 Thanks for joining us here at the New America Foundation. I'm Justin King. I work in the asset building program here at New America. Our work is focused on significantly broadening access to economic resources through increased savings and asset development. And in part, that work involves advocating for increased financial inclusion, including democratized access to markets and wealth building tools. It also includes an insistent focus on consumer protection and steadfast, common-sense regulation of financial products. Our belief is that families that participate actively and directly in saving, and at times that means just saving, and at other times it means exposing themselves to risk and investing, will in the long run be better off. They'll see increased economic mobility for themselves, as well as better mobility and educational outcomes for their children. It's critical that we engage on ideas about promoting, saving, and asset development now. The Great Recession saw the average family's modest wealth reduced by 40 percent. It saw a decade of progress in wealth development for African-American and Latino families wiped out entirely. We live in a nation with extraordinary levels of wealth inequality, where nearly 45 percent of Americans don't have enough savings set aside to live at the federal poverty line for three months should they lose their job. People often ask me, isn't the lack of savings just American culture? The truth of the matter is, is that culture and policy interact, that the one shapes the other. But it's especially foolish to see the results of policy decisions and to dismiss them as merely culture, particularly when our policy encourages people to take individual action and individual risk and leaves them in a marketplace full of hucksters and predators. I'm very pleased to have here with us today Helene Olin. Helene is a journalist and the author of a new book, Pound Foolish, exposing the dark side of the personal finance industry. The book takes a look at the culture of personal finance that has sprung up around our policy choices. It's a culture that says you should be ashamed for getting into financial trouble. You'll be rich as soon as you stop buying lattes and you aren't well off because you didn't want it badly enough. Pound Foolish says, we've all been sold a bill of goods. The book looks at vast numbers of hardworking, struggling Americans, sees them participating in incomplete and broken systems and pins their troubles on them for not wanting it bad enough. It's a book that's a little bit angry. It's a book that is a lot of fun. And it's a book that provides a challenge to the status quo. It also, I think, provides some challenges to those of us in the asset-building field. It brings home the importance of making sure that our work is sustainable and making sure that our work is scalable because the people that are on TV aren't paying much of a price for selling bad advice and it doesn't look like they're going away anytime soon. So I'm going to sit down. We're going to have a conversation with Helene and after we sort of cover some of the basics of the book, we're going to have a conversation with all of you in the audience. And so we're very much looking forward to that. We also have a virtual audience that's watching us live online right now. And if anyone out there is interested in participating in the conversation, you can send questions to Helene through our Twitter feed at assetsnafnaf and using the hashtag pound foolish. Please join me in welcoming Helene Olin. So I just should say as a recovering shy person, I initially told Justin I wouldn't get up here and speak, but I've changed my mind. I'm over 40 now, I can speak in public. Anyway, I should say, I didn't start out to write an angry book, though I know a lot of people think this is an angry book. I started, my backstory is, is I was the personal finance writer for the LA Times for several years. I wrote a column called Money Makeover, which they tell me was quite popular indeed. Well, the way I got this column is I was a freelance writer in Los Angeles. I had recently moved out there with my husband. And someone called me up one day and said, do you know anything about personal finance? And what I knew about personal finance could be summed up thus. It paid a lot more than other freelance journalism. So being in my, actually I was about 30 at this point, so I can't claim I was in my late 20s. I said, sure, I know personal finance, truly. I didn't know mutual fund for mutual of Omaha, okay? So I take this assignment, I literally run to the Barnes and Noble at the Beverly Center, pick up a copy of personal finance for dummies, and try to sound knowledgeable while I'm doing these interviews, while I'm actually really scrolling down terms like annuities and mutual funds, so I can go back home and look them up. I think I actually did a lot of the interviews by phone so that no one would know I was looking them up while I was doing the interviews. And I hand this piece in, and it was an interview with a, I think a former basketball player turned pharmaceutical person. And I turned this piece in and I'm thinking, I'm gonna get a screaming phone call, they are gonna pay me, I am never gonna write for this place again, right? And instead I get a phone call saying, hey, this was great, can you do another one? And I'm like, okay, sure. All right, so I do another one, and I do another one, and at some point I realize I'm a personal finance writer. And that's how a career was born, by the way. And I think there's two lessons you can take away from this story. And the first is, of course, that a lot of this stuff is very basic. Learning what a mutual fund is really isn't that hard. Learning the difference between the terms fee-based and fee-only and commission, not that hard. But in another sense, I could be an expert because everybody's an expert. Since this is Los Angeles, I'll quote the great William Goldman line about the film industry. Nobody knows anything. In fact, I will tell you, we had experts say, don't buy gold. This is in the 1990s, we all know what happened. Don't worry about real estate. Your houses are never coming back in value. This is the late 90s in