I was less knowledgeable about money than most people until a few decades ago. That’s at least how I felt. My financial philosophy consisted of a) trying to save money and b) trying to reduce student debt.
What is the GDP? It’s doing well, I hope! Is trickle-down economics possible? Although it sounds suspicious, if all these economists and politicians say that tax cuts for wealthy mean we all win then who am I to argue? They would lie to everyone, wouldn’t they? Don’t ask that question. No one wants to admit they don’t understand how money works. It is easier to admit that you don’t know anything about cars or cooking.
As an adult, you might not know much about money. It’s not surprising that you are so behind in your efforts to get your life together. It’s not surprising that you aren’t wealthy. It’s easy to admit how little you know about personal finance and economics. Then you slide into the “personal responsibility lecture” and are told that you have put yourself in poor financial circumstances. You are responsible for your financial problems.
Many people don’t understand how money works because they have never received any formal or informal education. It can be costly to not learn about money. Many smart people see their student loans as a way to save money. They can pay off $3,000 in one lump sum and then tackle larger ones. Perhaps if there was just one mandatory high school class on money concepts such as taxes and how interest is applied in practice, we would have less confusion about tackling debt.
At 16 I was able to calculate the derivative of a function, but it wasn’t until my 20s that I discovered what marginal tax rates were. That doesn’t make sense. Even beyond the basic high school courses, many people have a single view of money or only one way to talk about it. If that view is to avoid talking about money, which is often the case it means that we have less practice in discussing money in a healthy way.
Our Work & Money blog receives the most common comments. The Money coverage starts with the caveat: “This is probably an stupid question, but …” And what shame does, in some part, is silence people. And silence obstructs us from realizing that the way things work now isn’t equitable or sustainable or even logical, and so we think maybe we deserve to feel like we’re treading water all the time. The narrative of personal failure can replenish itself endlessly, all the better to hide the ways that people are being failed. And we are being failed.
Much of what we consider normal or fair is shaped by the financial relationships that are more powerful. For a better future, we have long accepted the outrageous cost of college tuition as a necessary investment. On top of it becoming an everyday occurrence in the U.S. to take out student loans in the tens of thousands of dollars, if not hundreds of thousands, it’s also stunningly normal to be charged over 6% interest on federal loans, never mind the even higher rates for private loans. Meanwhile, in 2018, the New York Times reported that the interest rate for student loans in Sweden was 0.13%. If you ask why student loan interest in the U.S. is so comparatively high, the common explanation is that it’s unsecured debt – your diploma can’t be taken as collateral in case you fail to pay – so the risk for lenders is greater and the interest rate is higher. This explanation is not sufficient to answer the question. The formula for interest rates is not what people are asking. People aren’t asking for the formula for interest rates. For the crime of not being able pay for your life’s urgent expenses, you might be paying 664% APR if you live in a state with a cap on payday loan interest rates. This doesn’t have be the case. It’s not surprising that the payday loan industry has seen a decrease in demand over the past year. This is likely due to government support like unemployment insurance and stimulus checks.
Another source of shame is the fact that credit scores can be introduced as early as adulthood. Although we might be taught about what constitutes a good score and how breathing hard can cause it to drop, it is far more common to learn to recognize just how absurd and discriminatory the system is. Most people don’t know how to shut down a credit card if they don’t believe they will use it again.
Yet, it’s not a bad idea. it’s commonly advised not to do that, because, in the logic of credit scores, having open credit lines but not using them shows that you’re judicious about your money. You’re displaying abstinence like a good little consumer – even if, at the same time, you should also make sure you’re spending like a good little consumer.
Learning about money made me realize that it isn’t all that hard to understand. As an example, the basics of retirement funds are easy to understand. It’s simple: Make regular contributions to it, but not as a substitute for a rainy-day fund. Don’t touch it. It’s easy – or simple if your income is good enough to make regular contributions to it. It is important to remember that financial insecurity does not necessarily mean that you are “bad” with money. However, this is one of the most valuable money lessons anyone can learn. It’s a lesson that most people don’t understand. But, it is one of the key lessons anyone can learn about money. It’s not helpful to tell someone to download a budgeting application if you are living paycheck to paycheck because they haven’t received a raise in years. It is not helpful to be told to “get better jobs.” How do you get a better-paying job? By going back to school, that famously cheap way of getting ahead in life?
All to say, of course personal finance know-how can be useful. Setting goals such as saving $10k within 6 months and then transferring my monthly savings every time I get my paycheck helped me see that reaching certain financial milestones was not as difficult and impossible as I thought. If your problem isn’t that you’re living paycheck-to-paycheck, but that you never think about where your money goes, starting to keep track of spending can reveal, for example, that your snack budget is extremely high.
Personal finance knowledge can’t save us all from the systematically mismanaged money. However, it can help you to feel less smug about yourself. Learning about money means you realize that your money problems are not just your fault – the system is rigged and ridiculous. Because everything is stupid, there are no stupid financial questions. You don’t have to feel bad about money. That shame can be resisted confidently. Knowing about money can make a big difference in your life. Although it may not immediately make your student loan debt disappear, you can be certain that cancelling student debt would be a good decision for our economy.