"How The Personal Finance Industry Preys On The Public: An Interview With Helaine Olen"
Every afternoon on CNBC, viewers can watch Jim Cramer dispense stock advice (while ringing various bells and whistles). On Saturday evenings, Suze Orman tells her audience how to invest and save for the future. They are just two characters in a thriving industry based on telling people how best to make money and plan for their financial futures: but is that advice worth anything?
In her recent book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, reporter Helaine Olen explains how Cramer, Orman, and their ilk make huge profits for themselves while offering advice that is questionable at best. Olen got her start in the personal finance world when she ran a series for the Los Angeles Times called Money Makeover, which involved helping regular folks connect with financial gurus sort out their personal finances.
“My question was, did we mislead people?” Olen said. “That was really the genesis of the book.” As she found out, the personal finance industry is a swamp of conflicts of interest, shoddy advice, and prognosticators who profit off of the economic anxiety of everyday Americans. “These empires of personal finance sort of start up, in part, as a way to explain it all to us,” she said, and they proliferate during hard economic times:
People are desperate, and we live in this society where there’s deep shame around money, and there’s this idea that everybody should be able to make it…And so we feel very bereft and alone. Until very recently — like the past year recently — I would argue the average person really had no idea that they weren’t alone in this. The number in our 401(k)’s is roughly $25,000. That’s not enough money to get you through more than a year or two, nevermind a 30 year retirement. But everybody thought this was their individual failure. It didn’t occur to anybody that this was the average number and everybody was in on this. We’re all bereft here.
And the personal finance industry really preys on this idea that you can do it alone. And that you are alone in this. And that to not be able to do it is a personal failure. For instance, to give one very specific example, Dave Ramsey, who’s the big radio guru, has explicitly denied income inequality exists. And has told people they can choose not to participate in a recession.
“I think it really does go back to that 1980s, greed is good, we’re all the captains of our individual destiny here. The sort of sense that the government is bad for you, forgetting that Social Security exists for a reason, for example,” she said. “Previous to Social Security, if you lived to be old and you couldn’t convince a family member to take you in, you ended up in a poor house…The age of this great self-responsibility that we like to idealize really never occurred in our history.”
Olen also reserves some blame for the media, who she says have failed to adequately warn people against financial scams and instead buy into the latest nonsensical explanation for financial troubles. “My favorite example is always the ‘latte factor,’” she said, referring to the idea that someone can get rich simply by forgoing her daily coffee and instead investing those spare dollars. “The idea that the reason we’re in all this trouble is because we were buying Starbucks lattes, not because our health care, education, and housing costs had gone up at rates well beyond inflation for a couple of decades while our salaries were falling. And media just ate this stuff up, to mix our food and drink metaphors up for a minute.”
Olen’s book is a great look at how the financial industry has flourished during hard economic times, and thrives as the social safety net is weakened, leaving Americans looking for any way (no matter how farfetched) to secure their financial future. And as more and more public pensions vanish and more older Americans get pushed out of a changing workforce, the lure of easy fixes is only going to grow stronger.