How to Tell If This Personal Finance Advice Is Bullshit
The press release, which made me nervous, mentioned lattes and how few Americans are prepared for a $ 400 emergency. “Where is my bingo card?” I was kidding.
And before I knew it, I created a whole bingo card full of buzzwords about personal finance and other phrases that often annoy me when I open my inbox. Highlight a whole row, I decided, and in the afternoon I can have a beer at my table. (If you think about it later, this can be dangerous.)
This does not mean that I am ungrateful for thoughtful PR presentations and expert opinions. For every strange or bad letter, I get two good ones from good professionals whose work I respect. But a lot of what gets into my inbox just annoys me because of the information about personal finances that is shared on the Internet. If you are not an accountant, financial advisor, or economist, how can you tell which personal finance advice or data is worth using and which is nonsense? Can’t we just eat avocado toast in peace?
Let me tell you about a time when I was nearly fooled
A few years ago, a financial services comparison site sent me a few points about a survey they conducted about how much people spend on holiday shopping. The results were shocking: 57% of those surveyed said they would spend their full salary on holiday expenses. The representative suggested that I look through the entire dataset and sent me a detailed Excel workbook.
But when my editor and I looked closely at the data, we realized that it had been corrupted. Is that 57%? It included only people who said they would spend at least one salary on their holiday expenses. It was not a percentage of the entire group.
We did our own calculations and found that 22% of respondents said they would spend their entire salary on holiday festivities, and 61% said they would spend less than their entire salary on holidays. The proportion of people who said they would spend more than their salary on holiday entertainment was very small.
And this is the case where I actually saw the raw numbers and had to do my own calculations. Sometimes all you get is a press release with some clauses. Sometimes you end up with a fluffy good looking PDF that doesn’t tell you much. Sometimes presentations are about surveys about what people think they will do, rather than what they actually did . There are a lot of things that are just picked, published and covered, regardless of what information the companies are trying to share.
Just as you must be discerning about medical research results ( chocolate is good for you! Wine is good for you! Chocolate is bad for you! We grow horns by looking at our mobile phones! ), You must be critical. from the personal finance tips you’ve read too.
See who did the research
Survey companies aren’t necessarily nefarious, but they usually don’t adhere to the same rigorous standards as academic research. If the research was conducted by academic researchers or government data, look for limitations that might affect the relevance of the results. Much academic research leaves researchers with more questions than answers, no silver bullet to solve the problem.
Look for action, not feelings or predictions
What difference does it make if 500 people said they could spend their money on something frivolous? Until they do it, it doesn’t really matter to you.
Look at the sample size
A large group of people does not guarantee more accurate results, but it is difficult to draw conclusions, for example, from a group of 300 people who took an online survey. Who knows, perhaps they only took this survey because they wanted to read a newspaper article at home and had to first answer seven multiple-choice questions. They really just wanted to know what their old buddy Bill was arrested for, they don’t care about this survey. Would you believe these results ?!
Watch out for broad generalizations
Don’t you hate it when all millennials are reduced to one point? What about when all baby boomers are classified the same? And where are the general generalizations about Gen X? (Sorry Generation X). If, as a result of the survey, you feel terrible about being born in a certain generation, take a deep breath and close your browser tab.
Don’t change what you do to manage your money or improve your financial health just because one survey says you should be doing something different. If something works for you, stay on course.
And if you’re just not sure, check out my bingo card:
I know that some of the squares on the bingo board are inside baseball, if you’re not the type to get press releases all the time. But listen, if you come across two or more of these buzzwords anywhere , you probably don’t need to rush to reform your financial life this very moment. If you only see one of these buzzwords, and that’s latte, don’t be afraid to throw this tip away altogether. Maybe the latte should have been an empty seat.