Can you trust the financial services industry? In Pound Foolish
by Helaine Olen, you find out that you should take all advice with a grain of salt.
From financial gurus to advisers that recommend complex annuities,?Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
Should You Listen to Financial Gurus?
One of the tenets of the book?Millionaire Fastlane by MJ DeMarco is that following the advice of financial gurus will put on in line to toil away at a job for decades, only to have “wheelchair wealth” that you will be too old to enjoy. All the while, you'll buy products and books from financial gurus, helping?them get rich.
In Pound Foolish by Helaine Olen, you discover that financial gurus don't have your best interests in mind — and that some of the advice can be sometimes dangerous. Especially to those who don't really understand money.
Olen takes down just about every financial guru out there. She cites the simplistic and ever-changing advice of Suze Orman, and she looks at the cult of personality surrounding Rich Dad Robert Kiyosaki?(and the fact that the Rich Dad branded “seminars” are little more than attempts to sell high-priced wealth systems).
She blasts the Latte Factor from David Bach, pointing out that, for most people, it's not lattes killing their finances. It's the high health care costs, and other big expenses that no amount of penny pinching will ever overcome. And she complains that Dave Ramsey hypocritically tells people to power through without bankruptcy, paying what they owe, even though he was able to rebuild the shambles of his financial life on a foundation of…bankruptcy.
The point, of course, is that you need to take what others tell you about finances (including me!) with a grain of salt. Financial gurus are in the business to make money. Lots of money. And many of them don't follow their own advice. Olen points out that Suze Orman spends a lot of time talking about the importance of stocks, even though her own portfolio has never been heavy in that area.
Olen uncovers some uncomfortable truths about financial gurus, the way they make money, and the fact that some of the advice is…suspect. Financial gurus have some helpful things to say, but it's important to remember that their #1 goal is to make money.
Pushing Financial Products You Don't Need
Another issue, Olen points out in the book, is that financial services industry is all about pushing financial products that you don't need. Many of the terms, even with recent attempts at transparency, are still buried in hard to see places, and still difficult to understand. She especially looks at the annuity industry, and the attempts to sell annuities that are complex, and can even be harmful.
Once again, the book points out that advisers in positions to sell many financial products don't have your best interest in mind — and they don't have to have it. Unless you are dealing with someone who, by law, has a fiduciary duty to you, there's a good chance that a conflict of interest exists.
She also includes a look at the financial literacy movement. Olen takes issue with the fact that most financial literacy efforts are presided over the very companies (like credit card issuers) that benefit most when you are financially ignorant. So she doubts the true efficacy of these programs.
So, Who's Responsible for Your Finances?
One of the things that did start to bother me in the book is that Olen puts a lot of emphasis on it being “someone else's fault” that people are struggling with finances. To some degree, I agree. I know that there are plenty of people who don't have financial opportunities, or the knowledge to take advantage of them. And I agree that the fraying social safety net isn't helping matters.
However, I think that Olen goes a little too far. I am with her that a lot of the tactics supplied by the financial services industry won't do much to overcome income inequality, and stagnating wages at the bottom are a real problem. Even though I think that there is a lot more we need to do as a society to ensure that there is more access to opportunities, I do think that Olen did go a little too far in her attempts to blame everyone but consumers for the current state of affairs. I think there is plenty of blame to go around — including for individuals.
Unlike Olen, I do think that there is more that we can do for our situations, and I think that it is possible to be empowered to improve our finances. We do need more financial education, and we do need more transparency in the financial services industry. And we do need a social safety net (but we can't come to depend heavily on it).
I think that Pound Foolish?by Helaine Olen is worth a read, even though I don't agree with all of her points (but I am sympathetic to many of them).?I think we do need to take responsibility for our own finances. Look at where you are right now, and make a plan to move forward from this position. You might not be able to control all your money circumstances, but you can control how you react, and where you go from here.
Listen to a Consumerism Commentary podcast with Helaine Olen, and read the book. It's definitely interesting and provoking — whether you agree with her or not.
What do you think of the financial services industry? And do you follow financial gurus? Did you read Pound Foolish by Helaine Olen? What did you think?
Good review! No matter what branch of the financial tree you belong to, we all have our slants and bias–but I think most have the consumer at heart.
Well, the consumer’s money at heart 😉 The main takeaways I get are that it is a good idea to 1. Educate yourself about money and how it works 2. Learn about products before committing your money 3. Don’t assume that any one person or guru has all the right answers for your individual financial situation.
Olen’s has absolutely nothing do with point #1. If anything she more or less states financial education will do nothing – Why bother? She subscribes to government IS the solution!
In the end, you nailed it, people need to learn, question, and be comfortable with their decisions. The David thinks very highly of himself and leaves no room at all for others’ opinions. He’d have you pay the stack of 1% credit cards off before the 24% card, because each of the 1% cards has a $2K balance, but the 24% card has a huge balance. “Pay the higher interest debt first” is against his psychobabble beliefs.
And Suze. She can run for political office, she was against the debit cards before she started selling them.
Nice book review, thanks!
I agree. Too often, we just fall in line with what someone else says — because he or she is the “expert.” It’s important to question, and to look deeper. Yes, these folks might be decent people, and they might say some helpful things. But it’s vital to never forget that they are entertainers, and that they are looking to make money.
Thanks for the review! I just got a copy of Pound Foolish myself to review, I’ve only read through the introduction so far but it sounds like a thought-provoking read.
It really was interesting. And, as our friend Larry pointed out, the takedowns of gurus aren’t really anything new, but it’s still interesting reading. I also like the explorations of the how behind the ways that many of us are convinced to take actions that aren’t in our best interests.
I have read several of the reviews of Helaine’s book. The themes are the same.
I agree it’s time to change the financial services industry…there are to many credentials and to many advisors work directly for the companies that provide the products (an alignment issue). There are to many other issues to name…
BUT there are advisors that are doing it right.
They use a set of checklists and tools that create systems and processes to GUIDE clients through the planning process. By using tools and flowcharts that are created in advance it they can educate the consumer and help them buy the products and services that fit their situation and their objectives. Rather than selling them solutions.
Our observation is that the industry does not go far enough in defining the planning process. They create a skeleton for services but leave to much wiggle room. Imagine if commercial airline pilots only had a checklist that provided them with an outline of the 6 things that needed to be done when landing? No details, no exact steps…you, the pilot, decide the rest.
How many more crashes would we be dealing with? On top of that the pilot’s are sitting on the same side of the table as the passengers….if they don’t follow the entire landing procedure and checklists then they may not be home for dinner.
Financial Advisors should have to go through the same process for their family. Advisors should be mandated with a complete and thorough set of checklists and processes that the consumer should be given prior to beginning the planning process.
This was more than I intended to post but I am in the midst of writing a paper that targets this topic. Please…keep this discussion going. It’s in everyones best interest.
One thing that someone pointed out to me when I was working for a financial education company that gave solid advice – often contrary to Suze Orman or Dave Ramsey – was that these folks are actually entertainers. Sure they give financial advice, but it’s general and biased based on their experiences. Their main goal is to keep the sponsors & advertisers happy, keep their audiences growing, and sell products.
Dave might be biased against bankruptcy because he suffered one, and I have heard him give advice that I agree with as well as what seemed to me like horrible advice. For example, Dave still thinks that people are better off “buying term and investing the difference” when that old school theory has not served most people well over time.
In the end, we all need to be educated and know exactly what our options are before trusting our heard earned money (and our futures when it comes to retirement) to “the experts” who may not have even been at their jobs for that long. Which leads to another point; do some homework of your “expert”… Google can be a great resource for that.