Big Question about education?

[Old School]

How does saving, investing wisely with the power of compounding over time, living without debt, and wanting our nation’s kids to become more educated as well as adults twisted around in a thousand different directions here in this forum?

 

It’s an equation.

 

To much debt on all levels+ not enough savings and investing properly+not enough education and planning and working the plan to fix a nation with too much debt=a catastrophic disaster if it’s not fixed with education then what?

 

It’s pretty simple. Educate.

 

That or we live through another Greater Great Depression.

 

If we as a nation don’t fix what’s broke by more education then how do the PhDs here propose we try to fix it?

 

Please don’t tell me just print more money from thin air to keep the markets propped up globally like all Central Banks have done. Not when our FED is starting its unwinding.

[Bootsie]

I am trying to convey that our countries ever increasing debt burden that now exceeds our GDP is not healthy. You are the PhD, tell me how a nation which has no control at all over its own sky rocketing spending and debt level is a healthy thing. Tell me from your professional education how

personal debt levels once again are at all time highs and most people are drowning in debt, how is this healthy for our country? How is this form of money management a good thing? Please, just stay focused on the topic I brought here, money management.

 

I’ve been saying all along our increasing debt burden in all sectors of our economy are growing way beyond our means. Most cities and states unfunded liabilities are in big trouble.

 

Huge debt levels that exceed our GDP are not healthy. A FED that has created Trillions of dollars of debt to backstop our markets is not healthy but a temporary illusion with possible dire consequences.

 

Personal debt and lack of savings for retirement in our nation is a very serious issue.

 

How are these specific factual topics good for our nation?

 

Can we educate our way out of an economic meltdown?

 

You are the PhD in finance, you tell me how extreme levels of debt are good.

First, I am not a PhD in finance.  

 

Second, I do not think, nor do I think I have suggested, that a high level of national debt is healthy or desirable.

 

I am having trouble with the idea that a good, prudent way for individuals to manage their money is to hold a portfolio that contains bonds, which represents the borrowing of the government.  If it is not good, or healthy for the government to borrow so much (which is part of what I have thought you have been saying), why is it prudent for an investor to lend money to the government (which is what I am doing when I buy a government bond as in the portfolio you suggest)?

[Old School]

Where did she ever say these were good? I missed it.

 

All she is saying (more or less) is that if everyone tries to earn a living off investing, it won't work. There are two parts to investors. There are those who have money to lend and those who want to borrow it.

 

Buying stock is buying part of a business because the owner either needs some cash or wants to sell parts (or all) of what he has to get that money. They have your money to work with and you get a part of the proceeds as well as owning a share (or however many shares). If the company tanks, you lose. You can lose ALL you invest. It's risky, some less so than others.

The Phd is totally 100% wrong if she is saying if everyone invests long the markets in say the SPY or VTSAX that it won’t work. Do what?

 

VTSAX and SPY have never gone broke. If SPY goes broke we are all broke, back to the Stone Age.

 

If everyone bought stocks and had zero debt the only people who would lose money are lenders who screw people who don’t have enough to pay cash. I think there are plenty of people who will always create debt by borrowing and financing to make the banks richer.

 

So I’m dying to here from a PhD exactly how to many people buying stocks or proper balanced asset allocations is a bad thing.

 

Buying VTSAX type instruments over long periods of time beats the majority of all actively managed funds btw. Most fund managers can’t beat the SPX over time. Low cost index funds like the VTSAX are pretty safe investments long term because our markets history since it’s birth has averaged 7 to 10%. 7% if you account for inflation but not included here is the power of dividends.

[Bootsie]

From what I read yesterday, serious money is made on the stock market not by buying shares buy by buying options. 

For some this is the case.  Others make a lot of money without ever buying options.  Options allow someone to take an extremely leveraged position in the financial market which magnifies returns (whether they are gains or losses).  Historically, small company stocks have outperformed large company stocks, and the options market is titled toward large companies.  So, much depends on the strategy one is trying to follow.  

