A Conversation with Helaine Olen About the Dark Side of the Personal Finance Industrial Complex

Helaine Olen spent several years as a personal finance writer and editor, beginning at The Los Angeles Times in the ’90s where she was the newspaper’s “Money Makeover” columnist. Over time, she came to the understanding that nobody in the personal finance industry really knows anything beyond very basic and common sense suggestions (i.e. live within your means). Olen says its empowering to learn how to manage our own money, but personal finance gurus like Suze Orman, Dave Ramsey, and Robert Kiyosaki, and networks like CNBC can’t tell you how the stock market or real estate will perform in the future, but are making a killing doling out conflicted advice and selling us complex financial products. This is just a small part of what’s wrong in the industry.

Olen’s book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, has been making waves since its release in January, and has received positive reviews, including praise from Jon Stewart, who had Olen on The Daily Show in February. “You guys should do an article about how Jon Stewart is the new Oprah,” Olen told me when I met up with her earlier this week. “Books really do sell. You could see the Amazon numbers after the taping—it jumped from 4,600 to number 22 in a day.” Here’s our conversation:

 

I thought your book was really terrific, and have been telling everyone to pick it up. I started my career covering politics in Washington D.C. and didn’t really think about personal finance until I started writing about it a few years ago. I remember picking up a few personal finance books to get myself acquainted with how it was being covered and not really being able to connect with a lot of the information. I don’t know a single person who decided to give up their coffee habit to fix their financial lives. I get a cup of coffee from Starbucks almost every day and I’m doing okay.

You know that’s part of the conclusion to the book that money advice is shrill, judgmental and absolutely oblivious. Just because David Bach can give up his lattes—which, by the way, I doubt, since he was profiled at a dinner party in 2004 ordering up food from Dean and Deluca, and I don’t need to tell you how expensive that is. It’s just oblivious.

 

And to be clear, you have no problem with common sense advice. Knowing how to manage and invest our own money is a good thing. But you also point out that pushing this idea that people aren’t saving enough or are spending too much money on lattes distracts us from the bigger things. For example, finding affordable housing and negotiating a bigger salary will do so much more for you than quitting your coffee habit.

What’s coming in is more important in one sense than what’s going out. We have this myth that we’re massive over spenders—and we have it for any number of reasons. I think in part because it can certainly seem that way. As I always tell people, you see me in a restaurant, but you probably won’t see me at a pharmacy getting a prescription, which is where my money is really going. It seems that way because relative to what it used to cost, things are much much cheaper. As I was pointing out to someone the other day, I don’t think in non-adjusted inflation terms that I could have gotten a T-shirt for $4.99 in 1971 down the street like I can right now. Stuff’s cheap and people buy it. And our salaries are falling—of course people aren’t saving money. There’s this whole idea that people are going to respond rationally—their salaries are going to fall and they’re going to save money. It doesn’t work that way. Certainly not in a society where your cost of health care, housing and education are skyrocketing.

 

Right, and the biggest reasons people get into deep financial trouble is not because they’re not saving properly, but because of these enormous costs associated with housing, education and health care, or a spiraling economy that results in job losses.

Could we all save better? We probably could. But it’s not what’s causing the problem. As I like to point out, in 1980, we had a 10 percent savings rate. I guess I find it hard to believe that in that 33-year period, we became collectively more financially ignorant and more irresponsible—that just defies reason. In fact, when you look at it, what happened was our salaries fell and our financial lives got more complicated. You hit a one, two. I was born in the mid-1960s when credit cards were less than 10 years old. Married women had no right to one, by the way, and wouldn’t for another decade. There were no retirement accounts and no ATMs. I swear, I remember when the ATM machine came to the Citibank on Nostrand Ave. in Brooklyn—it was really exciting! No gotcha mortgages—mortgages were very basic stuff. Second mortgages were not sold by the banks to people, or they were something you were supposed to be really embarrassed by because if you were desperate for money and got one, you never came out in public and said, “Hey I got this really cool thing, and look at the kitchen I redid!” It was just a different financial world.

