Recent Items

Lynn Parramore: Everything You’ve Been Told About Personal Finance Is Dead Wrong — Here’s the Truth

Posted on by

By Lynn Parramore, senior editor at Alternet. Originally published at Alternet.

Can’t save enough? Worried about your retirement? The personal finance industry is ready to prey on you.

According to Helaine Olen, the lion’s share of financial advice served up by so-called experts is useless — or worse. In her must-read new book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, she reveals that to think about money soley in a personal sense causes us to miss the problem. I caught up with Olen to discuss her take on what we’re missing, and how to think better and smarter about our financial lives.

Lynn Parramore: Why does America need a book on the personal finance industry? We’re messed up about money, right?  Don’t we need help?

Helaine Olen: We need help, but not the way we think. In a society where salaries have stagnated and fallen, net worth has plunged, even as the costs of things like healthcare, housing and education have gone up at rates well beyond that of inflation, it’s not surprising most of us have financial problems. But most of us still don’t see that we have a societal problem. Instead, we listen to people and organizations that insist our problem is an individual one. As a result, we gobble up books and television programs that offer us the promise of the magical tip that will allow us to fix all our financial woes. Of course, that’s not really possible. So … enter Pound Foolish. You can think of it as the anti-personal finance advice personal finance advice book.

LP: What are the biggest factors that have contributed to our current retirement crisis?

HO:There are so many factors contributing to the retirement crisis it is hard to succinctly list them all. But once upon a time, a majority of us at least had the possibility of receiving a pension when we retired. That’s no longer the case. We’re now expected to do this on our own. And, frankly, most of us aren’t capable of this task, and we have 30 years of evidence – that is, the lifespan of the 401(k) – to prove this fact. We do everything wrong we possibly can. We are unable to save enough money and we don’t invest it well. At the same time, we lack the crucial ability to see the future. We don’t really know when we will retire and why that will occur. We don’t know if our investments will pan out. We don’t know how the greater economic environment will either play out or interact with our lives.

I was reporting on this stuff 15 years ago and I can tell you just about no one said anything like “oh, by the way, you’ll need more than $200,000 just for medical expenses in retirement.” It’s just unfair to expect people – who are not financial experts – to be able to pull this off. The fact is Social Security and other such schemes were created for a reason. There was no imagined past where people saved up for their old age. As the family farm gave way to urbanization and industrialization, old people had this distressing tendency to end up in workhouses – which were as Dickensian as they sound – if they couldn’t convince a relative to take them in. And many couldn’t. Yes, the rates of intergenerational living were higher than they are now, but it wasn’t all The Walton’s.

LP: How does the industry prey on our fears about our inability to save and plan for the future?

HO: We can’t articulate that for all too many of us our problem is not an inability to manage and invest money effectively; it’s that we’re expected to do more and more with less and less. So we think we are individually messing up, that we lack the financial skills and smarts to get ahead. The financial services industry presents itself as our savior. But by doing that, it has to confirm our cultural bias that we are alone responsible for our financial fates.

You see this dynamic especially in personal finance and investment initiatives aimed at women, which contain an almost odd mix of the language of empowerment and infantalization. They tell us we are women, we are so strong because we do so much more around the home and work than men, but yet we are financial illiterates who have no clue. In fact, both sexes have low financial knowledge. Men have more money than women for the most obvious of reasons: they earn more.

LP: You mention the work of economist Teresa Ghilarducci, “the most dangerous woman in America.” Who is afraid of her and why?

HO: It became very clear to me while reporting this book that Teresa Ghilarducci had hit a nerve in the financial services sector that no one else had. The reason, to me, was obvious. Most other people discussing retirement reform schemes (Auto IRAs, Save More Tomorrow and the like) were talking about expanding the role – or at least the bottom line of — the current dominant players on the retirement scene. I mean the retail brokerages, the 401(k) plan providers, the dominant mutual fund companies and the like. Ghilarducci’s Guaranteed Retirement Accounts calls BS on this model. First, she points out how much money the current retirement is making on what we think is our money. Second, her model would bring new players in and I mean new, powerful players – state pension funds, institutional investors, and hedge funds – into the game.

LP: Media figures like Suze Orman, David Bach and David Ramsey tell us, “Follow my advice and everything will be OK.” Why is this promise a lie?

HO: All of these people are in the business of selling simplistic solutions to complex problems. Should we live below our means? Of course. Is it always possible to do so? No. It’s not easy to live within your means if your means are a $300-a-week unemployment check. As if that were not enough, some of the advice they are purveying is flat-out wrong. Our financial woes are not the result of spending our funds on lattes and other small luxuries, like David Bach says. You can’t choose not to participate in a recession, despite what Dave Ramsey thinks. Personal finance can’t do it all for us.

LP: You write about the financial literacy movement, which, on first glance, looks like a helpful educational crusade. How has it conspired to make us poorer? What does it mean that big banks like Capital One promote it?

HO: Financial literacy classes sure sound good. But students who take the classes don’t seem to retain much of the knowledge. And, when you think about it for a moment, that makes sense. The idea that taking a class on how finance works at the age of 17 can save someone from a predatory 100-page small-print mortgage when they are 40 is just preposterous. Don’t believe me? Tell me how the French and Indian War contributed to the American Revolution. See what I mean? I swear that was taught in your high school history class.

So you need to move on to the next part of the equation. Why is financial literacy being promoted when we know it doesn’t do much at all for consumers? Well, take a look at who is funding it. It’s the banks and the rest of the financial services sector. Now think about it for a moment. Wouldn’t it just be a heck of a lot easier to not offer certain products, or design them in such a way so that they are easily comprehended, than to take on the seemingly hopeless task of teaching a consumer what a structured product is? Of course. So why isn’t this happening?  Well, a cynic might say that’s because financial literacy works quite well at what it was really designed to do and that’s head off legislative protection of consumers.

