Good morning, everyone! I welcome you to another day with The Financial Coconut. In our podcast, we are debunking financial myths, discovering best financial practices and discussing financial strategies that fits our unique life. You get it, ultimately empowering us to creating a life we love while managing our finances well, and today we’re going to spend some time to talk about the logic fallacies extremely prevalent in the personal finance space.

Okay, I want to put it out there that logic fallacies are not unique to personal finance. A lot of people use it in their day-to-day argument. Even your politicians use it a lot, very very often in fact. That is not to say that when someone uses an argument, a logical argument that has some sort of fallacy embedded within, they are losing the battle. A lot of times, when people are debating, when they are trying to get you to be on their side, they’re trying to drive consent or they’re trying to get you to buy into their story, tons of logic fallacies. 

It’s prevalent but it works, which is why it still happens. But why do we want to talk about it? Why then do we want to talk about it? Because like I’ve always said, we cannot always just shame the seller and talk about how lousy the seller is, blah, blah, blah… but we got to become better buyers. 

As better consumers of content, as better consumers of logic, as better consumers of reasoning behind why you should do certain things, we definitely should be more aware of common logic fallacies that are peddled out there today to get you to agree with them. But actually, when you think about it, maybe this argument (is) not very well done and if you think about it, there are many different ways to reason and I will call them sources of reasoning from personal experience to lived experience to shared experiences like social norms or even data logic, divinity, spirituality, cultural reasons and what have you. 

All these are reasons and political structure. All these are merely sources of reasons for you to substantiate something, okay? Recognizing that there are all these different sources, we’re not going to discuss all of them here. We’re just going to focus on this thing called logic, which is very loosely used out there, but extremely under-discussed. 

You know, people will say “oh, you very not logical”. But then you ask “so what is logic?” Most of them cannot understand it and they cannot accurately tell you what is logic. Logic is very loosely used. The definition… dictionary definition is logic is an interdisciplinary field which studies truth and reasoning.

In other words, it is a subset of philosophy and is trying best to depict what is going on. You can say something is very logical when it is a very accurate depiction of the particular situation, and you will say someone is more logical or something is more logical because it is a more accurate depiction of the reality. That is my view.

If you think about it, there are two main ideas here. One is internally, you have a barometer. Internally, you have some sort of measurement to decide what is considered logical. All this… what is considered logical is governed by all your experiences and all the different reasoning that we have touched in there. They may be of different sources, but they all come together to help you set up a barometer and set up a framework to decide what is considered logical to you. 

There’s the other side, which is logic fallacies, reasons that sound accurate, they sound “logical” but actually when you think about it, they are either weak, over simplified and at times wonky. Of course, over time, there are a lot of different structures and different styles of logic fallacies that have been documented and there are systems as how to to build some of these logic fallacies to convince other people also. 

Today, we’re going to spend time to focus on some of these logic fallacies, extremely prevalent in the personal finance space. To put it very simple simple simple… why these things exist? They are essentially subpar reasons for things. People use certain structures to create very lousy reasons to convince you to do something, and why firstly, you can be convinced is because all these subpar reasons are speaking to all these dark corners in your head where you have not established some sort of accurate thinking or you have not established some sort of strong logic structure or thought framework around some of these things. So you become very easily targeted with a lot of these subpar reasoning which are logic fallacies. 

By learning about some of these fallacies, how they’re built, how they’re structured, what are the examples, it empowers you with the ability to sniff out subpar reason or oversimplified reason. Everyday, you’re consuming reasons. Everyone is trying to convince you to do something and they’re throwing all sorts of reasons at you. 

Not all reasons are the same like we’ve established, not all logics are equally logical. There are all these things that we call fallacies. When you are able to spot all these fallacies, you become more acute. You become more aware of reasons that are not as good and that will add to your ability to think and make better case and better choices that fits you rather than build your decisions or things that are a little bit wonky and oversimplified.

So for all of you who want to continue to geek out about logic, how to define what is reason, blah, blah… all those philosophical kind of things, please check out the podcast called Philosophize This, my favourite monologue podcast that spend a lot of time to talk about philosophy. I also go and read up other materials. There are a lot of logic fallacies out there that you can learn to better bolster your thought processes so that you don’t be convinced by oversimplified reason.

I only got to spend time to talk about three. The first logic fallacy I’m going to put it out there that is extremely prevalent in the personal finance space. That is the boogeyman. I’m giving you the accurate name so that you can then go and do more research if you want to. 

