We Need a New Kind of Financial Advice

Wall Street

I am not an avid reader of financial self-help books, but it is becoming apparent to me that we need a whole new approach to the genre. As Nicole’s breakdown of Rich Dad Poor Dad noted, most of the leading titles in the genre are selling essentially the same advice, albeit in packaging that varies the tone and target demographic: get enough money to live off investments. As Nicole also points out, that doesn’t work because most people can’t just get a bunch of money. (Perhaps the next installment in the Billfold Book Club will buck the trend.)

The unhappy state of the world, which this site has chronicled regularly over time, is that things are not getting better for the poor or the middle class. The vast majority of us, try as we might, are not going to be the Rich Dad, living off passive income while some hapless schlubs labor for our cigar-smoking benefit. We are going to be the schlubs. We need financial literature that recognizes this. We don’t need advice on how to be rich and idle. We need concrete tips for effectively treading water.

I got to thinking about this yesterday, when news broke here in my benighted city of Hartford, Connecticut (poverty rate, 38%), that the mayor had negotiated a deal to build a stadium in our long-suffering downtown in order to lure a AA baseball team from another impoverished city 13 miles away, at a cost of between $60 and $100 million. The theory, of course, is that this new edifice to sport will drive downtown development, boost our local economy, and increase tax revenues. The problem with that theory is that it has been tested by thirty years of stadium construction and economic analysis, and it is absolutely completely wrong. What’s crazy is that we’ve pretty much known that stadiums don’t drive economic development for decades, but somehow, mayors and city councils keep trying, much to the delight of team owners.

What occurred to me is that the government of my poor city is behaving just like its poor residents do: operating in a system rife with constraints, it is making a terrible investment with minuscule long-term prospects and an enormous chance of making everything worse. Working people with no money on hand do this when they take out payday loans at exorbitant interest rates (like, 400%). People with no job prospects do this when they get into drug dealing, for which the starting pay is less than minimum wage and the risks are high. People who have housing and jobs but can’t raise the money to furnish their homes pay absurd amounts of money for furniture from rent-to-own stores. Would-be entrepreneurs sink deep into credit card debt to finance businesses, or even just to present the facade of success that they believe is necessary to attain it. Further up the ladder, people with jobs and modest savings who live in redlined areas undertake terrible mortgage terms in the hopes of owning a home and rising solidly to middle class stability. At the top, poor cities themselves, dependent on state governments for funding and hamstrung by vast tracts of untaxable land (providing hospitals and universities for surrounding suburbs), roll the dice on “downtown catalysts” that never catalyze.

At every level of privation, there’s an enterprise carefully calibrated to sell hope and extract profit (stupid capitalism!). Apparently, this has more than a little to do with the way that the stress of possible financial hardship makes our brains work (stupid neuroscience!). So we need economic self-help literature that concedes that we’ll never be rich, or probably even so secure that a serious illness won’t bankrupt us, and focuses solely on helping us avoid temptations that will certainly ruin us.

The closest thing to this kind of advice that I know of is Mr. Money Mustache, the nom de blog of a semi-anonymous software engineer in Colorado who preaches a gospel of austerity and assiduous saving. But as our own Mike Dang has pointed out, not all of us are wasteful:

[I]t’s a myth that the typical middle class life is an “exploding volcano of wastefulness” and that “everyone always chooses the expensive ones and then complains that life is hard these days”. This is the myth that’s driving and funding the personal finance industrial complex.

[T]he majority of people I know aren’t wildly irresponsible. They’re not buying luxury cars and designer clothing and $5 lattes every day (ah, the latte factor!—every personal finance guru’s favorite example). They’re dealing with shrinking salaries, skyrocketing health care and education costs, a weak economy that has resulted in job loss.

So, dear readers, I ask you: is there any writing out there to guide us through permanent austerity punctuated with highly refined predation? Leaves of Grass comes to mind, but after that, I got nothing.

