When is Expert Credit or Financial Advice Not Really Advice?

This is one of the most gratifying blogs I've ever written.  I'm going to write about something that really irritates me…and should irritate you too.

Credit & Financial Experts and Credit & Financial Celebrities…what's the difference?

That's an easy question to answer.  All you need to do is look at examples of each and what makes them unique.

I'm a credit expert. I teach a class about this stuff at Emory University and guest lecture at the University of Georgia…both are always ranked as a top 50 business school (and Emory is always in the top 5).  Not that I'm bragging but you don't get invited to speak in front of their students representing the school if you don't know what you’re talking about.

I've spent the past 15 years dealing with credit reports, credit scores and those who use and abuse them.  That makes me an expert, not a celebrity.

Celebrities are very different.  They get paid, and paid extraordinarily well, to give advice on how to save money, get out of debt or get better credit.  Each of them sells products ranging from a few bucks to several hundred dollars.  Books, books and more books.  And, some of them have no background in the field where they are mistakenly considered experts.   

It always amazes me how wealthy someone can get by repackaging and selling the same old same old.

For example, how many books have you read that tell you to invest monthly in an interest bearing account and after about 50 years of compounding at 8% you'll be a millionaire.  I think there are two dozen books written about that very simple strategy, but people keep buying them (and writing them).  That's the influence of celebrity. 

To get certain of these celebrities to speak at a trade show or a corporate event you're shelling out tens of thousands of dollars for an hour of so of their time.  That's the influence of celebrity.

I would love to get these folks in a room (disconnected from their army of copywriters and researchers) and quiz them on the really advanced strategies behind credit and finances.  That, of course, would never happen.  I'd have better luck getting Barry Bonds to submit to a drug test.  Those are the different rules reserved for celebrities.

Should there be a line between true credit and financial experts and the so called credit and financial celebrities?  And where should that line be drawn and how should it be determined?

Isn't it fair for you, the folks who buy their stuff, to know if they really are an expert or are simply a talking head that looks good on television or a book cover?  How would we know?

Well, here's what I would consider to be an easy way to determine the pretenders from the real deal.  Watch what they'll put their name on as part of an endorsement deal.  That's the best way to separate the experts from the celebrities. 

You'll probably never see me on QVC selling stuff and you''l probably never see me with a weekly show on some cable network.  But, that's ok with me.  I recognize and accept that, right now, nobody knows who the heck I am and that ain't good for sales. 

Here are what I consider to be some pretty egregious examples of celebs gone wild with dollarmania.

Some time ago one of our unnamed celebs endorsed a program with a national automaker's finance division.  The name of the program is being withheld but if you're interested then respond to this blog and I'll let you know who they are. 

The gist of the program was to convince you that you should finance a new car with them and, in the process, guarantee yourself the same low interest rate on a second new car made by the same car maker some time down the road.  Ring a bell?

The problem is that anyone who knows anything about building wealth knows that buying a new car is possibly the worst financial move you can make.  I won't even call it an investment because it isn't. 

A new car loses a significant amount of its value the minute you sign the paperwork and drive it home.  You'll never recover this loss.  Consumers have come to accept this as an unfortunate byproduct of buying a new car. 

Ok, so you've made this mistake once…now you're being convinced that you should do it again and essentially double the damage. 

That's the difference between being an expert and a celebrity.  They can be paid to give you bad advice because their motivation isn't parallel with what's best for you.

Here's what an expert will tell you to do…

Never, ever buy a new car.  Buy an affordable and reliable used car after it's a couple years old.  That way it has already lost the lion's share of it's initial value (on someone else's watch) and it may still be under warranty.  And, if it's not under warranty then hopefully the previous owner has already corrected anything that was wrong with it when it was.

Now that you own this car, drive it until the wheels drop off.  Then think about another car.

Buying a car is a necessary evil…you might as well reduce your losses as much as possible.   

That's the difference between being an expert and a celebrity.  I don't care about how cool you look in your car.  I don't care that your car has a leather interior.  I just care that you can get from A to B safely and economically.  And, that you sock away the savings into an IRA or a bond or something that appreciates over time.   

