How Trustworthy Is Your Favorite Personal Finance Guru?

[Image description: Some sort of charismatic performer -- microphone, raised arm giving the finger, jacket with no shirt, two belts -- struts on a stage. This is a stock photo, I don't know who that is. Someone with stage presence. I bet I'd listen to their personal finance advice.]

It's a startling return to good old-fashioned personal finance advice!

Recently, as part of a book review, I noted that personal finance books by "gurus" are usually bad. This is because gurus make their money from selling you advice, so they're incentivized to make personal money management look so hard that you feel you need ongoing guidance - and lots of products.

Here are three questions to ask yourself about your favorite personal finance guru.

Do they try to make personal finance look complicated?

Personal finance, when it comes down to it, it's not that complicated. Sure, some people have specific, complex scenarios for which they need specific, professional help. Businesses and individuals with complicated situations might need the help of an accountant or a tax lawyer. But if you are typical individual looking for general personal finance advice, the principles are pretty simple. Spend less than you earn. Invest in index funds. It's not rocket science.

Gurus make a living from convincing you that it's complicated, too hard for you to understand after reading just one book. No, you need lots of books. Also workbooks, videos, seminars, software, and a special "university" where you can work your way through a sequence of classes and then get trained to teach them to others! It never has to end!

If you read enough personal finance books, you start to notice that the content is pretty similar from book to book. Outliers with unusual content are usually wrong, or, at best, needlessly complicated. Just because a guru has released a ton of books, it doesn't mean you need to read them all. Just because a book exists that's niche-marketed to your specific scenario - Personal Finance for the 29-Year-Old Long-Waisted Pansexual Guitarist/Barista With Astigmatism and a Wry Smile - doesn't mean it will be any better than good' ol Personal Finance for Dummies.

The hard work of personal finance isn't learning the principles. It's actually doing it. It's actually setting up that retirement plan, or that will. It's changing your habits. It's convincing yourself not to spend, day after day after day. Gurus can tell you what to do till they're blue in the face, but, unfortunately, they can't do it for you.

And while it can be comforting to read the same tips over and over in order to reinforce fiscally-prudent thinking (and, perhaps, convince yourself you are doing something), it's not necessary - or frugal - to keep on paying for that repackaged content.

Are they trying to sell me something?

Gurus make their money by selling content. There's nothing particularly wrong with that model, as long as this content is actually worth the money. A person who has written a great book deserves to be paid for their work.

The problem for personal finance gurus is that generic financial advice (that is, advice that is not tailored to a particular person and situation) is not only relatively simple, but it's easy to find from numerous sources, Many of them are free. You can get books out of the library, or look things up on the Internet. There's nothing behind a paywall that you can't find somewhere else.

Any guru who tries to convince you that they, and only they, have the secret to financial success and they will only tell you if they give them money… is just trying to make money.

Some gurus do this in pretty subtle ways. Often, they'll offer free content with a mix of good, fact-checkable advice, and plugs for their other products. Some of their advice is designed to create a need for additional products from the guru's line. How handy that this guru who recommends that everyone have a living will offers a Make Your Own Living Will Kit.

You can't trust someone's advice if they will profit from that advice.

Do they have any conflicts of interest?

This is related to "trying to sell me something," but more indirect. A guru who owns a real estate firm may not personally be trying to sell you real estate, but they still have a vested interest in promoting the idea that real estate is the best investment. A radio personality whose show is sponsored by a home security company is unlikely ever to tell you, "You don't really need to pay for a home security system."

Conflicts of interest aren't as obvious as direct sales pitches; they're insidious, and what's more, they're hard even for the most well-meaning person to avoid. Even trustworthy people can convince themselves that what's best for you so happens to line up with what's best for their wallet. The best thing is to simply disregard any advice that touches on a topic of potential financial sensitivity to the speaker - which, again, means you need to be aware of how they're being paid. Ad sponsorship? Affiliate links? Commissions from referrals?

Follow the money.

Do they, actually, have any expertise on this topic?

Gurus cultivate an aura of omniscience, but they're just people like anyone else, and they can get things wrong. They can overestimate issues they have personally experienced, and underestimate issues they have not; misunderstand the complexities of math or law; jump to conclusions; interpret ambiguous data in ways that seem to confirm their prior assumptions; ignore inconvenient exceptions; and become bull-headedly stubborn about random things, just like the rest of us.

There is no formal training for being a guru. It's more of a personality thing. If you're charismatic and you have a clever way of putting things, that will carry you far as a guru. Knowing your stuff is less important.

That's not to say that they don't often say true things. Quite often, their advice lines up with the generally accepted personal finance principles. When they differ from that generally accepted set of principles, though, it's important to be skeptical. What's more likely: that they discovered some super-smart new take on this stuff, or that they're wrong a little bit?

If a guru is making a claim that nobody else is making, they should be able to clearly explain their reasoning, why they think the conventional wisdom is wrong, and what special expertise allowed them to see this differently than other people. Don't accept a confusing explanation as "ehh, probably true." Because people see gurus are wise teachers, they are too quick to give confusing explanations a pass as "probably just too smart for me to understand." This is not warranted. Really, it's far more likely that they're either intentionally obfuscating, or they just don't know what they're talking about.

Conclusion

Personal finance gurus have their place. A lot of the things they say are true; maybe, if you haven't heard them before, revelatory! These folks wouldn't be so successful or have such rave reviews if people didn't find their advice genuinely helpful. I do think that people like Dave Ramsey and Suze Orman have genuinely helped a lot of people. But it's not necessarily because their advice is unique or special. Most of what they say is good, old-fashioned, time-tested, common-sense, freely available advice. They just have good marketing and a big reach.

The problem comes when you don't realize which pieces of their advice are core personal finances principles, which are their own particular peccadilloes, and which are actually costing you money. It's good to fact-check your gurus with impartial sources. But, if you're going to do that, you might as well start and end with those impartial sources - skip the gurus altogether.