California. You know, the credit had crashed there in the 80s. Well, we all know about that, too. Conversely, stock market's gonna go up 10%, 12%, and average annual returns. Just put your body in, you're going to be fine. To the best of my knowledge, nobody said, hey, housing prices are gonna double between 2000 and 2005, and then they're gonna crash, be prepared. Nobody said the stock market's gonna do this great run-up and then it's going to crash in 2000 and 2008. And most important, as it turned out, nobody knew when anybody was going to get fired, if they were gonna lose a job, if they were gonna suffer ill health, if they were gonna die at 65 or 95, because we can't predict any of this. So my take was as good as anybody else. So anyway, I stopped doing this feature around 2001, moved back east at some point, do a lot of different types of writing, do some parenting, play with essay writing. Always in the back of my mind thinking, I really want to write about money makeover one day, because believe it or not, I was actually thinking about a lot of my people over the years and wondering what had ever happened to them, but couldn't quite ever bring myself to just call them up and say, gosh, you know, I've really been wondering if you're okay, you know, just let me know. So in 2009, I wrote a very short essay, finally, for Slate's The Big Money, which was then their website about money. Just looking back at my time of money makeover, wondering if we had misled people, had we presented this formula as a short thing when it was not, and that in turn led to this book. I set this book up as an idea of what I really wanted to do was explore the idea of whether we had, I don't want to say misled people, really, but how the whole idea that personal finance and investment could really do it all for us when in fact we know now that it can't and how the world developed. I wasn't, I retrospect, I probably should have been thinking this, but it really still didn't occur to me how much money was flowing through the system, how it had been sold to all of us in a way that was making money for lots of people, and how conflicted it truly, truly was till I started looking. It was a one-year book contract, it took two, I say to have done it correctly, it probably would have taken five and 500,000 words, at which point I would have junked half of it because there would be a whole new round of stuff I should have written about, and I'd be starting all over again, and the thing would be published after I died because I couldn't work on it anymore. It's really a world in which you turn over a rock and not one snake comes out, but 10 snakes come out. There are some good people out there. They are overwhelmed by people who are either not good or not acting in your best interests. And as we all know, the numbers are pretty bad. We've had the 401k now for 30 years. The average person has less than $100,000 saved. In fact, a lot have a lot less than that. About one-third have nothing saved. We know it does not work at this point, and yet we keep going on. And I guess these are the questions I started exploring in the book. How did we get here, and what do we do now? So on that note, I will sit down. That's great. Thanks, Helene. I think that backstory is really sort of tremendous, and it must have put you in sort of an awkward situation as you were doing some of the exploration that you did for the book. Right. I joke. It's lucky I have a friend left, but it did. I was really questioning things that people don't normally question. I always say the thing about social change is that when it's successful, we don't remember what it was like before. So for people, I'm in my mid-40s, for people my age, the idea of having pensions is just unheard of now. So I was saying to a lot of people, I don't think your 401k is working for you. And that's a pretty powerful thing to say to people. So I want to start a little bit at the beginning. And part of this is at the beginning of the book. And part of it is for us where the idea of asset building starts. And that's really with the idea of a core cushion of basic savings. And one of your opening chapters in the book is that the latte is a lie. And the latte is sort of the code for whatever your personal vice is. And the idea is that if you cut this thing out, then you're going to be rich sort of over the long run. And tell us a little bit about the nut of that idea. And what I'm really interested in is I think a lot of people might hear you talk about some of this, and they might think, well, of course we have to live beneath our means. That thrift is a core part of building wealth over the long time. And to tell us a little bit about what your experience with people's reaction has been, but also the state of sort of thrift in America today. OK. So what we know is in 1980, the savings rate was 10%. It has fallen since then by the mid part of the last decade. It actually goes negative for a while. I believe as we're speaking, it's somewhere between 3% and 4%. It went back up a little bit after the recession. Though Kathy Christoff, one of the people who was my mentors at the LA Times, says that a lot of that just has to do with debt write-offs, by the way. So what began to happen, though, is by the mid-90s, people are quite concerned about the savings rate. We're 15, 20 years into the 401k. We know that T-Row Price does a study in 1994 saying that people are only saving about a third of much as they need to be saving. And what on earth are we going to do? So you start hearing more and more talk about savings. People are aware of the fact we have a problem. So what we don't really have an awareness of, though, and we won't for another several years, is that part of the problem really is this idea that our incomes had begun to fall in relative terms starting in the late 1970s, that the income inequality had also began to open up in the late 1970s. I mean, you see blips of it here and there. People are aware of it. But it's not part of the common discourse. What is part of the common discourse is this idea that people are spending like drunken sailors on leave, basically. That they're all running off to the department store for the sale. They're all