Personal Finance Problems

I’ve found out that there is trouble in paradise! An author named Helaine Olen has written a book about the problems of the personal finance industry. Here are a few interviews/discussions:
– A shorter one (31 mins): http://youtu.be/ViaJQRbJrzg
– A longer one (1hr 7 min): http://youtu.be/MtaBXXCULMg

The author does seem to have some very valid points and makes good arguments, but I also feel that she is somewhat off on a few things. I just finished listening to the above interviews, but I haven’t read her book, so based on that, here’s some of the points and my thoughts on them:

  • Since the 70’s, the middle class has been having a harder and harder time ‘making it’. I do feel that this is overall very true. Overall, median wages in the US have been essentially stagnant for several decades while many essential costs of living have gone up. There are very few quick or simple answers to problems like this. I feel that the best approach is a multi-pronged, long view solution (I won’t expound on it here).
  • Pensions are gone and 401(k)s suck. Well, yes and no. Very luckily, my coworkers and I do still have pensions, but that is unfortunately a rarity. I do also know that many companies have very poor options when it comes to 401(k) choices (typically as high fee products that are offered to them). Again, this is where consumer education comes in (and an IRA). One of the bigger points in the book seems to be that people need to be taken care of for their future savings. While I agree that this was done well in the past, that time has gone the way of the pension. I would love it if I didn’t have to worry about saving for retirement and it would be done for me by the company that I worked for or my government, but, flatly, it’s not (or is done so in a supplemental way – i.e. Social Security). I’m totally for people getting together and petitioning the government and the places that they work in order to change things for the better (hey…that sounds like a union! Personally, I’m generally in favor of them.), but that is not happening on a large enough scale at the current time to change much at the time. Currently, it is up to the individual to do the planning, for better or for worse.
  • Financial advisers, investment ‘experts’, and Personal Finance gurus have their own interests in mind, not the consumer’s. While I mostly agree with this, there are exceptions and, in general, painting with a wide brush is ill advised. I think that this can be greatly solved with better consumer education. Generally, consumers see finance and investment as an extremely complicated and complex thing. Overall, this is somewhat true, but a slow, steady, informed approach should help consumers. The proliferation of decent to good advice on the internet from a variety of sources is also a good thing. The education that I would firstly give to consumers is something that I’ve stated before in a slightly different context, “Someone is always trying to sell you something or part you from your money!” Being an educated consumer about fees, pitfalls, stipulations, and ‘gotchas’ is the best way to save one’s self from bad experiences. Many advisers and experts charge fees of one sort or another. The same goes for wherever a financial product may come from. Finance gurus are usually peddling their latest book, conference, seminar, or whatever else that they are putting out. If consumers are aware of the offerings in the market, they will have a much better time knowing what is or isn’t a good deal for them.
  • “We were told that giving up our daily latte would lead to us being millionaires when we retire.” Well, it depends how expensive those lattes are 😉 Seriously, I don’t know who in their right mind would believe that $4 or $5 a day will make you a millionaire in 20 or even 40 years; though, over 40 years, $4 a day would get you around $275k and $5 would get you around $320k (assuming average annual return of 6.5% or so after fees and everything else). Not quite a million bucks, but still nothing to sneeze at! It looks like the magic number per day would be quite near $15.75 per day to hit a million dollars in 40 years, $32.22 per day to do it in 30 years, and $70.68 per day to do it in 20 years…
  • Consumers are basically helpless and easy prey to the financial professionals and gurus. Again, while I partially agree, education and interest in one’s own situation is key. Like in nearly anything, those that don’t know good products from bad or those in desperate situations can easily fall victim to incredulous people in the world. The best thing that someone can do is not to be a victim of the predators. Yes, bad and unfortunate things happen. We should have a bigger and better social safety net for those that run into bad times, but barring that, people need to also take at least as much responsibility in their own situations. There are many things in life that an individual has zero control over, but anyone has the power to change what they do have control over. It may not be easy or convenient, but it is possible to change things under one’s own control.

I also looked at a few reviews on the book while writing this. Feel free to do the same if you’re so inclined.

Let your thoughs and feelings on this be known in the comments.

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