Why Are Some People So Ignorant About Money?
November 1, 2007
Some people are good with money and others make downright horrible financial decisions. What’s the difference between the two groups? Why are some people so bad with money?
My wife was watching Suze Orman give people advice on credit card debt and home loan issues last night on Oprah and I was amazed at how clueless some of the guests seemed when explaining their problem or asking questions. I imagine the majority of them have access to an abundance of personal finance materials such as online content, books, or magazines so why don’t they know more about money? I came up with several money ignorance factors:
Upbringing Factor
They were raised in settings that gave no thought to money management and may have demonstrated unhealthy financial habits. People affected by this factor just never knew any better and it’s hard to break old habits.
Friends Factor
In addition to family, another huge influence on most people’s lives are their friends. If none of their friends show any interest in money or ability to manage it well a person is less likely to be financially informed or make healthy financial decisions.
Time Factor
Life is busy. People get involved in their families, jobs, health, communities, hobbies, etc and just don’t make time to learn about money. The unfortunate part is that finances can have a big impact on all the parts of life I just mentioned so if people ignore money long enough, it will eventually affect other parts of their life.
Intimidation Factor
Personal finance involves a lot of numbers and concepts that can be intimidating. If they don’t have friends or family they can ask financial questions of, they may not feel comfortable learning about money on their own. As they try and slog through all the details of confusing financial topics they become overwhelmed and just decide to make an uninformed decision.
Denial Factor
There are a lot of hard working people that don’t get paid well, don’t have good benefits, and just have bad luck. I can imagine if I was faced with dire financial circumstances it would be discouraging to think about money. Rather than dwell on a negative part of their life, people choose to ignore it completely and hope the details will work themselves out.
What Can Be Done?
These factors don’t stand alone; a person could be affected by some or all of them so it’s easy to see why some people are so clueless about their persona finances. Unfortunately the reasons behind why someone can’t manage their money won’t help them when the bills are due. Debtors don’t want to hear “excuses”; they just want to be paid.
I guess the billion dollar question is how can our society help address these different factors so more people are knowledgeable about money and fewer people run into the sad stories we hear about on Oprah.
Related Articles
Add a Rating Factor to your list. That’s what TV shows are about. But do agree that there is lack of education and ignorance about finance.
In terms of what can be done - only so much. You can ban trans fat and put nutritional information on food but cannot stop people from eating what they want. You can automatically enroll people in 401(K) plans but cannot change their shopping habits.
Time Factor
I totally agree with you on this factor.
People are really busy for many things rather than money itself. Even “Earning Money ” has nothing to do with “Money Management”
Anyway, really useful tips - Greetings from Beijing
I think there also should be a Media factor. We are bombarded by ads and we live in a consumer’s society, urging us to spend spend spend. Need a car? buy it on credit, want a big house? Sure as long as you can meet the monthly payments. Want that TV? theres easy financing. This puts so many people and families in debt so the option of money management is nonexistent. By the time the bills are paid, there is no more money left over to manage. And that, my friend, sucks. I think upbringing is a major one too. That can shield you from the consumer mentality. Great post, thanks
great post and comments …. i see these things everywhere in my everyday life. i was lucky enough to grow up in a financially smart and frugal family (even if both my parents admit they didn’t start saving for retirement soon enough) and now i’m trying to get all of my friends into personal finance / investing.
I especially agree with the “media aspect” of it all though, it is just so hard for me to not go out and buy that new ipod … or that new bmw … or that new anything.
Smart Investing, you’re right “you can lead a horse to water…” I do think that if we can address the ignorance about money issues more people would realize it was in their best interest to be financially responsible.
I guess I left out the “Non-Education Factor”. Since we don’t teach much about money management in schools people that suffer from the “Upbringing Factor” are screwed.
Danny, I agree, we could add an “Advertising Factor”. While the other factors cause problems because people just don’t learn about money, the “Advertising Factor” is dangerous because it can mislead people or at least influence them to do money ignorant things.
Star Money Articles for the Week of October 29…
Here are some recent interesting posts from the MoneyBlogNetwork and beyond: No Credit Needed suggests keeping things simple. Get Rich Slowly advises to know how your accounts work. Consumerism Commentary says NYC transportation costs are going up. All…
I didn’t have much financial training growing up, and most people are in the same boat. I made some mistakes in the past and we’ve started working to correct those. One of the tasks I’ve taken on is teaching our son to be responsible with his money and how to take care of it.
It all starts at home. With poor to little information in the beginning, it just compounds the ease of making the other mistakes later.
Regarding the upbringing factor. I agree to an extent, but I also know about brother and sister who are polar opposite. My wife is quite good with money, but her brother is not so much.
I also know another blogger, Being Frugal (or Paidtwice), recently blog about her children who are polar opposite as well.
Most of it is upbringing and then friends!
Siblings are often different (like my sister and I) but the environment that we grew up in was different. My family was much more well off by the time I came around (relatively speaking). It also depends on how we receive the information we get. For me, I fully realized how much different my life is when we had money so I save everything. For my sister, she probably took it that she needs to spend the money to have a good lifestyle and she does.
