Slate Money: Money Talks — "Is Pop Finance Rubbish?"
Published: January 30, 2024
Host: Felix Salmon (FS)
Co-hosts: Emily Peck (EP), Elizabeth Spiers (ES)
Guest: James Choi (JC), Professor of Finance at Yale
Overview
In this episode, the Slate Money team is joined by Yale finance professor James Choi to dissect the wisdom and pitfalls of the personal finance book industry. Drawing from Choi’s survey of 50 popular personal finance titles, the panel explores the overlap and stark differences between popular financial advice and academic economic thinking. The conversation examines the typical prescriptions for saving, investment, and debt, the psychological underpinnings of "pop finance," and the consequences of advice that's more moralistic than empirical.
Key Discussion Points & Insights
1. The Uniformity and Lack of Originality in Personal Finance Books
[02:24]
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Choi notes that despite some outliers, popular finance books largely rehash the same ideas:
“It's kind of remarkable how few original ideas there are out there in this space.” — JC [02:29]
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The repackaging of old advice is driven by the books’ commercial goals and perhaps also their intent to be accessible.
2. Popular Advice vs. Economic Orthodoxy: Saving and Consumption
[03:23–08:54]
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Economists (theoretically) argue for a "consumption smoothing" approach: spend at a consistent level through life, saving more in peak earning years and potentially even saving little or nothing (or borrowing) in your 20s.
“Personal finance authors will say, no matter what's happening in your life, ... 10 to 15% of your income should be just your baseline saving level. Whereas economists would say ... you want to have a consistent moderate level of consumption over time.” — JC [04:25]
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Pop finance insists on steady savings habits, positing that habit-building trumps theoretical optimization.
“If you don't develop the habit, even in your 20s, you're not going to all of a sudden become more thrifty in your thirties and forties.” — EP [08:10]
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Choi observes there’s little empirical evidence that saving is truly a habit formed early:
“I think there's actually no empirical evidence that savings is a habit and a virtue that you build up over time through the practice of it.” — JC [08:54]
3. Human Nature, Willpower, and the Psychology of Advice
[09:42–12:56]
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Personal finance books tend to account for human weaknesses and advocate strategies that manage willpower, while economists often assume people just do what’s optimal.
"Economists will typically assume that if you decide this is the right thing to do, you're just going to do it. ... There's no real concession to weaknesses and willpower ..." — JC [03:23]
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The field of behavioral economics, according to Choi, has spent much time identifying human irrationality but less effort on actionable, improved decision-making:
“A lot of behavioral economics over the years was ha, ha ha, look at how you're stupid. ... Now ... how do you help people manage their finances better? ... the field is just a lot less developed.” — JC [11:53]
4. The Scolding Tone and Entertainment Value of Pop Finance
[13:29–16:46]
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Leading personal finance figures (Dave Ramsey, Suze Orman) employ a scolding, judgmental tone, which seems to find traction with audiences.
“The most successful people like Dave Ramsey and Susie Orman tend to be highly judgmental and to scold the people who are calling in.” — FS [13:29]
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Choi suggests this may function as entertainment and motivation, akin to extreme dieting/fitness narratives:
“There's some entertainment value in seeing someone else get scolded. ... There's a big audience for shows like the Biggest Loser where there is a lot of scolding.” — JC [14:37]
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The "money cleanse" or "money fast" is an example of this — dramatic change promising transformational results, but possibly unsustainable:
“Does that kickstart you into a new way of living? Or is it like all of these yo-yo diets ... which ... don't help you ... over the long run?” — JC [15:56]
5. The Myth of Absolute Self-Control and the American Dream
[17:25–18:26]
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Pop finance, like diet advice, encourages the idea that anyone can master their financial fate with enough discipline, glossing over structural and income-based realities.
“They're selling a myth that individuals have absolute control over whether they're fat or thin, over whether they're rich or poor.” — ES [17:25]
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Choi acknowledges both the truth in discipline and the real impact of income, but highlights evidence that saving behavior, not investment choices, account most for wealth differences:
“Almost all that dispersion was actually not explained by the rates of return you got in your investments. Almost all of it was determined by how much you had saved along the way.” — JC [21:10]
6. Saving Rates vs. Investment Returns
[20:10–21:10]
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There’s wide variation at the same income levels in how much people ultimately save. Decisions about saving regularly have far more impact on outcomes than optimizing investments.
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Empirically, the best predictor of accumulated wealth at retirement isn’t usually investment prowess, but habitual saving.
7. Investment Advice: Stocks, Risk, and Human Capital
[22:21–27:54]
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Pop finance books do encourage investment in stocks but are still generally more conservative than economists would recommend.
