The End of Personal Finance
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The End of Personal Finance
Decades of advice turn out to be so much garbage.
By Helaine Olen
Posted Saturday, May 2, 2009 - 11:56pm
Years ago, when I wrote a popular financial makeover feature for a major national newspaper, one of our subjects asked if he should be plowing his more than $50,000 in savings into gold. It was 1997 and gold was trading at a little more than $300 an ounce. The financial planner assisting with the piece laughed dismissively, and the question never made it into the final write-up. Well, my bad. As I write, gold is hovering around $900 an ounce.
For more than two decades, as income inequality increased and job security decreased, Americans lapped up personal finance columns, books, and television shows. We thrilled to stock tips and swooned at sensible strategies for using dollar-cost averaging to invest in no-load index funds. Buy and hold, my friends! The annualized gain for the S&P 500 stock index over time is more than 10 percent! You, too, can turn into the millionaire next door. Carpe diem, folks! Seize the financial day!
The advice proffered by the vast majority of analysts, would-be gurus, and television pundits came down to one word: stocks. Some, like CNBC's infamous Jim Cramer, advocated stock-picking strategies. Others encouraged mutual funds. But very few—at least of those that could get publicity via mainstream outlets—doubted the efficacy of the market.
That our personal finances weren't fully ours to seize didn't seem to occur to many of us until recently, when the stock market plunged almost 40 percent in a mere year, housing went into free fall, and the unemployment rate began to climb perilously toward double digits. All these facts suddenly left the personal finance industry facing a conundrum of its own making. The backbone of the self-help complex is the idea that you can do it. You. Singular. But what happens when you lose your job and can't find a new one before your six months of recommended emergency savings runs out? Or a good chunk of your retirement income is in the form of a pension from your former employer—and that employer is named Chrysler? What then?
"Personal finance has come to substitute for the role government should play for people," observes Nan Mooney, author of (Not) Keeping Up with Our Parents. "In the past 20 years the myth of the person succeeding on their own has gotten bigger and bigger. This myth is dangerous. It tells you if you can't balance everything and you are in debt, it is your fault."
Sounds harsh, but if you are laid off and at the end of your resources, what other message can you take away from people like mega-personal finance guru Suze Orman, who continues to argue that people's main problem with money is ... emotional. (Orman also urges people to invest for retirement in the stock market, while admitting the bulk of her savings is in municipal bonds.) Or Jean Chatzky of everywhere from NBC's Today show to Oprah's couch, who helpfully tells people in her latest book, The Difference: How Anyone Can Prosper in Even the Toughest Times, "Overspending is the key reason that people slip from a position of financial security into a paycheck-to-paycheck existence." (Note: Italics original to Chatzky.) Chatzky forgets to mention that studies have demonstrated the problem most likely to land one in bankruptcy court isn't an addiction to designer clothes but, instead, overwhelming health care expenses.
(Photos of Jim Cramer by Scott Gries/Getty; Can by Ryan McVay/Getty Creative; Suze Orman by Bryan Bedder/Getty)
Comments
I think its should not be
I think its should not be happening at this stage, where the economy facing so much of downtime and i think Personal Finance must remain outside of Government. Look at Social Security, the ultimate Government Ponzi Scheme!!
Fallacy of Composition
If you've ever actually listened to or read Suze Orman, you would know that her main message is People first, money second. This encompasses several things, including: avoid personal debt, finding happiness through human relationships rather than consumerism, increase assets and decrease liabilities, respect yourself, others and your money. She also teaches how to find out your credit score (FICO), and the steps you can do to improve it, and consequently pay much less in interest for homes and/or automobile loans. She also teaches about the need for a will and a living trust if you want to preserve assets for your children/grandchildren. As for her advice on stocks: it is to maximize contributions to your 401k. As of 2009, that's $16,500 per year. That may sound like a lot, but how long do you plan on living after you retire, or do you plan to retire at all? 401k is a simple way for people to save and often has matching contributions from your employer up to a certain percentage. Investing in a 401k is certainly better than wasting the same money on depreciating consumer goods or paying interest on an overly expensive home. A 401k is a also good idea for a majority of the USA because most people are very undisciplined about not dipping into savings, and the penalty is a strong incentive to not rob retirement from your future self. I have few things to say about Jim Cramer, but Suze Orman, as far as I can tell is the real thing.
