9 ms·

Financial literacy is pure garlic to every common vampire financial advisor. I have a couple friends right now that do not want wage raises because "it will kn

Financial literacy is pure garlic to every common vampire financial advisor. I have a couple friends right now that do not want wage raises because "it will knock them into the next tax bracket". Believe me, I've tried to explain how the simple concept of income and taxes work. I trusted my financial advisor years ago when I started my career. It took me a couple years to realize I was the product, not his client with his best interest in mind. Strangers, especially from more disciplined subs and without skin in the (your own) game, have been more valuable many, many times over. Everyone who takes what is said literally and in verbatim would be a fool. Validate what is said as it applies within your own context.

mfoy_ 7y ago
Almost all "financial advisors" are really just in sales.
- Humdeee 7y ago
  Correct, and developing trust is a fundamental tool in every salesman's pocket.
- GordonS 7y ago
  In the UK (and, AFAIK, across the EU) we have IFAs (Idependent Financial Advisors) who follow rules, such that they are nit permitted to get kickbacks from investments. Does such a thing not exist in the US?
  - jeremyashort 7y ago
    In the US we have "Fee-Only Financial Advisors": https://www.forbes.com/sites/davidmarotta/2012/06/11/fee-only-financial-planner-whats-the-difference/#30da618f3f24 https://www.forbes.com/sites/davidmarotta/2012/06/11/fee-onl...
  - mfoy_ 7y ago
    In Canada we have fiduciaries, but most people aren't that financially literate. If you walk into a bank and ask for a financial advisor they're just going to pass you to a sales rep. Enjoy your TD e-Series! (Although, admittedly, mutual fund MERs have dropped substantially with the rise of low-cost ETFs...)
iso1210 7y ago
Dunno about the US, but in the UK there are a few wage points where a small rise can lead to a reduction in net income. Specifically moving into the higher tax bracket, which removes £200 off their personal allowance if they were using the pooling allowance option -- i.e. a £100 tax rise could lead to £46 extra income but £201 extra outgoing, a net reduction of £155 There are more perverse options with housing, childcare and income benefits being removed which I believe can lead to a negative income. In the US the Benefit Cliff is real: "There is this issue of the benefits cliffs, where some programs are designed so just a very marginal increase in earnings can result in a loss of a very important benefit. And a lot of states, unfortunately, have structured their childcare subsidies programs that way," explains Skinner. "Typically, pay rises, income rises, but at some point you lose eligibility for a subsidies all together and it's an abrupt reduction in that family's resources," Skinner says. https://www.theguardian.com/money/2014/jul/20/benefits-cliff-minimum-wage-increase-backfire-poverty https://www.theguardian.com/money/2014/jul/20/benefits-cliff...
- sobani 7y ago
  This picture show the benefit cliffs in a very clear way: https://sacredcowchips.files.wordpress.com/2015/08/welfare-cliff.jpg https://sacredcowchips.files.wordpress.com/2015/08/welfare-c... Most important part of that picture: "The single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income & benefits of $57,045."
  - iso1210 7y ago
    That's shocking - so much for "one specific demographic", when it affects people earning over twice the median wage.
- magduf 7y ago
  Does the US not have marginal tax brackets? That seems really odd and dumb. The benefit cliff you cite is real, but for actual income taxes, there's no such thing as a reduction in income from higher earnings. Going to a higher tax bracket just means you pay higher taxes on money over a certain threshold. So if bracket A is 20% under $50k, and bracket B is 30% over $50k, if you make $51k, you'll pay 20% of 50k, plus 30% of 1k. It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects). Strangely, a lot of people don't understand this at all.
arkades 7y ago
Quite. I considered going into financial advisement once, in the distant past. A family friend was in the field, and took me in for a round of advice. He was quite open that it was eat-what-you-kill, with a serious focus on people with impaired judgement (e.g., elderly), because that was the only way to make up the bulk of your revenue. He said that he hadn't had a peaceful night's sleep since he'd started, due to the guilt of day-to-day work.
tsukurimashou 7y ago
> I have a couple friends right now that do not want wage raises because "it will knock them into the next tax bracket". is that not a real thing where you live?
- whateveracct 7y ago
  I think it's more that getting knocked into the next tax bracket is better than making less money. Because you inherently still make more money due to how tax brackets works. I'm guessing this is an allusion to how many people don't understand how tax brackets work and think that you can make more money, get taxed more, and then end up with less than if you never made more money.
- Humdeee 7y ago
  Tax brackets do, but what I was insinuating is that those select friends (bless their heart) believe that all of your income is taxed in the highest singular bracket that you reach.
- Proziam 7y ago
  So many people don't understand how tax brackets actually work. They think if they make one more dollar they pay X% more tax on every single dollar they earned. It's actually terrifying to me how little understanding the average person has of finance.
- rchaud 7y ago
  It isn't that black and white. For example, in Canada, I can contribute a certain amount into a tax-free savings account each year. TFSAs can be created to hold ETFs, Mutual Funds and other types of investments. I can contribute $6k for 2020, and the total I can hold in TFSA is $69,500. I can contribute more annually as long as my total is under $69.5k. With a raise, I can accelerate my contributions and continue to enjoy tax-free gains on it. My personal average income tax rate might go up, but that's offset to an extent by whatever returns I'm making through my portfolio.
  - jeromegv 7y ago
deleted 7y ago
[deleted]
clSTophEjUdRanu 7y ago
I feel like the widespread misunderstanding of tax brackets is used as a weapon. Candidate X wants to tax you 60%!
- karatestomp 7y ago
  It absolutely is. See also: the "death tax" in the US. I 100% guarantee you that the number of people who think they're subject to it exceed the number who are by at the very least 10x.
- Sohcahtoa82 7y ago
  Absolutely. Case in point, I present to you Charlie Kirk, founder and president of Turning Point USA: https://twitter.com/charliekirk11/status/1231005642413858816 https://twitter.com/charliekirk11/status/1231005642413858816 "Facts: Bernie wants a $15 minimum wage That would mean a gross salary of $31,200 for a 40 hr. work week But he wants to tax anyone making above $29,000 a year 52% That would make gross salary $14,976—$288/week $288 divided by a 40 hour work week—$7.20/hour Socialism Sucks."
throw0101a 7y ago
> Believe me, I've tried to explain how the simple concept of income and taxes work. If you want to give it another shot, this article and video from Vox is pretty good: * https://www.vox.com/policy-and-politics/2019/1/7/18171975/tax-bracket-marginal-cartoon-ocasio-cortez-70-percent https://www.vox.com/policy-and-politics/2019/1/7/18171975/ta...
luckyscs 7y ago
I'm right at the cusp of Roth IRA contributions being taken away. If I were angling for a raise, I would make sure I made just under the limit for this year (old salary and new salary combined in proportion to time worked under each) and try to negotiate for more time off. That's about the only time I would forgot a wage raise and it would probably only be worth it for a band of 3000 around that limit.
- greenburger 7y ago
  You might want to look into a backdoor Roth contribution