LP: How does the personal finance industry shape our views about government regulation, like rules that protect consumers?

HO: This is a mixed bag. There are many respectable personal finance journalists pushing for greater transparency and more legal protections for consumers. Ron Lieber at the New York Times, for example, was harping on the need for 401(k) fee disclosure for years before it became law. On the other hand, the financial services industry is always pushing the idea that we can do it, and that we can do it alone. How much that’s impacting our views? Hard to know. They keep telling us we can prepare for retirement ourselves, but the survey data shows that 80 percent of us are out-and-out petrified and want some form of pension back. Perhaps the right question to ask is not how the financial services sector shapes our views about government regulation to protect consumers, but how it shapes the views of the legislators whose campaign they contribute to.

LP: Has your research changed your own behavior and attitude toward personal finance?

HO: Yes, but not in the ways that you would think. I don’t spend any less money, but I am more conscious of spending it in ways that are meaningful. Take my Katie, our poodle. She dines on high-quality dog food (not to mention quite a bit of anything that can be begged), but her “bed” in my office is actually a 20-year-old blanket that I’d never put on a bed any longer but has somehow never gotten tossed. I mean, what does she care if she’s not sleeping on an official dog bed from the pet store versus a blanket that no longer has a color? On the other hand, the quality of the food she eats impacts her health and that I care about quite a bit.

LP: What’s the best hope for our financial health? Are we completely screwed?

HO: Our best hope for our personal finances is to realize we aren’t in this alone. There is a powerful culture of shame around money in this country, and it is so powerful it actually seems to prevent us from stepping forward, saying things aren’t working out for us financially, and asking not for charity, but for substantive legislation designed to help us all.

Print Friendly
Twitter33DiggReddit0StumbleUpon0Facebook117LinkedIn1Google+3bufferEmail

122 comments

  1. AbyNormal

    speaking of Media pundits getting it All Wrong:
    deserves repeating: There is a powerful culture of shame around money in this country, and it is so powerful it actually seems to prevent us from stepping forward, saying things aren’t working out for us financially, and asking not for charity, but for substantive legislation designed to help us all.

    around 2003 i was stuck in untimely traffic and switched my radio to AM searching for an update…Neal Adolph Boortz was screaming “the failure of the United States economy will be due to Single Mothers”

    around 2005 a crusty suit talking head on cnn said, ‘there won’t be a housing bubble pop…it’ll be like a pin prick to a balloon, where the air will release slowly.”

    sarc not applicable

  2. jake chase

    Absolutely true from beginning to end. After a lifetime in the finance game I can tell you that everything said on CNBC is nonsense, that experts are only right by accident, that nobody can consistently pick stocks that go up, that holding them while they go down seems to work in retrospect (but every time I have tried it I lost my ass), that individuals will make money in the stock market only if they buy at the right time, but it never looks like the right time and it quite often looks like exactly the wrong time, just as it does right now.

    Individual participation in financial markets is crazy. But occasional success stories make it appear that anyone can do it. Unfortunately, we never hear from the failures.

    And before I forget, letting someone else (anyone else) manage your money is the dumbest thing a person can do. And those certified financial advisers pawned off on people by the big retail brokerages that refuse to give advice are not vetted in any way and in some cases pay for the references, so don’t go near any of them.

    Recently, while looking for a local broker, I walked into a strip center field office of a firm called Edward Jones that runs those patronizing ads on TV. I thought it was a brokerage, but it turns out they provide retail “investment management” and charge asset based fees that are shockingly high and employ people to sit in these offices and rake in assets from the hinterland. I didn’t stay for the spiel, but it must be fantastic to justify fees that high.

    The whole industry is the equivalent of having your taxes done by a file clerk who received two days of training by some online scam artist. All this would be funny if the consequences to gullible people were not so catastrophic.

    The best investing advice I can suggest is to buy a no load index fund on a regular basis, regardless of price, never sell, never commit too much money at any one time, and forget about what it may be “worth” for thirty or forty years. If the system collapses you won’t have any money, of course, but neither will anyone else.

    1. Jim Haygood

      ‘The best investing advice I can suggest is to buy a no load index fund on a regular basis, regardless of price, never sell, never commit too much money at any one time, and forget about what it may be “worth” for thirty or forty years.’

      Good advice, Jake. One addendum, though: a portfolio that’s invested 100% in stocks is extremely risky. At the end of Feb. 2009, a no-load S&P 500 index fund had lost 51% from its October 2007 high. A majority of people cannot deal with the psychological pain that such monstrous losses inflict, and sell out near the low point to stop the pain.

      Young adults can ‘forget about what it’s worth for thirty or forty years,’ but those in or approaching retirement might not have that long to recover from depressed periods in stocks, which can last up to 20 years.

      A mixed bond-stock portfolio lowers the return somewhat. But it also reduces the appalling dips that stocks can deliver. We are now in one of these periods when many newcomers are going to buy stocks at relatively high prices, and then panic out when the next bear market comes along.

      Here is one book that’s worth more than all the ‘personal finance’ books ever written combined. I have read hundreds of books on finance, and I rank it No. 1: Ibbotson SBBI Classic Yearbook. It costs $175 new, but a used copy from two or three years ago will suffice. Or, it can be found in any well-equipped business library.

      What SBBI provides is perspective: it details how building-block financial assets — large stocks, small stocks, 20-year Treasuries, 5-year Treasuries, T-bills, corporate bonds and inflation — have performed since 1926. You can see for yourself exactly how the returns and risks of these assets compare and combine into portfolios when mixed.

      After absorbing the information in Ibbotson SBBI, no Wall Street product peddler or personal finance self-promoter (most of whom know nothing of financial history) will ever again be able to bullshit you with promises of pie in teh sky.

      1. skippy

        Cheap credit has undone all of it mate… exponentially leveraged future expectations out the wazzooo…. GLOBALY[!!!]

