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I am increasingly sympathetic to the idea that systems too complicated for stupid people are deeply unfair, even if I personally have no trouble understanding and even benefitting from these systems. When we look at something like credit cards, smart people can gain an edge in convenience and even a net profit from gaming the points systems. People in the middle with sufficient executive function will get the convenience benefit without too much trouble. People that either don't really understand what credit is, don't understand how interest works, or lack impulse control will purchase things they can't afford, accumulate more debt with compounding interest, and ruin their lives. In my previous, more callous thinking, I basically thought, "well, tough shit for them, it's not that hard to understand and they should just do better". Observing people's behavior, that's just not true. No matter what they do, they're not capable of understanding how compounding interests works, even if they grasp it during a conversation, that's going to be right out within a couple days.
This also extends to student loans. While I still have antipathy for people that absolutely can grasp what they're signing, it's just obvious that many people really don't understand what they're signing up for and don't understand the basics of financing. We can see people posting stories about how shocked they are that they've already paid the amount they owe, but the principal is still the same. People think "cancellation" is something that can be done without any impact on the other side of the ledger; they have no idea that there even is a ledger, they literally believe that the only reason their debt isn't cancelled is because some people are just mean and hate them.
Idk I think these are things that many of these people (not the bottom percentile people we see in AdjusterTok, but say the 25th-40th percentiles) would be able to understand if they spent a lot of time just grinding basic examples and thinking through it, over and over, instead of spending that time trying to understand sports or TV or relationship drama. Relatively dumb people can learn to perform simple jobs that'd be outside their capability to do on the fly by just repeating the task over and over. Not to suggest that usual claims of "it's our fault for not teaching this in schools" aren't stupid, just having an extra financial literacy class isn't enough, but I don't think it's a totally intractable problem even without coercion.
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There are a number of ways to solve this sort of problem. The only ones within the Overton window is terrible, however -- systems can be arbitrarily complicated, but smart people pay other smart people to help the stupid people navigate them, and the stupid people are let off the hook if they screw up anyway. This means the world becomes arbitrarily difficult for intelligent people while the stupid people (and smart people who can manage to also get let off the hook) get all the benefits for free.
The idea of making all systems simple enough for stupid people just isn't viable; you can't run a modern economy based on -1SD intelligence (and if you try to de-modernize enough that you can, the results will be mass starvation). As @satirizedoor says, the complexity is irreducible.
The idea of a tiered society where stupid people just don't get certain benefits -- e.g. if you're too dumb to understand an amortization schedule, you don't get to have a mortgage -- is pretty much anathema. If you have something like that, then as soon as there's a little crying about inequality, we get subsidization programs to make it go away. Or sometimes they take away the thing for non-stupid people too. The idea of letting stupid people suffer the consequences is also anathema.
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While I understand the general sentiment, the OP's thread is about car insurance, and quite frankly, the people who don't understand car insurance should not be given sympathy, they should have their licenses pulled. Not only are these people, statistically, terrible drivers, but by not having/not having enough insurance they just are a driving externality on the road. The solution isn't to make insurance easier to understand (its already incredibly easy), the solution is to put it on the drivers exam and fail people over and over and over until they learn. Or learn that they can't learn.
For car insurance, there's also a third option- make people buy a government decided insurance package, maybe allow opt out to buy different insurance after passing a test or financial threshold.
This would turn into a boondoggle immediately, just like federal flood insurance is.
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Well the problem is that Americans built a country where the vast majority of adults simply cannot live and work without a personal car.
That was caused by the same people who don't understand insurance moving to cities.
Nah, other countries with similar diversity still have much more widespread public transport.
Because they can't afford cars.
And don't have the space for suburbs.
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There's a solution to that, fortunately. Personal cars. Would work even better if it weren't for New Urbanists, Traffic Calmers, Net Zero, and other anti-car types trying to mess things up.
And what of the small but substantial minority of people who are too stupid, high time preference, incompetent, poorly-sighted or irresponsible to drive?
They can go somewhere they can take public transit, and be outside that "vast majority".
‘Let them move to Manhattan’
W. C. Fields may shudder, but there's also Philadelphia.
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Also commonly seen in stories from first time home buyers. They do not understand amortization (i.e. the majority of your payments are going to interest for the first 10 or 20 years of your loan), they do not understand escrow (i.e., homeowner's insurance and property taxes will increase, therefore your monthly payment will increase), and gods help them if they got an ARM.
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The best solution is to make it very easy to declare bankruptcy to discharge loans, maybe as simple as standing up and yelling "I declare bankruptcy." It would, of course, destroy the credit card and student (any unsecured, really) loan markets as they exist now, but it shifts the risk to people who actually have the capacity to evaluate it. Keeping people in perpetual debt who don't have the intellectual capacity to understand interest is kind of obscene.
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I've been trying to help someone figure out their student loan situation through the latest round of presidential office attempts to put various plans in place, and it just comes across as gambling at this point. We're both about as smart as the average non-technical collage graduate. First a bunch of people were saying to consolidate, because (reasons that I found rather obscure having to do with an executive order?). So they did that, but then the numbers fluctuated wildly for a while, and they got a bill for more than they've ever owed in their life. So they tried submitting some paperwork, which was ignored for a few weeks. Then they tried calling, and the person said they would put it on hold while the paperwork was processed, which might take three months or so, they weren't really sure. Meanwhile, there seems to be a bunch of law fare going on between the president's office and (states? banks? state created financial entities?). It doesn't seem so much like people are stupid, as that the system is wildly unstable, leading to a student loan decisions as gambling situation.
I have a general rule that I do not make big changes regarding financial situations or anything else that are predicated on assumptions about future political or legal actions.
For example, there is a fairly common strategy of converting IRAs and 401ks which are pretax (meaning that you have not yet paid taxes on them but will need to do so upon withdrawal) into Roth IRAs and 401ks (which will be tax-free upon withdrawal). To do this you need to pay taxes today to attempt to save taxes in the future; as such it is basically a bet on your tax rate today vs. at retirement. However the hidden assumption is that Roth vehicles will never be taxed, and I put the odds of that at much lower than 100%. We're going to need to get that UBI money from someone.
That being said I didn't think I'd ever sniff Social Security and I now have <20 years max left (pending changes to retirement age). But I have found that eking out small +EV in life tends to be dwarfed by variance. At the poker table sure, but not when dealing with the vicissitudes of fate.
I've always felt similar about Australia's Superannuation system. There's definitely ways of deriving a tax advantage, but as a 29 year old now I'm not super confident in the withdrawal ages and sanctity of the product for the next half-century.
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I'm sure it could never work. But I've thought for some time that the just action for some fraction of student loans would be to transfer the obligations from the student to the university, for any student who filed for financial aid and was required to take remedial sub-"college" level algebra by the university that they were enrolled in. Like the university as an organization knew (1) that person has no way of understanding exponential functions and therefor compounding interest (2) would need to undertake a compounding loan in order to pay for the tuition. If you know a person does not have the capacity to understand the considerations of a contract, I find it highly unethical to enter into such a contract with them. It also seems preposterous to be charging US university level tuition for material that's available from a $2.50 workbook at your local grocery store checkout. I've laterally seen students learning to reduce fractions in a top 50 usnews ranked university.
I’ve long held the conspiracy theory that ‘cancellation’ discourse at the level of elected officials is mostly just fighting about who has to eat the cost of these bad loans- if they don’t get paid back, someone has to.
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