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15-01-13 The Personal Financial Advice Industry is Making Us Poorer

15-01-13 The Personal Financial Advice Industry is Making Us Poorer

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Published by William J Greenberg

Wake up, America! We're paying billions for personal financial advice, and it's making us poorer. From financial "coaches" to leading academics paid to tout dangerous products, members of what former financial columnist Helaine Olen calls the "personal finance industrial complex" are ripping us off, preying on our fears and ensuring that our financial futures are anything but secure.

Wake up, America! We're paying billions for personal financial advice, and it's making us poorer. From financial "coaches" to leading academics paid to tout dangerous products, members of what former financial columnist Helaine Olen calls the "personal finance industrial complex" are ripping us off, preying on our fears and ensuring that our financial futures are anything but secure.

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Published by: William J Greenberg on Jan 18, 2013
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Home> Wake Up, America! We're Paying Billions for Personal Financial Advice, and It's Making UsPoorer 
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Wake Up, America! We're Paying Billionsfor Personal Financial Advice, and It'sMaking Us Poorer 
January 15, 2013
|Wake up, America! We're paying billions for personal financial advice, and it'smaking us poorer. From financial "coaches" to leading academics paid to toutdangerous products, members of what former financial columnist HelaineOlen calls the "personal finance industrial complex" are ripping us off, preyingon our fears and ensuring that our financial futures are anything but secure.Olen exposes the bogus -- and well-compensated -- advice issuing from themouths of slick celebrities like Suze Orman, David Bach, Dave Ramsey, andJim Cramer. She blasts through the mirages of 401(K)s, mutual funds andgimmicks of the do-it-yourself retirement plan that America has foolishinglyembraced, along with the real estate schemes and stock market fantasies weturn to when the numbers in our savings accounts don't add up.In a book that's indispensable to anyone seeking to understand financialreality, Olen reveals the industry's uber-myth: that it's your fault if you're notrich and that tinkering with retirement calculators and investments can saveyou from financial ruin. That lie, meant to shame and cow us, has a big pay-off for the personal finance predators: it diverts attention from the giant social andeconomic problems like flat wages, job insecurity and soaring healthcarecosts that can bankrupt the most virtuous penny-pincher in the blink of an eye.The antidote to this snakeoil, Olen tells us, is to stop obsessing on our individual financial prospects, and start thinking
collectively 
-- before it's toolate.
 
The following excerpt is adapted from
 
[3]
by Helaine Olen by arrangement withPortfolio, a member of Penguin Group (USA), Inc., Copyright (c) Helaine Olen,2013.
The Latté is a Lie: Selling the Myth of the Fiscally PromiscuousAmerican
 A quick cup of coffee, a few moments of pleasure. What could be wrong withthat? If you ask David Bach, a lot. According to him, the Starbucks latté is one of the leading sources of our money woes. A former Morgan Stanley money manager, Bach parlayed hisexperience into multiple book contracts, a nationwide seminar, and ultimately,a regular gig on the
Today Show 
.Bach believes we can all become millionaires by the time we retire if wearrange to make our savings automatic by having money deducted from everypaycheck we receive and funneled into an investment account. It’s not a badinsight as far as savings strategies go. But first people need to find money toinvest, and that’s a challenge for Americans. Just under half of us are livingpaycheck-to paycheck existences at least some of the time, with nary a pennyleft over for savings.That’s where Starbucks enters the picture.Bach calculated that eschewing a $5 daily bill at Starbucks— because who,after all, really needs anything at Starbucks?—for a double nonfat latté andbiscotti with chocolate could net a prospective saver $150 a month, or $2,000a year. If she then took that money and put it all in stocks which, ever anoptimist, Bach assumed would grow at an average annual rate of 11 percent ayear, “chances are that by the time she reached sixty-five, she would havemore than $2 million sitting in her account,” he wrote in his first book,
Smart Women Finish Rich,
published in 1999. “Are you latté-ing away your financialfuture?” Bach asked his readers.People couldn’t get enough of the Latté Factor. It seemed to explain all our woes, all our lack of financial discipline. Give up that latté, and save a six-month emergency fund! It was a simple solution to a long-term problem.“Extraordinary,” said Lester Holt on NBC. An Australian mutual fund companydebuted the "Latté Challenge” to get savers to put aside money for retirement(in their funds, of course). The Bank of Nova Scotia announced a deal with
 
Bach in late 2004, buying up 250,000 copies of 
The Automatic Millionaire
topromote its “Find the Money” initiative, which encouraged customers to signup for automatic deposits in the financial institution’s retirement plans. SearchGoogle today, and you’ll find more than 70,000 unique mentions of the lattéfactor.OK, to be fair Bach didn’t just blame the latté. In Bach’s universe, the lattestood for all the small, regular luxuries we treat ourselves to. It could be theonce-a-week sushi lunch or the premium cable package or ... you get theidea. “Most of us waste a lot of what we earn on ‘small things,’ ” Bach wrotein
The Automatic Millionaire
. “The so-called small things on which we wastemoney every day can add up in a hurry to life-changing amounts.”There was only one thing wrong with the latté factor. It wasn’t true. It didn’twork mathematically. It didn’t work in terms of what we were actually spendingour money on. It didn’t take into account what life costs were actually rising or falling. The latté factor was, to mix our drinking metaphors, the financialequivalent of the Miller beer—it tasted great, but was less filling.Bach, whether by design or true belief, had concocted a catchy slogan thatappealed to our desire for a quick and easy fix, but one that bore little relationto economic reality.Bach knew his archetypal latté guzzler could not be spending $5 on a singlelatté, not in 1999. So he added a biscotti to the bill and factored in theincidental Diet Cokes and candy bars he assumed his subject also bought.Even then his numbers didn’t quite add up. Five dollars a day, 365 days ayear, is $1,825. So Bach “rounded” the number up to $2,000 annually, thebetter to exaggerate the amount of money that the latté was, in the long run,costing the person who was drinking it.Other numbers were equally as suspect. A 10 or 11 percent average annualreturn on stock market investments? Such a number had no basis in reality,as anyone who was certified in anything financial should have known. TheDow Jones Industrial Average showed a 9 percent average annual rate of return between 1929 and 2009. And that was a good, long-term, 80-year number, a period very few people besides a lucky trust-fund baby who made itto an old age could hold on for. The short term could be much worse—as weall now know.There’s more. A blogger atBad Money Advice 
[4]
, a popular personal financeblog, noticed another problem. Bach, a supposed expert financial adviser, did

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