        Skippy… What the hell do you think the trillions are for… the tens of billions every month… the future is here today!

    2. Moneta

      If you are 30, the industry tells you to invest for the long term. When you are 65, they still tell you to invest for the long term… LOL!

      The reality is that inflows and withdrawals can play havoc on a portfolio, yet no one seems to account for these.

      For example, all my bonuses occurred at market peaks… logical because that’s when earnings peaked. Every time, I got a huge bonus, I market timed, choosing not to invest in equities and wait for a market drop. No one in the industry would have recommended this.

    3. Eric Patton

      Unfortunately, we never hear from the failures.

      Capitalism is a system of winners. You never hear from people who didnt get the job, didn’t make the team, didn’t get the part, whose business went under, any of it. Those that lost or failed are totally ignored, while those that won are pedastalized.

      1. Klassy!

        American Idol winnows the contestants week after week. They start with thousands and end with 1 winner. Somehow the takeaway is “anyone can do it if they try hard enough.” There are countless examples like this and the real lesson to learn seems to be we don’t want to give up our delusions.

  3. Clive

    Agreed with all of this, but there’s a bigger picture that none (or very, very few) of us are seeing as yet but is just starting to be glimpsed now and again.

    The last sentence isn’t a conclusion in my opinion, but instead that start of the next — far more interesting but much more complex — task that we in humanity are going to have to resolve:

    “… and asking not for charity, but for substantive legislation designed to help us all.”

    We’ve covered before here that legislation is okay but only up to a point in trying to enforce correct standards of behaviour. Then you need that regulation actually applied in a meaningful fashion. Even with both these aspects in place, people game the system, dodge the rules and even try to corrupt those tasked with keeping order.

    What none of this provides for — and none of it actually answers — is why people are willing tom exploit others for their own person gain ? What is motivating them (apart from the obvious which is personal enrichment) ? Why do their families and closest associates collude with them (and for every bad actor there is at least another one to four people who know what is going on and either approve of it directly or tacitly accept it by not challenging the perpetrator). What are their limits ? $100,000 ? $1M. $10M ? What exploitation does it take before they finally call a half, if indeed they ever do ? What does our culture and our society do to curtain their activities — if you see someone driving a $100,000 car, living in a $5M house “enjoying” a lifestyle which obviously costs $250k a year to maintain, do we exercise our critical faculties to enquire how, exactly, they manage to do that ? At the other end of the spectrum, if you’re paid $50~60k a year and your position entails you to engage in this sort of financial pulling-the-wool-over-your-customer’s-eyes why are you continuing to do it ?

    And so on…

    When we start exploring these questions with the same critical thinking — as Helaine’s book suggests for investment product purchasing decisions — we might start getting somewhere.

    But simply looking at “why people buy bad products or get bad advice” does smack to me of blaming the victim (I know though that’s not at all what Helaine intends to do) and while we continue to try to examine the world through the other side of the looking glass, we’ll keep missing the big point that needs examining in all this.

    1. jake chase

      To answer your question, “if you see someone driving a $100,000 car, living in a $5M house “enjoying” a lifestyle which obviously costs $250k a year to maintain, do we exercise our critical faculties to enquire how, exactly, they manage to do that?”

      Balzac said it best: “Money has no stink.”

      1. GSO

        I may be wrong, but doesn’t that quote belong to a Roman emperor as a comment on collecting a tax from users of public toilets?

      2. Moneta

        Every time I have openly questioned others’ financial choices I have been quickly shut up in 2 ways:

        1. You are just jealous.
        2. You don’t know anything… How do you know if they have not inherited?

        Most people have been brainwashed into thinking that anyone can make it into the top 10% if they work hard enough.

        And people have bought into the current pricing of work.

        1. Clive

          Hi Moneta

          That’s so true. When exactly did it become “wrong” to ask ? And why does everyone seemingly buy into the “wrongness” of it ?

          My rather uncomfortable answer is, because a great many of us are complicit in the system. We’re all grifting our way through it, grabbing what we can when we can.

          So a bit more self awareness and honesty in all our actions is needed. None of us is, I don’t think whiter than white here. Maybe I’ll get flamed from here by people who will insist *they* are, it’s all the other guys/gals who are to blame.

    2. Paul W

      They will never get enough. They are money junkies and power junkies. aka psychopaths. You need to listen to Gerald Celente.

      1. Clive

        I agree Paul W. That’s what’s rattling around in my poor enfeebled brain — why ? Why do we allow such people (and I’m probably naïvely charitable and believe that in many cases they are mentally ill and therefore should be treated sympathetically because they are, well, ill) to gain then hold on to — and expand, even — their grip on our society ?

        I’ve often gone round a thought experiment, the gist of which is, if I was in the same position as I am now (an overall beneficiary of the system and in many ways a protected rentier) but instead of 2013 it was 1933 and instead of reasonably civilised England it was Germany I lived in, what would I do ? How would I react to the events which unfold in the next 10 years ?

        I know what I think I’d like to do — and I fear what I suspect I might end up doing. The reality would probably be somewhere in-between.

        The reason this plays on my mind is, it’s not always obvious that you’re under the sway of an out-and-out psychopath (or cadre of psychopaths) until much, much later. They don’t start out by carting off Gramps to a labour camp straight away. Nor do they start off by seizing your property out from under you without due process. It tends to be a little bit here, a little bit there so the eventual horror show is normalised by the time it is brought about. So who knows what an appropriate reaction to an incremental event is ?

        For me, it’s to start consciously evaluating who is in charge, what they are doing and asking “is that right ?”.

        That’s what this blog does for me — and I try to follow its lead by encouraging others to do the same. It is though sometimes a lonely road…

  4. skippy

    Why invest – in anything – when you don’t have access to the books[?] and I mean all of them.

    Skippy… don’t even bother with the asshat parade!

