In her book, the self-confessed former money dummy skewers the dispensers of personal finance advice for their ill-fitting generic ‘wisdom’
But her work there, and writing for The New York Times, Wall Street Journal and more, led to “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Bloomberg News called it an attack on the personal finance industry, and it is. In her promotional material, she explains she is out to “expose the myths, contradictions, and outright lies it has perpetuated.” The personal finance industry, which got its start as a response to the Great Depression, “morphed into a behemoth that thrives by selling us products and services that offer little if any help.”
|Q&A: HELAINE OLEN,|
AUTHOR, ‘POUND FOOLISH’
Helaine Olen taught herself the fundamentals of personal finance, and found it not all that difficult. Now, she’s calling out some of the personal finance gurus who dispense questionable advice while lining their own pockets with products of dubious financial value.
Olen, a self-professed bibliophile and lover of rummage sales, spoke to us from her New York City office about her book and why she called out the bigshot personal finance gurus.
Q:This is a pretty scathing view of the personal finance industry. Where did the idea for this book come from?
A: I was the Money Makeover columnist for the Los Angeles Times for several years, and not because I was a financial expert. Somebody called me up one day — I was a freelancer writer — and said, “Oh, do you know personal finance?” I think I’d heard the term somewhere. So of course I said yes, thinking I’ll do one of these and this will be a disaster and I’ll get a nice paycheck and that will be the end of that.
I took on the assignment and ran out and got the book “Personal Finance for Dummies.”
Money Makeovers work like this: There’s an expert and the makeover person and you’re part journalist and part referee and part stenographer. I wrote it up and handed it in and somehow they decided this was fine and gave me another assignment.
At a certain point I started realizing I was a personal finance person.
A lot of stuff that sounds very complicated: What is a mutual fund? What is the minimum payment due on your credit card? Turns out this is pretty basic stuff to master and understand. The financial investment industry has a vested interest in keeping it complicated.
You can do what they recommend, which is sometimes in your best interest but sometimes in their best interest. I could be an expert because nobody knows anything. Nobody knows if you’re going to be able to save for retirement, or lose your job, or have a health care crisis and myriad things that go wrong for people in 2013 when there’s very little social safety net. There are no experts, thus you can become an expert as long as you’re willing to learn some of the basic.
Q: How did we get to the point that personal finance issues are a personal problem, not a result of changing economic factors in the U.S.?
A: There are a couple of different things going on.
We are a country that believes very deeply that individuals can do it all.
Part of this is that beginning in the late 1970s and early 1980s, we became responsible for doing more. The 401(k) came into the picture, which led to the slow dismantling of the pension system. Then there has been a lot of financial innovation in the marketplace. The year I was born, the credit card was less than 10 years old, married women had no right to one, there were no adjustable rate mortgages, no ATMs, no retirement accounts. As these things debuted, the responsibility was dumped on us, not on anyone else. So this whole idea developed that we can do it ourselves.
Personal finance started to brew because people needed the advice from somewhere. It started coming into the newspapers. It actually seemed to work for a while. But the experts knew that salaries were not increasing the ways they should, and income inequality issues started to open. At the same time, we are dealing with the great bull market of the 20th century.
Q: You’re very critical of personal finance talking heads such as Dave Ramsey and Robert Kiyosaki, who are selling products that might not be in the best interest of their readers. One example you give is Suze Orman’s Approved prepaid debit card.
A: That’s a hard question to answer because obviously everybody says some good advice occasionally. The issue seems to be that so many of us are so ill-informed when it comes to finance that we don’t have the ability to sort the good and bad out.
Dave Ramsey does tell people to stay out of debt, yeah, but he also claims that you can get 12 percent out of the market — if you go to one of Dave’s sponsored events.
My blanket advice is, if you need advice, try to get advice from a fiduciary or someone who has a legal duty to act in your best interest.
A talking head on television can tell you get out of debt, but after that, it starts getting really individual really fast. You probably shouldn’t be taking your investment advice from someone on television, certainly not from someone who’s selling products. That strikes me as just common sense.
Q: Why do we get into credit card debt?
A: We get into credit card debt because it’s there. Salaries are going down, expenses tend to go up even if your salary isn’t keeping pace with inflation in health care, housing, education. The cost of raising children has continued to go up during this entire recessionary period.
People have to get by somehow in the short run. We see people who can’t even get credit cards are turning to the payday loan industry.
When you’re standing there and you need to pay the doctor bill somehow, that’s probably going to be what you’re going to do.
We know that the greatest cause of bankruptcy is not because people are charging lattes on their MasterCard, it’s because they’re charging medical bills and related expenses on their MasterCard.
