Smart is the New Rich

Christine Romans, anchor of CNN’s Your $$$$$, has a new book out called Smart is the New Rich. In an interesting mix of personal financial advice and macroeconomic commentary, Romans makes the point that being smart with your money is necessary to live well financially. In making her points, Romans manages to use statistics without overwhelming the reader with numbers. Some big chunks of the book are only relevant to U.S. readers, but the book has value for Canadians as well.

The author is careful to avoid angering the reader. She commiserates with the reader before stating an unwelcome truth. A good example of this was in the discussion of jobs when she warmed unemployed readers up for the messages that they may have to take pay cuts or move to find work.

Jobs

One interesting section looks at where the new jobs will be and which jobs are disappearing. The highest growth rates are for biomedical engineers, computer analysts, and home health aides. The jobs disappearing in the greatest numbers are in department stores, semiconductor manufacturing, and car parts manufacturing.

In her analysis of where the jobs will be she says “with apologies to Willie Nelson and Waylon Jennings, mommas don’t let your babies grow up to be liberal arts majors.” She says this despite the fact that she majored in Journalism and French herself.

Romans advises job seekers to edit their social media pages such as their Facebook page. Apparently, many employers check these pages before hiring someone.

Another good quote: “I know of no one who has scored a job from a job board or paid job-search site.” Romans advocates making connections with people in a job search.

Credit Cards

“Credit card lenders are not there to do you a public service. They are there to make money off you. Their business model is simple—lend money to people who need it for short terms and make money off them when they don’t pay it all back at once or they pay late.” This is a healthy way to view banks and credit card companies.

Under the new credit card rules in the U.S., when the credit card company changes the terms for your account, you can reject the change and have 5 years to pay off the balance with the old terms.

In late 2009 Premier Bankcard rolled out a credit card for consumers with poor credit ratings that charged 79.99% interest! Customers with no other choice lined up for it.

Taxing Forgiven Debts

In the U.S., when a lender chooses to forgive part or all of a debt, the amount forgiven must be declared as income. There’s nothing like getting kicked by tax collectors when you’re down.

Investing

An old quote on Wall Street: “Don’t just do something, stand there.” It’s very true when investing that the times that seem to most demand action are often the best times to do nothing.

“What you buy depends on what you think will happen in the world.” I think most people get into trouble with this approach. Expectations for future events are built into the prices of equities. Few people have better insight into the future than the collective wisdom of experts. Making bets about the future in a fit of overconfidence is a great way to lose money.

Adult Children

80% of students graduating from college in 2009 moved home with their parents after graduation. I knew that staying home into early adulthood was a growing trend, but I wouldn’t have guessed that 80% of graduates fail to start out on their own.

Family

The section discussing the effect of the recession on families is peppered with statistics, but they frequently didn’t support the author’s narrative. It’s as though the narrative was written before examining data.

A common theme was that women are making better financial decisions than men. “Women (72 percent) were more likely than men (65 percent) to say that if they were to somehow get extra money, they would save it or pay bills with it.” That is a very slim difference. One possible explanation is sampling error. Another is simple bravado.

To support the assertion that there were fewer divorces during the recession, Romans says “At the trough of the recession, the American Academy of Matrimonial Lawyers found that 37 percent of attorneys polled reported fewer divorces.” Doesn’t this mean that 63% reported more divorces? Certainly some people stayed together for financial reasons. But others may have been driven apart by added financial stress. I have no idea which effect was dominant.

Conclusion

Overall, I’m glad I read this book because it contained a fair number of interesting tidbits. For those looking for a book focusing on one aspect of financial life such as investing, this isn’t the book for you. This book touches on just about every aspect of a person’s financial life and is written in an engaging and understandable way.