $50k car was paid off. Student loans were paid off a decade ago. Then, I got married and now have 2 step children. Between moving into a larger place to accommodate the new family and all the costs associated with getting married, moving & furnishing a larger place, I'm just now about to start to get our heads above water. I had to take money out of savings before we could get outflow to be less than inflow.
My prior comment before removed was 5k savings, 11k 401k. I had more, but life events. For me, it's a variety of things. Largely summed up as I bought a house at 25. Had health issues that were in remission, then came back. And have been trying to get above water since.
I know a number of software engineers, who are in it just to pay the bills. As the pay increases so do the responiblities you hold.
That's true if you're well insured, never become disabled, can find & maintain regular employment that pays a living wage, have access to a reasonable cost of living, and are savvy enough to figure all that out.
Keep in mind, health problems are actually a major cause of bankruptcy in countries with universal coverage like Canada as well. It's nice when your healthcare is paid for, but if you can't work, bankruptcy is a major problem as well.
OP is referring to those.
Where I'm from, and in the various countries I've lived in (including the US), I've met plenty of people who for one reason or another couldn't - bar sheer luck - get a job that pays anything decent. Be it lack of connections, no idea how to build those connections, lack of ambition, lack of education, whatever. There were good reasons, and probably not so great ones, but in practice I seldom got the feel it was about good spending habits or slacking.
If anything, and anecdotally, I probably met more people with terrible saving habits when interacting with segments of the population that were rather well off to begin with - that is, they had excess cash or the potential for it. The "worst" example I can think of was a patent attorney who charged $500/hour, worked a single client per month to make ends meet, and enjoyed life the rest of the time. $10/hour or $2/hour people just don't do that insofar as I've interacted with them - and I did quite a bit while traveling. The "worst" I've encountered on their end were people deciding to work less hours after they got a raise because, you know, they only need so much to make ends meet and were happy with earning just that; and no assets/low income folks getting subprime loans just before the housing crisis.
Admittedly it's only a small unrepresentative sample at the end of the day, but I honestly never got the impression the low wage earners I interacted with were slackers or spending like there was no tomorrow. Mostly (if only potentially) mid- to high wage earners were, and they oftentimes had some savings or could earn money in a heartbeat if they really needed to. They're far from the majority of the population.
Not really, the vast majority of those living in first world nations don't have catastrophic events that ruin them financially.
Also, you don't need 'good training in financial planning', you just need the same amount of common sense my grandparents had - spend less than you earn, and set something aside for a rainy day.
Then my hands started hurting and I found out i had vikings disease... i type for a living. first process cost about a grand, insurance doesn't cover much of it.
Now both my hands are worse off and i'm looking at another surgery which will cost more that insurance won't cover.
My wife got into a car accident and we need two cars since i work and she home schools.
My parents are assholes and don't give a shit about myself or my family and my wifes immediate family is all dead. We inherited nothing. Raised 2 kids by ourselves, no grandma/no grandpa, no aunts, no uncles.
The world is trying hard to really fuck people over, and i've managed to stay on top of it.
Now my kids need jaw surgery and another needs teeth work - dental coverage is a joke. The jaw surgery is going to cost 5 grand and the others dental is 1700.
My property taxes are going up year over year. Maintenance costs are going up year over year, salaries have gone up but not as quickly and the tax relief was a joke.
spend less than you earn sounds esier on paper than reality of living.
we downsized our homes, we don't have cable tv, i use a company phone for cell phone, i'm always having to reduce my 401k contributions and even when i try and rollover my prior 401ks that shit is perpetually frozen and no matter where i turn or what I do it seems something is trying to stop me or block me.
it's not as easy as people make life out to be
I remember being so poor growing up that I used my first paycheck to buy a loaf of bread and a tube of cheap sausage and it was the first time having anything approaching a real meal in a few days.
Costs happen. Kids get sick/injured, cars get damaged or break down, taxes only ever increase.
I save aggressively, consistently live below my means (not miserly, but frugally), do all of the home maintenance and car work I can do safely and legally, and cook almost all of my meals at home from relatively basic ingredients.
And you know what? I have a pretty damned good life. I had to move across the US to a place with a lower cost of living and better job opportunities. My wife had to switch careers. I had to work several years at crappy jobs.
When you buy a thing, evaluate it's lifetime cost. When something breaks, fix it quickly and correctly. Avoid unnecessary costs. Prefer mending to replacing. Save for the unexpected, and then save some more. When dealing in dangerous waters (legal troubles, real estate, complex investments or financials), hire a skilled expert, even if it means lowering your quality of life. Keep enough insurance, and do the work to get multiple quotes or bids for any kind of job.
