Monday, March 25, 2019

My Silliest Past Money Mistakes

In 2014, I visited Europe with some dear friends (this is a filtered and edited photo from Capri). Before I left, I vaguely knew that Bank of America had recently changed their policies to charge a 3% foreign exchange fee on all ATM withdrawals of foreign cash, on top of the fee for using other banks' ATMs. Somehow I did not put two and two together and realize that I should really get a ATM fee-free account at another bank before my trip. I have since remedied the situation.

By and large, my parents did a wonderful job teaching me the basics of personal finance. There were some gaps in my education, as is natural, and there are some things that I would do differently as a parent, which I think literally anyone would say. But overall, I had all the tools I needed to navigate money management mostly on my own since age 18, without getting into too much trouble and with a generally accurate understanding of what was happening (though that isn't quite the same thing as always using that information to make wise decisions). Thus, I was equipped to handle things like my credit card accounts, my undergraduate financial aid forms (I always filled out FAFSA on my own, as well as my mom's portion of the CSS Profile), my student loans (I fully understood the terms I was signing up for, though I waited until embarrassingly late to calculate the total balance I'd owe upon graduation and how long repayment would take; but I was approaching my mid-20s when I matriculated, so any failing is solely on me), and the like. What more could any person ask for?

That being said, I'm still one of those people who fusses regularly about the need for more and better personal finance education. Because it's generally never covered at any time in school, we're largely dependent on our parents, or on ourselves, to learn about the important details. And even very financially savvy and responsible parents can't realistically anticipate all of the potentially infinite range of financial questions or challenges their children might eventually encounter as young adults, and potentially make mistakes about.

In that spirit, I thought I would look back on some of the silliest financial mistakes I've ever made, and that I totally regret, in order of least expensive to most. And really, quite a lot of these examples happened while I was in my early-to-mid 20s, when one would think that I would already know better. Despite all my little mistakes and the many gaps in my understanding of personal finance when I was a younger adult, I've actually always thought of myself as being reasonably okay with money nonetheless, because, on the whole, I still knew enough to avoid getting into serious difficulties. Still, it wasn't until I read a few beginners' personal finance books in my mid-20s that I started feeling a lot more confident about what I was doing.

Without further ado, here's the list of the most foolish money mistakes I've ever made:

Purchased Bank of America's completely useless "credit protection" product. (Total cost: ~$18 over a year and a half.) I got my first ever credit card in college. It was a no-fee, super-basic Bank of America ("BoA") card connected to my student checking account. My mom suggested it so I could start building my credit history. I never spent much on it, mostly less than $100/month, consisting of things like a very occasional latte, some snack foods at Trader Joe's, and a piece or two of clearance sale clothing (recall that H&M felt expensive to me back then!). And I'd been taught good credit card habits: I knew it was important to pay my balance timely and in full every month, to avoid incurring late fees or interest. More importantly, and this is shameful to admit, but though I worked each summer and saved spending money for each school year that way, to the extent that shortfalls in my personal checking account happened, I was... backstopped... by mom and dad. They gave me bits of extra spending money throughout the year, including for my birthday and Christmas. They also paid for big things directly, like plane tickets home for the holidays. Had I ever made the unhappy mistake of letting my credit card balance get ahead of me (and I'd only ever dare do it for a small amount, given the spending habits I described), they would certainly have stepped in to cover the extra, no doubt with some well-deserved stern words about the responsible use of credit. 

So why did I think it was a good idea to buy BoA's "credit protection" for my new card? Well it only cost less than 1% of one's balance, and I knew my balance would never be particularly high, so I thought "it's cheap". And I also didn't understand how credit reporting worked, like at all. Despite my plans to pay my balance in full and promptly every month, part of my brain somehow still thought that my credit score could still take hits, somehow, for reasons unknown and out of the blue, and that maybe this BoA product would help? (Don't laugh! I was only 19, and when you're new to the world of managing your money, lots of things are mysterious and kind of intimidating.) Also, silly as it is, I remember being anxious about how making payments to BoA would work, because I didn't have a checkbook (my parents always paid their credit card bills by snail mail, with checks). Could my payments get lost? The obvious answer is a resounding no, as payments were handled by direct transfer from my checking account to my credit card account, using BoA online banking. But again, I was 19, and this was all new to me!

