Why All Financial Advice is Flawed

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The internet is a strange and fascinating place. You can get a lot of information here, but not all of it is stuff you should follow. Generally, you should be wary of everyone and anyone because the internet is a crazy unregulated place. Lots of people are just writing content in order to sell you stuff. And some others are just idiots.

You should even be wary of advice from good-hearted intelligent people. Most people are speaking from their own experience and everyone’s experience is their own. The decisions they made were “good decisions” because they worked out  – but that doesn’t mean you can or should make the same decisions. As much as personal finance bloggers like to say that the path to riches is simple and straightforward, there’s a fair amount of luck involved.

How I Got Lucky

My high income is directly tied to attending law school. So I could write an article about how everyone and anyone could go to law school to get a high-paying job, right? But I would feel that that was disingenuous. I know enough about my journey to know that the path was not guaranteed.

The timing of my law school graduation was fortuitous. I started law school four years after I graduated from college. If I had graduated law school in 2008-2009, I probably would have been fine for two years, but if I had tried looking for another job after that, I likely would have been stuck due to the recession. If I had graduated in 2010-2011, I would have graduated into an unexpected recession in the legal field, where many graduates were unable to find any legal employment, let alone high-paying jobs. There is some research that shows that the graduates from those years are still lagging behind financially compared to graduates from other years before and after the recession.

Instead, I graduated in 2012, which wasn’t the best of years, but showed vast improvements in job prospects over the 2010-2011 graduates. Furthermore, we all already knew that the job market was difficult and were going in eyes wide open (I started law school in 2009).

Still, I was also lucky to be hired. Interviewing is still a bit of a black box to me. People just like certain people more than others. (Perhaps you could be cynical and say it’s all white men hiring other white men, but I’m not white or a man, so that’s likely not how I got my job.)

There are certainly bad candidates, but we interview dozens of candidates from good schools with good grades and most are perfectly fine. I don’t have a real understanding for why I was picked. And I feel lucky that I was. I know someone who graduated near the top of my class who couldn’t get a job at any law firm and was still meandering years later.

Then there were the people who got fancy jobs but hated them. I know someone who decided to quit even before starting his job. I know more than a few people who rage quit after a few years. They did everything right, but, for these people, the legal field just wasn’t for them. (They could have switched to different legal jobs, but the people I’m thinking of just got out of the legal field altogether). Some people might think that they could have researched more about the legal field before going to law school but working at a law firm as a secretary or paralegal, as many college graduates do before pursuing law school, is not really a good indication of what it’s like to be a lawyer. Like most things, you have to do it, to really know what it’s like. And I was lucky that I was largely happy with my job.

The Trouble With Following Other People’s Paths  

Pre-recession, law was seen as a very safe and prestigious job. Post-recession, there have been a lot more horror stories.

The main trouble with any kind of big investment like law school is that you don’t really know how it’s going to turn out. There are all these forces outside your control that will determine whether you view your decision as a good or bad one. If someone graduates into the recession and can’t find a job, then the decision seems like a “bad” one. If the person gets a lucrative job, then it’s a “good” decision.

But each person started the decision with the same information. It’s a poor way to judge the thought process of a decision by its outcome when it was external forces that changed the ending. (For more on this topic, I would highly recommend Annie Duke’s Thinking in Bets.) You can make perfectly good decisions that go awry for reasons outside your control. It doesn’t mean the decision is a good or bad one. It just means that luck was involved.

We Don’t Definitively Know What Decisions Led to Any Person’s Success

If you were running an experiment to determine cause and effect, it’d have to have controls and be double blind. Real life is not like that. Most people don’t have an identical twin who was making the same decisions at the same time and chose the opposite path – and then continued to make identical choices keeping that one decision the only variable.

What most people think is, well I became rich. How did I do this? And they retrace their steps. But they aren’t considering what would have happened in the alternate reality if they had pursued other jobs, other careers, other spouses, other lifestyles and how the timing affected how those decisions turned out. And truly, even if they did consider this, they would all be guesses.

We Can’t Even Trace Our Own Decisions to Success

I made a spreadsheet for myself of when I would break even for law school. I assumed I would continue working for the job I had at the time and save the same amount.My break-even point was only a few years ago, even though my salary out of law school was 4x my original salary.

But I had to count the opportunity cost. It was 3 years without working and $200,000 tuition. Also, I was quite a little saver before I went to law school, so I think I would have continued that, which would have been particularly beneficial because I would have been saving while the stock market was low. Of course, I also had to assume that I would have been steadily employed throughout this whole time period.

Was going to law school the right decision financially or career-wise? I don’t think I can even answer that question without much more information and until I’m much further along in life. I don’t know the ending to my own story yet, so I certainly can’t tell you if going to law school will be right for you. For right now, the decision is fine. That could change.

