4 Dumbest Pieces of Financial Advice

4 Dumbest Pieces of Financial Advice I Have Ever Heard

This “ 4 Dumbest Pieces of Financial Advice ” post explains the pieces of advice that the author/blogger thinks are bad advice but many may consider them as good ones.

Growing up, I learned a lot of financial lessons from people I knew and don’t know and from my own personal triumphs, and tribulations. I learned that I should never spend more than I earn. I learned that needs and wants are two different words with two different meanings that many people interchangeably use thinking that they are and carry the same meanings.

Just the other day, my co-worker was talking about how he made bad investments (i.e. buying houses and stocks) and how these choices are affecting his personal life now. Technically, he hasn’t lost any money yet because he has not sold his investments but the value of his investments have gone down tremendously.

He knows that I blog about personal finance and asked me what the worst advice I’ve ever gotten or followed in my entire life. I had to think for a couple of minutes because that wasn’t something that’s normally asked. I told him that buying a house over renting is the worst advice I’ve ever gotten. It’s not I have bought a house but it’s just based on my analysis.

I didn’t mean to say that but that’s what I thought about during that moment. I didn’t want him to feel bad because his investment is his house.

Dumbest Pieces of Financial Advice

As I was driving home, I could not help but wonder what the worst pieces of financial advice I’ve ever gotten. It took me a few minutes to figure out what they are. Here are some of the worst pieces of financial advice that I really have shared to a lot of people. It’s just I don’t usually give them and tend to forget that they exist.

Invest while you’re young (Remember the compounding interest)

In all of my earlier posts, I have praised the benefits of compounding interest and how early investing can help you make more money in the long-run.

I totally agree that compounding interest does wonder to money. Having said that, it doesn’t mean that you need to invest while you are young. Remember that there are other questions that must be answered and investing while you are young only answers the question of “when” (i.e. when do you invest?).

You also need to answer the question of “what”. You don’t just invest in stocks you think can provide you the highest returns. Before you answer the “what” question, you need to research what investment options best fit your goals and requirements.

In addition, you need to find the answer to the question of “why”. You need to figure out why you want to invest (i.e. know your goals). It is in your best interest to define what your goals are so you can identify the investments and investment strategies that are beneficial to reaching your goals.

You also need to answer the “where” question. You need to identify if you are going to invest in stocks, bonds, mutual funds, options, among others. Different investment options carry different returns and risks. As an investor, you should be aware and decide the best options for you.

Why is it one of the dumbest pieces of financial advice?

It is one of the dumbest pieces of financial advice because the advice only indicates when an investor should invest. There are a lot of considerations or questions that need to be answered. It may be common sense but a lot of people invest when they are young without really knowing anything about investments. This lack of knowledge can be detrimental than beneficial to achieving their financial goals.

Buy life insurance for your kids

If you bought or are trying to buy life insurance for your kids, you may be pitched by somebody or may be a salesperson that you need to buy life insurance for your kids if something happens. Somebody may pitch you the idea that you can use the earnings from this insurance for college education, medical expenses, among others.

As a parent, you may think that it’s the best idea ever or the idea of life insurance for kids seems reasonable.

Correct me if I am wrong but the idea of life insurance is to supplement your loved ones if you pass away. Unless your child is making money for the family or a celebrity who earns millions of dollars and takes care of the family, then, you may not need to buy a life insurance for your kids.

If you want to build up cash for education purposes, then, there are other investment vehicles that you can look into such as 529s, your Roth IRAs, among others.

The only thing that I can think of a time when buying a life insurance is a good strategy is when you know your kid will have a hard time getting life insurance when he or she is an adult (i.e. medical history that will deny your kid from getting life insurance later on in life).

Why is it one of the dumbest pieces of financial advice?

It is one of the dumbest pieces of financial advice because the real value of life insurance is to supplement income that would be lost if the person dies. If you ever worry about college costs, you can find other alternatives to grow your money for education purposes.

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Never use credit cards

According to Nerdwallet.com, the total owed by the average US household in credit cards was $15,355 (average).

It may seem a great advice to not use credit cards especially when you hear a lot of people drowning in a pile of debt. You may be scared to use credit cards thinking that you would get yourself into credit card problems.

While this is a valid reason, always think that credit cards are not always evil. Nowadays, a lot of credit cards offers cash back, rewards, limited product insurance, among others. You can always take advantage these credit cards to your advantage.

In reality, not having credit cards can do more harm than good to you. A lot of lenders will require credit history when lending loans to consumers. If you don’t have the credit history or your credit score is bad because of not different types of credit (e.g. credit cards) in your credit history, you may find yourself not being able to secure loans.

