One Size Does Not Fit All

December 12, 2019

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There has been a recent spate of articles on social media with titles like, “Are You Saving Half of Your Paycheck for Retirement?”

This is just one example in a long tradition of telling consumers what they should – or should not – do: You should always have 6 months worth of living expenses in savings. You should never buy anything you can’t pay for in cash. You should always prioritize paying down debt.

One of the myriad issues with “shoulding” all over consumers is that these types of one-size-fits-all approaches to personal finance are built on a false assumption – that we all live in identical financial circumstances. Or, at least, similar enough financial circumstances to make financial “rules” of the broad brush variety relevant to us all.

We know, though, that our individual financial circumstances are unique, and ultimately, intensely personal. Even two people with the same income and basic expenses will have different financial circumstances, because individual financial circumstances are interwoven with complex external and personal conditions.

One obvious external factor that impacts individual financial circumstances is the state of the economy – from the global to the local. Further, the way that the “same” economy affects people’s financial circumstances is different for different individuals, according to income level, geography, age, race, gender, and a host of other demographic - and historical - factors. For example, historical monetary inequities based on race and gender made the accumulation of wealth difficult to impossible for many in our society. This wealth gap has persisted over time, as wealth - or the lack thereof - has been transferred intergenerationally.

The interaction between the economy and a specific individual can be thought of as a person’s economic environment. While they may be separated geographically by only a few miles, the economic environment of a person living paycheck to paycheck in a neighborhood that has no mainstream banking institutions is quite different than that of a person with inherited wealth living in an affluent and well-resourced neighborhood. What may be sound advice for the latter individual may be terrible – or completely irrelevant – advice for the former.

Just as external circumstances create different financial circumstances for individuals, so too do numerous internal factors. What financial well-being looks like to one person can be quite different than what it means to another. It is determined by values, attitudes, and disposition toward risk, to name just a few contributors to an individual’s vision of financial well-being. Financial well-being may look very different for a father of three who highly values stability for his family than it does for a young, single professional who highly values material success.

A one-size-fits-all approach to “personal” finance neglects the glaring reality that each of our financial contexts is, in fact, personal – informed by external conditions and internal factors. Neglecting this reality renders such approaches irrelevant to most. For approaches to personal finance to be meaningful, they must tackle the complexity of an individual’s personal financial context. Approaches that are grounded in a process that people can apply to their own unique situations are far more relevant and generalizable.