The Worst Kind of Financial Advice

Posted October 14, 2022 by Ben Carlson

A new research paper from an economist at Yale did a deep dive into 50 of the most popular personal finance books of all-time.  If you’re a personal finance nerd like me you should be familiar with the authors — Dave Ramsey, Suze Orman, Robert Kiyosaki, Ramit Sethi, David Bach and the like.

The point of the paper was to show how typical personal finance advice differs from academic economic models.  For example, most personal finance books say you should start saving from an early age to develop good habits and take advantage of compound interest.

The author of the paper, James Choi, disagrees:

Because income tends to be hump-shaped with respect to age, savings rates should on average be low or negative early in life, high in midlife, and negative during retirement. From this perspective, the common policy of making the default retirement savings plan contribution rate not depend on age is suboptimal.

The idea here is most young people don’t make a lot of money so they should enjoy themselves and put off saving for retirement until middle age when most people enjoy higher incomes.

So who is right here — the economist or the personal finance experts?

They’re both right and they’re both wrong.

Certain people do need to start saving when they’re young to develop good financial habits, even if it’s a small amount of money. Middle age usually does bring more income but also more responsibilities.

For some, there will always be a good reason to put off saving until later so they need to start early.

For others, they can plan things out better. They understand the typical lifecycle of income trends and will have no problem putting money aside when they’re older so they can enjoy their youth while they can.

It really depends on the personality, circumstances and emotional make-up of the person in question.

Far too many “experts” these days profess to have the singular piece of advice that will solve all of your problems.

Just read this one book — it will change your life!

Just follow these 10 steps and you’ll find success!

Just read this quote by some guy who died 2,400 years ago and you too can gain enlightenment!

Just follow the exact same path I followed and you are sure to end up rich!

The problem with this kind of advice is it fails to recognize the hard work, personal circumstances, temperament, timing and luck involved.

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2022/10/the-worst-kind-of-financial-advice/