Then there’s a turnaround where you blame people for the fact that the financial world changed on them. It strikes me as delusional at best, and outright wrong at worst. The banks had this idea that they’d invented all this stuff and gave people all these goodies, and we’re going to educate everyone on how to use them, and I actually don’t believe that. I think they know they’re not educating people on how to use their products. It’s not possible. And it became more complex, and at the same time, we needed the stuff, and by the stuff I mean yeah, people felt they needed to buy a house because they were told—well, they weren’t told not to buy a house beyond their means. Do you remember anyone saying that 10 years ago? Because I sure don’t. What I remember was, “If you don’t buy today, prices are going to go up tomorrow and you’re not going to be able to afford it, so here get this mortgage, and don’t worry, you’ll be able to refinance because housing goes up.” And this is what people were told over and over again: Housing doesn’t go down. You can go back and look at the literature. People weren’t saying, “You know, housing could go down, and it could go down by 40 percent. That nationwide crash? It can happen.” So, there’s this kind of obliviousness out there, and I think it’s in a lot of people’s interest for that obliviousness to exist.

 

So let’s talk about some of the financial gurus you discuss in your book. Suze Orman is one of these people who told people to run out and buy houses, and after the crash, she apologized and admitted that she was wrong. And you talk about this when it comes to people’s personal financial planners. They’re often wrong, but people will continue to listen to them. Why is that?

There’s a couple of things. These people present themselves as your friend for the most part. They’re not coming up to you and whipping you, at least, not initially. So that’s part of it—they’re going to give advice to you for your own good. Suze Orman is like the Jewish mother of personal finance. Second, we’re Americans and we want to believe! Personal finance exists in other countries, but it’s nowhere as big as it is here. And the reason is, objectively, we have some very deep income stagnation, we have huge disparities of wealth in this country, but people actually don’t know it, or don’t believe it if they’re told it. I’m sure you linked to that video last week that was on the PBS News Hour last year. And people don’t believe it. They think we’re Sweden, when in fact we’re actually Argentina or Chile. People are really sold on this idea that we are individuals in this society and that individuals can make it.

So, there’s this kind of obliviousness out there, and I think it’s in a lot of people’s interest for that obliviousness to exist.

We’re not making it. So this culture of shame develops where people don’t want to admit that, “Oh I was born lower class and this is where I’m likely going to stay,” or “I’m really wealthy because I was born in Chappaqua”—to use a Bill Ackman example—and obviously he did a lot better than his parents, I feel sure about that, but he’s nonetheless, starting from a pretty high base to begin with. And we don’t like to admit to that in our country. So this industry really comes in and preys on that and the idea that we’re all individually responsible for our fate. We believe the myth of Horatio Alger in this country, but Horatio Alger wrote fiction. So it becomes this whole ideology where we’re sold on this idea that we can do it and we really believe this. We take a look at the economic situation out there, and we objectively know it’s pretty bad, but we internalize it as our own fault—and, because it’s our own fault, we’re pretty sure that there’s someone out there whose got the answer.

A number of people I interview in the book just fell for things again and again because they were so sure they could trust that somebody had the answer. I remember talking to one woman who was up in New Hampshire where she was just recounting to me these things: “Well, we were doing this, and then we went to this salesman at this free lunch and we hear that, so we put our money in that. And that didn’t work out.” And the advisor fired her after she started asking questions. And then they go to somebody they met through a church, and that doesn’t work out, and so on down the line. The reason it doesn’t work out is because if someone had the financial answer, would they come to either Mike or Helaine who could pay them maybe a couple thousand bucks, and say, “Hey, I got it!” or would they go elsewhere, say maybe Bill Gates, or even better, screw him entirely, get on a boat, hang out on the Caymans and start trading away happily because they don’t have to pay any taxes or tell anyone what they’re doing? So the idea that anybody out there is selling you the secret is absurd on its face. But we believe. And then we have things like CNBC, whose entire being is to convince you that they have answers. As I say in my chapter on CNBC, if Jim Cramer were saying, “You need to get out of the game!” they’d have no business model.

 

Another thing about “gurus” like Suze Orman and Dave Ramsey, as you point out, is that they’re trying to convince you that they were just like you once, and look at how they’re doing now! Suze Orman was once a waitress, and as the story goes, she really had to fight her way to success. Dave Ramsey bounced back from bankruptcy. And as you say, Orman and Ramsey did not become wildly successful because they saved better or invested smarter than everybody else—they became wildly successful because they were able to sell themselves and their products to people.

