Helaine Olen: Pound Foolish
Posted: Mon Jan 14, 2013 3:51 pm
I have not read the book, but found her quite refreshing on a TV clip I just saw. She basically ripped into the Suze Orman's of the world.
Investing Advice Inspired by Jack Bogle
https://www.bogleheads.org/forum/
Seems her argument is that it's all about things that are out of our control. Ok, I suppose. But I agree with her assessment that the talking heads, when talking to main street, totally overstate the *small* luxuries argument. Maybe there are people that go crazy with moderate luxuries and get in trouble, but unless someone is already in a world of hurt, the lattes aren't going to drown them. It's the big rocks that make or break finances. Buy a house that's too big, get divorced a few times, and stay underemployed. Those things do it.damjam wrote:Here's an Opinion piece that was in the NYT: Can't Save? Here's Why
I can't agree with the thrust of her argument.
I agree that most or even all of her minor points are correct: salaries are stagnating, eliminating small luxuries will not save huge amounts of money, the financial services industry is stacked against you, etc.MN Finance wrote:Seems her argument is that it's all about things that are out of our control. Ok, I suppose. But I agree with her assessment that the talking heads, when talking to main street, totally overstate the *small* luxuries argument. Maybe there are people that go crazy with moderate luxuries and get in trouble, but unless someone is already in a world of hurt, the lattes aren't going to drown them. It's the big rocks that make or break finances. Buy a house that's too big, get divorced a few times, and stay underemployed. Those things do it.damjam wrote:Here's an Opinion piece that was in the NYT: Can't Save? Here's Why
I can't agree with the thrust of her argument.
I was waiting for her to plug Bogleheads the whole time, sadly it never happened.lmpmd wrote:She pushes index funds here. That seems wise:
http://finance.yahoo.com/blogs/daily-ti ... 54956.html
I guess it comes down to whether "significant" = "huge."NYBoglehead wrote:I have to disagree about the small luxuries argument. Many small rocks put in a backpack will make it heavy. NOT spending $4 per latte twice weekly for a year will save someone $416. That's easily a new suit, a car payment, or a few months of electric bills (depending on location). To me that savings is significant.damjam wrote:I agree that most or even all of her minor points are correct: salaries are stagnating, eliminating small luxuries will not save huge amounts of money, the financial services industry is stacked against you, etc.
But her conclusion seems to be that there is no way you can save for retirement. I would say many members of this forum disprove that conclusion daily.
Of course the best laid plans ... Things can go wrong for an individual no matter how careful they have been. That is why safety net programs such as Social Security are so important, IMHO.
I just find her stance a little defeatist.
Agree. I am sick of well-fed talking heads bemoaning the fate of the middle class, how in debt and out of work they are, and the small-investor class, how they were all ruined by 2008 and low interest rates. It is all phony self-serving blather.NYBoglehead wrote: And I think she is way too defeatist.
I lost 50 lbs by skipping breakfast (5'9", 155 lbs). Keep blood sugar low, so postponing eating extends fast and body relies on fat for fuel. No hunger after short period of adaptation. Actually dropped to 145 effortlessly, and did a 3.5 day fast on a lark after it was advocated for by an Italian researcher in a documentary on the BBC. Was easy, no hunger. No longer a prisoner of food; no processed food, only meat & tons of vegetables, no grain/seed oil. Crazy, huh.sls239 wrote:Just like the idea that you can lose weight by skipping breakfast is a myth; statistically that strategy leads to more calorie intake, not less.
Yeah, but if you haven't gotten as lucky as many here, then perhaps taking your lunch to work *will* help and make a significant difference (she says it won't).bradshaw1965 wrote:The comments here sound a little Millionaire Next Door selection biased. The editorial might be a little hyperbolic, but Bogleheads have mostly won the game or are on their way to winning the game and maybe, just maybe have gotten a little lucky rather then completely won on intelligence and pluck.
Those are all great tactics, but the kind of luck I'm talking about is being born with supportive parents, adaptable to work that pays well, blessed with discipline, having the ability to focus without attention disorders, lacking significant health problems, the ability to discern financial options that are built to deceive, etc.. I don't remember who he quoted, but William Bernstein has the quote where he says fractions are a stretch for 90% of would be investors.Khanmots wrote:Yeah, but if you haven't gotten as lucky as many here, then perhaps taking your lunch to work *will* help and make a significant difference (she says it won't).bradshaw1965 wrote:The comments here sound a little Millionaire Next Door selection biased. The editorial might be a little hyperbolic, but Bogleheads have mostly won the game or are on their way to winning the game and maybe, just maybe have gotten a little lucky rather then completely won on intelligence and pluck.
