Taking on the personal finance industry


Download Flash Player to view this content.

First aired on Q (25/03/13)

As tax season comes upon us once again, money management is a popular subject for discussion. Is it better to put money towards your RRSPs or to pay down debts? How can you save more money? What should you invest your spare dollars in? How can your money make more money? There are lots of questions, but also myriad answers, as evidenced by the highly lucrative personal finance industry.

Gurus like Suze Orman, Dave Ramsey and David Bach have become incredibly wealthy themselves through publishing advice books, appearing on TV programs and hosting motivational seminars. A lot of their financial wisdom is based around common sense approaches to money: don't spend more than you earn, make small sacrifices (like cutting out your daily latte habit) that can add up to big savings and pay off your debts. Those are solid strategies for getting your finances in order, says personal finance journalist Helaine Olen -- it's just too bad they often don't work for people.

"What's really going on, in the United States especially, we've lived in this environment now for over 30 years where incomes are stagnating and falling, net worth ended up plunging by 40 per cent alone between 2007 and 2010, and at the same time, what did go up at extraordinary rates was the cost of things, as I like to say it, that are very hard to live without: housing, education, and health care," she told Q host Jian Ghomeshi during a recent interview.

pound-foolish-cover-110.jpg"The other part is that jobs are shakier than they used to be. So we're telling people, 'Oh, just save and invest, cut back on minor things, and you'll be fine,' when in fact it's just not true."

As she discusses in her new book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, it's much easier said than done to put away money for savings, investments or debt repayment, and many people are one medical issue or layoff away from financial ruin.

"Where the message falls apart is the message that it's going to save you. In the United States you could be wiped out literally in a matter of weeks."

Olen believes that these perpetually optimistic personal finance figures are helping to promote a culture in which people who are struggling to stay on top of their money situation are seen as failures or irresponsible. It may be the case for some reckless spenders, but not for all. And just because someone does everything that's recommended -- budgeting every expense, making every sound financial decision possible -- it doesn't guarantee their lives will be free of money woes.

"It would be lovely if we lived in this world. I wish we lived in this world, but we don't, and that's the sad truth of the matter."

Olen herself agreed that much of the common sense financial advice is sound, but the evidence is all around that people, for all their good intentions, haven't been able to follow through. These pearls of wisdom have been around for decades but in the last few years, household debt levels in North America have reached record highs.

So what then? Perhaps it's time to put down the advice books and truly become financially literate. And perhaps it's also time to closely scrutinize the financial services we're being offered, from loans to planning. Financial advice is not a field that is well legislated, Olen said, and there needs to be more consumer protection.

"So obviously, financial planners, financial advisers, need to be working in their customers' best interests. That's frequently not the case. Legally, they often don't have to."