Earlier today I pointed outthat personal finance website Smart Money was urging people to save rather than spend the extra income they’ll get from the temporary payroll tax cut. My point was to say that this could undermine the hopes of the Obama administration that the tax cut will create stimulus for the economy.
Now more than one of my readers scoffed at the idea that there was anything useful to be gained from reading personal finance journalism.
The main objection they had was that people do not really listen to personal finance writers. The secondary objection was that personal finance writing is useless because it is always either old news or a contrary indicator.
So I thought I’d take a moment to explain how I think personal finance journalism works. The most basic criticism of personal finance journalism is that it is either so general as to be nearly useless or so dated by the time it is published as to be completely useless.
This is more or less right, as far as it goes. Those lists of things like “Top 10 Stocks To Buy In 2010” are only useful if you are able to steal advanced copies and trade on the recommendations ahead of time. (Note: if you do this, you’re probably engaging in what the SEC views as illegal insider trading.)
Most investors would be foolish to follow along with the advice of personal finance journalists who do things like recommend stocks. In fact, if investors were really doing this there might be a good case to say that this kind of journalism was bad for investors.
Fortunately, the other objection is also true—people aren’t really taking advice from the personal finance journalists.
But if the information is both useless and unused, why is personal finance still a very profitable corner of business journalism? Why are personal finance gurus so well-compensated and popular?
The answer, I think, is that people read and watch personal finance journalism for a very different reason than is commonly supposed. They aren’t looking to learn new things. They are looking to have their biases and ideas confirmed by an intelligent outsider. Sometimes they are looking for justifications for positions they are already in or are ready to get into. In short, they read what they already think so that they can feel comfortable and smart thinking it.
Personal finance journalism is like a magical mirror that reflects back at the reader a slightly smarter and better looking version of himself.
Once we understand this, it’s easy to see why even those of us who fall outside the mainstream can benefit from reading personal finance journalism. If you tend to be contrarian or just plain unorthodox, it can often be hard to put yourself in the mindset of people whose thinking is closer to the conventional wisdom. You need a guide to the conventional wisdom—at least as a confirmation that it is what you suspect it is.
That’s where personal finance journalists come in. The most successful personal finance publications are the ones who are best at figuring out what the investing public thinks and then polishing up that thinking and selling it back to the investing public. That’s their real expertise: what people already think.
So when popular personal finance publications are advising reading to save their extra income from the payroll tax cut—it’s a pretty good bet that people are already planning to save rather than spend.
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