[creekland]

If we as a nation don’t fix what’s broke by more education then how do the PhDs here propose we try to fix it?

 

Ah, an age old question that folks have been trying to answer for years... doubt it will be answered in this thread.

 

We ALL agree with you that less debt is better, personally and for our country.  ;)

 

Why can't we educate out of it?  Why didn't you learn Alg 2?  Different people have different priorities and values.  For some, worrying about credit card debt and retirement is a non-issue.  They have their paycheck or credit card and want to spend their money NOW.  No amount of educating is going to change their view.  Some have declared bankruptcy more than once over things like this, which makes one wonder why credit card companies keep giving them cards TBH, but I digress.  I guess they earn enough in exorbitant interest to make up for their losses?

 

Then there are folks who have legitimate debt.  A health issue struck.  Should they have died or gone without treatment instead?  What about those who literally don't have skills to get or hold down jobs (generally mental issues)?  I know a relatively young lad (adult) who ended up with Fetal Alcohol Syndrome and can't read better than a 4th grade level, if that.  He also has personality quirks making many people pull away from him.  His heart is good, but are you willing to hire him for good wages?  He tries, but keeping a job is difficult.  There are more than just one like him.  There are others who lost with the birth lottery too - baggage from their youth.  Some can grow up ok in spite of it, but most can't.  How do they get good jobs that pay well in order to have extra to invest?  And what do they do if their car needs repairs but it's not in the budget?

 

It's more than black and white.  The overall ideal black and white folks agree with, but our real world has oodles of shades to it.

[Old School]

First, I am not a PhD in finance.

 

Second, I do not think, nor do I think I have suggested, that a high level of national debt is healthy or desirable.

 

I am having trouble with the idea that a good, prudent way for individuals to manage their money is to hold a portfolio that contains bonds, which represents the borrowing of the government. If it is not good, or healthy for the government to borrow so much (which is part of what I have thought you have been saying), why is it prudent for an investor to lend money to the government (which is what I am doing when I buy a government bond as in the portfolio you suggest)?

I didn’t suggest it. Ray Dalio spelled it out in his all weather portfolio back in 2014. You can google it.

He’s had great success and is worth about $14Billion and manages about $150Billion. He suggests a balanced asset allocation which you can find if you google it.

I’m not selling anything other than suggesting some might want to look at it. It’s worked pretty well for his clients with minimum assets of $100Million. He must know a few things about money management was all I have been saying about the man.

[Rosie_0801]

I didn’t suggest it. Ray Dalio spelled it out in his all weather portfolio back in 2014. You can google it.

He’s had great success and is worth about $14Billion and manages about $150Billion. He suggests a balanced asset allocation which you can find if you google it.

I’m not selling anything other than suggesting some might want to look at it. It’s worked pretty well for his clients with minimum assets of $100Million. He must know a few things about money management was all I have been saying about the man.

 

Yeah. One thing he knows is how to use debt. Nobody makes that kind of money if they take the time to save up.

[Bootsie]

I didn’t suggest it. Ray Dalio spelled it out in his all weather portfolio back in 2014. You can google it.

He’s had great success and is worth about $14Billion and manages about $150Billion. He suggests a balanced asset allocation which you can find if you google it.

I’m not selling anything other than suggesting some might want to look at it. It’s worked pretty well for his clients with minimum assets of $100Million. He must know a few things about money management was all I have been saying about the man.

The success of this portfolio depends upon being able to have a balanced asset allocation which includes government bonds.  In order to follow this strategy the U.S. government MUST be borrowing.  So, I would find it inconsistent to say 

 

1)  Follow this strategy and buy government bonds--look how successful it is for the individual investor 

 

and 

 

2)  We really need to improve financial education.  Isn't it horrible that the US government is so in debt.  This is headed for disaster.

 

If I want to be able to hold $1 million in government bonds, teach my children to do the same, and all of the kids in the public school to follow this strategy, I must simultaneously want the government to be borrowing millions of dollars.  

