With the financial system rapidly changing, how do we do with money?
Don’t get a car you aren’t able to afford. Save 10 % of your earnings for retirement. Also, for screaming out, quit wasting cash on coffee.
We’ve all heard it before.
Traditional financial advice for individuals is usually tossed around in general statements. While it is a good idea in principle, however, the way we handle money is a lot more complex.
The changing economic environment has led to this becoming a normal reality. The amount of spending by consumers is rising as well as unemployment levels are down However, wages have been declining and some have stopped their job hunt, and income inequality remains common. In a world where the financial system is rapidly altering — and perhaps to be changing for the worse, how can we manage the money issue?
I’m fascinated by the causes as well as the consequences of inequality, especially from a standpoint of labor markets, said Kate Bahn director of labor market policy and economics expert at the Washington Center for Equitable Growth, an organization for research. She is a doctor. Bahn argued there’s not enough focus on the bigger structural obstacles that make people’s financial lives difficult. Personal finance may further reduce the importance of the obstacles, she suggested. May be that’s the reason I’m unhappy.
For instance, there is the concept of labor monopsony. This is the result when a single employer has control over the workforce. “So employers will profit and pay less to workers because there’s no alternative,” Dr. Bahn explained. “It’s in remote geographical areas in which there is just one major employer and there’s nothing else to work for, therefore this company can pay what they like because employees can’t simply say, ‘Screw this’ and move on to another place.”
Dr. The argument of Dr. Bahn is that personal finances are important, but not sufficient. It’s presented as a solution, but the policy issue is actually what’s required, she claimed and focuses on an individual choice on issues that are, unfortunately, beyond most people’s control.
Others believe that personal finance is still useful since it provides a means to communicate details that people are usually not encouraged to seek. “People have expressed disdain for financial education, claiming that it’s ineffective because people continue to make wrong decisions,” said Billy Hensley the director of finance and C.E.O. at the National Endowment for Financial Education, which is a private non-profit. Education isn’t a way to help people find jobs but it can aid those who are struggling to make sense of the system as it is.
It’s difficult to gauge the impact of personal finances since a lot of it is personal. Rachel Schneider, a researcher and co-author of  The Financial Diaries: How American Families Cope in a world of Uncertainty, determined to study the way people manage financial matters in the world. Her co-author, Jonathan Morduch who is a research professor and researcher at N.Y.U., worked with around 200 families for the duration of one year, collecting data on each dollar that was spent through their homes.
A significant discovery was the degree of fluctuation that people experience when it comes to their personal finances throughout the course of a calendar year, Ms. Schneider stated. While she was expecting to see the same level of income volatility throughout the year but it was a surprise to find how drastically income fluctuated throughout the year, as well. The subject may be over the poverty line throughout the year but the same person may be below the poverty level at any time.
This is a major influence on how people manage finances, Ms. Schneider explained. The economy is expanding and the unemployment rate is decreasing and relatively low but we’re not witnessing that the growth and prosperity being distributed downwards to the lowest. Although she. Schneider agrees that financial education is important and can be beneficial, she fears that the over-reliance on the importance of it as a solution for financial issues shifts responsibility from the major players in our economy such as banks that provide subprime, predatory loans or businesses that profit off employees.
