This is not an advice blog, really. It is a blog about advice, and as a side-effect it contains some advice of its own. But the main topic here is the advice given by others and how bad it is. And not just any advice. I mean to talk about advice on a single subject of almost universal interest: money.
Money, or to use its proper name, personal finance, is one of the major genres of advice in the media, up there with dieting and sex. Of course, I’ve never read a dieting book and I’ve never flipped through a sex manual without a smirk, so for all I know the advice given on those topics is similarly lousy. But I have read a lot of personal finance books, articles, and blogs, and I’ve even managed to sit through some TV shows and heard some rather tedious radio call-in shows on money. Some are better than others. Some have good production values and a few are even entertaining. But they all seem to fall down on content. The best ones give advice that is only approximately sound and the worst say things that are just flat out wrong.
My qualifications for giving personal financial advice, and for criticizing the advice of others, are thin. Then again, the qualifications of the established experts in this field seem no more substantial. Mostly, what they have that I do not is the circular proof that they are qualified to give advice because that is what they do professionally.
I am an unemployed finance guy. To be more specific, I used to run a hedge fund. (The fund’s end was not dramatic, BTW. No frauds or spectacular losses. We had a mediocre year and my partner decided he wanted to do something else with his life, so we closed up shop.) I studied economics at an Ivy League college, got an MBA in finance at another Ivy, and have the usual assortment of licenses and letters after my name. All told, I have spent twelve years being paid rather nicely to invest other people’s money. So listening to what I have to say about personal finance is not the craziest thing you could do, even if I do not have my own TV show. Yet.
Then again, I am unemployed. That’s not exactly a unique situation right now, particularly in my line of work, but still a person might reasonably wonder: if I was really as smart about this stuff as I apparently think I am, would I have the free time to write this blog? That’s a good question for which I have no answer. But it does bring up a fundamental difference between advice on money and advice on, for example, dieting and sex.
Writing a book or blog is a natural next step for a person who is very good at dieting or sex. There is only so much weight a person can lose and only so much sex a person can have. (So I am told.) Opportunities to do either of those things at a higher or more advanced level are limited. So sharing the secrets with others in exchange for fame/money is about all you can do.
This is not the case with money. A person good at money generally keeps working at adding zeros to his net worth until he can buy an island to retire to. So who, you might reasonably ask, writes all those books and gives all those seminars? People who are clever about money but so naturally generous that they want to share their insights with others rather than profit by them personally? Can I interest you in a bridge I have for sale over the East River?
There is another, much more serious, difference between advice on dieting or sex and advice on money. If the advice everybody got on dieting and sex was faulty, that would be somewhat unfortunate for the nation. We would be a little chubbier and a little less happy in bed. But if bad advice on money is widespread and followed we’re all in big trouble. If, to imagine a far-fetched example, millions of people were told to buy more house than they could afford, the inevitable housing price bubble might set off a crisis in the capital markets that could plunge the whole world into a recession.
Left wing types like to fantasize that the economy is controlled by a small and sinister elite. That might have been true somewhere at sometime, but it is very far from the reality of the here and now. Ours is an economy controlled by millions of ordinary people, each with responsibility for a tiny bit of it. If a lot of them do a bad job of running their slice of the pie, then we all suffer, even those of us who are clever and thoughtful about money.
The premise of this blog is twofold: that personal finance advice ought to be taken seriously and that it needs to be a lot better than it is now.