I recently finished "Pound Foolish: Exposing the Dark Side of the Personal Finance Industry" by Helaine Olen, and thought I'd share some of my initial reactions to the book, since it's a topic that's related to travel hacking in odd ways.
Personal Finance is a fantastically lucrative industry
As someone who has never had the good fortune to pick up one of Suze Orman's exhortations to "stand in my truth" or "own the power to control my destiny," I had no idea this industry really existed at all.
I thought "personal" finance was just meant as a juxtaposition to corporate finance or government finance. It turns out it's something of a term of art for "charismatic salesmen telling you how to live – with an emphasis on buying more personal finance products."
While there are certainly people who need help organizing their finances, the only personal finance advice I've ever followed is pretty simple:
- Don't pay interest if you're earning less interest on your investments than you're paying on your debt;
- Max out your IRA contributions;
- and invest in Vanguard target retirement date funds.
If really hard-pressed, I might add something like "spread your IRA contributions throughout the year to account for natural fluctuations in prices."
That would add up to a medium-length article, but it would make for a pretty short book. Nonetheless, these hucksters write countless books, host popular TV shows, and exhort their followers to engage in unbelievably convoluted schemes, the riskiest of which involve buying real estate speculatively and engaging in options trading with borrowed money (what my brother refers to as "unlimited downside" trading).
No one shares easy ways to get rich on the stock market
The "efficient markets hypothesis" gets a pretty bad rap, but at its core contains a basic truth: opportunities to take advantage of differences between public information and asset prices are vanishingly short-lived.
If a person really knew a sure-fire way to pick stocks or design stock-picking algorithms that invariably resulted in profitable trades, that person would receive a huge salary and even bigger annual bonus implementing that strategy for any one of thousands of investment banks, hedge funds, or sovereign wealth funds – not writing a monthly newsletter or hosting a TV show on a fourth-rate cable channel.
Of course, the real problem is that even if the schemes of personal finance "experts" worked for some or even most people, there's no way to know in advance if you're one of those people.
Olen is right about the little things and wrong about the big things
Olen is absolutely right about all this, as far as it goes. There is, however, an odd current running through the book, of hopelessness in the face of the massed forces of banks, publishing houses, cable news channels, and in-person appeals.
In fact, she more or less endorses a fanciful scheme by Teresa Ghilarducci to replace individual retirement savings with a universal forced savings program. Here's a rundown of the program in Olen's words:
- "create a pension plan for all of us by having workers and their employers contribute a minimum of 5 percent of pay into a guaranteed account via mandatory automatic deduction;"
- "all this money would be placed in United States bonds which would promise an annual minimum return of 3 percent above the rate of inflation, so participants would be protected from market downturns;"
- "And who would manage all this money? Ghilarducci would shift the funds from the retail/commercial sector...to the institutional sector, and to hedge funds that mange our nation's pension monies at a significantly lower cost."
Well, did you see the slight of hand there? The same money that was just invested in United States bonds with a guaranteed rate of return was suddenly being "managed" by the "institutional sector." So which is it: is the money in risk-free Treasuries with a special, higher interest rate, or is the money being "managed" by hedge funds, i.e., invested into markets that fluctuate over time?
What do travel hacking and personal finance have in common?
I view travel hacking as the antidote to the madness that is the personal finance industrial complex. That's because when we manufacture spend, we aren't guessing about the performance of our rental properties or scrambling to find money to pay the mortgage: we see our costs up front and we see our returns every time a credit card statement closes.
When we book award tickets, we easily calculate the value we receive per mile redeemed and compare it to our acquisition (and opportunity) costs, to make adjustments to our miles and points strategy.
So I struggled while reading Olen's book to find the best way to express this fundamental fact: the house can be beat, it just can't be beat through magic. It can be beat through a clear-eyed and thorough evaluation of all the tools available, good organization, and a willingness to change along with the game.
With all that said, "Pound Foolish" is a rollicking good and often funny trip through every part of the personal finance industrial complex, from advisors who are paid based on the number of times they churn their clients' investments each year to the television channels that promote day-trading as a get-rich-quick scheme for the struggling middle class. Pick up a copy at your public library (like I did) or order a copy through Amazon.