Personally I used to go out to eat daily for $10-15 lunches. Switching to bringing frozen dinners instead costs me $2-5 a meal. Based on my work schedule, etc, that's a yearly savings of nearly $2000. I could save another couple hundred a year if I were to start making sandwiches or bringing leftovers instead of the frozen dinners. Personally I'm well enough off that when I was eating out all the time I was simply classifying it as entertainment expenses, socializing with coworkers and breaking the day up. I could afford to do this while still meeting my financial and savings goals.
Now, if I hadn't had the opportunities that I have and I was making far less, say only $30k a year, then suddenly this $2000 *after-tax* income boost is *very* significant. It may well mean the difference between saving $2000/yr instead of saving $0/year. Having a nest egg that can provide $8k a year (at a 4% SWR assuming 4% real return on $2k invested each year for 40 years) on top of SS may mean the difference between eating dog food and maintaining close to the style of living I had when I was working.
The editorial I saw seems to ignore the reality that a few hundred here and there may not be "real money" to those of us that are better off, but it is very much so to those that aren't. In my example above, the $30k/yr wage earner will, if ceasing work at age 70 earn around $18k/yr from SS. An extra $8k/yr of income from investments would be a *huge* boon, it's nearly a 50% increase.
I agree. I think that's a great distinction to make. (Though I will always stick up for Carter and his eco-cardigan.)TSR wrote: I think the hyperbole of her arguments is the suggestion that because we need comprehensive change to our economic system to help the middle class, things are therefor "hopeless" for individuals. It may or may not be true that only real policy change will assist the middle class (again, I don't want to go into it here), but that says absolutely nothing about whether common-sense financial advice can help an individual out of debt.
Social Security plays a bigger role for those with average incomes verses those with higher incomes. Someone earning 50k a year will receive something around a 40% income replacement rate from Social Security. You can calculate the exact amount using SS PIA bend point formula:Novine wrote:I'm interested in seeing how the numbers work for the median American household. Can you save for retirement, save for kids college, pay for health care, put a roof over your head and have a healthy emergency fund on $50,000 a year? I'm sure it's doable. But you won't be maxing out your 401k at $17,500 a year. If you can only save $5,000 a year in a Roth, what kind of retirement does that provide you if your only other retirement income is SS? This isn't a question of willpower or bad choices. It's simply asking what's realistic for people of low and moderate income to be able to accomplish in a lifetime of employment. Will how things currently work provide them with a retirement relatively free of the concerns of money? Or will retirement just be another period of time living SS payment to SS payment?
So as you can see a person making 50k a year does not need to save as much as a percentage of income as someone making 100k a year to have the same income replacement rate at retirement.For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2013, or who dies in 2013 before becoming eligible for benefits, his/her PIA will be the sum of:
(a) 90 percent of the first $791 of his/her average indexed monthly earnings, plus
(b) 32 percent of his/her average indexed monthly earnings over $791 and through $4,768, plus
(c) 15 percent of his/her average indexed monthly earnings over $4,768.
I didn't really get that from her talk (I haven't read her book btw). It just seemed like she was a little more defeatist than most of them, and didn't believe in the entire bootstraps technique that will lift everyone to millionaire status like others want to believe. I mean, we see that from Khanmots above who thinks its likely someone making $30,000 a year is spending $10-15 on lunch every weekday. I'm sure a small percentage of people might do that, but I doubt that's a normal worker.lawman3966 wrote:I'm impressed that the above posters are this polite in connection with the article.
The author appears to make two basic points: (a) saving on consumption is pointless; and (b) the problem lies with the "system", not with individuals.
In other words, she's shifted the burden of ensuring financial security from individuals to society as a whole, and from an actionable issue for the reader to a grand social issue that individual readers no power over.
I assume the article would have no effect on Bogleheads and others with some financial acumen. But, less well informed people who read the article and conclude that savings is pointless could be harmed by it. An article on removing coffee stains from the carpet would have been more entertaining, and a better use of the cyberspace the subject article occupies.
The author appears to make two basic points: (a) saving on consumption is pointless; and (b) the problem lies with the "system", not with individuals.
In other words, she's shifted the burden of ensuring financial security from individuals to society as a whole, and from an actionable issue for the reader to a grand social issue that individual readers no power over.