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The traditional advice to "go all in on stocks when you're young and gradually de-risk as you age" is justified in economic theory, but for different reasons than most believe. It's about the decline of "human capital" (future earning power), which acts like a safe asset when you are young:
“Your wage income is a pretty safe source of economic resources. ... So if you are very close to retirement, you have ... little of this relatively safe asset in your overall portfolio. And that means that you need to ... scale back the riskiness of your financial portfolio ...” — JC [27:55]
8. Social Security Blind Spots
[27:55–31:14]
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Choi points out that many Americans, as well as popular books, ignore or undersell Social Security’s importance in retirement planning:
“A large percentage of Americans say, no, I'm not going to get a dime [of Social Security]. Even Americans in like their late 50s, early 60s, a bunch ... say, I'm not going to get a dime, which is just ridiculous.” — JC [28:14]
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Even if the Social Security trust fund is depleted, benefit cuts (if any) would not be total, and payroll taxes will continue to fund a significant portion of benefits.
9. Cash Versus Debt, and Debt Snowball vs. Avalanche Methods
[31:14–36:03]
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Both conventional logic and Choi agree: pay off high-interest debt before saving, with exceptions (cash for transactions; 401k match).
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Popular books advocate for psychological wins (the "debt snowball": pay off the smallest debt first) over mathematically optimal strategies (the "debt avalanche": pay off highest interest):
“The best diet is the diet that you can stick with that is reasonable. And so maybe that's what the debt snowball is.” — JC [34:38]
10. Choi’s Best and Worst Personal Finance Advice
[36:03–38:14]
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WORST:
“I think that Robert Kiyosaki recommends some deeply irresponsible, dangerous strategies. Take on a whole bunch of debt, buy real estate, flip it, that's great if the real estate market goes up a lot ... But exposes you to a lot of downside risk.” — JC [36:06]
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BEST (generic, universal advice):
“...have a plan, make a plan. And you'd be surprised how few Americans have tried to make a financial plan for themselves ... Just make a very, very simple spreadsheet. Every row is like ... one year of your life from now until retirement ... do that accumulation from now until retirement. And then ask yourself, hey, am I ending up somewhere in the ballpark of reasonable?” — JC [36:39]
- Revise the plan as needed, but start with something and assess if your projections are realistic.
Notable Quotes & Moments
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On lack of new ideas:
"It's kind of remarkable how few original ideas there are out there in this space." — JC [02:29] -
On the saving versus spending paradigm:
"Economists would say... you want to have a consistent moderate level of consumption over time... when you're in your 20s... that's probably not a great time to be saving a whole lot." — JC [04:25] -
On scolding in pop finance:
"The most successful people like Dave Ramsey and Susie Orman tend to be highly judgmental and to scold the people who are calling in." — FS [13:29] -
On savings versus investment returns:
"The amount that you save is a lot more important for determining where you end up than how you invest." — JC [21:10] -
On the “debt snowball” approach:
"Maybe even though the debt snowball is going to cause you to not kind of retire debt in the most cost effective manner, it's a diet that you can stick with." — JC [34:38] -
On financial planning advice:
"Just make a very, very simple spreadsheet... And then ask yourself, hey, am I ending up somewhere in the ballpark of reasonable?" — JC [36:39]
Timestamps for Key Segments
- [02:29] Uniformity and lack of originality in pop finance books
- [03:23] Saving: economic theory vs. self-help advice
- [08:10] Habit formation and psychology in saving
- [13:29] Scolding, tone, and motivation in media advice
- [17:25] The American individualistic myth in personal finance
- [21:10] Empirical evidence: saving > investing
- [22:21] Risk aversion and advice on stock investments
- [27:55] The “human capital” theory for risk in portfolios
- [28:14] Misunderstanding Social Security
- [31:14] Cash buffers vs. debt repayment
- [34:38] Debt snowball vs. debt avalanche
- [36:03] Best and worst financial advice; importance of having a plan
Overall Tone
The discussion is analytical, thoughtful, and conversational—leavened with skepticism toward both economic orthodoxy and the sometimes moralistic tinge of popular finance media. The hosts and guest trade personal anecdotes and challenge conventional wisdom, while James Choi brings a measured academic perspective.
Summary for New Listeners
This episode delivers a deep dive into the real effects of pop finance wisdom, exposing how advice given by bestsellers often defaults to rule-of-thumb habit formation and "tough love" while largely ignoring economic theories around life-cycle spending, risk, and the role of human capital. James Choi, having read and analyzed 50 books in the genre, concludes that while some habits may form the backbone of financial health, individual plans and realistic projections serve most people better than one-size-fits-all advice — and that a simple spreadsheet beats most self-help dogmas.