Before I had heard of David McKnight and his books or read his most recent, The Guru Gap, I read a paper by Professor James J. Choi from Yale University titled Popular Personal Financial Advice versus the Professors.
I first became familiar with him after reading his bio on the Yale University School of Finance web page and his article titled Why I am a Christian (even though I don’t believe in Santa Claus, the Easter Bunny, or the Tooth Fairy) in the “personal” section. It is a sincere and thoughtful apologetic that I wholeheartedly commend to you.
In the finance paper, Choi examines the differences between the recommendations of personal finance “gurus” and academic economic models. The study compares advice from 47 popular personal finance books to the guidance derived from the discipline of economics.
It’s not about one guru versus another, nor is it gurus versus the professional financial advisor community (which was the topic of my article about David McKnight’s new book). It’s gurus (and some advisors) contrasted with “academics”—professors and economists. And we regular folks trying to make wise stewardship choices can get caught in the middle. One guru says, “Do this,” a professor of finance says, “Do that,” and a professional financial advisor says, “Do this other thing.” What are we to do?
Not surprisingly, the findings reveal some fundamental differences between these groups and the advice they give. The study highlights the behavioral and psychological foundations of popular “guru” advice and how it differs from well-known economists.
You probably have your own perspective on many of these things, and I greatly respect academia and the science of economics. Still, I think the “gurus” may actually have it right (in some cases). And even if they don’t have it “right” from a purely academic standpoint, they may in terms of what seems to work best in practice.
They call them “gurus” for a reason
Millions of people get financial advice from popular authors and radio personalities like Dave Ramsey, Suze Orman, Robert Kiyosaki, and David Bach. Like many other Christians, I ”cut my stewardship teeth” on Dave Ramsey, and I am grateful for him and his teachings, especially on living below our means, saving, and giving.
Meanwhile, economists—many of whom teach at Ivy League universities—publish complex financial papers and models in academic journals that address some of the same personal finance topics. But sometimes, they don’t give the same advice as Ramsey and other popular teachers. Furthermore, most of those who follow the gurus don’t read the works of academics like Ziv Bodie.
As someone who writes for everyday Christians who are trying to be faithful stewards of God’s resources, I found Choi’s paper to be very interesting and helpful. Much of the popular “guru” advice he documents aligns closely with biblical wisdom and practical stewardship, even when it clashes with what the professors think. At other times, the economists seem further up the wisdom ladder.
In this article, I will touch on his key themes and findings and, as usual, offer my take on them (as best I can) from a stewardship perspective. Below is a summary chart from the study; I will address each topic shown on the chart in order.
1. Saving
Popular advice
Save 10–15% of income regardless of age. Avoid annuities and aim to keep your spending level constant in retirement. Many books suggest using mental “buckets”—different savings accounts for different goals.
Academic theory
Economists recommend smoothing consumption over your lifetime. That might mean saving little—or even borrowing—when young, and saving aggressively in midlife. They also recommend annuitizing wealth in retirement. And they say all wealth is fungible—mental buckets aren’t necessary.
Economic theory encourages you to “smooth consumption” across your life. That means spending steadily over time, even though your income may fluctuate. Theoretically, you should save less when you’re young (because you’re earning less) and more in midlife. This is based on what economists call “Life-Cycle Economics Theory.” Here’s a graphic that illustrates this principle:
Life-Cycle Economics dates back to the work of Nobel laureate Franco Modigliani and his student Richard Brumberg in the early 1950s. A more recent discussion of this theory was published by economists Zvi Bodie, Jonathan Treussard, and Paul Willen, who wrote a paper for the Boston Fed titled The Theory of Life-Cycle Saving and Investing. Unlike most academic literature, this one is relatively readable. Still, those of us who tuned out when our college Econ 101 professor said “marginal propensity to consume” are not likely to read it.
Retirement stewardship
Saving and consumption smoothing
Most personal finance authors/gurus encourage consistent, high savings rates throughout life. Many emphasize starting early, often citing the power of compound interest. A common rule of thumb is saving 10-15% of income, sometimes even more.
