The financial lessons we received from our parents are problematic for many reasons.
For one thing, they’re often out of date, as the economic atmosphere of the 1970s and 1980s is a far cry from what we’ve experienced in a post-2008 world. We’re long past the quaint advice to pay for college by “getting a summer job” and to start a career by “walking into a business and asking for a job in the mailroom.” Heckin precious.
But there’s also the way an assumption of background knowledge can lead to further confusion. For if you don’t understand basic financial principles, the sweet knowledge nuggets your beloved Boomer dad drops on you might go down like lead balloons. Just as you can’t understand where Beyoncé came from without Destiny’s Child, you can’t talk about getting loans until you understand how interest works!
This week we’re dealing with just this issue. Petey is one of my oldest and strangest friends. I made him walk down the aisle with Kitty at my wedding in the hopes that those two weirdos would have a vulgar joke-off (alas, they conducted themselves with the decorum expected of a bridesmaid and a groomsman and saved the nasty shit for the dance floor).
Petey has his head all in a tizzy over his dad’s vague and incomplete financial advice. So we decided to set the poor boy straight!
This week’s question
Today’s letter comes to us from Piggy’s friend Petey. He asks:
How do you know when it’s the right decision to get a loan rather than paying for something with cash on hand? My dad always tells me to “compare the interest rates against the rate of inflation and stock market dividends” which like… what?– Piggy’s IRL pal Petey
For more on loans, down payments, and inflation, check out these articles:
- When Money in the Bank Is a Bad Thing: Understanding Inflation and Depreciation
- Dafuq Is a Down Payment? And Why Do You Need One to Buy Stuff?
- Dafuq Is Interest and How Does It Work for the Forces of Darkness?
- Investing Deathmatch: Paying off Debt vs. Investing in the Stock Market
- The Real Story of How I Paid Off My Mortgage in 4 Years
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