Pound Foolish

January 9th, 2015

Pound Foolish by Helaine Olen front cover

You don't know anything about personal finance. Neither do I. And what we think we know doesn't really matter, because the people ostensibly trying to educate us are only furthering their own monetary aspirations and will change the rules of the game just as we think we've learned enough to move on.

Quite a defeatist way of looking at things, no? Cynicism, if not outright negativity, abounds in Pound Foolish, but that doesn't make it a difficult read.

Author Helaine Olen's insistence that we maintain a critical view towards our educators and counselors is sound advice in any situation, but its value as it pertains to personal finance has apparently eluded most of us.

For one, in order to improve upon your financial literacy, you can't just blindly follow the advice of any single financial professional in the belief that they'll take you by the hand into a wondrous land free from financial woes. And you must exhibit extreme caution in procuring the services of that professional.

To illustrate, Olen describes the difference between a financial advisor and a broker. A financial advisor must adhere to the fiduciary standard, always acting in his clients' best interests and setting their needs above his own.

A broker, on the other hand, only abides by the so-called suitability standard. As Olen describes it:

Under the suitability standard, there is no legal requirement for a broker to tell you how much you are paying for the service, or if there is a better product available at a lower charge

Will a broker simply relinquish this information off-hand as you step into their office? Of course not. No matter where you go for advice, you're bound to be met with any amount of hearsay, contradiction, untruth, and omission of crucial information, and it's up to you to do your due diligence.

The same applies to high-profile personalities like Suze Orman, Robert Kiyosaki, and Dave Ramsey, whom Olen lambasts for peddling questionable advice that is ultimately a sales pitch. These sages of financial enlightenment are in business not to sell us the products that best fit our needs, but to sell us their products, and the devious tactics they use to exploit the fearful and ignorant provide some of the more interesting sections of the book.

Those who control the education process control how and what people are taught. Olen writes about the Junior Achievement Finance Park, a financial literacy theme park in Fairfax, Virginia. Inside, middle-school students learn about money by setting up a household budget and doing business at various establishments set up inside. These aren't just any establishment, though. Companies such as Verizon and Burger King pay thousands of dollars for a storefront to get their brand in front of the impressionable masses. Get ‘em while they're young!

OK, so the deck is stacked against us, but surely someone has our collective backs?

Lauren Willis, professor at Loyola Law School in Los Angeles, whom Olen interviewed for the book, has this to say:

Financial literacy is at best a doomed crusade, and at worst a cynical plot by financial institutions to head off legislative protections that might actually help consumers.

Ouch. Later, Olen writes:

In a world where ever-evolving offerings, even more polished sales pitches, pages and pages of small print, and changing terms from company to company combine to make today's education irrelevant tomorrow, Willis argues financial literacy cannot be empowering.

Pretty gloomy, right? The word "exposing" in the book's subtitle is the operative one, in that it's more about exposing the problem than providing solutions. As such, your enjoyment of this book hinges on the value you’re able to find in its advice on what not to do in helping yourself to the solutions that work best for you.

I recommend this book for its (hyper)critical view on the personal finance industry and as a perspective-building counterweight to the oodles of gung-ho advice out there. Just don't let it be the first book you read on the subject, lest it sour you on the experience of improving your money management skills.


Purchase Pound Foolish from amazon.com.