[creekland]

If I want to be able to hold $1 million in government bonds, teach my children to do the same, and all of the kids in the public school to follow this strategy, I must simultaneously want the government to be borrowing millions of dollars.  

 

And basic Supply and Demand tells me the gov't wouldn't be paying much in interest with so many people wanting to borrow.

 

I guess that is a good thing for the gov't though.  ;)  It's not so good for the investor looking to make money off the interest.

[luuknam]

To much debt on all levels+ not enough savings and investing properly+not enough education and planning and working the plan to fix a nation with too much debt=a catastrophic disaster if it’s not fixed with education then what?

 

If we as a nation don’t fix what’s broke by more education then how do the PhDs here propose we try to fix it?

 

 

Legislation would be one option that might be more effective than education. Not that I'm a PhD. But, say, if we create a situation with universal health care, very low cost college, etc, and then ban pay day loans, most credit cards, etc, seriously limit car loans and mortgages, etc, you could reduce consumer debt. Or, if you wanted to reduce govt debt, you could raise taxes (including closing all sorts of loopholes), slash spending, and pay that off. Really, the govt has a lot of tools it can potentially use to reduce consumer and/or govt debt. Now, whether any/all of the above are desirable is another debate, which is not for this forum (there is a rule against discussing politics). 

 

To be clear, I'm not taking a political position with this post (i.e. I'm not saying what the govt should do). I'm just saying that legislation is a tool that can be used, just like education (and, you can legislate about education too, including requiring everybody to take algebra 2, statistics, microeconomics, macroeconomics, accounting, and personal finance in order to graduate high school, just to give an example). 

[Bootsie]

The Phd is totally 100% wrong if she is saying if everyone invests long the markets in say the SPY or VTSAX that it won’t work. Do what?

 

VTSAX and SPY have never gone broke. If SPY goes broke we are all broke, back to the Stone Age.

 

If everyone bought stocks and had zero debt the only people who would lose money are lenders who screw people who don’t have enough to pay cash. I think there are plenty of people who will always create debt by borrowing and financing to make the banks richer.

 

So I’m dying to here from a PhD exactly how to many people buying stocks or proper balanced asset allocations is a bad thing.

 

Buying VTSAX type instruments over long periods of time beats the majority of all actively managed funds btw. Most fund managers can’t beat the SPX over time. Low cost index funds like the VTSAX are pretty safe investments long term because our markets history since it’s birth has averaged 7 to 10%. 7% if you account for inflation but not included here is the power of dividends.

SPY would not have to go to zero for some people to earn a negative return (or lose money).  

 

Yes, index funds do, on average, outperform most actively managed funds, over the long run.  Again, that does not guarantee that there will be a positive return in the future.  Past performance does not guarantee future results.

 

My personal opinion is that SPY will not go to zero, at least any time soon.  However, I do think it quite possible for a significant downturn (in the range of 30-50%) to occur within most investor's time horizon.  

[Carrie12345]

My son's public school required a semester of "personal finance", or whatever they called it. According to him, it was mostly about how to get loans.  I figure they must have had a bit more than that over half of a year, but that was his take away.

 

I have taught financial literacy in a co-op and will probably offer it again in the future, as it was well received.  However, I cover(ed) very little about investing.  One, because I'm not well-versed in investing.  And, two, because the content included in the curriculum I based my course off of (and every other curriculum I glanced through) was based on pre-2008 concepts.  My old DR books talk about 10%+ returns.  Some other stuff talked in the 7-8% range.  I couldn't in good conscience run with those numbers.  Instead, we covered compound interest in general terms.

I also only did a cursory pass through Social Security, since this 40yo's statements already tell me to expect less than the printed numbers.  I can't imagine what current teenagers will be looking at.

Health insurance also got a perfunctory nod, with numbers that are already outdated from last year's course.

 

Our primary focus was on understanding what things cost and how to budget/save for them.  In my class, these were mostly kids who didn't know what a loaf of bread costs, or the difference between a debit and credit card.  Even if I were an investing expert, I think the extra time on basic household expenses and budgeting/management were much more important for the group I had.

