Tuesday, July 31, 2018

Pound Foolish by Helaine Olen

After reading Dollars and Cents, I decided to pick up another book about money. But unlike Dollars and Cents, Pound Foolish isn't about the wrong ways we think about money, it's an expose of the personal finance and financial industry.

Pound Foolish starts by taking a look at the history of personal finance, starting with S.F. Porter, a personal finance guru who rose to dizzying heights before falling into obscurity. The next chapter continues the examination of personal finance gurus by looking at the controversial Suze Orman and how she changes personalities and advice to suit her audience. Chapter three shifts from people to ideas as the author debunks the latte myth - that our small little luxury spends are what's keeping us from being millionaires. Instead, the book argues that the changes to the economy are so huge and the financial difficulties most Americans face so huge that such small changes will not help.

And that really is the central idea of the book - that personal finance is not personal and that Americans have to change the system of things before they can be financially secure.

Which is why as we read through Chapter four and the rest of the book, the focus slowly shifts from the personal finance gurus to the larger financial industry. Chapter four talks about retirement and criticises the American 401(k) as being inadequate. This chapter also introduces the 'most dangerous woman in America', Teresa Ghilarducci, and her hope to "create a pension plan for all of us by having workers and their employers contribute a minimum of 5 percent of pay into a guaranteed account via mandatory automatic deduction. The government, in turn, would contribute a $600 annual tax credit [...] All this money would be placed in United States bonds which would promise an annual minimum return of 3 percent above the rate of inflation."

That sounded a lot like the Singapore CPF system, in that employees and employers must contribute a certain percentage to a savings account (well actually there are three accounts for different purposes), which have interests rates that range from 3.5% to 5%. Not identical, but similar.

After talking about retirement (and whether Americans can afford it), the book goes on to talk about the culture of commissions in the financial service sector. This was actually pretty disturbing because it's clear that there are people preying on the elderly and not much is being done about it. When the chapter is done, the book continues on the idea of making money through investments (although not necessarily for retirement) by talking about the quest for the perfect investment.

The last three chapters bring the topic back to the topic of personal finance, as they discuss women and money (I know a few people who would have a lot to say about it), how real estate may not actually make you money, and the myth of financial literacy (the author doesn't believe it's possible to be financial literate).

Like I mentioned above, the central idea of this book is that personal finance is not financial and that Americans have been tricked into thinking that it is. To be honest, while a lot of the things here are eye-opening, I'm not entirely convinced by the argument. While it's true that sudden accidents or events can knock you off a financially secure position, advice such as getting rid of debt and cutting down on needless spending isn't bad (that said, some of the debt advice wasn't the best). It almost feels as though the author has no trust in the average American and wants to absolve them of any financial mistakes they might have made because it's the big bad financial industry and personal finance gurus to blame.

I'm not so sure if that's true. I do think that if you teach people how to think about money and to recognise the blind spots in their thinking, it's possible for them to make good decisions. While we probably shouldn't be asking financial institutions to teach people how to be financially responsible, given the conflict of interest, I think trying to make people financially literate is a good goal.

Overall, this was a pretty good book about how the financial environment affects personal finance. Perhaps its because I'm not in America, but I do follow quite a few responsible financial bloggers (although I will admit that there are many irresponsible ones) and I think that they are doing a good job educating people, which is probably why I'm not as pessimistic about the whole thing as the author.

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