How the Personal Finance Industry Is Failing America

Many Americans are struggling mightily with their personal finances right now. We aren't saving enough for our retirement, and our knowledge of investing basics is poor.

Recently, we learned from an SEC study on financial literacy in the United States that "American investors lack essential knowledge of the most rudimentary financial concepts." We also know that the condition of our retirement portfolios is downright anemic. The Washington Post reports that "53 percent of American workers 30 and older are on a path that will leave them unprepared for retirement." And just 14% of American workers, according to the Employee Benefit Research Institute, are very confident they will have enough money to live comfortably in retirement.

How is it possible that we have ended up in such a sorry state, especially when it seems like there's more financial advice targeted at ordinary investors than ever before?

This is the question that Helaine Olen attempts to answer in Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Readers of this book will find her central argument very persuasive, though some will likely be turned off by her politics.

Make a million by quitting lattes
Olen believes that the personal finance industry has misled Americans into thinking that anyone can become rich, if only he or she has the discipline to give up lattes and other minor luxuries, while also possessing the foresight to invest in the latest "can't-miss" financial scheme.

Sadly, what most personal finance and investing gurus had to offer over the past decade was no match for "stagnant salaries, income inequality, and a society that offered a shorter and thinner safety net with each passing year," Olen says. Ultimately, the biggest winners from the ever-growing proliferation of financial advice were the gurus themselves. The rest of us, according to Olen, saw our financial situations become increasingly precarious.

Olen presents compelling evidence for her view that the overall economic environment is deteriorating for ordinary Americans. She notes, for example, that spending on housing, health care, and education represented 75% of the average family's discretionary income in the 2000s, as opposed to just 50% in 1973. Meanwhile, median household income fell by 7% between 1999 and 2010, and the nation's median net worth dropped by 38.9% between 2007 and 2010. In the face of such big trends, most financial advice is powerless, according to Olen.

A sucker's born every minute
Oblivious to the big picture, Olen says, personal finance gurus, like Suze Orman, Dave Ramsey, and Robert Kiyosaki, continue to peddle their dubious schemes en route to amassing colossal personal fortunes. Of Orman, Olen writes that she didn't earn her money "by investment savvy or astute savings strategies but by convincing many of us that we were so helpless we needed the help of her books and product lines."

Olen is indefatigable in taking on this rogues' gallery of personal finance gurus, one by one. For example, her takedown of Kiyosaki, the founder of the Rich Dad, Poor Dad empire, is simply devastating. She tells us about all of the bizarre stories surrounding the Rich Dad's actual identity. At one point Kiyosaki addressed the confusion by saying, "Is Harry Potter real? Why don't you let Rich Dad be a myth, like Harry Potter?"

Olen's take-no-prisoners approach to the various personal finance gurus can feel a bit heavy-handed at times. Summing up her profile of Orman, Olen describes her as "the ultimate saleswoman who has gone from selling subpar pancakes to peddling financial platitudes." At times, it feels as if people Olen doesn't like are either fools or charlatans. And the ones she admires – like Massachusetts Senator Elizabeth Warren and retirement expert Teresa Ghilarducci -- are wise and saintly.

Starting a conversation about money
Some readers might strongly disagree with Olen's politics. She admits that she is sympathetic to the Occupy Wall Street movement, and believes that the government should be the "backstep enforcer of everything from the rule of law to insurer of last resort." Personally, I think that politics lurks behind most financial discussions (no matter how much we protest to the contrary), so I didn't mind her stridency. I can see why many folks, however, might be skeptical of her view that we need some sort of big-government solution to many of our personal finance woes.

This isn't a perfect book, but it's a very, very good one that I highly recommend to anyone who is interested in personal finance and investing. Olen presents an extremely compelling thesis, which is backed up with a lot of quantitative and qualitative evidence. She's also a gifted storyteller with a highly engaging writing style.

And even though she can be harsh at times in her treatment of the financial gurus, I came away feeling that she cares deeply about ordinary Americans who are struggling at this moment in a very tough economic environment. Her heart is in the right place, and she is wise to conclude that "all things will become possible" if we can begin an honest conversation about money.

