Pound Foolish: Exposing the Dark Side of the Personal Finance Industry
Helaine Olen
This book was a very mixed bag for me. Personal finance is a topic that I find very interesting and is kind of a hobby of mine. HO makes some valid points that I agree with, and ventures into some interesting territory, but overall has an attitude that I don’t share.
Valid points that I agree with–most people offering financial advice aren’t looking out for your best interests. The majority of complicated financial products are not suitable for the average person (and many of them aren’t suitable for anyone). There is no magical road to riches and anyone trying to convince you otherwise is taking your money.
Interesting territory–HO touches on some really significant stuff near the end of the book. I definitely agree that the cultural taboo on discussing financial issues is a problem. One of the most unfortunate academic findings I ever encountered was a paper that demonstrated that a significant determinant of whether a person got a subprime mortgage or not was simply whether that person had discussed the decision with anyone other than the person selling it–didn’t have to be a financial professional; didn’t even have to be someone who was more knowledgeable than them about finance. Just a reality check. I’ve tried to breach this taboo in a few ways in my own life, and I can confirm that it is both difficult and productive. I think that it is no coincidence that the most valuable source of financial advice (in my view) is not an adviser, CNBC, a guru, or a blog; it is an online message-board community (bogleheads.org, if you’re interested).
Attitude I don’t share–first, and this has been noted in many reviews, HO has many complaints, but few if any alternative solutions or proposals to address the problems. In my view, it’s just too easy to sit back and make criticisms of the state of American household finance, and very difficult to come up with reasonable responses, either at the individual level or at the policy level. She often points out that there are major systemic forces at work, such as increases in income inequality or the gender pay gap. These are real and challenging, but her attitude often seems to be, why try to be responsible on a personal level when you are fighting these kinds of headwinds? Why cut out your daily latte to save money when median incomes have been stagnant since the ’70s? But of course, the answer is, because it might help you get where you want to be. I think any responsible way of answering this question has to involve a little of both–responses at the policy level and responses at the individual level.
HO focuses a lot on the issue of “responsibility” and whether a person’s financial situation is or should be their own responsibility or the responsibility of the government. I just don’t think it’s productive to look at things in this way. Taking a page from the book “Difficult Conversations,” it’s more helpful to look at things in a framework of contribution than in a framework of blame. Surely everyone’s financial situation is and will be due to a confluence of factors, including broad societal trends, random accidents, and their own planning and decision-making. One of the things that makes personal finance a complex and contentious field is that it combines factors that are out of your control, factors that are under your control, and factors that are somewhere in between. Perversely, almost all popular discussion of personal finance centers around trying to control one of the biggest factors that in my view is clearly outside your control–the return on your investments.
I think that a healthy financial life needs to start with the attitude expressed in the well-known prayer by Reinhold Niebuhr:
God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And wisdom to know the difference.