[Bootsie]

 

 

I have taught financial literacy in a co-op and will probably offer it again in the future, as it was well received.  However, I cover(ed) very little about investing.  One, because I'm not well-versed in investing.  And, two, because the content included in the curriculum I based my course off of (and every other curriculum I glanced through) was based on pre-2008 concepts.  My old DR books talk about 10%+ returns.  Some other stuff talked in the 7-8% range.  I couldn't in good conscience run with those numbers.  Instead, we covered compound interest in general terms.

I also only did a cursory pass through Social Security, since this 40yo's statements already tell me to expect less than the printed numbers.  I can't imagine what current teenagers will be looking at.

Health insurance also got a perfunctory nod, with numbers that are already outdated from last year's course.

 

This brings up what I think is a very important point in financial literacy and how the best way to approach financial education in society is.  If I approached financial management as my parents or as my grandparents did, it would be a disaster, not because they did a poor job at financial management, but because the financial markets are so different today.  The end result from compound interest is different in a double digit interest rate world (early 80s when I was graduating from high school) than in a close to zero interest rate world (or even a negative interest rate world as Switzerland or Japan has seen.)  

 

My father never used an ATM machine or a debit card. (This didn't even exist when I graduated from high school) He never paid a bill online.  He did not teach me the difference in an IRA or a Roth IRA, because they did not exist.  He did not teach the benefits of investing in SPY; it did not exist.  He did not face the choice between a fixed rate or a variable rate mortgage; the savings and loan association only offered fixed rate mortgage.  (and what my dad taught me about a savings and loan institution is virtually useless today).  He sure did not teach me how to invest in Bitcoin.  He dud not even teach me to use a computer app to calculate compound interest!  

 

The financial markets are very different today than they were 20-30 years ago.  Some is due to technology changes.  Some is due to regulatory changes.  A good solid education prepares students to navigate a world with those changes.  Strong math skills allows a student to understand the difference between a fixed rate and an adjustable rate mortgage.  Critical thinking skills allows a student to realize that I cannot lend money (and earn interest) if someone is not borrowing money.  Training in statistics allows a student to better understand risk...

 

The financial markets and the financial products we will have in 20 years will likely be different than what we have today.   

[Jean in Newcastle]

The best thing I did was to teach my kids how to ask questions and to research things for themselves instead of following formulas blindly.  We lost a lot of money just trusting our brokerage firm in their formula.  Of course, the brokerage firm did fine.  Ds goes down to the bank and asks tons of questions before signing anything or signing up for anything.  He asks me lots of questions too.  He was just asking me about short sales the other day.  I gave him a quick and dirty answer and then directed him to some sites with more information. 

[shawthorne44]

Theoretically, economics should teach some of this.   Part of the problem is, Do the teachers understand the things you are mentioned?   For example, my economics teacher recommended that everyone get two checking accounts.   Then use one on the even months and the other on the odd months.  That way you don't have to balance your check book.   I could not make that up.  Oh, and she said to put zero for deductions when you tell your employer how much to take out for taxes.  Then you get that lovely large check from the government, and isn't that grand?   

 

I don't want people like that teaching my child money management.   It isn't something that they teach in a teaching degree, so on average, they won't be any better than the parents at teaching it.   At some point, we need to stop expecting schools to teach everything.   Otherwise next thing you know, How To Do Laundry will be a class.  

 

eta: fixing embarrassing grammar typo

Edited December 13, 2017 by shawthorne44

[Bootsie]

Two checking accounts!  Wow, that is a new one!  Of course, with access to online banking now, I haven't "balanced" my checkbook in years.  

 

DD is an RA in her college dorm.  She has had freshman come in and ask if she would teach them to do laundry; one this semester came in and asked her to teach her how to make up a bed (no this is not a military school with specific regulations on how a bed is made). 

 

[luuknam]

one this semester came in and asked her to teach her how to make up a bed (no this is not a military school with specific regulations on how a bed is made). 