  5. profoundlogic

    Too many people blindly trust “financial experts” without looking to see the inherent conflicts of interest in what they are selling. Case in point, take a look at Mr. Ramsey’s “Endorsed Local Providers for real estate. What does it take to get endorsed by Dave? a little money of course. Gotta maximize those downstream revenue sources to their fullest extent you know.

    http://www.daveramsey.com/elp/realestate/

  6. Ptup

    I find this woman’s advice horribly cynical and unproductive. There’s tons of criticism here for the present system of personal finance, and yet no proposed solution. When asked about her own situation, the best she can come up with is how she feeds and beds her poodle. Really?
    Sure, the financial industry is a den of scoundrels and thieves, but, hey, the sky is blue, too. Fact is, Americans don’t and haven’t saved enough money, period, and that’s been going on for years before ’08. I’m probably on the lower end of the IQ bell curve, and I never made that much money, but, I’m looking at an old age that will not include cat food and sleeping in SROs, because I saved religiously and spent a little time educating myself about the markets. It’s not that hard. Pay Yourself First. Don’t borrow money to buy useless junk. And, of course, when it comes to investments, if it’s too good to be true, it probably is.

    1. AbyNormal

      your kidding right? then you forgot don’t get sick, don’t procreate, discontinue all contact with family, hide from mother nature…just to name a few mo.

      1. Student loan debtor

        You can try to avoid those risks. Try to avoid getting sick by living healthy. Try to procreate with a partner who will be able to financially provide for the family. Helping family when you can but don’t let their tornado lifestyle cause you harm

        My sister and I are 3 years apart yet we live vastly different lifestyles. She’s squatting in someone’s foreclosure, smokes a pack a day, eats lots of processed foods, is obese, has a loser for a husband who can’t hold a job for longer than a year org two (incompetence not just recessionary). The lifestyle choices she made go on and on. And she’s dirt poor too. Like barely above poverty line poor. Very hard life.

        It would be nice for her to have a pension someday. But she would just blow it all on coffee,

        1. Student loan debtor

          McDonald’s and newports. My parents live on a fixed income and they manage to have a financial calamity twice a year. I can’t figure out for the life of me where their money goes. Personal finances is murky and the system sucks, but that doesn’t absolve individuals of personal responsibility.

          1. AbyNormal

            “Youth offers the promise of happiness, but life offers the realities of grief.”

            enjoy it while you can Student

          2. Lambert Strether Post author

            So, you’re in favor of the death penalty for bad financial choices, Student Loan Debtor? Operationally, that’s the system we have, which you seem,er, fully invested in.

        2. Moneta

          LOL! All you are doing is delaying the inevitable.

          My grandfather smoked and died quickly at 67. Did not need money and suffered for 6 months.

          My other grandfather lived healthy to 93. He needed 30 years of savings. The last 5 years were quite painful due to failing circulation.

          1. jrs

            Yes well deaths from smoking can often be long and prolonged too, but what is such truth when you’ve got an addiction to Phillip Morris to rationalize.

    2. Philip Pilkington

      The author may be cynical, but she’s correct. Your savings subtract from another person’s income. Because income levels have fallen since the 80s for everyone who succeeds at saving for retirement another person basically loses. The savings problems in the US are macroeconomic. If this is not recognised these problems will continue until they reach crisis point.

      1. Ptup

        Fine. Make it complicated. Put the blame elsewhere. Tomorrow, you’re a day older, and deeper in debt, with that much less in savings for the time when you either can’t work, or really don’t want to.
        The system is at a “crisis point” for millions right now. Those who have no savings. And, the apocalypse that you imply may happen, won’t. A generation of old people will be ignored beyond Social Security and Medicare, and life will go on. Just don’t invest in expensive “retirement communities” and upscale funeral services. Sorry, may sound harsh, but, history has seen worse.

        1. John

          Ptup, Do the math, ptup. Pilkington is not making it complicated. And the wages suppressed by a predatory capitalist elite have been deliberate policy. Suppressed wages make adequate savings for everyone impossible. So it is a macro issue.
          Sure it’s happened before. It’s called a race to the bottom.

          1. Ptup

            Whatever. I did the math a long time ago, and, a nice 10% automatic savings plan invested in a diversified account has served me well. Simple. Dear Lord, if I thought as some do about the “predatory capitalist elite” (which, btw, I do) I would have been arrested a long time ago for holding up an armored car on the side of the NY Thruway in the 70s. I mean, jeez, If that’s what gets you all riled up, grab a gun and get off the internet.

          2. Yves Smith

            Ptup,

            So now you’ve revealed that you have had a steady job for a long time that allows you to save 10%. Do you have the foggiest idea how few people are in that boat? There are tons of college grads who can’t land a job. As of the early 2000s, the typical college grad is projected to have 11 jobs by age 38. Any non-trivial period of unemployment leads people to draw down on their savings. You are clearly speaking from a privileged position.

          3. Ptup

            Actually, no, Eve. Had my bouts of UE with the rest of ‘em. My twenties were spent drifting around, wasting time (for my finances – still had fun). No silver spoon, either. $20,000 inheritance late in life.

            I just think that this is all the wrong message. Of course there are sharks out there and it’s tough to save. Who got promised a rose garden here?

      2. Jim Haygood

        ‘Your savings subtract from another person’s income.’

        This phony claim is pure, Keynesian poison.

        Savings are what finances investment, which in turn finances advances in living standards.

        Never let know-nothing journos get away with malicious crap like this, without challenging them to their face.

        1. Malmo

          I’m not sure what PP was driving at, but if everyone saves the percentages that the Suzy Orman’s of the world advise, then our economy would collapse.

          1. Ptup

            I thought our economy already collapsed from all of the non saving and debt addictions out there for the past twenty years.

          2. Malmo

            It’s still on life support. Hasn’t not collapsed…yet. Individual frugality/austerity would seal the deal, however, in our consumer based economy.