 

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41 Comments / Post A Comment

“is there any writing out there to guide us through permanent austerity punctuated with highly refined predation?”

I feel like if there were, we wouldn’t be in this mess.

bgprincipessa (#699)

I don’t have any suggestions, but I really liked this piece.

HelloTheFuture (#5,275)

A Tree Grows in Brooklyn comes to mind. Although technically that’s fiction.

@HelloTheFuture Except they do scrimp and save and finally start to rise above their circumstances only to finally own land-a PLOT in a GRAVEYARD. Seriously depressing re-read as an adult.

@FurCoats&CinemaTropes That being said, I remember reading it at 11/12 and thinking of saving and finance like a long, complicated game that I could win by being smarter and thriftier by the people around me…so maybe there is good advice here? I still bargain for produce just like Katie Nolan.

HelloTheFuture (#5,275)

@FurCoats&CinemaTropes wait WHAT? I remember Katie working hard to keep her kids fed and clothed and get them an education. Then Frankie starts working and bringing in more money, and their life gets a little better. Then Katie marries that policeman and with his income their life gets even better.

thecoffeestain (#1,483)

Charles Dickens deals very heavily in economy, though all his works are fictitious (with anywhere from a drop to a healthy dollop of autobiography in there for good measure).

I really liked this piece. Although, isn’t that writing that you spoke of what TheBillfold is all about? Or are we merely the blind leading the blind?

jmdj (#2,994)

@thecoffeestain Yes! “Although, isn’t that writing that you spoke of what TheBillfold is all about?” This is exactly what I thought. Somewhere down the line the posts with the attitude of “yes, we can do this!” (Throw money at our problems, Do 1 thing posts) turned into just posts upon posts about why we are screwed.

thecoffeestain (#1,483)

@jmdj: Agreed. I stopped reading for awhile because it became less about “Ok, I’m making progress, life may not be awesome but it’s getting there” and more “You’re f*cked too? Oh, well great. Another one bites the dust.”

But I think that attitude is ours to change. It’s one of the many reasons why I loved this post so much. Whether it was a pointed diatribe or philosophic musing is for someone else to decide; it feels, in and of itself, like a call to arms for our committed community to collectively re-write financial literacy for what it should be and not what it was.

I see a lot of hope here and am personally really hoping that others do too.

@thecoffeestain Neither strictly musing nor diatribe. I mean it: we need a focus on astute resistance to exploitation, lowered expectations, and an appreciation of things not tied to wealth. But, can it please not be the whole “minimalist” movement? Because I like minimalism and having less stuff, but that whole “I Only Own Ten Things” business gets my class antagonism up in a way I can’t quite articulate.

@thecoffeestain No, I think this way is the right way. Clearly, Billfold writing needs to be compiled into a book. I’ll write a tongue-in-cheek foreword about how none of it matters because the workers’ revolution will solve all our problems.

thecoffeestain (#1,483)

@Josh Michtom@facebook: I absolutely agree that it shouldn’t be about minimalism. Frankly, in my mind, that dilutes the inequality argument (in a relatively perverted and child-like fashion) down to, “Oh, blank’s too expensive, well I suppose I can live without that because I’m better than you.” Whether the “blank” is food, clothing, furniture, TV, phone, etc. etc. It makes me think “when is enough, enough?”

I, too, believe that this medium is the right way to communally navigate the financial miasma that we presently have no choice but to breathe. I thank the brilliant mind who came up with the idea for this site and made it a reality. My concern, however, is that we don’t succumb to the temptation to use this site to bemoan our respective stations and instead rise and march to the beat of the drummer you so wonderfully put to print.

I dearly hope that you (or another, or many others like you) succeed in achieving a higher plane of financial understanding and are able to share it with TheBillfold class. I know I would truly enjoy reading that discovery.

Allison (#4,509)

@thecoffeestain I also love the Billfold community, and the blend of grumping and positive forward momentum – it’s why I’ve pushed back against suggestions that the Throwing Money should be divided into separate posts for debt and savings.

