FEBRUARY 17, 2013
Triptych image: “Don’t Say Anything”
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.
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 consequences of important choices, is essential. Unfortunately, this term is becoming increasingly debased by attempts to commercialize “financial literacy” into yet another profitable industry. The modern American saver must sail between a Scylla of apathy and a Charybdis of faddish trends. Despite the genuine need for informed and appropriate advice, the charismatic gurus who populate the media landscapes are shown by Olen to not be up to task. With their seminars and books and audiotapes, these men and women are wrapping in brightly colored foil paper an American dream that is becoming harder and harder to obtain, and attempting to resell it at a substantial mark-up to families often buckling under the monetary challenges they are facing in their day-to-day lives.
Olen describes in great detail the scope of the modern personal finance and investment complex that developed during the 20th century. Populating her narrative with insightful biographical profiles of key figures who developed large (and highly profitable) followings, Olen draws an uncomfortable portrait of inflated promises, shameless merchandizing, and aggressive sales techniques.
Who doesn’t want to get rich? Who doesn’t want to be empowered? Who doesn’t want to learn the simple secrets that will open the door to social mobility?
The global financial crisis that erupted in 2008 and the prolonged recession that has lingered on afterwards are only the latest in an ongoing series of market events that have eroded 401(k) retirement accounts. More importantly, perhaps, the collapse of the US housing market further destroyed working-class savings. An asset class previously viewed by many as a “one-way bet,” immune to the volatility of the stock market, quickly unraveled with devastating consequences for many families.
Interestingly, when a high-profile pundit’s prior recommendations are disproven by current events, further recommendations are promptly offered up, and the past mistakes are quietly ignored. Savers, desperate to continue believing in the dream, seem willing to put that bad advice behind them in favor of new advice, however equally unproven.
Olen plays particularly close attention to two of the most prominent gurus gracing our television screens today: Suze Orman and Jim Cramer. Orman has built a successful media career around a willingness to reach out to the common man and woman, demonstrating with her Midwestern accent and relaxed manner that she is, in fact, just like them. By contrast, Cramer’s show on CNBC, Mad Money, comes at you fast and furious, full of testosterone. With his talk-radio presentation style, Cramer grabs his viewer’s attention and maintains it, while glamorizing the thrills and spills associated with active stock trading.
Despite their difference in approach, both have developed a reputation for actually offering quite unreliable advice. Olen effectively describes the dexterity with which Orman has repositioned her sales pitch, and her brand, to adapt to post-crash America, and she recounts the criticism that Cramer earned for his relentless cheerleading of underperforming stocks and the so-called “Cramer effect” that follows when a particular stock is featured on his show.
Making use of numerous detailed examples over the years, Olen demonstrates how the personal finance industry has been able to thrive over the past century regardless of whether or not their clients actually prosper. This is not a recent phenomenon but rather a recurring feature of American economic life since the early days of the Great Depression.
Salesmen (and saleswomen) have updated their pitches and delivery models to adapt to changes in technology and society, but their central message of the unlimited potential of astute investing has remained surprisingly constant. Orman and Cramer are simply the latest in a long series of media-savvy and camera-friendly gurus sincerely selling their stock-picking versions of the American dream.
The rhetoric they use can be very seductive. Saying that you can simply “refuse to participate in the recession” that is dragging down the economy around you is both an intoxicating image of self-empowerment and a seemingly legitimate basis for judging your friends and neighbors who have failed to keep their heads above water.
Showmanship and positive thinking ultimately do little to change the fundamental truths that drive financial markets. As Olen succinctly observes, “Investing is risky and there are no guarantees.” No one should engage in any stock market activities without fully understanding precisely what that means in the real world.
No matter how you dress it up — whether with late-night talk show pranks or self-help-infused philosophical meanderings — the investment decisions that we make in our lives are very important, and mistakes made along the way can have serious repercussions. However, what savvy investing cannot reliably do for men and women who are not trained financial professionals is magically transform their situation in life. Such transformation requires more than simply investing the money saved from a single grande latte from Starbucks each day, as would-be guru David Bach has suggested in his female-friendly book, Smart Women Finish Rich. No Horatio Alger rags-to-riches story ever stretched its credibility with readers that much.
There are no easy answers to the numerous problems facing the modern American economy that are combining to put middle class families under huge pressure. It is a grave mistake for anyone to believe that there is some panacea readily available for the cost of a $29.99 hardcover book or a $199.99 seminar held in the conference room of a large hotel chain.
Although Olen very effectively critiques the false promises and faulty analysis that are being sold on a commoditized basis by each new generation of “experts,” she does not deny the general need for improving the decisions we make regarding the money we earn and spend (and, when need be, borrow). As Olen observes at the end of Pound Foolish:
Personal finance can’t do it all. As an adjunct, it can make a valuable contribution, allowing us to plan, to get out of and stay out of debt, and to hopefully better our position when the time comes for retirement and other long-term goals. But there is no personal finance or investment scheme that can fully protect us from downward spirals or plain ill luck.
When things unexpectedly go wrong and we are suddenly faced with the loss of a job, unforeseen expenses, or a serious illness, the solution to these problems will more often than not involve a combination of family members, networks of friends and colleagues, community support organizations, and government services.
Budgeting and savings will be crucial. Consistently good decision-making will be essential. But the siren song of gurus and cheerleaders in the personal finance industry seeking to profit from the dream of financial security that is escaping more and more Americans will do little to actually improve the situation.