Paid so, so many avoidable ATM fees while traveling internationally. (Total Cost: ~$100 over 12 weeks in 2008, and then ~$90 over 2 weeks in 2014.) You know what they say, fool me once, shame on you, fool me twice, shame on... you know who. And I managed to have this problem on two separate occasions, both for a significant total amount, in the span of approximately six years! And yes, I was using BoA that whole time. To be fair to BoA, I've never had any real problems with them, since incurring these fees was admittedly my fault. Any time they charged me something I actually thought was unfair and surprising, I'd call and they refunded me without trouble. 

In the 2008 instance, I was studying abroad in London (and because of my home institution's robust need-based financial aid program, my semester abroad actually cost less than a semester on campus). I knew BoA had a partnership with Barclays, such that cash withdrawals at Barclay's ATMs were fee-free. There was one Barclays branch in the area between student housing, the nearest Tube stop, and school, I'd only ever have to walk maybe 15 minutes out of my way, at most, to get there. Nonetheless, at some point, I just got... lazy. And then I started going to a non-Barclays ATM that was more convenient, and I kept going there whenever I needed to withdraw cash, usually once or twice a week. BoA charged a fee for using an out of network ATM, and sometimes there were also fees from the British bank for using their ATM, ~$5 each. Oh boy! 

In the 2014 instance, my relative fault may have been a little less. BoA had changed its policies earlier that year, and one really needed to dig through their website to figure out all the changes. Previously, the only fees associated with withdrawing foreign cash from ATMs had been the flat fees for using out-of-network ATMs, but they added an extra "foreign exchange fee", ~3% of the total amount withdrawn, even at ATMs from partner banks with no ATM fee. I had sort of noticed their email announcing that set of policy changes when it happened, and had a vague awareness that this new foreign exchange fee was part of it. Somehow, that faint knowledge didn't actually translate to my paying full attention and realizing the obvious implications for my upcoming international trip. It wasn't until I was already abroad that I noticed, "hey, what's this extra fee?" By then, it was too late to do anything about it during that trip, alas. When I came home, I quickly took steps to open an ATM fee-free checking account for future travel.

Declined employer match on a retirement account by not contributing, a.k.a. giving up "free money". (Total Cost: ~$1000 over one year.) I spent approximately two years working in Hong Kong before law school, where they have the Mandatory Provident Fund ("MPF"), a compulsory retirement savings scheme that also applies to some foreigners working there, myself included. Foreigners subject to the MPF are exempt in their first year of employment, and so I opted out because I was utterly confused by what the MPF actually was, having never contributed to a retirement savings plan before. By declining to contribute to the MPF, I also did not receive the employer match that year. So that's the story of how I gave up ~$1000 in extra compensation, a significant percentage of my salary at the time! 

And as a bonus, once I was required to contribute to the MPF in my second year in Hong Kong, I also failed to choose how to invest the money, another significant money mistake. When looking over the mutual fund options available, I couldn't make head or tails of what was on offer, and so my money stayed in the default option, what I think was their equivalent of a money market account. Ah well. The "cost" of this mistake was negligible, because I didn't plan on returning to Hong Kong, so I eventually cashed out my MPF account when I left, using the modest funds to pay some of my living expenses while I was in law school.

Oh, and I've certainly made plenty of far more expensive, arguably financially irrational, decisions in my life than these (including clerking, which comes with huge income-related opportunity costs if one would otherwise be in the private sector, and also, perhaps, law school itself, but that's a story for another day; I certainly don't regret going to law school, but I also didn't think carefully enough about it beforehand, so I'm very lucky it turned out well). But I would go back and make those decisions all over again, so I don't consider them bad choices, even if they're not decisions I'd necessarily recommend to other people.

Do you have any past money mistakes that you're still sort of kicking yourself over? (Hopefully, the total impact of those mistakes is on the smaller side, in the grand scheme of things.) I think it's good to look back and see those past mistakes as a learning experience. Also, I think it's helpful to take a step back and realize that one's personal finance management could still turn out mostly fine, even if quite a few sub-optimal things have happened, or are still going on. For instance, my 401(k) plan at my current employer, which comprises ~40% and growing of my invested assets, is, alas, stuck in an expensive (~1% fees versus the ~0.16% or less with the investments I pick for myself) actively-managed fund that, as far as I can tell, tries to approximate the S&P 500 index, but its performance always lags behind. 

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