If everything we do we try to make things simple, eventually myths come up and for those outside the industry, it is accepted as truth. Sometimes the myths are not correct, in some ways they are not necessarily wrong, but conventional wisdom is not always perfect. Doug Hoyles is co-founder of a large personal insolvency firm and wrote a book called Straight Talk on Your Money published by Milner and Associates, Toronto, 2017.  Mr. Hoyles is reflecting on his years of practice and offers advice on how the system is structured.

Myth 1   Humans consider the acts and make rational decisions.

If you are truthful, you will say we can rationalize any decision, but most we take from a non rational decision. The example Mr. Hoyles uses is your toothpaste. The brand you bought you likely have bought before, how much time did you spend analyzing the new benefits of the toothpaste the manufacturers do every year? If you are reasonably normal, you did not. You may have no idea, but you like the brand and use it. Is there a better one? do not know.

The solution is when you make major decisions, depending on the money involved take an extra week or paycheck to decide – that might be an extra week or two depending on how you get paid.

Myth 2  We are the architects of own lives. We make our own luck or it’s your fault

Some reasons why your financial woes may not be your fault:

Aggressive and Sophisticated Marketing by the financial institutions – they want to make fees or interest from you.

Job Loss or Unemployment – almost 1/2 of the bankruptcies are filed because of job loss or loss of income. If you worked or a company which paid you reasonable and it went bankrupt or moved its operations is it your fault? If you are paid less or are underemployed, sometimes what is good for the company is not necessarily good for the employee.

Illness – you are healthy, until you are not and then you find out how much your medical insurance really pays.

Divorce – separation of the assets

Student Loans – the government does not allow the debt to be written off or forgiven.

Solution – it is possible to change the future. It may not be easy, but it is possible and opportunities can arise to help your situation change.

Myth 3 We live in a complex world we need the advice of experts.

All experts have a bias and are generally fee based. If you do not believe it – pick the dealership of your vehicle, if you went in and asked about the best vehicle – do they believe the best on their lot or the best vehicle for you which may not be their brand?

For financial planners follow the money, how do they get paid? would they recommend a low fee mutual fund or one that paid them more commission?

Myth 4    A high credit score is proof that you at a good money manager

Ever wonder why the credit card is called a credit card rather than a debt card? In marketing terms credit is good, debt is bad.

In terms of the credit score – it is only a measure will you continue to pay the payments or it is measure of risk to the lender which is of benefit to the lender not you. If you have $1,000 limit and carry $200 you have the ability to borrow $800 and more than likely will which makes your credit score higher. If you carry no debt on your card, you make no money for the companies so your credit score is lower.

Rule 72  or Compound Interest    Take 72 divided by the interest rate and you will get an approximation of the number of years it will take for the amount to double. If you purchase something at 18% and pay the minimum payments in 4 years you have double the cost of your purchase. This is great if you own the stock in the credit card; if you do not own the stock then it is good to know if you owe money.

The Credit Score Scam – if you want a high credit score, you need to have debt. Worrying about your credit score is not good because FICO score is owned by FICO (Fair Isaac Corp). If a company uses FICO they pay a fee to FICO, so the credit reporting agencies use similar information but not directly FICO? What does your financial institutional use?

Get a Free Credit Score? just understand free means you are on a list and the companies will try to sell you other products.

Best Advice:  be prudent with your spending; work to improve your income; save money; and do not borrow excessively.  The strategies improve cash flow and reduce debt and that is good for you.

Linking to dividend paying stocks, all industries have myths and ideas which others believe are true. Some of them are meant that way to rationalize the fees people pay seemingly willingly. If you believe the myth, then why not pay? If you do not believe the myth, then you might look around, do your homework and then rationalize. You may or may not pay the fee. For dividend paying companies, they would prefer you stick with them for a long time but remember it is your money.

There are more questions than answers, till the next time – to raising questions.