Blog | Personal Finance

Education vs Advice: Know the Difference

Why the standard personal finance advice is the wrong advice for women.

I often see articles that lament the state of women’s personal finance in today’s world. And it’s true. Many women have a lot of work to do when it comes to catching up with men on investment and money matters. That’s why I started Rich Women after all!

The goal for my work with women and financial education has always been to help them become free—both in their thinking and in their finances. And when I read the advice most women (and men for that matter) are given about money and investing, I know that we’re pursuing a noble mission.

Education vs advice: They are not the same thing

Take an advice column I came across where a reader asks:

"For the past three years, my 29-year-old daughter has been working for a good company that offers a 401(k), but she still hasn’t started to contribute. She says she can’t afford it. How can I convince her to get going?"

The advice is predictably the same. Rather than challenge the woman’s assumptions that a 401(k) is the best choice, the advice columnist goes on to dig into the different types of programs there are (traditional vs. Roth), the matching programs the daughter’s company may have, how much money is being left on the table, and the importance of researching funds to make sure there is a diversified portfolio.

First off, when you read advice like this columnist’s, it’s always good to follow the money. If you go to the byline, lo and behold, you read, “This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. COPYRIGHT 2014 CHARLES SCHWAB & CO., INC. MEMBER SIPC. (0515-3400).”

That’s right, Charles Schwab, a leading investment firm that deals with and makes a lot of money in paper asset vehicles such as the 401(k) owns the rights to this “advice” column. And the author, she wrote a book for Charles Schwab.

In another piece published by USA Today, five Wall Street experts say it’s time for investors to get over their fears and get back into the stock market.

Right away, I was skeptical of this advice, as I always am whenever so-called experts act like they have a crystal ball that can predict which way the markets will go. For example:

“If you don’t believe in a depression, and I don’t” says Black Rock’s chief equity strategist Bob Doll, “stocks will go up, and bonds will go down.”

Sorry Bob, but I don’t base my investment decisions on wishful thinking. The market doesn’t care if we “believe’ in a depression.

In the USA Today article there's a link to another article that outlines what could go wrong to thwart these experts' optimistic predictions. That's definitely worth reading. Top on the list: Job recovery stalling out. While it's true that recent U.S. jobs data improved, no one can say if that trend will hold in the long-term.

I mean, honestly speaking, did you see a pandemic coming?

A different point of view on education and advice

When Robert and I started the Rich Dad Company many years ago, we did so specifically to provide an alternative to this standard, so-called expert advice.

This advice is just a rehash of some of the standard advice that we’ve called scams at Rich Dad: work hard, save money, and invest diversely in the long term .

To me, these are not ways to become financially free. I suppose they’re better than doing nothing at all, but the advice to simply sock money away into a 401(k) does not help women to become better with money or investing.

Why? Because anyone can do that. It’s as simple as filling out a few forms and reading a quarterly statement—assuming you know what they mean when you do!

Thinking differently about money

At Rich Dad, we teach there are four asset classes: real estate, commodities, business, and paper assets.

The problem with the standard 401(k) advice is that while it’s billed as being diversified, it’s really not. You may own lots of different types of paper assets, but at the end of the day, all you own is paper assets.

In 2008, the US entered into one of the worst recessions in our history. And if the economy suffers like it did then, and all paper assets sink, so does your so-called diversified portfolio. I don’t know about you, but I’d rather not bet on the timing of the markets for my financial future.

A truly diversified investment portfolio is spread among a number of truly different asset classes, not just paper ones.

If I were going to give anyone advice, it would be this: there are so many exciting ways to invest your money and so many better ways to make your money work for you than just the standard advice to save.

Some education—not advice—on investing successfully

In 2008, millions of “investors” who had dutifully moved their hard-earned money into a 401(k) were wiped out in the blink of an eye. Just a couple of years earlier, everyone was euphoric as the stock market soared. But when the recession hit, unexpectedly and quickly for the untrained investor, whole fortunes (and retirements) were lost.

While we have no way to know when there will be another market crash, one thing is certain: markets are cyclical. They go up and they go down. The key to success as an investor is knowing how to make money in both up and down markets.

Advice on how to make money in any market

The key to making money in any market is financial education. Unfortunately, most people simply have no idea how money works. Even worse, they have no idea what is in their 401(k). They simply have the money deducted and trust a manager to take care of it.

Occasionally, they might seek out a bit of advice from a financial advisor. But usually they don’t know what to do with that advice, or even if it’s good or bad advice.

And there is bad advice.

For instance, like the above, “save money, and invest for the long term in a diversified portfolio of stocks, bonds, and mutual funds.” This advice is exactly why so many people lost their life savings in 2008. They bet on market timing rather than investing wisely.

Money moves and so should yours

Robert and I once had the chance to chat with our friends Matthew Kerkhoff and Andy Tanner on the Rich Dad Radio Show.

We discussed how to be prepared in any market. One truth that came from that discussion is that money always moves. In any market, whether up or down, there are those who money is flowing to and those who money is flowing from. Obviously you want to be on the flowing-to end!

This means that you can’t park your money in one investment and call it good. You have to understand what the markets are doing, how you can capitalize on them, and move your money accordingly. This means you have to move beyond advice to financial education.

As Andy Tanner said, “It needs to be less about, ‘What do I do?’ and more about, ‘What do I learn?’”

Some advice education for success

It’s time for you to take ownership of your financial future. And that starts with education!

This is the reason that Robert and I started the Rich Dad Company. We don’t sell advice. We sell education. We believe you need to have the knowledge to think for yourself, and that the key to success is understanding how money works so that you can make it work for you in every circumstance.

By reading financial newsletters and blogs, like Matthew Kerkhoff’s Dow Theory Letters and Andy Tanner’s blog, along with the Rich Dad Blog, of course, you can gain the knowledge you need to make the right financial move in any market.

And when you’re ready to dig deeper, there’s always Rich Dad Coaching and Workshops to take you and your knowledge to the next level.

Today’s the day to move beyond advice and onto education. Because, as Matthew Kerkhoff so wisely said, “An investment in yourself pays the greatest dividends.”