should you do that? It turns out that there's a large gulf between the advice given by the authors of popular finance books and academic economists.," the Yale financial economist James Choi rummages through 50 of the most popular books on personal finance to see how their tips square with traditional economic thinking. It's like a cage match: Finance thinkfluencers vs economists dueling over what you should do with your money.
That's because you're likely going to earn a bigger paycheck when you're older, and to really squeeze the enjoyment out of life, it might make sense to live a bit beyond your means at the moment and borrow from your future, richer self. Economists call this"consumption smoothing," and it's a feature of standard economic models of how rational people save and invest over their lifetime.
Of course, economists also recognize the power of compound interest. Where thinkfluencers and old-school economics really depart from each other, Choi says, is"the usefulness of establishing saving consistently as a discipline," Choi says. This motivation, he says,"is almost always missing from economic models of optimal saving — [and is] a potentially important oversight.
Choi says both popular financial advisers and most economists are pretty clear: don't do this! Don't buy a house you can't really afford. That can be super stressful and potentially ruinous.Choi says that popular advisors and economists also generally agree that when you're young, you should invest most of your money in stocks and only a little bit in bonds.
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Source: MarketWatch - 🏆 3. / 97 Read more »