Superficial tips and tools gloss over the main point – Americans have a political problem not a money management problem
When I sold the proposal that became Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, the original subtitle was “How the Cult of Personal Finance Turned us Into a Nation of Dreamers.” I didn’t think of personal finance as a dark side vs a light side. I was really trying to answer what I saw as a logic problem: how did an entire country seemingly become convinced that savvy financial management and a bit of investment advice ward off everything from bad luck to the ravages of the 21st century?
This is still how I think about it today.
One of the things I’ve become convinced of over the past several months of speaking about the book is that true change will not happen until we can face this question directly.
Yet, this is not something the personal finance establishment all-too-often cares to admit. Instead, problems are supposed to have individual solutions.
All this brings us to the case of Money Makeover.
Money Makeovers, as many of us who read personal finance know, are a staple of the business. Money magazine runs them. Numerous newspapers run them. I got my start writing in personal finance writing them for the Los Angeles Times, which ran Makeovers regularly for almost fifteen years.
A Money Makeover is like a fashion makeover, but with money as the topic instead of fashion sense. They are pretty much like what you expect. You have a subject with a financial problem – they need to save more for retirement, they have a lot of debt and so on – we fix them up with a certified financial planner and other experts as needed. At the end, the family profiled has a pathway to financial success.
But does it really work?
Meet the Barker-Cummings family of Hillsborough, North Carolina. A young family with four children, they have much in the way of debt and bills. There is student debt ($38,000), credit card debt ($6,000) and $18,000 a year in childcare expenses. The house is underwater. The husband’s earnings as a contractor declined by 50% when the housing bubble collapsed and still hasn’t fully recovered.
In search of advice, the Barker-Cummings family turned to USAA Magazine, which featured them in their most recent issue.
Unfortunately, they didn’t get much. The financial planner assigned to the case sounded clueless because, really, what could you suggest? Turning the family tweens into unpaid nannies for their two-year-old twin brothers? So instead the planner suggested brown bagging it when on the road with their nine-year-old daughter, who takes part in competitive cheerleading competitions. He expressed concern about their retirement savings, though, at $132,000, they are in better shape than the vast majority of Americans.
The advice was well-meant. But it missed the main point. This was a great sounding family, with great-sounding kids and no one was saying ‘there has to be a better way.’ Other countries provide free or low-cost childcare. Other countries keep the cost of higher education under control, so their youngest, most productive citizens don’t begin life drowning in debt.
The Barker-Cummings family does not have a money management problem. They have a political problem. They live in the United States, where we are expected to do it all on our own. We accept this as a normal state of affairs but, in reality, it is anything but.
So a plea: the next time someone writes a Money Makeover, please include an example from another country that does it differently. In this case, mention could be made of Australia’s mandatory 9% retirement set-asides or France’s low-cost day-care and free preschools provided by the government.
I spoke the past several days at the Pathways conference, sponsored by the University of Wisconsin’s extension programs and Center for Financial Security. The coaches and counselors in attendance who work with low- and middle-income populations are all too aware of the problem I just articulated. They see it play out in the lives of their clients every day. They understand that it’s important to know how to manage your money wisely and well.
But they also understand it takes more than that.