Debunked Money Myths

Is everything you know about money wrong?

Myths about money are everywhere. Unfortunately, much of what you know about money is probably wrong and holding you back from success in your financial life. When it comes to our finances, we all must be aware of how our thoughts impact our behaviour. As we all know, how you think and feel dictates how you’ll act.

Part of our troubles misunderstanding money is because we live in an age where we have access to information 24 hours a day, seven days a week. You want enough information to inoculate yourself against financial missteps, but not so much that it leads to behaviours that undermine your financial success. It may well be that we’re overinformed, and much of that information is outdated, biased, or outright wrong.

To help you on your way to your financial dreams, here are five of the most common money myths debunked.

1. “Money Won’t Make You Happy”

A great deal of research has shown that people with more money are typically happier than those with less. Additionally, research has proven that spending on others actually increases happiness too.

One recent survey about happiness and wealth found:

1. Income equated to overall life satisfaction which is an assessment of how things are going over the long-term. (As opposed to giddy, child-like happiness).
2. Hard work pays off. Probably for related reasons to above.
3. For the wealthy, trivial things no longer matter. Wealthy survey respondents appeared to concern themselves little with the everyday struggles of those with far fewer resources. For instance, among low-income households, in the past several years 30 per cent reported having difficulty paying for food. Among the top one per cent, nobody had the same issue.

To help back up the studies with real-life experience, here are a few comments from wealthy celebrities you may know:

• Samuel L. Jackson – “Anyone who tells you money can’t buy happiness never had any.”
• Ariana Grande – “Whoever said money can't solve your problems must not have had enough money to solve them.”
• Robert De Niro – “Money makes your life easier.”

2. “Money Doesn’t Grow On Trees”

Many of our parents drove this concept into our heads from a young age, and if they did so after 1999, then technically they’d be correct. This is because it was 1999 when New Zealand switched to plastic bank notes.

However, most money across the globe is still made of some sort of paper. In fact, the most widely used currency, the United States Dollar, is made of cotton – which is picked from the cotton bush – so is near enough to growing on trees!

3. "To Be Rich, You Need to Be Born into It, Marry into It, or Win Lotto" (Or Similar Other Reason!)

In the present-day atmosphere of social division, finger-pointing, and professional victims, it’s easy to have an envious or jealous attitude which might contribute to this money myth.

In fact, this little phrase is one of the most dangerous sayings out there, as it can be a reason to not bother to try and financially succeed.

The good news in this case is millionaires (and billionaires, and successful people in general) have been studied extensively and repeatedly through different generations – which makes it easy to prove this myth is wrong. Here’s some of the most recent data we’re tracking:

• The 2019 book The Everyday Millionaire studied 10,000 millionaires. It found eight out of 10 millionaires come from families at or below the middle-class income level. 97% said they knew that it was up to them to make a success of things, and 99% of millionaires said their friends and family would describe them as hard workers. This is supported by the similar, though slightly older book, The Millionaire Next Door.  
• Personal finance expert Dave Ramsey found 79% of millionaires did not receive an inheritance from parents or other family members. Instead, they achieved millionaire status through hard work and smart financial choices. Only 31% of self-made millionaires averaged US$100,000 per year over the course of their careers.
• As of 2022, Statistica data showed nearly 2,000 of the total 3,194 billionaires worldwide that year had earned their whole fortune. Meanwhile, only 317 billionaires inherited all their wealth, the remainder were a combination.
• 68% of millionaires are self-made, according to a 2019 study by Wealth-X. A similar study by Fidelity Investments, one of the globe’s largest investment managers, found that 88% of all millionaires are predominantly self-made, in that they earned the vast majority of their wealth.
• An NPR study of high-net worth households with income more than US$500,000 found fewer than 40 percent of those surveyed thought matters such as, family income, neighbourhood and race play an essential or very important role in success and economic mobility. In other words, your background has no bearing on your future.

With the above facts in mind, you're very capable of becoming independently wealthy over the long term if you acquire the right knowledge and are persistent. Then, you will create a comfortable future for yourself on your own terms, rather than leaving it to chance.

4. “Debt Is Bad”

Many people do not know the difference between good debt and bad debt. In fact, many do not know that good debt exists at all. There are many examples of good debt.

Good Debt

The conventional wisdom goes something like: debt that is backed by appreciable assets, such as property, is usually good. This is because the property will typically generate an income which can pay for the cost of the debt (i.e., interest) with rent, and there will be increases in the property’s value over time.

Debt that will likely help someone generate substantially more income — such as a student loan so that someone can become a medical doctor — is usually also good. In this way, debt is a tool that enables a person to financially move forward in a way that would not be possible without it. That classifies it as good debt.

Bad Debt

Meanwhile, debt that is backed by a depreciating asset, such as a car, is bad. This is because the value of a car nearly always reduces (“depreciates”) over time. Revolving debt and other consumer debts, such as credit card debt or buy now pay later, is also bad. These sort of bad debts nearly always prevent financial growth.

Exceptions

Of course, there are always exceptions to the rule. For instance;

• A student loan taken on by someone with limited employment prospects. This could still be described as bad debt.
• Someone who takes out a small loan to buy a simple and economical car so they can get to-and-from a high paying job. Many people would describe this as good debt, as the car will help the person earn much more than without it.

In any case, the point remains that all debt is not necessarily bad.

Learn more: You need more debt in your life

5. “Money Is the Root of All Evil”

This saying can be a sensitive one, as the origins of the phrase are from the Bible, where Timothy 6:10 begins “The love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows” For unknown reasons, people began omitting the words "love of", meaning the phrase is both technically and practically incorrect.

Of course, we’d never encourage greed, but it’s worth remembering that even activities such as helping others at scale takes substantial funding. This could be to build a hospital or orphanage, to build schools and institutions, to provide water or sewage services to an isolated community, to help the needy, to establish charities, and so on.

6. “It Takes Money to Make Money”

This is just outright incorrect.

It takes nothing other than a basic job and filling in the sign-up form for KiwiSaver to become an investor.

Even the wealthiest people in the world had to start somewhere: Amazon launched out of the garage in Jeff Bezos’s rented home, Oprah Winfrey was terribly poor and ran away from home as a teenager, the Starbucks founder grew up in a housing complex for the poor, and Steve Jobs founded Apple in his mum’s garage. Closer to home, (and while we try and avoid politics!) John Key grew up in a state house before working his way to the New Zealand rich list, then later giving his entire prime ministerial salary to charity.

Even if you’re not currently earning great money, becoming financially free has less to do with what you earn than you might think. There are many examples of people on high incomes who squander their earnings away, and of people on average incomes who've learnt to invest wisely and become wealthy and financially free.

Learn more:

• Eight habits of our wealthiest clients
• Are you ready to buy an investment property?
• Your seven-step guide to becoming an investor in shares
• The proven way to become wealthy
• Work out if you have useable equity
• Wealth building checklist
• How to become wealthier

The Bottom Line: Busting Money Myths

To get your finances to the next level, you’ll first have to get your thinking to the next level. That starts by shutting down any acknowledgement of the myths above, and anyone who spouts them!