Being responsible for your choices
I think that this assessment has a valid point, but takes it much too far. Okay, so most people who end up in bankruptcy are there because of medical problems. Fine. Now what do we mean by this? We mean one (or both) of two things: They didn't have (good enough) health insurance, or they were unable to work because of health issues. In the first case, a "structural" or systemic solution is to force people to have health insurance. This can be done through taxes, or through simply demanding that each person buy health insurance. Health insurance is "too" expensive for people to buy it? What does that even mean? For the biggest group of uncovered people -- remember that the bottom 20% of Americans under age 65 already get free or nearly free health care from taxpayers, so we're talking about the people that are one or two steps up from that -- it means "I would rather spend $400 a month on a car than on health insurance, because my need for transportation, and my strong desire for *convenient* transportation, will appear every day this year, but I'll probably need heart bypass surgery, or breast cancer treatment, or whatever else might push me into bankruptcy, only once in my life." This "too expensive" line appears in other ways: I'd rather have a big vacation each year than have (any, or better than what I've got) health insurance. I'd rather live in a nice one-bedroom apartment without health insurance than live in a single room of a boarding house with adequate health insurance. These are real choices made by real people, and in a free society, we try to respect those choices -- at least until the moment that these people find their choices so inconvenient that they try to tell us that it's everyone else's moral duty to save them from their own imprudent choices. But the fact is that the medical bills themselves are not the biggest problem with health-driven bankruptcy: it's the loss of employment. Compare, for example, the different rates of bankruptcy between sick children and sick sole-breadwinners in families. You can't recover from heart bypass surgery in five days of sick leave. You might not even be out of the hospital after five days. Sure, someone that skimped on health insurance coverage might have a $5,000 deductible (or even higher) to pay, but what really pushes people over the edge is being disabled by months of recovery, or chemotherapy, or whatever else is necessary, and the loss of income that entails. We also can't expect an employer to hold a job open for six months or more -- or for your small business to sit quietly while you recover -- and it is hard to get employment, or to rebuild your customer base, after being out on a long disability. Unfortunately, for this second point, we can't really expect the government to provide sick leave pay to everyone, and even if it did for most people (like it does with unemployment benefits), it simply wouldn't be enough for everyone. Most imprudent people -- the people that need to stop the inappropriate, emotion-driven financial choices that these books are focused on -- can't survive on the >$2,000/month unemployment checks that are the norm in California, because they spend the full amount of their income each month. Why would we expect them to survive on the same amount as a recovery-from-heart-surgery benefit? The only way to make this painless would be to provide full salary -- and what taxpayer wants to promise that to any person making more money than he is?
End of Personal Finance
Personal Finance must remain outside of Government. Look at Social Security, the ultimate Government Ponzi Scheme!!
A bit unfair
A lot of the recent economic problems have stemmed from people with not enough money buying expensive homes with little or no money down.
I can assure you that Suze Orman never advised anyone to do that. She's all about being responsible with spending.
Personal Finance
I've read dozens of personal finance and investing books, and all of them could easily be held up to scorn in the wake of our financial system crumbling. Since there is literally no way average people can save enough cash to cover themselves in a full-blown medical catastrophe even if they have very good insurance (remember, a serious illness or injury can cost well over $1 million), by definition, all financial plans are hopeless. Lose your health, and you'll lose everything.
But even so, somebody has to at least try to keep us from spending all our discretionary income on idiotic trifles, or buying worthless stocks, or going into and staying in massive credit card debt. Are Cramer and Orman wrong about some things? Sure. Is their delivery over the top? Definitely. Is their only purpose to scam the public? I don't think so. Should they be blamed for every current bad outcome on Wall St.? No.
And It Always Was Garbage
Orman, Ramsey, and the rest give bad advice and then, as you say, when called on it claim to be actually dispensing psychological help.
That's more than just frustrating. The poor quality of mainstream money advice is a tragedy. One person following bad advice and acting foolishly is a shame, but a nation following bad money advice is a disaster. Can you imagine what would happen if, just to make up an extreme example, tens of millions of Americans bought more house than they could afford becuase the "experts" told them it was a good investment? The resulting bubble could cause a global recession.
Bad Money Advice
Money coaching
The only understanding you provide is based on separating suckers from their money. How inspiring.
Money Archetypes
Wow, that money archetype stuff in the comment above... That is some *high grade* b.s. You could fertilize an (imaginary) economic recovery with that stuff.
End of Personal Finance
Helaine, I think you may be a bit narrow on who you include in the field of personal finance, which puts them in a more damning light than they may ultimately deserve. I for one never considered their advice and tendency towards hyperventilation as anything other than entertainment. I was fortunate. I was in the position to ignore the substance of their advice because I had my own personal financial advisor who I paid handsomely through fees and stock trades to manage my family's portfolio. I would occassionally pass on their advice to my advisor, who would quickly correct the errors of their thinking. So instead of worrying about dollar cost averaging, no load index funds, or whatever, I was in the position of remaining blissfully ignorant knowing that I was in great hands with my advisor who has an SVP title with one of the preeminent investment houses - Merrill Lynch. I found myself in a pinch early last year and decided and instructed my advisor to take a pile of my porftfolio, over $100,000, and move it into super safe income generating investments. I needed to buy time for my family as the recession cut deeper and deeper into our houselhold cash flow. Last year was not the year to save, but to focus on getting by. So my personal financial advisor got me into the most highly rated income investments he could find. One was named Fannie Mae, the other Freddie Mac ($100,000 split between them) and then there was this other company who I was kinda familiar with that carried my life insurance. It wasw called AIG. So my personal financial advisor had me in for $120,000 total in the safest income investments he could find. Obviously, the advice didn't quite pan out as expected or in line with my instructions: safe / secure / income generation. So my approach going forward is to continue to watch Jim and Suzy and whoever else, buy to do so with my eyes wide open. They are entertainers. Actually, given the state of my portfolio after my experience with my real personal financial advisor, I can't act on their investment advice anyway. My main point is someone otta take a close look at the impact of the real personal financial advisors out there who work so tirelessly and anonomosouly to convince suckers like me that with their expert guidance and reseach behind them our piece of the American dream will continue well beyond our ability to get up out of bed to take advantage of it. If anyone from Merrill Lynch wants the details of the above, so that this can't happen again to their clients, by all means drop me a line. I'm home alot now - I'm recovering from a stroke.