        2. reason

          Jim Haygood – you should really read those links – they explain it clearly. This misunderstanding propagated by the Austrians is dangerous. Understanding the circular flow of income and what can disrupt is crucial in economics.

      3. jake chase

        ‘Your savings subtract from another person’s income,’ Phil?

        So, I am undercutting the economy by not pissing away money on Coca Cola, Starbucks coffee, football tickets, cruise lines, McDonald’s hamburgers, violent and pornographic movies, video games, golf resorts……..

        I know I am a bit antisocial, but I never thought saving made me a parasite. Even Marx never went that far. Marxists, on the other hand, are often more Catholic than the Pope.

    3. ChrisPacific

      I think it’s important here to differentiate between the individual view and the societal view. You seem to be saying that we should do the best we can with the opportunities available to us, which is well and good and a fine approach from the individual viewpoint. However, responsible citizens of a democracy should be able to look at the situation from both viewpoints.

      To give an analogy, suppose you’re playing a game of poker, play for three hours and never get anything higher than a pair. If you know the game is fair, then whining about your bad cards really is a pointless exercise, and you should just play as well as you can with the cards you’re dealt. But if you notice that the dealer is dealing your cards from the bottom of the deck, it becomes a very different story.

  7. Paul W

    I can’t help but think the insinuation in this article is that all people are innocent victims. That’s going to be a popular message going forward because it excuses people from taking the blame if their lives turn out badly.

    You know, we aren’t suppose to be helpless victims in theory. If the rules of the game make economic survival near impossible, we do have elections to vote in people to change the rules. Granted America is a plutocracy and you really can’t change anything through voting. Yet 60% of the population continue to participate in the system anyway. In other countries it is worse because we actually have political choices besides the establishment parties, however voters continue to support the status quo.

    I agree the system is the problem. Yet everyone has played their role in making this corrupt system reality. There are no innocent victims. I also doubt there is any peaceful way to change things.

    1. jake chase

      The system is a problem. Overcoming it takes hard work. Not everyone fails. Don’t give up so easily.

  8. Claudius

    On balance, we need more education, not more regulation. And, the free market can work if everyone has equal access to the same information.

    1.There should be a mandatory personal finance consultation and health check for all significant lifetime investments (401k, mortgages, healthcare insurance etc. ideally before any documents are signed) at three points in one’s life: within three age ranges (18-25, 37-42 and 50-57).

    2.The IRS should offer a mandatory, one-time tax credit (not a deduction), say a $1000 (index linked – so the fee rises with inflation) for taxpayer with less than $175k income, with a net worth less than $1,000,000 (index linked) and above …… a certain threshold…. for each period assessment (i.e. at the three key period).

    3. The $1000 effectively sets the standard fee for financial assessment/counseling advice from a certified, fee-only finance professional, whom has no affiliation to financial services or their products.

    4. To further motivate the taxpayer, if the tax credit is not claimed within these age periods it becomes a tax liability once the age threshold is reached for each period.

    5. Within the 37-42 age period a tax credit of $1500 is given if the taxpayer declares that an Inflation Impact Assessment (IIA; in addition to the financial assessment) has been made on all significant lifetime investments and present net worth. This provides insight into the impact of monetary and asset inflation on investments and present net worth in a period when most adults are, likely, to benefit and better appreciates such an assessment most (during their most productive years). Again, if no IIA declaration is made then the marginal $500 is incurred as a tax liability.

    6. As such, all college students should be mandated to receive independent personal finance counseling as a condition for taking out student loans. The student loan industry is a mafia-style con – colleges have become addicted to customer borne, guaranteed credit.Student numbers would decline; some colleges would vanish. Fine!

    7. The tax credits allow the taxpayers to pay themselves to be better educated and, perhaps, remediate any issues.

    Even if a small percentage of taxpayers makes better informed financial decisions based on the personal finance assessment and counseling, the benefits will be profound and sustained. The only disadvantage is to those that least benefit from such education and professional advice: the personal finance industry.

    1. taunger

      Yah, ya know, sounds like more of the same. Let me tell you, all those guys taking 2 and 20 have tons of education, and they aren’t looking to create broad and evenly distributed prosperity. Just looks like an opportunity for capture, to me. At least at this point you don’t have to get in – with your plan, its only a matter of time before mandatory is enforced with civil default and subsequent jail time.

      1. Claudius

        Sense your cynicism. But, I was quite specific in saying NOT the 2 & 20 guys. And, I get your point about enforcement but, jailing someone for not taking money? Still, if it came to that, drop the idea of a tax credit becoming liability; just lose the incentive at the period end.

      1. Claudius

        Red Kool-Aid? No. As I said I’m all for capitalism and the free market. But, I’m not for Wall St jackals preying on the folks who work hard all their life and find they, effectively, have zilch at retirement, either because real inflation had eaten away their pensions or because they had been sold bad products that mal-invested the majority of their net worth.

        Too many of us like to believe we are sophisticated, and savvy enough to understand personal investment opportunities; believe that if we just work hard and save or invest in a 401K, then all will be well.

        Sadly the 2 & 20 guys, the employers that invest your 401K in their own stock and the Wall St bubble kings that entice you to buy the ‘next big thing’ in stocks know a lot more than you, and their advice is neither free or have your best interests at heart

      1. Claudius

        As working model, Claudius’s epicycles served us quite well for a thousand years or so…. I’d be happy for a thousand months if it gives the average bod’ a fighting chance.

          1. Claudius

            83 years or so? A generation of ‘informed’ taxpayers.

            As for future results, I have no notion of what they will be other than they’re likely to be better than the result of past and present day outcomes.

    2. jake chase

      Give up the idea that some 7 point program will make everything hunky dory. This one is too silly to even discuss.

      It makes more sense to learn the game and adjust your play than waste time fantasizing about new rules.

      1. Claudius

        3 points.

