Pound Foolish

In her book, Pound Foolish, Helaine Olen fulfills her promise of her sub-title Exposing the Dark Side of the Personal Finance Industry. It’s important to approach all big financial decisions carefully, and Olen shows us what awaits the unwary.

Olen takes well-aimed shots at big names such as Jim Cramer and Robert Kiyosaki. She says Suze Orman “has gone from selling subpar pancakes to peddling financial platitudes.” But the book isn’t just a set of amusing quotes. Olen digs into how these people make money and how their words are at odds with their actions.

The author covers the many problems with the financial advice industry. One of the more profitable financial products for advisors to sell is the variable annuity. On the subject of mandating a fiduciary standard, one former branch chief for the SEC said “if you need to act in the customers’ best interest, you can’t sell this crap.”

The most interesting part of the book in my estimation was the detailed reporting on the financial seminar industry. In some cases free meals are used for “scaring and pressuring the mostly elderly audience with half-truths and distortions” to “pressure them into high-commission products.” Other seminars appeal to financial desperation and greed to sell a series of progressively more expensive real estate “courses.”

There are professionally run organizations that offer slickly packaged services to help financial salespeople increase sales through seminars. These services include a designation such as being one of “America’s Top Planners.” In one case, a financial planner got such a designation for his dachshund.

Other seminars are devoted to “teaching” how to trade stocks, options, and currencies for profit. Olen paints a picture of the financially desperate and gullible attending such seminars and paying for more advanced courses.

One criticism I found puzzling was Olen’s portrayal of the book, The Millionaire Next Door, as a how-to guide for getting rich. I saw this book as a search for the rich to try to sell them goods and services. In any case, there are many other examples of books saying we should emulate rich people. This is generally a bad idea because so many people get rich by taking big chances and getting lucky. What we don’t see is the much larger number of people who took big chances and got wiped out.

Olen casts doubt on the conventional wisdom of owning stocks because “During the thirty-year period between 1981 and 2011, in the United States bonds beat stocks by almost a full percentage point.” This is actually a pretty slim margin considering that interest rates were in free fall during that time. The future is always cloudy, but a longer view of history tells us that stocks are expected to beat bonds most of the time.

I have to agree with Olen when it comes to teaching financial literacy: “when it comes to money, the vast majority of us are nuts. Bonkers. Batshit crazy. We are natural born fuckups. We engage in so many self-defeating behaviors it’s impossible to list them all.” “No amount of financial literacy will ever do as much good as straightforward government regulation designed to protect consumers.”

Many efforts to teach financial literacy have been infiltrated by financial organizations that have an interest in having people remain financially illiterate. For many people, financial problems come not from poor spending habits but from low pay and difficulty getting enough paid work hours. But I think there is still value in teaching financial concepts to the masses as long as we pursue regulations at the same time.

Olen says that “the latte is a lie,” meaning that our financial problems don’t come from small indulgences. But this is too simple. There are many factors that go into how people get into financial trouble and small frequent indulgences are one of them. Others are houses and cars. Root causes include poorly-regulated predatory lending by banks, ignorant consumers, and low pay.

I don’t see the point in denying that many people spend foolishly because it is obviously true. What we can say is that the better path to fixing the problem is through regulations rather than trying to change the habits of the masses.