A question: if y = 5 + 5, what is y?
Some financial writers believe the answer is something other than 10. Arithmetic is unclear to some writers and readers in the personal finance game. That is a social media effect.
They offer financial advice without balance or proof while coming up with their money equation:
y = 5 + 5 + x
x is usually a noun, like woman, man, Trump, or a phrase.
“Privilege”
“I am moving to Portugal”
“Don’t buy crypto”
“Never move to Texas”
For every x, there is a different value for y.
y is implicitly some measure of wealth or wellness.
$5 for a dozen eggs + $5 for a gallon of gas + never move to Texas = stay in California. Un-huh. That is an opinion and not a basis for informed personal finance decision-making. Their point of view is often inequity.
It should be difficult to trust money “experts” who build their financial planning expertise without scholarship, but they sell. Put aside the Nobel prize-winning geniuses who built the world of life-cycle economics. If the world is a sphere, a bunch of financial writers on social platforms views their world as a “spiky” COVID ball built with good stories and some advice. The tone is often caustic and unkind. They need a vaccine.
I jumped on this train because this week, my Substack notes feed was populated with a note by a Certified Financial Planner with a large subscriber base who, I assume, advises her clients about how to invest, spend, and save.
This will give you an idea of how she presents her professional acumen to the world:
“What do we do with our money while we’re preparing for a potential fall of democracy?”
Another:
“When is it time to leave?”
And, for sure, she has a bone to pick with Elon.
These are not primary lessons in how to build a financial planning business.
Your Living Standard is Too Important
While writing Personal Finance Economics (PFE) on Substack, and reading the work of others, I have found many serious attempts to express opinions and advice about money. Not everybody gets it right. Investment newsletters come to mind. Writing about trading strategies gets eyeballs because we are greedy and unwilling to question the methodology of the evidence that such activity is futile. But subscribers to investment newsletters continue to pay a fortune, and I assume everybody is happy. It is easy to suppress investment pain and remember the one random winner forever.
When PFE began three years ago, I saw the opportunity to bring foundational principles to life choices that affect your wealth. Regardless of the question, there is always the best choice because economics-based personal finance is built on decision rules. 5 + 5 =10.
Why wouldn’t you want to have a measure for the wealth effect of moving, going back to school, or softening your investment risk? The measure of how your living standard will change is a tool everybody should have in their toolbox. Young, old, rich, or poor, principles apply. 5 + 5 =10. But, then, Nobel prize winners were involved.
What can you do today?
If you like the “insurance” of being able to direct message with me for a year when your personal finance questions arise, become a paid subscriber.
If you want to go deeper, sign up for a coaching session.
If you’d like others to be aware of PFE, please share.
It's hard to read these authors who are so popular, selling 'advice' that is just entertainment packaged as advice. Some are really great content creators, but what bothers me is that their audience thinks they are financial 'experts.' To me, using inflammatory headlines and preying on people's very real fears to get clicks is a huge red flag. Decisions are made for many reasons (and you can have reasons that aren't financial), but you should be clear about the economic impact of your choices. $5 +$5 = $10, as this essay puts it.