Todd Christensen Profile Picture
Staff Writer at Debt Reduction Services

Refuting 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 that I remember reading years ago. 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 than inflation takes, that’s true. So what? To insinuate that the alternative is to keep money in a mattress (or other non-traditional 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 you earn, the more money you…” The answer is “spend,” not “save.” Every single one of the nearly one thousand classes I’ve taught has 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 crapshoot, 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 a 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.

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