Board member blog post: A bill of goods

Lisen StrombergBy Lisen Stromberg, JAWS Board Member

I graduated from college as President Ronald Reagan was successfully convincing the country “trickle-down economics” would benefit everyone. Michael Douglas was busy telling the world, “Greed is Good,” Donald Trump was explaining to us the art of the deal, and Ivan Boesky was laughing at us from the cover of Time. The runaway train of deregulation was just beginning to hit the tracks and unfettered capitalism was the driver of the day. Underneath it all was the collective belief that our individual effort, skill, and talent would propel each of us forward. The cult of American Individualism insinuated if you weren’t rich, well that was your fault and no one else’s.

Well, it’s been 25 years and now we are living with the consequences of that entrenched belief system. For many of us, the living ain’t easy.

In her new book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, JAWdess Helaine Olen writes “the financialization of our lives illustrates a huge change in a relatively short period of time.” As the savings rate plummeted to zero between the 1980s and the mid-2000s, the percent of Americans who were invested in the stock market rose from 20 percent to well over 50. During this time, she explains, “the notion that our own money smarts and investment skills could make us rich continued to gain traction” even while the median household income fell by over seven percent when adjusted for inflation.

Pound FoolishOlen argues we’ve been sold a bill of goods about our individual ability to invest and manage our money. Fueled by our belief that we must do it on our own, the personal finance industry has regaled us with “boot-strap” stories and “how-to” tips all the while making the advice-givers rich, the financial services industry richer and average Americans significantly poorer. Of the last 25 years, she writes, “we were participants in a vast experiment, a hope that personal finance and investments would do it all for us. We now know that for all too many people, it did not.”

By detailing the rise of financial “gurus” such as Suze Orman, David Bach (author of Smart Women Finish Rich), and Jim Cramer (manic host of CNBC’s Mad Money), Olen explains how the financial literacy movement fit neatly into the myth of American Individualism. This, coupled with the rise of financial service product marketing, seduced uninformed, anxious and eager (shall we say, greedy?) individuals to invest in all manner of flawed vehicles including variable annuities, whole-term life insurance, credit swaps and high-risk junk bonds.

My generation, it seems, has been ripe for the taking.

And now the focus of this marketing juggernaut is on women. Olen cautions we are particularly vulnerable to the machinations of the personal finance industry because while we are more financially independent than ever before (and therefore a lucrative target market), we are trained to believe we know less about money management than men. Capitalizing on our fear, we are told we must focus on gaining financial know-how.

But financial literacy is a fallacy, according to Olen. It has consistently proven to do little to advance the portfolios of the majority of Americans. Further, with its focus on self-determination, it has distracted us from zeroing in on the underlying systemic causes that keep most of us in financial straight-jackets.

Rather than concentrating on individual money management and education, Olen argues for a coming together of women (and men) around the policies that would actually help us. She suggest such efforts as lobbying for pay equity legislation, advocating for adjustments to social security calculations to help women who have taken time out of their careers to focus on their families and demanding equitable health care coverage are a better use of our time than mastering the ins and outs of our individual portfolios. In essence, she believes we need to take the personal out of finance and insist on changes that benefit us all.

While I couldn’t agree more that we need a laser focus on the systemic problems that are harming middle and lower class Americans and, in particular, women, I take issue with her suggestion that financial knowledge is useless. Call me a product of my times, but I believe understanding the financial markets and taking ownership for our own financial well-being is essential to women’s advancement.

I came of age when my mother couldn’t get her own credit card. Because she was a stay-at-home mom, she had to ask my father for spending money. And when she finally decided to start managing her own investment portfolio with money she’d made from a part-time consulting job, our family financial advisor suggested it was best if she let my father take care of it. Eventually, she gave up trying to gain competency in this area of her life. I vowed I never would.

Olen is right when she says there is no financial trick to make us rich, but there is much we can do to ensure we don’t become (or remain) poor and disempowered. Individual knowledge coupled with collective action would seem to me to be the best strategy going forward.

I encourage you to read Olen’s well researched and well written book and then let’s talk on the listserv.