tag:blogger.com,1999:blog-17232051.post6158528238459915082..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: How the poor can (and should!) save moneyNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger54125tag:blogger.com,1999:blog-17232051.post-1876351295785375262013-09-27T11:41:41.091-04:002013-09-27T11:41:41.091-04:00Yeah, I think I'm probably struggling just to ...Yeah, I think I'm probably struggling just to make a simple point like that. I guess I'm thinking that the whole point of personal wealth building is to have more than one would otherwise have later in life when one's income falters. But the poor have criminally low incomes to begin with throughout their lives. If we are redistributing income anyway to relive the poor, then we should build the wealth and just give it to them later in life when they need it, instead of expecting them to set aside some share of their pittance to build a retirement nest-egg pittance.<br /><br />I guess some of my mental struggle is tied up with just how much redistribution we are talking about. If we are talking about enough redistribution to raise the poor completely out of poverty, then yes I suppose that once they are not poor anymore their behavior should be similar to that of other non-poor people..<a href="http://www.empowernetwork.com/mrj1225/" rel="nofollow">Strategies wealth building</a>Anonymoushttps://www.blogger.com/profile/12190355938165539090noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-87125963959934073592013-07-02T18:06:58.249-04:002013-07-02T18:06:58.249-04:00Wow. That's some of the most patronizing and g...Wow. That's some of the most patronizing and generic advice about saving money that I've ever seen.<br /><br />Not to mention that your information about IBR is inaccurate and may be inapplicable--labor unions are explicitly excluded from public service loan forgiveness (http://www.ibrinfo.org/what.vp.html). And if she consolidated her loans to include any form of parental loan, then the consolidated loan would not be included. And depending on when those loans were originated, they may not be eligible or payments made may not qualify.<br /><br />Look, personal finance is *complicated*. Intentionally so, because the more complicated it is, the more the programs preferentially benefit the rich, who have extra resources to devote to figuring them out. Nobody can survive while poor without learning the generic basics already; beyond that you have to delve into the details of someone's situation and navigate an intensely complex system of options. What time is left over for people who work two jobs to make ends meet is not sufficient to include mastery of the incredibly complex series of rules that might allow them to improve their financial situation--but believe me they'll know the basics.<br /><br />The parent's original point was that the kind of advice Richard has provided is little more than privileged richsplaining.<br /><br />If I could offer one more link:<br />http://whatever.scalzi.com/2005/09/03/being-poor/Tierceletnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30030970542446373312013-03-26T10:26:52.420-04:002013-03-26T10:26:52.420-04:00And if she's like most people
This is a tell;...<em>And if she's like most people</em><br /><br />This is a tell; you're not listening.Alexhttps://www.blogger.com/profile/17153530634675543954noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-9878568855337657522013-03-21T05:26:45.328-04:002013-03-21T05:26:45.328-04:00Is that somehow worse than legal loan-sharks?
It ...Is that somehow worse than legal loan-sharks?<br /><br />It seems to me that this is often the argument, some restriction or other leads to what is being prevented (which everybody agrees is bad in some sense) happening illegally instead of legally. So removing the restriction makes the bad legal. <br /><br />Now in some cases, (e.g. prostitution or drugs) you can make a reasonable case that the enforcement is more costly than its value. But I don't think that is a general principle.<br /><br />I get particularly annoyed when this argument is used to say that political corruption is inevitable and so we should allow it. No, market exchange needs to be free from force and cheating (of all sorts) in order to beneficial and that means you need a reasonably impartial refereee and clear fair rules. Corruption is a bad thing, and can't be fought with market processes.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-28771245179676379132013-03-20T10:10:10.314-04:002013-03-20T10:10:10.314-04:00Noah,
I find a disconnect between the attitudes o...Noah,<br /><br />I find a disconnect between the attitudes of progressives towards issues like payday lending when compared with an issue like abortion. Most abortion rights advocates place high value on the right of an individual to control their own body and make their own decisions. This stands in stark contrast with the stance of liberals, like yourself, who see payday lending as "abusive."