Thanks for confirming I made the right decision not to purchase it.deathb4disco wrote:I read the book this weekend. The author makes some good points, but she is an unabashed fan of both Teresa Ghilarducci and the Occupy Wall Street movement. I am a fan of neither. I don't want to get into politics, so I'll just leave it at that.
Good expose but no personal accountability, February 8, 2013
By Dale C. Maley "Index Fund Investor"
This review is from: Pound Foolish: Exposing the Dark Side of the Personal Finance Industry (Hardcover)
A little background on myself before I start the book review. I have an Engineering degree and an MBA. I have read over 200 books on investing and have been investing for 35 years. I am a Registered Investment Advisor in the State of Illinois. Most of my financial planning customers are family members with a few non-family members. I was a contributing author to the Bogleheads 2nd book, The Bogleheads Guide to Retirement Planning. I am also the author of over 50 e-books on financial planning topics.
When I write stories, I computer check my writing and try to keep it as simple as possible for the reader. Olen apparently does not believe it writing a story as simple as possible. I found four words or phrases that I had difficulty with. She uses the expression "caught out". I think she means she was afraid of being discovered as a fake financial planning expert when she had no training in investing or financial planning. I had never heard of the word oeuvre with respect to Suzy Orman's ever growing oeuvre. The word oeuvre relates to an artist's complete set of works. Olen used the phrase take-up with respect to 401Ks. I think she means the participation rate of employees signing up for their 401K plan. The last word was avaricious relatives. She could have simply said greedy relatives.
Olen frames all people involved with giving financial advice as "self-helpers". She says Americans have always believed that you control your own destiny. This started with Ben Franklin's 1732 financial advice that a penny saved is a penny earned in Poor Richard's Almanac. This theory is also commonly called rugged individualism or pulling yourself up by your bootstraps.
Olen spends the first part of her book doing exposes of people historically involved with personal finance. She starts with Sylvia Porter. Olen's complaint is that Sylvia Porter became so successful (and rich) that she could no longer relate to the issues of ordinary people.
Next she moves on to Jane Bryant Quinn, who chronologically replaces Sylvia Porter. Olen does not really skewer Quinn.
Olen left out Venita VanCaspel. Venita wrote one of the first books on financial planning back in 1978. Unfortunately, VanCaspel got caught up in the limited partnership craze of the 1980s. The people selling limited partnerships got huge commissions and the investors were wiped out when the tax laws favoring limited partnerships were abolished.
Olen spends quite a bit of time skewering Suze Orman. I find Orman offensive and too simplistic, but some women seem to love her. Orman dropped out of the U of Illinois (my alma mater) while pursuing a degree in sociology. She became a waitress at the Buttercup Bakery. I am a firm believer that a financial planner should "eat their own cooking". This means only recommending investments to clients that the planner uses in his personal portfolio. Suze recommends investing in stocks, yet she owns no stocks and only holds tax-free municipal bonds. I did like Olen's summary of Orman. "The Buttercup Bakery was, in other words, the perfect professional incubus for Suze Orman, who would first find the love she craved by serving up rather routine food to a roomful of regulars, before going on to sell rather routine and conflicted financial advice to millions, all the while convincing her fans in both places they were receiving gourmet tidbits."
Olen then skewers David Bach. His claim to fame is the advice to skip the daily latté and grow the money into millions by investing it. There is only one problem with is claim, the math does not add up. If you figure $4 per day over 250 working days in the year, you are investing $1,000 per year. If you achieve the long-term average return of the stock market of 10% over 30 years, you end up with $164,494. If you factor in a 3% inflation rate, the ending value drops to $94,461. This is a lot less than Bach promises.
Bach has also made millions by advocating automatic savings. When you were a child, your parents probably told you that if you can't touch the money, then you can't spend it. Using automatic savings plans (like a payroll deduction for a 401K) is common sense and simple advice. Bach has been able to promote this simple idea into millions of dollars of income to himself.
Olen also spends a lot of the book on skewering Dave Ramsey. His mantra is to pay off all debt. Olen criticizes Ramsey because he declared bankruptcy when he over-borrowed for his real estate investments.........but now tells his clients they should never declare bankruptcy. Olen finds some bankruptcy experts that say most people are better off declaring bankruptcy sooner versus later. She also criticizes Ramsey because he does not recommend paying of the debt in the order of highest to lowest interest rate.
Olen also skewers Jim Cramer, the CNBC shouting salesman. Cramer is an entertainer. All the studies I have seen show that one should never follow his investing advice.
Olen missed skewering Phil Town. He has gone on national TV shows and made preposterous claims. He says ordinary people can achieve 15% annual returns and they only have to spend 15 minutes a week to do it. Almost nobody has equaled the 10% historic return of the S&P 500 over long periods of time like 30 years.
