Friday, May 22, 2009

The End of Personal Finance


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From Slate
The Big Money

Decades of advice turn out to be so much garbage.

By Helaine Olen
Posted Sunday, May 3, 2009 - 12:56am

Years ago, when I wrote a popular financial makeover feature for a major national newspaper, one of our subjects asked if he should be plowing his more than $50,000 in savings into gold. It was 1997 and gold was trading at a little more than $300 an ounce. The financial planner assisting with the piece laughed dismissively, and the question never made it into the final write-up. Well, my bad. As I write, gold is hovering around $900 an ounce.

For more than two decades, as income inequality increased and job security decreased, Americans lapped up personal finance columns, books, and television shows. We thrilled to stock tips and swooned at sensible strategies for using dollar-cost averaging to invest in no-load index funds. Buy and hold, my friends! The annualized gain for the S&P 500 stock index over time is more than 10 percent! You, too, can turn into the millionaire next door. Carpe diem, folks! Seize the financial day!

The advice proffered by the vast majority of analysts, would-be gurus, and television pundits came down to one word: stocks. Some, like CNBC's infamous Jim Cramer, advocated stock-picking strategies. Others encouraged mutual funds. But very few—at least of those that could get publicity via mainstream outlets—doubted the efficacy of the market.

That our personal finances weren't fully ours to seize didn't seem to occur to many of us until recently, when the stock market plunged almost 40 percent in a mere year, housing went into free fall, and the unemployment rate began to climb perilously toward double digits. All these facts suddenly left the personal finance industry facing a conundrum of its own making. The backbone of the self-help complex is the idea that you can do it. You. Singular. But what happens when you lose your job and can't find a new one before your six months of recommended emergency savings runs out? Or a good chunk of your retirement income is in the form of a pension from your former employer—and that employer is named Chrysler? What then?

"Personal finance has come to substitute for the role government should play for people," observes Nan Mooney, author of (Not) Keeping Up with Our Parents. "In the past 20 years the myth of the person succeeding on their own has gotten bigger and bigger. This myth is dangerous. It tells you if you can't balance everything and you are in debt, it is your fault."

Sounds harsh, but if you are laid off and at the end of your resources, what other message can you take away from people like mega-personal finance guru Suze Orman, who continues to argue that people's main problem with money is ... emotional. (Orman also urges people to invest for retirement in the stock market, while admitting the bulk of her savings is in municipal bonds.) Or Jean Chatzky of everywhere from NBC's Today show to Oprah's couch, who helpfully tells people in her latest book, The Difference: How Anyone Can Prosper in Even the Toughest Times, "Overspending is the key reason that people slip from a position of financial security into a paycheck-to-paycheck existence." (Note: Italics original to Chatzky.) Chatzky forgets to mention that studies have demonstrated the problem most likely to land one in bankruptcy court isn't an addiction to designer clothes but, instead, overwhelming health care expenses.

All in all, these might not be the right messages just now. While Orman's book, no doubt propelled by her continuing celebrity and television show, remains at the top of the New York Times best-seller list, Chatzky's book is languishing listless, a very different fate than the one met by her last book, which was released in a different era—2006, to be precise.

In the current economic climate, a new group of au current advisers is coming to the fore. Many of them, like Peter Schiff, received their initial boost of fame by predicting various aspects of the current meltdown and are now trying to make money by telling people how to survive and thrive in the post-crash world. Schiff's Crash Proof, currently in its 11th printing, urges consumers to buy gold to hedge against coming hyperinflation. At the other end of the spectrum is Martin D. Weiss' recently published The Ultimate Depression Survival Guide. Weiss, a Florida-based investment adviser, advocates that many people should cut their stock losses and sell off, as we are entering a period of deflation.

Online gurus are also seeing spikes. ITulip.com's Eric Janszen says he received 12,000 new subscribers last year. George Ure, a business consultant who runs the free site UrbanSurvival.com and the subscription site Peoplenomics, makes predictions about future events based on a linguistics theory applied to Internet postings and has seen an increase of more than 20 percent in unique visitors year over year. Nonetheless, it's not looking like the new gurus will be any more helpful than their more conventionally minded peers. After all, the online world has been abuzz with accusations that many of Schiff's personal clients suffered losses of between 40 percent to 70 percent in 2008.

Which leads to another question: What's next for personal finance? The past two years have demonstrated over and over again that bad things can happen to good savers and investors. Very few of us have the wherewithal to fund both retirement savings and a large enough emergency fund to sustain us through a bout of unemployment lasting, say, more than a year. No one, it turns out, really knows what an individual stock, mutual fund, or commodity like oil or precious resource like gold will be worth in six months, never mind six years.

Nonetheless, personal finance is unlikely to crawl away and die anytime soon for a simple reason: We think we need it. "We're kind of screwed but we don't have a choice but to take care of ourselves because no one else is helping," admits MSN's personal finance columnist, Liz Weston.

A number of personal finance gurus have been moving, some ever so slowly, over toward the idea of pressuring the government for change. Weston, who has written extensively about what should be and isn't in pending congressional legislation putting brakes on the credit card industry, is begging her readers to contact their representatives about the plan. Others have gotten more ambitious. Schiff used his burst of fame to endorse presidential candidate Ron Paul. Weiss is currently circulating a petition to stop further bank bailouts.

Me, I'd settle for a few mea culpas from our finance gurus. After all, I am aware I owe my gold-loving dude an apology. Unfortunately, I know the planner assigned to the case won't be eating crow any time soon. I recently received a copy of his latest book in the mail. It's all about how if you can just identify your money archetype, financial success will be yours. Oh, and one other thing. The press release quotes him as advising, "Don't rush out to buy gold."