If you're behind in saving for your retirement, you might be interested in our free report: "The Shocking Can't-Miss Truth about Your Retirement." To learn more, simply click here


Read/Post Comments (12) | Recommend This Article (27)

Comments from our Foolish Readers

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  • Report this Comment On February 19, 2013, at 3:50 PM, stan8331 wrote:

    I personally do have some sympathy for the Occupy Wall Street movement, and considerable disdain for the financial advisement industry. The state of financial education in America is a travesty and an outrage. However, I'm not buying what Olen is selling. Personal responsibility is not some quaint, obsolete notion. Individual investors are not pawns of the financial industry, unless they willingly agree to be so. People of ordinary incomes can and do retire with considerable wealth. All that is really required is dedication, self-discipline and the ability to delay gratification.

    Anyone who starts investing for retirement in an index ETF or mutual find when they start their full-time work career after high school or college can retire very comfortably, especially if they can manage to resist the temptation to buy high and sell low that claims so many victims. There is no rocket science needed - just invest steadily in index funds for a period of 40+ years, reinvesting all dividends along the way, and you will have a nice retirement free of stress over the danger of outliving your money.

    Wall Street does have many legitimate villains, but they're not folks like Suze Orman, who is basically just encouraging values that will enable individual success. Olen is pushing the idea that we are all helpless victims of the system - I reject that view as patently and dangerously false. The problem is a severe lack of accurate, sophisticated financial information and education in the general populace, not the fundamental structure of our economic system.

  • Report this Comment On February 19, 2013, at 7:04 PM, dwdallam wrote:

    What's interesting about financial gurus is that you rarely see their entire investment success and failures over their history of investing. Look, the best financial groups out there are ecstatic to get 15% annual over time. I think Hathaway as gotten 18% over it's entire history. I doubt any individual can come close to matching the brain power of these investment companies. Yet peddlers keep on peddling, don't they?

    So before I read a book, I want to see total disclosure--how much have the authors made from inception with their own investments? Yeah, thought so. Typically, they're just sharks feeding on the ignorant.

  • Report this Comment On February 20, 2013, at 9:50 AM, TMFBane wrote:

    @stan8331,

    Thank you for your thoughtful post. I agree with much of what you say. Like you, I also believe, for example, that individuals can improve their financial situation with “dedication, self-discipline, and an ability to delay gratification.” Sadly, we need to do more to develop those values in ourselves and our children. Also, I feel that Suze Orman does a lot of good, and shouldn’t be lumped in with the likes of Robert Kiyosaki.

    @dwdallam,

    You are absolutely right about the importance of accountability. I wrote about that recently here:

    http://www.fool.com/investing/general/2012/11/15/why-financi...

    Best,

    John Reeves

  • Report this Comment On February 21, 2013, at 9:22 AM, timc1981 wrote:

    If you read John T. Reed's reviews of Robert Kiyosaki (which have been available for years), it would have been more than evident that his acumen appears synthetic, and all he really seems successful at doing is talking the way dumb people think that smart people talk.

    As for Orman, I don't think she deserves to be lumped in with the likes of Kiyosaki - Kiyosaki is a huckster. And I think that stating some of those obvious things, like cutting $70 / month out of your latte habit can translate to real financial benefits over a couple years ($70 * 12 * 2 = $1680 - invest that $1680 with a modest 7.2% rate of return, and you've doubled your money in 10 years). To be honest, I've never read Orman's books, but I've seen quite a few of her interviews, and they don't seem all bad.

  • Report this Comment On February 21, 2013, at 10:00 AM, mdk0611 wrote:

    Having not read the book I'm basing my comment on this article, but it seems to be saying ignore these advisors, drink your latte and expect the government to take care of you. That math won't work.

    I agree with the concept that you accept nothing these advisors sell as gospel. Perhaps she should have limited her advocacy to that point.