Posts that reference news items are probably going to tend to be more bleak, but I think the hiring histories, how people do money etc are a nice counter balance. Although it does remind me that there was a couple detailing their various home improvement projects on a home they’d purchased in the East Bay. Are there any more of those on tap, Mike?

HelloTheFuture (#5,275)

@thecoffeestain Well noted. Literally. I’m making notes on future posts RIGHT NOW.

callmeprufrock (#5,158)

Yes, I have come to a similar conclusion after reading a slew of personal finance books over the last few months. My peers and I aren’t upwardly mobile, and we don’t see a more expensive lifestyle as a sign of success. So many of these books assume their readers are working salaried jobs with benefits, but that’s not a given for many of us. I don’t know very many people in their early careers with a couple thousand dollars to invest.

I think that’s the reason for the recent surge in popularity of lifestyle choices like homesteading, making, and extreme frugality. This is the kind of financial wisdom that I encounter on a daily basis. Less about how to spend money, and more about how to lower the amount of money you need to survive.

samburger (#5,489)

“Not all of us are wasteful” is fascinating way to write off MMM. Of my my many serious critiques of MMM, not one of them is, “My finances are totally optimized, thanks.”

That said, I do think he’s wildly unpalatable because WHOA talk about bootstrappin’.

I would love to see MMM’s philosophy presented through a feminist lens. Same ideas about optimization and making your money match your values but add in awareness of privilege and poverty and etc.

@samburger I think Mike’s criticism of MMM is more about the fact that ultimately, a lot of people just don’t make enough money, and while frugality is good, there are many people for whom no amount of frugality will offset the lack of resources, hard work notwithstanding. In other words, MMM’s advice is necessary, but probably not sufficient for a wildly unfair economic system.

samburger (#5,489)

@Josh Michtom@facebook I agree with Mike’s piece. Your snip and summary emphasizes a different point from the one Mike made, I think!

@samburger Fair enough. I didn’t mean to paint Mike’s piece as a wholesale dismissal of MMM.

Nibbler (#5,331)

The Time Machine?

(Go back in time, don’t take out student loans.)

shallowpate (#1,701)

A key piece of the New Financial Advice would be a plain and clear account of our paycheck rights under federal law: the minimum wage, overtime, prevailing wages, compensable time, layoff pay, equal pay, and what can and can’t be deducted from our pay. I’d also throw in the right to continued health coverage during family and medical leave and, of course, the right form a union. Lots of folks don’t know what to do when they’re getting ripped off by their boss — we need a book to explain it.

Worgchef (#6,838)

I finally registered so I could add a comment. I’m not totally sure I’m on the same wavelength as the other posters. I graduated in ’93 and formed my financial opinions during the first Bush recession.

IMO, getting it together financially has multiple foci.

1) Balancing the budget
- spend less: buy stuff on the cheap, DIY, mindful spending, moving down the hedonic treadmill, managing debt. Your Money or Your Life; blogs such as Mr Money Moustache, Get Rich Slowly, Simple Dollar; Dave Ramsey and Suze Orman; Home Depot and Chilton’s “how to fix this” (if houses or cars are taking up your money); great cook books like 660 Curries, Mark Bittman, Fanny Farmer.
- earn more: for almost all of us, our job is our most important source of income. Figure out how to make more. 7 Habits of Highly Effective People is hokey and inspiring. Building skills in your area (like “Java 2D Graphics”) or not (Toastmasters) makes one more employable or valuable. “What Color is Your Parachute” is, IMO, worthless.

2) Navigating financial instruments. Adults have to deal with banks, credit, insurance, taxes (including retirement), and loans. Learn about all of these. Dummy’s books are great for a broad view questions like ‘what is the difference between term and whole life insurance’. The Wall Street Journal has several “entry level” books about these sorts of things. Andrew Tobias’ book touches this stuff. The site ‘investopedia’ actually has a lot of interesting information on it.

