It’s bleak in the circus-like world of personal finance. In Pound Foolish: Exposing The Dark Side of the Personal Finance Industry, author Helaine Olen casts a withering eye at personal finance journalists, talk show gurus, and the lion’s share of the financial services industry.
Even Sesame Street’s furry Elmo is tainted, thanks to a seemingly innocent financial literacy initiative aimed at children, but funded by a large bank and a major player in the credit card and student loan industries. It turns out that Elmo has “multiple relations in the financial services sector,” according to Olen.
Few escape her blazing scrutiny. Author and columnist Jane Bryant Quinn, though, can take a bow. She credits “the ever-prescient” Quinn with “warning people to stay away from too-good-to-be-true investment gurus” and coining the phrase “financial pornography” to describe mainstream news articles (and now blog posts) that promise such things as “The Five Stocks You Need to Own Now and “Earn a Lush 15 Percent on Your Money Now.”
Olen’s book is dark, as billed. Simply put, the former financial journalist for the Los Angeles Times has written a deeply reported and compelling account that is disturbing.
Olen cut her teeth writing a series called Money Makeovers that paired someone who spills their guts about their finances to a financial planner (and Olen) in exchange for free advice on how to remedy the situation. “In just a few months, I had gone from money novice to money expert,” she writes.
That’s how easy it was, and is, to become a voice of authority in this arena. She heard plenty of sad tales. And she grew outraged as she increasingly tuned in to the noise called expert money help spewing forth from magazine and newspaper articles, television and radio shows, and even “free dinners” sponsored by financial planners to lure seniors.
She took action. In Pound Foolish, she digs below the surface to hold an unflattering magnifying glass to celebrity financial gurus — Suze Orman, Dave Ramsey, Robert Kiyosaki (the Rich Dad/Poor Dad guru), and Jean Chatzky, among others.
Orman, for example, dubbed “America’s first lady of personal finance” and a “practiced saleswoman, is “always peddling a product” such as her own pre-paid debt card. David Bach “concocted a catchy slogan ‘The Latte Factor’ that appealed to our desire for a quick and easy fit, but one that bore little relation to economic reality,” Olen writes. His theory being that all those small things we spend money on like a Starbuck’s latte add up to life-changing amounts.
She unravels the feisty Sylvia Porter, who was the pioneer parlaying no-nonsense money advice, starting back in the 1930s, but whose ever-increasing wealth left her cut off from the concerns of many. Olen recounts how Porter once made an appearance on the Merv Griffin Show wearing a “massive” diamond necklace.
Olen accuses them and others of this ilk of shilling simple financial solutions and one size fits all counsel. They typically make their money by selling you the services and products they provide, she reports.
The cry that people can’t save because of frivolous spending or ignorance isn’t the problem, according to Olen.
One glaring example: “We’ve all heard about women’s fraught relationship with money,” she writes. They have “fiscally improvident behaviors.” All the financial services firms push the message that women need the help of a financial adviser tout de suite!
There is one problem with this analysis, according to Olen. “It’s not true,” she concludes. “Women have less money than men for most of their loves for a basic reason: they earn less and live longer. There is no amount of education or job selection that completely eliminates the gap.”
“The vast majority of us are not messing up deliberately,” Olen asserts. “We’ve been sold a dream of savings and investing that has no basis in history or reality. We do not live in an economic environment that will permit mass personal finance progress, no matter how well meant the guidance or advice. As a result, the success stories offered up by the gurus of personal finance were individual victories in a society sliding economically downward.”
It is those fixed costs, such as housing, health care and education, that keep rising and are hard to cut back, Olen explains. And over the past decades, household income has fallen. She asks: “How could the national savings rate not fall?”
Even if you have savings you can be “undone by medical bad luck” … and extreme bouts of unemployment also play a role, particularly for the over 50-crowd, she writes. And don’t forget the hardship that comes along with foreclosure and divorce.
Olen’s reporting traces the roots of personal finance education when Benjamin Franklin wrote in 1732 the famous line “a penny saved is a penny earned” in the Poor Richards Almanack, which she calls the “founding book of the pull-yourself-up-by-the-bootstraps movement.”
As the allure of personal finance coverage began to grow in newspapers, magazines and television programs, advertising followed suit. “By 1999, financial services advertising made up almost a third of newspaper ad monies,” she reports.
As a result, “it became increasingly difficult to rock the boat by questioning the assumptions behind much of the financial information presented rendering much of the advice glib and suspect at worst.”
On first blush, financial services firms are trying to save us from ourselves. Credit card companies, for example, fund financial literacy programs at schools. What’s really behind it is the goal of building loyal customers for a lifetime, she surmises. And she bluntly asserts, for the most part, teaching children and adults about money management is a waste of time. Studies show that people don’t retain the knowledge.
Even with all the gloom and doom, Olen clearly states upfront that not all financial advice is useless. “Understanding and controlling our own money is among the most empowering activities we can undertake,” she writes. It allows us “to plan, to get out of and stay out of debt and to hopefully better our position when the time comes for retirement and other long-term goals.”
One way to clear through the clutter? Olen concludes that many of us could “save ourselves a hell of a lot of trouble by simply picking up a copy of Personal Finance for Dummies … and following the advice therein.” That’s what she did when she was first learning.
Ultimately, though, she offers little in the way of hope or solutions beyond saying that what we need from the financial services industry are low and transparent fees, clear explanations of products and advice and a lack of sales pressure.
And she’s spot on about that.
Hannon is a freelance writer and author of Great Jobs for Everyone 50+: Finding Work That Keeps You Happy and Health … And Pays the Bills