FORTUNE — Managing your own retirement money stinks. I’m decades away from retirement, but every prospective move I consider for my 401(k) fills me with dread. Should I overweight small cap value stocks right now? Can I reasonably keep 20% of my assets in cash? Can I avoid bonds forever? I’m afraid if I get things wrong, I’ll end up a beggar. Or worse, I’ll be easy prey for the get-rich-quick schemes hawked to retirees whose nest eggs have fallen short.
Surveys of workers near retirement prove I’m not the exception. Millions of amateur investors are living scared like me. In times like these, it’s no surprise that the personal finance industry is thriving. Nervous investors holding trillions of dollars in assets make for reliable customers. The problem is, much of the industry’s advice has turned out to be questionable. And for investors low on assets, it’s often just plain rotten.
You learn how bad it gets in Helaine Olen’s Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. Olen spent years as a personal finance columnist at the Los Angeles Times before moving to New York City. It’s not just those near retirement who have it hard, she writes. Millions more are being led astray in their day-to-day finances by self-proclaimed experts like Suze Orman and Dave Ramsey.
Olen tours the wrecked finances of America’s middle and lower classes, asking not only how we got here, but who’s helping us get out? The two themes are enough fodder for separate books, and that’s one of my early criticisms. Still, she starts by rightly framing the romantic relationship between Americans and their money during the 1980s and 1990s. “If it wasn’t working out for you, you must be doing something wrong,” was the prevailing wisdom, she writes, when all your neighbors were getting rich off stocks, and a rich retirement was as certain as Cisco (CSCO) stock going up. She continues, “As the national savings rate plunged over the 1980s and 1990s to near zero by the mid-2000s, instead of examining the rising costs of housing, education, and medical care, a chorus of scolds emerged to call us a nation of overspenders.”
What got us here wasn’t the stock market crash or the housing collapse. As Olen writes, it was three decades of growing income inequality, when college tuition rose three times the rate of inflation, stagnant wages made paying the same mortgage more costly, and an astounding 62% of personal bankruptcies — two-thirds of all filings in 2007 — were caused by unexpected medical expenses.
These facts alone are enough for Olen to shame one of the most popular personal finance gurus of the ‘90s. David Bach, a former Morgan Stanley (MS) manager who parlayed his charisma into book deals and Today Show appearances, preached a simple, if specious, concept: that $5 Starbucks tabs were coming between you and retirement riches. As a guy who only drinks Starbucks gratis at work, I’m attracted to his pitch. But not only was it misleading, it ignored what was really hurting Americans.
Bach’s argument was that a $5 daily bill at Starbucks (SBUX) adds up to $150 a month, or $2,000 a year. If you assume, as Bach did, that you could invest that money in stocks earning 11% a year, you’re talking about $2 million at retirement. Talk about results. Pinch a few pennies and you’re rich. This frugal-millionaire concept spawned a whole publishing genre in the 1990s. Among the bestsellers: The Millionaire Next Door, Millionaire Women Next Door, Smart Women Finish Rich, The Millionaire Mind, Stop Acting Rich, The One Minute Millionaire, The Top 10 Distinctions Between Millionaires and the Middle Class, Millionaire By Thirty, The Millionaire Maker, and The Automatic Millionaire, among others.
But Olen proves the weakness of Bach’s argument. First, who pays $5 a day, every day, at Starbucks? A latte costs far less. Even if we accept his $5 a day assumption, the total comes to $1,825 at year’s end, not $2,000. But it’s Bach’s assumption of 11% stock returns that dooms him. Historically, stock returns have been a couple points less. When you add in taxes and inflation, your coffee savings turns out to be $173,000 in retirement — not inconsequential, but far short of the headline-grabbing $2 million.
More important was the fact that Americans didn’t have a latte problem — at least not a big one. They had an everything-else-they-couldn’t-control problem. Olen shows that housing, healthcare, and education cost the average family 75% of their discretionary income in the 2000s. Just three decades earlier, the figure was 50%. In other words, the average family spent 50% more in the last decade to go about their same daily business.
After roasting Bach, who may have been the country’s most prominent personal finance “expert” for a time, Olen loses steam. This is where the book diverges from the effects of growing income inequality to Olen’s research into a smorgasbord of frauds, hucksters, and shams preying on retirees who haven’t saved enough.
In successive chapters she takes on poorly constructed 401(k)s, rip-off annuities, whackos at a conference called MoneyShow, and the myth that real estate always makes you rich. Olen serves up a few compelling scenes. One booth at the MoneyShow conference in Orlando has the gall to promise 70% annual returns. Elsewhere, annuity salesmen learn how to “tell a story” to earn higher commissions. Yet much of her material seems stale.
Other reviewers have noticed that the evidence Olen uses to criticize a bevy of experts seems pieced together from web clippings and previous investigative reports. She turns it into a narrative, but one that is often unimaginative and tedious.
If you love Suze Orman, Dave Ramsey, CNBC’s daytime hosts, or your broker, you owe it to yourself to read Olen’s book. You need to challenge your assumptions. These so-called experts who spout investing myths are building their brands and making money, not leading you to financial freedom. Be warned: You won’t learn how to manage your investments from Olen’s account. (You’ll have to visit a site like Vanguard’s for that.) But you will learn that saving and investing the right way is tough, and that a lot of “experts” out there make it even harder.
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