Different Ways Conventional Wisdom Wastes Money

There is an element of sarcasm in the term “conventional wisdom”. It is no coincidence that more often than not it is used precisely when the so called wisdom is being proven wrong. Maybe by the time the convention develops it becomes outdated. Or maybe the majority just isn’t always right.

When it comes to money, sometimes following conventional wisdom can be quite wasteful. Here are a few examples.

1. You have to live in a house in order to properly raise a family.

Does conventional wisdom still thinks all apartments are in those horrid tenements from 19th and early 20th centuries where everyone got tuberculosis if they didn’t get out in time? Or maybe people associate apartments with crime infested public housing projects. In reality, one can live in a beautiful apartment in a great neighborhood (Upper West Side, anyone?) or a crummy house in a polluted area where stray bullets can enter bedroom windows.

In a large metropolis an apartment or a condominium can cost a lot less than a comparable house in the same neighborhood. In Los Angeles, for example, the difference can be as much as 50 percent. In order to afford houses people have to move into the suburbs, which means they will be spending more on commuting. Oh, and if they want a house with a yard that is significantly bigger than their kids’ bedroom, they may have to move even farther away from the city. And no one can put a price tag on time spent commuting. Sure, when you live in an apartment, you may have to take the kids to the park if you want them to run around outside. But it is not like people nowadays let their kids run around on their own much, no matter what the neighborhood is like. And in an urban setting, when kids are old enough, they can get around using public transportation. Not so much in the suburbs. A student bus pass costs a whole lot less than another car, not to mention teen car insurance.

2. Kids have to go away to college in order to get a full college experience.

Perhaps. Some brats go as far as refusing to even apply to schools in their home town, no matter how good they are. But is that experience really worth an additional $10,000 – $15,000 per year? You wouldn’t want them partying all night anyway, right? And what good is their “learning to live on their own”, when they graduate and move back in with you because they have to pay back the money borrowed, at least in part, to pay for that very “experience”?

3. Mutual funds are better for long term investment than CDs.

Is 15 years considered a long term? Would you be willing to wait another 15 years to find out if this conventional wisdom is indeed true? With today’s abysmal CD rates – maybe. But in the last 15 years money kept in CDs may have grown as much as 60 to 70 percent while many Mutual Funds investments, having been down and up a couple of times, ended up flat – or worse.