Last week, I lamented the abysmal state of American financial literacy — and the far-reaching effects of that failure.
I’ve been thinking a lot lately about why this problem exists. Information is more readily available than ever before, but so many smart people make horrible investing mistakes — mistakes that cost them huge amounts of money and shave years (or enjoyment) off of their retirement.
The financial media should be a part of the solution. But it’s actually a big part of the problem…
And that actually makes sense… if you look at their incentives.
Good Investing = Bad Business
Minimizing fees, taxes, and turnover are generally good habits for investors — and bad outcomes for most creators of financial content.
Networks like CNBC and Fox Business make money from commercials. That incentivizes them to attract as many eyeballs as possible — and fearmongering is a great way to accomplish that.
But this isn’t limited to TV networks. Most web publishers are not incentivized to see Americans pick up the “best practices” of long term investing.
Motley Fool’s business model revolves around getting you to pay them for stock picks (of course, there is strong evidence that stock picking fails as an investing strategy).
Investopedia wants you to pay them $199 to learn how to day trade.
NerdWallet, one of the largest personal finance sites out there, derives a significant portion of its revenue from credit card affiliate relationships.
That means that the more credit cards their readers open, the more money they make. That doesn’t seem like a great incentive for a personal finance site.
When you consider the financial incentives, the current state of the financial web — lots of “fear porn,” obsession over earnings reports, and trading tips — starts to make a lot more sense.
WealthChannel Academy
This week we officially launched WealthChannel Academy, a collection of resources designed to radically simplify the process of planning and investing for retirement. It’s going to be laser-focused on the handful of concepts that actually move the needle — and tune out everything else.
You can check out the first few episodes here:
I’ll be releasing new episodes each week as both an audio and video podcast, along with “companion content” on WealthChannel.com.
I’d love to hear your thoughts, on both the incentives and the behavior they drive as well as the first few episodes of WealthChannel Academy.
Talk soon,
Michael Johnston
More Reading
- Want this in your inbox each week? Subscribe to the WealthChannel Newsletter
- How much will you spend in retirement? Watch the video
- Wealth Made Simple. My appearance on The Opportunity Zones Podcast
