Experts Explain Why Money Advice Has Changed So Much
Some money advice never changes: Live below your means. Save for a rainy day. Borrow only what you can afford to repay.
But as time goes on, the world evolves and we have to adapt — including how we manage our finances. Here’s how and why money advice has changed over the years, according to financial planning experts.
Buying a House
“It used to be that as soon as young adults graduated, they bought their first home and it was kind of a right of passage,” said Gary Grewal, a CFP, author and writer at Financial Fives. “Now, with housing prices extremely high and a remote/nomadic workforce, buying a house is no longer wise advice for all.”
In fact, he added, many young adults are simply not interested in buying a home if they have to give up experiences and flexibility. Many have decided that renting and investing the difference is a better way to go.
Saving for Retirement
Back in the 1980s and ’90s, Grewal said, it wasn’t uncommon for workers to stay with the same employer for 20-40 years. Then, they would retire with a pension very close to their actual salary. These workers didn’t have to worry about how to invest to meet their retirement savings needs, because that was taken care of by their employers.
Now, pensions are fairly rare outside the public sector. And record numbers of workers are self-employed. So the advice that employees should stick with their jobs for decades to collect a full pension no longer applies to the general population, according to Grewal. “People are being told to invest in index funds on their own and through IRAs or 401(k)s instead.”
Financial Planning
Matt Sotir, a Boston-based financial advisor with Equitable Advisors, said the finance industry was very segmented 50 years ago.
“Investments, insurance, tax and legal advice were individual disciplines that were segregated legally (firms couldn’t give advice in these other areas) and practically (the technology didn’t exist to collaborate amongst firms),” he explained.
Investments also were typically commission-based versus fee-based, and many services were accessible only to wealthy clients.
Over the years, these barriers to cross-discipline planning have diminished, Sotir said. Firms are now allowed to provide comprehensive services — and at a more affordable cost thanks to tools such as email, online meetings and integrated software.
Sotir added, “Easy access to information and low-cost investment platforms have also allowed educated consumers to self-direct their financial future in ways that was unthinkable a few decades ago.”
How We Get Advice
It’s not just money advice that has changed. How we access that information also has evolved.
“As a result of technological advancements, there are so many more sources of information — as well as misinformation — out there today,” said Michael Schwartz, a financial advisor at Northeast Financial Network in Cranford, N.J.
It can make it difficult to know whom to trust, including when it comes to personal finance.
“The ability for anyone to blog or tweet on the internet can cause immense conflict and confusion,” he said. “As such, we always recommend that clients think critically and seek advice from experts.”
Schwartz also pointed out that the vastly increased speed of news cycles has markets reacting more quickly than ever.
“Often, portfolios rise faster than they really should, providing a sense of false hope,” he said. “In turn, values fall faster than they should, creating much anxiety.”
But the best course of action when markets are experiencing volatility has remained the same: Tune out the noise and continue to think long term.
“While the investment roller coaster may be more tumultuous than ever,” Schwartz said. “in the end, it will all even out for proper long-term performance and growth.”
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