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Friday 29 August 2014

Business: How the financial advisers cost us all – but we need them

Pound Foolish by Helaine Olen

Sam Knight

Published 17/01/2013 | 05:00

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Helaine Olen thinks Americans have lost their financial minds. Name your idiocy and over the last 30 years otherwise sensible people have done it: gorged on credit cards, jumped into "no-money down" mortgages, frittered away pension plans on day trading.

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An entire industry exists to stop this from happening. In 2011, there were 319,456 financial advisers working in the US – a field forecast to grow by 30pc over the next decade as baby-boomers enter retirement, worrying whether they have saved enough along the way.

If only this "personal finance industrial complex" was truly on the side of its clients. As Olen makes clear in 'Pound Foolish', that is often not the case.

"So much of the advice we receive is suspect, but in our desperation we take it anyway," she writes, patiently skewering the industry she has been writing about for almost 20 years in the ' Los Angeles Times' and elsewhere.

She describes how the business of selling financial advice has grown with, and fed off, other powerful currents in American life.

In the 1950s, investing in the New York Stock Exchange became a patriotic duty, while in the decades since, peddlers of financial advice have adroitly refashioned themselves as consumer champions, real-estate maestros, stock-pickers and tough-talking debt advisers, depending on the prevailing social and economic winds.

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Its real power, however, lies in our absolute need for it. The unstoppable rise of the personal finance industry has coincided with an American era of stagnant salaries, withering pensions and staggering rises in the cost of education and healthcare.

"We were participants in a vast experiment, a hope that personal finance and investments would do it all for us," Olen writes. With 43pc of the population now living paycheque to paycheque, according to Olen, is it any wonder people have ended up making poor, desperate decisions?

Olen concludes by arguing for a broader kind of financial literacy, a conversation about income inequality and decent pensions.

Until then, however, we are left with characters such as Daryl White, a 50-something US Postal Service worker who Olen meets at an online trading class in New York.

"I'm learning the rules," says White, who has spent thousands of dollars on trading advice and won't tell Olen how much he has lost. "The money will come later."

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