7 Best Money Management Tips From John Oliver

By Emily Guy Birken on 8 August 2016 0 comments

I don't often admit to it, but I have a little crush on comedian and Last Week Tonight host, John Oliver. I mean, what's not to like? There's his adorable British accent, his hilarious takes on the modern world, his dimples, his sound money advice…

No, really. John Oliver is actually a pretty solid source for financial tips. Over the past few years, he has cemented his place in my heart by using his comedic platform to educate his audience on everything from credit scores to debt management and retirement savings

If you haven't had a chance to watch all of John Oliver's money-related episodes, here are my favorite financial funnyman's seven best money management tips:

1. Before Taking a Payday Loan, Be Absolutely Sure There Are NO Other Options

As seen on: Last Week Tonight: Predatory Lending

Wise Bread readers are likely very well aware of the predatory nature of payday loans. Taking a short-term loan can kick off a terrible cycle of debt with annual interest rates as high as 700%. But, as John Oliver points out in his rant, a Pew survey found that "a majority of borrowers say payday loans take advantage of them, [but] a majority also say they provide relief."

The point is that there will be times when people need money in a hurry and feel that their choices are limited. However, most borrowers have more choices than they think they do. Prospective payday loan customers could always borrow from a family member or friend, pawn or sell an item, or even sell blood or plasma. In other words, it's a better idea to do almost anything else to generate some quick cash than visit a payday loan store. (Although some of the ideas suggested by Sarah Silverman, the official spokesperson for doing anything else, are clearly meant to be tongue-in-cheek.)

Many payday loan borrowers end up turning to these anything else options in order to get out of the cycle of payday loan debt, so it would be better to just start there.

2. Start Saving for Retirement Now — And Build a Time Machine and Start Saving 10 Years Ago If Possible

As seen on: Last Week Tonight: Retirement Plans

We all need to be saving more money for retirement, and the earlier you start, the more time compound interest has to work its magic. According to a 2014 study from the Center for Retirement Research at Boston College, a 25-year-old would only need to set aside 15% of her income each year to adequately replace her income as of retirement at age 62 — but if she started at age 35 she would need to save 24%, and 44% if she waited until age 45.

While I have no issue with encouraging people to save more (really — save more!), I do have a quibble with the slight whiff of shame clinging to the build-a-time-machine portion of this advice. We can't change our past financial behavior, but we can feel bad about it and let it affect our present behavior — which too many people tend to do. There's no point in offering coulda-shoulda-woulda advice when time machine technology is still a couple of thousand decades away from reality.

However, the basis of this advice is more than sound. Don't waste your money on Elf School in Reykjavik. Put it in your retirement account where it can do you some real good.

3. Check Your Credit Report Every Year

As seen on: Last Week Tonight: Credit Reports

Your credit history can affect everything from whether you qualify to make large purchases, to your ability to land a job or rent an apartment. Unfortunately, credit reports are not always accurate, even if you have been a boy scout when it comes to your responsible credit usage.

As John Oliver reports, the credit reporting bureaus make major mistakes in one out of every 20 credit histories. That may be a 95% accuracy rate, but it does leave 10 million consumers to deal with critical mistakes on their credit reports.

The only thing we can do to fight mistakes (and identity theft, which Last Week Tonight did not even get into) is to regularly check our credit reports. We are legally allowed free access to a credit report from each of the major reporting agencies — TransUnion, Experian, and Equifax — once per year. You can access that information at annualcreditreport.com.

If you're particularly organized, you can keep an eye on your credit on a rolling basis by checking one of the three agencies every four months.

4. Invest in Low Cost Index Funds

As seen on: Last Week Tonight: Retirement Plans

Seeing this particular piece of advice had me standing up and cheering in front of my laptop. The financial industry likes to tout the superiority of actively managed funds since there is an individual making decisions for your investments — which has got to be better than doing nothing.

Except the active managers who are tinkering with investments have a couple of big detractions. First, they are human, which means they are subject to emotional reactions to market volatility. It is very hard to stick to a plan when ego, panic, or greed is driving the train. According to research by Nobel laureate William Sharpe, you would have to be correct about timing the market (that is consistently buying low and selling high) 82% of the time in order to match the returns you will get with a buy-and-hold strategy. To put that in perspective, Warren Buffett aims for accurate market timing about 2/3 of the time.

In addition to the difficulty of market timing, an actively managed fund will have higher transaction costs because of all the active buying and selling (each of which generates a fee) going on. Even if you have the world's most accurate active manager, a great deal of your returns will be eaten up by your transaction costs.

Low cost index funds, on other hand, keep their costs low by having fewer managers to pay, and they tend to outperform actively managed funds because they are simply set to mimic a certain index. The majority of consumers will not beat low cost index funds for satisfactory retirement investment growth.

5. If You Have a Financial Adviser, Ask if They're a Fiduciary

As seen on: Last Week Tonight: Retirement Plans

A financial adviser is a fiduciary if he or she is legally required to put your economic interests ahead of their own. This is an important distinction because the terms financial adviser, financial planner, financial analyst, financial consultant, wealth manager, and investment consultant are unregulated — which means someone introducing himself by any of these titles might not have the expertise to back it up.

But even if your financial adviser does have the credentials necessary to help you manage your money, she might be paid via commission, which could mean she recommends products to you that help her bottom line more than your retirement.

Since a fiduciary is legally obligated to put your interests above their own, you are more likely to get objective advice from them.

While John Oliver recommends running the other direction if you find that your financial adviser is not a fiduciary, that may not be necessary as long as you understand how your adviser is paid and you are willing to commit to due diligence in double-checking your adviser's recommendations.

6. Gradually Shift From Stocks to Bonds As You Get Older

As seen on Last Week Tonight: Retirement Plans

This advice is part of target-date retirement planning. The thinking behind it is that you need to be invested in riskier (and therefore higher-earning) investments like stocks when you are young, because you have the time to ride out the volatility and reap the returns. But as you age, you need to be sure your principal is protected, which means gradually shifting more of your investments into bonds, which are more stable but have lower returns.

This is pretty good general advice, and I love the show's take on when to remind yourself to shift more to bonds — whenever a new James Bond actor is chosen. (I'm team Gillian Anderson!)

The only nuance I would like to add to this piece of advice is to remind investors that retirement does not mark the end of your investing days — and you should not be entirely invested in bonds by then. Theoretically, you still have 25 to 40 years ahead of you as of the day you retire, and you will still need to be partially invested in aggressive assets like stocks in order to make sure your money keeps growing.

7. Keep Your Fees, Like Your Milk, Under 1%

As seen on Last Week Tonight: Retirement Plans

Except for the fact that skim milk is a watery horror I would not wish on my worst enemy's morning Wheaties, this is probably my favorite of John Oliver's money tips.

Fees on your investments work a lot like interest — in that they compound quickly. Last Week Tonight showed a clip from the 2013 PBS documentary The Retirement Gamble, which illustrated how compounding interest would eat up 2/3 of your investment growth over 50 years, assuming a 7% annual return and a 2% annual fee.

The only way to combat such termite-like destruction of your investment growth is to keep your fees low — under 1%. And the lower you can get your fees under 1%, the better you are. As John Oliver's segment points out, "Even 1/10 of 1% can really [bleep] you."

Money With a Side of Funny

The majority of financial information is not exactly fun to read through. That's why it's so important for a satirist and comedian to take on these vitally important issues and make them entertaining. I'm thankful that John Oliver has decided to make money one of the issues he illuminates for his audience.

Are you a regular watcher of Last Week Tonight? What valuable advice have you gleaned?

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