SKIP STEP ONE

Posted in Quick Hits on September 19th, 2013 by Ed

Mike Konczal brought this brief Ezra Klein piece to my attention earlier this week. In it, Klein claims that all of the financial advice you will ever need can fit on a 4×6 index card.

The advice is as follows:

1. Max out your 401(k) or other employer contribution plan
2. Buy inexpensive, well-diversified mutual funds
3. Never buy or sell individual stocks
4. Save 20% of your money
5. Pay credit card balances in full monthly
6. Take advantage of tax-advantaged accounts like Roth IRA and 529s
7. Pay attention to fees
8. Make your financial advisor commit to a fiduciary strategy
9. Support social insurance programs

Certainly this is all sound advice. So why does it just add fuel to my "God I want to punch Ezra Klein" fire?

Like most Beltway insiders, he is a mouthpiece for the politics of consensus and Reasonable People. He is a younger, hipper David (Gergen or Brooks, take your pick). This sounds like exactly the kind of financial advice we would hear from someone who would be shocked to learn that, what, maybe a third of Americans have 401(k)-type plans? That most people barely make enough to live paycheck-to-paycheck and saving 20% (is that in addition to or including the 401k?) isn't feasible? That there is an entire universe of Americans outside of DC and Manhattan who don't have a financial advisor?

This is great advice for people who don't need this advice. Honestly, if you have a job that pays you well enough to save a fifth of your income and take advantage of an employer contribution plan, you have to try pretty hard to fail to save money and have relatively solid finances. So thanks, Beltway journalists and Ivy League academics – we have solved a problem that didn't really exist. To the extent that there are people who earn enough to do all of these things but instead blow all of their money on shopping and a McMansion, I guess this could help. But are they going to start taking financial advice now if they haven't yet?

The index card needs one additional line at the top; "Step one – get a high paying job with excellent benefits." Without that, the rest is as useful as Esperanto.