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on May 14, 2013
Book Review of "Pound Foolish" by Helaine Olen.
I eagerly anticipated reading "Pound Foolish." It's right down my alley--another critique of the personal finance industry's dirty underwear and how this industry looks out for their best interests over our own. I was in heaven! I love these types of books. More needs to be written. I listened to her interview on a podcast and loved what she had to say about the financial industry and bought the book right away.

She talked about many of the gurus we all know: David Bach, Robert Kiyosaki, Suze Orman, Dave Ramsey. Olen points out that they say some of the right financial ideas to their followers while subtly encouraging spending and the wrong financial ideas through their endorsements and expensive follow-up classes (e.g., how to buy real estate with no money down, etc).
After all that has happened in the past decade, none of this should surprise us. For us regular folks, it is hard to imagine why for example, Suze Orman, who is worth $30 million, as Olen reports, and yet endorses a credit card company! And Orman started telling people about buying new cars. Why? According to Olen, when you have as big an ego as these gurus have, you only want to get bigger and richer. IMO, we have something that these gurus don't: we have "enough!" (Quoted in the introduction of John Bogle's book, "Enough").

The critique doesn't stop with the well know gurus. The author brought out the conflicts of interest by the boatload covering the entire financial industry. And there are plenty! Some I had not thought about. She covers many topics such as the financial literacy programs supported by banks. This was new to me. I was wondering how a positive topic as financial literacy programs could be a conflict of interest. The ah-ah came to me instantly: these same banks turn around and offer credit cards to clients with over-the-top credit terms and higher interest rates. Literacy "programs" apparently are paid for by the folks who pay higher interest rates so the risk in offering these positive image programs is borne by the customers whether or not they took a class. Is this is an example of moral hazard or just a response to a regulation that if you serve poor people, a bank must offer literacy programs? Then we wonder why so many of these literacy programs fail--the financial industry uses literacy programs to promote their business! And what is that business? Borrow and spend, of course. Now I get it. Duh!

Olen believes that the support for student programs, Junior Achievement and Jump$start, provide the brand name introduction of the big banks to teens. As a teacher, I have used both of these programs and have noticed the big bank ads all over their brochures. One solution that I always mentioned to my students is to use your local credit union. (As a side point, I never liked the Stock Market Game as it showed students how to compete and gamble as a game by winning or losing, rather than provide long term genuine saving and investing strategies. Investing is serious business--not a game at all!)

She also berates the financial information offered on many of the financial media giants 24/7. I loved Olen's description of Jim Cramer-- his frat-boy mentality, his testosterone bloated antics with the back drop of tacky sound effects initiated by huge buttons. What a show! Yet, millions watch that trash--it's highly rated since 2005. Cramer blew it big time with his support of Bear Sterns. How about his investment advice? Sure, invest in four or five individual companies in different industries and you have diversification! I KID YOU NOT!

I devoured Olen treatise like a kid with five dollars burning a hole in my pocket when walking around a candy store. However, my sweet tooth turned sour when she dragged in good people--authors that have successfully offered us regular folks objective financial information. For example I could NOT understand why she attacked the good authors of the "Millionaire Next Door" and "The Millionaire Mind" and their motives. She condemned the Millionaire Next Door author's profile of the American wealthy implying a disservice to readers that all you have to do to become a millionaire is to start your own business. Huh?

I read those books. Both are great--every American should read them. Millionaire Next Door and Millionaire Mind authors reported that the living habits of America's millionaires are available to all of us who have a modicum of discipline and can rely on our everyday common sense. American millionaires built wealth slowly by living frugally, sending their precious little ones to public schools, paying off debts quickly, saving and investing regularly, driving old cars and trucks for years and dining at home in their dungarees. Even Warren Buffet proudly announced in an interview in Time Magazine that "no Buffett in Omaha has ever attended private schools." Ben Franklin said two centuries ago "spend less than you earn."

My husband and I have never owned a business. We worked as public school teachers and yet achieved millionaire status through the good ideas found in the "Millionaire Next Door." Americans would still be surprised to learn that the average American millionaire is not, and never has been, the limo-chauffeured, tuxedo-wearing, patent superficial, mansion living, martini-guzzling, nitwit inebriate with the Gatsby values and physical attractiveness on their way to the Hamptons.