Many also recommend building an emergency savings buffer (typically $1,000 to several months of expenses) before tackling other financial goals. This is inconsistent with academic theories prioritizing paying down high-interest debt before saving.
I think the main reason saving consistency is advocated by many “gurus” may be its behavioral simplicity. By making saving a habit early on, individuals are more likely to stay focused and less likely to overspend. This strategy acknowledges the reality of limited willpower and the difficulty of abruptly changing savings behaviors later in life, even if economic theory might suggest delaying savings.
On the other hand, in my most recent book, Redeeming Retirement, I suggest that it is very possible to get a late start in saving for retirement and end up with enough, but it’s not easy. My recommendation is the same as the economists’: save more heavily in midlife when you’re in your peak earning years and perhaps invest more aggressively.
Still, human nature being what it is, building a saving habit early is probably best, even if you’re setting aside a relatively low percentage. (I always recommend that young people invest enough to get their employer match in their 401(k) if one is on offer.)
There’s a strong argument that starting young allows compound interest to work over time. As Einstein reportedly said, “Compound interest is the eighth wonder of the world.”
More importantly, saving early reflects biblical wisdom. Prov. 6:6-8 says, “Go to the ant, O sluggard; consider her ways, and be wise. Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.”
Annnuities
Investing in annuities can be a way to save, and I think Christians have much liberty here. While it’s true that the gurus do not usually promote annuities, they can be a wise way to protect against outliving your resources. They may benefit those with lower savings account balances and who want a more predictable income in retirement. I favor “single premium fixed-income annuities” (with an annual 2-3% cost-of-living adjustment) for that purpose.
The graphic below shows how income annuities can be a wise addition to Social Security and perhaps a pension to establish a “guaranteed income floor“:
“Buckets” accounting
Academics view all money as “fungible,” which means that it is interchangeable because it can be used for one thing or another. Budgeting divides fungible funds into arbitrary categories based on planned expenses. The specific bills devoted to those categories vary, but the available funds remain fungible and substitutable.
Thus, fund allocations are pointless for academics: Designating specific funds for particular expenses is needless because money is interchangeable. Any dollar is substitutable for paying any expense. Earmarking funds theoretically provides no real financial benefit.
Popular advisors may agree that money is fungible, but they say, “Make buckets.” Set up an emergency fund. Have a vacation fund. Budget for giving. Assign every dollar a job,” as Dave Ramsey says. This is sometimes called “mental accounting,” since there usually aren’t literal buckets or account containers of funds. However, they could be if held in separate accounts (or coffee cans).
While mental accounting violates the principle of fungibility and the laws of economic efficiency, I think it aligns reasonably well with biblical stewardship principles. For example, Joseph saved grain in Egypt during the years of plenty for a future famine (Genesis 41). He didn’t throw it all in one pile and hope for the best; he planned and set it aside for a specific purpose.
Biblical stewardship often involves organizing resources by purpose: tithes, giving, saving, and daily provision. Mental accounting helps us manage better because it reflects our priorities. It also helps prevent impulse spending and waste. If we know that our giving money is for giving and our emergency fund is for emergencies, we’re more likely to stay the course.
2. Portfolio Equity Share
Popular advice
Hold short-term money in cash. Invest long-term money in stocks. Equity exposure should peak in midlife, forming a “hump-shaped” allocation across your lifetime.
Academic theory
Economists agree with the hump shape but base it on declining human capital and marginal utility due to aging. Young people can take more investment risk because their future wages are stable and “bond-like.” As you age, reduce the risk of losing your shrinking human capital by reducing your capital investments.
Retirement stewardship
Both camps arrive at a similar conclusion: more stocks in midlife, fewer in early or late life. Popular advice emphasizes simplicity and time horizon, which is easy for most people to follow. Economists emphasize risk balancing based on human capital (your ability to earn income).
Wise stewardship does not take unnecessary risks and seeks to match investment risk to one’s season of life. It does so prayerfully and intentionally. Trust God, not your portfolio (1 Tim. 6:17), but manage risk wisely.