The whole genre of self-help depends on the story. It’s like almost being born again. You know: “I had my moment.” Suze has her moment with a waitress when she realizes the waitress is richer than her, and Dave Ramsey has this moment when he has to tell people that debt is bad. They’ve got the story, and people like that moment. And so we don’t ask the questions. And Suze Orman, to be fair, was a successful financial planner. She obviously had an ongoing business. Dave Ramsey was definitely in bankruptcy when he started. But we want to believe. And one of the things I find fascinating is the conflict of interest in their work. I work in a field where if I accepted coffee from a source, I have editors who could get quite angry at me. But people will say, but Suze and Dave need to make a living. First of all, do they have the right to make a living selling you conflicted advice? And second, Suze Orman’s got $30 million, doesn’t she already have enough of a living? What are you talking about? Dave Ramsey is worth lord alone knows what. It’s a conflict, and a basic conflict, and I don’t think they cop to it. Certainly Ramsey doesn’t. He still goes around telling people that you could still get 12 percent annual returns in the markets, and if you want to know how to do that, Dave has his “Endorsed Local Providers”, and you can go to them. I mean, you’ve got to be kidding. There’s no way to do that, that I’m aware of. There wasn’t a way to do that back in the ’90s during the bull market. You might have a year here, and a year there, but to plan on that is just absurd. And it’s not right. But people are scared, and they want to believe.

 

And to be fair to Suze and Dave, they’ve actually helped a segment of people who needed to be taught how to live within their means.

Yes, because certain people do need to be told very basic things. But that’s always true. I find it hard to believe that wasn’t true in 1980 or 1960. John D. Rockefeller’s father was a deadbeat, go look it up. So was Charles Dickens’s father. We’ve always had this issue, right? Mary Lincoln spent a lot more money on clothes than she should have when her husband was president. We’ve always had a certain percentage of people who do this. I don’t believe we have more than we used to. To the extent it’s easier—there’s credit—but that doesn’t mean that we’ve suddenly all lost it. And I think what these people are cautioning, is that that’s indeed what happened.

 

That we’ve somehow lost our way.

We lost our way. We used to live like the Waltons, and we had a house together. But the fact is that old people had this distressing tendency to end up in poor houses. And people who lost a parent were often placed in orphanages, and that was common basically up until Social Security. We have this false image about the past. Things like Social Security developed for a reason. They happened because we needed them. Someone didn’t wake up one day and say, let’s let people be irresponsible and not let them save for their retirement.

 

Let’s talk about retirement. The way we save for retirement now is a pretty modern invention in that it’s something we’ve tried doing just in my lifetime. As you mention in your book, with the 401(k) we sort of lucked out that it came into being during a time when we had a market boom in the ’90s, which generated an extraordinary amount of money. And then the crash happened, and people who were about ready to retire lost an extraordinary amount of money in their 401(k) accounts, which really shook our faith in the 401(k) system, which may not have been what it was if not for how the markets were when we started it.

It’s one of the great imponderables: Would this have happened the same way? You don’t have the answer and I don’t have the answer, but yes, it coincides with the great bull market. So you see this: “You know my little 401(k) is going to make me a millionaire, it’s the Little Engine That Could. Just keep putting your money in and—ka-ching—40 years later you’re going to be fine.” But there’s no comprehension that first, half the population didn’t have access to any of this stuff, that second, this wasn’t inevitable, and third, people believe this contradiction that market gains are inevitable and that their investing genius is responsible for their success, which of course made no sense.

 

And yet, this is the world I was brought into as a working adult: Hope that your 401(k) does well, and hope that your company offers you a match. What’s the alternative? Is there one?

If I knew the answer, I wouldn’t be writing this book. But there are a lot of different ideas out there. And I think, for me, this is why it was so important to talk about it. Because the conventional thinking right now is, well, we’ll go with the 401(k) because the pension system didn’t really work because a lot of people weren’t eligible for them, and companies were going bankrupt offering them anyway. Ellen Schultz actually disproved that one in her book Retirement Heist, which if you haven’t read, you should and do an interview with her.