        But, the real point is that Mr and Mrs Average suck at learning the game on their own. No one explained the rules (and cheats) of the game to them, at anytime in their working life. They optimistically, and naively, trust their college, employer, banks, mortgage broker, insurance broker, healthcare provider, congressman and president; when they are told to invest their hard work and savings into products that (because of small print, clauses,claw-backs, management fees, payout limits, inflation, the economy or “whodanode” what) is not in their best interest.

        And, none of this is realized until it’s too late to do anything about it.

        1. jake chase

          Mr and Mrs Average are smarter than most collectivists. But organized sentimentality has licensed the predatory government we now have. Give politicians the power to “make things better for the average joe”, and they will screw joe every time and then shrug.

          We see this over and over and over and over, beginning with King Woodrow in 1912 and continuing for the past one hundred years, with Presidents tall and short, fat and thin, Democrat and Republican. One pompous windbag after another, one shyster Congress after another. All we have to show for it are Social Security and Medicare, and these are now being rolled back, by a Democrat. How much s**t can you eat before you notice the taste?

          1. Claudius

            Agree, Mr & Mrs Average are smarter than most “collectivists”. Alas, not smarter about money, personal finance and investments than most financial-ists and banksters.

            As for the failure of government – and the generations of taxpayers who that have been left with a nasty taste in their mouth – couldn’t agree with you more.

        1. Claudius

          Agree. American financial-ism….. Conformity gone mad……

          Think I need to get stoned instead.

    3. patricia

      Or we could just trade a bunch of business suits for orange suits and send our government officials back to school. I’d teach them for free.

      And we could actually make a profit if we get the orange suits building solar panels or something rather than making Virginia Secret bras for corporate profit.

      Much easier all around, don’t you think?

      1. patricia

        Re teaching ignorant gov’t officials: I mean, can’t be more of them altogether than there is in the average freshman lecture class at, say, U of Mich, right? So I got it handled. Ready when you are. Let me know.

          1. patricia

            Drinking the same stuff as Claudius. I think he started earlier than me, though, and being older…well, one never knows what a long day at the Forum can do to the psyche, no?

  9. Fraud Guy- Also

    My own personal pet peeve about the financial advice media is how they continually suggest that the goal of personal financial management is maximizing one’s credit score. You really get the sense from this that they want people to be debt. I have yet to see one of these financial gurus acknowledge that if you pay off all your debts and live frugally, your credit score will not be a factor in your life.

    1. jrs

      one word: mortgages. But yes if don’t plan to go the homebuyer route and plan to rent, it may be possible for credit to never be a factor in your life.

  10. TomDor

    I am sick of it. Most people in this country – and many others do not have enough money to do more than survive – eat, shelter, water, clothes………. and because of the financialization of this economy – are never in a position to ‘participate’ in saving for the future. Sure, sure, sure….go ahead and live within your means….to do that by a large portion of society is to say.. starve and live out on the street if you have to…that is living within their means.
    Once and for all….it is the structural problem of debt overhang and compound interest that has brought us, under this system, to the point where debt that can not be paid back…will not be paid back.
    Congratulations to those who have the self discipline to scrimp and save for retirement…pat yourselves on the back and get all uppity and self congratulatory about your achievement….but do not forget that you had that, little bit more, than others to feed yourselves, clothes yourselves, shelter yourselves than a large segment that does not. Congratulations on living your life with a little more than others…yeah

    1. jrs

      Even with the little bit more, how the middle class actually lives:
      1) in constant fear of losing what little they have
      2) with constant temptation to toss it all overboard deliberately just to do something with a greater chance of fulfillment even though the penalty for that is see #1.

    2. jake chase

      Look, the system sucks. What system doesn’t suck? Would you prefer the early 20th Century? The Nineteenth? The Eighteenth? Or perhaps another country? How about Bulgaria? Thailand? Criticism can be useful, but whining, not.

        1. jake chase

          Actually, I’m a troll, employed by both sides. It isn’t easy making a buck these days, Patricia.

          1. patricia

            Ah, so you’re the one eating the billy goats while I sit under the bridge with my can o’ cat food. Or is that a buck you’re eating?

            I’m so confused. Where are my vitamins?

  11. dolleymadison

    “There is a powerful culture of shame around money in this country…” Amen, sister. Thank you so much for bringing this book to my attention…getting it today!

    One of the touted “improvements” of the 401-K over the pension system was to “free” people from having to work at one place for years in order to collect a pension. But I would say this mobility is precisely what has caused the mindset of employers viewing workers not as long-time partners in a firm’s success, but as as expendable “resources” – like a copy machine or office lighting. It also has encourgaged the criminal, risk taking behaviour currently tanking our economy. By the time anyone discovers their malfeasance they have collected their huge bonuese and are off to another company.(or to work for the regulator!)

    1. Ptup

      Pensions are an awful tool to keep employees. The only thing they reward is length of service. There are so many still working into their 60s just to enhance their pension payments.

      1. Yves Smith

        What’s wrong with working into your 60s? It turns out research shows that adjusted for underlying health, people who retire early die earlier. Work provides psychological and social benefits.

        Pensions are a great deal, and 401 (k)s suck. Restricted investment options, limits on how often you trade (oh, and they often hold onto your money up to 6 weeks moving it from one fund to another) and huge undisclosed fees. A corporate pension fund, by contrast, has access to product retail can’t even get into and executes at institutional prices.

        The fact that you are trash talking pensions suggests you are either totally disconnected from reality or a paid troll.

        1. Ptup

          Yves

          I wasn’t necessarily trash talking pensions. Love to have one. I was just saying that they create the wrong incentive for employees within a business. I know of a few friends who shriveled as creative people because they hung around way too long in their jobs just for the pension.

