Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
Faddish advice, rampant conflicts of interest, and a blame-the-victim mentality are some of the problems personal finance expert Helaine Olen has with her industry.
MintLife: So let's talk about these steakhouse dinners, because I've been to one myself. Tell me what you found when you went to one of these free dinners for seniors.
Olen: These things have a very definite formula. First, they appeal on a hot-button issue -- retirement, Social Security, or estate planning if you're in a wealthy area.
Second, they scare the living daylights out of people. So, "Seniors, afraid of outliving your retirement?" "Seniors, Social Security: Will it be there for you?" "Seniors, don't let the government get their mitts on your children's inheritance."
Third, this is presenting your problem as the solution. And I have never been to one of these where the product was not presented as the solution.
MintLife: Right. So when I read that part, I patted myself on the back and said, you know, I've written about this, I've warned people about these kind of dangerous investments and said, look, just invest steadily every month in stock and bond index funds, and you'll probably be fine.
But in the book you explain why that's problematic advice, too. Why?
Olen: Well, it's the best advice out there, by the way, so let me stress that.
MintLife: Thank you.
Olen: The problem is, it's still not a guarantee. And by the way, that's where these people move in on this stuff. Because hey, they know it's not a guarantee, and they hold out the siren's song of, "You can get better returns with me."
You know, "Index funds go down with the market. But I can protect you." But the fact is, you know, we don't know how this works, really, over hugely long-term periods.
You know, 80 years, it sounds like a lot, right? But it really isn't, on one level. There's a lot of survivor bias in there.
If you could go to Europe in 1913, you could look at the previous 99 years and say, "You know, we've not had a continent-wide war in 99 years. That's a record for Europe. What are the odds, right?"
That being said, it's still probably the best advice anybody can give you, because what we do know for sure is that roughly 1% of us have the ability to beat the markets year in and year out.
The chances are the advisor who can do that is not coming to you, because unless your last name is Gates or Buffett, why on earth would they, right?
MintLife: So let's put me on the couch one last time. Something that really hit home for me in the book is you said something like, "Personal finance writers believe that if people would just listen carefully to our advice, everything would be fine."
MintLife: I'm certainly guilty of feeling that way. I was just reading this new survey on Americans and their assets, and in my state, one-third of people have almost no savings.
And my gut feeling was to say, "Hey, I need to write more columns. I need to tell people about Roth IRA day and America Saves Week, and these other things that I get press releases for, and if people would just listen to my advice, they would figure it out."
What's wrong with this impulse, and what could I be doing better?
Olen: I have a completely different take. I see a survey that says forty-plus percent of people are living paycheck to paycheck to paycheck, right? I don't say, "God, what a load of f-ups." I think, "God, we really can't get by, can we?"
You've got to turn it on its head here. The national savings rate was 10% in 1980. We didn't suddenly go on a bender. You have to ask what happened to us.
And what happened to us was that our salaries stagnated and fell while the cost of the things we couldn't do without went up at rates well beyond that of inflation for decades as the social safety was being pulled out from underneath us.
Second, you have to understand that, that being said, yes, none of us are perfect. No one is going to live a financially perfect life, including you and me.
Olen: Humans are by nature not perfect. People are not sitting around reading financial advice, usually, until it's way too late. We keep thinking, "Oh, I'll write Money Makeover and people will read it, and they're going to listen to it, right?"
Well, in fact, basically, they like reading about other people's financial lives and feeling, okay, this is a comforting thing, this is going to work out.
MintLife: Right, or saying, "I've got problems but they're not as bad as this person's problems."
Olen: Yeah, the train wreck phenomenon. That's not to say you shouldn't write it. Hey, I'm sure it reaches some people. But to expect that we're going to come up with this magic formula and make it all work defies everything we've ever known about human nature. It's just not possible.
That's not to say people shouldn't save their money. Of course people should save their money. Of course people should live within their means.
But most people are really trying to do their best. And I find this assumption by the personal finance establishment that most people are deliberately not trying to do their best to be kind of offensive.
MintLife: What impact do you think the CFPB will have on the problems you identified in the book, if any?
Olen: It's definitely having some impact, but it can't have enough, because we need the help of the SEC and other regulatory authorities. The CFPB is not going after retirement accounts and that sort of thing at all. That's the Department of Labor.
Are they having an impact? Absolutely.
They're trying to clean up the mortgage debacle, and clarifying what people are getting themselves into and not allowing stuff to be marketed is huge. If you don't think it's huge, ask yourself why the financial services industry is fighting back so hard.
But the CFPB can't do it alone. They can make changes in credit cards, and they can make changes in mortgages, and I'm thrilled and happy and want them to keep going.
But we have to know-and I think this is where people get lost-that they simply aren't in it alone. They don't regulate investments and there's other authorities here that need to be tended to.
Everybody sees the CFPB as this massive panacea, and I think in the ideal world it would be.
MintLife: Well, we had the SEC and we had the CFTC and we had regulations A, B, and C, and none of it worked. We had the worst financial crisis of our lifetime. Now we say, "Hey, we've got this new agency that was not stained by that. Now we can really fix everything."
And that ignores the fact that its mandate is limited, and it exists in the real world with all of these other agencies, and all of these powerful opponents.
Olen: And as we know, it has hugely powerful opponents.Editor's Note: This article by Matthew Amster-Burton was originally published on MintLife.
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