I think the upbringing factor is a big one…. Of course you learn to manage your money by the way your parents managed their money but also… kids raised with no money and then suddenly get some, don’t know what to do but spend it… or the other way around kids raised with lots of money and then when they are out on their own, don’t know what to do with so little money so they spend what they have the way their parents did.. unfortunately they don’t have their parents money. That made sense in my head
My mother is very very frugal, where as my father buys only the best and a lot of it. Obviously, they were divorced early on. So I think I’ve developed a happy middle ground to live by (and found a partner that feels the same way I do about money to make for a happy marriage ).
I saw that show and was astounded as well by the people who had negative amortization loans that had no idea what that meant!
I was raised with little teaching about money and I understand how that led to me not knowing a lot. But as an adult, I am learning and I think people have to take responsibility for their finances and make sure they understand what they’re agreeing to when they sign loan papers.
I think it also depends on if the person is just a brat to begin with
I agree with all of the reasons above but even with good upbringing, good influence from friends, and everything else, if the person who is spending the money decides to be bad with money, then no amount of help can really help them. Being smart with money starts from the spender.
Agree about upbringing. I suspect people who grew up in families that were careful with money are more likely to be careful with money than those who grew up never hearing words “mommy cannot afford it” and then found themselves not being able to maintain the same lifestyle. This is just a guess, I could be wrong.
I am also wondering if people in some jobs are more likely to spend higher percentage of their income: e.g. math/computer science/engineering majors being more careful with money on the average than the rest. Where you work can make a difference too: someone working with rich customers may need to dress the part, whereas a software engineer working in R&D where everyone wears who he or she pleases would spend less on clothes. In a place where I work, if you come to work in a suit, you are bound to have several co-workers ask you as a joke “do you have an interview?” or “are you going somewhere after work?”. One reason I never buy suits or even suit jackets anymore. I like to dress up, but I don’t need to spend a fortune to look nice. Besides, even if I were to spend a fortune, I’d have no place to wear it.
Interestingly, even though the majority of people who work in my building probably make over $100,000 a year, I don’t see too many expensive cars either. Predominantly I see Hondas and Toyotas, some relatively new, some used. I am not sure if it is because we are all nerds or because we have a large percentage of people from other countries - India, China, both Western and Eastern Europe.
By the way, I love Suze Orman show. The “Can I afford it” segment is very entertaining. Especially when you see someone making a lot of money yet with disproportionally little in savings. You just want to ask the guy - “what do you do with all this money”. Of course then it turns out he wants to spend all of his savings for a used Ferrari for over 100K…
My parents never taught me the value of a dollar, so I agree with the upbringing factor. I wish my parents had taught me more about money, paying bills, and saving. Maybe it would have altered my life in such a way that I wouldn’t be in so much debt. Maybe I would have gotten better grades so that I wouldn’t have had to drop out of school and waste student loan money. There’s a lot of what if’s here. And I’m glad that I learned about it, even if it was too late.
I think it’s all about the Boring factor. Personal Finance is boring. Saving more and being organized is not exciting. Spending money is exciting and of course very easy to do, unlike saving
I think a lot of people just don’t know enough to know they don’t know. They were never exposed to the idea thay they need to be intentional about their finances and just have passed on through life about it. It’s probably similar to how a lot of us overweight people feel about fitness.
Also, your center column looks really messed up in IE7.
Like Moneymonk said, I think many feel it is boring and don’t have goals in life. Sounds harsh, but I think it is spot on.
If you are 21-years of age, do you run up to friends at a party and show them your new iPhone or do you tell them you just saved and bought two shares of Apple? I think for two many folks, having something tangible betas having/owning the company.
If only youngsters [and I am 27, but I am old] could get it in their thick skulls, that if they simply saved a a couple thousand a year from 18-22 when it is damn near impossible to save anything, they would already have a solid financial base to begin their working careers. In addition to saving, NOT blowing through excess student loans and credit cards is a big step too..Sometimes coming out of college with knowledge and student loans withOUT $7500 in credit card debt is a HUUUUUGE step.
[…] Zook: Like Moneymonk said, I think…Shadox: It is amusing (ok, not…Zack N: This is actually something that…Ben: Michael, I know what you…One Frugal Girl: I feel your pain. I… […]
There’s also the Historical Factor which you have overlooked. Credit and store cards, car loans, amortized loans, securitizations options, hedge funds, mutual funds, etc. are all finanical products that were developed in the last 40-50 yrs. Each of these products have evolved to a highly complex product that takes a good deal of financial education to truly understand the impact on person’s finances. It is part of the reason why we find ourselves in this sub-prime mess.
People, who didn’t understand, and who were fearful, or overwhelmed or careless, or stupid, allowed themselves to be talked into pie in the sky loans, with no money down, that provided an immediate home equity lines of credit, leaving the owners (unbeknownst to them) with no asset valuation in the house, and then got shocked when they couldn’t refinance as they were originally led to believe.
Now Congress, and a number of states, are looking into saving our heavily devalued pension plans by propping up the investment banks (one of which I work for) so these firms don’t collapse and send our economy to hell. How do they plan on propping up investment banks, Well, several state senators across the country have proposed some interesting taxes on the general population in order to ensure banks don’t go belly up.
I guess you and I will be paying for this for decades to come!