Real off topic but something that has fascinated me since I moved to a small Mayberry type town in southern Kentucky almost 20 years ago. Before I moved here I mostly interacted with people with college degrees. Very few people here have college degrees. Yet I was taken back with how smart and intelligent they were. Not only that but they are masters of many trades be it fixing a car, remodeling/wiring a house or computers, especially computers. But intelligent as they are, they mostly labor in factory or fast food or other menial jobs and have little to no savings. In other words they are almost always broke and live hand to mouth. I was hiking yesterday with such a couple - the guy works at a local factory, his woman on disability (but boy can she hike) Some of the words out of his mouth were amazing, very articulate with a vast vocabulary.
So why do these otherwise very smart people (in many cases much smarter than me and my college educated friends) have little to no financial acumen? It can't be a function of education as I rarely opened a book in college. College was a completely wasted four years for me. I had an interest in the market and money making way before college. So is it more a function of their rural and impoverished upbringing and/or having no parental role models when it came to finances?
Comments
It's not about intelligence or degrees, as you say (!) Once introduced, some will find the investing stuff interesting, some will think it's like watching grass grow. I hated basic arithmetic lessons as a child, but EVERYONE NEEDS to learn it. Same thing with investing, mutual funds, etc.... But currently, there's no way to insist and make sure everyone gets exposed to it, eh?
- apply and interview for a well-paying job in an uncrowded field of one's interest
- open a checking account, write a check, and balance a checkbook
- (if in college) minimize student debt
- obtain a credit or debit card and avoid a large debt load
- apply for a loan
- decide whether to rent or buy a home and if buy, how to obtain a mortgage
- decide whether to buy or lease a car
- avoid blowing savings or getting deeply into debt by having an elaborate wedding and honeymoon
- avoid telephone and investing scams
- save money and invest in a ROTH or Traditional IRA using an advisor or DIY
Some of this is probably too basic and/or idealistc and needs refinement, but it's off the top of my head.
One is taught out of a book and one is experienced (learned)
Personal experience: I couldn't write a check for my college books when I got out of High School (18yo), but I owned 2houses and 3 condos in Florida before I was 30yo.
Go figure...
(1) We learn that which we deem important.
(2) Parenting, upbringing, and the culture in which we exist greatly influence our sense of what is important.
(3) Longer term, cultural effects are more influential. We "escape" our parents' zone of influence relatively early. Culture, however, persists.
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Some cultural influences are relatively fixed (family, religion, geographic zone). But others are more subject to change. New friends, teachers, co-workers, professional affiliations or other experiences - maybe even the book we opened out of curiousity one morning - can sometimes alter our perceptions of what's important and therefore worth learning. ... It is often said: "Here but by the Grace of God go I." ... It might also be said: Here but by Chance go I.
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As you have rightly observed, "intelligence" alone does not result in financial acumen. I have known both highly intelligent bums and very dumb bankers.
Bingo....home run...
Then that led to collecting and trading coins for profits and eventually stocks.
( buy candy ect.) She said: "Son I don't have a dime go get your own money"
So I did (paper route) and I have had my OWN money ever since,
Lifetime lesson...thanks mom
So, my Dad says to me, he says - "Gurl, yous too ugly to get yoreself a man, so you better get rich and buy one."
The rest is history.
Education level and net worth are not just positively correlated; they are highly correlated.
That's much more than just me making an assertion. Every single study on this subject that I have ever seen documents that claim. Sure these studies quote averages, but averages represent the fundamental trend accurately. Since distributions around these averages exist, many exceptions are real.
The averages change for age, sex, race, geography, and nation, but the trends are consistent. The specific numbers change over time, but the trend is consistent.
The ordering supports eduction, especially higher eduction. The net worth ordering is (1) no high school degree, (2) high school degree, (3) associate college degree, (4) college degree, (5) graduate higher college degree.
The wealth gap between high school training andgraduate school training is huge. It is a positive number that typically ranges between a 2 times factor and a 10 times factor.
Best Regards.
1. Money makes money - as we all know. So, is the difference related to those who already enjoy a head-start owing to existing family wealth?
2. As I observed above, culture (broadly defined) helps make us aware of both the value of wealth to our well being and various means of attaining it. If there's any truth in my assumption ... than growing up in a poor neighborhood where the corner drug dealer constitutes a role model for "success" or attending very poor schools would seem to mitigate against learning financial accum. On the other hand, if Dad was an accomplished investor and financially well off - and if you benefited from good schools - than your chances of accumulating wealth and financial knowledge would be greater.
Or is there something else in play?
I trust all is well with you.
Thanks for the personal story!
Mona
Hi there Hank- I find this whole subject to be very interesting, because my life experiences and observations correlate well with what Junkster has described. I think that social and geographical culture are the dominant factors in this puzzle. By "geographic culture" I don't mean in the larger sense (although that sometimes applies as well)- I mean in a very small and focused sense: your family, friends, and the general type of neighborhood that you grow up and go to school in.
Let's take apart your sentence, up above, and apply it to my own situation:
• " if Dad was an accomplished investor and financially well off"... Well, he wasn't either. BUT- my parents and their friends and relatives all had come through the "great depression", and from their own financial conversations, I learned that it was better to never buy anything "on time", and never to get involved paying interest. The one exception, of course, was buying a house. I grew up understanding that if you wanted something, it was best to save up and pay cash for it. Saving. That was the magic word. Unlike tb, upon high-school graduation I could and did write checks, but certainly did not own any real estate before I was 30.