If you are willing to commit to a semester’s worth of lectures, go to you tube, type in “robert shiller yale courses”, and watch his 2011 “introduction to finance”. This is mind blowingly informative though obviously a big commitment. I got through it by listening to the lectures while doing physical therapy for a herniated disk (40 mins a day for three weeks!!)

Meghan’s recent series on what the devil an option is falls into this category.

3) Actual investing. Once you’re not broke, and you’re not scared and beholden to the IRS or MasterCard, you will want to put that money somewhere. Again the WSJ books are a good place to start. I’m a committed indexer, so John Bogle, Ben Graham, and William Bernstein are all in my wheel house. If you feel the need to read up on more exotic strategies or vehicles, a trip down to your local library will expose you to a zillion spurious ways to make money (stock picking, commodities, foreign exchange, etc etc etc).

ShermMcCoy (#3,777)

Strictly speaking of the middle-class and up – I don’t think anyone who pays attention believes that most people get into financial trouble / achieve low-savings due to luxury splurges. It is the exact opposite, actually, and something you’ll figure out quickly if you listen to any financial call-in show. What gets people in trouble is the thrice weekly trips to Target or Old navy or any number of seemingly innocuous middle-class retailers. Add in a dose of keeping up with the Jones’ (new car v. used; eating at home v. dining out) and you quickly see how people of any class end up with large amounts of consumer debt. And I would add that living above your means does not stop when you make more money – if anything it becomes more tempting.

Everything starts and ends with budgeting – regardless of your starting place.

eatmoredumplings (#3,808)

@ShermMcCoy I don’t know – what I see getting people in trouble around me isn’t consumer debt, it’s rents that take up much higher than “recommended” portions of a household’s income unless you have two people with above-average professional jobs (and I don’t live in NYC); high health insurance premiums and bills that dwarf people’s monthly incomes (though supposedly for those very low on the income scale, the ACA may help with this in time); and a high unemployment rate and lack of new jobs with benefits or full-time schedules. (And that’s why my state also has really, really high rates of people on social assistance programs.) Not everyone I know is in financial trouble, some people are doing pretty well, but the people I meet who ARE aren’t there because of their budgeting skills, they’re there because their income doesn’t match up with the basic expenses of food and shelter.

Your starting place does matter.

Penelope Pine (#2,808)

Here are my #tips:

Avoid: television, print media, Instagram, FOMO, most of your friends
If you have to get drunk to enjoy spending time with someone, stop spending time with them
Always freelance on the side, even if you have a “stable” job
New York City is dumb
Risks are for rich people
Stop looking for career-based fulfillment, build confidence from the inside out
Don’t trust advice from people who are using said advice as a sales funnel
Three can keep a secret if two are dead
“Trust no one” – my grandpa

@Penelope Pine If you have to get drunk to enjoy spending time with someone, make that person buy the drinks.

@Penelope Pine You sound like a barrel of fun there.

Lady Bacon (#6,843)

Love this post. One of my complaints with the frugality movement (MMM, Simple Dollar, all the way back to the Tightwad Gazette) are the missed opportunities for political action! I’m always glad when the Billfold puts our money woes into context. It isn’t an accident we are struggling! I’m not saying political change is easy, but I want people to recognize how difficult US policy has made it for people maintain financial security.

Mia (#6,844)

Some of the earlier stuff at “I Will Teach You to Be Rich” tends to focus on personal finance that’s realistic/based on actual human behavior.

