“When you introduce competition into the public school system, most studies show that schools start to do better when they are competing for students.”
I am a product of public schools through and through. My elementary, middle, and high schools were all public. West Point is a public university. I went to graduate school at the University of Virginia. I got my certificate in financial planning from NYU. I apparently turned out OK, so my worldview on private schooling is admittedly quite narrow: it was good enough for me, so why not everyone else?
Many parents do not share my views, though, and choose to either send their children to private schools or to move to public school districts where performance is better. Three Cypriot economists, led by Sofia Andreou, decided to take a look at whether or not there was any value to public schooling, since some parents, particularly those who had the means, chose to take active steps in their children’s educations.
These economists studied the habits of British families over several years to see what they were doing with regard to the education of their children. The default choice was to attend public school where they lived, but parents who were not satisfied with that choice and who had the means to do so could either move to a location where public schools were perceived as better – in this case through higher test scores – or to enroll their children in private schools.
The results showed that, for primary schooling, there was indeed a benefit to public schooling, equivalent to approximately 7.5% of a family’s annual income. Surprisingly, though, there was little to no benefit of public schooling in secondary schools (our equivalent of middle and high schools). The explanation is that parents who choose to select alternative schooling options tend not to do so until later in the child’s life. While the authors do not provide further analysis, it is not an enormous leap of faith to pose the theory that the most gain appears in later education. A college is not going to offer a scholarship based on getting straight As from 1st to 5th grade, but if you can repeat that performance from 9th to 12th grade, then you have a pretty good shot at receiving a scholarship. So, while the foundational education that a young child receives is important and formative, relatively speaking, it’s not complex or mentally taxing, and, therefore, the level of skill necessary to impart that information is not as high. Yes, I have just risked peeving every elementary school teacher who reads that statement (and my Mom is a retired elementary school teacher).
What does this have to do with “personal finance gurus” whom you hear on the radio or see on television?
The approach and results are very similar to elementary schooling. They are masters at the craft of communicating basic personal finance information to the masses, which is a necessary function in our society. They have replaced the role of our collective grandmothers who told us to spend less than we make and that if it sounds too good to be true, it probably is. For some reason, we can’t just trust our grandmothers, and we need to have that information repackaged and shined up so that it’s acceptable and digestible.
However, the more complex the information or the situation, and the more esoteric the advice needs to be, the less applicable the “guru” is to provide a solution. (Note: I’m a big fan of the gurus and what they do. I’m simply saying that the one-size-fits-all answers aren’t always applicable.)
In this case, the value shifts from the mass advice providers, the “personal finance gurus,” to the specialists who can properly evaluate and give you the highest bang for the buck. Sure, the buck the gurus’ charge is much smaller than what specialists will charge you (though, make sure you don’t get ripped off by an adviser addicted to commissions), but the bang is likely to be much larger if you get specialized advice. For example, if your net worth is such that you’re going to be subject to estate taxes, would you trust the 10-second hand-wave answer of “get an A/B trust” from the “guru” or would you want someone who specializes in trusts and can guide you through your choices (maybe an ILIT is better, or perhaps a SLAT depending on your state…how can a guru answer that question with a 30-second overview?) to reduce your estate tax liability.
If you’d like to read a well-articulated article on where a certain guru falls off the cliff in giving advice, check out Mike Piper’s Oblivious Investor blog.
Following the gurus isn’t bad. It’s like going to public school, stopping at high school, and then making your way through your life afterwards. It usually works out OK, although there will probably be days when you’ll look back and rue what could have been. Could you have gone to Harvard, dropped out, and become the next Bill Gates or Mark Zuckerberg? You’ll never know. Does it mean you’re going to be the bag lady or living in a van down by the river? Probably not. However, as the negotiating phrase says, you may be leaving money on the table.
If you’re in a situation where the “gurus” just aren’t cutting it for you anymore, then perhaps it’s time to investigate going in a different direction.
Are you satisfied with the advice you receive from “personal finance gurus?” Ever seen one go wrong? Tell us about it in the comments below!