          And, i think the last few years of awful returns from the various products that these pensions have invested in that the little guy can’t get to proves that, as has been emphasized here, expensive hedge funds and VC schemes are there more to enrich the fund managers, not the customer. Re: CALPERS doubling down. 2 and 20 indeed. I’ll take low cost ETFs, thank you.

        1. jrs

          The job worth doing is probably one noone is willing to pay for (and much that is paid for is not worth doing). If you have all the money in the world, retire, and volunteer …

          1. Malmo

            There’s a lot worth doing that doesn’t involve a job. I would do just fine (if I had the $$$) if I never worked another day in my life, and I’m in my early 50′s. The cult of work is ridiculous.

    2. porge

      “But I would say this mobility is precisely what has caused the mindset of employers viewing workers not as long-time partners in a firm’s success, but as as expendable “resources” – like a copy machine or office lighting.”

      Yes and it is reflected in the change of title of these departments.. from “Personnel” to “Human Resources”.
      Language is extremely important in the meaning and hence the roles assumed and submitted to by people.

      From ” Citizen” to “Consumer” is the most stark and egregious example of how Merkuns have been conditioned to see themselves…….

      1. rps

        From ” Citizen” to “Consumer” is the most stark and egregious example of how Merkuns…..

        I disagree with conditioned but we were unilaterally downgraded from our prominent position in US democracy from “We the People” by the speechifer GWB’s aww shucks deliberateness of folks and consumers.

        Shopping malls have replaced community civic centers where once upon a time citizens came together to organize, monitor and dispute government actions.

        1. porge

          You can disagree that identifying with consumer instead of citizen isn’t conditioned but I will contend that everything that USains think is true and real is nothing but what they are taught in the education system and bombarded with in the media. Every person to the largest extent reflects their culture(if that is what you can call this shallow pursuit of material accumulation).

        2. JTFaraday

          “From ” Citizen” to “Consumer” is the most stark and egregious example of how Merkuns…..”

          Not to be pedantic, but that is not spoken correckitickly…

          1. skippy

            YOur corporate dollars at work…

            Skippy… would you like a voucher to make it all better?

  12. elboku

    People here do realize that the median income in the US is 26k, right? This means the median wage is 500 a week or $12.50 per hour. Adjusted for inflation, the median wage is roughly 25 percent higher than the min. wage in 1968. This means most Americans are working for around the min. wage; so where is this ‘savable’ income? Pray tell what magic funds the median US worker can find somewhere, somehow? It would be too long to post but as an example: in 2010, the Census Bureau reported that over 50 percent of Americans spent around one-third of their income in rent; almost 40 percent spent about 33 percent on mortgage payment.

    So do a sample monthly budget and tell me where one can save for retirement?

    I thought so.

    The problem in America is that too few people have enough money. Period.

    1. Ptup

      Median income is about 50,000, and nearly 75,000 in places where people make real money. Of course, in those latter places, many are obsessed with cars and houses that they really can’t afford.

      1. PrairieRose

        Citation, please? I don’t think I have ever seen a study saying the median income in this country is $50,000. If it is, that’s not for one person; it’s for a family of four or more. And that’s gross income, not net income. Doesn’t leave much for saving if you have a family.

        My late father, who was a bank loan officer for many years, always told me that the only people who should be in the stock market are those who can afford to lose their money. Why, then, is the entire working middle class forced to have money in the stock market via 401(k) plans? How did this “self-directed option” (ha, ha) make our plans for retirement “better” than defined benefit plans? Really?? Can we all afford to lose all our retirement money consistently every 5 or 7 years when the market crashes, as it’s designed to do now? How did we allow this to happen? Why are we continuing to allow ourselves to be duped like this?

          1. patricia

            And out of that, pay health insurance for minimum of two, as well as save more than 20% for retirement because each wage is so small. Know better than to have a kid or get sick, of course.

          2. patricia

            But if they keep shlepping those low-cost EFTs and jobs, at least they won’t lose their creativity and some extra funds to a pension skimmer, right?

            Bah.

          3. patricia

            And what’s wrong with them anyway, wanting cars to get to work and such? And a house? Sheesh, Americans are sooo obsessed and greedy! Just take that non-existent public trans and rent down by the railroad. Toooot tooooot!

          4. patricia

            Lambert, you interrupted my groove!

            But you’re right. Forgetting about choosing proper parents shows I’m obviously too stupid for an American Life. I’ll go sleep under a bridge now. But not as a troll, eating goats and such. Nosirree, I’m a person who knows her place–I tuck quietly into my catfood and leave those goats to my betters.

          5. Ptup

            I would think that,if you had the right parents, you wouldn’t be on the internet getting all scared of losing your middle class stuff and life tomorrow, or talking about people who actually make 25 grand, as though anybody who responds here is in that minimal wage group, other than those on SS and such.

          6. Ptup

            “And what’s wrong with them anyway, wanting cars to get to work and such? And a house? Sheesh, Americans are sooo obsessed and greedy! Just take that non-existent public trans and rent down by the railroad. Toooot tooooot!”

            Patricia, your class prejudices are showing. I’ve spent a lot of time on public transit and lived close to trains. Of course, some people couldn’t even imagine……..

          7. patricia

            Dear Ptup, I know whereof I speak but you do not, so I’ve decided to correct you. Fear is not involved. Call it a compulsion—I used to teach college.

            My parents were semi-proper, but they died after their money, so how proper is that, really? Silly me. And yes, I live on less than 25k/yr even though I’m not yet of retireable age.

            But don’t mind me. Just focus on the stats; let them soak in for a while. Now close your eyes and say after me, “I am a person of great moral stature. I am a person of great moral stature.” Three, two one, ok!

            Feel better?

          8. different clue

            You can’t take the train if there’s no train to take. And a three-member conspiracy of Standard Oil of New Jersey, Firestone Tire and General Motors spent the 1920s, 30s, 40s, and 50s making sure there would be no train to take in most places. That’s what the Bonfire of the Trains, Trolleys, and Streetcars was for.

