Popular advice is defined as advice dispensed by best selling books in the field of personal finance; professors advice is defined as advice provided by the world of academia and mainstream economic research.
It looks like economists tend to offer more rational advice, because they are dealing with numbers; best sellers tend to offer more practical advice, because they are grappling with human behaviour, with all of its mess and irrationality.
Popular advice frequently departs from normative principles derived from economic theory and it is sometimes driven by fallacies, but it tries to take into account the limited willpower individuals have to stick to a financial plan, and its recommended actions are often easily computable by ordinary individuals building momentum and motivation.
When the focus is the advice for paying down debt, in economic theory households should always focus on prioritising the payment of their highest-interest debt. But popular authors have suggested that you should pay off debt from smallest to largest, gaining motivation and momentum as you zero out your accounts. The latter method isn’t about technical efficiency but it’s about building willpower. When people overwhelmed by their debt see a smaller account hit zero, it’s so rewarding that they’re motivated to continue paying down their larger balances.
When the goal is saving part of your income, popular books suggest that people should save at least a good minimum fixed percentage of their salary no matter what. But, as life is not linear but rather a rollercoaster, academics are more likely to defend a variable saving rate depending the situation considering as well negatives for short period of time. As life itself is the ultimate scarce asset and as the future is unknowable, religiously maintaining a double-digit savings rate through the most challenging periods of life might not be the best approach to achieve comfort and happiness.
Personal-finance best sellers succeed by blending theory and psychology in a way that takes human nature seriously. Academics succeed in guiding us with the most rationale choices. The optimal looks like a balance but those who spend a lifetime delaying gratification may one day find themselves rich in savings but poor in memories, having sacrificed too much joy at the altar of compounding interest.
Source: J. J. Choi, NBER