Along with the idea of reducing spending, she distorted that "latte millionaire idea" offered by David Bach by implying that you don't save a million by giving up lattes. Of course, any fool knows that and she accurately pointed out Bach's erroneous statistics. But statistics are beside the point--it's an attitude of spending that makes the difference. If people spend frivolously on lattes, they will probably spend frivolously on new cars, big houses, private schools from preschool through college, the latest fashion, expensive cosmetics, etc. The latte habit is only a point to look at your daily spending and how maintaining the image of "looking rich" damages your financial status while enduring needless stress of trying to keep up with the Joneses.

I agree with the other reviewers who report that she left out solutions. But that was not the intention of this book! The subtitle is very clear: "Exposing the Dark Side of the Personal Financial Industry." I don't begrudge the author when there are so many negative financial issues that we consumers need to know and address--high costs that are hidden, conflicts of interests, "safe" retirement products that don't keep up with inflation. I agree with the author's intentions of "exposing the dark side" 100%.

If you want solutions to address the conflicts of interest of the financial industry, you need to read elsewhere. And there are plenty of books that offer solutions: John Bogle's books or the books by his followers, Ferri, Swedroe, Roth, Burns, Bernstein and the Bogleheads. John Bogle passive investing strategy and low costs bypass all of the Wall Street shenanigans that Olen accurately points out and learning this simple strategy address financial literacy 100%. This alone does require more regulations, although, I am not totally against more regulations to demand more transparency.

I highly recommend the book with four stars, despite some distortion of the latte idea of reducing spending and attacks on the Millionaire Next Door authors.
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on August 29, 2014
This is a must read for anyone who is wondering where to put their money in a place that It will grow, and be there for their other years. The stock brokers, and financial advisors have one agenda, and that it is for you to give them your savings to invest in stock accounts,\. I wouldn't advise not to do that unless you learn a litte about this money making system. Number on thing they tell you is give me your money, and I will invest it for me. You pay me fees, and maybe or maybe not I will make money for you..But you can be sure of one thing I will money of you. After reading this book, I trust no one in the financial market
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on October 22, 2013
"Pound Foolish" reminds me that in 1849, most of the money made in the California gold-rush was made by people who sold shovels to prospectors, not by the prospectors themselves. Those in the business of selling shovels probably wanted to promote the myth that you can make a fortune out of digging for gold. But if the shovel-sellers truly believed the myth, they'd probably have hidden all the shovels and quietly dug for gold themselves.

I guess it's also true about the financial services industry. People in that industry are merely plying their trades, for their own financial gain. (There's nothing wrong with it; that's why I work too). For better or worse, their jobs are to advise or channel other people's money into certain investment strategies. If they could make a better living by simply managing their own money, I expect that's what they'd be doing. If our advisors can earn more by controlling other people's money than by controlling their own, we need to be vigilant about their wisdom and about how they're steering us.

I think I saw someone object that "Pound Foolish" failed to promote any alternative investment strategy. Well, maybe the first step of a successful investment strategy is simply to avoid handing your hard earned cash to unworthy advisors, and to learn how to spot advisors who are untalented or dishonest. Seeing how many people invest badly or who have mutual fund accounts that they can't understand, maybe avoiding con-men is the most valuable lesson to be learned.
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on October 26, 2016
Ms. Olen reviews some of the leading figures in personal finance and trashes most of them, sometimes with good reason. Her reviews of efforts of Suze Orman and the "Rich Dad, Poor Dad" guy to tie in other products with their seminars are revealing, as are her summaries of the tactics aimed at selling annuities to the elderly. I think, however, that she is too dismissive of Dave Ramsey: for example, she criticizes his Debt Snowball approach by simply saying that interest rates matter, then on the same page cites a study that offers some support for Ramsey's approach. Yes, interest rates matter but so does resolve, and that is what Ramsey emphasizes with his approach. Another deficient review in this book is that of David Bach and his connecton of lattes to bad financial health. Olen counters that stagnant incomes and rising costs of housing, health care, and education are responsbile for poor household financial health. She is right to mention these factors, but I think Bach's point is that frivolities like lattes, iPhones, expensive cable plans, etc. eat up a lot of what could go into savings, as does buying more house than is needed.

