If you’ve never watched the “Explained” series on Netflix, you’re really missing out.
This docuseries, produced by Vox, covers several different topics, from fairy tales to diamonds. It aims to provide a deep and comprehensive view of each subject and includes historical context, current issues, future predictions, and expert opinions.
This series is so popular that in 2021, Netflix and Vox produced a 5 episode spinoff series that just talks about money. The Money Explained limited series goes into detail about:
- financial scams
- credit cards
- student loans
- gambling
- and retirement
These 20-minute episodes will give you a lot of easily digestible information that can help you learn about some of the pitfalls and situations decisions about money can leave us in.
Here are our 4 key takeaways from this excellent series!
Takeaway #1: The Trap of Instant Riches: Scams Lurk Around Every Corner
The first episode looks at financial scams.
What makes the “Explained” line so great is that they provide a lot of background on a topic. This background can help you understand how things have changed over time – or how little has changed.
To show how far back financial scams go, “Money Explained” uses the 19th-century Poyais scam as an example.
Gregor MacGregor invented a country in Central America called Poyais and sold land in this made-up country. MacGregor then fled with his investor’s money.
While it may seem like no one would fall for a scam like this today, “Money Explained” goes over the modern equivalents of this scam. There are four types of scams:
Advance Fee
This scam has someone pay for something now with the promise that there will be a greater return in the future. This return never comes.
Pump and Dump
Investors use this scam to hype up a stock to drive up the price. The investor will sell their stock at a high price to make a huge profit. Usually, this causes the stock to crash, and the other investors lose money.
Ponzi
This scam uses new investors’ money to pay older investors. The old investors see their payout as a “profit.” The person running this scam will always need new investors to “payout” older investors.
Coaching
Scammers create courses that will teach you the secret to being rich or making money with their knowledge. The scammer will make money off the course, which doesn’t work.
While it may seem like no one can fall for these scams, they can be successful because they use the same psychological tricks to get people to fall for them.
Scammers will use emotional triggers and prey on vulnerable people, especially lower-income individuals who are being promised a way to get rich.
Scammers also use cognitive biases like Authority biases (Putting greater weight on the opinion of an authority figure) or Scarcity Biases (The more difficult it is to get something, the more valuable it seems.) to have people make decisions quickly.
To avoid scams, it’s important to do your research and be skeptical if someone is promising high gains. Many scams have similar red flags like:
- Promising huge returns
- Little work for high profit
- Claims to be an expert
- Sense of urgency
Financial scams are everywhere, especially with the rise of social media. Understanding what scams look like and how they work can help keep you from falling victim to them.
10 Sneaky Financial Scams You Should Avoid & Protect Yourself Against→
Takeaway #2: Credit Cards: Master the Swipes to Avoid Debt Traps
Credit cards have been around since the 1950s. Before credit cards, people would go to a bank to borrow money.
Banks would approve people’s loans based on:
- whether they could repay the money
- collateral
- their character
Credit cards changed the way people borrowed and spent their money. People aren’t approved based on their character, but by their credit score.
And boy, have consumer spending habits changed because of credit cards. On this episode of “Money Explained,” they discuss the three types of credit card users:
Transactors
These credit card users pay off their balance every month. They use their card but don’t carry a balance.
Revolvers
These credit card users carry long-term debt on their credit cards. They are making the minimum payment and accruing interest on their purchases.
Hackers
These credit card users use credit cards as a way to gamify the system. They maximize rewards from cash-back sign-up bonuses to travel points.
Credit card companies want their users to be “revolvers” because this is how they make their money. They make less money on “transactors” and almost no money on “hackers.” This is because of how the economics of credit cards work.
There are three economic structures of credit cards:
Interest Rates
When someone owes on their credit card, they are charged an interest rate that can range from 18% to 28%.
This interest is only accrued if a user carries a balance each month. The credit card company profits from accrued interest.
Fees
Along with interest rates, credit cards often have fees.
These fees can range from an annual fee for a premium credit card, late fees for missed payments, balance transfer fees, foreign transaction fees, and more. These fees also provide a profit to credit card companies.
Rewards
Credit card rewards are a huge perk of having a credit card.
While it may seem that credit card companies are losing money by paying a percentage of spending as cash to a user, in reality, these fees keep people using their credit cards.
Many people see their rewards as additional money to spend, and if they spend more than their rewards, they will most likely carry a balance and make monthly payments.
Understanding how credit card companies make money and the different types of credit card users can help you be a more responsible spender.
It’s important to pay off your balance and choose a card that will give you the most rewards on your typical spending. Credit cards are a great tool to help you out in a pinch, but they can be detrimental if you allow for a balance to accrue a high interest.
What is the Best Credit Card For You? Compare These 10 Cards→
Takeaway #3: Gambling: The High Stakes Game of Risk and Loss!
Gambling has become more accessible than ever.
It’s easy to download an app to gamble online at any time of the day. While people gamble in hopes of making money, it’s a risky way to earn a profit. The gambling industry isn’t in the business of making you money, but in making money for themselves.
“Money, Explained” does a great job covering the psychology behind gambling, hoping that it can help someone suffering from a gambling addiction. Understanding this psychology can help someone understand the part of gambling that attracts them.
People, on average, lose hundreds of dollars a year in gambling. While people hope to make money from gambling, it’s an addictive habit that uses the high people experience while gambling to keep them coming back.
When someone gambles, there are two moments of a high that people experience.
- The first is the high of placing the bet, also known as the thrill.
- The second is when they receive the outcome, which is usually met with magical thinking.
The way gambling works is that you take a chance on something and anxiously await to find out the results. This type of thrill is very addictive, and why gambling can be so hard to stop.
Gambling can have huge financial and social consequences, from losing money to ruining relationships with loved ones.
Takeaway #4: Retirement: Build a Sturdy Stool for Your Future Self
Retirement looks different for everyone, but it’s something that everyone works towards.
“Money Explained” goes into the three-legged stool model for retirement, and how this model is looking different for young workers today.
The three-legged stool is a model used to explain retirement. Originally, retirement had three legs:
- Pension
- Social Security
- Personal Savings
This model allowed for someone to work at a company for their entire career, because they would be getting a pension. A pension, social security checks, and personal savings made retirement very doable for the average middle class.
Today, the three-legged stool is something of the past. Many companies are no longer giving their employees a pension. They now give a percentage of their salary towards their 401(k), which the employee also funds.
This lack of pension requires an individual to save more money for their retirement, but many individuals aren’t saving early enough. There is also a worry that Social Security will not be an option for future generations, and can no longer be seen as a leg on a stool that can be counted on.
Individuals struggle with retirement planning because of economic factors like inflation as well as policy changes.
While the original three-legged stool approach for retirement is not a model we can rely on, there are ways to make your own three-legged stool.
- The first thing someone can do is to start saving for retirement as early as possible.
- The second is to diversify investments from the stock market to real estate.
- Finally, using a financial professional can help you understand the best ways to save for retirement.
Building your own stool for retirement is the best way to get ahead and ensure that you can retire. While the traditional model of retirement is no longer stable, it doesn’t mean that retirement is out of the picture.
It just requires people to think of retirement early and make a plan.
Final Thoughts on “Money Explained”
“Money Explained” goes over five key areas of finance that most people struggle with.
Each episode gives a background on that topic to help explain how we ended up where we currently are. Then, experts dive into these topics to give more explanation on how each financial topic currently works in society.
This series is a great way to financially educate yourself on a few key topics and pitfalls and learn more about responsible decision-making.
Editor’s note: This article was originally published May 17, 2024 and has been updated to improve reader experience.