mfoy_ 7y ago

Almost all "financial advisors" are really just in sales.

Humdeee 7y ago
Correct, and developing trust is a fundamental tool in every salesman's pocket.
GordonS 7y ago
In the UK (and, AFAIK, across the EU) we have IFAs (Idependent Financial Advisors) who follow rules, such that they are nit permitted to get kickbacks from investments. Does such a thing not exist in the US?
- jeremyashort 7y ago
  In the US we have "Fee-Only Financial Advisors": https://www.forbes.com/sites/davidmarotta/2012/06/11/fee-only-financial-planner-whats-the-difference/#30da618f3f24 https://www.forbes.com/sites/davidmarotta/2012/06/11/fee-onl...
- mfoy_ 7y ago
  In Canada we have fiduciaries, but most people aren't that financially literate. If you walk into a bank and ask for a financial advisor they're just going to pass you to a sales rep. Enjoy your TD e-Series! (Although, admittedly, mutual fund MERs have dropped substantially with the rise of low-cost ETFs...)

iso1210 7y ago

Dunno about the US, but in the UK there are a few wage points where a small rise can lead to a reduction in net income. Specifically moving into the higher tax bracket, which removes £200 off their personal allowance if they were using the pooling allowance option -- i.e. a £100 tax rise could lead to £46 extra income but £201 extra outgoing, a net reduction of £155 There are more perverse options with housing, childcare and income benefits being removed which I believe can lead to a negative income. In the US the Benefit Cliff is real: "There is this issue of the benefits cliffs, where some programs are designed so just a very marginal increase in earnings can result in a loss of a very important benefit. And a lot of states, unfortunately, have structured their childcare subsidies programs that way," explains Skinner. "Typically, pay rises, income rises, but at some point you lose eligibility for a subsidies all together and it's an abrupt reduction in that family's resources," Skinner says. https://www.theguardian.com/money/2014/jul/20/benefits-cliff-minimum-wage-increase-backfire-poverty https://www.theguardian.com/money/2014/jul/20/benefits-cliff...