Second, just because something didn’t work doesn’t mean the thing we have now that’s not really working should be kept, is my position. And you have to start from that premise. Most people don’t want to start from the premise that if something doesn’t work, we’ll just say we don’t have anything better. The first step to getting something better is to say it’s really not working. Suze Orman could probably tell you this. You have to have this moment when you recognize what’s going on. My moment is realizing that this is not working. We’ve had 30 plus years—if it was going to work, we’ve would have figured it out by now. And we’re starting to see things like the guaranteed pension plan, which is what California is looking into a version of now. You start to see things like in Australia where there are mandatory 9 percent contributions and employers are also responsible. England is moving in a similar direction. We’re concerned about fees, and well, England is banning commission sales, which is one way to knock out a certain percentage of conflicted advice. We need to start asking, “This isn’t working. What else is out there?” That’s the first step, and you go from there.

And that’s the thing Occupy sort of got, whatever people think of Occupy, and obviously I was a supporter to some extent, but they kind of got this idea that you have to get out there and say what’s going on. They were the first group that I know of in 30 plus years to take this instinctive leap that nobody else seems to have made. It’s astonishing to me. It was like, “Hey you have student loan debt, my house is being foreclosed on, he’s about to go bankrupt from his wife’s medical bills—maybe we’ve got a problem here.” And that was an amazing leap. And we’ve seen a change in the political discourse since that’s happened. It was extraordinary. A problem was being articulated. And of course “the 99 percent vs. the one percent” was just brilliant.

You need to begin to talk about this, and say what is right and not right. And what’s not right in my view—and I say this as someone who generally doesn’t like to judge money—is this idea of hectoring people about what they’re doing wrong. It falls into the, “if it was going to work, it would work.” It’s also offensive. There’s this disconnect where you see these people on television, where they’re wearing designer suits and they look quite wealthy, and they’re lecturing people on having smartphones. Smartphones have become the latte of our time, I’m convinced of that. Smartphones and premium cable channels are the new latte factor! It’s this bizarre combination of this Ayn Rand self-determination, “well, I made it, I’m better,” followed by this weird Victorian morality trap. There’s an oblivious factor, and it’s kind of offensive. I always think of the scene in Jane Eyre where she’s at the orphanage, and a guy comes in dressed to the nines and he’s bitching out all the little girls because all their hair are done up. It’s the same sort of thing, and yet we read Jane Eyre, and think, “Oh this is terrible, we’d never do a thing like that.” And of course we do it. We all do it, by the way, none of us are immune.

 

There were a lot of surprising things for me in your book, but one of the biggest surprises for me was discovering that financial literacy does not work. Let’s teach people when they’re young how to stay out of trouble! But as you say, the data shows that it’s just not working. One of the reasons why it’s not working is because financial literacy is usually supported by the financial services industry, which sounds good at first, until you realize that the financial services industry also lobbies against legislation that would make their products easier to understand by consumers.

The chapter on financial literacy broke my heart. The whole chapter started from one sentence from my book proposal: “I think in discussing some of the financial gurus—there is this explosion of information—yet the survey data shows that our financial knowledge had not moved the needle. What was going on?” I didn’t answer it in the proposal—I thought there was an answer! I start looking into it and thought, “Helaine Olen is going to discover why financial literacy doesn’t work—hah!” Well, yes, I did, and so did other people, and the answer is: There was no financial literate time, there was just less financial knowledge to be had. So by definition, a lot of people seemed a lot more financially literate in 1950 when you didn’t have to know what a gotcha mortgage was, or, to use a stupid example, you didn’t need to know how to use an ATM, so you didn’t need to know not to take out too much money from an ATM, because it didn’t exist. There’s no Golden Age of financial literacy.

So we’ve got this whole establishment saying, “Oh we’re going to teach people financial literacy.” And to be fair, hey, maybe there’s some way to do it at some point, but as of right now there hasn’t been any evidence that anybody has been able to do this. If you look at the data for other countries, the differences are marginal. There’s no country out there where you’ve got this incredibly financially literate population. That should probably tell you something right there.

…a lot of people seemed a lot more financially literate in 1950 when you didn’t have to know what a gotcha mortgage was, or, to use a stupid example, you didn’t need to know how to use an ATM, so you didn’t need to know not to take out too much money from an ATM, because it didn’t exist. There’s no Golden Age of financial literacy.

