Why Is Personal Financial Advice So Contradictory?

Many years ago, I read a story by a woman who had gone from being homeless to living a comfortable and safe life. One day, she bought an overpriced scented candle even though she didn’t have enough money for food. She kept the candle in her purse and took it out regularly to remind herself that it was worth the work to get to a better future.

You might dismiss her decision as irrational and a waste of her scarce resources. In meta-problem terms, it looks like she solved the wrong problem. But did she? After all, she achieved the outcome she wanted eventually.

We humans are not rational machines. We have emotions and psychological needs that deeply influence how we see and solve problems. The meta-problem approach embraces both sides of our nature. In this case, the woman’s best problem to solve was not “how do I make my life comfortable and safe?” Instead, it was “how do I maintain my resilience while I struggle?”

The sheer variety of financial advice out there is daunting.  For example, if you have multiple credit cards with debt you can look into the “snowball” strategy or the “avalanche” strategy. One focuses on the highest interest rate first, while the other focuses on the smallest balance first.

From a math point of view, the highest interest rate is clearly the smarter move. But from a meta-problem point of view, a lot of people are much more successful paying off the smaller balance first since it comes with the satisfaction of making progress on the debt.

For savings you can find a similar breadth of advice. Other than the tax implications or a 401K match, it always confused me why you’d save for retirement before saving for your kid’s college. And clearly having a good emergency fund was more important than both of those. Again, from the point of view of the net-future-value, it seemed like the right approach was pretty straightforward.

But, people are different! The psychology of automatically saving in various buckets is that you’re more likely to spend less if you just don’t see those extra dollars. And most adults find it easier to go without something today if they have a really clear picture of what they’ll have instead in the future.

There is a meta-problem aspect to managing your finances. The odds are low that any particular financial strategy will fit you perfectly. But if you’ve identified something about your finances you would like to improve, you can evaluate both the psychological and practical implications of any given tool, try it, and decide whether the effort is worth the outcome. If it’s not, learn from the experiment, and try with another tool.