We Don’t Even Know If Someone Is/Was Successful

I recently received a comment that detailed a woman’s tumultuous relationship with her husband. The relationship was absolutely fantastic for 10 years. And then it got tougher. They say that hindsight is 20/20, but that’s not really true. Our hindsight in 10 years may be different than our hindsight in 20.

I’ll see people (usually celebrities) touting relationship advice after only dating someone for a few months. Even if they’ve been married for 30 years, we can’t really judge if someone’s relationship advice is sound. We don’t know if they’ll make it 31 years. People get divorced later than that.

People tout skincare advice when they’re in their 20s. The true test is obviously what happens when they’re in their 40s and beyond. People tout career or financial advice when they’re in their 20s or 30s (hey, I’m included in that list!). I will be the first to admit that I have no idea what I’m talking about. I mean, I try not to give advice. I am just telling you my thoughts. I have no extra wisdom for you. (Sorry.)

So someone might have an immediate success right now, but that doesn’t mean they know what got them there. It doesn’t mean that they’ll stay successful. That doesn’t mean that that success was a good thing (because maybe if they had failed, they could have gone a different way that would have led to even greater success somewhere else). We could look at any number of luminaries who were called failures at one point. Steve Jobs was a failure when he got fired from Apple and Abraham Lincoln was a failure when he lost his first campaign. But we would be wrong to have written them off as failures.  The arc of the universe is long.

Be wary of people who are only part of the way along their paths. They don’t know their true ending yet.

Even if We had the Information, We Shouldn’t Judge Decisions by their Outcomes

As much as we all want to say that the difference between the rich and poor is the right decisions, there’s a lot of luck involved. The same decisions that make people rich also can make people destitute.

  • I went to law school, got a high paying job at a law firm and worked for long enough to break even.
  • Others go to law school and graduate with crushing debt and poverty-level jobs.
  • Still others, get the high-paying job and quit to pursue other ventures, still having to pay the hundreds of thousands in debt.
  • It was a great decision for Mark Zuckerberg and Bill Gates to drop out of college to start their own businesses.
  • The failure of other businesses has led some to homelessness. And dropping out of college generally doesn’t work out that well.
  • Some people get married and have a stable job, leading to wealth.
  • For others, the breakup of a marriage and a bad economy can lead to destitution.
  • The breakup of a marriage can lead to financial ruin all by itself.
  • There are likely people who invested in index funds or bought a house in a good area, lost their job or got a health emergency that stretched out longer than expected and had to withdraw money at a loss during a recession.
This is the problem with seeing other people’s outcomes and tracing back to one or two decisions. We don’t know if that person could have done better making another decision. And we can’t know now that making that person’s decisions from 10 years ago would be the right decision for us. We would like to say that the only thing keeping people from riches is making the right choices or hard work, and you definitely need those things, but a lot of decisions that worked for some of us, won’t work for all of us. A lot of people followed good advice and got into a lot of trouble. The path is not as error- and risk-free as we purport it to be.

Why All Financial Advice is Flawed

There was a time when people considered mortgage and student loan debt “good debt” but after the housing bust during the recession and with ballooning and insurmountable student loan debt ever rising, it’s doubtful that people can use that adjective to describe that kind of debt anymore.
I’m not saying you should make bad decisions. Though we don’t know the future, we can still make the best decisions we can given the information at hand, because they still work A LOT of the time. There are certain decisions that we must make, even if we can’t predict perfect outcomes:
  • Living within your means, to the extent it’s feasible.
  • Developing skills that will be profitable to you and others.
  • Surrounding yourself with good influences and a good environment.
  • Investing in index funds.

But many of the other decisions you may make – whether to choose a STEM major, whether to become a lawyer/doctor/plumber, whether to get married or stay single – those routes worked for some people but might not make sense for you. The best we can do is to carefully consider our options and try to make a decision that – if everything falls apart – we hope we can be happy with.

6 thoughts on “Why All Financial Advice is Flawed

  1. Thank you for having the courage to lay this out as it is. The best advice comes from your own intuition which you learn through the knocks of life. After a while what is right for you starts to feel, well, right. In terms of investing, what doesn’t feel right to me is index funds. I like to buy into companies I really believe in and not just track them because they’re on the stock market. That’s just my opinion though and what works for me…

    1. Ha you’re giving me my own advice. I can understand not using index funds – if you can build your own index fund, that would work too. Or investing in a business. Whatever works for you!

  2. my lawyer couple just left my house 2 days ago. one practices and the other doesn’t right now. you’re right about all this stuff. i see people get divorced in their 50’s with 20+ years of marriage. there are no guarantees in life. i like handicapping horses and that’s another one useful when you have many variables.

    1. We really have no idea how life is going to turn out and I guess it’s scary and liberating at the same time. Thanks for reading!

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