If you are disciplined and responsible for taking control of your financial situations, then, using credit cards can be beneficial to you. However, if you are not, then, it’s to your best interest to stay away from credit cards.

Why is it one of the dumbest pieces of financial advice?

It is one of the dumbest pieces of financial advice because you will find yourself not being able to take advantage of the benefits of credit cards (i.e. credit history, rewards and cash backs). If you know that you are able to handle your finances effectively, you don’t need to be afraid of using credit cards. Just make sure that you pay your debt in full to avoid getting charged with interest.

Do what the others are doing

Just because a lot of people are doing the same thing and are successful at what they are doing doesn’t mean that you should jump the bandwagon and do the same thing as well.

If you are advised or somebody recommends that you take advantage of an opportunity because many people who did take advantage of it made or are making a lot of money, you should think twice before doing it.

If your friend tells you that you need to buy a house because the housing market is down and a lot of people are buying in the hopes of making money in the future, then, you should always sit down and assess the opportunity. You need to determine if it is aligned with your goal or financial capacity. Remember your needs may or may be different from the needs of other people.

Why is it one of the dumbest pieces of financial advice?

It is one of the dumbest pieces of financial advice because the thought of “do what the others are doing” is based on the idea that the successes that other people attain will be the kind of success you will also obtain.

Conclusion:

Sometimes, some pieces of financial advice may seem good ones but they are not. My final thought is that it is always in your best interest to sit down, do your homework, and, from there, decide which pieces of financial advice really best fit you.  You may find that some are really good for you when they aren’t for many. Also remember that your needs may or may be different from the needs of others. So, you should look at a financial advice based on how it will benefit you not how it has benefited other people.

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Allan Liwanag

Allan Liwanag is a personal finance blogger who paid off at least $40K debt in 3 years by adopting simple and extreme saving techniques while ensuring his family's needs were taken care of. An analyst by day and dedicated blogger by night, he loves to share his thoughts - based on his research, personal knowledge, and experience - on topics related to family, life, and money. Allan lives with his family in Maryland, USA.

11 Comments

  1. Thank you for the great post Allan!
    I strongly agree with your last 2 points. I know people that avoid using credit cards but they don’t realize that you might be hurting your credit rating. How will you purchase a house without a credit rating or payment history? And, like you said, you miss out on all the great rewards CC’s offer. I personally use my CC for everything I can and then put the money on it immediately. This has been working for me for a long time now. And 1 day I needed a new printer and was able to pay for it all with my CC points. And to your last point about following others, thats the quickest way to stay broke. Everyone’s different and needs to find a plan that works for them. Great post!

  2. What a cool and different way of looking at it. If we don’t sit and think critically about what the general public/marketers are telling us to follow in terms of how we manage our finances, we could end up regretting our decisions in the future. I especially like the one about buying life insurance for your kids. Is that really necessary? That to me is bad financial advice. I would even add to this list: a)student loan debt is “good debt”. Education is critical in the information age we are in, but many students use alot of their loans on the “student life experience” and less on tuition and books (not all of course) and b) buying a house is a “sound” investment. I am not against homeownership, but buying a house, is like any other investment, you may or may not come up ahead. Good post!!

    • For me, life insurance is a bad choice for kids, in general. I also think that some debts are good because they help you build credit history and help you increase your credit score, that is, if you are using your credit wisely and effectively.

  3. Great insight! I have to agree with you that life insurance for kids is not unnecessary and feel the money would be better spent on starting a college fund instead. – Madison

  4. Thanks for sharing, this would like what my dad has been preaching for years but doesn’t make any sense to me. Thank you!

  5. congratulations on paying off so much debt! Good for you. We pay cash for everything. We paid off all of our personal debt 4 years ago and our home last year. We paid cash for cars, college, everything. No need for a credit score because we will always pay cash. If no cash, than no buy. I enjoy your articles.

    • Thanks. It feels liberating. I feel like I’m not shouldering the world. I hear you. I feel that now the credit score is not a big deal for me and my wife. It will be when we decide to buy our own house. But that’s a couple of years down the road.

  6. ya i don’t understand why people buy life insurance on their kids. i’d invest in education funds and maybe down payment for a house.

    • Yes. The main purpose, for me, of buying life insurance is to cover for any income that would be lost if the person dies. Kids generally don’t work when they’re young. They can but chances of contributing too a lot financially may not always be that great.

  7. Great post! Not sure why “invest while your young” has to be categorized as “dumb.” You acknowledge that it’s correct, just that there are many considerations involved. I think any piece of advice can be interpreted the wrong way, but that in itself doesn’t mean that it’s dumb (or even wrong in this case). Otherwise, your insight is pretty spot on.

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