The only figure who appears in this book without snarky commentary is Teresa Ghilarducci, a noted 401(k) skeptic who wants to replace 401(k)s with Guaranteed Retirement Acounts - guaranteed by the same government that brought us the Social Security Trust Fund. Olen also approvingly mentions a California law that ostensibly provides retirement security, courtesy of that state government, but she neglects to mention that the California government faces its own massive pension crisis.

It's not a bad book if you read it knowing that Olen is biased. Get a used copy.
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on May 31, 2016
It's not a bad book. It just is kind of boring and did not really give a solution to the problem. It is a book that everyone should read but already being a financial professional (the good kind. Not the one's that just try to take your $, and give bad advice) I already was aware of much of the content in the book.

Still worth reading. Just not the most entertaining read.
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on May 11, 2013
Financial journalist Helaine Olen is not very happy with the "personal finance" industry. "Personal finance" in this context includes all those who write (Suze Orman et al), advise (financial planners), entertain (Jim Cramer and his Mad Money screamfest), manage money (Fidelity and all the other fund managers) for individuals, and so forth. The idea is to build wealth for retirement, kids' college, buying a house -- in short, it's an industry that is central to the quality of people's material well-being. The short version of Olen's diagnosis of this industry's problem is that all these people are in it for the money AND that because they are in it for the money, they will steer you wrong and rob you blind if it serves their interests. OK, so how is that different than dealing with many other businesses, such as buying a car or selecting a cell phone provider? She doesn't actually directly answer that question in a comparative way, but she does suggest several possible reasons:
1) finance is unusually complicated, and the industry tries to make things even more complicated by making their products "non-transparent" through contract fine print and financial babble;
2) the time horizons are really long, and people are not good about making sacrifices now that may not pay off for years;
3) financial markets are inherently chaotic and unpredictable, and so our human tendency is to search for comforting answers from witch doctors who claim to be able to predict the future;
4) the game has been rigged because the industry controls such huge wealth -- vastly more than even such powerful industries as auto manufacturers and telecommunications companies -- that it uses that wealth to buy politicians and prevent effective regulation.
5) we don't make good decisions when we're fearful and the economic tides are moving against us. Try being rational with every purchase decision when you're stressed by living paycheck to paycheck, your health costs are soaring, you can't afford to send your kids to college, you have no pension, and your income is lower now than it was 10 years ago.

Needless to say, Olen does not have to look far for examples of how the industry does us wrong. Suze Orman blithely told her fans that real estate was the best investment they would ever make in their lives, and then when the housing crash occurred, said "Oops, I was wrong. But hey, I've got this new book you should buy." Managers of actively managed funds (as opposed to market index funds), on average under-perform the market, year after year -- but relentlessly promote their high-expense services just the same. 401K fund plans for employees offer high expenses combined with limited fund selection -- and the reason that employers choose such poor fund plan providers is that they offer cheaper plan administration fees to the employers themselves! And so it goes. If you have been following this stuff, you won't be shocked. If you have NOT been paying attention through the last couple of market crashes, you will indeed be shocked.

So what's distinctive about the author's analysis that you will not hear from every other critic of the financial industry? For me, it was two things.

First, she points out that the personal finance industry tries to lay the responsibility for financial failures and successes almost entirely at the feet of the individual. It's a case of a "moralizing minority" telling everyone else that it's their fault that, over the last 25 years in the US, private employer pensions have largely disappeared, median incomes have stagnated (and actually declined for the lowest fifth of the population), private health care and college tuition costs have grown at several times the rate of inflation, and wealth and income inequality has become the absolute worst in the developed world. Not only is there an elephant in the room, but the elephant has died and its rotting carcass is stinking up the entire neighborhood.

