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Why Don't People Manage Debt Better?

blogs.scientificamerican.com

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Re: Why Don't People Manage Debt Better?

#251

Post by Terribledactyl »

TwiztidK wrote: post #204
nisse72 wrote: post #170

Earlier quoted context omitted.

Since when does a television become "obsolete" after a year? Or even after 5 years? Just because it doesn't have built-in support for Netflix or whatever the latest thing is? This is the sort of idea that lures people into overspending in the first place. For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television. Yes it's fatter than those newfangled flat things,…

> Yes it's fatter than those newfangled flat things, but it doesn't watch me watching it, it doesn't record my conversations, and it doesn't report my viewing habits back to the mother ship. One day it will fail and I'll be forced to get a new one. It's actually getting pretty difficult to buy a new "dumb" TV these days. The last TV I bought was in November 2014, it's a normal 50" Plasma screen TV with zero connected…

Recently purchased an older model LG oled, and it has all sorts of "smart" features. Simply not connecting it to the internet and not agreeing to the terms of service has turned it back into a dumb tv.

Re: Why Don't People Manage Debt Better?

#252

Post by dagw »

ksdale wrote: post #156
mafribe wrote: post #107

Earlier quoted context omitted.

Why are you sure that for you, $800 worth of food is less than 2 x utility of eating $400 worth of food? How would you convince somebody who thinks you are wrong (e.g. deluding yourself, or not telling the truth)?

You could ask them to buy twice as much food as they normally would every time they go to a restaurant or the grocery store. They can either eat until they feel uncomfortable and gain weight or they can start throwing a ton of food away, either way the utility per dollar spent goes way down past a certain point. Note that this assumes that you are already able to spend an optimal amount on food.

You're assuming that 'food' is a single fungible commodity. Spending twice as much on food doesn't mean buying twice as much food, it could also mean buying better quality food and going to higher quality restaurants. I could easily both double and triple my current food spending without eating more or wasting food.

Re: Why Don't People Manage Debt Better?

#253

Post by craigds »

nostrademons wrote: post #249
rdrey wrote: post #173

Earlier quoted context omitted.

Replace the word TV with 'first household car'.

Curious what your point is? It's pretty common to pay cash for a used clunker as your first car because you don't have money to buy a new one, and then use it to get to work so you can save up more money to buy a new one. Or at least, it's pretty common among the folks I hang with. The car-loan phenomena is baffling to me; why would you pay interest on a depreciating asset?

I think it's an American thing. In NZ it's pretty rare to buy a new car, far more common to get a 10-15 year old one for $5-10K. Paying cash is normal

Re: Why Don't People Manage Debt Better?

#254

Post by kdamken »

pc86 wrote: post #75
kdamken wrote: post #29

Earlier quoted context omitted.

While I agree in that it obviously is not the smartest way of doing that, if it gets people to actually feel like they have a plan for taking care of their debt and to start making progress on doing so, then it's worth it. Obviously they probably shouldn't have bought a bunch of things they didn't need, but hindsight's always 20/20.

This whole idea that "oh you have multiple creditors obviously you've made bad decisions" is misguided and naive in the extreme. People have medical bills. People need the counsel of attorneys. You generally need a reliable car to get to work and a roof over your head. You can have huge mountains of debt and be forced to dig your way out by the skin of your teeth through no fault of your own. Paying hundreds a month…

Those are all valid reasons and of course it's understandable that you'd need to resort to using credit card debt if you had no other option.

However, had they been more frugal and put more effort into their savings prior to the event, they might not have needed to go into (as much) debt.

Re: Why Don't People Manage Debt Better?

#256

Post by tunesmith »

cperciva wrote: post #115
infinite8s wrote: post #97

Earlier quoted context omitted.

Thanks, that makes sense. I guess that's why flat income tax rates are considered "unfair" since they are modeled on a linear expectation of utility.

Not really. Completely flat percentage taxes (e.g., pay 10% of every dollar you earn) reduce everybody's utility by the same amount if you have a utility = log(dollars) model. Actual "flat taxes" (e.g., pay 10% of every dollar you earn after the first $10k) have a larger impact on the utility of high income earners (at high incomes you approach a change of log(0.9), while at low incomes the impact of the tax on utili…

I don't understand this. If the utility of money is roughly logarithmic, then that would imply the most fair tax bracketing would be a logarithmic curve. An example would be the "logarithmic flat tax" I see mentioned sometimes - figure out how many times above the poverty rate you make, log-10 it, and multiply by some flat constant (they usually recommend 9 or 10). If you plug in a middle-class earner's revenue to that formula, their effective tax rate is far lower than it would be under any flat tax I've seen mentioned. Flat tax in comparison is very regressive.

Re: Why Don't People Manage Debt Better?

#257

Post by saalweachter »

nostrademons wrote: post #249
rdrey wrote: post #173

Earlier quoted context omitted.

Replace the word TV with 'first household car'.

Curious what your point is? It's pretty common to pay cash for a used clunker as your first car because you don't have money to buy a new one, and then use it to get to work so you can save up more money to buy a new one. Or at least, it's pretty common among the folks I hang with. The car-loan phenomena is baffling to me; why would you pay interest on a depreciating asset?

Why would you waste your liquidity on an asset so easy to secure a loan for as a car?

A five year new car loan from a credit union -- no shopping around -- has a cost of something like $58 / $1000 borrowed. So even if you have $20k cash on hand to buy a new car, for a thousand bucks you can maintain an extra $20k of liquidity for expenses that are more annoying or more expensive to finance, like auto repairs.

Re: Why Don't People Manage Debt Better?

#258

Post by matwood »

maxxxxx wrote: post #60
anon4 wrote: post #24

Don't fall into debt. If you must fall into debt, then do so to a friend at no interest. If you still have to fall into debt, do so to a reputable bank and pay it off as quick as you can - sell whatever assets you have if you must. This of course applies to private individuals, not companies, banks or other institutions.

I would advise people not to lend money to friends and family. I have done it several times and every time it led to problems and a lot of pain.

I never lend money to friends or family. Either I give them money or tell them I cannot help.

Re: Why Don't People Manage Debt Better?

#259

Post by gozur88 »

maxxxxx wrote: post #60
anon4 wrote: post #24

Don't fall into debt. If you must fall into debt, then do so to a friend at no interest. If you still have to fall into debt, do so to a reputable bank and pay it off as quick as you can - sell whatever assets you have if you must. This of course applies to private individuals, not companies, banks or other institutions.

I would advise people not to lend money to friends and family. I have done it several times and every time it led to problems and a lot of pain.

Polonius: Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.

Re: Why Don't People Manage Debt Better?

#260

Post by tunesmith »

douche wrote: post #61
imgabe wrote: post #17

Anyone at a point where they are making monthly payments on multiple credit cards has already lost the debt game. People don't manage debt better because they have been marketed to and taught to use debt completely inappropriately. Debt should be used to purchase an asset that will appreciate or otherwise provide an income in excess of the interest payment on the debt. Full stop. That is how businesses use debt and t…

It's pretty numb to use debit cards as opposed to credit cards, for various reasons. A.) You can't over-draw a credit card, and get hit with overage fees or bounced-check insurance, or all the other things banks do - particularly with the slightly nefarious way they often choose to order your transactions when they close their books. Particularly troublesome with businesses that put in a hold on your card, then charg…

One problem: Debit cards are automatically paid down at zero all the time. None of the credit cards I've ever had have made it easy to automatically pay down to zero. You have to do it manually - you remember most of the time, then you're a bit late one month, and it's enraging. Credit card companies have every reason to make this difficult.
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