<br /><br />Your blithe support of highly intrusive paternalism strikes me as highly dangerous given the reality that it puts the lives of the most vulnerable people at the mercy of whoever happens to control government. One day, it's liberals who want to change the behavior of poor people "for their own good", the next day it's conservatives want to control other personal decisions (abortion, sex outside heterosexual marriage) "for their own good." <br /><br />Also, even the pew study acknowledges that 16% of payday borrowers state that they do so for emergency financing. Are you willing to deprive one of every six destitute people of the only type of legal financing currently available? Returning to the abortion comparison, many abortion rights supporters point out that abortion bans force women into getting dangerous illegal abortions. What about dangerous illegal loansharking?Samhttps://www.blogger.com/profile/03796339415643845682noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20211175126728457482013-03-19T11:03:32.078-04:002013-03-19T11:03:32.078-04:00Which could lead people who can't get loans at...Which could lead people who can't get loans at such rates from turning to the black market, that is, to illegal loan-sharks. CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-71280777212930115372013-03-19T11:01:16.760-04:002013-03-19T11:01:16.760-04:00You make some interesting points. Except that the ...You make some interesting points. Except that the grocery stores I go to usually have offers not only for Cheetos but also for healthy items. Moreover, judging by the weight of some such shoppers, it seems that this was not a one-time thing. I also question the benefit of having gaming consoles that keeps kids away from gang activity by having them spend hours playing "Postal" or "Grand Theft Auto". And in any case they don't need to do it on such large screen TVs.<br /><br />To be clear, I support funding towards an increase in the earned income tax credit, public pre-K that will put kids to school from an earlier age and extension of the school year. But, downplaying that, with some guidance, less afluent people could be making better choices is, in my opinion, a mistake. This is also the way to address the issue of dumb money! CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-28221785060852099412013-03-19T10:07:02.152-04:002013-03-19T10:07:02.152-04:00Well, it's almost all awesome. However, for s...Well, it's <em>almost</em> all awesome. However, for some reason, the combination of:<br /><br />"Now, note how powerful knowledge is"<br /><br />with the original article's<br /><br />"Ms. Brady, <b>28</b>, a <b>Brooklynite</b>"<br />[Emphasis added]<br /><br />and<br /><br />"Next, I'd ask does she have a car payment? If she's like most young people, she does,"<br /><br />struck me as funny. I'm weird like that.mdsnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-31569449252369884142013-03-19T10:03:05.032-04:002013-03-19T10:03:05.032-04:00Sure, email me at serlin@email.arizona.edu.Sure, email me at serlin@email.arizona.edu.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-72652921721487254012013-03-19T00:29:07.763-04:002013-03-19T00:29:07.763-04:00Richard, this is all awesome stuff. Want to co-aut...Richard, this is all awesome stuff. Want to co-author a follow-up Atlantic piece?Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65389675860392070622013-03-18T21:58:51.253-04:002013-03-18T21:58:51.253-04:00We actually do have a compulsory savings program f...We actually do have a compulsory savings program for the less well off (and most others for that matter). It's called Social Security. It carves a chunk out of any paycheck which is matched by your employer and invested in treasury debt and is intended to provide support in retirement. Of course, it is under assault by the wealthy who would like to see everyone's savings in their own bank accounts. If we are serious about increasing the savings of the poor, we should jack up their compulsory savings. In fact, we should eliminate the income cap on SS payments and increase national savings overall.Kaleberghttps://www.blogger.com/profile/05283840743310507878noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-77355302956442061822013-03-18T21:44:17.054-04:002013-03-18T21:44:17.054-04:00Savings may dwarf income as a predictor of wealth,...Savings may dwarf income as a predictor of wealth, but as a predictor of savings I would guess that income is pretty good. Of course, savings may be a good predictor of savings, but that's a tautology. Come to think of it, the idea that savings is a predictor of wealth is itself pretty tautological.EChttps://www.blogger.com/profile/14853888915441711738noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-25910653054059667062013-03-18T21:02:45.631-04:002013-03-18T21:02:45.631-04:00Now let's take (2) One of the biggest things y...Now let's take (2) One of the biggest things you can invest in for very high returns is not just money in financial assets like stocks and real estate, it's effort, improvement, and knowledge in yourself, and in many cases especially, your children – and this often doesn't take much, or any, money.<br /><br />It is true that in many cases it is, to a large extent, too late and hopeless. I've seen many cases like this – a single mother in her 40s, poor health, huge private student loans from a predatory for-profit school, working at a Wal-Mart type job. She's not going to be able to go back to school and get a bachelor's degree at a real university any time soon at all, and it would take an enormous effort with her health, working full time, and being a single mother. And even if she did it, employers are going to consider someone like her vastly less desirable for the good jobs than an energetic healthy youngster who did everything right on schedule, getting his bachelors from a real university at 22.<br /><br />But what she can invest in very well is a huge asset, her kids. Every day she can impress upon them the importance of education. She can constantly do homework right alongside them, setting an example taking a community college or free internet course. She can fill the house with books for children and adults, as used books bought smartly are cheap. She can research the best free charter schools to send her kids starting in kindergarten – In Tucson we have many, for example ALL, near many poor areas, is one of the elite K-12 schools in the country, picked by the Washington Post as one of the 22 elite schools in the country. Most of the students go to ivy or public ivy colleges, and it's free as a charter school.