Money spinners

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, by Helaine Olen, Portfolio, RRP$27.95/£17.99, 304 pages

Could cutting out the morning coffee change your life? This was the message many took from David Bach’s Smart Women Finish Rich, a 1999 manifesto for incremental saving and investment that suggested eschewing a $5 daily bill at Starbucks and putting the proceeds to work in the stock market. If such acts of self-denial started early and the shares grew by 11 per cent annually, Bach wrote, the saver could reasonably hope to have amassed more than $2m by the time she reached 65.

If the notion strikes you as plausible, then Helaine Olen has some bad news. The bullish growth assumption was too optimistic, for a start, and the calculations failed to take inflation or taxes into account. But Olen’s most telling criticism is one that applies to all of the financial gurus she seeks to dismantle in Pound Foolish: simply, that no amount of thrift and amateur stock-picking can compensate for the stagnating incomes that make middle-class Americans so receptive to this kind of advice in the first place.

Olen, who writes the “Where Life Meets Money” blog for, is deeply unimpressed by the industry of which she is part. Take Suze Orman, the television star and best-selling author of The 9 Steps to Financial Freedom and The Courage to be Rich. Olen claims that over time this former waitress – who is now worth as much as $35m – has changed her message about “everything from the wisdom of prioritising paying down credit card debt over building up savings, to how much cash savings one should actually have on hand”.

The lessons of Dave Ramsey, host of a radio show carried on hundreds of US stations, come across as nearly as bad. Ramsey’s pitch is to offer ways for people to reduce their debts – yet according to Olen, many of his stratagems “don’t even work on a base, mathematical level”.

Similar criticism is meted out to TV stock-picker Jim Cramer, Joe Kernen and Rebecca Quick on CNBC’s Squawk Box, and websites such as Seeking Alpha, the Motley Fool and The take-downs can get monotonous and Olen’s self-righteousness grates at times. Yet she succeeds in illustrating the ways in which personal finance has morphed into an ideology in a country eager to embrace self-help.

An interesting theme running through the book is how this advice often takes on a spiritual dimension – Ramsey, for example, tells his audiences how his finances improved after he found Jesus. And it does seem that Americans do need salvation when it comes to managing money. “The success stories offered up by the gurus of personal finance [are] individual victories in a society sliding economically downward,” Olen writes. And these days, that’s precisely why so many Americans like to listen to them.

Ellen Kelleher is a reporter for FTfm

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