Planet Money One economist's take on popular advice for saving, borrowing, and spending
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Nov 23, 2022 In this discussion, Yale economist James Choi challenges popular financial advice, such as saving aggressively for retirement and the reliability of the stock market. He explores the concept of 'wealthy hand to mouth,' revealing how asset-rich households can still face cash flow problems. Choi also examines mortgage choices, advocating for a personalized approach rather than a one-size-fits-all strategy. With insights on investment strategies and the importance of portfolio diversification, he prompts a reevaluation of conventional wisdom in personal finance.
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Consistent Saving
- Save a consistent percentage of your income, even in your 20s, to build a saving habit.
- Start saving early to benefit from the power of compound interest.
Smoothing Consumption vs. Savings
- While economists suggest smoothing consumption, popular advice promotes smoothing savings rates.
- Choi acknowledges the benefit of disciplined saving despite economic models.
Mental Accounting
- Mental accounting, while economically irrational, helps simplify financial calculations for goals.
- It can be valuable for budgeting for specific events like weddings or vacations.
