Friday Financial Tidbit-Why standard financial advice bugs me

If you’ve read this blog for any length of time, see what I post on Facebook and Twitter, or listen to the podcast you know that my beliefs about how money works and how my family handles our money are different from your typical financial advice. This is not only due to how my family manages our money, but also due to my research and experience working with people as well. Well the notion that standard financial advice bugs me was again reinforced earlier this week at my day job.

I rolled into work Monday still slow and sleepy coming off the holiday season. However I was awakened after I saw an article on my company’s intranet discussing the topic of money. It was OK until I got to the section on borrowing.

“Borrowing. Unless you’re born into wealth, you will need credit for the biggest purchases in life, such as a house and probably your first car or two. Student loans are another form of credit you should not be afraid to take on, if you must. And you may need to borrow if you want to start a business. In all these cases, you’re borrowing for a benefit that will outlast the time it takes to pay off the loan. That’s smart use of credit.

It’s also smart to use credit cards, but only if you pay off the balance in full every month, with no exceptions. This is the way to earn a good credit score, which then qualifies you for the best terms on auto or home loans. Having no credit record is equivalent to having poor credit, says Aaron Patzer, founder and CEO of the personal finance Web site Mint.com. “Even if you are opposed to the idea of debt, you still need it,” he says.”

Not me, but I do feel like this sometimes!

OH MY! You can find the whole article here. Let’s just say I have a lot of issues with what was said in the borrowing piece. Let’s break it down piece by piece.

Unless you’re born into wealth, you will need credit for the biggest purchases in life, such as a house and probably your first car or two.

OK you probably are not going to be able to pay for your first home all in cash, although it is possible. But there’s some rule that you have to buy a car with credit? No one told me.

Also re-read the first part of that sentence again. It implies to me that they believe the only way you can build wealth is through being born into it. What about creating wealth? Isn’t that possible? I believe it is, over time.

Student loans are another form of credit you should not be afraid to take on, if you must.

Ask any student who has graduated in the last 20 years and I guarantee most of them will say you should be very afraid of student loans. Some would say it is their biggest regret with money. At best they would say to limit them as much as possible and at worst they would tell you to avoid them at all costs.

And you may need to borrow if you want to start a business.

Nah, I would tell them to read the $100 Startup by Chris Guillebeau instead.

In all these cases, you’re borrowing for a benefit that will outlast the time it takes to pay off the loan. That’s smart use of credit

Debatable. What is the benefit? That you will be making payments for the rest of your life on something that you may use in the future (a lot of people work in fields not associated with their college major)? Or make payments on something that is going down in value like a car? But who has ever said to themselves “This monthly payment is really beneficial to me and my finances?”

It’s also smart to use credit cards, but only if you pay off the balance in full every month, with no exceptions

I’ve shared my opinions on credit cards once or twice on this site and the podcast. I’m not mad at you if you use them. But how many people who do in fact have a balance on their credit card told themselves that they would pay it off each month? Life happens and I don’t want it to happen to me with a balance on a credit card.

This is the way to earn a good credit score, which then qualifies you for the best terms on auto or home loans.

True, it is probably better for your credit score to use credit card and pay them off each month. But should your goal be to have a high FICO score? Or is the goal to grow your bank account balance and remove the stress that money can be in people’s lives?

Having no credit record is equivalent to having poor credit, says Aaron Patzer, founder and CEO of the personal finance Web site Mint.com. “Even if you are opposed to the idea of debt, you still need it,” he says.”

I think a better statement is having no credit record is equivalent to having no debt, which to me is better than having debt and a good credit score. As for the idea that you need to use credit, I really do like Mint.com but that quote is absurd. You don’t need debt; you can live without it. It might not always be easy or convenient, but it is doable and worth it.

Well as you can tell, this article hit a spot in me and got my blood boiling. Not because “I’m right” and “they are wrong” but because I’ve worked with people who have used the advice in the article and it hasn’t worked out too well for them. But after I calmed down, it saddened me to realize that for some people this is all the financial “advice” they will get for 2014 and they’ll wonder why things weren’t different for them at the end of the year.

Besides being another reminder to look at who we are taking our advice from, this is a post to encourage you. I want you to encourage you to be weird with your finances. I want you to pay off your debt and not rely on your credit score as a way to measure financial success. I also want to encourage you to keep doing what you are doing if you are saving money, avoiding debt, and having general peace with your finances. Also, thank you for being a reader of the blog and listener to the podcast. You guys are truly the ones who are inspiring me to continue coaching and blogging as you are truly living out a new perspective on your money and focusing on your economy!

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