<br /><br />She can also breast feed as much as possible, and a lot of very nutritious food for her childrens' development is affordable, like whole grain brown rice and beans and fruits and vegetables in season when they're 50 - 80% cheaper, and frozens.<br /><br />In this way her kids can become dentists or nurses or engineers and break the cycle of poverty, and certainly her life becomes much more financially secure having children who are dentists and CPAs.<br /><br />You may not have money to put into the stock market, but there's so much you can still invest in your greatest potential asset, your kids, and this is a way to make a fantastic contribution to your country and the world.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58863108062314034532013-03-18T19:50:35.196-04:002013-03-18T19:50:35.196-04:00Your "counselor" sounds like a salesman ...Your "counselor" sounds like a salesman to me, just trying to get you to buy the product that gives him the biggest commission. This happens all too often. <br /><br />But for investing over 20+ years, a well-diversified index fund of stocks is best. Ideally, you'd jump out when P-E's soar, but that takes some sophistication, and pure long term buy and hold still has a great expected risk adjusted return, as Wharton's Jeremy Siegel shows in his book, "Stocks for the Long Run".Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54044317467324870682013-03-18T19:43:50.892-04:002013-03-18T19:43:50.892-04:00What about the advice of going on the Public Servi...What about the advice of going on the Public Service Loan Forgiveness program, as she's already working for a union. That saves $300/month with no sacrifice and her loans are gone in 10 years.<br /><br />And if she's like most people, she has a car payment and collision and theft insurance.<br /><br />She should also consider bankruptcy on her credit card debt. That would mean an extra $6,000/year for savings in a well diversified stock portfolio, a giant amount over decades. And given the abhorrent predatory behavior of credit card companies, I have little sympathy for them with their drug dealer low initial rates that then soar to 35% when your balance is too big to pay off.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-87486465813562169562013-03-18T19:10:02.128-04:002013-03-18T19:10:02.128-04:00In France, by law there is a maximum interest rate...In France, by law there is a maximum interest rate. it's exactly 20.56% per year. <br />Check it out, it's called "taux d'usure", if the loan is for by real estate, it can't be higher than 7% ! http://www.banque-france.fr/economie-et-statistiques/changes-et-taux/taux-dusure.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-56217344165587201382013-03-18T16:01:49.055-04:002013-03-18T16:01:49.055-04:00It's definitely best for unsavvy investors to ...It's definitely best for unsavvy investors to stay out of anything but index funds.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-75544855169889913012013-03-18T15:17:31.546-04:002013-03-18T15:17:31.546-04:00It's been my experience that you really can...It's been my experience that you really can't tell whether someone is making a "smart choice" by looking at a snapshot. In the case of what choices people make at the grocery store, what you think might be the best bang for the buck might not be. Combine a grocery store loss leader with a coupon and those frozen dinners can be mighty cheap. I remember one time I was in line at the store, and the guy in front of me started to throw a fit about what the woman in front of him was paying for on her EBT card. She had pre-shredded cheese, and he was going on about how she should buy block cheese and grate it herself. Well, it turns out the store was having an advertised special on the grated cheese that made it cheaper than the block cheese. Also there is no guarantee that someone will have the kitchen tools necessary to do something like grate cheese.<br /><br />In certain areas of the city, things like entertainment devices (TV, cable subscription, video game console) were considered absolute vital to have. Why? Because they enticed the latchkey kids to stay indoors instead of going out where they could get shot or mixed up with gangs. Woe to the newbie volunteer who might suggest to a client that they should sell the Gamecube (am I dating myself here?) when the mom knows that is the only thing keeping her teenage son out of serious trouble.<br /><br />As for someone not putting their money in the stock market, it doesn't take hearing many conversations about financial people talking about the "dumb money" to make you leery of putting your money in their hands.