The boogeyman is also known as the appeal to fear logic fallacy. So what is the boogeyman? The boogeyman essentially is a situation when people are trying to create support for an idea by attempting to increase the fear towards an alternative. In other words, instead of telling you why this is good, they tell you why the other is bad and you should use this. Exploiting one’s emotions and fear, very prevalent in the personal finance space. 

The argument form… there is a structure to this. The argument form is either A or B is true. That means you can either invest in stocks or you can invest in property. Yeah, you can invest in stocks or property, but A is more frightening, so B is true. Instead of investing in stocks because it’s more scary, you should invest in property. 

This is a classic logic fallacy out there: appeal to fear. There are many examples, not just this stock-property debate. It’s endless, (we) always see online people trying to sell you property course will use this structure to tell you “you can invest in stock, you can invest in property, but why property? Because stock is very volatile, very scary”. 

The same holds for the other side, people are trying to tell you to put your money in a broker or invest in a stock or learn the stock program, options… what have you. It’s the same structure. They always tell you why the other thing is not as good. They increase the fear of the other thing instead of actually telling you what is the use of this thing, what is it actually trying to function and how is it better. Of course, maybe in the course, they will teach you and all, but you see the structure, right? You see the way these fallacies are being thrown at you to convince you so that you will subscribe and buy from them.

Another very classic example in the personal finance space that suggests a appeal to fear is you can choose to insure yourself or not, because insurance is also a very big business. Either A or B is true. You can choose to insure yourself, or you can choose to take on the risk by not insuring yourself. A or B is true. Something happened to you then [indiscernible] get cancer and then you lose all your money, all your savings then you become bankrupt, so you should insure yourself. 

It’s always trying to suggest how bad it can be, how bad is it to not insure yourself, to substantiate the reason to insure yourself. So then… oh yeah, you should insure yourself. You see the structure? 

One more, I’m gonna throw it one more at you. You can either rent or buy a property, but what if your landlord suddenly wants to sell because their price increased and all that, so you should buy. I think you can observe it, right? You can observe the fallacy structure. You can either rent, this is option A, or you can buy a property, this is option B. So either A or B is true. You can do either one, yes. But what if your landlord wants to sell and the price go up? Then you have to go out and find a new place. 

All these are instilling fear into reason A which is to rent… option A, which is to rent. So by instilling all these fear towards the renting idea, then they tell you “oh, that’s why you should buy.” But it does not tell you why you should buy it. What is the structure of buying or what are the things you need to consider? 

This is a very classic appeal to fear situation that is… a very prominent logic fallacy out there in the personal finance space and I want you to be very cognizant of this. When people tell you to do something, they should be able to give you a logical flow or a set of reasons as to why you should do this rather than throw you a set of fear, try to build all these fear out of you onto the other option that you were considering.

This is something that you should be very aware of. But also, I also want to point it out there at this juncture that fallacies don’t work independently. They work hand-in-hand, that means there are all these fallacies and a lot of them are put together to convince you to do something. That’s the boogeyman, appeal to fear fallacy. 

Which brings me to point number two and that is the straw man argument. Straw man arguments are classic oversimplification of situation and we’ll talk about this after a word from our sponsor. 

The straw man argument is a situation where someone changes the discussion. That means actually, you were discussing on this one thing, but they switched the discussion in a very beautiful manner. They either oversimplify it or they over-exaggerate it and then suddenly the discussion is about something else totally. I don’t know if I should say this, but okay I’m going to use this example, okay? 

Recently in Parliament, there’s a lot of discussion about CECA. CECA, the free trade agreement that Singapore signed with India. The PSP (Progress Singapore Party) Member of Parliament went onto the Parliament and talk about, CECA blah, blah, blah. You don’t need to agree with him and what have you. But the whole discussion was about CECA, whether CECA is good or not. And then, one of the ministers came out and say “does that mean you do not agree with free trade agreements? Does that mean you do not agree with free trade agreements? Please put a stand, whether or not you think Singapore should have free trade agreements.”

This is a classic straw man argument. The original discussion was about CECA, whether CECA is good or not, but he over-exaggerated to put it to the person to say that, “hey, are you not agreeing with free trade agreement?” Then in my view is “er I thought we were talking about CECA? Why suddenly become free trade agreement?”

Not all free trade agreements are the same. You get the idea? That is in Parliament, right? But in your day to day life, a lot of people do this and in personal finance, also a lot of people do this, the argument structure. The argument form looks like this: person A will assert a point, let’s say we call this point X, okay? Person A asserts point X. Then, person B will argue against point Y, either oversimplified or overexaggerated point, making it sound like they are actually answering point X, but actually they’re really changing the argument towards point Y. 

