Brian O’Connor, the finance editor of the Detroit News, writes Monday about a personal finance blogger he found on the Internet giving bad advice.
O’Connor writes, “When it’s not wholly impractical, most personal finance advice on the Web runs the gamut from blatantly obvious to trivially useless. But now I’ve run across a post from a mommy blogger about her family finances that’s so dangerously deluded I swore it must’ve come in an email from a Sub-Saharan prince.
“I’m not going to identify this writer because, when I asked about the details of her advice, she emailed very little, then clammed up, claiming she didn’t want to ‘share my family’s entire financial history.’ (Did I mention that she already was writing — ON THE INTERNET — about her family’s finances?)
“The topic of her proud post was she had eliminated $18,000 of debt in one fell swoop, by selling a newer hybrid sport utility vehicle to a dealer for the amount owed on the car, then buying an older SUV with cash to replace it. So far so good, except for the source of the cash: a nonexempt withdrawal from her 401(k) retirement account.
“Assuming she paid $6,000 for the car she describes and is in the 25 percent tax bracket, that means our blogger withdrew $8,100 to cover the purchase plus income tax and a 10 percent early withdrawal penalty that, for some mystical reason, she thinks she won’t have to pay. That’s $2,100 in taxes; however, the cost of paying the car loan at the current average 4 percent interest rate over four years would be $1,500 in interest, so she just paid $700 more.
“In addition, that $8,100, if left in her retirement account for another 30 years, would, at an average 7 percent return, grow into nearly $62,000 before taxes. In other words, this savvy money mama just cost herself more than three times the amount of the debt she so cleverly vanquished. With that kind of financial acumen, she should be working for the Congressional Budget Office.”
Read more here.
