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Comment by vmception | Hacker News Reader

> An interesting wrinkle about net interest is that most customers don’t contribute much. In much of the U.S., median checking account balances at account creation are only around $3,000

Thats a lot of money not in crypto or stocks. Surprising.

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If you think that having $3,000 in a checking account is being wasteful because that's a "lot of money", you shouldn't be buying stocks or crypto.

I dont think that

I thought the common amount deposited would be like 1/10th of what the article said

Ah, sorry, so less about what people should do and more about what you think people would be doing (or I suppose about what people have the resources for?). Gotcha

Seems like a modest amount of day-to-day liquidity and emergency money for a working class family? I wouldn’t advise someone to have zero cash.

If you’re using a credit card for most purchases, you still likely pay the bill with a checking account. You might also have to pay rent/mortgage from this account, so keeping a ~$3,000 buffer seems pretty healthy. (Let’s assume $1,500 for rent/mortgage[1], $1,500 for other monthly expenses, emergencies, plus any other buffer the account holder is comfortable with.)

1. Average rent seems to be around $1,100, and median mortgage payment is about $1,600 based on a quick search.

I grew up hearing 6 months expenses liquid cash on hand at all times

And that most people don’t have $2,000 for emergencies

So for a common amount to be $3,000 deposited is surprising

Need to save something for emergencies too.

Not to mention everyday expenses. You can't pay your rent or phone bill with stocks or cryptocurrency.

It really depends where on the income and wealth ladder you are. Lower and middle income, cash is king. Upper income, you’re as invested as possible and you’re able to pay for expenses with a combination of credit/margin, investment income, and comp (salary and equity liquidation). You’re keeping as little cash on hand as possible because “cash is trash” and doesn’t keep up with inflation such that assets do.

You still need a buffer to pay for expenses...$3000 to someone with Upper Income is not a lot. I don't think anyone is liquidating assets to pay for their electric bill.

Expenses can be paid from margin and credit, and that paid back when the income lands in the brokerage or cash management account. Credit cards are usually ~20 days float, margin is 1-2% for as long as you’re extended with it (ignore margin rack rate on brokerage sites, high net worth folks aren’t paying that).

Higher level, being poor is expensive and it gets cheaper and easier to get ahead as you get ahead.

Credit cards are at least 20 days - you also have on average 1/2 a month before the monthly statement, and then another 20 days until the statement is due.

Shouldn't that be the opposite? The less money you have, the more effort you should put to using it efficiently. Once you have enough money, it's worth keeping a tiny fraction of it as cash for convenience, because investing it won't change anything.

there's a reason why most finance advice lists "3-6 months expenses in cash" as priority one. being forced to sell assets during a market downturn hurts you a lot more than parking a couple extra thousand in an index fund helps you. when you're barely making ends meet, the smart move is minimizing variance. when you can comfortably cover your expenses, you prefer to accept more variance to maximize EV.

It has to do with how long you expect a given dollar to live.

Below a certain point a dollar doesn't persist very long since you're mostly living paycheck to paycheck. If you're spending most of what you earn, then what matters is that you can pay for all the essentials. It doesn't really matter what the price is in absolute terms if your paycheck keeps pace.

(It would be really weird to cash your paycheck, buy some ETFs with it, then sell them all back a week later to pay rent and buy groceries. You'd just get back what you put in.)

Higher up a given dollar lasts a lot longer. Even the dollars in a retirement fund will last for decades - imagine if you were wealthy enough that 95% of your assets were like that. At that point you have two choices:

- Either keep it under a mattress, and lose a few percent of most of your money each year

- Or put it somewhere more active, where you have enough growth to keep pace

I have exactly $3000 buffer, curious how you eliminate that? Basically for rent, venmo payments to people and credit card payments.

I suppose you could liquid some of your return generating assets every month right before you pay off your cc. However since 3k is a neglible amount of money to most people here, I wouldn't really worry about not having earning yield on your 3k. Also it's often useful to have some literal cash in your bank account.

I don't think most Americans understand stocks. I definitely don't. Even more so for crypto-currency.

At least in my country, inflation is higher than what I get in interest. I lose money every month. I prefer to, over the long term, earn more than inflation. The only way to do that it to add risk. Over the long term, the risk reduces and I’m net positive.

Index funds reduce the need to know about stocks. I buy the economy, not a stock. (Well mostly. That’s the idea.) There are times I hold more cash but then I feel the drain on my return every month.

In any case, $3k cash seems like a small amount for the safety it brings. Emergency funds are crucial.

> Index funds reduce the need to know about stocks.

And for that vast majority of people, whether they are expert or not, the index fund will outperform their personal stock picks anyway.

99% of the population only needs to know 'put it all in a vanguard S&P 500 fund' as their long-term investment advice, at least until they're old enough to see retirement on the horizon.

True, even most people who believe they understand stocks don’t understand the complexities of the market.

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