[alxp]

Obligatory Vimes quote:

The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.”

Source: http://www.goodreads.com/quotes/72745-the-reason-that-the-ri...

[scarmig]

Health insurance is a similar situation.

Once you've saved up a decent amount, it makes much more sense to go with a very high deductible plan. Sure, you might lose 10k in one year through some disaster, but on average you'll pay much less than that, such that it's cheaper to forgo insurance for everyday health expenses.

If you're poor, though, having to spend 10k out of pocket will throw you into a spiral of debt, bankruptcy, and poverty, on top of the associated health problems. Even 1k out of pocket can ruin you.

Over decades, you can reasonably expect to save tens of thousands of dollars on health insurance with a high deductible instead of a "comprehensive" plan.

[AlexeiSadeski]

It makes sense to go high deductible no matter what your income is. It costs less to pay interest and principle on your $10k disaster deductible than it does to pay $2k/year extra on low deductible health insurance.

Insurance is a tax on people who are bad at math.

[dllthomas]

This is complicated somewhat by tax law. Your company paying for the more expensive plan is paying it out of pre-tax money, whereas your deductible (up to a point) is paid out of post-tax money (unless it comes out of an FSA, but those being "use it or lose it", one should be careful not to over-fund, so they aren't a good match for paying unexpected deductibles).

[daeken]

That's a great quote, but this all really just boils down to short- versus long-term thinking. When you're poor, your long-term thinking goes out the window in exchange for making it to next week. Getting out of that is hard -- harder than you can imagine until you're in it -- because it's like your long-term thought center just atrophies in survival mode.

[HCIdivision17]

Poor people aren't ignorant of the long-term. Note that Vimes himself is poor (he never really becomes a noble, at least); his point is you need boots now, and can't wait a year to save up for a good pair - the boots you get today leave you without enough to ever buy nice boots. Most depressingly, many don't see how they can save at all, making just slightly less than what's needed to make it to next week.

I suppose part of the trick is to realize you're living less than a zero sum life, and then grinding even worse off for a long while to save enough up for a pair of boots that will then save you enough to lift your life up by the bootstraps.

[nijk]

There are a few options when your life is negative sum:

Take on debt to amortize against future positive sums.

End yourself.

Change the weights in your utility formula.

[e12e]

You forgot: organize a revolution.

[rbehrends]

It's not a question of long-term vs. short-term thinking.

It's a question of cash flow.

It's a vicious cycle, too; the lower your cash flow is, the less you can exploit economies of scale, and the less you can save, keeping your cash flow limited. Catastrophic events (such as an unexpected illness) are more likely to create debt, and debt service (interest and repayment of principal) reduces your cash flow further.

While wealth, at some point, becomes self-sustaining.

[gnok]

I beg to differ. For a lot of people, it isn't about the "thinking". Its the reality of their wallets.

[daeken]

Perhaps "planning" is a term closer to what I'm attempting to convey. The reality is that even if you think long-term, it requires money to execute those plans.

[stdbrouw]

But how much long-term thinking can you really do when you have no money?

[daeken]

Very little -- that's the point. When you're in a position like this, you're not thinking long-term because 1) the short-term requires your immediate attention, and 2) even if you come up with long-term plans, it's going to be very difficult to execute them without money.

This is by no means a value judgement -- been there, done that -- and more just a reality of the situation.

[ownagefool]

Actually you can do all the long term thinking you like, you'll just be unlikely to be able to implement any of it since you won't have the money.

[1123581321]

Similarly it's expensive to be disorganized. I have hesitated in the past to buy a quality fall/winter jacket because the risk was too high that I would lose it. I cleaned out some boxes recently and found three low-quality sets of Allen wrenches. If I had bought a nice set, I probably would just have been out more money when I lost them anyway.

[hso9791]

Not to mention the cost in time.

[AlexeiSadeski]

Which boots do people in India wear? The ones making $1.50/day?

[infinite8s]

They don't - they either go barefoot or they'll weave simple sandals out of jute (a very hardy grass). Note - India is mostly tropical, no need for boots (except near the Himalayas).

[AlexeiSadeski]

There are probably more Indians living near the Himalayas than there are Americans living in the mountains.