What Pop Finance Gets Right and Wrong

This week’s episode is a little different. We’re not just talking about personal finance, but personal finance advice — what people say about how to manage your money, and whether that advice is actually right for you. If you’ve been listening for a while, you know that HerMoney features guests from all walks of life — from financial experts and economists who dig deep into the data, to entrepreneurs and side hustlers who share their on-the-ground experiences with money. They all have their own perspectives, and they don’t always agree. When it comes to our finances, when does it make sense to look at the numbers, and when might life experience or gut instinct matter more? 

Our guest today put these questions to the test. James Choi is a professor of finance at Yale University, and his research focuses on behavioral finance, behavioral economics, household finance, capital markets, health economics, and sociology. For his newest research paper, titled “Popular Personal Financial Advice Versus the Professors,” James read the fifty most popular personal finance books on Goodreads and compared the advice they gave to what economists tell people to do with their money. 

James and Jean dive into the biggest differences between popular advice and economic theory, and what’s behind those differences. While economists give the most rational advice backed up by numbers, says James, personal finance authors focus more on how emotion and motivation might affect our behaviors. 

For example, when it comes to saving money, economists would say that it’s okay to save less and spend more when you’re young. (Before you get too excited, keep reading.) That’s because you’re probably going to earn a lot more money when you’re older. So you can enjoy your life to the fullest in your 20s, become a super saver in your 30s and 40s, and still be on track for retirement. But personal finance authors recommend that you consistently save 10-15% of your income, no matter how much you make. And they might have a point, says James. If you haven’t learned how to save or budget at all in your 20s, then you might not be able to do it later in life because you haven’t built the habit. 

We also break down popular advice on investing, building an emergency fund, buying insurance, and becoming debt-free. James evaluates the two most popular strategies for paying off debts: the snowball and avalanche methods. While economists say you should prioritize paying your highest-interest debt first (avalanche method), many personal finance books argue that you can build more motivation by paying your smallest debts first (snowball method). Ultimately, the best method is the one that actually works for you, says James. And that’s true across the board with personal finance advice: What you should do in theory might be different from what’s effective in reality. 

“I really think that it’s like diets,” he says. “Some people say the Mediterranean diet is the best. Some people say the Atkins diet is the best. I think at the end of the day, the best diet is the one that you can stick with.”

In Mailbag, one listener shares the struggles she’s encountered while trying to sell her car. Another asks how much she would pay in capital gains tax on the sale of her home. A huge thanks to Dr. Jaime Peters, Assistant Dean and Assistant Professor of Finance at Maryville University, for advising HerMoney on the second question. And in Thrive, how to negotiate for a longer parental leave.