Surfing around in the personal finance blogging and podcast world, there is no shortage of advice. Mostly good advice and some not so good advice. Oftentimes, advice that may be appropriate for some or even most investors would be completely inappropriate for others due to different risk aversion attitudes, investment horizons, and so on.
Occasionally, however, I come across examples of truly and irredeemably bad advice. Recommendations that are suboptimal under any and all circumstances I can think of, irrespective of the preferences and parameters of the individual. What’s worse, the financial experts spreading this nonsense do so not because of ignorance or incompetence. Rather, they are fully aware of the suboptimality and against better knowledge spread something that’s less than ideal. And the rationale? It may not be good advice but it’s feel-good advice. Let’s take a look at the two examples of feel-good advice I recently came across:
- The debt snowball: While paying down multiple credit cards, start with a card that has the lowest balance, even if that’s not the highest interest debt. Achieving a “win” of paying off one debt in full is more important than paying down all debts as fast as possible.
- Keeping an emergency fund in a money market account while still having credit card debt: Apparently, cash sitting around in a money-market account, earnings essentially zero interest is more important than tackling high-interest credit card debt.
In both cases, the rationale is that it makes you feel good. The “easy win” of completely paying down one debt or the sense of accomplishment of a having a $1,000 cash cushion certainly feels good. Of course, those two measures probably make you feel better than the status quo, i.e., not tackling your debt at all or not having any savings at all. But wouldn’t the average person feel even better if they knew a faster way to get out of debt? Does anyone else find this troublesome? Do the financial gurus view their readers and listeners as a bunch of feeble financial fruitcakes? Is this some sort of personal finance edition of “You Can’t Handle The Truth” with Jack Nicholson / Colonel Jessup? Continue reading “Good Advice vs. Feel-Good Advice”