Second, there’s a cluelessness factor—most people aren’t terribly interested in this stuff and are never going to be terribly interested in this stuff. It’s like going to a party and you run into a train aficionado (which I am) and they start talking and talking and your eyes begin glazing over, but they’re convinced if they keep talking to you you’re going to understand why it was really important that the Q train used to be called the D when Helaine Olen was growing up in the 1970s and the 1980s—and of course, you’re never going to give a shit. And people think because money is more important than that that it’s going to work, but guess what, it doesn’t.

And you have another problem coming in which is the most insidious of them all, which is who is supporting all of this? And the answer for the most part is not nice, general disinterested parties. This is an industry that is brought to you by the financial services sector. And you’ve got to think at some point, wait, so if this isn’t working, what’s going on here? And well, if you can say, “I can educate people to read a complex mortgage application, and maybe I won’t have to give them a plain vanilla one like they tried to get into Dodd-Frank,” which got rejected by Congress. So who is financial literacy really working for? Of course, if you want to be really cynical, financial literacy works quite well for some of the parties promoting it, but not for the reasons you think.

The final part, is that it sounds wonderful, right? How can you be against financial literacy? It’s like coming out being against teaching math, or apple pie. And the answer is on one level, if you want to teach it, whatever! We get taught all sorts of stuff in school. But that’s not what’s going on here. What they’re saying is that they’re going to teach it and it’s going to solve all this other stuff, and that’s just not true. The idea, in fact, when you think about it, that you could teach somebody about all of this stuff and assume that 20 years out they can read the prospectus for a product that might not have even existed at that time—it is absurd. And even if it did exist, it’s borderline absurd because think of all the stuff we learned in high school that we have no memory of now. The example I like to use is, “Tell me what the French and Indian War was and why it was so important to the American Revolution.” And everyone gives me these blank looks. If you’re not going to remember the Pythagorean theorem, how much will you remember of financial literacy? It just doesn’t work. I wish it did. The world would be a much better place if it did. And I feel like such a crank saying that.

 

Because the financial services industry has convinced us that we can only manage our money if we know how to use their products. And it starts right when we hit college.

I moved a couple of months ago and found this huge stash of files that we had to trash from the early 1990s, and we had all the checks to the supermarkets in Los Angeles. Because the supermarket didn’t take credit cards! And if you didn’t have cash, or the ATM was closed, you had to write a check. It was a different world. There’s no reason why people in college need credit cards.

 

But the financial services industry wants to convince them that they do, because they show up at college campuses, put out their tables, and convince you that you need to start building credit.

Why do you think they do that? That’s what I mean! And I feel like the meanest cynic in the world sometimes. So again, legislation is a huge thing. You probably also need campaign finance reform. And that’s one of the things I have in the book. You’d find these people, and they’d be fighting against quite reasonable reforms, and then you go look to see who was giving them money at Open Secrets, and you go, “Huh. How intriguing.” Of course that’s part of the problem. The financial services industry gives huge amounts of money to people in Congress.

 

Let’s talk about women and money. You have a chapter dedicated to the way women are specifically marketed to, and how they’re convinced they need help with their money to make their financial lives work. “Stop shopping so much!” they’re told. And again, that kind of discussion distracts from the big picture, which is a lot of the problems women have around money are because of things like pay inequality, or a lack of employer-supported maternity leave.

First of all, women are presumed incompetent and men are presumed competent. You look at the data and there’s really no difference: Both sexes are really equally financially incompetent. The kicker to this by the way is that men tend to get into more trouble because people who think they know more than they do actually are more likely to get into trouble. Women tend to ask more questions which seems to help them.

But women’s financial issues can really be explained not by the fact that they’re financially ignorant and going to the Barney’s warehouse sale. It’s because women earn less, have more responsibilities and live longer. One. Two. Three. There’s no epidemic of single dads out there. Nobody’s talking about, “Oh my god, these irresponsible single dads—how did they get themselves into this?” Women, by definition, even if they’re the most fiscally righteous person—they’re going to have a harder time pulling this off than men. If they’re earning less, have more responsibility, and living longer, this is not a point of contention. But it is. So the financial services industry has this issue about how they’re going to market to women, and so they say it: “You’ve got all these responsibilities and you work so hard, but you need to save more money, and then come to us and we’ll help you.”

