Helaine Olen became a personal finance expert in a few months. She learned the basics as a money makeover writer for the Los Angeles Times.
“I didn’t know a mutual fund from Mutual of Omaha when I started,” says the journalist, who relied on a copy of Personal Finance for Dummies.
“My takeaway was how easy most of this stuff is, even though the financial industry tries to tell us how complicated it is.”
Olen’s experience led to another realization: As screenwriter William Goldman once discovered about Hollywood, nobody knows anything.
She never met a financial planner who mentioned that you could lose a decade’s worth of investment gains in a matter of months, or that you could be unemployed for longer than the usually recommended six-month emergency fund could cover, she says in her book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.
Calling her book excellent, The Economist said she exposed the advice of U.S. money gurus — such as Suze Orman, Jim Cramer and Dave Ramsey — as “either fatuous or based on ridiculously optimistic assumptions about future investment returns.”
Olen ended up selling 20,000 copies — about half of them in ebook format — after appearing on The Daily Show with Jon Stewart in 2013.
Now living in New York, the author was in Toronto this week to speak at two Toronto public libraries. As an admirer of her book, I jumped at the chance to attend.
She talked about the “latte factor,” popularized by U.S. author David Bach and later picked up by Canadian TV personality Kevin O’Leary in his book, Cold Hard Truth on Men, Women & Money — the idea that you can retire rich by giving up your coffee habit.
Daily extravagances are not the cause of your money woes, she told her lunchtime audience at the City Hall library. It’s the education, housing and health care expenses that can blow your budget and lead you into bankruptcy.
“Luxuries are cheap, but necessities are expensive,” she said, adding that the best savers and investors in the world can be caught short by a medical emergency or a real estate slump.
She also expressed contempt for financial literacy — the idea that you can make smarter decisions after being trained in money management. Such courses have little impact, research shows, yet banks embrace financial literacy as a way to head off government regulation.
“They would rather teach people how to avoid their scams than have a law passed to stop their scams,” said Olen, a freelance journalist in her late 40s and mother of two adolescent boys.
In a new book, she will work with co-author Harold Pollack, a University of Chicago professor, to emphasize that personal finance does not have to be complicated.
Pollack told her that the correct financial advice for most people would fit on an index card. When asked for details, he wrote down a few things on his daughter’s index card for school, took an iPhone pic and posted it on the Internet. It went viral.
“Somehow, people found it valuable. The fact that I have crappy handwriting seemed to increase its appeal,” he told The University of Chicago Magazine.
Olen has written a 35,000-word manuscript, half the size of a conventional book, explaining what lies behind the eight rules — including pay your credit card balance in full every month, max out your retirement saving plans and avoid actively managed mutual funds.
Watch for Index Card (the tentative title) to create another sensation in 2016.