Myrax (#6,662)

@Mia I second “I will teach you to be rich” circa two or three years ago. The author’s focus on setting up systems, and avoiding guilt, helped me pay off my credit cards. I think his framework is incredibly helpful, but his latest work is mostly about trying to get rich through passive income.

iseeshiny (#6,178)

I just started reading How to Manage Your Money When You Don’t Have Any by Erik Wecks (I already read the Suze Orman book club pick for this month) and it focuses on the fact that we might never get rich, so instead encourages the reader to work towards financial stability. I’m about three quarters of the way through and it is refreshingly different in some places in philosophy if not completely in substance from the typical fare. Its free through the kindle owner’s lending library right now.

potatopotato (#5,255)

@iseeshiny: Does it have anything to say about retirement savings? Whenever I feel like maybe I’m doing ok because I can cover my bills and have a chunk of savings on hand, I look at one of those resources that says “OMG YOUR SO-CALLED STABILITY MEANS NOTHING UNLESS YOU HAVE A BAJILLIONY DOLLARS SAVED FOR RETIREMENT.” And then I go so something else becuase it makes me panic to think about it.

iseeshiny (#6,178)

@potatopotato Actually his advice on retirement funds was one of the bits most out of line with most pf rules and the part that I’m still not sure I can recommend without reservation – he says forget about retirement savings until you can afford retirement savings, even if this means forgoing a company match. I was simultaneously agog and aghast.

@iseeshiny Ooh, whoa, I cannot agree with that. A match is FREE MONEY if you’re vested. I live paycheck-to-paycheck, but I have 15k in the 401k due largely to a company match. Even if I withdrew early and paid the penalties, I would still come out ahead.

ETA: it also serves as a savings account for people like me who have a really, really hard time saving.

theballgirl (#1,546)

hmm, I don’t have any suggestions for other websites/books. But I do like your call to arms for a more.. grounded? approach to finances. I’d love to see more of a focus on the behavioral aspect (why is it so hard to continually forgo small ‘luxuries’?), and/or minimalism. As you stated Josh, the backbone of the minimalist movement is interesting but not the proselytizers,(no I cannot own one plate and 2 cups).

theballgirl (#1,546)

Also I really like the homestead movement, although again the loudest drumbeaters are a bit much. This semi-return to making things at home/growing things/fixing things (all before buying)/ reaction to consumerism, is an interesting one and something I love. BUT I’d like to read more about actual cost savings with this movement because so far, things like gardens and backyard animals have been a cash suck for me :[

potatopotato (#5,255)

@theballgirl: Not to mention they require a great deal of knowledge, time, and commitment. If I plop down money for seeds, but don’t get out there to tend to the garden however often, it’s a useless investment because they’ll all die. I do want to grow my own veggies! But it seems like such a massive commitment, and I’ll have to do a lot of prep before I feel ready to try it.

nberm (#6,856)

the blog at ReedBermingham.com is very useful and is able to describe investing in a way that anyone can understand.

Myrax (#6,662)

I’d really like to see more PF focused on risk management, and limiting liability. I think my husband is sick of hearing me say we can’t get a cat because while we can afford the monthly costs, we can’t afford risk of a serious illness. But, the more risk we take on (owning a house, being absolutely dependent on a car for work, etc.), the more likely that one thing will go wrong, and we’ll be spiraling into debt again, instead of slowly climbing out. I’ve seen very little PF advice address how to minimize risk or how to offset it beyond general formulas on emergency savings, that don’t take into account whether or not you are liable for an appliance breaking in your home, or if you are in a high-deductible insurance plan.

The book “Risk less and prosper” by Zvi Bodie addresses risk in retirement savings pretty well. It also does a really good job of walking you through a rough estimate of the absolute minimum you will need to retire on, and how much you need to therefore save in the lowest-risk form you can. The book helped me freak out a lot less about retirement (even though I’m still paying off debt, so I’m only putting in for company match), and actually think productively about the future.

readyornot (#816)

I’m a little late to this comment thread, but I wanted to add that the book Elizabeth Warren wrote with her daughter, Amelia Warren Tyagi, called All Your Worth, is great. It might also be what you are looking for here. It’s a reasonable approach to what constitutes financial responsibility with a recognition that the constraints on our choices are tough. They were the first I knew of to advocate determining a ratio of needs, wants, and savings. Just putting it out there!

laura85 (#7,411)

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