Q: How does our less-secure financial future push us into making bad money decisions, such as relying on credit, or falling for sales pitches at seminars that promise returns that sound too good to be true?
A: Seminars are preying on hope. We’re desperate. They’re offering a solution. Solutions are always attractive.
It’s very easy for me to sit here and say, “Look at your bill and say maybe you should let go of that expensive cable TV plan and get a less expensive one.” It might be the only financial choice I’m making all day. But someone who’s having financial trouble, they’re making choices every single day, every single minute.
When I go into the supermarket and buy milk, I don’t really think about it. But somebody else might really need to think about whether it’s worth it to buy the gallon when we might only need a quart but the gallon is cheaper per ounce. That might be one of the 25 decision they’re make in the course of the day.
If you play Spent (an online game about surviving poverty), you will make a wrong decision. Spent really points out, and the science shows, that the more choices we have to make, and the more pressure we feel making them, the worse those choices are going to be. It is just not possible not to make a wrong decision. You get very tired. Trust me. I encourage everyone to play this game. It’s an eye-opening experience
Q: Why the personal finance scourge against bankruptcy, especially from “experts” who have gone bankrupt themselve, such as Dave Ramsey?
A: I find it strange. I really do find it very strange. It’s not just that he declared bankruptcy. It’s that his bankruptcy was very different from a lot of bankruptcies out there.
He was a hotshot guy in his 20s who fancied himself a real estate wheeler-dealer. That is not how most people get into bankruptcy court. Most people get into bankruptcy court because of really bad things that happen to them. They have health care bills, they have fractured families. Awful stuff. It’s like Dave Ramsey was a dealer of Oxycontin and got addicted to the product and got himself in trouble. The people he’s selling to got in trouble because they had slipped discs and car accidents, and they were in real pain, and that’s how they got addicted. That’s a big difference.
Q: Does the average consumer have any hope in reading through credit card agreements to understand what they’re signing up for?
A: This is a huge part of the problem. These things are not simple. They’re not easy and the terms can change on a dime. Even if you read it, they’re often subject to change, quite easily. You can read magazine articles and your website on them and hope to get lucky. I had a rewards card that was paying me 2 points per dollar spent. Now it only pays 1. I might have chosen another card back then, and now I’m simply too lazy to deal with it like everybody else.
Q: Why is the latte factor — this idea that if we just stopped buying fancy coffee, we’d have no financial problems — crap?
A: It’s crap because it’s not how we spend our money. It’s how we think we spend our money because you see people walking around everywhere with Starbucks cups. The prices of luxury items have actually gone down. What has gone up is the cost of the things you can’t do without: health care, housing, education. Raising your children — who would have ever thought that was a luxury item? It’s gone up and it’s gone up and it’s gone up.
Q: You dedicate a chapter on products geared toward women. What’s the worst you’ve seen said about our gender when it comes to credit that is just not true?
A: That we’re emotional dunderheads and we’re just too busy shopping to deal with anything. There’s this idea that we’re too busy buying Jimmy Choo shoes and going to the Barney’s Warehouse sale to be engaged with money, and we’re emotionally fraught by the process and we can’t deal with it. That’s just not true. Men actually spend a lot more on electronics and cars. If anything, what little evidence we have of a gender difference is that women are a little more levelheaded than men when it comes to stuff like trading.
I found this “women are too emotional to deal with this” stuff to be really really offensive.
Q: Why doesn’t financial literacy work?
A: It doesn’t work because who the hell remembers stuff from high school? And who’s sponsoring it?
Then there’s the pace of innovation. So even if people did remember it, the pace of innovation is so extreme that just to learn about something does not mean that it will be a good idea 10, 20, 30 years out. The financial services industry has this idea that, “Hey, we’ll do a class on financial literacy, but it’s your fault that you signed a gotcha mortgage. Twenty years later.”
I took financial literacy course in high school. These products didn’t exist then, so even if I remembered the class, I couldn’t have learned about those products.
Q: At the end of your book, you say that the best road toward financial stability is as a whole, not as an individual, and we need to start talking about money and have a conversation about that. You’re doing a ton of interviews for this book and are getting people to have that conversation, or at least think about it. Where do we go from here?
A: We start talking about it. Pick your cause, speak out, write to Congress, talk about retirement. Ask why nobody’s doing anything. Ask why they’re talking about cutting Social Security cost-of-living increases when nobody has enough money to begin with. My take is, don’t be a passive victim here and don’t assume it’ll be OK. And don’t think it’s your fault.