Helaine Olen's work has appeared in the The Los Angeles Times and The Washington Post. She's the co-author of Office Mate: The Employee Handbook for Finding and Managing Romance on the Job.
(Photos of Jim Cramer by Scott Gries/Getty; Can by Ryan McVay/Getty Creative; Suze Orman by Bryan Bedder/Getty)

5 comments:

linda said...

So many experts getting people to part with their hard earned money in the hope of good returns. I am of the old school. Pay off mortgage as quick as you can. Bricks and mortar. If possible, buy a small investment property - again bricks and mortar. Shares to me are akin to gambling. The returns may be great sometimes, but when things fall, they really fall hard.

Gold has always been a goodie.

Also, I often wonder what exactly people expect they will be doing with their retirement to have the urge to risk so much to hopefully gain even more. Most people I know who are retired live quiet lives and enjoy small pleasures.

Health care here is free - unlike the US which is scary. We have the option of private health cover on top of the free hospital though. Even then, never as costly as the US. So I suppose you would have to be mindful of putting aside money for that. But the US is considered to be a meritocracy so I suppose there is not much around for those who cannot rise to the challenge of being self supporting.

raydenzel1 said...

Linda
I had to look up meritocracy.(learning moment)here is the definition from Wikipedia.

Meritocracy is a system of a government or other organization wherein appointments are made and responsibilities are given based on demonstrated talent and ability (merit), rather than by wealth (plutocracy), family connections (nepotism), class privilege (oligarchy), friends (cronyism), seniority (gerontocracy), popularity (as in democracy) or other historical determinants of social position and political power. In a meritocracy, society rewards (by wealth, position, and social status) those who show talent and competence as demonstrated by past actions or by competition.

I wish it was as true as defined. All the things you hope for are still based alot on who you know. There are many exceptions, but it is tough to acheive. our health system is top notch but not affordable for many. We use the size of the population to say free medical care can't be done. I hope a new course correction is being plotted by our country.

Topiary Cow said...

These are all really good points.

Agree with Linda, health care is the biggest issue in retirement(in the US)---costs of one uninsured operation can take hundreds of thousands of dollars and force people into bankruptcy. Shame that it is such a looming terror for those facing retirement.

Always seems most financial gurus are just enriching themselves. Pick up an Orman book and she is flogging some scheme, which she likely has a stake in.

Even Dave Ramsey, who dispenses excellent, down-to-earth advice, for free, is still selling stuff like mad: seminars, books, endorsed providers.

Guess Cow feels it's just a shame that so many are fleeced and fall for the schemes of others, Madoff and bankers and brokers, all enriching themselves but selling the dream to others.

Moo!

raydenzel1 said...

Cow: Thanks for stopping by.
using my pshchic powers awhile back
I wrote "what if they lied to you on how to get rich", in a down mood, I reflected on how we have been led down the garden path, banking on the greater fool theory. Remembering for every share of stock you buy, someone thinks it is time to sell that same share. Now we wonder if we can retire, when, not if but when we get sick, taking care of loved ones. I guess we will struggle to find solutions to this mess.

Anonymous said...

The NBC pundits are dead wrong again. This is not the bottom of the recession. Its not the beginning of a true recovery. Its only a brief period of optimism or the beginning of that short and shallow revival. There will be some positive signs over the next year or so amoung the negative. But they will not lead to a true recovery. Our leaders may claim to end the recession in 2010. If that claim is made, it will be based only on that short and shallow (printed) revival. It absolutely will not last. I stand by my predictions made earlier this year. Obama's efforts are revolutionary but they are too little too late. He will have no choice but to acknowledge a severe US depression by the end of his first term or shortly thereafter. Every major economy in the world will be in depression by 2015.

The NBC pundits (Chatzky and Wong) are bound and determined (paid) to plug their coorporate sponsors and perpetuate the 'multiple credit card' lifestyle. Their claim is that you need more than one to build reasonable credit, finance a home, and be relatively secure financially. THAT IS ANOTHER FLAT-OUT LIE. The industry is simply too corrupt and predatory to deal with. It has been for at least 20 years. The use of 'multiple credit cards' is simply too risky, addictive, complicated (check that fine print), and ultimately expensive. In the vast, overwhelming majority of cases, the 'multiple credit card' user has ended up further in debt year after year after year. Their credit was built to some extent on a temporary basis and their ability to repay loans was diminished gradually right along with their bottom line. They ended up paying as much or more in finance charges as they did on principal. That is OBSCENE. Now, their net worth is way down. Their ability to get out of debt f#$&@#. That 'credit' didn't get them anything but F#$#@#. Still, those NBC pundits (liars) have the nerve to perpetuate that 'multiple credit card' lifestyle as if it were ever legit or necessary to begin with. It wasn't. Until two years ago, one could have built reasonable credit with a stable income, a checking account, a savings account, one secured credit card, one loan for a used car, one loan for a new car, and a reasonable downpayment. Until recently, that was enough credit to get a first home loan. Now, the economic boom is OVER. The majority are F#$&@#. Its only going to get worse. A LOT WORSE. The window for ordinary (decent) people to stake their rightful claim is closing fast. They better get out of debt soon and well prepared for the comming US/global depression. It will be catastrophic. Under these circumstances, it is downright reckless and irresponsible to promote more use of credit cards. Only a calculated PIG with an ulterior motive would have the nerve. The 'multiple credit card' lifestyle wasn't the only cause of this economic crisis but it was a contributing factor. Another vehicle amoung many to transfer wealth from poor to rich. Which again, is the single greatest underlying cause. IT WILL BE OUR DOWNFALL.

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