Start Here: “The Ultimate Guide to Making Money”

Why personal finance “experts” continue giving worthless advice

86 Comments- Get free updates of new posts here

22 147 0

Today, I’ll share a behavioral-change technique that’s helped me create a New York Times best-selling book, a blog that’s been read by millions of people, and a course on earning money that has helped my students earn hundreds of thousands of dollars on the side.

In 1954, researchers Hastorf and Cantril published a seminal study in The Journal of Abnormal Psychology called, “They Saw a Game: A Case Study.” What they discovered would change the way we look at rational behavior forever.

Yet decades later, much of that research has not trickled down to ordinary people — most notably “experts” in various fields, including personal finance. We continue to ignore the lessons in Hastorf and Cantril’s study. Why? Because it challenges our worldviews about perception, psychology, and behavioral change.

For example, nobody ever wakes up, stretches, clears their eyes, and says, “TODAY I REALLY WANT TO GET FINANCIALLY LITERATE!!”

It just doesn’t happen. Nobody wants to be financially literate…they want to be rich. Nobody wants to learn about stocks and bonds…they just want their money to be doing the right things, automatically. (Just like nobody wants to go to the gym…they just want to lose weight.)

Yet virtually every college course on personal finance is pedantically called “Financial Literacy 101″ or “Managing Expenses” — yes, the things we “should” do, but the last thing anyone actually wants to do. Witness how most personal-finance books treat people as robotic automatons whose only goal is to consume structured information on stocks, bonds, insurance, annuities, and other pointless encyclopedic topics.

Today, I want to show you something I’ve learned over the last 10 years of writing this blog and systematically developing my skills in behavioral change. This will change the way you view personal finance — and changing others’ behavior — forever.

What do people want to do with their money?

Last week, I asked what was wrong with this page in the Wall Street Journal.

 

The 100+ responses were terrific:

It seems overly complex and could cause analysis paralysis. Reader thinks ‘it’s all too much effort’

The reporters and columnists are telling me ‘how-to’ do all this stuff, when I don’t know ‘why-to’ do it.

I feel overwhelmed just looking at that page! A ton of acronyms and frankly, gibberish to most people. But I feel like the most important part they overlook is that money is really about emotions. There are no emotions on that page.

…the essential problem is that it isn’t going to reach anyone…few of your fellow undergrads would show up to your personal finance classes because they didn’t think they needed the help or didn’t want to admit that they did.

What’s going on here?

To understand, let’s go back to the 1950s…to a psychology experiment on, of all things, football.

The Hastorf & Cantril study: How Ivy League football explains personal finance failures

In the famous study, the two researchers analyzed a 1951 football game between the Dartmouth Indians and Princeton Tigers. The game was unusually rough, with the Princeton quarterback being injured so badly that he had to leave the game.
One week later, researchers questioned students who had attended the game to understand their perception of what had happened. Who played dirtier? Who was responsible for the fouls and injuries?

When asked, “Do you believe the game was clean and fairly played or that it was unnecessarily rough and dirty?” a staggering 93% of Princeton students responded “Rough and dirty,” while only 42% of Dartmouth students agreed.

When asked, “Which team do you feel started the rough play?” 86% of Princeton students surveyed responded that Dartmouth had. Only 36% of Dartmouth students blamed their own team.

In a clever twist, the researchers then asked students to watch a film of the game and report how many infractions were made. Both groups watched the same game on video, but Princeton students reported twice as many infractions as Dartmouth students did.

These students watched the objectively same game, yet had astonishingly different perceptions of what “actually” happened.

Please read that last sentence carefully. You’ll notice that I wrote they perceived the game.

That is indeed what happened. Even though they physically “watched” the very same game, each set of students — Dartmouth and Princeton students — were unconsciously affected by their group membership and beliefs. Despite what we think, we do not objectively see what happens around us. You and I could be watching a clown walk across the street, and we would perceive two VERY different things. Our perceptions are colored by a variety of factors, including our beliefs, history, group membership, culture, and more.

That might seem obvious. But now think about politics, the most fertile ground for misunderstood perceptions. Most people believe they are rational and know what’s “really” going on. Obama is a socialist! You’re a crackpot Tea Partier! But have you ever considered that the other side has a legitimate reason to believe what they believe? Again, if you put two people in front of the same situation, they will perceive it very differently. One is not right or wrong or smart or dumb — to him, his perceptions are true and indeed, very real. But they are nonetheless surprisingly discrepant from someone else’s views of the identical situation. (Read more about political marketing.)

No matter how simple or clear-cut or objective we think a situation is — whether a simple football game or a complex political belief — the person next to us is likely seeing it totally differently.

What does this mean for personal finance?

It means that experts in personal finance have gotten fat and intellectually lazy by writing bullshit like, “The 7 types of bonds.” In general, facts do not change behavior. Nobody cares about “objective” advice that’s not tailored to them.

But it’s easy to write a post on “the 7 types of investments you should hold” and call it a day, isn’t it?

Imagine a regular person clicking around and ending up on The Wall Street Journal, or Smart Money, or even this blog. Most “experts” think, “Well, he’s here. He needs to understand how stocks and bonds work and how they fit into his portfolio!”

Meanwhile, the person does not give a damn about stocks or bonds. In fact, he doesn’t even know where stocks and bonds fit into his universe of options. He simply knows, “I just got screwed by my bank on late fees and I really need to figure this out.” How effective do you think it is to throw a kitchen sink of terms and definitions at this person?

99% of people care about their money and couldn’t care less about “learning” about personal finance in general.

Unfortunately, personal-finance “experts” are obsessed with their own encyclopedic knowledge and seemingly take any opportunity to intellectually masturbate about the depth of their knowledge. ‘Why yes, I CAN present a glossary of terms like CAGR, NPV, Black-Scholes, and derivatives. Will this change anyone’s behavior? Who knows! But I sure sound smart!’

If your goal is to write a glossary, just take your pen and paper and throw them in a fire. You can save yourself the trouble. But if your goal is REAL BEHAVIORAL CHANGE, you need to model an approach that resonates with your readers.

When it comes to money, what do people REALLY want?

I’ve spent the last 10 years trying to understand this. I’ll share some of the things I’ve learned here:

People want…

  • To not worry about money
  • To be in control
  • To occasionally live extravagantly
  • To dominate their friends (virtually everybody neglects the social aspect of money)
  • To get relevant, tailored information for their personal situation (this doesn’t necessarily have to be via a person…think also of Amazon-like personalization/recommendations)

People do NOT want…

  • To have to “learn” about personal finance as a whole — they just care about their own situation
  • To learn what stocks, bonds, interest rates, or ANY OTHER TERMS are
  • To be told they CAN’T do something (this is probably the #1 biggest mistake personal-finance “experts” have made in the last 50 years: turning money into a conversation of “no”s, which elicits reactance)
  • To wait 50 years to see results
  • To have to manually “throw money away” into a savings account
  • To ignore their emotions about money

Each of those seems deceptively simple, but they are deeply complex when you dig into the psychological underpinnings. (And there are a few other insights that I’ll keep to myself, since I’ve spent years discovering and refining them.) Here are more specific examples.

