You know that old political cliche about how individuals know better how to handle their money than the government does? Well, maybe not. How well government manages your money is certainly open to question, but your average Hoosier isn’t really all that well equipped to make decisions about their money.
The Indianapolis Star has an article discussing a nation-wide report by “The Investor Education Foundation of the Financial Industry Regulatory Authority” finding, among other things, that Hoosiers are not, by and large, financially literate. (I think this is a symptom of the larger issue that lots of people are basically innumerate. We need to do a better job of learning our math.)
Results of a nationwide study released Wednesday suggest that residents of Indiana, on the average, are less financially literate than other Americans and that 68 percent of Hoosiers find it hard to pay their bills every month.
. . .
About two-thirds of Hoosiers and most Americans live paycheck to paycheck and don’t have savings for an emergency. A similar number does not bother to comparison shop for the best interest rates and features of credit cards.And 28 percent of Hoosiers have borrowed money from payday lenders and other high-interest-rate sources in recent years, which is higher than the national average of 24 percent.
The article doesn’t do a very good job of explaining whether some of these factors are a function of people not knowing any better versus not having any other realistic options. But, from personal experience collecting debts, it’s a little amazing how many people just have no clue about the concept of interest. (My standard explanation is that you’d rather have $100 today than $100 in ten years, and interest is designed to compensate you for having to wait.
The study is here. I haven’t looked at it yet.
It’s not just Hoosiers. I’ve moved twice and changed jobs twice in the last 6 years, in both Illinois and Indiana. Every single phone number I’ve had (home, cell, work cell) has been transferred to me from deadbeats. I got and get calls from creditors looking for the people who used to have the number all the time. I also get calls for the people who used to own the homes and for the people that they rented to.
We’re talking about 6 or 7 different people here!
My conclusion? Nobody pays their bills.
Is this a matter of eduction? Intelligence? Economics? Morality? Probably all those and more!
Whenever I post one of these things, I wonder if it’s just another installment in the “everybody is stupid but me” genre. But financial literacy really does seem to be a problem.
Well, you and I and all your posters are quite obviously much more intelligent than average (and I’m not being Eddie Haskel here, it’s true). So that kind of response (“everybody is stupider than me”) is not wrong.
When it comes to financial literacy, where exactly should one be getting their education? I mean, on investing, I have a financial adviser. I think that paying your bills on time is common sense. So is not living off your credit cards. Maybe common sense just isn’t so common anymore?
Some on, Doug! I need somebody to blame. ;)
I think it is primarily not having the options–no money to invest or save leads people to not pay much attention to those options. Having grown up very poor and not having had relatives who had much of anything financially–farmers, school employees (bus drivers, janitors), and factory workers-nonunion, I never learned the lessons of using money to make money. We were taught to save, I learned all the math about compounding interest, present value and opportunity costs and balancing check books, but I also learned that money is not everything and material goods are not the goal. Not ever having money makes it difficult to see investment and other planning for the future issues-other than not spending oneself into debt–as near term action items.
In reality, we never really own anything other than money-and if you work for a living you never really own that–just borrowing at a high interest rate is all you are doing.
Can the poor and financially illiterate learn not to make bad choices? So far, that has never happened and it is unlikely to happen any time soon. I will retreat to my compound now and let the rest of you free marketers deal with the resulting problems as you seem to oppose a safety net to handle the fallout of bad choices.