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Credit: Maureen Selwood

MANY MODERN SAVERS are buying into a vision of the financial markets as a potentially magical source of investment returns. Strangely, the cult of personal finance seems to redouble each time the markets enter turbulent periods.

Despite the regular occurrence of catastrophic losses and prolonged periods of ambivalent returns, self-proclaimed gurus regularly appear on the scene to convince would-be armchair investors that they actually have what it takes to make large sums of money. 

Helaine Olen’s Pound Foolish: Exposing the Dark Side of the Personal Finance Industry explores how the personal finance industry actual works, taking time to expose the myths and self-serving motivations that drive many of the charismatic figures who have been profiting from the dreams of eager savers. These dreams of the seemingly limitless potential of stock picking, and its ability to solve the financial problems woven into contemporary American life, are central to Olen’s tale. She focuses resolutely on this alluring delusion: “that personal finance had almost magical abilities, that it could compensate for stagnant salaries, income inequality, and a society that offered a shorter and thinner safety net with each passing year.”

We want to believe that simply by saving, we can materially improve our station in life and the future prospects for our children. We want to believe that there are rules to investing that, once learned, can deliver us the answers to the wide variety of problems and challenges we are currently facing.

Of course, there are many “experts” who are willing, for a small fee, to expound on the inner-workings of stocks, bonds, commodities, and real estate for the sufficiently motivated student. Every few years, new trends and terminologies replace old ones, but the dream still lives on.

Optimism can have a very powerful effect on our evaluation of opportunities and risks. When we need to believe in an ability to pick winning stocks, outperform the markets, and deliver the investment returns that we need to make up for the numerous obstacles we are facing in modern life, we find it very easy to believe in the advice being sold by experts who purport to do exactly that. 

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Obviously, there is a role for financial advice in all of our lives. Much of the best advice is neither new nor innovative. Charles Dickens outlined some in colorful detail in his novel David Copperfield many, many years ago:

“My other piece of advice, Copperfield,” said Mr. Micawber, “you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and — and, in short, you are forever floored. As I am!” 

Basic decisions about incomings and outgoings can have a great impact on someone’s personal financial standing. Bad decisions about the cost of borrowing as well as a society that indulges debt as the solution to any budgeting shortfalls (either at the personal level or at the national level) plague large segments of the country.

A certain level of financial literacy, meaning simply an ability to budget effectively and understand the conse...