Thursday, September 24, 2009

Advice 2009: Financial Planners vs. Economists – Part II

By Paul Mladjenovic. September 24, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.

In the prior segment (part I) of this “mini-series”, I highlight the differences between the advice from financial planners and the opposing “advice” given by some so-called “economists” (predominately from the Keynesian school of economics). As a brief recap of the prior essay, I point out two divergent points of view:

Advice by Financial Planners to individuals: “Do not spend more than you take in”

Advice to nation from Keynesian economists: “Spend and borrow! Deficits are OK”

I find that an interesting (and disturbing) dichotomy. What are individuals but parts of the whole (nation). Why is financial responsibility good advice for the parts but not for the whole? Why are “financial deficits” bad for individuals yet good for the entire nation (read that “government”)? What’s good for all the “parts” is indeed good for the “whole”. Anyway, let’s move on to the second financial concept:


As I have taught in my financial seminars for years (, you should save (where possible) a portion of your income (inflow) and put that sum somewhere safe and accessible. Keep in mind that “saving” and “investing” are two distinctly different activities so do not confuse them.

In good times, people should have at least two months worth of gross living expenses in a savings account. It can be a FDIC-insured bank account or a secure money market fund. In bad or uncertain times, that amount ought to be as high as six months worth.

Of course, financial planners may differ as to how much and that’s fine. The main point is that the overwhelming majority of financial planners recommend that you should have savings in your over-all financial picture (along with investments). Savings act as a “rainy day” fund or an “emergency” fund. You should always have money to fall back on when unexpected expenses arise or when you have events such as losing your primary source of income. Doesn’t it make obvious sense? Not to some economists…

It is maddening to hear or read some highly visible “economist” telling some congressional committee or Radio/TV audience that “America needs to stimulate demand…we need to spend more to get the economy moving”. More times than not, their next point is “If consumers are not spending then the government should be doing more spending to stimulate the economy”. Of course, spending, debt and government deficits are the “three stooges” of national finance!

Although Americans lately are saving more, they still need to increase their savings. After years of over-spending, America’s over-indebted consumers are finally learning the virtue of saving money and this should be applauded. They should ignore the calls to “keep spending and spending”. The politicians and bureaucrats should ignore these (primarily) Keynesian economists that are issuing this claptrap. They should understand that expanding savings leads to capital formation which in turn helps true economic recovery.

Unfortunately (and tragically), it is an ingrained feature of politicians and bureaucrats to spend and spend and spend and to keep dissipating America’s resources. While Americans are (correctly) being more frugal, our government (federal, state and local) are spending at alarmingly high (record) levels. The government’s massive debt and mind-boggling trillion-dollar will hurt us very badly. We need to prepare our finances (such as at for the greater debacles that are yet to come because our irresponsible government is listening to the advice of alleged “economists” instead of financial wisdom that has served us for centuries.