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Everything You've Been Told About Personal Finance Is Dead Wrong -- Here's the Truth

Can't save enough? Worried about your retirement? The personal finance industry is ready to prey on you.
 
 
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According to Helaine Olen, the lion's share of financial advice served up by so-called experts is useless -- or worse. In her must-read new book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, she reveals that to think about money soley in a personal sense causes us to miss the problem. I caught up with Olen to discuss her take on what we're missing, and how to think better and smarter about our financial lives.

Lynn Parramore: Why does America need a book on the personal finance industry? We're messed up about money, right?  Don't we need help?

Helaine Olen: We need help, but not the way we think. In a society where salaries have stagnated and fallen, net worth has plunged, even as the costs of things like healthcare, housing and education have gone up at rates well beyond that of inflation, it’s not surprising most of us have financial problems. But most of us still don’t see that we have a societal problem. Instead, we listen to people and organizations that insist our problem is an individual one. As a result, we gobble up books and television programs that offer us the promise of the magical tip that will allow us to fix all our financial woes. Of course, that’s not really possible. So … enter Pound Foolish. You can think of it as the anti-personal finance advice personal finance advice book.

LP: What are the biggest factors that have contributed to our current retirement crisis?

HO: There are so many factors contributing to the retirement crisis it is hard to succinctly list them all. But once upon a time, a majority of us at least had the possibility of receiving a pension when we retired. That’s no longer the case. We’re now expected to do this on our own. And, frankly, most of us aren’t capable of this task, and we have 30 years of evidence – that is, the lifespan of the 401(k) – to prove this fact. We do everything wrong we possibly can. We are unable to save enough money and we don’t invest it well. At the same time, we lack the crucial ability to see the future. We don’t really know when we will retire and why that will occur. We don’t know if our investments will pan out. We don’t know how the greater economic environment will either play out or interact with our lives.

I was reporting on this stuff 15 years ago and I can tell you just about no one said anything like “oh, by the way, you’ll need more than $200,000 just for medical expenses in retirement.” It’s just unfair to expect people – who are not financial experts – to be able to pull this off. The fact is Social Security and other such schemes were created for a reason. There was no imagined past where people saved up for their old age. As the family farm gave way to urbanization and industrialization, old people had this distressing tendency to end up in workhouses – which were as Dickensian as they sound – if they couldn’t convince a relative to take them in. And many couldn’t. Yes, the rates of intergenerational living were higher than they are now, but it wasn’t all The Walton’s.

LP:How does the industry prey on our fears about our inability to save and plan for the future?

HO: We can’t articulate that for all too many of us our problem is not an inability to manage and invest money effectively; it’s that we’re expected to do more and more with less and less. So we think we are individually messing up, that we lack the financial skills and smarts to get ahead. The financial services industry presents itself as our savior. But by doing that, it has to confirm our cultural bias that we are alone responsible for our financial fates.