I’m on an airplane (and way the hell too cheap to spring for miracle in the sky wifi) so I can’t quote myself completely. But I can give you the gist of what I said in a comment a few weeks ago.
I’m convinced that 90% of poor people are that way because they don’t understand math. That and they play psychological tricks on themselves.
We’ve all seen this a million times, of course. Us finance geeks know the exact cost down to the penny of a car loan before we sign on the bottom line. Some might choose to pay a little more in interest in exchange for a longer amortization period, a trade-off carefully analyzed and reanalyzed. Or not. But at least they know exactly what they’re getting into.
These people, surprisingly, are no fun at parties.
Then there are the rest of the unwashed masses. These people see nothing but a shiny new ride. As long as the monthly payment doesn’t seem too onerous — and oftentimes even if it does — they’ll give everyone at the dealership all the sloppy kisses if it means getting approved for a loan.
We live in a protective little bubble in the personal finance blog-o-net. We’re surrounded by like-minded people who all think the same, act the same, and all worship the same GOD (your’s truly, of course). When we do argue about stuff, it’s about trivial crap like if it’s a good idea to pay off a mortgage in three years or trying to figure out if excess cash should be put away in a TFSA or RRSP.
Think about it
Most people don’t have these problems, partially because they don’t approach finance from a logical perspective. They do so emotionally.
I’ve learned more about behavioral finance by talking to my private mortgage customers than I have from any other source. These are the financial equivalent of people who only do cocaine on the weekends. They have a problem; they just can’t admit it. And dealing with them is fascinating.
I’m lucky. My business consists primarily of debt consolidation loans. I can take $30,000 of debt at 12-18% and roll it into a mortgage that pays 8%, give the borrower a little longer payoff period to get their payments down, and everyone’s happy. It’s a relatively nice place to be.
But at the same time, I have been known to encourage the odd person to go and apply for a loan at a bank. Yes, I do have a heart, even if it is three sizes too small. FINALLY, A GRINCH REFERENCE ON FINANCIAL UPROAR JUST IN TIME FOR CHRISTM- OH WAIT.
Don’t fight it
Like with the whole financial literacy argument (spolier alert: it doesn’t work, especially when taught in high school), I advocate everyone reading this to take a slightly more, uh, controversial approach.
My fellow personal finance chumps and/or chumpettes think education is the answer, and we should dedicate our collective energy into exposing the basics to the largest audience possible, in some sort of foolproof effort to get them to see the light.
I disagree entirely. Understanding the basics of personal finance isn’t hard. It takes 6th grade math skills (ZOMG! FRACTIONS!), the patience to read a book or two, and the ability to change one’s mindset.
I have little interest in catering to those people. Getting people to change their minds is hard. Believe me, I know. Back when I was single, I got rejected and then groveled a hell of a lot.
Instead, profit from it. Get into the private mortgage business like I did. Invest in Goeasy shares, the company that gives loans at the stroke-inducing interest rate of 46%. As always, that’s not a typo. They are basically legal loan sharks, minus the knee cap breaking.
Too skeezy for ya? There are other ways to take advantage of our collective inability to do math. Telus makes a lot of money selling cell phone contracts. Apple products are no better than the competition’s, yet they cost twice as much. Goldman Sachs rips off sophisticated investors all the damn time. There is no end to it.
Wrapping it up
Everyone has justified making a poor financial choice at least one in their lives. And that’s okay. The important part is you don’t keep doing it over and over again.
The easy way to accomplish that? Look at everything like a business does. Good businesses keep costs down because management measures return on capital. Embrace the same thought process in your life and you will end up richer.
And if you really want to supercharge the process, take the money you don’t spend on crap and put it to work in a company that takes advantage of these financial morons.