Financial Advice That No Longer Rings True

Bad Financial Advice

Following outdated advice?

Picking out the good financial advice from the bad financial advice isn’t always easy.

But when advice that used to be true is still being touted as the way things are, it can be even more confusing.

As the economy changes, the advice that was once valuable might be downright disastrous for today’s young adults.

Here are some of the chestnuts you might hear—and why they’re not so helpful anymore:

1. Feel free to take on student loans. It’s good debt! The first problem with this piece of advice is the assumption that some debt is “good.” While student loans do offer lower interest rates than car loans or credit cards, as well as opportunities to defer or reduce payments in case of financial crisis, it does not change the fact that it is still debt and it still needs to be repaid.

Add to that the fact that the average amount of student debt continues to rise, and this advice could seriously hinder a young adult just starting her career. In 2011, the average amount that graduating college students owed climbed to over $25,000, according to CNN Money. Owing that amount of money is not a good place to start off your professional life.

While most students will probably need to take on some student loans in order to get through school, the time is past when student loans could be considered a low-consequence cash cow.

2. Can’t find a job? Go to law school! Many a legal career (and other graduate program) has begun because of a slow job market and a lack of ideas as to what a college graduate can do next. While enrollment in graduate schools historically goes up during a recession, continuing your education in an economic downturn is not the great idea it once was.

Once upon a time, law schools in particular were places to go to kick start a lucrative career. As Zac Bissonnette of Time reported, the glut of potential “default” lawyers during this most recent recession means that going to law school for lack of a better idea is just a way to end up with no job and 6 figures of debt.

That being said, enrolling in law school or any other graduate program is potentially still a good idea if it’s what you’re truly passionate about. Otherwise, get creative about how to make your way in the world. Don’t think of graduate school as the default answer.

3. Borrow against your home. That money’s just sitting there! There will always be some legitimate reasons for tapping the equity in your home. However, those reasons need to pass the sniff test. If you need to borrow against your home in order to do necessary repairs or renovations, that is an ideal use of that money—although it would be even better if you could pay cash for those repairs. Gone are the days when your home equity could finance a lavish vacation or a major purchase.

In actuality, that was never a good idea. At the top of the housing bubble, when it seemed that real estate was a sure thing, borrowing against your home appeared to be consequence-free—you were going to sell for a profit in any case. But even before the housing market went up and up, you would often hear this advice for any number of projects, particularly when they involved improving your home.

While you can make a case for using equity to pay for home improvement, the smart thing to do is to spend cash on any renovation project. That will protect your equity and your future in your home.

The Bottom Line

If you find yourself fielding financial advice from older friends and family, make sure that it makes sense for the current economic situation. It would be a mistake to apply outdated wisdom to a 21st century problem.

Do you agree? Is this financial advice out of date? Can you think of others?

Image by laughlin

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Last Edited: May 28, 2012 @ 11:29 pm
About Emily Guy Birken

Emily Guy Birken is a former English teacher, and an excellent freelance writer. She's also a stay-at-home-mom. She resides in Lafayette, IN, with her engineer husband and son. Emily's thoughts on parenting and life in general are found at The SAHMnambulist.

Comments

  1. Getting rid of a car or becoming a one car family in many parts of the developed world is also not a great option anymore. In Vancouver, I wouldn’t be able to go to school, go to work, or really do anything without a car. I don’t live downtown beccause it’s too expensive so it’s redundant. 

  2. Getting rid of a car or becoming a one car family in many parts of the developed world is also not a great option anymore. In Vancouver, I wouldn’t be able to go to school, go to work, or really do anything without a car. I don’t live downtown beccause it’s too expensive so it’s redundant. 

  3. I don’t know if it was ever good advice.  Everyone needs to think this kind of advice through , if it is good for them. 

  4. I don’t know if it was ever good advice.  Everyone needs to think this kind of advice through , if it is good for them. 

  5. impulsesave says:

    Absolutely agree – especially about going to grad school, or even undergrad school in some cases. I don’t think it’s a very wise decision to automatically assume that you should spend time and money figuring out what you want to do. If you don’t know what you want to do, you shouldn’t put yourself into debt getting there. Spend time traveling, or volunteering, or working, or doing something that can still teach you about yourself and about the world, without killing your bank account.

  6. impulsesave says:

    Absolutely agree – especially about going to grad school, or even undergrad school in some cases. I don’t think it’s a very wise decision to automatically assume that you should spend time and money figuring out what you want to do. If you don’t know what you want to do, you shouldn’t put yourself into debt getting there. Spend time traveling, or volunteering, or working, or doing something that can still teach you about yourself and about the world, without killing your bank account.

  7. Michael Dean says:

    Although real estate is finite, I don’t think we will see it grow in value like it has over the last 20 years. It will hold value and increase to some extent but not like it has done.

  8. Michael Dean says:

    Although real estate is finite, I don’t think we will see it grow in value like it has over the last 20 years. It will hold value and increase to some extent but not like it has done.

  9. Michael Dean says:

    Although real estate is finite, I don’t think we will see it grow in value like it has over the last 20 years. It will hold value and increase to some extent but not like it has done.

  10. Michael Dean says:

    Although real estate is finite, I don’t think we will see it grow in value like it has over the last 20 years. It will hold value and increase to some extent but not like it has done.

  11. Susan Johnson says:

    Oh I so agree, but savings, and living within your means of support is alright and true to what is needed.

  12. machildebrand says:

    Right on target. Education is becoming more and more commonplace so that post-graduation jobs are never a sure bet. I think the key that ever would have made this good advice was “if it’s what you’re truly passionate about.” People seem to expect their education to do the work for them now.
     
    I agree with others who have said that the home equity advice was never the best advice. Your corrective of paying in cash and living within means is the antidote to “grab now, pay later” advice. Thanks for your thoughts!

  13. This advice is spot on. Education especially is changing, as is the job and housing markets. It’s definitely not like it used to be. 

  14. This advice is spot on. Education especially is changing, as is the job and housing markets. It’s definitely not like it used to be. 

  15. Education, nah don’t think so. Still I give value to an education.

  16. Education still has value, for sure, but it can also be a burden. There’s nothing like shelling out six-figures for a private school education, only to end up at an entry-level job that pays only $20,000. I think it all depends on what your ultimate goals are, and whether you’re smart about financing them.

  17. Education still has value, for sure, but it can also be a burden. There’s nothing like shelling out six-figures for a private school education, only to end up at an entry-level job that pays only $20,000. I think it all depends on what your ultimate goals are, and whether you’re smart about financing them.

  18. Education still has value, for sure, but it can also be a burden. There’s nothing like shelling out six-figures for a private school education, only to end up at an entry-level job that pays only $20,000. I think it all depends on what your ultimate goals are, and whether you’re smart about financing them.

  19. I would agree that taking on personal debt for the most part, is not a good idea. And yes always be leery of taking advice from old poor people with the mentality of the industrial age.
     
    Education is always a great idea to get financially ahead, but you won’t get a good financial education from your typical university.
     
    Don’t shy away from debt completely. Leveraging other peoples money can lead to financial freedom.