GOOD: “Here’s a 4-step process to start investing”

BAD: Let me explain what stocks and bonds are and how they work (NOBODY CARES)

GOOD: “Here are 2 ways to pay off your debt, and this is the way I recommend the best”

BAD: Let me explain how debt works (NOBODY CARES)

GOOD: “Here are scripts to use to negotiate against your bank. Read them off and watch the customer-service rep melt like butter”

BAD: You should really negotiate stuff (LAZY)

GOOD: Here is what YOU need to be doing, Mr. 26-year-old dude who I deeply understand and therefore know that you spend a significant portion of your income on drinking

BAD: Here is a comprehensive list of things that everyone should be doing: Insurance, retirement, estate planning, tax optimization, family planning… (BROAD AND WORTHLESS)

GOOD: Spend extravagantly on the things you love, but cut costs mercilessly on the things you don’t

BAD: Keep a budget (HAS THIS EVER WORKED?)

(The last one really makes me mad. So many “experts” write nonsense like “Keep a budget” or “Stop spending on lattes!” that lets them wipe their hands clean — “I’ve done my job!” — WITHOUT ACTUALLY CHANGING ANYONE’S BEHAVIOR. For example, this article says: “We need to start a new tradition for Valentine’s Day, one that includes a focus on personal finances rather than consumerism to demonstrate our love.” Right. I really want to talk to my girlfriend/boyfriend/husband/wife about money on Valentine’s Day. YOU might think that’s important, but nobody else does…and as a result, it won’t even get cognitively processed, much less cause behavioral change.)

Personal-finance “experts” need to get off their asses and start talking to the people they’re writing for to understand what they’re really looking for. For example, I could write the most technically brilliant article about asset allocation, but if people are afraid of investing or don’t believe they have enough to get started, none of my brilliance matters. IT’S NOT ABOUT YOU. IT’S ABOUT YOUR AUDIENCE.

Case study: The WSJ How-To Guide

Let’s go back to the WSJ image I posted above.

Can you now see what’s wrong with it?

When I asked a few days ago, lots of commenters harped on the lack of automation, earning more, or even the order of the presentation. Frankly, that’s stylistic. But there’s something far more damning — but you have to look deep beneath the hood to understand.

Several commenters said, “They don’t write about the why.” This is true, but incomplete. For example, how many of you have had parents emphasizing how IMPORTANT IT IS TO START INVESTING RIGHT NOW??!? Yet you ignore them. Because of both the source, and the way they communicate the information. Explaining “why” is critical — but not enough. There’s something else.

Here it is: Each of the topics is me-focused. The editor thinks understanding bonds are important…but ordinary people do not. And so they will not read this page.

In other words, the editors did a terrific job of simply listing off topics, much in the same way an encyclopedia editor organizes and lists off material. But the encyclopedia editor doesn’t expect anyone to ever read his material.

The average person comes to this page with dozens of inherent biases:

  • “I know I should be doing something with my money, but I don’t know what…” (and throwing complicated terms at me will just cause me to shut down)
  • “I keep hearing about paying off credit card debt, but they don’t understand. My situation is different — I have [details that are actually very similar to everyone else but SEEM different to them]“
  • “I need to figure out all my stuff before sitting down and really starting to invest”
  • “I’ll do this later”
  • “I’ll let my husband/wife do this”

And so on.

Now, you also have Wall Street Journal readers, who are likely far more sophisticated than the average person. One of my commenters, Wren, said it best:

“Typical WSJ readers aren’t going to look at a how-to guide because they already think of themselves as above-average investors (even though they’re probably losing money trying to pick stocks or buying shares in the latest hotshot mutual fund). Even if they made it to the page, the first article on “What is a bond” would convince them that there was nothing to learn there. If instead the WSJ paid more attention to its audience and titled the page “Little Known Tips for Skilled Investors” the page views would be through the roof and readers might actually learn something.”

By the way, I’ve made this mistake myself. When my book was published, I spent hours working with my publisher carefully crafting the copy on the front and back cover. When it was published, I noticed that this back-cover copy had slipped through the cracks. See the problem?

 

Nobody wants to be financially literate. They want to be rich.

Personal finance needs better marketing

Marketing is not a bad word. In fact, it’s one of the reasons that I Will Teach You To Be Rich readers use this site to implement real behavioral change, instead of just reading about money over and over again.

After reading your book, I’ve now signed up for my company pension plan (target lifestyle funds too!) and am on my way to automate my savings.

I got the bank charges reversed 3 times

Negotiating credit card interest rates: I went from 27% to 6% with one 20-minute phone call

I’m the only person within my group of friends (I’m 23) who already has $1000 saved for a wedding

The biggest you have taught me, is that personal finance is 95% psychological. The tactics are pretty simple, it’s more about getting over the mental barriers we place on ourselves.

…haggled him down about from $4500 to $2500…

Pay off $12K in student loan debt in 18 months rather than 10 years.

This stuff works.

Why do you think these people were able to change their behavior? Why do you think I can sell a $1,000+ course to help people earn money… to a group of people who ordinarily never buy anything online? Why do you think of ALL the “earn more money” courses online, this one helped my students get off their asses, find a profitable idea, and earn money (sometimes to the tune of thousands of dollars/month)? I will tell you why: Because I spent years understanding people’s REAL needs to get people to STOP READING and START EARNING MORE — not just write high-level BS about “10 different ways you can earn money” and “You should get business cards and a Twitter page.” And now my students are earning money, when 3 months ago, they would have never imagined they could.

Marketing matters. It works in persuading people to change their behavior, unlike simply “putting the information out there” or claiming that “you have to really want it to change,” which embraces a highly ineffective persuasive mechanism where you simply list out the info and hope people “get it.” Good luck with that. People don’t respond to pure information because they have frame information based on prior experiences, culture, group membership, etc.

Yet even though the corporate world knows that marketing works, ordinary people think marketing is a bad word. “Ugh, that’s just advertising,” they’ll say (then, amusingly, claim that advertising does not affect them).

No. Marketing is not just advertising, or writing copy for brochures. Marketing is the end-to-end customer experience, from deciding what to build all the way through the design and delivery process — including deeply understanding your audience’s biases, beliefs, and barriers. As an example, here’s a terrific TED video — “Rory Sutherland: Life lessons from an ad man” — illustrating how marketing adds value every day.

 

Personal finance needs better marketing. What personal finance needs is less people who think that “information” alone will change behaviors, and more people with marketing and psychology backgrounds who know that it’s critical to connect with people in order to change their behaviors. More information alone won’t do. Education is not the solution to personal-finance problems.

Banks need to stop sending out useless campaigns on the importance of saving and investing. We “know” that. Why aren’t we doing it? Do banks really know? Why aren’t they sending me lifecycle communications when I get married, buy a car, buy a house, have kids, and other personal situations?

Why do credit unions continue to talk about how they’re different than banks? Nobody cares. Talk to me about ME, my problems, and how you can solve them for me.

Why do personal-finance magazines continue to talk about investing in stocks? Well, that’s easy — they have 2 customers: Advertisers first, then readers. But even they could do an infinitely better job and still make tons of ad money.

I’m not trying to highlight myself as the best at this. I have a lot to learn and I’ve only scratched the surface of behavioral change, which I will continue to study for the rest of my life.

But one of the main reasons that “I Will Teach You To Be Rich” has been so widely read and shared is that I try to use classic marketing and psychology principles here, rather than pedantic lecturing of the same old boring topics (lattes, budgets, start early, blah blah kill me). For example, you want to spend $21,000/year going out? Do it! Let me show you how to automate your personal finances to do it.

Remember: Nobody wants to read an encyclopedia. Next time you’re trying to change behaviors, don’t fall into the trap of writing a me-focused article that highlights what you think is important. Nobody cares, especially your audience. They have their own filters and biases filtering any information they receive. To execute real behavioral change, you must understand and address these concerns first.

