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at Debt Reduction Services

thumbs_downRefuting the Myth Busters

I love myth busting! I do it regularly in my classes. It’s fun and interesting and memorable for those attending my workshops.

Unfortunately, some myth busting can make things even worse. Take the article, “5 money myths that are financial nonsense” posted January 13, 2014, on

I’ve shared my young son’s saying before, but it fits here: “Oh my holy cow!” This article misses the mark entirely. Here’s my response to each individual point, since I’m sure there are some out there that would mistakenly agree with the myth busters because it appears on an at-least-until-recently reputable website:

In an over-reaching effort to come up with a catchy title and topic, the article misses the mark on many levels:

  1. No. 1: Banks are the best place for money. Savings return far less inflation takes, that’s true. So what? To insinuate that the alternative is to keep money in a mattress (or other nontraditional location) misses a major point… RISK. I think the recent discovery of millions of dollars worth of gold coins on a Northern California residential property highlights the fact that money kept outside the regulated and insured banking system is at risk of complete loss.
  2. No. 2: A penny saved is a penny earned. We have an income problem and not an expense problem? Seriously? I suppose we don’t live in a consumer society either? Most financial problems we see at Debt Reduction Services Inc (for consumers needing help negotiating the terms of their debts or getting ready to file for bankruptcy) are overspending issues. Yes, there are many medical-related bankruptcies, but those account for less than 20% in our experience. The problem is, from our earliest earning years, we feel entitled to anything and everything we want. Thanks to credit cards (or, worse, payday loans), we can get them… followed by decades of debt as well. Yes, a large percentage of millionaires earn their money through high-income careers (about 40% are professionals but another 40% or so are SMALL business owners). Unfortunately, young adults who get into a lot of consumer debt early on are no longer able to take the financial risk involved with going to graduate school or starting a business. Everyone knows, “The more money your earn, the more money you…” The answer is “spend,” not “save.” Every single one of the nearly one thousand classes I’ve taught have completed that phrase with the word, “spend.”
  3. No. 3: My home is a good investment. Home ownership is not an investment. This is possibly true in the literal sense, but what’s the option? Yes, “Housing prices have dropped from the bubble years,” but doesn’t that just mean they’re a better deal now than ever? The rational equals that of the fools who wait to invest in the stock market until it’s strong (prices are up) and sell as soon as there’s a drop in the market. Does “Buy High Sell Low” sound like smart advice to anyone? Me neither.
  4. No. 4: Paying with cash and debit cards is best. Using credit cards to rack up rewards and bonus is, again, just plain old’ bad advice. Even if you pay everything off in full every month, the vast majority of consumers spend 15% to 30% more using credit cards (or debit cards) than they would if they used cash. Most companies, especially restaurants, find that as soon as they begin accepting credit cards, their “per order” sales go through the roof… to the tune of about 30%. By nature, what we don’t count, we don’t value, so when making purchases on plastic, we don’t count at all. Order, swipe, leave… complain about not having enough income.
  5. No. 5: You need to diversify. Diversification doesn’t matter? Again, where’s the discussion of risk? Yes, if you invest in the right stock (which the majority of people, including stock brokers, don’t get right even half the time), you can make good money. However, it’s just as likely you’ll lose your shirt. Life’s a crap shoot, though, right? Wrong! Weigh the risks. In the age of low-fee trades and myriad index funds, there’s no reason not to diversify. If you’re young and well-employed, you may be able to take higher risks. Talk to a professional and get the advice so wanting in the article.

I wish I didn’t feel the need to spend so much time refuting such poor advice, but given that I generally appreciate, I’d love readers to understand that this article is all hype (catchy title, interesting approach) NO substance. My apologies to the interviewees in case the article took your quotes out of context (I know from experience that it can happen).

I think few would argue that it’s good advice to keep your savings in cash somewhere in your rented home while you spend more energy looking for a higher paying job than controlling impulse purchases (large and small) while deciding which stock to bet the bank on.

So to be clear about my thoughts:

  1. Use banks and credit unions to save for short-term wants and needs
  2. Most financial problems (not all, of course) are consumer overspending problems, not under-earning problems. Yes, there is too much disparity between the upper 1% and the lower 20%, but I’m speaking of the bulk of Americans earning near the median income of about $50,000 a year. It only seems like a little when we expect to have it all. Again, unexpected and uncontrollable medical expenses are the minority exception here.
  3. Owning a home is, financially speaking, better in the long-run than renting for virtually anyone who has stable income. PERIOD.
  4. Use cash for most purchases involving consumer decisions. Credit cards are great when traveling, but don’t use a credit card just to build rewards. It WILL backfire on most everyone.
  5. I would never trust anyone with my money if they speak poorly of diversification. They likely have something to sell. Don’t believe me? Check out the expert quoted in the article.

Todd Christensen-Author of Everyday Money for Everyday People, Todd Christensen

Okay, I’m think I feel better. That’s what happens, though, when I read something I consider to be poor advice.

Have a great day!

Todd Christensen

  1. Todd Christensen

    @Duaimei, if you’re among the small percentage of our population who does not overspend with credit cards, then taking advantages of credit card benefits can be a nice reward for your discipline (definitely needed).

    There’s also a “hybrid” method that avoids overspending on credit cards but still builds reward points. It involves using credit cards to pay any set, monthly bills we might have, such as electricity, cell phone, Internet, security system, car insurance, Netflix, etc. Then, it’s just a matter of setting up the monthly pay off (ALWAYS) in full to the credit card company.

    Thanks for the comment!


  2. duaimei

    I read the original article, and your refute. I agree with you that the original article misses the mark on a lot of things.

    The only thing I don’t totally agree with is not using rewards credit cards. However, just because I don’t overspend with a credit card, doesn’t mean that everyone is capable of the discipline it takes to actually treat a credit card the same as handling cash.

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