Six Financial Myths Your Father May Have Taught You

Father knows best
Father knows best

You love your dad, but you don't have to buy everything he taught you about money.

gives the gift of knowledge to papa -- and his kids -- on Father's Day by debunking a few financial myths he might have held held true. He still deserves the socks and the cologne. Just maybe don't trust him with your portfolio.

Myth 1: Save for an Emergency First, Pay Off Your Credit Card Later

If you follow that piece of advice, Visa will become your daddy. The meager interest you receive for socking money away in a savings or checking account pales in comparison to the massive interest charges you're racking up on your plastic. And let's not even get into the psychic weight of lugging debt and the potential for your credit rating to recede faster than your father's hairline.

Ideally, you want to save and pay down your debt at the same time. "Otherwise, if you only pay down your debt and don't have cash when something comes up, you'll get back into trouble again on your credit cards," Fern Schwartz, wealth management adviser at Merrill Lynch (BAC) in Pittsburgh, told DailyFinance. "Pay down your highest interest rate card down first."

Myth 2: You Can Rely on an Inheritance

Sometimes dad tells stories. Most of the inherited wealth over the last decade has flowed to only 7% of the already wealthiest Baby Boomers, according to Mitch Slater, senior vice president of investments at UBS Financial Services (UBS) in Westfield, N.J. And since the elderly are living longer than ever, much of their savings are going to long term care and other medical costs. That's leaving a median amount of $49,000 getting passed down to the next generation. "Good luck with that fortune," Slater said.

Myth 3: Costs Go Will Down When You Retire

Somebody's favorite patriarch needs a reality check. Costs go down only if you cut down on expenses, and how many of us are prepared to do that?

"Most people don't have their homes paid off and all the costs that go along with the home are expected to rise alongside my firm's inflation projections of 5% a year over the next decade," Slater said. "Then you have the sandwich generation costs to deal with. Aging parents costs more than babies." In fact, adult-age children lose an average of about $300,000 in wages, pension and Social Security when they stay at home to care for elderly loved ones, according to a new MetLife (MET) study.

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Myth 4: You Need to Make More Money Before You Can Start Saving

We think Dad might have been napping through the recession. You don't know if your income will increase. Worry about the money you're earning right now.

"Pay yourself first -- that's saving -- and try to focus on managing your money in a way that allows you to minimize debt," Slater said. "Without doing this you will fall into the trap of always spending the cash that's available."

Myth 5: You Don't Need Life Insurance Because You're Young and Healthy

When you're young and healthy is the time to buy life insurance. It's inexpensive and will protect your family in case of your untimely demise. An average 20-year term premium for $250,000 in coverage generally costs $300 to $500 year for a nonsmoker under 35 with no drunk-driving arrests. "Then you don't have to worry if you get sick in the future, said Merrill Lynch's Schwartz. "And if you do have debt, such as school loans or car loans, the insurance will be available to pay that off."

Myth 6: All You Need Is a Big Down Payment to Get a Great MortgageRate

That might have been true before the credit crisis hit, but not now. You'll need a sparkling credit rating score to go with that flash of cash. Lenders are spooked. Remember when they gave out home loans the way dentists hand out toothbrushes? Big bucks up front still catches their attention in these days, but it takes a thumbs-up from Experian to seal the deal on the lowest terms. "You really want to have had a clean credit history to get the best rate," said Ann K. Trainor, vice president of investments at UBS in Westfield, N.J. "Otherwise it may not matter how much you are willing to put down."

We didn't mean to hurt your feelings, dad. You still toss a mean knuckleball. And that tip about buying low and selling high? Still golden.

Also See: What Super-Rich Dads Teach Their Kids

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