Want more real-world personal finance advice? Join my private list

I’m as sick as you are of generic, outdated, boilerplate financial advice. That’s why, in addition to this blog, I created a free Private List for readers who want even more (including content I never share publicly.) Each week, I’ll send you detailed, actionable information about:

  • The psychology of money, including biases and barriers that hold us back
  • Specific action steps to optimize your spending, savings and investments
  • Simple ways to earn more money using skills you already have
  • Much, much more

You can sign up for free below:

22 147 0

Related Articles

How to make money fast (without getting caught in a scam)

Hi, I’m Ramit Sethi, and I’m going to show you how to make more money. Legitimately (I’m ...

Read More

How to travel the world, create a life that doesn't suck, and explore the happiness of pursuit -- with Chris Guillebeau

Last month, I was travelling in Asia and had some time to kill at the Hong Kong airport. I knew ...

Read More

86 Comments

22 147 0
 
  1. a) They are not really experts

    b) They have something to gain by offering the advice, and the fact that it may hurt clients is immaterial. Ethics have disappeared.

    c) The talking heads on CNBC are just trying to boast about themselves, not help anyone

    You sell the public short when you say ‘nobody cares.’ You built an audience of people who don’t care. That’s why they love your advice and shortcuts. It’s good advice, but it’s for people who don’t care.

    The rest of the world does care, but there are too few experts who can help.

  2. I graduated in May and took a job to save up for a two-month trip to Munich, Germany (Oktoberfest, anyone?). I’ll be returning to a boatload of student debt. I’ve already opened accounts with Schwab and ING, set up automatic transfers, and enrolled in automatic payment plans with the loan companies. After my galavanting is over, I’ll be using your techniques to further fine-tune my finances, pay off my debt quickly, and get filthy rich!

  3. This is one of the best posts I’ve ever read on here. I became ‘financially literate’ mostly through Dave Ramsey (even though he’s got his problems), and yes, I actually DO budget (pain in the ass, but it works). The biggest thing I learned from you that he ignores is your focus on spending on the stuff that’s important.
    Using your money to work for you to create the life you want, instead of constantly sacrificing everything so you can live well at some later undetermined time (amazingly many of his listeners in their forum who are at that end stage still say they’re not really happy).
    It took me years and lots of fighting with my (now) wife to get my money under control, and looking back I WISH someone had written more like you do, selling me by explaining how I can be in control instead of being responsible.

  4. Speaking of ineffective tactics for behavioral change… I cringe whenever I hear people give advice that requires personal sacrifice for group benefit. This is not a Utopian society people. What is your incentive? Guilt? Does that ever work?

    Environmentalists are the worst offenders. Give up your car. Buy organic foods. Buy green cleaners. Don’t buy plastic. The arguments they give always relate to helping the environment and not to the personal benefits of each individual action / product. The message could easily be along the lines of how being an environmentalist makes you richer, healthier, and happier.

    Also, the SHOCK over Wall Street and the big banks and people’s “solutions”. HELLO! These companies are out to make money. They’ve always been out to make money… they’ve just gotten more focused over time. Do people actually expect companies to do the right thing at the expense of corporate profits?

    • Agreed. It shows a profound lack of understanding about people’s motivations.

      There are a few nonprofits who DO deeply understand how to motivate behavioral change (usually donations). Most, however, do not, and spend their entire lifetime struggling to stay afloat because of this.

  5. It makes me somewhat sad to admit that you are right. The intellectual in me wants the lists and the facts “just thrown out there,” because it’s hard to build a wholistic understanding of personal finances (or anything) when the information you’re given (or seeking out) is step-by-step plans.

    That being said, if one wants to write a reference, you are right in that they need to design it as something that will likely be read only occasionally, and in chunks.

    The me-centrism kind of stinks too, as it smells of a problem that seems to be endemic of our generation (I’m 25). Everything is me, me, me…

    • This is not a generational issue. This is a HUMAN issue. Top behavioral-change experts have known this for centuries. Even 50 years ago, you can read experts in health/fitness and advertising who deeply understood what motivates people.

  6. It’s amazing how fired up this got me. I’m going to remember this the next time I write an article for someone…or just communicate with anyone period.

    You understand your audience, Ramit. Kudos

  7. That was pretty much awesome.

    I am a business psychologist mahor, finishing this year. I didnt know of this study but have been harping on the importance of coaching and emotional understanding since I started my studies.

    The Ash experiments are highly interesting in that regard as well. What everyone could use is instead of being told what to do, something that attracts them and then someone ( A coach) who makes sure they follow up on the steps. With this combination far more people succeed than with telling people “Well this leadership and management style Y is better than this style X”. Those are actually real leadership styles, named theory X and theory Y based on their presumptions of human psyche. Might be interesting stuff for you to explore Ramit!

  8. I definitely don’t want to learn about “finance” or “personal finance”….I just wanted to learn how to manage my money and not end up broke for retirement. Did so with this IWTY, Get Rich Slowly, and The Simple Dollar.

    I tried to convince myself I gave a shit about investing, bonds, etc.–but really, I don’t. And I don’t want to spend any more time pretending I care about things that don’t interest me or doing what I think I’m supposed to to get ahead of the pack.

    Wish I’d had the insight of this 18 year old valedictorian years ago. Also wish I’d known who Cal Newport was.
    http://www.sott.net/articles/show/212383-V…aduation-Speech

  9. The WSJ and other big publications aren’t trying to change readers’ lives – they’re trying to get clicks and page views to sell advertising. They don’t give a damn about the readers. They write overly simplified “Top 10…” articles because people will click on them and advertisers will pay to put annoying ads on the pages.

    The biggest offender of worthless-information-to-sell-advertising is MensHealth.com. They have entire sections of why running and cardio is great, then other sections on why running and cardio are bad for you. You can find so much contradictory information it should be clear that they don’t give a damn about the readers. They’re just means of delivering advertisements.

  10. I love this post, it applies to so many facets of life. So true that we all have to step outside our own perceptions and find out what the market thinks whether that’s blog readers or clients. It’s so much easier to go off our assumptions and complain when no one reads a post rather talk to people and find out what they want.

  11. Okay, fine, most people neither need nor want an encyclopedic knowledge of finance. And of course we all want the payoff. But you’ve got to know something. Isn’t it reasonable that a lay person can hear a basic-level term (e.g. 401[k], certificate of deposit) and think, “Everyone’s talking about those, they seem important. I’d like to know more. I think I’ll click here.”

    Most of those WSJ headings, at least 80%, still look awfully helpful and sensible to me.

    • It’s certainly possible that those words will help a few people.

      Out of curiosity, Greg, what do you think about fuel injection, wills & trusts, trademarks, and organic food? I hear those words a lot…but I haven’t done much research. Do you think I should?

  12. @Greg :

    Yeah, they are definitely helpful.

    I would put them differently. For example : The way to do X right now. Then you put all those words in small sidelines, clickable with instant information, so those who WANT more information are not hindered, and those that dont have something to do.

    Kinda “please everyone”, but that should work that way just fine. Have seen it in forums, that important words are marked and then simply linked in every post to explanations.

  13. Ramit, point taken. But isn’t “I want to be in control, get tailored information, not worry about money, and do all this while absorbing zero technical knowledge” unrealistic?

