I've made a recent decision about the direction of this blog that I want to take. I'm not going to limit myself to product reviews and personal finance tips. I'll instead write about anything that I find interesting related to the personal finance space. To make this policy work for me and you, I'm going to try my hardest to properly label posts and introduce them in such a way that you can easily figure out what they're about and continue reading or skip them if they're not your cup of tea.
Richard Thaler, a professor of economics and behavioral science at the University of Chicago, wrote an Op-Ed for the New York Times earlier this month about the surprising lack of effectiveness in improving people's finances through financial literacy programs. However, he does reference a study that found that teaching people heuristics, or simple rules of thumb, can make a significant positive difference with their financial situation. This really forces me and other personal finance bloggers to reflect on how they choose to present information. Generally I try to provide my reader with as much information as possible when I give advice or review products, as I think heuristics are overly simplified. For example, on my Smartypig review, I give my reader information about ease of use, interest rates on the savings accounts and even the referral system. I could have just said, "Use this service, it's better than the bank account you currently have" without actually knowing anything about your personal situation, which is an approach that some other blogs take.
Personally, I think a program that starts with heuristics and then transitions into targeted financial literacy could be more effective than either one alone for those experiencing financial distress. The simple rules people learn help them improve their financial situations to the point where more advanced financial literacy skills (e.g. interest rate calculations, understanding risk in investments and using the tax code to their advantage) are relevant and useful. You can imagine if you're in a lot of debt, somebody telling you to "pay off all your debt and then start saving" is a lot more useful than doing compound interest calculations.
This all sounds peachy until I thought about what the set of heuristics should be. "Pay down all your debt as quickly as possible" is simple advice, certainly applicable for many people but not necessarily correct for everybody even if the goal is savings maximization controlling for a given level of consumption. Additionally, a heuristic like that leaves a lot of room for interpretation, what I interpret "as quickly as possible" for me may be a radically different pace than what the advice giver has in mind.
So, where does this leave us? I think certainly one thing people can do is seek out the type of information that they think will be the most useful to them. One of the major pitfalls of these financial literacy courses is that they don't seem to particularly tailor the program to those taking it. If you like getting simple, actionable guidelines, seek those out from reputable websites and financially savvy friends. If you require more in depth information, use more technical resources and consider getting a good financial advisor.
Frankly, I think the current situation we're in leaves a lot of room for innovation. I imagine a world in which people have savvy financial advisors who can access much of their financial information online and offer real time advice. The price of this service depends on its effectiveness of helping people reach their goals. As far as I know, this doesn't exist yet. Who knows, maybe I'll be the one to create it?
Sunday, October 20, 2013
Saturday, October 12, 2013
Free Entertainment: Reading the Classics
"And now for my next number, I'd like to return to the classics." -Often Used Rap Sample of Unknown Origin1
I was recently given an Amazon Kindle for my birthday, which was great because it was exactly what I wanted. I figured I'd use some of the store credit that I've gotten up to this point to buy a few books and start reading. While searching around, I found out that there is an expansive group of books that are downloadable free to your Kindle device because they are currently in the public domain. That's not all though, here's the best part: Even if you don't own a Kindle don't worry, you can read all the classics I mention and many more for free on your computer as well using Amazon's cloud reader, which is free to download. This is all excellent news, because that means I can use my Amazon gift balance for more important things like dress socks.
It's fairly complicated to figure out when a literary work will enter the public domain, but a general rule of thumb to use is 50–70 years after the author's death. You'd probably be surprised how many works are actually available for free. Here's a list of a few I've read:
- The Great Gatsby (Amazon seems to be charging for it now. Sadface.)
- The Jungle Book
- The Art of War
- The Three Musketeers
- The Jungle2 (not for the faint of heart)
- Heart of Darkness3
- Treasure Island
and a few more I've put on my list but haven't gotten to yet:
- Alice in Wonderland
- Don Quixote
- The Importance of Being Earnest
- and many many many many more...
One last thing, I would advise staying away from sites that offer free books but then request credit card information, sign you up for some subscription or ask you to provide lots of personal information, there are much safer (and cheaper) ways of getting ebooks. Happy reading!
1. Unless you, dear reader, know the origin, in which case let me know in the comments because I spent 20 minutes searching for it on the internet instead of writing this post.
2. What's with old books and always starting with "The", same thing goes for classic rock bands. Like seriously.
3. Thank god that mondo-"The" list is over.
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