Let me give you an example. Person A says “low cost index funds are good long-term investments solutions. You can debate with the person whether or not low cost index funds really is good for long-term investment solutions. But person B comes in and say “index funds do not outperform the market. The costs don’t matter if it does not have growth. There’s no percentage, does not get you alpha. It’s not worth your consideration. With that, low-cost index funds sucks.” 

You hear the pattern? Instead of going straight for person A’s point, which is point X: low-cost investments are good long-term investment solution, person B over-exaggerates and divert the discussion over to whether or not low cost index funds can create alpha and outperform the market, but that wasn’t the point to begin with. That wasn’t the discussion to begin with, right? 

This is something very common in the personal finance space and I want you to be more aware and cognizant of it. If you really want to discuss anything in a more structured and accurate manner, you must always define the goal. We’ve talked about it a lot of times. If you define the goal in this example, the goal is long-term investments solution. Then the discussion can be about strategy. So is low-cost index funds best or are we looking at active funds? Is it better, and why is it better and blah, blah, blah… for a long-term investments solution. That is a good discussion.

But when someone totally changes the discussion over to “oh, actually index funds, right? They do not outperform the market. So cost doesn’t really matter, they do not grow.” You get the idea? You start to see it? That is a fallacy. Let me give you another example for the straw man argument, okay? 

Person A makes a point: cryptocurrencies are volatile and should not be a big part of your portfolio. Person A makes that point. Cryptocurrencies are volatile, should not be a big part of your portfolio. Person B comes in and say, so are you saying that all cryptocurrencies will crash? You don’t understand, you [indiscernible]. The world of traditional finance is going to die, it’s going to end, right? You don’t understand… you don’t buy lah. Don’t buy, never mind.” 

When I tell you all these examples, I’m sure you’ve heard it somewhere out there. Person A is just trying to say that cryptocurrencies are very volatile and shouldn’t be a big part of your portfolio. So the discussion is whether is it volatile and how big should it be within your portfolio? These are the two points that he’s trying to put up, but person B overexaggerates the discussion over to “oh, so you think cryptocurrencies will crash? You think it’s not worth it. You don’t understand this thing. You’re very traditional [indiscernible].” 

You start to see, right? You see the structure. Define the goal. Defining the goal in this situation is you want to build a portfolio maybe for consistent returns. This is the premise. With the premise, is cryptocurrency suitable within this portfolio structure? Yes? Why? No? Why? 

That is a better way of argument. Do not fall for straw man arguments. They are very common. After you practice a little bit more, you start to see all these things then you will be able to spot it. You will get better and better at observing straw man argument, all these fallacies, boogeyman and what have you.

A rule of thumb, particularly for the straw man argument, if you want to reduce the chances of having straw man argument… because like I said, you’ve got to practice. Even sometimes I do fall in some of these logic fallacies, because maybe I’m not as cognizant. Over time, I will get better. Of course, over time, I’ve gotten better at this, trying to observe some of these fallacies. 

So one rule of thumb to reduce the chances of you falling into a straw man argument is to try to compare things as close as possible. Let’s say you compare one index fund to the other index fund. They are all tracking the same index. Because it is so narrow, they’re so similar. It’s very hard for you to fall into a straw man argument. There are only that one or two reasons behind choosing one over the other as compared to if the discussion is very broad like property and stop. The classic debate, right? Tons of straw man argument within a property versus stock discussion.

That is something to be aware of. If you cannot yet observe, try to compare things based on the goal that you want to achieve and also when you compare strategies, you want to compare things that are as close together as possible, as similar as possible… this growth stock to that growth stock. Even better, this internet growth stock versus the other internet growth stock, or this social media company versus the other social media company. 

The closer you can pull the comparison together… like this block of flats versus the other block of flats, the closer you can, then it’ll help you to have a better reasoning structure rather than fall into straw man arguments because it’s just easy to do that. 

Which brings me to point number three and that is the slippery slope argument. So what is the slippery slope argument? It’s an argument that says that if you take one step, like a small step to the left or to the right… either way, you take a small step, it will lead to a whole chain of events and become a very significant effect. That is the slippery slope argument. It can slip up or it can slip down. 

It’s like… you know, if Tesla can do this and it will do this, this, this… this is classic slippery slope. Same for many other things. The argument form looks like this: if we do A, B, C, D E F, G will happen all the way and lead to Z. That’s the idea: just need to do one thing. All these things will happen, but there’s not the truth. 