sobani 7y ago
This picture show the benefit cliffs in a very clear way: https://sacredcowchips.files.wordpress.com/2015/08/welfare-cliff.jpg https://sacredcowchips.files.wordpress.com/2015/08/welfare-c... Most important part of that picture: "The single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income & benefits of $57,045."
- iso1210 7y ago
  That's shocking - so much for "one specific demographic", when it affects people earning over twice the median wage.
magduf 7y ago
Does the US not have marginal tax brackets? That seems really odd and dumb. The benefit cliff you cite is real, but for actual income taxes, there's no such thing as a reduction in income from higher earnings. Going to a higher tax bracket just means you pay higher taxes on money over a certain threshold. So if bracket A is 20% under $50k, and bracket B is 30% over $50k, if you make $51k, you'll pay 20% of 50k, plus 30% of 1k. It's never disadvantageous to make more money (except if you're on government benefits as mentioned, where there are some weird effects). Strangely, a lot of people don't understand this at all.

arkades 7y ago

Quite. I considered going into financial advisement once, in the distant past. A family friend was in the field, and took me in for a round of advice. He was quite open that it was eat-what-you-kill, with a serious focus on people with impaired judgement (e.g., elderly), because that was the only way to make up the bulk of your revenue. He said that he hadn't had a peaceful night's sleep since he'd started, due to the guilt of day-to-day work.

tsukurimashou 7y ago

> I have a couple friends right now that do not want wage raises because "it will knock them into the next tax bracket". is that not a real thing where you live?

whateveracct 7y ago
I think it's more that getting knocked into the next tax bracket is better than making less money. Because you inherently still make more money due to how tax brackets works. I'm guessing this is an allusion to how many people don't understand how tax brackets work and think that you can make more money, get taxed more, and then end up with less than if you never made more money.
Humdeee 7y ago
Tax brackets do, but what I was insinuating is that those select friends (bless their heart) believe that all of your income is taxed in the highest singular bracket that you reach.
Proziam 7y ago
So many people don't understand how tax brackets actually work. They think if they make one more dollar they pay X% more tax on every single dollar they earned. It's actually terrifying to me how little understanding the average person has of finance.
rchaud 7y ago
It isn't that black and white. For example, in Canada, I can contribute a certain amount into a tax-free savings account each year. TFSAs can be created to hold ETFs, Mutual Funds and other types of investments. I can contribute $6k for 2020, and the total I can hold in TFSA is $69,500. I can contribute more annually as long as my total is under $69.5k. With a raise, I can accelerate my contributions and continue to enjoy tax-free gains on it. My personal average income tax rate might go up, but that's offset to an extent by whatever returns I'm making through my portfolio.
- jeromegv 7y ago

deleted 7y ago

[deleted]

clSTophEjUdRanu 7y ago

I feel like the widespread misunderstanding of tax brackets is used as a weapon. Candidate X wants to tax you 60%!

karatestomp 7y ago
It absolutely is. See also: the "death tax" in the US. I 100% guarantee you that the number of people who think they're subject to it exceed the number who are by at the very least 10x.
Sohcahtoa82 7y ago
Absolutely. Case in point, I present to you Charlie Kirk, founder and president of Turning Point USA: https://twitter.com/charliekirk11/status/1231005642413858816 https://twitter.com/charliekirk11/status/1231005642413858816 "Facts: Bernie wants a $15 minimum wage That would mean a gross salary of $31,200 for a 40 hr. work week But he wants to tax anyone making above $29,000 a year 52% That would make gross salary $14,976—$288/week $288 divided by a 40 hour work week—$7.20/hour Socialism Sucks."

throw0101a 7y ago

> Believe me, I've tried to explain how the simple concept of income and taxes work. If you want to give it another shot, this article and video from Vox is pretty good: * https://www.vox.com/policy-and-politics/2019/1/7/18171975/tax-bracket-marginal-cartoon-ocasio-cortez-70-percent https://www.vox.com/policy-and-politics/2019/1/7/18171975/ta...

luckyscs 7y ago

I'm right at the cusp of Roth IRA contributions being taken away. If I were angling for a raise, I would make sure I made just under the limit for this year (old salary and new salary combined in proportion to time worked under each) and try to negotiate for more time off. That's about the only time I would forgot a wage raise and it would probably only be worth it for a band of 3000 around that limit.

greenburger 7y ago
You might want to look into a backdoor Roth contribution