Most folks know that getting one’s finances in order involves saving more, spending less, and paying down debt. But these days it’s easy for financial commonsense to become clouded with complications. Just as there’s now a bewildering array of diets, superfoods, magical drinks, and nutritional strategies for those intent on eating more healthily, there is also an enormous variety of services, products, and experts sold with the promise of guiding you along the path to financial security.
One might expect that the massive recent growth of the financial services industry, which now accounts for a huge share of our overall national economy, would have made Americans far better at managing their money effectively. But polls and studies consistently show that most Americans save little, rack up debt with abandon, and fail to plan financially for the future. It’s no coincidence that this is how the industry makes much of its profits: By making people in tight financial circumstances dependent on its services and captive to the fees and commissions that accompany them.
The financial services industry tends to be extremely good at making the rich richer, and taking a cut for itself, but when it comes to everyone else, banks and brokers are more effective at taking people’s money—not making more for them. Payday lenders prey on the most financially vulnerable, while on the other end of the spectrum investment brokerages turn away clients whose income is smaller than six figures. Merrill Lynch, for example, recently discouraged its brokers from taking on clients with less than $250,000. And middle-class folks who can afford to pay for financial guidance and invest a large portion of their income are regularly fleeced by financial advisers who charge hefty commissions, offer uninformed advice, and overlook every aspect of their clients’ financial situation beyond their investment portfolio.
What most people need is advice regarding their overall financial circumstances—not just about which investments to buy. Lots of people are better off paying down debt than buying mutual funds, and they need someone who’s willing to tell them that without fretting over a lost commission. There is an increasing number of reform-minded financial advisers who are providing this sort of comprehensive guidance and creating fairer fee structures. Unfortunately, that sort of financial guidance is far from affordable for the people who need it most urgently.
That’s why bestseller lists are scattered with self-help-style financial books like The Nine Steps To Financial Freedom and The Total Money Makeover by celebrity “experts” like Suze Orman and Dave Ramsey. Many contain useful insights and some sound advice, but they also tend to sustain the widespread delusion among Americans that anyone can be wealthy if they only find the right magic formula or just work hard enough. And when the authors venture beyond debt-management and sound-budgeting into the world of investing, they tend to lead people back to those high-fee investing strategies.
Ideally, smart, customized financial advice would be available to everyone. Nobel prize-winning economist Robert Shiller recently proposed a Medicaid-like system that would give low-income Americans access to financial advisors through a government-funded program. He thinks the financial crisis might have been avoided if more middle to lower-income people had consulted with financial advisers before buying homes or shoddy investment products. On the other hand, much of the blame for the financial crisis lays at the feet of financial experts who misled clients and remained willfully blind to the burgeoning dangers of the system they created.
Zack Anchors can be reached firstname.lastname@example.org.