I’m sure you’ve heard this: “learn this one skill and it will change your life. If you hate your job, learn this thing”. This argument form is probably one of the most common one in digital ads, because they want to get your attention, so they will use this thing in a very… and they exaggerate it. Slippery slope essentially exaggerates a lot of these things. “Just do this one thing and you can retire forever.” “You can just do this one thing and you can fire your boss.” “You will change your life.” “You become a millionaire.”

If you think about it, you do this one thing, you got to do the next thing and actually got the next thing, you got to pray for the other thing then hopefully, hopefully, hopefully you compound to become a millionaire. Actually, that is the real story, right? That’s the B, C, D, E, F, G that they don’t tell you. They only say A. If you do A, it becomes Z. 

This is classic slippery slope. Let me give you a few more examples. Another example will probably be a very concerned parent or concerned relative, or what have you. They will tell you this thing. If you’re entertaining the idea of quitting your job, they will say “oh no, if you quit your job, it will be very hard for you. The market is not very good and later end up you have to go and drive taxi. Then it will affect your career plans, it will affect your future. In the end, you cannot do anything. You’re homeless”. 

So yes. I’m sure you’ve heard this, maybe not to the extent of homeless, but people overexaggerate the argument. They will make you sound like “if you quit your job now, your life will be very, very jialat (bad)”. But actually, it’s not the case. If you quit your job, what happen? You just lose your job lor. What’s the next thing that will happen? You don’t have stable income lor. These are the only two things that really happens. Because you don’t have stable income, then yeah, maybe you’ll eat into your savings. So what is your strategy to create the next stable income? What is your goal? What are you trying to go after? It is not definitely all the way down, right? 

This is classic slippery slope and all these fallacies are only the tip of the iceberg. They are also other fallacies like the bandwagon fallacy. You should check it out. Definitely, if you’re interested after you listen to this episode, you want to brush up on the way you listen to reason, you consume reasoning, please go and read up a little bit more about logic fallacies and how do they work? Why do they exist? How do they react? How do you react and how does it affect your life?

Essentially, why I think you should be more aware of some of these logic fallacies, because they’re extremely common, extremely used in the personal finance space and it creates all these very substandard reasons for you to do something. Instead of building your life around substandard reasons, I hope you become better at thinking and consuming and building a framework of thought that will fit your life towards a life you love.

With that, I’m going to sum up the three fallacies that we have touched on today. The first one is the boogeyman, the appeal to fear. Essentially, when people try to tell you that the other thing is very lousy, it’s not so good. It appeals to your fear to get you to buy this thing and it tends to be that they are selling this thing. That’s a very lousy argument and it’s a classic logic fallacy. 

Number two is the straw man argument, which looks like if the person tells you a particular point, they are debating on this point, but the other person comes into debate on a similar sounding point but actually is oversimplified and overexaggerated. In other words, they are not going straight in to the discussion of the one point. They are shifting the argument somewhere else and that is a very classic way, especially for a lot of the “more educated people”. They use this very well and you should be more observant of it when you are consuming reason. 

The third one is the slippery slope argument, where they argue that if you do A, B, C, D, E, F, G will happen and you don’t need to do any other thing, essentially. These are some classic logic fallacies… very prevalent in the personal finance space. I hope you become more aware and I hope you learnt something useful today. See ya.

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With that, have a great day ahead. Stay tuned next week and always remember: personal finance can be chill, clear and sustainable for all.

Okay, I hope today’s episode was good. It’s a bit more complicated. I know there are… I’m trying to cram thought processes. How do you think, some philosophical frameworks and ideas into a 20 minute podcast, so I hope you find it beneficial. I hope the examples give you an easier place to start to entertain some of these things and you can actually run a lot of all these reasons that you consume online through some of these fallacies… to see that if they fit the fallacy then hey, maybe it’s not the most rigorous reasoning process. 

Next week, we’re going to spend some time to talk about managing FOMO (Fear Of Missing Out). I think recently, there’s been a lot of movement in the markets and some people are making money, some people are not… especially for a lot of younger investors. They are just starting to put money into the cap… into the market or you have a more traditional way of investing, broad based, index funds. Then you see everyone else like “wah lao eh, growing 20%, 30%, 40%” because they invest in some crypto asset or some high growth stocks or what have you, and you’d be like “yeah, maybe I should do that.” 

FOMO is getting very prevalent (and it) does not help that the social media does exhibit FOMO. So I’m gonna share with you my thoughts on how to work with FOMO. It’s not always a bad thing. We’ll talk about that next week. Meanwhile, take care.