Working Paper: NBER ID: w30395
Authors: James J Choi
Abstract: I survey the advice given by the fifty most popular personal finance books and compare it to the prescriptions of normative academic economic models. Popular advice frequently departs from normative principles derived from economic theory, which should motivate new hypotheses about why households make the financial choices they do, as well as what financial choices households should make. Popular advice is sometimes driven by fallacies, but it tries to take into account the limited willpower individuals have to stick to a financial plan, and its recommended actions are often easily computable by ordinary individuals. I cover advice on savings rates, the advisability of being a wealthy hand-to-mouth consumer, asset allocation, non-mortgage debt management, simultaneous holding of high-interest debt and low-interest savings, and mortgage choices.
Keywords: No keywords provided
JEL Codes: D14; D15; G11; G4; G5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| popular financial advice (G51) | household financial choices (G50) |
| popular financial advice (G51) | savings rates (D14) |
| popular financial advice (G51) | asset allocation (G11) |
| popular financial advice (G51) | debt management (H63) |
| limited willpower (D91) | household financial choices (G50) |
| popular financial advice (G51) | deviation from consumption smoothing (D15) |
| popular financial advice (G51) | prioritization of emergency savings (D14) |