How good are personal finance books? Yale economist James Choi thought he would find out and read several best-sellers only to discover “how at odds some of the advice was with what we as economists thought was the right thing to do from economic theory.” * I am not at all taken aback. I know enough about human nature and have read enough books about behavioral finance to know how big the gap is between economic theory and how real people behave.
I did my own research and found that even the definition of personal-finance books is hard to pin down. Alyssa Powell, an Amazon “insider” has a list of the 16 best personal finance books for 2022. I think that it is representative and avoids books that are only tangentially related to personal finance. The first book is I Will Teach You to be Rich, by Ramit Sethi. The second is The Automatic Millionaire, by David Bach. The third is The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life, by JL Collins. Are you noticing a pattern? With a few exceptions, these books promise to make people rich, although Rob Berger promises to help people Retire Before Mom and Dad.
Some books help young people learn to budget and save, which I believe can be very useful for the many people who never learned these habits at home or in school. Others use an affinity hook to sell books, such as Clever Girl Finance by Bola Sokunbi or Erin Lowry’s Broke Millennial Takes on Investing: A Beginner’s Guide to Leveling up your Money. How the rich guys do it is another hook that Joshua Brown and Brian Portnoy use in How I Invest My Money.
Many or most of the authors have no financial background at all. Neither have they worked with people to develop financial and estate plans. Some are marketers and others provide homespun advice that is probably of some use. Benjamin Franklin published Poor Richard’s Almanack for 26 years and I am pretty sure that he made a lot of money from it. A lot of these books are a retelling of Franklin’s “a penny saved is a penny got,” which is timelessly good advice. Franklin did get rich, although I am not sure about his readers.
Yet, just getting rich or retiring early are not ends, they are means to ends. Retiring early is escapism. Most of the successful people that I know either keep on working or retire “to something.” Retiring “from something” rarely works. Along the way, we tend to miss the most important things in life. How many Supreme Court judges retire early? How many men with noses to the grindstone retire to divorce? Famous quarterbacks come to mind. So much for how the rich guys do it.
Learning to budget is important and I applaud anybody who helps people learn to do it. Yet, financial planning is first and foremost about helping people lead their unique version of the good life. It is about learning how to set goals, not the ones set by your parents, your boss, or your teachers, but those that are carefully considered and personal. Planning is about developing human capital among your loved ones. In most cases planning spans generations and creates legacies of knowledge, values, and wealth. It does not end at retirement or death. Neither does it end when we are “rich.”
In the end, if anybody reads these books I recommend taking Franklin’s advice that “a word to the wise is enough, and many words won’t fill a bushel.” **
* Allen, S. "A Yale Economist Read 50 Personal Finance Books. He's Got Some Notes". Yale Insights, Online | Research, Oct. 18, 2022. https://insights.som.yale.edu/insights/yale-economist-read-50-personal-finance-books-hes-got-some-notes.(https://insights.som.yale.edu/researchers/james-choi Accessed) 11.02.2022.
** Franklin, B. “The Way to Wealth”: Preface to Poor Richard Improved (1758)".