    A lay person don’t need to understand rainbow options and stochastic volatility to get a handle on her finances – to be taught to be rich, as it were. But knowing the difference between fixed- and -adjustable rate mortgages or Roth and traditional 401(k)s isn’t going to kill them, especially if it’s done in a clear and concise manner. Heck, you do it in your own book. (I’d plug my own book here, but that’s just crass.) And yes, perhaps the WSJ editors erred by making stock evaluation appear to be as important as learning how to buy a home. But the linked articles aren’t written for the sophisticated audience normally associated with the WSJ.

  14. Ramit – this is an excellent blog post and well worth the read! Thanks for sharing your words of wisdom on the importance of connecting with your audience and speaking to their needs. I completely agree with you, especially since personal finance is heavily behavioral (habits, discipline, emotions) driven.

  15. I love that the WSJ page has ‘How To Choose A Financial Planner’ under the ‘Managing Your Money’ section. Yes, because when I consider how to manage my money, the FIRST thing I think about it finding a financial planner – Uh, NO!

    Understanding your audience is a simple concept but one a lot of businesses find so difficult to grasp.

    Why do you think that is? Is it an ego thing? i.e ‘my idea is so great everyone has GOT to love it’ ?

    - Raz

  16. Ramit, you’re exactly right when you told Tom C (#6) that it’s not a generational issue. Angelo Siciliano, aka “Charles Atlas” understood this 70 years ago and it made him a fortune.

  17. I used to spend tons of time and effort educating myself about investing and money, with the dream of becoming a “sophisticated investor” one day because I read about it in a book. I never had any money though, and without money, there wasn’t much use to learn about investing. It wasn’t until I dropped the bull, made it simple, and started maxing the “boring” stuff like the 401(k) plan and the IRA that I really started to make progress. I’m no Ramit Sethi, but it feels good to make progress.

  18. Wow. This article hits the nail on the head in so many ways. Behavioral change is a subject that I’m riveted by (read David Rock’s “Your Brain At Work”, and I was set on fire!), and I’m realizing more and more every day that it impacts every single aspect of life. My mother used to say to me, “Education is power.” Sure. But taking away the psychological roadblocks to The Thing that Person X wants to learn is CRUCIAL, and is much more important to address at first than to force-feed the material to be learned while said Person X is sitting in a corner tied up in knots.

    I’d like to know more about what you’ve read on behavioral and cognitive change. I’m on the path right behind you, except I’m questioning all this through the perspective of music (teaching music, using music as a vehicle for exploration of our own perceptions and motives, etc.). Please, if you have a moment to spare, I’d be so excited to hear where you’ve learned what you’ve learned so far, and am eager to consume it and apply it.

    Thank you for such a wonderful blog, a breath of fresh air, sincerely. (Would love to take your course someday too!) Keep plugging away, you’re doing such a great job!!!

  19. I just want to say that I wish I lived in Canada so I could buy some Shreddies!

  20. Personally, I don’t quite listen to financial advisors as all they are really thinking about is their own pockets. I have taken it from my own personal experience that I have taken a deep loss on quite a few investments that I have done that is offline related & would never attempt to do such a thing ever again.

    Right now, I have pointed all my efforts into earning an income on the web. One way or another, I will succeed!!!

  21. Wow! Really excellent post.

  22. Excellent post, Ramit! It’s PERSONAL finance. What’s right for Dave Ramsey or Suze Orman isn’t necessarily right for me. I value DIFFERENT things than others.

  23. Ramit,

    Excellent post, just came across it and it has become an instant classic for me. I was talking about the post with a friend and it comes down to making money or saving money. Everything else is just financial noise/junk food.

  24. Great post.

    After several months of looking into your website etc., I got your book. The “Six Weeks to Financial Literacy” thing on the back really stuck out at me as remarkably un-Ramit-ish. Nice to see that addressed.

  25. This article just made me sad for the human race. It just illustrates our complete lack of critical thinking skills. We can’t read something and then apply it to our lives. We need someone to constantly hold our hands and tell us what to do. Why do you all think this is? Education system? Human nature? Laziness?

    • It shouldn’t make you sad. It should make you acknowledge how we are (including how you are) instead of delusionally denying it and believing that we’re all rational people, marketing is bad, and we “should” just make the right choices.

      Everyone needs hand-holding. Everyone needs help, especially for issues we’re not cognitively wired for. For example, you know that your eating and health habits will likely cause your premature death, since something like 3 of the top 5 causes of death are preventable. But that burger — which, incidentally, has been literally engineered to increase your desire for it — is so tasty!

      Instead, we need better pro-social marketing that helps us do the right thing; that is, the thing we would have done if had all the information and motivation available to us.

  26. The thing that struck me most about your article the other day was that the section on “Managing your money” and having a financial planner, which is turn is about having a plan for your financial future, is right at the bottom.

    You have to have a plan first, then get financially literate and then invest. The layout has this upside down saying invest first without knowing what you are doing, then buy stuff and lastly think about planning.

    Poor show, that site.

  27. Remember: Nobody wants to read an encyclopedia.

    Read your own posts.

    • I think you missed the point of the encyclopedia reference. I write longer posts because (1) it’s fun, (2) there are more than enough sites doing “Top 10!!” posts, and (3) it weeds out half-illiterate people who can’t digest long, nuanced essays. This has been a strategy of mine since Day 1, and I plan to continue it.

    • In 1000 years people are going to look back and point to the exact moment that ‘tldr;’ started being used and say ‘this is why we’re working for the monkey now’ (yes, it will only take 1000 years for this to happen).

      @m e: Ramit spent longer writing it than you did reading it (assuming you read any of it) and knows full well how long it is. You don’t have to read it, but please don’t talk about the rest of us as if you know what we want.

      FYI, for anyone who doesn’t know:
      http://www.urbandictionary.com/define.php?term=tldr

  28. …(3) it weeds out half-illiterate people who can’t digest long, nuanced essays.

    Ramit – I have to tell you, I love your honesty and straight to the point attitude. I’ve learned several things from you outside of personal finance and appreciate what you have done for those of us who want to enjoy a lifestyle AND be financially independent one day.

  29. I really enjoyed this article. You are absolutely right because many of them are far from experts. The thing I really hate is when people quote these fakes and spread the news as if it is true information. Keep up the great work with your site!

  30. Hey Ramit, I respectfully disagree with you on this one and let me tell you why.

    I guess I am different from the commenters above, but I think financial literacy is what is lacking from this society. Maybe it is just the way my mind works (I am an engineer by education and profession). I like to take the package apart and figure out how the parts work together to fully understand how said package works. If I am making an investment, I want to understand how that investment works. What’s a bond? What’s stock? What’s the difference between the two? What are the tax implications for this, for that? What are options? How do they work? More importantly why do they work?

    Like you said, most people don’t want to know this level of detail. Whether they enlist a financial adviser or your book to guide them what to do in the realm of personal finance is irrelevant. I want the meat. I want the education. It’s like college, where everyone just cares about figuring out whats going to be on the test, and not actually learning the subject .. they are looking to be spoon feed. Will this be on the test? Will this make me rich? No? Ok, waste of my time.

    I want to learn as much about finance; new products, tax implications, strategies, etc through your site, books, others sites and magazines. Then I will formulate my strategies and run some trial and error. This is how you learn about finance and come up with your own ideas rather than regurgitate strategies and process that someone else tells you to do. (your argument: if it works, who cares?)

