WASHINGTON Jan 4 It is not easy if you have
dedicated most of a journalism career to writing about money to
read "Pound Foolish: Exposing the Dark Side of the Personal
This new book by New York journalist Helaine Olen surveys
all that she believes is wrong with the financial advice
Olen concedes that quality advice is valuable, but she says
it has its limitations, and too much of it isn't quality. "To
say that personal finance can do it all for you is delusional at
best, and a lie at worst," she told me by phone.
"The personal finance industrial complex continues to
prosper," she writes in her book, "but real people find
themselves continuing to struggle with "stagnant salaries,
income inequality and a society that offered a shorter and
thinner safety net with each passing year." Retirement plans are
lost to market downturns and bad advice, homes are lost to bad
mortgage deals and family finances suffer from job losses,
burdensome student loans and more.
Olen doesn't fault the financial writers of the mainstream
media (a point that I found comforting), though she sometimes
portrays us as cockeyed optimists, persisting in offering
financial advice, year after year, even though there is scant
evidence that it does any good.
At least, she says, financial journalists aren't taking
payola to push products. "We can't accept a cup of coffee
without being accused of conflict of interest," she told me.
Olen had been a personal finance columnist for the Los Angeles
She says no personal finance or investment scheme can fully
protect people from downward spirals or plain bad luck. "For
that we need family, friends and, finally, the government, the
... enforcer of everything from the rule of law to insurer of
Olen hasn't turned over much in the way of shocking new
scandals, but she has done an excellent job of putting together
a well-written, well-reasoned thesis that is unsettling for
anyone looking for help managing money.
So what's the problem? Here's a starter list, as well as a
few pointers for all the sitting ducks.
-- It is 'blame the victim." In her main argument, Olen
faults famous scolds like Suze Orman for making people feel
guilty when they can't manage their money. Orman got rich by
selling products, not by economizing on her morning coffee, says
Olen. "Her money wasn't earned by investment savvy or astute
savings strategies but by convincing many of us that we were so
helpless we needed the help of her books and product lines."
Olen contends that not everyone is instinctively good at
money management, and that people often fall into trouble, not
because they are inept or greedy, but because they have health
problems, lose their jobs and the like. "I wanted people to stop
blaming themselves," she said.
-- It is conflicted. Far too many experts are compensated
when they sell products, especially annuities and other
insurance products, says Olen. Agents, brokers and advisers who
sit in the bank lobbies all often get paid when they get
investors to buy a particular product, so of course they think
the product most remunerative for them is best for you.
Even a lot of the supposedly-independent academic research
is funded by the big financial firms that sell the products the
academics research. For example, she writes of the prestigious
University of Pennsylvania Wharton School of Business publishing
a retirement investing paper that was underwritten by an
annuity-selling life insurance company.
The takeaway? Use independent advisers who are only paid by
their clients, and be aware that even they may have some
conflicts - steering clients who pay as a percentage of assets
away from using those assets to pay off loans, for example.
Don't believe all the studies you read about, and Olen's key
advice: Don't go to "free" lunch seminars. "If I were a dictator
I would ban them."
-- Advice can be math challenged. Another well-publicized
financial writer, David Bach, became known around the turn of
the century for "the latte factor" - his contention that simply
skipping the morning cup of Starbucks could net a saver an extra
$2 million for retirement. The real amount? Somewhere between
$50,000 and $175,000, according to a host of other estimates
that Olen quotes.
-- It is way too optimistic. Personal finance writers put
forth the idea that anyone can start a business and profit; that
investing in the stock market year in and year out will always
be a money-earning strategy and that the real estate wave would
always reward. To be sure, there were people writing of stock
bubbles in 2000 and housing bubbles in 2007, but maybe not
enough. Bring your own cynicism to all that you hear.
-- There are many other problems. Financial firms target
women, whom they perceive as easy marks; everyone relies on
"financial literacy" to cure financial problems when even people
who know what to do can't always manage to do it.
Read the whole book - read it and weep, as the saying goes.
Then start with a clean slate and move on. Giving Olen the last
word: "The first thing I'm recommending is that we be honest
about where we are. It is dishonest to say that we can teach
everyone to be excellent investors, that bad things don't happen
to good savers, and that good intentions are all we need," she
said. "Let's go on from there."