Financial ignorance helped me a lot

[El_Viajero]

I'm wondering if anybody else had this experience: You were so financially illiterate when you were young that you didn't know about all the mistakes that it was possible to make and, as a result, never made them.

This was the case with me.

For example, until I was in my mid-20s, I...

1. Didn't understand the concept of debt. I did not know it was possible to buy things you couldn't afford and make payments + interest to a lender. Nobody had ever told me about it. Even as a college grad with a high GPA, I did not know how debt worked.

2. As a result of #1, I had no understanding of the '08 financial crisis when it hit because I didn't really know what a mortgage was. Why were these people freaking out? How was it possible for them to buy a house they couldn't afford? (remember, I didn't know anything about debt). I mean, I'd heard of a mortgage. My parents paid one on the house I grew up in. I just didn't know it was any different from paying rent except that you had permission to paint the walls and you had to fix shit when it broke.

3. I literally believed that all the cars people were driving, all the houses people were living in, all the fancy bikes and golf clubs and swimming pools and furniture etc. were purchased with actual cash. How else could such things be had? People who had nice things used money to buy them, right? When a house sold for $200,000, that meant someone just wrote a check for $200,000 and had a house, right?

4. Credit cards: I already had a debit card, so what was the point? I didn't know the difference between the two, so I thought I already had what the people with credit cards had.

5. I pretended to understand discussions people had about debt: credit card payments, student loans, etc. even though I didn't. I eventually figured it out, but it took a long time.

The silver lining to all of this is that I never went into debt because I didn't know it was possible. When I earned money from a job, I knew I couldn't spend all of it because I might need some of it for later. Was there any other way to get by? I didn't know that people frequently spent all of their actual cash and financed the rest of their lives.

By the time I learned about debt, I already had money and was mature enough to understand the consequences of, say... racking up a huge credit card bill and only paying the monthly minimums.

So financial ignorance saved me. Maybe. Who knows what kind of stupid shit I would have done with a credit card when I was 18?

You don't know what you don't know.

[semiretired31]

The benefit of having a parent that was ultra debt averse and talked often about money (and smart financial decisions) is that I did know the consequences of debt.  That's a funny way to look at it though.  If there is no way to go into debt, it makes some things more difficult.  But, it probably helped you in the long run (or so it appears). 

[El_Viajero]

  If there is no way to go into debt, it makes some things more difficult.

One thing that was made more difficult by my not understanding debt: When I was 22, I moved into an apartment with a gas furnace. Before I could receive service, the gas company ran my credit. I didn't have any credit history, so they quoted me the highest possible rate they could charge. It was exorbitant, so I got a space heater for my bedroom. I remember bundling up for the walk between my bedroom and the kitchen each morning.

That was when I figured out how credit cards worked. Someone told me that if I got a credit card and paid the bill, that I could get affordable gas service. So I learned about credit cards first and then about other types of debt later. Mortgage debt was the next type I learned about. Then business debts intended for income-producing activities.

[prognastat]

Growing up in the Netherlands I knew about debt, but unlike in the US debt was and is still far more stigmatized than it is in the US. Beyond possibly a mortgage you didn't really use debt and you instead did without.

[NESailor]

My wife was born to mostly financially illiterate parents who did at least 1 thing right - they discouraged frivolous debt/risk taking.  She never carried any consumer debt whatsoever and even though she didn't earn much the first 10 years we were together - she also didn't spend any more than she earned.  That alone put us lightyears ahead of the average Jane and Joe 6-pack.

She's picked up on the mustachian way over the past couple of years.  Things are starting to add up rather quickly now.

[NoraLenderbee]

Same here, to a lesser degree. My parents explained when I was young that credit cards were for convenience: instead of paying every time you got gas, or whatever, you paid it all at once at the end of the month. Period. I had no idea that you could carry a balance, let alone that companies wanted you to do so. I believed that if you didn't pay (in full), you would get in Big Trouble and probably go to jail.  So when I heard about people in trouble with credit cards, I really had no idea what they were talking about--until I was well into my 20s. I'm still kind of shocked at how easy it is to spend money you don't have and how many people think it's normal to pay $$$ in interest all your life.

[rjbf65]

I'm wondering if anybody else had this experience: You were so financially illiterate when you were young that you didn't know about all the mistakes that it was possible to make and, as a result, never made them.

This was the case with me.

For example, until I was in my mid-20s, I...

1. Didn't understand the concept of debt. I did not know it was possible to buy things you couldn't afford and make payments + interest to a lender. Nobody had ever told me about it. Even as a college grad with a high GPA, I did not know how debt worked.

2. As a result of #1, I had no understanding of the '08 financial crisis when it hit because I didn't really know what a mortgage was. Why were these people freaking out? How was it possible for them to buy a house they couldn't afford? (remember, I didn't know anything about debt). I mean, I'd heard of a mortgage. My parents paid one on the house I grew up in. I just didn't know it was any different from paying rent except that you had permission to paint the walls and you had to fix shit when it broke.

3. I literally believed that all the cars people were driving, all the houses people were living in, all the fancy bikes and golf clubs and swimming pools and furniture etc. were purchased with actual cash. How else could such things be had? People who had nice things used money to buy them, right? When a house sold for $200,000, that meant someone just wrote a check for $200,000 and had a house, right?

4. Credit cards: I already had a debit card, so what was the point? I didn't know the difference between the two, so I thought I already had what the people with credit cards had.

5. I pretended to understand discussions people had about debt: credit card payments, student loans, etc. even though I didn't. I eventually figured it out, but it took a long time.

The silver lining to all of this is that I never went into debt because I didn't know it was possible. When I earned money from a job, I knew I couldn't spend all of it because I might need some of it for later. Was there any other way to get by? I didn't know that people frequently spent all of their actual cash and financed the rest of their lives.

By the time I learned about debt, I already had money and was mature enough to understand the consequences of, say... racking up a huge credit card bill and only paying the monthly minimums.

So financial ignorance saved me. Maybe. Who knows what kind of stupid shit I would have done with a credit card when I was 18?

You don't know what you don't know.

This is so funny because this is also exactly how I thought for the longest time.  I remeber thinking I would never own a home because I'd never save the $100K or whatever it would take to buy one.  So I have never had an auto loan because I didn't realize I could borrow the money to buy something more expensive.  One time I bought clothes at the mall and decided to get the in store credit card because it gave a big percentage off.  I thought I paid for the clothes and never did.  Didn't realize what happened until I got a call from someone at that store that I never paid that card.  So after interest and fees I paid closer to $80 for a $25 pair of jeans.  I think I was in high school at the time.  I never used that card again.  Then college came and went and I racked up some student loan debt.  Six months after I graduated college my minimum monthly payments started coming out automatically. This went on for a year and then my brother introduced me to Dave Ramsey.  I finally found out how to log in to my student loan and see the activity.  My $56 monthly payment was $8 principal and $46 interest.  That pissed me off when I saw that.  Luckily my student loan debt was only $10k and I was able to pay it off in a few months.  From that moment back in 2008 until today I have had a monthly budget.