The graphic below illustrates this concept: guaranteed income and short-term investments for money you’ll need soon, longer-term fixed income and quality stocks for medium-term needs, and a diversified stock portfolio and long-term bond for longer-term spending requirements:
3. Dividends
Popular advice
High-dividend stocks are attractive because they provide income.
Academic theory
Economists view dividends as tax-inefficient and not inherently better than growth stocks. The total return matters most.
Retirement stewardship
Many retirees and income-focused investors like dividends because they feel more tangible. Seeing that income flowing into your checking account every month or quarter can be reassuring. But wise investors know that dividends aren’t magic. This chart from honestmath.com shows that, over time, taking dividends versus selling shares amounts to roughly the same amount of wealth returned to shareholders. Therefore, the desire to receive dividends in lieu of selling assets is not unsound.
That said, and as the chart shows, if you forego dividends and reinvest them instead, they will continue to add to the capital appreciation of the initial investment, which is beneficial to long-term investors. This supports the “total return approach” over the “dividends only approach.” But that does not deter many investors from preferring dividends. Perhaps many find their simplicity and (somewhat) “regular paycheck” characteristics attractive.
Retirement stewardship is not about chasing high yields; it’s about wisely generating enough income to pay your bills and give generously without taking unnecessary risks (Prov. 21:5).
Seeking to optimize dividend income with minimal risk could be a reasonable part of a retirement income strategy; therefore, choosing to invest in a dividend-paying stock fund may be wise. However, going all-in with a dividend-only strategy may forfeit some much-needed growth to at least keep up with inflation.
I prefer to use a “strategic growth and income strategy,” which is nothing more than a diversified portfolio of income-generating assets such as stock and bond funds that includes some investments in funds that may pay lower dividends or interest but offer the potential for growth over the long term.
Dividends can help build a somewhat reliable income stream in retirement, but don’t chase them blindly.
4. Equity Styles
Popular advice
Favor value and small-cap stocks. These are often seen as offering better long-term returns.
Academic theory
Some economists agree; others are skeptical. Value and small stocks may or may not outperform depending on market conditions and risk premiums.
Retirement stewardship
Popular books love value and small caps because they’ve sometimes outperformed historically. But they’re also more volatile. From a stewardship perspective, chasing performance can be dangerous. Scripture warns against get-rich-quick schemes (Prov. 13:11). Stick with a diversified, long-term plan that fits your goals and risk tolerance.
That doesn’t mean you shouldn’t own any value or small-cap stocks; just make them a smaller percentage of your portfolio and understand that they will be more volatile than other asset classes.
5. International Diversification
Popular advice
Hold international stocks, but often at a lower allocation than their global market weight.
Academic theory
Invest in proportion to global capitalization. Full diversification helps reduce risk.
Retirement stewardship
Popular advice often includes home bias, perhaps due to comfort and familiarity. But global diversification is a form of wisdom and humility, acknowledging that no one country’s economy, including ours, is supreme. A diversified portfolio spreads risk, aligns with biblical prudence (Ecclesiastes 11:2), and can help smooth returns over time.
Diversification is an act of prudence. A global portfolio can reduce vulnerability to one country’s economy, including ours. However, some global stocks can be very risky (and highly volatile), so invest carefully.
6. Active vs. Passive Management
Popular advice
Use passive index funds to keep costs low and avoid trying to beat the market.
Academic theory
Exactly the same: passive funds outperform active funds after fees.
Retirement stewardship
The two sides generally agree that active management rarely consistently beats the market. Passive investing keeps costs low and discourages speculation, which is good news for wise stewards. Passive investing aligns with diligence, patience, and avoiding the emotional roller coaster of frequent trading (Prov. 28:20). It’s the “slow and steady” approach to building wealth that Scripture espouses.
The low cost of passive funds and the ease with which DIY investors can use them often result in lower fees, reduced complexity, and avoiding the emotional ups and downs of active trading (Proverbs 28:20). But this can also translate into long-term financial benefits.