    Your GOOD / BAD comparison .. you’re absolutely right. The average person is much more likely to read your GOOD article title over the BAD. But what does that mean? It means you are a marketing ninja. You understand the average person, and you are spoon feeding him the answers that are going to be on the test. He doesn’t want to sit through a boring lecture and then decipher his notes. And I’m not saying this is wrong, its actually gets people interested and active about their personal finance, when they would otherwise do nothing.

    But here is my point. People should know the difference between stocks and bonds. People should know how compounding interest works. People should know why the mortgage industry collapsed 3 years ago. Is this sexy? No. Will it make them rich? Not necessarily. Maybe ignorance is bliss, but I think for a person to make behavioral changes themselves, it has to come from within, it has to be their idea, not someone else’s (like inception, haha) .. and that comes from education.

    • JP, I really appreciate your thoughtful comment. Here are my thoughts…

      Any time you catch yourself saying, “people should do X,” you have lost. People should study psychology. People should eat healthier. People should be nicer to their kids. People should understand what a carburetor is, and how calories interact with muscle, and how chemical compounds work. Indeed, maybe they should. But life is a series of limited resources and limited choices.

      People often think attitudes –> behavior. In other words, you say to yourself, “I want to learn about personal finance” (attitude) and then you start learning and practicing personal finance (behavior). It’s true. That happens.

      But there’s also another way.

      Behavior –> attitude. In other words, if you start doing something, you’ll often say to yourself, “I could be doing anything…and I’m choosing this…so I must think it’s important.” And your attitude magically follows behavior. There’s a rich history of research on this, whether attribution theory or the famous TV/teeth test. I’ll write more about this later.

      But the important thing is that simply exhorting people to do things they “should” simply doesn’t work. It might for a very, very small niche of people like you. But real behavioral change doesn’t work like that.

    • JP,

      It seems to me that there are three reasons we might do something–in this case, learn about finance.

      One reason that we enjoy doing that thing. My guess is that most people don’t enjoy learning about finance. Some do. I do. You do. Some people enjoy learning about stamps, too, and that’s fine. But most people don’t.

      Another reason is that we feel that we should do that thing–for example, those of us that are religious believers do certain things and don’t do others because we believe that they’re required or forbidden by the Deity. I do not think that learning about personal finance falls into the category of Things I Should Do Whether Or Not There’s Any Payoff In It For Me.

      The last reason is that we do certain things in order to achieve something else. For most people, this is the category that learning about finances falls into.

      That being the case, what’s wrong with people’s trying to get the maximum effect for the minimum effort?

  31. Great article Ramit.

    Dave Ramsey–as much some might scoff at his advice–does a spectacular job marketing to (helping) people in dire situations. His advice is bare-to-the-bones basic for people that have no control of their financial life and who freak out when they start hearing anything about finances. I would think he’s a perfect example of the marketing that Ramit is emphasizing, albeit Ramsey targets a much different audience than Ramit.

    • Tim, Dave Ramsey’s use of the Snowball Technique is a PERFECT example of good marketing in personal finance. Weird blog readers start throwing their hands around and yelling about how it doesn’t make mathematical sense, but from a behavioral perspective, it works.

  32. Ramit – Great post. The idea of perception reminds me a post on this site about a Yoga instructor profile. I thought the post was terrific, but I read the comments and the readers were focusing on the fact that she had a car loan. These readers were perceiving the car as a bad purchase FROM THEIR POINT OF VIEW, but the Yoga instructor catered to high end clients (read as… rich clients) so I was imagining her ride up in a junker car to a big mansion like these critical readers were suggesting. Their perception is exactly the reason why she’s catering to high end clients and they are not.

    Ramit – Have you ever heard of the marshmallow study? If the first step is getting people to read your post then the second step is getting people to take action on what they read. The marshmallow study shows that discipline is a key ingredient to success. I think your parent analogy above is very significant because once we reach adulthood, the self motivated adults do better than the non-self motivated because we don’t have our parents pushing us along.

    Interesting read for every interested in more of this stuff about behavioral change is Emotional Intelligence.

  33. I love your site because you always get into the psychology of money and earning more (something that interests me). When I first started learning about personal finance, I read a ton about investing and stocks and mutual funds–and it’s all very good info, but I couldn’t actually use it. It wasn’t until your Bootcamp that I found something for my situation–yeah, there was some stuff in there that didn’t apply to me, like the credit card debt tips, but the rest of the content was so great, and helped me so much in changing my behavior towards money.

    And I did have a financial planner once. He got me set up with a Roth IRA and through him, I met my first freelance client–a client I wouldn’t have if I hadn’t learned how to change my behavior about freelancing.

  34. Keep doing what you are doing.

    I, too, would have given up weeks ago if it hadn’t been for the WAY you communicated personal finance. Now I’m saving and investing, and I don’t wake up in the middle of the night with nightmares about money. I KNOW I’ll be fine, because I know where my money is and that the bills are paid.

    I’ll continue to read and join your programs, because no one else has taken the time to understand ‘me’.

    Now, I’m trying to apply your ideas to my business.

  35. [...] I stumbled on a thought-provoking talk over at Ted.com, which was originally brought to my attention through this post. [...]

  36. I am finding myself scrutinizing the hell out of finance article I read, which is more often than not leaving me with a bad case of heartburn. The more I read, the more I realize the articles are targeted towards people who want to have a vague understanding of finance so they can be armed with useless information for cocktail party chatter. One today, in the NYT, recommends that “Fixed-income investors may want to focus on high-quality companies that routinely generate tons of cash. The same argument goes for equity investors.” I laughed/gagged as I was reading this because I thought 1) anyone who would have enough investment knowledge to actually handpick individual bonds or stocks to invest in, obviously knows that and 2) this article makes the average reader (I consider myself an average reader, work in finance, but have no business picking bonds/stocks) that they should be handpicking bonds and stocks, which is insane. The article is titled “afraid of deflation: try some medicine” I mean really, do I have any business figuring out if we are going into long term deflation or inflation? NO!! But this article is written on such a top level that the average reader, like me, assumes they should decide if we are going to experience deflation OR inflation, and then start picking bonds or stocks as a result? The article is wacked because we are expected to make this macro economic call, then they give us rudimentary advice like we should pick stocks with tons of cash, duh. I follow what is going on in the markets but am not an expert, but as for the average person who reads that article, do you really think they they could give a shit about deflation or inflation? No. They care about themselves, as you note above. So NYT readers read that article, come away with the thought of “hmmmm maybe I should figure out if we are going to be in a deflationary environment and adjust my savings/retirement portfolio accordingly” then do NOTHING, of course. The task is way too large. I now forget what I am ranting about, I guess it’s just that all the articles/shows/sites that are geared towards finance really don’t get it; if they want to reach people and create action, they are missing the point. You have to get in their head, make it personal and relevant to THEIR life. I learned nothing from reading that NYT article, it just made me realize I should stop reading the business section and stick with Sunday Styles, and your site.

  37. Ramit,

    I have a copy of your book, and I wish there was more material out there like it. Your book is certainly a lot more realistic and practical than other material out there. A lot of the professionals seem to be targeting people over the age of 35, which is all and good, but you have to start as early as possible on this stuff.

    You make it a bit more sexy than some of the experts do. Your book was attention grabbing, and this was long before I read your blog.

    Yeah, Suze Orman has done some great things, but sometimes she forgets that we’re all human, have our own goals, own situations, and own dreams.

    I don’t think there is one right way of doing this, so we all need to evaluate what we hear.

    I think a lot of people in personal finance are more into selling products. While this is good in some ways, we are talking about planning for the future here. No matter how competent, I think it’s a bad idea to let someone else decide that for you.

