Personal finance authors often hit at the importance of saving early and often, while economists focus on finding the best consumption rate. Both groups could learn a thing or two from the other side, according to a new study.
Intimated by a pile of debt? Wondering how much to save? Stumped on how much money to pour into the stock market?
Then he contrasted and compared those views against academic theories on the economically “optimal” ways a person ought to proceed when it comes to topics like debt management, savings and investment strategy. — Yale’s James Choi Turns out personal finance experts and economists might each learn a thing or two from the other side, Choi said.
So, theoretically speaking, it’d be okay for a worker in their 20s to save less because they are making less and when they earn more in the career that’s still in front of them, they can save more. Another difference is the “mental accounting” that personal finance experts often assign to money. That means noting that certain money is meant for certain purchases or scenarios, like an emergency fund. “Standard economic theory does not earmark portions of household savings for specific purposes,” the paper noted.
This has been true in America so far in the past century — but research on other markets across the globe offer cautionary tales, he said. Debt For economists, paying off high-interest debt first is “a very basic principle of optimal debt repayment,” Choi wrote.
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