Women’s financial issues can really be explained by not the fact that they’re financially ignorant and going to the Barney’s warehouse sale. It’s because women earn less, have more responsibilities and live longer. One. Two. Three.

The other part of this with women is there’s this weird language—it’s almost like simultaneous empowerment and infantilization. Men are presumed competent, but they’re also—just so you don’t think I’m overselling this—they’re also presumed incompetent and get sold on all the shit like The Money Show, and day trading schemes, futures trading, etc. This is a man’s world, and it’s not good stuff for the most part—understand that. Most people would be better off shoving their money into an index fund and moving on with their lives. But women are presumed incompetent, and it’s just not true. The data on women as spendthrifts is pretty nonexistent. Women do spend more money on clothes, but then on the other hand men spend more money on liquor and electronics and cars. We don’t talk about that.

 

And as some of the data shows in your book, it’s not that women aren’t fighting for themselves in the workplace. Women who ask for bigger salaries can be penalized by not being hired. It can be a very difficult thing to navigate.

So, after you wrote this book, did you change anything in your life?

Yes and no is the answer. I tend to get more enjoyment on what I spend now. But on the other hand, you think, oh god, you wrote this book, you either pulled all your money out of the stock market and buried it in the backyard. No. Or you’re really saving for retirement. And I am, but no more than before. It left me with this appreciation of how short life can be and how you do need to plan and be responsible—things don’t always work out. And, that had a more powerful impact on me than the fear of living in penury when I’m 90. I might not make it to 90. And I might regret that when I’m 90. And here’s the difference between me and Suze Orman: I understand this. I get the tradeoff I’m making here.

It didn’t change me as much as I might have thought. It gave me an appreciation of how uncertain things are. One of the things I really did learn that surprised me was that this whole idea of the stock market as this sort of guaranteed idea, for lack of a better phrase, which might not be true. Which makes instinctive sense. If you ever go to a geneticist, for example, about issues, they will tell you that they cannot be sure—at least this was true when I was looking at stuff when I was pregnant—if something really runs in your family for up to five generations. So why should someone be able to tell you about any certainty in the stock market? Just because you roll the die and keep getting double sixes, it doesn’t mean it’s going to happen the next time. That surprised me a lot, but it didn’t really change what I did.

I also walked away with this fundamental understanding that just because the stock market can crash tomorrow—and of course everyone thinks the stock market it going to crash tomorrow, right, it’s the recency effect, we all think history is going to repeat itself—one of the things being sold to people is—say that guy over there is a stock broker—”he’s got the secret.” Right? What he doesn’t say is that he could lose you more money that the stock market could lose you. We all assume if we’re going to buy it, we’re going to be the ones who figure out the trick that makes more money, so if the stock market loses 40 percent, we’re going to be fine when in fact, you can invest with a guru who loses you 80 percent. That doesn’t often occur to you because again, Americans are optimists. We don’t think that way. I think that way. I decided I’m going to stick with index funds.

 

This has been a fascinating discussion, and I really don’t want it to end. But one final thing. The last chapter of your book is about how we need to talk about our money. Occupy was one way to talk about it. Our entire site is devoted to the idea that we need to talk about money—all the good things and bad things and really ugly things. We encourage everyone to share their stories. And we post things like videos of Elizabeth Warren really going after the banking industry. And then—what comes next? What can we do in the face of these injustices? I suppose call and write to our politicians?

I say speak about it. Write about it. Talk about it. On a minor level, people ask, what can you do for you finances when you go to a financial advisor? Here’s a really easy one: Ask if they have a fiduciary duty to you. And people are like, “What are you taking about?” Ask if they have a legal duty to act in your best interest. Most people won’t do that. And people ask, “That a step?” Yes, it’s a major step because the industry is fighting really hard that they don’t need to have that for you. 401(k)s have fiduciaries. IRAs don’t always. Brokerages and broker dealers almost certainly do not. Basically, you’ve got to ask. That’s something you can do on a personal level.

On a bigger level: Be angry, be out there. When Occupy happens again, show up because it might help. People don’t know quite what to do. I guess I have a lot of faith that if you keep putting videos up like that, and I keep talking about this, and other people start talking about it, then something will eventually change. Because if enough people start talking, the status quo won’t hold up under those circumstances. I don’t know how it will happen. And I’m not a social activist in that way—I tend to be a very analytical person to a fault, and I admit that. That a lot of people realized that there is a problem after reading my book, that’s a step. People realized they had a problem, but I think they used to think it was an individual financial problem, and it’s clearly a collective one.