Here's another one that you might be familiar with…

There are some celebs that try to convince you that you should never have any credit cards.  Sounds great doesn't it?  You'll never ever be in credit card debt.

Wow, now I like that idea.  Anything wrong with it? 

There's tons wrong with it.

I think that is a horrible idea.  I know a fairly well known celeb personally and whenever I go on the radio with him we always argue this point.  He says "no cards."  I say "yes cards, but with responsible use."

Whenever we go to break he always says the same thing to me "John, you don't know my audience.  They do not have the self control to be able to manage a credit card wisely.  I have to tell them to avoid all credit cards because they can't control themselves."

Wow, what a great concept.  Assume all of your listeners are idiots and cannot act like a responsible adult with a credit card.

Meanwhile the folks who are really taking your advice to heart are unable to buy stuff online, rent a car efficiently and carry around gobs of cash when they go out to dinner or holiday shopping.  What a great alternative. 

That's the difference between being a celebrity and an expert.  They'll say whatever it takes to sell stuff and keep their impressive ratings.  Us experts will tell it like it is…without worrying about selling our souls to the highest bidder.      

Comments

[SusanG]

Perhaps a certain credit expert whose name rhymes with "Muze Norman?"

[JohnBoy]

Did you hear that Suze Orman is now doing ads for Lending Tree on TiVo? It was in the Wall Street Journal yesterday:
http://online.wsj.com/article_print/SB114705542673746371.html

[JohnUlzheimer]

I'm a TiVo user...I'll keep my eyes open for this and do a follow up blog if I smell anything wrong with what's being said.

Lending Tree...READ THE FINE PRINT in their ads.

[Emma]

Great post! I believe there is a distinction between expert and celebrity in the financial world and many, many others.

I personally, am one of those "no credit card" believers. Although, I am financially responsible and disciplined, I haven't included credit cards into my financial plan. Mainly due to the fact that I am making it a habit to not borrow money, at all. I'd like my children to know how to handle money they "have". There's an important lesson every child should know, and that is that money is finite. I only wish our government learned that.

America is the land of opportunity, but, with the increasing consumer debt levels, it is quickly becoming, if not already, the land of excess. I'd like to reverse that trend, even if it is just one family.

[bean]

Why would I want to get my financial advice from someone who calls themself a "credit expert" ?

Credit is living beyond your means. It's the opposite of having money.

I am a Dave Ramsey listener, and even though he preaches the "no CC" mantra quite a bit, I know WHY he does - and it's just like you said above - he doesn't think his average listener is capable of responsible CC control. And you know what? HE'S RIGHT! And you know what else? When you understand this, his intentions become very clear - to help those who cannot seem to help themselves. I don't use CC's anymore, but I keep one for emergency.

[Amy]

Ramsey says indebtedness and obesity are flip sides of the same moral failing .
I think there has been enough research to know that obesity is not a moral failure and it is a very complex problem.
Maybe Ramseys next money making venture will be a diet book since he knows it all.
And like those who go into debt, he is gonna straighten out all those whose overeat.
And a word about credit cards..
We all pay merchants fees to the places where we shop since Vias/MC seem to be taken everywhere.
Whether you pay cash, or plastic it's the same price for everyone. Only a fool would not use a credit card to get some of those merchants fees back. That's where the rewards are coming from.
Of course SOME people cannot handle CC's and would not pay the balance of every month and this would be useless. But for those with good credit who can get a card with no yearly fee and good rewards this is a great way to get some of your money back. USAA and Credit Unions are the best places to get a credit card. Forget about these well know co's that advertise all over the place.
Oh, and Ramsey doesn;t have any use for credit scores and tells his audience not to be concerned either. Well, if you want to rent an apt, you may not be able to if you don't have a good score. Insurance, including car insurance, may cost you much more too if you don't have a good score. Like it or not, having a good credit score is VERY important!

[George]

Amy,

That is a little ridiculous. "Only a fool would not use a credit card to get some of those merchants fees back."
Thats like being at Longhorn and saying, "The cost of their electric bill is built in to the price of this steak so I'll stay here an extra hour and get my electricity worth." The fact is if you use a debit card (99% of the time when you use it at a restaurant it is a credit transaction even though it is on your debit card)you can get your merchant fees back without going into debt.