Based on research done by the “Bogleheads,” this chart shows that 18% of your money would go to fees if you buy an investment with an annual fee of 2% and hold it for 10 years.
As noted in the research, these findings are consistent with the work done by Richard A. Howard on his website buyupside:
“Now take the same $10,000 and hold it for 30 years at 6 percent return. With no fees, you would have $57,434.91. With a two percent annual fee, you would accumulate $31,329.84, a 45.45 percent reduction. So the two percent annual fee cut your total return almost in half!”
7. Non-Mortgage Debt Paydown
Popular advice
Some suggest the snowball method—paying off the smallest balances first. Others recommend paying off the highest-interest debts. Holding some cash while paying down debt is often seen as helpful.
Academic theory
Always pay off the highest-interest debt first. Don’t keep savings earning little interest while paying high rates on debt.
Retirement stewardship
Popular advice values motivation, and paying off small debts builds momentum. Economists favor strict math. Biblical stewardship values both. Being ‘slave to the lender’ (Prov. 22:7) is serious, so paying down debt is wise. But keeping a small cash buffer for emergencies can also be prudent, even if it’s not mathematically optimal.
Debt is dangerous (Proverbs 22:7), but the snowball method may be helpful behaviorally. The key is making progress and avoiding new debt while building emergency reserves.
There’s no question that good math matters (Luke 14:28), but motivation matters, too. If a small early win helps someone stay the course and become debt-free, it may be worth the extra interest cost in the short term. Freedom from debt is worth pursuing, and sometimes, it needs a motivational push to gain inertia.
I believe the focus on emotions, behavior, and “heart issues” in popular guru advice is a strength. For many, financial success depends as much on behavior as on the numbers. While paying off high-interest debt first is financially optimal, the emotional boost from early wins with the debt snowball can encourage persistence in eliminating debt, which is the ultimate goal, not just saving some money on interest.
I would stress that debt burdens are real, and reducing debt, even “inefficiently,” can bring freedom and peace that can’t be modeled in a spreadsheet. Ramsey’s teachings on breaking free from the bondage of debt support this. That’s precisely what Proverbs 22:7 warns: “The borrower is the slave of the lender.” Even if not done with mathematical perfection, paying off debt can be emotionally and spiritually liberating.
8. Mortgage Choices
Popular advice
Fixed-rate mortgages (FRMs) are safer and easier to understand.
Academic theory
FRMs offer peace of mind—your payments stay the same. ARMs may be cheaper, but they carry risk. Stewards must count the cost (Luke 14:28). If a fixed rate helps you sleep better, it may be worth paying more interest over time. Prioritize long-term stability and your ability to weather financial storms.
Adjustable-rate mortgages (ARMs) are often cheaper over time, unless interest rates are very low.
Retirement stewardship
ARMs may offer savings, but fixed-rate loans provide peace of mind, especially for retirees on fixed incomes. Which is best depends on current interest rates, where you think rates may be headed, and your budget. Wisdom in this situation means counting the current (and future) cost as best you can (Luke 14:28), including the costs to refinance down the road if you choose an ARM.
So, who’s (mostly) right?
At first glance, academic economists and personal finance authors may seem worlds apart. But many areas—like investing or budgeting—converge more than you might expect. Where they differ, popular advice emphasizes simplicity, emotion, and motivation, while economists stick to mathematical optimization and logic.
Christian stewards don’t need to choose one side over the other. We can appreciate economic models’ rigor and real-world advice’s practicality. But above all, our financial decisions should reflect biblical principles: provision for family, freedom from debt, generosity, wisdom, and trust in God—not wealth—for our security and hope.
Popular advice simplifies financial principles for real-world application by the greatest number of people. Academic theory provides a more detailed economic analysis but leans toward perfect rationality. Christians recognize that we live in a fallen world where discipline is challenging and behavior matters, sometimes more than absolute mathematical precision.
I think the best approach is to aim for the best of both worlds when we can: sound economic thinking combined with practical application grounded in biblical wisdom. So learn from the experts, apply sound strategies, save, invest, give, and plan wisely. But more than that, seek to honor God with every dollar you manage.