    I also notice a trend towards sacrificing everything now to be wealthy in the future, and deny yourself now amongst some of these pros.

    Yeah, I get it. But, we do have to enjoy ourselves now and then, have some great experiences.

    Thanks for sharing your thoughts with the world.

  38. Great post, and so true. Two paragraphs in, and I was starting to look at some of my own entrepreneurial projects with a very different perspective.

    Your comment about credit unions made me think about my own transition from bank to credit union, which is a perfect example of your point here:

    I’d heard for years that credit unions were awesome and coveted and somehow much better than banks; I even had access to one through a prior job. I never researched it, never followed up on it, even though I had this guilt-driven sense that I “should”.

    My current job also provided access to a credit union, but I was here over a year before I finally joined. What pushed me? Well, my bank, whose business was tanking, had started slapping tons of fees onto things and instituting practices that I found pretty shady, and they hurt my finances to the tune of several hundred dollars. Even then, I felt this guilty sense that it was somehow my own fault for not having enough money for those costs not to matter, and I believed that every other bank would similarly try to rip me off, so why bother trying to change?

    The final straw came when I suspected that my debit card number had been used without my permission. I called the bank to find out what I should do. Without explaining anything to me, the rep coldly told me that she had just canceled my number and a new card would be issued to me in a minimum of ten business days. At least two weeks of carrying around cash and going to the bank to make withdrawals in person? Yep, that was the deal. I felt like I was being punished for trying to be responsible.

    So I went to check out the credit union, thinking it couldn’t possibly be worse than that. Turned out, the terms there were awesome, there were none of the fees that my bank was sticking me with, everyone was incredibly polite and pleasant and treated me like a person (instead of a burden, like my bank did), and I decided to fill out the form to open an account. The rep I was talking to said, “We can mail you a debit card if you want, but we can also prepare one for you right now. It’d take like an hour for it to be activated, though”– and this last bit he said apologetically, like an hour was this huge inconvenience.

    I think I actually just stared at him for a moment and then said, “You mean– I would be able to walk out of here with a card and start using it in an hour?” Indeed I could.

    I was SOLD.

    Truthfully, no amount of carefully formatted literature explaining abstractly why this credit union was better than my bank could ever have had the impact on me that was delivered by 1) finding a way out of a nightmare of fees and arcane policies that was hurting my ability to, like, buy groceries; 2) being treated like a human being after having endured rudeness and bad attitudes; and 3) not having to jump through hoops for something as simple as a debit card.

  39. I found this article interesting but I am one person in particular who has benefited from meeting with a financial planner. Not having an extensive financial background, meeting with someone and asking them questions has really helped me.

  40. [...] Why Personal-Finance “Experts” Continue Giving Worthless Advice – Ramit’s article shares what many people who understand finance wish they could say. There are a million books on finance out there that tell us why we should do this or do that, and very few that tell us how to do it simply. The plain truth is that it’s the minority that is interested in learning about finances; most people only want to figure out how to fix things. [...]

  41. Great article. Very interesting read. I can understand why you have your own best seller book. All seriousness I agree with a lot of what you have to say. Being able to know everything about what your financials are and having go on is the most important part of investing

  42. So let me raise a question. Do most people really want to be rich? Or, do we live is a lazy society where people just want anything and everything without having to work for it?

    Financial education and learning about true wealth creation is important and a key ingredient to becoming wealthy, however, most folks want to win the lottery, as opposed to read a book!

  43. To think I was just going to call you a narcissist before reading this article. Well, great article as most everyone else has said.

  44. Thanks for your insights regarding becoming financially literate. It’s obvious that the majority of society don’t keep up to the latest trends in personal finance in a variety of areas. I hope that this sparks new interest in those reading it.

  45. [...] Why Personal Finance “Experts” Continue Giving Worthless Advice – I Will Teach You To Be Rich [...]

  46. Wow. Really strong blog post on psychology. Love the bit esp on “Dominating” your friends with money. The non-understood social aspect of money. Love it!

  47. This post has inspired me to make some behavioral changes in my own personal finance writing. Thanks for sharing your insight.

  48. All of the best internet marketers say it so simply…”solve a problem”. Becoming financially literate isn’t my problem.

  49. Top notch post Ramit. I see the exact same thing going on in the health / fitness / wellness world all the time as well. Everyone is so concerned about counting calories, fat, carbs, etc and the latest fad diet to lose weight that they forget the highest leverage thing of all: focus on eating real food and most everything else will take care of itself.

    The “gurus” aren’t doing all that hot either, telling people how to “increase insulin sensitivity” and “lower catecholamines” when they should be telling people “how to lose your beer belly” and “how to build the V-shaped torso women find irresistible.” Again, great stuff here. I’ve learned a lot that I can apply to other areas as well as personal finance.

  50. I enjoyed the discussion on the perception of people. When I was 14 I had a teacher introduce this idea and it has stuck with me and made more sense as I matured. His way of presenting it was to discuss how there exists five perceptions that everyone encounters each day. Most people do not know that they encounter them, but those who are truly successful in life know how to not only see them but to react to them.

    The perceptions are as follows:

    1. My perception of myself
    2. My perception of the world around me
    3. Your perception of yourself
    4. Your perception of the world around you
    5. The universal perception or the absolute truth

    All human interaction plays into each of these five perceptions and when a person can look beyond just the first two and try to think in a way that allows for the other three they are better in everything they do that covers interactions with others. This plays true for those writers and speakers who have truly moved people to action.

    Great article Ramit!

  51. Great article Ramit … even though you were talking about personal finance, it can be applied to other stuff as well. You got me thinking a new way, sir :)

  52. That is a really great post, Ramit.

    It’s a very useful read for anyone who wants to start business which involves sharing knowledge – whether it would be launching a blog, writing a book, starting youtube channel or creaing products like online courses. This post summarizes something that makes certain people to stand out from crowds of others in the same field ( you in personal finance, Steve Pavlina in personal development, Tim Feriss in..emm…what is his field actually? :) ) – focusing on actually chaning reader’s behaviour in a positive way.

  53. I will agree with you Ramit, this may very well be the best post you’ve written in 2010 and a post I didn’t even know I really needed until I read it — set me straight on a lot of things and will affect how I think about my blog, my work, a lot of things. So thanks!

  54. I think this article IS the best one that you’ve written in 2010. Few writers and blogs touch the concept of linking behavioral changes and attitudes with topics like personal finance or small business in a real way. Yet this is a key driver that motivates decision making in these areas – whether we procrastinate or automate!

    However, I think it’s a hard topic to digest. We know that we SHOULD be reading more articles about how to better prepare our finances, we SHOULD be saving more money and avoiding the Jones buying habits. But this requires self examination and more articles like this.

    Personally I can’t even begin to count the number of books I’ve read and seminars that I’ve taken on the subject. But it’s taken some time to examine my bad behaviors and figure out WHY I do certain things. Some things like neglecting to automate were easy to understand and change my ways. Others like negotiating have taken more time to address.

    And when it comes to helping others in my circle – I’ve been scratching my head for years. Somehow I think I got a few answers here!

    I encourage you to write more on this subject and applaud of all of us who are able to take these principles, apply them and take the “literacy” all the way to the bank!

  55. You know what really hit me when reading this article? It came to me gradually, but really hit me when I read this:

    “Here it is: Each of the topics is me-focused. The editor thinks understanding bonds are important…but ordinary people do not. And so they will not read this page.”

