John Campbell is an economics professor at Harvard University who recently published a study that has some telling advice; what it tells us is that the less you know about your financial situation, the worse off you’ll be. Sure, industry advisors have been telling us this for years, but now there’s a Harvard study to back it up. Whether you handle your money on your own, or you seek out personal finance advice from an expert, the more uninformed you are, the more you’re going to wind up paying without realizing it.
In the recent study, Campbell concludes that “some financial products involve a cross-subsidy from naïve to sophisticated households.” What this means, in essence, is that the poorer and less well educated a person or a family are, the higher the chances they will overpay for financial products and services, thereby “subsidizing” the more well off. Specifically when it comes to mortgages and mutual funds, people who are afraid to ask the questions they should, or don’t even know what the right questions to ask are, wind up paying more than they should in service or brokerage fees.
But, there is good news. Just because you may be in the less well off group does not mean you have to fall victim to what Campbell writes about. There are concrete things you can do to make sure you are in total control of your financial situation and paying only what you should.
The best personal finance advice I can give you, and I’m sure Campbell would agree with me, is to get the education you need. Understand the products and services you’re dealing with and know what your options are. I don’t mean go back to school and become an investment banker or an insurance broker, but go online; there is no shortage of sites like this one that offers free information on all things personal finance.
Also, don’t be afraid to ask the questions you want to; no question is as stupid as not understanding what you’re doing with your own money. Hand in hand with that is learning how to trust yourself; not all experts will know what is best for you. If you have a better understanding of your options, you’ll be better able to follow your gut.
Another tip is to stop paying money where you know you don’t have to. Pay off your credit card debt, shop around to see where you can get the best mortgage or loans, look into low-cost mutual funds, and save your money where you can. When investigating your options, don’t just look for things with the greatest gain in the short term. They might hurt you in the end.
Finding the best personal finance advice for you can be tricky business, but by staying on top of your game and keeping your eyes and ears open, you can keep yourself from becoming one of the people that is losing out according to Campbell. And, no matter how much you think you know about money matters, remembering to ask ‘why’ and ‘how much’ never hurts.
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