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-3655712371650305902013-03-18T13:29:20.352-04:002013-03-18T13:29:20.352-04:00OK, I admit that I have not worked for social serv...OK, I admit that I have not worked for social services. But I have lived, for five years, in a poor neighborhood of a blue-collar low-income city in Massachusetts. You know, the one were you can see the prostitutes walking up and down Main Street from your bedroom window, where getting a visit from a police officer (one time to inquire about a shooting outside my front door, another to inquire about a burglury of the appartment below) is considered normal, where there is a designated crackhouse every five blocks, and so on. Frankly, I find the statement that poor people cannot save unless they cut down on healthy food ridiculous. This may be true for SOME poor people. However, I have seen people use their food stamps to buy vegetables and fresh meat, and others using them to buy frozen meals and large bags of Cheetos. In the end, much is about the choices people make. Most of my otherwise poor neighbors managed somehow to afford 50-inch TV's (I had one of those 12-inch small ones with a built-in VCR) and quite a few had a dish to watch foreign channels through sattellite (many were immigrants like myself). So the idea that all poor are poor only because they can't afford to save and not also because of bad financial decisions is at odds with my own personal experience.<br /><br />My personal experience also suggests that at least some people make bad financial decisions because of their liberal ideology. Here is a conversation I once had with a lower income (yet admittedly not truly poor) person:<br />Him: Look at how well these rich folks are doing. The stock market is booming while we struggle.<br />Me: OK, but, don't you also have some stocks?<br />Him: Are you crazy? The stock-market is controled by the rich. I am not going to give them my money.<br />In the mind of this person, the vehicle that makes the rich richer somehow designed to also make the poor poorer. By keeping his saving in a low-interest banking accout, he allowed the gap between him and the more affluent to grow further! CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-36008391620734094142013-03-18T12:19:00.166-04:002013-03-18T12:19:00.166-04:00"Now, first of all, this means that a lot of ...<i>"Now, first of all, this means that a lot of people just glossed over the column itself, and instead just guessed/assumed the message from the title and picture."</i><br /><br />Or maybe you didn't write the article clearly enough and simply should have acknowledged directly that it is difficult for people with very low incomes to save anything.<br /><br />Or maybe they were also reading your Twitter feed, where you said:<br /><br /><i>"But it's just bullshit. If Chinese people making $5000/yr PPP can save, then Americans making $15,000/yr PPP can save. Period."</i>Asher Kayhttps://www.blogger.com/profile/04684052925980478870noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45689313282969138912013-03-18T07:40:21.780-04:002013-03-18T07:40:21.780-04:00PS
Maybe the people in the data Noah mentions and ...PS<br />Maybe the people in the data Noah mentions and the people Anonymous sees are two different populations (or one is a subset of the other, or some overlap...). Anonymous does mention this could be the caseZaerhttps://www.blogger.com/profile/04144652173329932870noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-91341917771574087422013-03-18T07:36:04.637-04:002013-03-18T07:36:04.637-04:00I was reading the post and comments over my coffee...I was reading the post and comments over my coffee this morning and am chuckling to myself reading over the advice from Richard to andrew.<br /><br />But now I feel sorry for andrew and his girlfriend. Here he was just lamenting about getting specific advice from people who don't know the details, and then there's more. <br /><br />I mean; the advice about having a used car. Now I'm sorry but I don't have time to read the article in the NYT- but it seems car expenses weren't mentioned. My assumption is that she might not even have a car.<br /><br />My girlfriend (now wife) and I were in this situation for a long time, so I commiserate. She tells me how she used to read these articles "10 ways to save money", only to find we were already doing all those things. She used to nag me not to take money out of ATMs, 'cause we couldn't afford the $2 fee-something I only did 1-2 times monthly (that's not advice, just to say "I been there").<br /><br />So for specific advice, I don't have much. I suppose if she hasn't looked into consolidating student loans that I agree it will help.<br /><br />But struggling young professionals might feel better if they took Noah's larger point to be - even if you aren't saving money, if you are keeping your debt down, that is really the same thing. <br /><br />What with kids and other expenses we did not have savings to speak of until I was 48 years old (really). We all have this feeling that we should be working towards stability, that our life should be somehow getting incrementally more and more stable. And yet, to all appearances we don't seem to be getting anywhere. But, that progress might be invisible; if what we are doing is avoiding more debt rather than actually growing savings.<br /><br />I do have this advice- if any financial counselor gives you advice that you do not understand (at work or whatever)- do not take it. From my experience: in the early 2000s when we were looking into how to maximize my retirement account, we could not understand what the person was telling us about investments. I mean, we are not stupid- we think we are pretty smart and we understand numbers. Also, we asked "What if stocks go down?" Our counselor looked at us as if we were stupid and said "stocks always go up". So, we didn't understand the financial instruments and we didn't like that answer. We kept our money in boring funds and whatnot. The crash and recession later on affected us not at all.