Yesterday I was searching for a personal finance blog to pick on when I came to Saving to Invest, which started the day’s entry thusly:
This is a somewhat controversial guest post by Tony Parker. I was debating whether to publish it given religion and finance are a dangerous mix.
Nothing gets my attention like the phrase “controversial guest post.” (Note to self: must google phrase regularly.) And the title promised good material to follow: Church, Religion and Questionable Financial Advice.
It seems that Parker’s family dragged him to church the other day. He hadn’t been in a while, so was surprised by how many people were there. Apparently, The Great Recession has been good for the church biz. I guess that old saying about there being no atheists in foxholes can be extended to economic hard times. (Although, having been there recently, I can assure you that there are atheists at the unemployment office.)
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Two weeks ago Trent at The Simple Dollar had a post in which he quoted at length from a pretty hostile email attacking him for not having any particular qualification to give personal finance advice. Of course, to a blogger like Trent that’s a slow hanging curve, and he proceeded to yank it into the bleachers in post that got 225 mostly supportive comments.
His defense of his right to give advice was not “Hey, maybe I don’t have a lot 
of credentials, but I know what I’m talking about” nor “Look, I’ve been doing this for three years and more than 100,000 people read this blog every day, so my advice must be pretty good.” Instead, Trent essentially said what most bloggers say, that he is not a guru but an ordinary guy doing his best. “All I can do is share my experiences and what I’ve learned along the way.”
Similarly, in the Get Rich Slowly post that discussed this blog (and led many of you to discover it) my current hero j.d. wrote that he had been thinking of updating his disclaimer and had settled on borrowing the text from The Digerati Life:
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As readers of this blog probably know, Get Rich Slowly is one of the most important and widely read blogs in the personal finance space. Wise Bread ranks it #8. It has more than 81,000 subscribers and a Google PageRank of 5. (That’s good, trust me.)
Early yesterday morning it posted a guest post from CJ at WiseMoneyMatters entitled “Why You Shouldn’t Keep a Mortgage Just for 
the Tax Deduction.” It is not, to say the least, a work of great insight. Filled with breathless explanations of the painfully obvious, it contains such gems as an explanation that a tax deduction reduces your taxable income not the taxes you pay. And it makes some remarkably unfounded generalizations, such as that the reader is unlikely to itemize deductions in the absence of mortgage interest.
But what made the post worth discussing here is something that it lacked, or at least lacked by the time I read it yesterday evening. Apparently, as originally posted the piece contained an “offending section” that betrayed a fundamental lack of understanding of how income taxes work, specifically the difference between marginal and average tax rates.
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Two posts this morning mention lotteries. Jabulani Leffall at WiseBread starts with a great quote “That buck that bought the bottle coulda’ struck the Lotto.” and proceeds with an excellent riff on the snake-oil-salesman aspect of personal finance gurus. Mighty Bargain Hunter then asks “Did Powerball tickets beat the S&P last year?” They didn’t, or at least didn’t on average. Your mileage may vary.
Apparently, a decent slice of Americans believe that winning the lottery is their most likely route to even modest wealth. According to the survey cited by MBH, 21% of them think that winning the lottery is the most practical way they have to accumulate several hundred thousand dollars. To be fair, 55% thought saving over time was the best course. And we don’t know how likely members of the 21% thought winning the lottery was, only that they thought it was their best shot.
People buy lottery tickets and become rich every day. A non-crazy and only modestly stupid person might reasonably conclude that buying a lottery ticket is a good way to become rich. Given ticket sales, the number of possibly sane but at least modestly stupid people must be very large.
I do not know of any personal finance experts who advise buying lottery tickets. Much as they specialize in repeating back what their audience already believes (or wants to believe) this would be a bit much. But the experts often make the same illogical jump as the modestly stupid person. There exist people who got rich by doing X, so doing X is a good way to become rich.
The fallacy is exploded by the great pile of worthless lottery tickets. Doing X may have made a few rich, but it also may have made many poor. If I wasn’t so horribly cynical, I might be surprised at how many people fall for this. The money guru points to the rich people who started their own business or bought real estate with no money down and the audience nods its head and agrees that yes, this is the way to wealth.
It is said that lotteries are a special tax on those who can’t do math. I agree, although I would change “can’t” to “won’t.” Much of the personal finance establishment is built on fees charged to those who can’t or won’t think logically. Even the august Millionaire Next Door spent three years on the bestseller lists and moved close to three million copies without, apparently, anybody noticing that its premise was fundamentally flawed. Just because a characteristic is shared by millionaires it does not follow that adopting that characteristic is likely to make you a millionaire.
There’s a post today on WiseBread entitled “6 Ways that Dieting and Budgeting are Exactly the Same.” This money-food analogy is remarkably common. It’s in the title of the blog. Several personal finance books (e.g. Dave Ramsey’s Total Money Makeover) are openly modelled on weight-loss books. And there’s that old quip that you can’t be too rich or too thin. (Which, let us remember, was once meant as a joke.)
To an extent, it is a valid analogy. A generic instruction for losing weight might be “Eat less, exercise more” which could easily be translated into “Spend less, earn more.” Neither is likely to inspire a fat/poor person, but the inescapable underlying truth is there in both cases.
That said, the analogy is far from perfect and can lead to some unfortunate money behaviors.
The biggest difference between dieting and increasing wealth is that successful dieting comes from winning most, but not all, of many small battles, and successful personal financial management comes from winning a few big ones.
If you fall off the wagon one afternoon and have a big meal, you may feel terrible about it but it’s still only one meal. It will not sink your weight-loss program. The goal is to keep from eating big meals almost all the time. On the other hand, if you succumb to temptation and buy that hot new convertible instead of the used sedan that you went into the dealership to look at, you really have done damage to your get-rich program. You can maintain a frugal lifestyle for a very long time and still not make up for one big financial sin.
The other big difference is that eating is a biological imperative. When you are hungry, your body creates hormones that have a physical effect on your brain and your judgement. You may feel that you desire the latest iPod in the same irrational way as you wanted that slice of pie, but it’s really not the same thing.
Both of these differences, if ignored, can lead to serious problems. Living a frugal lifestyle but then making mistakes in the handful of financial decisions that really count is a tragic waste of effort. (Although you do get to feel good about yourself as you wash your Hummer with bucket and hose instead of taking it to the car wash.) And treating spending as an uncontrollable compulsion just makes the problem worse. The truth is that not spending is not exactly like not eating. It’s easier.
Nothing gets my attention like the phrase “controversial guest post.” (Note to self: must google phrase regularly.) And the title promised good material to follow: Church, Religion and Questionable Financial Advice.
Musings, PF Blogs | Frank Curmudgeon | 
March 31, 2009 11:59 am | 
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