    It’s not just that the editor thinks that understanding this is important. Financial advisors are so keen to sound smart with their acronyms and big words that the general punter now believes that they need to know it too. When the experts are telling us that we need to know this stuff, who are we to question it?

    The key here is not only that financial advisors sprout this complex stuff, but it is what we demand of them because we now think that we need to know it. It’s a Catch 22 situation…

    Imagine this. You’re talking to your friends around the BBQ. There’s one guy who knows a lot about ‘Financial Land’ (although he’s still not doing all that well). He’s telling everyone about how he’s just started trading CFDs. He’s explaining what they are and the risks/benefits of trading them. And he’s telling them “This is the one that’s going to make me rich, just you wait and see.”

    All your other friends are nodding their heads knowledgeably, pretending to understand and be interested, offering seemingly intelligent input around what they’ve red on the topic. You pipe up and say “I don’t care how trading CFDs works, I just want to change my beliefs and behaviour and become more financially intelligent”.

    Or imagine walking into a Financial Advisor’s office and sayign the same thing?

    They’d either laugh at you and tell you your wrong, or they’d laugh at you and tell you your crazy. I mean, how can you possibley take control of your finances without fully understanding what a CFD is and what CFD stands for, right? Right???

    What we need to do is look more closely at ourselves, and identify what we actually want, rather than listen to what the ‘Experts’ tell us we need to know. And if we’re really good, we need to try to understand and identify what other people need, instead of just what they’re asking for. Remember they may not know what they actually want either…

  56. Great post and btw I love I don’t mind long posts. I actually like them. I’ve never liked Dave Ramsey and Suze Orman, this is how I feel about them. You may have a different view. I don’t like them because they’re very condescending to many people in debt, especially if you watch their shows. I only watched their shows a couple of times + that was enough for me.

    People know they messed up hugely when they get into any debt. I hate how they spend 10-20 minutes making them feel bad instead of coming up with ways to fix their situation. When I was in debt, my parents were the ones who were lecturing, and it was my best friend who was all “okay well here’s what you can do to fix it.” And I honestly appreciated my BFF advice. In fact I’ve for the most part ignored financial advice, finance books, etc. I only got into it because I was in debt and I needed help.

    I’m happy to say that NOW I have no debt, my credit score is up, I’m saving. When I do read finance blogs its yours that I like to read, GRS, budgets are sexy and well wheeled blog. When I do buy finance books its by people like these, not suze orman and not dave ramsey. And no I don’t dislike DR just because he’s a christian. Religion has nothing to do with it.

    Anyway keep up the great work on your website. btw the thing I like the most about your site is how you talk about conscious spending and you don’t act like you hate rich people either. In this recession a lot of people have come to hate against rich people or that spending a certain amount of money is bad even if you have the money to do so and I love that you’re not like that at all.
    I also think its great that you tell people to earn more.

    IMO everyone can earn more, its sad that too many PF blogs focus too much on frugality, in reality everyone can earn more. I can be savvy with money, but I hate frugality. Even though I do save money and have no debt. I know the dictionary version of frugal is “economical in use” but whenever that word pops up in my head, I think of people that dumpster dive, deprive themselves, and take advantage of the generosity of others. Anyway thanks for letting me vent, I know I was a bit incoherent but I just got off work, so keep up the good work dude. :D

  57. Couldn’t agree more. I’ve often thought that until the Personal Finance industry gets better at Marketing, they’ll always be on a losing streak. The likes of Apple, Nike et al are light years ahead of the PF industry and will always have instant gratification on their side. Delayed gratification is never going to be sexy.

    But wait….how do people in the PF industry make their money, is it actually on the number of people who become better at managing their finances or the number of products they sell to them that promises to deliver this? Let’s not forget that a world full of financially literate people would soon stop borrowing, getting into debt and buying all of the cr@p that they don’t really need. The Govts of the West are very worried about this as it will halt economic growth in its tracks….hence very low interest rates to encourage borrowing, Quantitative Easing (printing money), etc.. The fact remains that the Govts of the West (and the big banks that fund them) want most people to be financially illiterate to encourage our mismanagement of money and keep borrowing and spending recklessly to keep the economy buoyant.

    Unfortunately it will all end in tears sooner or later as even a child can tell you that you can’t solve a debt problem by spending more money!

    Ramit – I wish you luck in your continued quest to open people’s eyes about the proper management of their finances (albeit wrapped up in a nicely Marketed IWTYTBR package). I do feel however that bigger powers are working against you….not that this is any reason to stop.

    • Very, very good point, Ben.

    • “The Govts of the West are very worried about this as it will halt economic growth in its tracks….hence very low interest rates to encourage borrowing, Quantitative Easing (printing money), etc.. The fact remains that the Govts of the West (and the big banks that fund them) want most people to be financially illiterate to encourage our mismanagement of money and keep borrowing and spending recklessly to keep the economy buoyant.”

      Does anyone really believe that being financially irresponsible is the way to prosperity, and being financially responsible is the way to poverty? Come on. The politicians in government aren’t interested in a strong economy; they’re interested in staying in power.

  58. [...] mounds! Snerp, check out this: Why personal-finance “experts” continue giving worthless advice | I Will Teach You To Be… It's an amazing post! Ramit sure knows what he's talking about – his advices helped many people to [...]

  59. “Does anyone really believe that being financially irresponsible is the way to prosperity”?

    Yes.

    If by financial irresponsibility you mean quantitative easing (aka inflation), and people maxing out their credit cards to buy imported goods, then people, some of them Nobel laureate economists, do believe that this is the way to prosperity.

    But it’s our old friend perception again. What you (and also I) perceive as economic lunacy, they perceive as the best way to go.

    • “Does anyone really believe that being financially irresponsible is the way to prosperity, and being financially responsible is the way to poverty? Come on. The politicians in government aren’t interested in a strong economy; they’re interested in staying in power.”

      Unfortunately yes, but not for the individual, rather the shareholders of multinationals and politicians that want to remain in power. In fact the only way a politician can remain in power is if he/she delivers a prosperous economy (or wins a war).

      To solve an excessive spending and debt problem you have to make cutbacks, it’s the solution at an individual level and it’s the same at a national level too. Unfortunately cutbacks at a national level would mean less public spending, higher taxes, less borrowing, fear induced saving, etc… Such austerity measures would bring an economy to its knees, incur high levels of unemployment, deflation and have people rioting in the streets (ref Greece). No Govt in their right mind would brave this step as they would be kicked out of office in no time.

      Therefore unfortunately their only other solution right now is to keep spending in the hope that it will kick-start the economy, keep people in work and plaster over the cracks. One of the problems with this is that as the US is primarily an import driven economy, this excess liquidity is actually going overseas as consumers buy more cheap foreign goods with the money they still have. Also the level of US debt is getting bigger and bigger, not smaller.

      What the Govt is hoping is that eventually the excess liquidity (printed dollars) will lead to high inflation rates and therefore reduce the real value of their massive debt (bonds), they’ll be trying to inflate away their problems. This however is a dangerous move as it weakens the dollar, destroys savings and makes the average income dependant person much worse off.

      Now I’m not saying that people will be carrying their dollars to the shops in wheelbarrows any time soon (ref post-war Germany), but we should be prepared for short-term deflation followed by long-term inflation. In this scenario, using your cash to buy anti-inflationary assets when the prices deflate such as gold, property, stocks, etc.. in the short-term would be a wise move. You sure as heck don’t want to be holding unnecessary cash when Mr Inflation comes knocking at the door.