 

 

One would imagine that there's a WikiHow about that. Yep, there is:

 

https://www.wikihow.com/Make-Your-Bed

 

ETA: I don't get the 2 checkings accounts thing... how would that be beneficial? (I get that it's not, I'm just unclear why anyone would think it is)

Edited December 12, 2017 by luuknam

[Jean in Newcastle]

How to balance a checkbook was something that we taught in middle school in our local public schools.  As far as I know, that is still when it is taught.  I would not expect it to be covered in high school (other than a cursory mention) or in college finance classes.  All you need to know to balance a checkbook is how to add and subtract. 

 

Budgeting was taught in home economics.  I don't know how they do that now.   

[Jean in Newcastle]

BTW -  you can google your state's learning standards for financial education.  Here are the broad topics covered in my state's financial education curriculum.  It is not done all in one year but is done over all 12 years.

 

"Competency 1:  Spending and Saving

Students will apply strategies to monitor income and expenses, plan for spending, and save for future

goals.

 

Competency 2:  Credit and Debt

Students will develop strategies to control and manage credit and debt.

 

Competency 3:  Employment and Income

Students will use a career plan to develop personal income potential.

 

Competency 4:  Investing

Students will implement a diversified investment strategy that is compatible with personal financial goals.

 

Competence 5:  Risk Management and Insurance

Students will apply appropriate and cost-effective risk management strategies.

 

Competency 6:  Financial Decision-Making

Students will apply reliable information and systematic decision-making to personal financial decisions."

 

I don't have time to look up and link what is taught in each grade to meet these learning standards but you can easily do the same for your state. 

 

 

[shawthorne44]

One would imagine that there's a WikiHow about that. Yep, there is:

 

https://www.wikihow.com/Make-Your-Bed

 

ETA: I don't get the 2 checkings accounts thing... how would that be beneficial? (I get that it's not, I'm just unclear why anyone would think it is)

 

She was a dingbat who couldn't be bothered with writing down what what she wrote in the ledger.   I pointed out that you could get checks that made a copy of what you wrote.  

[Old School]

The Wall Street Journal reported defaulted student loans last quarter totaled $84 billion.

 

Defaulting, especially on the scale of $84 billion, can also have repercussions for the entire economy. The Federal Reserve Bank of New York has researched how student debt has depressed home purchasing by young adults, and found that as much as 35% of the decline in home ownership of people in their late 20s can be attributed to student loans. Defaults make it harder to take out credit or even own a credit card, stifling additional economic activity.

 

Even with a strong national economy and a low unemployment rate, loan defaults can weigh down the entire country. Permanently defaulted loans are ultimately the burden of taxpayers, and the federal budget will pay out if the loan program continues to lack revenue.

 

A Big Question continues to grow in scope.

[Sebastian (a lady)]

The Wall Street Journal reported defaulted student loans last quarter totaled $84 billion.

 

Defaulting, especially on the scale of $84 billion, can also have repercussions for the entire economy. The Federal Reserve Bank of New York has researched how student debt has depressed home purchasing by young adults, and found that as much as 35% of the decline in home ownership of people in their late 20s can be attributed to student loans. Defaults make it harder to take out credit or even own a credit card, stifling additional economic activity.

 

Even with a strong national economy and a low unemployment rate, loan defaults can weigh down the entire country. Permanently defaulted loans are ultimately the burden of taxpayers, and the federal budget will pay out if the loan program continues to lack revenue.

 

A Big Question continues to grow in scope.

The discussion of student loans is complicated. I think it is a challenge to separate causation and correlation.

 

The median student debt is around $17k.

 

A great deal depends on what degrees were earned, if a degree was warned and how good the student was.

 

One item I found interesting in this report was that graduates with debt still reported higher family income (self and spouse) than non graduates.

 

http://www.pewresearch.org/fact-tank/2017/08/24/5-facts-about-student-loans/

Edited December 15, 2017 by Sebastian (a lady)