Our system is designed for people to fail. Even our own president has bragged that another depression would be a good thing since he could buy things up at a discount. (yeah, there is a tweet for everything)
Germany: 15%
Australia: 11.6%
France 11%
UK: 9.7%
US: 8.5%
Edit: also people wanting it and the financials of it being practical are entirely coupled together. My point was I don’t see how someone can not be for the idea of health care for all.
we also have strangely intimate relationships to our doctors. we stick with them even when were not sure theyre doing their best for us. we fear an "anonymous" doctor who doesnt know us personally.
these fears are exploited with imagery like "death panels," where faceless government bureacuracies let people with uneconically feasible conditions die untreated.
to reverse this requires stories of success from Europe told without smugness. many memes are tonedeaf humblebragging about euro healthcare that instantly turn off americans.
Lol, that's honestly pathetic - I hope it's not true.
A good idea is a good idea. You are talking about public policy here.
Or is it more common people go along with a emotionally-resonant personality and dismiss their reliance on facts and figures based on intuition?
You can be sure when I buy computer parts, numbers are the bottom line, but what if an ad for, say, an SSD offered a great price and excellent performance. Would you still buy it if next to the price tag, it said that if you did so, you're pathetic?
We prefer the private "Free Market" death panels. (Health Insurance), which effectively do the same thing. But you get a choice in who will deny you cover if you ever go over a limit or could not afford you cover.
What does that have to do with the issue? Germany has mandatory healthcare insurance, and I'm still free to choose my GP and specialists.
My wife got into a car accident and we need two cars since i work and she home schools.
Why does homeschooling require a car?
I live in Austin Texas, you need a second car to survive. Getting wife and 2 kids around town for everything in uber/lyft isn't economical and my wife also runs a not for profit and volunteers with charity and runs events and I have after work activities such as volunteering for first robotics, girl scouts and such.
"Homeschooling" doesn't mean "never leave the house".
I can appreciate having a car can be useful, but I'd not call it a necessity. Perhaps things are different in the US of A. The perceived poverty threshold is a lot higher. In many countries, if you have clothes, a roof over your head, and can eat regularly, you're good.
American urban planning is heavily car-centric. They talk about "walkable communities", because the opposite is the norm. A large proportion of American towns and suburbs are sprawling, low-density and strictly segregated between residential and commercial developments. Public transport is often meagre or nonexistent. Parts of America are practically uninhabitable without a car. It's probably true to say that Americans are unreasonably attached to driving and averse to walking, but at this stage it's a self-perpetuating cycle.
It is not your fault, and it sucks. But the fact of the matter is that ~MOST people don't end up in as unlucky of a situation as you ended up with.
Your unluckyness is the exception, and not the rule, and the vast majority of people don't end up in horrible, life-changing medical situations.
At the end of the day, someone's life is still wrecked through no fault of their own, and "the system" — which is us — just stands there, all, "Sucks to be you."
over 50% of households make >$50k a year in the U.S. but many of them have very little net worth...some of them are unlucky, but many of them make decisions that keep them with very little money in their pocket...
― Herman Melville
I'm confused what you mean here - isn't a degree of risk aversion good? I feel like "most people" are incredibly not risk averse, in that they recognize that they have little savings to no savings, emergency funds and etc but still behave like they are not at risk.
I however, keep a 4-6mo fully liquid because I'm terrified at the thought of only having 1mo in liquid. Tbh, I'd love to have 12mo, but anything beyond 4-6 and it starts feeling obscene not investing the extra.
If you get an older copy, just don't take the investment advise too seriously—it's pretty out-of-date. Everything else is gold.
The first step is to track your incoming / outgoing financials.
Just like programming, in order to fix the problem you need to understand what the problem is and tracking your $ for a few months will show you exactly what's going wrong.
True.
"but my first world poor friends, without exception are all bad with money." ROTFL. What about your third world friend? This may give you an idea.
Just my experience, but my first world poor friends, without exception are all bad with money. They have little understanding of how money actually works, have terrible spending habits, are incredibly risk averse, and carry a "money is evil" mindset.
If it's possible for you to live within your means (edit: putting aside illness, addictions, felonies etc), you can build wealth at a good rate in the first world. You may never be a multi-millionaire, but you can be financially secure and stable.