  60. Molly, Ben, thanks for the responses. A few points about your comments, Ben.

    Sure, austerity measures would involve pain. People are used to living far beyond their means, they think they’ve got a right to it, and to suddenly find out that it’s not going to happen anymore–that hurts. The solution, to my mind, is to do it little by little before we’re in an emergency where we must do it all at once, come what may.

    You comment that the only way a politican can stay in power is to deliver a strong economy or win a war. I think FDR is a good counterexample. For most of the years of his ultra-long Administration, America was in the Great Depression (I know it didn’t start on his watch; my point is just that he failed to deliver a strong economy–if that was even his goal), and America didn’t enter WWII till near the end of his Administration. Victory didn’t come till after he died.

    He stayed in power by a combination of brilliant propaganda and tranferring huge amounts of wealth from states that were clearly for or against him to states that could go either way.

    Keeping people working isn’t really a very useful thing if they’re not creating wealth. The classic example would be paying people to dig holes and then fill them up. Work, paychecks? Sure. Wealth creation, economic health? By no means.

    To my mind, the solution has got to be the government’s declaring a gradual process of cutting down government activities–gradual buy constant. Combine that with tax policies meant to achieve high revenues, and use the surplus to pay down the debt. The alternative, of course, is to wait till we get to a Greece-style economic crisis, the difference being that there is no country or combination of countries big enough to bail out the USA.

  61. I meant gradual but constant.

    • Yehoshua – I totally agree with everything you wrote in your last post, the solution is to do it little by little and work on changing people’s behaviours and perceptions as opposed to just enforcing new measures (such as austerity) upon them.

      In fact it’s very much how Ramit approaches the subject whereby you have to win people over by tapping into what means something to them as opposed to ramming it down their throats and expecting them to agree with you, marketing it in the correct fashion (if we’re trying to keep some relevance to the original article that we are adding our comments to ;-p).

      My only concern is that society has changed since FDR’s time. Today people expect immediate results and have no time or patience for long-term results. In the 21st century millionaires are made overnight and we expect everything for free (ref Dumb things Ramit’s heard in the last 10 years), communication is instant and opinions spread like wildfire. Since WWII the West has seen nothing but growth (apart from a few relatively minor hiccups) and the post-war generations only know one way, and that is up.

      The right solution is to start making public sector cutbacks, increase exports (somehow), make better use of tax revenues, etc.. However this would lead to a prolonged period of minimal growth, a little like the Japanese economy that has gone nowhere for 20 years. This is not what the people want as their wealth is proportional to how much an economy grows, how well the stock markets perform and how much their house increases in value.

      In this sense a sensible Govt which employed the right measures that we have both discussed would (in my mind) be ousted by the opposition that promised to can austerity, start spending, kick-start the economy and get everyone their jobs and wealth back.

      As I said, I totally agree with your comments but what should be done and what will be done are often found at opposite ends of the rainbow.

      Ramit – apologies if we’re going off point here but this is certainly an interesting discussion.

  62. Ben,

    I’m not so sure. Since wealth is created by people acting freely in their own individual best interests, a free market is the best way to create wealth. It seems to me that if we were to gradually transition back towards a free market, results should come fairly quickly–the main trick would be to keep pointing out, over and over again, the results that are coming in.

    The danger would be in allowing, by being silent, the anti-free-market forces the chance to dominate the national conversation and trick people into thinking that their pain is the result of the free market and their wealth the result of government control, when the truth is really exactly the opposite.

    If you’d like to continue this conversation, I suggest that we do so by email; as you said, we are getting rather off the original topic.

  63. [...] Why personal-finance “experts” continue giving worthless advice This article hits on why tiny individual personal finance bloggers have a larger monthly audience than many huge “prestigious” personal finance publications. We focus on actual problems that people have, not “financial literacy.” (@ i will teach you to be rich) Related Posts The Simple Dollar Morning Roundup: Post-Super Bowl EditionThe Simple Dollar Weekly Roundup: Places to Follow Me EditionThe Simple Dollar Weekly Roundup: Birthday Update EditionThe Simple Dollar Weekly Roundup: Link Choice EditionThe Simple Dollar Weekly Roundup: Crunch Edition Did you like this article? You can get the complete text of all the latest articles at The Simple Dollar in your email inbox each morning by entering your email address below. Your address will only be used for mailing you the articles, and each one will include a link so you can unsubscribe at any time. No comments yet. Be the first. Leave a reply [...]

  64. Bernie Madoff’s clients didn’t care about the nuts-and-bolts, either. They too just wanted to get rich, without bothering to learn the details.

    How’d that work out for them?

    • Kevin,

      First of all, there were quite a few sophisticated investors amongst Madoff’s clients, institutional investors responsible for huge amounts of money. So knowledge isn’t any guarantee against some nasty surprises.

      Secondly, I didn’t say that lack of expertise doesn’t have a down side. Of course it does. I’m not an expert in car repairs–if the car that I’m driving breaks down, I’ve got a problem. I’m not an expert in identifying or responding to emergency medical conditions–that could potentially create a problem. There are lots of things I’m not expert in, any any one of them could, at some point, create problems for me, potentially serious problems.

      That doesn’t change the fact that I don’t have the time and energy to become an expert in everything, that I’ve got to choose in what to invest my finite time and energy, and accept the risks that come with lack of expertise in most topics.

      –Yehoshua

  65. [...] Why personal-finance “experts” continue giving worthless advice This article hits on why tiny individual personal finance bloggers have a larger monthly audience than many huge “prestigious” personal finance publications. We focus on actual problems that people have, not “financial literacy.” (@ i will teach you to be rich) [...]

  66. [...] Why personal-finance “experts” continue giving worthless advice This article hits on why tiny individual personal finance bloggers have a larger monthly audience than many huge “prestigious” personal finance publications. We focus on actual problems that people have, not “financial literacy.” (@ i will teach you to be rich) [...]

  67. I can totally relate to the wanting to know “Why?” issue…
    I remember growing up getting wise advice from people in my life. But I never would listen, until I knew the “WHY”.
    Parents & Elders or Advisors & “Experts” will tell you “You need to do THIS”.
    But it is not until I know the why of it all that I can even begin to heed their advice. It is just my mentality. I have to know the WHY!

    This is something I try to keep in mind when trying to impart words of wisdom to my children. I don’t want to just blurt out facts of “Just do this…” You should always blah-blah-blah” but explain my real life situations that led me to come to that belief. I just hope that I can do a good job of effectively passing on what little bit I have learned so that they can learn from my mistakes instead of learning the hard way :)

  68. I’m just glad I didn’t follow the advise of Rich Dad Poor Dad, a few years ago. I would be poor and he would still be rich. Thanks for the info.

  69. I will offer a few reasons why financial advice is not “objective” and why financial literacy is not common.

    Very few people know everything.
    Very few people know everything about money- think budgeting, investing, taxes, debt, mortgages and variable annuities. This would then lead me to conclude no person can debunk the myths of the other items because they do not know them. Therefore people stick with what they are comfortable with, and very rarely move out of that comfort zone.

    As for financial literacy, its tough because the people with knowledge to provide it will not do it for free (most of the time) because its a conflict of interest- if people pay them for that advice (rich people do) why should they give that same advice to people with less money for free. That would be socialism I think.

  70. [...] you do it? Do you have a house? Sell or rent it. Kids? Bring them with you. Debt? Create a plan and pay it off. For every excuse out there, there’s a solution. As long as you first admit that you CAN [...]