<br /><br />Zaerhttps://www.blogger.com/profile/04144652173329932870noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-7810660013315208962013-03-18T05:18:29.257-04:002013-03-18T05:18:29.257-04:00How reliable? As reliable as one guaranteed by the...How reliable? As reliable as one guaranteed by the state?reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81565978206690047742013-03-18T02:31:35.251-04:002013-03-18T02:31:35.251-04:00Next, I'd ask does she have a car payment? If ...Next, I'd ask does she have a car payment? If she's like most young people, she does, and I wouldn't be surprised if she bought new. It would not be unusual for her to have a $250/month car payment and an extra $100/month from collision and theft insurance. That's $4,200/year. Instead, she could save up $2,000 - 3,000 (like with her student loan savings above) and buy an old, dependable, high mileage Japanese economy car like a Toyota Tercel. <br /><br />And first she should read up on how to buy well and maintain well an older used car. If she does, repairs will be about $200 – $300/year, and she won't need collision and theft insurance. So, she saves another $4,200 - $250 = $3,950/year. This will pretty quickly bring her credit card balance down to zero, then she can start saving for a house or condo downpayment – but only buying at the right time, and keeping in mind that stocks a vastly better investment than a house, so you keep the home as inexpensive and small as reasonable, and only buy when you have a 20% down for lower mortgage interest, when you aren't going to have to move and sell for at least five years, and other caveats. Again, the power of knowledge, and you can learn all of this just about free on the net and with inexpensive books.<br /><br />Now, she doesn't want to be seen in a 1998 Tercel, etc. You see the power of the pink elephant of economics, positional externalities. But she has to fight that. It's very doable, and especially for any future children.<br /><br />I could go on. You see the power of knowledge. Get on the internet about personal finance. Get books. The best, by far, is "All Your Worth", by Harvard bankruptcy and financial distress expert, and now Senator, Elizabeth Warren. Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-80888771652345251652013-03-18T02:30:41.061-04:002013-03-18T02:30:41.061-04:00I've been teaching personal finance at the Uni...I've been teaching personal finance at the University of Arizona since 2005. It's my main expertise, so there's a lot I can say. For now, I'd like to make two major points:<br /><br />1) Knowledge (not just degrees), especially today, is really powerful.<br /><br />2) One of the biggest things you can invest in for very high returns is not just money in financial assets like stocks and real estate, it's effort, improvement, and knowledge in yourself, and in many cases especially, your children – and this often doesn't take much, or any, money.<br /><br />Let's start with (1): It looks like your girlfriend is Pearl in the New York Times article, at;<br /><br />http://www.nytimes.com/2013/03/15/business/younger-generations-lag-parents-in-wealth-building.html?pagewanted=all <br /><br />Quoting: <br /><br />"Ms. Brady, for instance, earns about $1,800 a month in take-home pay. But she paid for her undergraduate and graduate education in part with loans, which cost her about $400 a month. She also is trying to pay down her credit card debt, which requires about $500 a month."<br /><br />End Quote<br /><br />Now, note how powerful knowledge is: She spends $400/month on her student loans. She works for a union, which is a non-profit, which qualifies for the government's Public Service Loan Forgiveness Program. This program is for federal direct student loans. It allows you to go on the Pay-as-you-Earn income-based payment program and after just 10 years on this program, if there's any remaining balance it's 100% forgiven.<br /><br />Now your payments are income based, but at a very low level – 10% of adjusted gross income at most, and often much less, or even zero, yet after 10 years even if your balance is still $200,000, it's 100% forgiven. What would Pearl's payment be? With $1,800 in take home pay, I'll estimate her adjusted gross income is $30,000 (and less if she puts money into a matching 401k with her employer, which she absolutely should). You can plug this information into the Pay-as-you-Earn payment calculator with some other information like marital status and number of children (which adjusts the income-based payment down a lot). The calculator's at:<br /><br />http://studentaid.ed.gov/repay-loans/understand/plans/pay-as-you-earn/calculator <br /><br />For Pearl I got $110/month as a childless single – and after 10 years on this, the any remaining balance is gone even if it's $200,000. So, already I found a way for her to save $290/month. That's $3,480/year, so below the $5,000 limit for a Roth IRA, so the whole thing could go in in a highly diversified stock mutual fund, like one which tracks the Wilshire 5000. The average return on such a fund is about 7% plus the inflation rate, so a 7% real rate. At 7%, saving this $290/month for 40 years will yield a total of about $700,000 today dollars, that can be withdrawn tax-free.<br /><br />If she has federal government FFEL loans that don't have Public Service Loan Forgiveness, she can consolidate them with the Federal Direct Program and then she qualifies – and gain, the power of knowledge. If she has private student loans – one of the worst mistakes anyone can ever make. No income based repayment, often unconscionable interest rates, and since the 2005 bankruptcy law, impossible to discharge in bankruptcy with extremely rare exception. These are the worst and most rapacious predators of our young.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.com