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Personal Finance Writer Olen Exposes Personal Finance – Part I

By    |   Wednesday, 30 January 2013 01:44 PM

Helaine Olen was the guest on C-SPAN’s weekly program After Words on Jan. 28, in which she talked about her new book titled “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” Olen, who used to write the “Money Makeover” column for the Los Angeles Times, was interviewed by Russell Wild of the Saturday Evening Post.

The book is an expose of the products and services offered by personal finance gurus, which Olen refers to as the “personal finance industrial complex.” She began by stating that the basic premise posed by the industry is that people can and should gain control of their personal finances, and if they don’t achieve prosperity, it is because they failed to do this properly.

The trust, according to Olen, is that people tend to save less than the ideal amount because they don’t make enough money to begin with, and their finances may be wrecked by such misfortunes as medical emergencies and unemployment.

Olen traced the personal finance industry back to Sylvia Porter and the self-help movement of the Depression era. Olen referred to Porter as a “devout Keynesian” who sought to help make sure the Depression would “never happen again,” and her message was that if people acquired the necessary skills, they would be OK. This could be accomplished through a 10-step program, and if people failed to reach their goals, it was because they failed to negotiate the steps properly. People who achieved success were showcased, and these were generally people who didn’t have misfortunes.

Thirty years ago, two-thirds of working people had defined benefit pension plans; now roughly the same fraction has defined contribution plans, such as a 401(k). Olen explained that the whole structure of credit and personal finance has developed over a short period of time with the advent of credit cards, which at first women could not obtain under their own names, ATMs and 401(k) plans. The latter were a historical accident, growing out of legislation Kodak had managed to obtain to enable highly paid employees to make tax-favored investments, and then the Reagan administration made the plans available to all employees.

During the heyday of the stock market, from 1982 to 2007, rank-and-file investors had come to expect annual returns as high as 30 percent from investment vehicles that were pitched as money machines, and traditional pension plans would be unnecessary for employers to fund. Now, 80 percent of Americans think that the 401(k) is a failure, but rather than try to improve the pension product, they are focused on taking defined benefit plans away from those who still have them.

Once people have been convinced to try to take charge of their finances, according to Olen, they end up in the hands of personal finance gurus and advisers, and between 67 percent and 90 percent of them don’t know the difference between a “fiduciary” standard, which applies to brokers who have a duty to serve their clients’ best interests, and a “suitability” standard, which applies to salesmen and most investment advisers. This standard merely requires that the product serve its intended purpose, but the deal may not be in the best interest of the customer.

The next column will discuss the methods that the industry uses to sell its products.

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Helaine Olen was the guest on C-SPAN’s weekly program After Words on Jan. 28, in which she talked about her new book titled “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.”
Wednesday, 30 January 2013 01:44 PM
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