 

If you liked this discussion, you’ll love Helaine’s book, so pick up a copy, or borrow it from the library. (Find it on: Amazon | Indiebound)

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20 Comments / Post A Comment

SUCH a great discussion. The book sounds fascinating. It’s funny, I nod along in agreement about how we need to be more open about money-related issues, but I nearly posted a comment the other day that would have given away how much I earn, and I freaked out and didn’t post it. The idea that it’s not polite to talk about money and how much you earn is so deeply ingrained in me.

Much more to say but I don’t want to go on, particularly as I just agree with so much in the article. I’m going to go read the book, get riled up, and talk the ear off any friend I happen to see in the next few weeks about it.

The media elites first told us households should behave more like big banks, then that today’s big banks should behave more like yesterday’s big banks, and now that governments should behave like households, no wonder people are confused.

cryptolect (#1,135)

Can Helaine Olen be my personal finance guru? This was great and I am really looking forward to reading her book! Though I am worried about neck strain from vigorously nodding along.

highjump (#39)

I totally agree that technology gets outdated very quickly, but I think that only underscores the need for a financial education. Less vo-tech and more liberal arts style if you will. The ‘live within your means’ message should start before people are actually earning real wages. Tracking your expenses and simple budgeting will never go out of style. Comparing prices and marginal utility probably will stick around as well.

I think American schools should focus more on teaching critical thinking in general. And I DO remember the basics of the French and Indian War and the affect on the Revolution. If I wanted to know more I could find out because my lovely high school history teacher also taught us research skills.

EM (#1,012)

@highjump Yeah I think those skills would be great to teach in school– I think people would forget abstract financial theory, but teaching kids what an interest rate actually means, or how to plan a budget, or about student debt and salary expectations (there was this article about how high school kids in BC think they’ll all be making $90K by the time they are 30) would be so useful. No teacher or counselor ever mentioned student loans/debt in my high school when talking about university. And I attribute part of the reason I’m so vigilant about paying off my credit card every month is because it was drilled into me by my parents, and I retained it.

sea ermine (#122)

@Michelle It would also be really easy to fold into other classes. I remember once in a high school math class (possibly calculus but I’m not sure) the teacher used credit cards as an example for something he was teaching us and ended up not only explaining whatever mathematical concept it was that we were learning but also why paying less than the minimum will screw you over and why paying more than the minimum will save you money (he then added as a sidenote that paying it off in full is the best way, but that wasn’t part of the math problem).

@highjump That’s the point though, “spend less than you take in” is fine in theory, but if you take home $900 a month and your rent is $650 you’re still probably going to have a problem, especially if an unexpected expense blows your budget.

@highjump Also the “financial literacy” classes supported by the financial industry are pretty much exactly like the quit smoking ads funded by the tobacco industry — they’re designed to head off additional regulation without cutting into profits too much by actually making their products fairer/easier to understand/less addictive.

amirite (#2,677)

@highjump I went to high school in Alberta and we had to take a Career and Life Management class in grade 11. Here’s what I remember learning:
-buying a TV or whatever on store credit is a bad idea
-groceries cost more if you get them at the 7-11 (they made us do price comparison by going to a convenience store and a grocery store)
-credit cards: not great (not as bad as store credit though)
-how fill out a cheque

Did it work? I still have credit card debt. I understood what I was getting into, but not how that would feel or what it would mean for my life. Same with making a budget: they gave us an exercise with a hypothetical income, rent, etc, and we had to create a budget around it. It’s one thing to say “well, there’s only this much for groceries,” and write that number down, it’s another to actually try and live off that much. And that was my problem with budgeting for a long time, I’d make up a number that seemed reasonable, not be able to achieve it, and then stop even trying to stay in budget because why bother? It took me years to get to the point where I could track my expenses and accurately predict what expenses were upcoming and figure out how much that left over for the fun stuff.

So it probably helped a little bit, but I still had to live those experiences to understand the impact they would have on my life and the choices available to me.