  • Report this Comment On February 21, 2013, at 10:19 AM, thomasbihn wrote:

    I'll admit it.. I watch the Suze Orman show once in a while. From what I see of her on the show and periodically as a guest on others, I usually tend to agree with her advice and don't believe what she presents (on the CNBC show at least) is self-serving or bad advice. I've never seen her claim that anyone could get rich off her practical advice. While she tends to encourage more thriftiness, I've never seen her claim anyone can retire early by being thrifty. What I have seen is her admonishing people that are spending beyond their means. If someone is in serious debt, it only makes sense to cut out the expensive lattes and ensure that money contributes to paying it down rather than exacerbate the situation.

    I haven't read any of her books, but can't imagine she really deviates much from what she expresses on her show.

  • Report this Comment On February 21, 2013, at 10:29 AM, atkinskd wrote:

    As a 30 something I can relate. Typical to many of my peers, finance was not on my mind as I entered the workforce. Home Economics class taught us how to sew pillows and cook pizza not manage an investment portfolio. My folks didn't have enough money to worry about growing up. As for Orman, Ramsey, and Kiyosaki the message is the same - Live below your means. Kiyosaki puts forward that its all about loopholes and greed to get to the top and everything in your life (relationships included) be assessed as assets or libilities. Throw in a contentious divorce that is all to common and voila - you're broke. 35 yrs old net worth is ~65k ...better than many of my peers but that's not saying much. In my life I've discovered that the way to make headway is to do everything you can yourself - 1st it's generally cheaper and 2nd it keeps you busy to prevent 'retail therapy' sessions. And for crying out loud **** the joneses and shop CL instead of Home Repo.

  • Report this Comment On February 21, 2013, at 10:33 AM, TMFBane wrote:

    By the way, Helaine Olen appeared on the Daily Show last night. You can see her interview here, if you're interested in more on this topic:

    http://www.thedailyshow.com/full-episodes/wed-february-20-20...

  • Report this Comment On February 21, 2013, at 10:40 AM, damilkman wrote:

    I have read some of Orman's books. I also read "Millionare Next Door" and "Rich Dad Poor Dad". I never got any insights out of the books other then a parallel statement a friend made about diets. The very fact that you are aware means you will do better then most everyone else. We can argue about is Paleo better then Vegan. Since you are actually paying attention the odds of eating better are better then those who do not pay attention.

    The pundit books pretty much make the same statement. Perhaps they blather about other gunk that is not very useful to us. By me making any kind of financial decision while aware of the consequences is huge. I do not have to be a savy stock picker to save for retirement.

    In my personal case I made a conscience choice to purchase a house way below what the banks were willing to lend. We had an opportunity to be a one car family for a few years and we made it work. We have no intention of paying out of state tuition at a private college for a film degree unless our children show a full commitment to the field and an acceptence of the consequences for entering a potentially saturated market. And they will take their starter courses at a community college. Despite being incapable of picking a winning stock I have done well because the money not spent on Starbucks did go into a set of indexed funds in a 401K. Anything beyond choosing 4 funds is beyond my financial capability. But I cared from the beginning and that was half the battle even if I never get a 10% return.

    We live in a consumer based society where we are told the health of the economy is dependent on us spending every penny we own and then some on frivoulous things we do not need. At least the pundits got that right. And if that is all one gets out of their books it is worth it. Orman and her cash slush fund harping gets shrill, but it is just common sense.

  • Report this Comment On February 21, 2013, at 10:58 AM, mdk0611 wrote:

    I watched that interview and all I can say is "Wow"

    Financial firms are using people's 401(k) balances to invest in derivitives?

    The 401(k) itself is all Reagan's fault even though they came into existence during the Carter Administration?

    Her credibility just took a major hit in my eyes.

  • Report this Comment On February 21, 2013, at 11:01 AM, AvianFlu wrote:

    I'm not sure how a person could really criticize Dave Ramsey too much. I believe his message is pay off your debts, live on a budget within your means, and invest in no load mutual funds.

  • Report this Comment On February 21, 2013, at 11:36 AM, mill3417 wrote:

    I never buy any books because everything is searchable, available and free online. You just have to be disciplined enough to want to know more. I am still in my twenties and I just found out about tax lien and tax deed investments which can be very lucrative if enough due diligence is done before diving in. I want to be in a certain condition when I retire, and with enough perseverance and ambition, I do believe I can make it.

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