Olen also picks on The Millionaire Next Door book. Olen ignores the major message of this book which is to live below your means....which gives you money to invest. A secondary message is that many people have become millionaires by starting their own businesses. Stanley, the author, points out in the book this is a very risky proposition. Most small businesses fail within the first 5 years of existence. Olen complains that it is too risky to start your own business, yet the book clearly points out this risk.
The whole premise of Olen's book is laid out early on page 12.
"Pound Foolish will tell the story of how we were sold on a dream--a dream 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. The book will tell the tale of how that fantasy was sold to us by people, organizations, and businesses that had a vested monetary interest in selling it to us. Finally, it will tell the story of how we allowed ourselves to be convinced that the personal finance and investment industrial complex would save our collective financial souls--and what comes next, now that it is clear it never could."
Olen believes people have zero control over their own destiny. She argues that people can not become financially successful until government solves income and social inequalities.
This philosophy leads to no recommendations for people, except to lobby for more government involvement.
Although Olen writes colorfully about the issues of 20th century people, maybe she should go back in time a couple hundred years. An Italian economist, Vilfredo Pareto, made an interesting discovery around the year 1900. He found that only a small proportion of people own the majority of the wealth and income of a country. He found this to not only be true in Italy, but England as well. The rough ratio he found was 80:20. Only 20% of the people have 80% of the wealth and income. If you fast forward 113 years, you will find the same ratios in the United States.
In other words, income or wealth inequality has been around for at least 113 years. The only systems with less inequality eventually collapsed (e.g. Soviet Union).
So the real question is, if you desire to be in the top 20% that has 80% of the wealth or income.......how do you become a member of the top 20%?
The only way to increase wealth is to first live below your means.......so you have money to save and invest. I think Charles Dickens said it best back in 1849 when Charles Dickens wrote David Copperfield. Mr. Macawber says, with respect to money:
"Income 6 pence a week, expenditure 5 pence a week, result happiness: Income 6 pence a week, expenditure 7 pence a week, result misery."
I don't really care for Dave Ramsey, but if his methods help some people get their spending and debt under control, then great. There are other non-profit organizations that can help people with their spending issues also.
On a sliding scale, Olen believes people have zero control over their financial health and need government intervention. I lean towards the other end of the scale. I believe many people can change their behavior and they can join the 20% that has 80% of the wealth. We should keep the current safety nets we have for people that encounter the unexpected tough times of life.
Olen focused on the people that offer very little real advice and who profit on giving this advice. On the positive side, she missed the work of Jack Bogle. Jack started the Vanguard group and led the way on offering low-cost index funds. Vanguard is one of the few institutions that is owned by their customers, and not by shareholders. Bogle could have gotten a lot richer by not offering index funds and becoming a publicly traded firm. Millions of people have benefited by investing in Vanguard's low cost index funds. Vanguard also offers decent financial plans to people at minimal or no cost.
The believers in Bogle's low cost index funds have their own online forum. Just Google the term Bogleheads to find them. They are a non-profit group that discusses investing. They will review your portfolio at no charge and give you recommendations. Political discussions are also banned.
There are also many honest fee-only financial advisors that can help you with financial planning.
All-in-all, maybe this is a good book to educate people about the conflicts of interest involved with investing and financial planning. You will not find any recommendations on how to improve your own financial health, except to lobby for more government involvement. This is because the author believes that we have no control over our own destiny.
Bad argument. Suze has said that she's in a very different position financially from the vast majority of her clients; she doesn't need to take equity risk and so she doesn't. (Notice how she's channeling Larry here.) Presumably, if she were 25 and had just saved her first 10 grand, she'd take her own advice and buy stocks. At least once in every Bogleheads thread someone quotes Buffett or Swensen or whoever exhorting the hoi polloi to hold index funds, and this isn't considered hypocritical. Larry has mentioned his own AA and hastened to add that it's inappropriate for most investors.DaleMaley wrote:I am a firm believer that a financial planner should "eat their own cooking". This means only recommending investments to clients that the planner uses in his personal portfolio. Suze recommends investing in stocks, yet she owns no stocks and only holds tax-free municipal bonds.