Oh, this is fantastic. Thank you both for doing this interview. I heard about Helaine when the book came out and have been meaning to pick up a copy ever since. I think I will move that up the to-do list.

SterlingCooper05 (#2,529)

Wait a second…since students don’t remember the details of the French & Indian War, it means that they won’t retain the basics of personal finance? But yet, she recommends that we talk about money more. Which one is it? Personal finance needs to be taught in school for kids to have a basic knowledge of something (money) they’ll use every day of their adult lives. Kids need to know how to balance a check book, how interest works, etc. Most kids learn about money from watching their parents. There needs to be another personal finance role model for kids, especially for ones that have bad examples for parents. Many kids would love to learn about this stuff given the opportunity.

Sloane (#675)

My parents were really good at teaching my lessons about personal finance. My father was especially good – he taught me to put away 10% of my allowance, and he helped me open a savings account when I was a kid so that I could make deposits when I had enough. My parents were also religious, so tithing was expected. Then, when I got my first job, my dad encouraged me to contribute another 10% to retirement. When you add all this up, it meant that I was living within my means for my entire life, without ever really knowing that that was what I was doing. That’s the best way to learn personal finance.

I had a couple of financial planners pursue me as a client when I finished graduate school. They looked over my budget (still saving 30%!), and they were really impressed. In fact, they really couldn’t sell me an of their products because I was in good shape already. I don’t need life insurance because I don’t have a family, and I do all of my own planning, saving, and investing. Oh yeah, and I’m a woman.

Mrs. Beeton (#320)

Wait, what’s an Index Fund?

whimseywisp (#220)

@Mrs. Beeton I had to look it up, too! Wiki says, “An index fund or index tracker is a collective investment scheme (usually a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. As of 2007, index funds made up over 11% of equity mutual fund assets in the US.”

fennel (#2,494)

@Mrs. Beeton
Wimseywisp is right. Index funds are the type of funds where you are most likely to actually make money because they are not actively managed — they are just a portfolio of funds that were designed once to mimic an index, like the S&P500 or the Russell Small-Cap. — which means that they don’t need to have a manager — which means that fundholders pay a tiny or no fee. Any fund that, by contrast, is actively managed, is taking a part out of whatever profits you made to pay for the manager who is managing the fund. Since funds already have to make more than the rate of inflation to make the real value of your holdings increase, people usually don’t make as much money as they think they are making on investments. This becomes extra true when you realize money gets taken out to pay a manager, if the fund is actively managed and not an index fund.
signed, another lady

fennel (#2,494)

@fennel
p.s. i hope that was clear — these things are awfully dry-sounding, i know.

but studies have been done many times, and very few managed funds ever beat the market in the long run. index funds echo the market, or a particular segment of the market. index funds have extremely low fees because not actively managed. ergo, index funds are a relatively good bet.

It used to be that most major institutions invested in S&P 500 index funds. I don’t know if that’s still true — it started changing when so many people followed suit that the S&P index funds started to get out of step with the market because of the distortingly large number of people investing — but they are still a pretty great first step for investing.

I learned this stuff after getting incredibly condescended to by financial planners who used to just suggest they take automatic control of my savings every time I met with them, as if that conversation had never happened before — it was an automatic reflex for them as soon as they met me or heard my voice, and it seemed incredibly gendered. As well as an incredibly bad idea. Bankrate.com is a reliable place if you want to learn more about this stuff on your own.

Bunburying (#3,481)

I want to go to a party with Ms. Olen and talk about the Q train with her.

whimseywisp (#220)

This was absolutely fantastic. I guess I have to say I do believe in cutting down on things like overpriced cable, coffee, and smart phones: we don’t NEED those things. I’d rather pay a little for Netflix, make my own coffee exactly to my specifications, and have a basic phone, so I can have extra money to eat better food and travel. Studies have shown that spending money on experiences instead of stuff you don’t need makes you happier in the long run, and I’m a big believer in that. Saving money, paying off credit cards, having good credit in general – all of that was really instilled in me by my parents, and I’m so grateful. I can’t wait to read this book!

scn231 (#1,705)

Thank you so much for this interview, it is fantastic. When the billfold first started up I was waiting for it to come into its own, and I think you really have by tackling these harder/bigger questions, as they’re applicable on a person level. More please!

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