Your mom’s favorite warnings to you when you were a child helped keep you healthy (“Put your coat on! You’ll catch your death of cold!”) and safe (“Never accept a ride from a stranger”).
Many of the phrases Mom repeated are pure gold for your financial life, too. So, on Mother’s Day, as you wash your hands before you eat your veggies, thank Mom for advice that can make you rich.
Here, a look at five of Mom’s all-time favorites.
1. ‘If it looks too good to be true, it probably is’
When it comes to money, Mom’s admonition that, “If it looks too good to be true, it probably is,” is “absolutely true,” says Karen Altfest, CFP professional, executive vice president and principal adviser for Altfest Personal Wealth Management in New York City.
This advice is the watchword of consumer organizations. It can be applied to everything from moneymaking investment opportunities to super-low-priced deals.
“Nobody is waiting to give you a thousand bucks or the best deal in town,” says Linda Sherry, director of national priorities for Consumer Action. “The sniff test is a very important consumer skill.”
When shopping price, keep it realistic, Sherry says. “You have to ask yourself, ‘wait a minute, why would they be offering me this for X, when I’ve gone onto Google and everyone else is offering it for Y, or says this is a scam?’”
This outlook also applies to investing. Bernie Madoff and the con artists who came before and after him have made fortunes by promising large returns, she says.
When someone promises low risk and high reward, the smart consumer “should be hearing bells,” Altfest says. “It’s a red flag if it’s too good to be true.”
2. ‘Look both ways before you cross the street’
This morsel of Mom advice works just as well for financial decisions as it does at crosswalks. Before you do anything with your money, look for potential dangers speeding your way.
Every decision is a trade-off, so be aware of what you’re trading off if you decide to buy a fancy new car, for instance. Are you trading off making a contribution to your retirement plan or putting away money for college?
Ask yourself: “If I didn’t do this, what could I do instead? What am I giving up to do this?”
3. ‘Don’t take candy from strangers’
Every mother warns: “Don’t take candy from strangers.” Substitute “money advice” for “candy,” and Mom’s warning will serve you well through life.
Before hiring a money pro, get to know him or her professionally. Find out how, and by whom, the adviser is compensated. You want to know how the person gets paid, and whether they’re working for you or someone else.
Financial planners usually charge fees to clients, receive commissions on financial products they sell, or a combination of both.
Here are other sources of information on financial advisers:
- If your adviser claims membership in professional organizations, verify that. For instance, you can vet a certified financial planner, or CFP, credential at CFP.net. Check that any necessary licenses are current and in good standing.
- The Securities and Exchange Commission has a searchable database of forms that investment advisers use to register with the SEC and state securities authorities. Form ADV details investment advisers’ professional backgrounds, how they’re compensated and whether they have been in trouble.
- The National Association of Personal Financial Advisors posts on its site a “how-to guide” that includes questions to ask your adviser pro.
4. ‘You’ve earned a timeout’
When you were a kid, being told that you’d “earned a timeout” was a bad thing. But as a grownup, you’ve earned the right to step back and take some quiet reflection time before you act.
And it’s a move that can save you a lot of money.
“When it comes to your money, don’t do anything on impulse,” Sherry says. “It could come back to haunt you.”
Always comparison shop, even if you just do an internet search, she says. “That one step takes you out of the emotional zone.”
Beware of high-pressure tactics that use the clock or the calendar to force your hand. “If it’s good for you today, it’s good for you next week,” Altfest says.
“If someone is handing you a pen, saying, ‘This offer expires today,’ that’s a good time to walk away,” she says. “Nothing that good disappears that fast.”
That move is “an arm-twisting tactic,” Altfest says.
Equally suspect is when a sales representative discourages you from doing your own research, asking questions, getting second (or third or fourth) opinions or talking about the situation with someone you trust.
5. ‘Just because everyone else is doing it, it doesn’t mean you should’
When Mom said, “Just because everyone else is doing it, it doesn’t mean you should,” she might have been talking about green hair or that house party where the host’s parents were out of town. But her words are spot-on for investment advice, too.
“If you follow the crowd, you’ll be locked into mediocre results,” Altfest says. “You’ll get into the market at the wrong time, and you’ll get out at the wrong time.
“If everyone is buying gold, that’s a good time to say, ‘It’s too high, I’ll find something else,’” she adds. “If everyone else is gloom and doom, you should be looking at buying opportunities. Don’t listen to your friends and neighbors except as the background hum for what you don’t want to be doing.”
The “everybody’s doing it” argument is a favorite of scam artists, Sherry says. Be suspicious of pitches that target your emotions: greed, envy, excitement or just the fear of being left out, she says. “That’s another way they try to get you.”