According to Helaine Olen, many television and radio financial experts who advise people on what to do with their money are often not, in fact, giving good advice.
Olen explores this and other problems with personal-finance industry experts in terms of some of the ways they instruct Americans to save, spend, and invest in her new book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. She believes many of these poor financial tips aren't openly discussed, which she says can lead people to assume if they do everything they're told, everything will be OK. Olen says she picked up on this alarming trend while working as a financial columnist for The Los Angeles Times from 1996 to 2001.
There is no "right" financial advice, according to Olen. Naturally, some tips are better than others, but she says the belief that you can fully prepare for an economic cataclysm or bad financial luck isn't true. U.S. News chatted with Olen about why she thinks national financial tutors like Suze Orman and Dave Ramsey get it wrong, what financial advisers lie about the most, and just how dark the dark side of the personal finance industry is. Excerpts:
In what ways do you think financial experts feed people bad advice?
I think they do it in a couple of ways. The past several years for people have really been a financial Hurricane Sandy. By telling people that if they put up a few financial umbrellas and sandbags that they're going to be OK, it's just not necessarily true. And then you turn around and add the fact that all too many financial advisers are really glorified salesman brokers, and they're the ones who are selling you the sandbags and umbrellas.
Generally, the whole idea many of them try to sell that "if you do this, you will definitely be saved" is by definition a false one. If you look at the email solicitations or the letters for free lunches, it's very much "Seniors afraid about living on your retirement savings: I have a plan! Come this way!" And what their plan many times is, of course, to tell you something that they're going to make money off of.
In Pound Foolish, you assert that no one can accurately predict the future outcome of investments--that they would need a crystal ball to foresee which investments will turn out well and which will turn sour. Is that truer now than in the past, or has is always been a guessing game?
I think it's always been a guessing game. What we've been told is the stock market has gone up consistently in the past, but to assume that this is a given for the future really is not true. We learned this in 2008, when people who needed their money right then and there no longer had it.
I don't want to say it's absurd for someone to think they can predict the path of the stock market. Warren Buffett has done quite well for himself. But most people can't beat the market on a regular basis, and there's a whole infrastructure telling them that they can.
In the book, one reason you say people in their twenties and thirties aren't good at planning for retirement is that they're so concerned about their current priorities--paying off student debt, saving for a house, living in the moment. How many of them do you think would save more if they could meet their future selves?
Studies show people would save a little bit more after meeting their future selves. But most people can't save the right amount of money because they simply can't afford to. So I think seeing your future self would help, but it wouldn't solve the problem.
Merrill Lynch recently launched an online tool called Face Retirement. A person can use it to take a picture of their face and watch it render an illustration of how they'll look as a senior citizen. Do you think it would be beneficial for people to use a tool like that?
The big picture is this: More than half of us, depending on what survey you look at, are living paycheck to paycheck. And there's this assumption that we're a bunch of slacker slobs and we just need a little push or nudge to save more money. When we see that many people having a problem, I don't assume that they need a nudge--I think there's a bigger problem out there.
Looking at a picture of yourself when you're 95 years old is unlikely to get people to afford to save 15 percent for retirement. Then there's the fact that there are people like me out there, who used the tool and took a picture of themselves and then saw a frowning old woman. I basically slammed the computer off and ran out of the room.
Do people like Orman and Ramsey have good intentions, or are they looking to steer people toward purchasing their products, like the Suze Orman prepaid card and Dave Ramsey's Personal Finance Software?
I don't think people are deliberately giving bad advice, but I think we have an ability to rationalize the advice that we're giving. We're humans. People think they're doing well, and unfortunately, that's just not always the case.
Dave Ramsey, for example, is telling people they can still get a 12 percent annual profit in the stock market. That's arguably not very good advice; 12 percent in the stock market? Since when? That hasn't been true in years, or really ever.
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The other issue I would say is experts are giving very general advice, and it's really hard to give general advice. Most people's financial situations are specific, not general.
Why do you say in the book that some local certified financial planners and financial advisers lie to their clients, or at least twist the truth?
Because it's often in their financial interest to not give their clients the exact advice they need. [Researchers at Harvard University, the University of Hamburg, and the Massachusetts Institute of Technology] did a study about a year ago. They sent a bunch of actors into banks and brokerage houses with fake portfolios, designed to see what sort of advice they would get. They found over and over again that people were told to change their portfolios, even when it was completely unnecessary; that they were moved into high-fee funds when they could have been put in low-cost index funds. The only conclusion you can really draw is that these financial-services providers had convinced themselves that what was in their financial best interest was in their client's financial best interest.
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You write that people believe the mantra "If you live a good, healthy financial life, success will be yours," meaning bad things don't happen to good savers and smart investors. Do you think the book will be jarring for your readers if they're holding onto that idea?
[I think] people know objectively in their own life that that's not true. But because we live in a culture where there's such shame about money, people don't realize that it's not true for a lot of people, not just them.
Just how dark is the dark side of the personal finance industry?
There's a real dark side of the industry out there, and people fall prey to it every day. I truly feel telling a person that personal finance can save them is disingenuous at best--and a lie at worst.