        1. Ptup

          And that is one lousy 401k you have if the only choice is equities. I’ve had five, and never had an equity only choice.

        2. jrs

          All the 401ks I have seen have bond and cash and sometimes REIT choices etc. I figure what drives 401k investors into equities is ZIRP.

        3. patricia

          Slinging “class prejudice” at me, thinking to cut me down to size? But I live in Detroit! Oops.

          I recommend another round of hypnosis. Ready?

    2. jake chase

      If these numbers are correct, why are the same people who cite them always clammoring for jobs? What people need rather than a job are knowledge and skills that make jobs only a temporary expedient, and the foresight to think about work first and family afterward. Collectivists insinuate (when they do not simply proclaim)that everyone determined to breed has a right to have his family supported if he can’t find a way to handle the job himself.

      The days when shuffling paper and turning screws gave people overfurnished houses, multiple cars, a boat, vacations at the seashore and pampered over educated children are probably over. This isn’t so much a consequence of executive looting, as it is of transportation and communications technology that eliminated the extortionate power of organized labor in critical industries, and incidentally, that power never did a damn thing for workers outside those privileged union sectors, because the union hard hats never gave a damn about anybody but themselves.

      Nevertheless, opportunity abounds for those with energy and determination. Everyone knows lots of people doing just fine with no significant education but plenty of moxie and useful skills. Yes, that leaves a good many people out in the cold, but you make it sound like half the damn population is starving, which simply isn’t so.

  13. rps

    Elizabeth Warren’s book “The Two Income Trap” explains how and why middle America has arrived upon the shores of economic misery. Her findings are backed by economic data. At youtube, MSLaw’s Books of our time has a one hour interview with Warren, “The Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke.”

    1. LifelongLib

      Yes, you constantly hear that our problems are caused by frivolous consumption. In fact as Warren points out we spend less of our incomes on consumer items than people did 40 years ago. It’s stagnant wages combined with huge increases in the costs of housing, health care, and education that have put the middle class in a bind.

      1. different clue

        And the trigger into bankruptcy for many of those 2 income families was the unpayable medical bills not covered by the shitsurance those families had been paying their faithful monthly premiums on.

        The same shitsurance which is now Force Mandated on every luckless individual under ObamaCare. The ObamaCare which Obama and the Catfood Democrats hope to force every future retiree into under their stealth-advance salami-tactics version of the Ryan Voucher antiMediCare Plan.

  14. Casteelk

    Anyone who actively looks at what a retirement could be came to this conclusion long ago, man or woman. My 401k has the brilliant little tool that will “analyze” your situation and tell you what to do. When I did mine, it said to retire comfortable, I need to save 255% of my current income every year. And it says it like its just normal as hell. Then it goes on to say and invest it the 7 Mutual fund options available to your 401k.

    I came to the conclusion that I don’t get to retire a long time ago. I was comfortable with that, thinking well I can do my engineering job till I am a ripe old age. Now that has changed, cause not only will I not get a retirement, when its all said and done, only thing I can count on is a min wage job at Walmart.

    Regardless of what the grim future may hold, the old adage still applies that everyone just wants to ignore. Live within your means, save more than you spend. Guess what, if that means living in a trailer home and driving a garbage car, there it is. Reality is what it is.

    1. jrs

      I picked up I think it was maybe “Money” magazine or something recently. It says if you save 10% of your income you are doing better than most, 15% and you have an 80 something percent chance of being able to retire, 20% and you have a 90 something chance. This didn’t seem too bad. Then I read that you will 200k in retirement for healthcare alone!!!! But doesn’t medicare cover (for now) if you wait until medicare age? Anyway 200k for medical care and saving 10-20% of the income for retirement and you are doing good, what kind of super high income do you need to make *that* math work out? Six figures at least I figure.

      1. jrs

        And this info was all in the same magazine, the percentages and the 200k figure. Math seriously not adding up …

      2. Casteelk

        I always thought Health-Care would eventually fix itself, well into Obamacare came around. If the price goes to high, then people are just forced to drop it and take the risks. In a free market, eventually prices will have to be adjusted or health care companies will start to lose money (no customers). But obamacare fixes that doesn’t it. If my healthcare went up again next year (it went 38% this year), then I was going to drop it. Now I have to factor in the Obama tax to see if that still applies. Let the free market decide, people will soon realize that you don’t have to have healthcare. You CAN negotiate your costs with hospitals. You CAN pay 0% payments on the bill. You CAN do it yourself. There will be alot of things we have to learn how to do ourselves in the near future.

        1. Lambert Strether Post author

          Well, there’s a vision of the future that really sits up and works: Everyone negotiating their own hospital bills!

          Or, we could adopt a solution like single payer, proven in other countries to save a shit ton of money, also too lives but we can’t because liberty.

          Oh well, I enjoy a good fantasy once in a while.

          1. Argentinepontiff

            “Also too lives but we can’t because liberty?”

            WTF Lambert? Are we all expected to understand your shorthand you lazy puck?

  15. steelhead23

    I happen to think that financial literacy is a great idea. At the very least, they should inform students that finance is not rocket science and if someone offers you a deal you don’t wholly understand, don’t buy. As one who got out of the stock market in late 2006 and hasn’t returned, I must say that while I regret not jumping back in in March 09 (hindsight is very, very good), I cannot imagine anyone looking at the market today and thinking it could provide a stable source of income. As I near retirement, I find my financial goals changing. It is NOT more money I want or need to feel secure – what I want is real financial stability in our country. I could manage my life quite well with a $40k annual income – if I could assume that bucky would buy just as much tomorrow as it does today. If I could feel confident that inflation would remain under 2% annually, my risk appetite is about right. If inflation goes to 5%, I need to take larger risks.

  16. Hermes Trismagistus

    “The reason the word guru is so popular is because charlatan is harder to spell.” – William Bernstein

Comments are closed.