But still the moralists have barely noticed. Instead, they point to the fact that too many people feel entitled to their daily Starbucks latte. Olen argues that having people give up lattes isn't going to solve the massive public policy fiascos that underlie these long-term trends in US society. This situation needs a collective solution. In the grand scheme of things, moral exhortation to individuals isn't going to make much of a difference. However, Olen does not devote much ink to informing the reader what kinds of public policy solutions she does think are required, let alone how to actually get them enacted.

Second, Olen says that there is at best a very weak relationship between making people more informed about financial matters and having them actually make better decisions. Of course, the fact that people often seek their information from salespeople in the financial business is obviously a part of the problem. Conflict of interest seldom leads to happy outcomes. But there is an even bigger problem. People are people, and will continue to fall into all the emotional traps that human beings have always embraced. They will continue to fall for well-packaged hucksters like Jim Cramer and to stick with their long-time financial planner who has sold them the whole life insurance policy they don't need. They will continue to fearfully hold too much money in cash and invest too little in assets that can produce income and capital gains. They will continue to save too little for retirement. But isn't this just putting the blame back on the individual, the same "too many Starbucks lattes" fallacy that she debunked earlier? I don't think this is a contradiction with Olen's point #1. I believe it just makes it all the more obvious why it's the unusual individual who is able to overcome those larger forces. Knowledge alone isn't enough. It takes a lot of emotional self-control. More important (back to point #1), it takes collective action to solve a collective problem.
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on July 29, 2013
As a military financial counselor and also a finance professor, I was intrigued by an interview of the author on NPR. I spent 37 years in financial services. It is an industry that struggles with transparency brought about by the advent of the Internet, versus keeping their financial-speak in a black box to maximize commissions, fees and product sales. It did a fantastic job of maintaining balance as an educational piece, giving the industry credit where credit was due, while exposing things we have know were going on for many years, particularly after the industry was, in my opinion wrongly, deregulated in the Regan era. The book was extremely well-researched, and the conclusions thoughtful and rational. I give four stars only because, again in my professional opinion, a couple of the conclusions either were non sequitur or were a bit of a stretch, such as Dave Ramsey's alleged hypocrisy regarding bankruptcy. In my view, this was not hypocrisy, but simply a change in viewpoint due to a life-changing experience.
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on October 2, 2016
The writer of the fine Trekonomics, Manu Saadia, pointed me to Olen’s work in a conversation (you can pick up that name, since I dropped it and am done using it). What this book is is a complete and thorough debunking of your favorite personal finance guru. Most are charlatans, it seems that the real question is to what degree are they charlatans.

What I take away is that like some presidential candidates, what is being sold is not success per se, but the idea of success. Wrap yourself in the rich dad poor dad millionaire next door Jim Cramer etc mindset and you too can be rich. Having long been skeptical of people searching for gurus, Olen’s book is a breath of fresh air. What is missing is a bunking where the debunking went.

Aside from don’t follow these fools, I was at least looking for something that might guide what I should look for - the best advice Olen claims to have found is to short the stocks that Cramer pumps, as well as buying TIPS. Even my well-worn advice of buying index funds comes under some scrutiny here, and I want a guru. Wait, I think I get it now.
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on June 23, 2017
I suffered through 38 pages of this book and then gave up. It's just a bunch of random facts assembled in a rambling way that makes no point whatsoever. The author tries to create drama where there is none. Maybe it gets better after 38 pages. Otherwise it's kind of a silly book that doesn't do what the title says.
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on April 24, 2014
This book is well-written, informative and very interesting to read. It contains a great deal of useful information on the darker side of the financial industry, especially the sales approaches. For those reasons, I have rated this highly. However, I strongly disagree with many of the author's conclusions that - financial literacy is useless, we're all sheep in the hands of the industry, and more blanket government intervention is needed. But for an investor, this book paints a useful cautionary tale on many of the slick misdeeds that Wall Street has been guilty of and always will be guilty of. It also does a very good job of showing the very significant weaknesses of the financial gurus that get way too much air time. So, I think that with this information in hand, the novice investor will do a better job of navigating the hazards and slick sales approaches they will encounter. Just read this with a healthy bit of skepticism. With that in mind, the book really held my interest and conveyed a lot of useful info - so I gave the high rating even with my reservations.
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