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Stern advice whats wrong with personal finance


Jan 4 It is not easy if you have dedicated most of a journalism career to writing about money to read "Pound Foolish: Exposing the Dark Side of the Personal Finance Industry."This new book by New York journalist Helaine Olen surveys all that she believes is wrong with the financial advice industry. Olen concedes that quality advice is valuable, but she says it has its limitations, and too much of it isn't quality. "To say that personal finance can do it all for you is delusional at best, and a lie at worst," she told me by phone."The personal finance industrial complex continues to prosper," she writes in her book, "but real people find themselves continuing to struggle with "stagnant salaries, income inequality and a society that offered a shorter and thinner safety net with each passing year." Retirement plans are lost to market downturns and bad advice, homes are lost to bad mortgage deals and family finances suffer from job losses, burdensome student loans and more. Olen doesn't fault the financial writers of the mainstream media (a point that I found comforting), though she sometimes portrays us as cockeyed optimists, persisting in offering financial advice, year after year, even though there is scant evidence that it does any good. At least, she says, financial journalists aren't taking payola to push products. "We can't accept a cup of coffee without being accused of conflict of interest," she told me. Olen had been a personal finance columnist for the Los Angeles Times.

She says no personal finance or investment scheme can fully protect people from downward spirals or plain bad luck. "For that we need family, friends and, finally, the government, the ... enforcer of everything from the rule of law to insurer of last resort."Olen hasn't turned over much in the way of shocking new scandals, but she has done an excellent job of putting together a well-written, well-reasoned thesis that is unsettling for anyone looking for help managing money. So what's the problem? Here's a starter list, as well as a few pointers for all the sitting ducks.

-- It is 'blame the victim." In her main argument, Olen faults famous scolds like Suze Orman for making people feel guilty when they can't manage their money. Orman got rich by selling products, not by economizing on her morning coffee, says Olen. "Her money wasn't earned by investment savvy or astute savings strategies but by convincing many of us that we were so helpless we needed the help of her books and product lines."Olen contends that not everyone is instinctively good at money management, and that people often fall into trouble, not because they are inept or greedy, but because they have health problems, lose their jobs and the like. "I wanted people to stop blaming themselves," she said.-- It is conflicted. Far too many experts are compensated when they sell products, especially annuities and other insurance products, says Olen. Agents, brokers and advisers who sit in the bank lobbies all often get paid when they get investors to buy a particular product, so of course they think the product most remunerative for them is best for you.

Even a lot of the supposedly-independent academic research is funded by the big financial firms that sell the products the academics research. For example, she writes of the prestigious University of Pennsylvania Wharton School of Business publishing a retirement investing paper that was underwritten by an annuity-selling life insurance company. The takeaway? Use independent advisers who are only paid by their clients, and be aware that even they may have some conflicts - steering clients who pay as a percentage of assets away from using those assets to pay off loans, for example. Don't believe all the studies you read about, and Olen's key advice: Don't go to "free" lunch seminars. "If I were a dictator I would ban them."-- Advice can be math challenged. Another well-publicized financial writer, David Bach, became known around the turn of the century for "the latte factor" - his contention that simply skipping the morning cup of Starbucks could net a saver an extra $2 million for retirement. The real amount? Somewhere between $50,000 and $175,000, according to a host of other estimates that Olen quotes.-- It is way too optimistic. Personal finance writers put forth the idea that anyone can start a business and profit; that investing in the stock market year in and year out will always be a money-earning strategy and that the real estate wave would always reward. To be sure, there were people writing of stock bubbles in 2000 and housing bubbles in 2007, but maybe not enough. Bring your own cynicism to all that you hear.-- There are many other problems. Financial firms target women, whom they perceive as easy marks; everyone relies on "financial literacy" to cure financial problems when even people who know what to do can't always manage to do it. Read the whole book - read it and weep, as the saying goes. Then start with a clean slate and move on. Giving Olen the last word: "The first thing I'm recommending is that we be honest about where we are. It is dishonest to say that we can teach everyone to be excellent investors, that bad things don't happen to good savers, and that good intentions are all we need," she said. "Let's go on from there."

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Your money auto insurance loyalty can cost you


(The author is a Reuters contributor. The opinions expressed are his own.)By Mitch LipkaJune 25 When Jonathan G. Stein became unhappy with his long-time car insurance carrier earlier this year, the 41-year-old lawyer from Elk Grove, California switched to a new company. How was he rewarded for his disloyalty after nine years? With savings of about $300 a year and a boost in his under-insured motorist coverage. Despite discounts for long-term customers, studies show that you can get lower premiums on car insurance by shopping around rather than sticking with one company, and the savings can be significant. The Texas Office of Public Insurance Counsel did a study showing that a consumer who has stuck with the same auto insurer for eight years could reduce the premium by 19 percent by switching."It is disappointing to think your loyalty to a company can hurt you," says Carol Lachnit, features editor for automotive website Edmunds.com. Even when rewarding loyalty with a percentage off, insurers may use a practice called price optimization that considers a number of factors beyond risk, including what pricetag they think you will tolerate."They're sort of measuring how likely you are to resist a price increase to your premium," Lachnit says.

Still, many consumers stick it out. Jonathan Stein, for one, has only had three car insurers in his adult life."I did get a loyalty discount, but each time I switched, it was because I received better coverage for less money," he says. Others take a different view. Linda Carlson has stuck with USAA for more than 10 years because of what she considers exemplary customer service.

The Seattle resident ticked off a series of accidents and other problems over the years, including a crash, and how pleased she was with the way USAA handled them. Her husband has used the company since 1970. Other customers are simply lulled into staying. A recent survey by customer satisfaction measurement company J. D. Power and Associates found that even though auto insurance rates increased by 2.1 percent last year and 2.5 percent in 2013, a relatively small percentage of customers switched carriers. About 39 percent of those surveyed said they did check on other insurers' prices, but just over a quarter of those who price-shopped actually switched.

"You have to look at your own pocketbook and your own budget and decide," Edmunds.com's Lachnit says. SHOP AROUND Lachnit says it makes sense to shop around every few years. It is important, though, to keep a list of your coverage in front of you to be sure you are comparing apples to apples. Also keep in mind that not every insurer offers the same level of service or enjoys the same reputation. It is worth checking on the complaint history of a particular company through your state's insurance commission, she says. A list is available (this site) through the National Association of Insurance Commissioners. If someone offers you a better rate and you would rather not switch, Jeanne Salvatore, vice president of the Insurance Information Institute, says it will not hurt to go back to your insurer and let them know about the lower quote. Auto insurance it not the same as a lot of industries that routinely haggle with customers, but there is no harm in trying, she says. The only consumers who might not benefit from comparison shopping are those with bad driving records because they will have fewer choices, Salvatore says. She recommends asking for every available discount, whether you are staying or going. These include such things as bundling multiple policies, good driving records, certain vehicle-safety features, paying in a lump sum, being a student with good grades, and belonging to certain membership or affinity groups.