Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
By: Helaine Olen
The Personal Finance Industry spends a lot of time telling us that our financial troubles of our own making. Fortunately, they tell us, they have the answers to our difficulties.
Helaine Olen strongly disagrees. In Pound Foolish, she calls out the inconsistencies and flaws in the works of gurus like Suze Orman, Dave Ramsey, Jim Cramer, and others. One example would be The Latte Factor, popularized by David Bach. Olen shows how the math in the latte factor simply doesn’t add up. And quotes researcher Jeff Lundy, “People don’t lose money in the United States because they literally spend themselves into oblivion. Spending $2 for a latte may, over the long term, add up. But it is not the direct cause. It has to be in combination with high medical expenses or losing your job or something like that.”
Which is another point Olen discusses. Those in the industry like to tell us that if only we’d cut out the streaming services or give up our Starbucks habit, we’d be much better off financially. But more likely, anything we save by not buying coffee will be eaten up by rising medical, housing, or food costs—areas where it is near impossible to cut spending.
Olen gives a small-scale example of canceling their family subscription to a newspaper only to have those savings swallowed by the rise in their medical insurance premiums. I experienced almost the same scenario last fall. I canceled our newspaper subscription, thinking we’d save $40 a month, only to have our internet service increase by $40. That. Same. Month. We can’t win. And if your family is in the midst of a medical crisis and you don’t have health insurance, cutting out Netflix at $10/month, $120/yr isn’t going to make a dent in your medical bills.
Olen also covers financial planners who deal in annuities, stocks, day trading, and the like. I’ll admit to skipping over much of that section as it was going over my head. I can’t tell you the difference between an annuity and a mutual market fund. I hope to learn. Someday.
There are also sections about retirement, financial literacy, real estate, and more.
I think one of the most compelling sections is the wrap-up of the book. Americans have been “sold on the idea that good financial habits and a well-balanced investment portfolio could compensate for stagnant and falling salaries.” Uh, yes, indeed, I do believe that is what I’ve been led to believe. It’s only been within the last two or three years that I’ve begun to understand it’s not that simple.
“In fact, there was never a golden age of personal finance…What we considered the financially responsible Americans in the 1950s and 1960s was, in reality, a golden era of corporate and government support, ranging from pensions to the G.I. Bill, which allowed veterans to go to college and buy low-cost housing at fixed and minimal interest rates. As these supports dried up, replaced by more complicated and less effective vehicles like the 401(k), no-money-down mortgages, student loans, and high-interest credit cards, our finances dried up as well. When combined with increasing income equality, the financial result was catastrophic for more and more people.”
“The vast majority of us are not messing up deliberately. Life has a way of happening.” Divorce, death, college, unemployment, health emergencies. These things “do not announce themselves in advance, and thus, are next to impossible to plan for. Even it we could somehow see our future, there would be no way to reliably invest and save up for it.”
So what does Olen believe is the answer? Well, she doesn’t have one. But she wrote Pound Foolish in the hope that we would begin an honest conversation about what is really the cause of our financial difficulties. Spoiler: it’s not the latte.
What is your favorite financial book? Let me know in the comments as I’m always looking for more good books.