Good point. I guess the real question is as her net worth increased from zero to mega-millions, did she ever own stocks along the way? I don't know. Since she turned over the $50K her restaurant customers loaned her to start her own restaurant to a Merrill Lynch broker, and he lost it all...I'm guessing she never invested in stocks again.Kulak wrote: Bad argument. Suze has said that she's in a very different position financially from the vast majority of her clients; she doesn't need to take equity risk and so she doesn't. (Notice how she's channeling Larry here.) Presumably, if she were 25 and had just saved her first 10 grand, she'd take her own advice and buy stocks. At least once in every Bogleheads thread someone quotes Buffett or Swensen or whoever exhorting the hoi polloi to hold index funds, and this isn't considered hypocritical. Larry has mentioned his own AA and hastened to add that it's inappropriate for most investors.
I didn't read the book, but I too read the summary on Amazon and this is where I got turned off. David Bach is the author of the Automatic Millionaire and the inventor of the latte factor. He basically has you get on a plan and make it automatic and by doing so it takes the budget off the table and you can lead a worry free financial life.midareff wrote: In the summary of the book, it mentions that saving money by not spending on lattes, etc is a myth.
Toons, thanks for the link. I've not read Ms. Olean's book, but I have just watched this C-Span interview you were good enough to provide and, contrary to much of the commentary in this thread, my initial assessment is that this woman's perspective is right on the money. But here's the real shocker, as frivolous as it may seem to some. Not only am I going to invest the whole $16 it will take to buy this book, instead of borrowing it from our local library, but if it's as relevant and insightful to the subject of personal finance as I now suspect it will be, then I'm going to purchase several more and distribute them to some of the younger folks I care about. Of course, if after I've read Ms. Olean's latest work, I conclude that my 16 bucks was poorly invested, I'll just have to put off retirement for another year.Toons wrote:If you are interested Helaine Olean talks about her book ,Video- C-Span about 55 minutes
http://www.c-spanvideo.org/program/310084-1
If the $16 is poorly invested then you will disagree with Ms. Olean's premise that saving on lattes does not matter, and therefore you will immediately start saving on lattes. By saving on five lattes you would recoup the cost of the book and put off your retirement by mere eleven months.Austintatious wrote:Of course, if after I've read Ms. Olean's latest work, I conclude that my 16 bucks was poorly invested, I'll just have to put off retirement for another year.
As I mentioned, I've not read her book. I think I can say, correctly, that the word "latte" was never mentioned in the 55 minute C-Span interview I watched earlier this evening, though I cannot swear to it. If Ms. Olean actually suggests that saving money by cutting back on one's lattes, and going out for lunch five days a week, instead of brown-bagging-it, or splurging on a Beamer instead of settling for a Corolla doesn't make a difference, then she would be wrong. But I haven't read her book, yet. Have you? And how about all the others posting here who have rejected her work so readily? Have they all read her book?VictoriaF wrote:If the $16 is poorly invested then you will disagree with Ms. Olean's premise that saving on lattes does not matter, and therefore you will immediately start saving on lattes. By saving on five lattes you would recoup the cost of the book and put off your retirement by mere eleven months.Austintatious wrote:Of course, if after I've read Ms. Olean's latest work, I conclude that my 16 bucks was poorly invested, I'll just have to put off retirement for another year.
Victoria
I have not read the book and I might watch the C-Span interview tomorrow. This thread is the only information I have about Ms. Olean's ideas, and it is not sufficient to accept or reject them. As for the lattes, the validity of her argument depends on how she presents it. From my personal observations, people frequently justify large expenditures by deciding to cut many small ones. This seldom works.Austintatious wrote:As I mentioned, I've not read her book. I think I can say, correctly, that the word "latte" was never mentioned in the 55 minute C-Span interview I watched earlier this evening, though I cannot swear to it. If Ms. Olean actually suggests that saving money by cutting back on one's lattes, and going out for lunch five days a week, instead of brown-bagging-it, or splurging on a Beamer instead of settling for a Corolla doesn't make a difference, then she would be wrong. But I haven't read her book, yet. Have you? And how about all the others posting here who have rejected her work so readily? Have they all read her book?VictoriaF wrote:If the $16 is poorly invested then you will disagree with Ms. Olean's premise that saving on lattes does not matter, and therefore you will immediately start saving on lattes. By saving on five lattes you would recoup the cost of the book and put off your retirement by mere eleven months.Austintatious wrote:Of course, if after I've read Ms. Olean's latest work, I conclude that my 16 bucks was poorly invested, I'll just have to put off retirement for another year.
Victoria
There is this thing called "context", and it just mioght apply to this woman and her work. Why don't you "invest" in the 55 minutes it takes to view the C-Span interview and see what you think? And if you already have viewed that interview, what do you think, Victoria?