A note to tb: No sir, you most certainly did not "own" "2houses and 3 condos in Florida before I was 30". A lender of some sort "owned" those properties, using money that they had made from their own financial activities. They permitted you to speculate with their funds; you were both intelligent and lucky, and that happened to turn out well. I've done likewise in that arena, also with good results. Luck favored us both: as a matter of timing we happened to avoid a major real-estate meltdown. In 2008 many others were plying the same course, and they were annihilated.
• "if you benefited from good schools"... well, I benefited from the typical Catholic school education, which was competent, but in those days, actually pretty much on a par with the public schools, at least here in SF. I assert that as a fact because my wife went through the public school system here, and there was no significant difference in either discipline or subject matter. After high school I served in the Coast Guard for four years as an electronics tech, which for all practical purposes was the equivalent of a community college education, at least as far as employable skills are concerned.
So I have to conclude that education, at least as far as economic literacy is concerned, was not a significant factor. (Note to MJG: in my case- I'm not extrapolating.)
A side note regarding "education": I wonder if a degree in library science, philosophy,
or art history is as effective as an MBA in financial management at causing the "great divide" in education vs wealth? All well and good to make a broad generalization, but I have to wonder if the native intelligence of those who enter the medical, scientific, and mathematical disciplines might be a factor?
• "Money makes money - as we all know"... And if intelligence is a factor, now we are into genetics, yes? And if that's so, do we presume that intelligence, as a general rule, springs up spontaneously, or is more likely to be inherited? If inherited, what are the odds that the parents and family of the well-educated were themselves financially secure, and thus able to support the extended education of their offspring?
• "your chances of accumulating wealth and financial knowledge would be greater. "... In view of my first two paragraphs, I think that I would have to separate "accumulating wealth" and "financial knowledge". Our bias towards saving (my wife shares both my general background and financial perspectives) has resulted in a comfortable financial situation at this point; our "financial knowledge" is still severely lacking, bordering on pathetic. I make that observation based upon years of reading the many excellent contributors here on MFO. My wife's "financial knowledge", regrettably, is even more deficient than mine. We accumulated, bit by bit, the reserves needed for financial security. With luck, we encountered acquaintances and situations that allowed us to multiply those reserves to their present level.
I think that as in most things in life, the degree of curiosity or natural interest that one has in a particular area determines to a great degree the extent of knowledge one acquires. I've many intelligent friends who are musicians, for example, and who have knowledge, education and talent in that specialized area that I will never approximate. Without exception, they are financially marginal, living week-to-week. But most of them are actually pretty happy at what they're doing, despite the lack of wealth.
No real universals here, right? As usual, complex questions have complex answers. No one factor, be it "education", "intelligence" or anything else is going to give Junkster or the rest of us the ultimate answer to this one.
Serendipity.
tb and MJG most likely won't agree, but I surely do:
serendipity |ˌserənˈdipitē| (noun)
the occurrence and development of events by chance in a happy or beneficial way : a fortunate stroke of serendipity | a series of small serendipities.
Thesaurus : serendipity (noun)
(happy) chance, (happy) accident, fluke; luck, good luck, good fortune, fortuity, providence; happy coincidence.
YET I succeeded anyway!.....don't call me lucky...that's an insult, call me "don't quit.."
In this instance, you are only half wrong with certainty..
Throughout my life I have always believed that luck is a major factor.
My greatest unlikely event was meeting my future wife while I was in the military. The chances for that ever happening were minuscule given that our potential overlap was negative until I had an unexpected change in orders. That was my luckiest day!
I do believe that you can tilt the odds in many cases with study, planning, and comimitted execution. Hard work promotes the likelihood of good payoffs, but can never guarantee them. It's a matter of enhancing the odds.
What motivates you to wrongly anticipate my reactions?
Best Wishes.
How about being born in the US instead of Bangladesh, where you'd probably be sitting at a sewing machine, or Cambodia, where you'd be just one more skull in the pile? How neat to credit all success to your infallible talent and all failure to "beyond your control". You cut yourself a real nice exemption there... a pity it's not available to anyone else.
With respect to Jimmy Carter and 18% interest, I bought, at the top, 14% tax-free munis backed up by Utah electric power generation. Did wonderfully for years until called. I'd like to claim skill- it wasn't. Evidently your "beyond your control" event was my good fortune. That's generally called "luck".
Regards-
Edit / add: "In this instance, you are only half wrong with certainty." I really like that! Almost worthy of Mark Twain.
Also, I CYA'd by the "most likely" categorization. Give me a little credit...
Thank you for removing me from your list. I worry what other lists you maintain.
I don't understand why my "Education level and net worth" statement troubled you. My full statement indicated that they were highly correlated, not perfectly correlated. Highly correlated means a correlation value less than One; that means other factors are required for a complete explanation. Only a perfect correlation value of precisely One means that no other factors are needed.
I said what I meant and I meant what I said in this instance. Sometimes my language is not precise enough. In this case, it was.
Best Wishes.
For clarity, I'll submit that I think Junkster's original question had less to do with wealth "accumulation" and more to do with financial "literacy." Another way of putting it: Why do some seemingly intelligent people develop an aptitude for managing and/or growing their assets, while others who appear of equal intelligence end up "clueless"?
There's no single answer, but I like "serendipity" best. So many turning points in my life seem to hinge on chance encounters. The classmate who sat near me during a high school class and motivated me to do better. The roommate in college who knew a lot more about money than I did and became a lifelong friend. The co-worker who took an interest in my financial literacy (actually lack of it). And a fella I happened to sit next to on a flight somewhere. Not to be overlooked: the occasional high school or college instructor who inspired.
No - money's not "all-important". There are finer things. But have you ever tried putting a nutritous meal on the table without it?