going to Starbucks and spending every penny they have. And so what you start hearing, and I remember hearing this in California by the mid-1990s, is this idea of, hey, if you just give up your latte, you will be fine. Your latte costs a couple of bucks a day. You run in. You get a muffin with it. You're out $5. This is where your problem is coming from. As I always like to say, that's partly because people don't see you spending your money on health, education, and housing, which is really what was going up at rates well beyond that of inflation. People see you spending money on your latte. But the story goes is a money manager in San Francisco named David Bach starts talking about this as well. And he, unlike everybody else who's just sort of saying it, has the wit to put it in a book called Smart Women Finish Rich, which was published in 1999. And he calculates a number where he conveniently forgets to include inflation and taxes, that if we give up our latte, which, and hey, who needs a latte, right, we can save up between $1 and $2 million by the time we retire. And people are desperate. And they love this message. And David Bach starts going out and promoting this message like crazy. So this thing that we'd all been sort of hearing about, you start hearing about more and more. He takes a trademark on the name. He moves to New York to spread from San Francisco to spread the message. And finally, of course, the holy grail, he gets on Oprah. And Oprah says, wouldn't you like to know how you can retire a multimillionaire, right? Because, of course, who the heck doesn't want to know that? I still want to know that. And meet David Bach. And out comes David Bach. And he starts explaining his latte-based theory of life. And from there, the idea goes insane. And this is part of why, to this day, people say, you don't have enough money. It's not because your salary hasn't kept up. It's not because of your health care bills. We know that health care is the leading cause of bankruptcy. It's because you must have been going to buying your money. Your stuff at Starbucks way too often. I think that's one of the things that, for me, is really powerful about the book, is you're really pointing an arrow at our structures. And that our structures are broken, and that there is this fundamental challenge that people are facing that we're actually starting to see it talked about now. We're starting to see Occupy. We're starting to see conversations about wealth inequality. There was a really well-done video demonstrating wealth inequality that went viral. Something like five million views in the course of less than a week. And that's, of course, in the last couple of months. Are you encouraged by what you see right now? Are you sort of optimistic that we are sort of having a conversation about inequality that's going to mean something? I hope so. I mean, I'm definitely more encouraged than I was when I started the book. I mean, it's funny because people have always said, what did you do with your money after you finished this book? Did you take it out of the bank, bury it in the backyard, and go move off the grid? And I was like, no. I'm both encouraged and discouraged. I should say I'm discouraged because, of course, our political climate is what it is. It feels like any change, even the most incremental, tiny change, is next to impossible. So in that sense, I'm very discouraged. I am encouraged that more and more people seem to be engaging in this. More and more people seem to be talking about this. Whenever anybody says to me Occupy was a failure, my response was nobody was talking about this in a mainstream way before Occupy. And they truly were not. The 99% versus the 1% will go down probably in ad-vaking history as one of the great slogans ever. It got people to engage in a way that they just hadn't engaged before. And it was the first movement I felt in many, many years, probably pretty much in my lifetime, where you've got people saying things like, well, hey, you've got student debt that you can't pay. You're about to declare bankruptcy because of your wife's medical bills and your house has been foreclosed on. Maybe we all have a common problem because the ideology of personal finance says that we're in this alone, that you can't make it. Well, that's your problem. If I can't make it, that's my problem. What Occupy did is it took all this other talk that was out there, and it was out there. I mean, I knew about it other people. You probably knew about it other people working in the field knew about it and brought it into the mainstream. So I wanna return a little bit to some of the personalities in the field. You mentioned David Bach. I was sort of discussing this event with my wife and the name in the field for a lot of people is Susie Orman. And I got a really hard time about talking, saying something bad about Susie Orman for my wife. She said, listen, I had this sort of basics book when I was 23 and it was really helpful to me. And then I decided we should talk about something else. And so there are people out there that I'm sure have been helped by these personalities in this book. A lot of them come in for a really hard time from you. And I guess one thing, tell us a little bit about generally speaking, where some of the big flaws are in these sort of personality driven these cults of sort of financial personality. And also sort of what the response has been like from people who are followers of the advice that's expended out there. I mean, has it been, you've seen the comment section I imagine on some of your articles must be terrific. You should check out my Amazon book reviews. But there's two real issues here. The first is there's massive conflict of interest issues with a lot of these people. Susie Orman has some. The person I really like to talk about right now is a guy named Dave Ramsey. Does anybody in this room know who he is? In New York you mentioned his name, nobody knows who Dave Ramsey is. So for people watching this elsewhere, let me say Dave Ramsey is a Bible Belt personal finance guru on radio. He's on over 500 stations. I believe he's on in Washington. He's only recently gotten on the air in New York within the last six months or so. He is tremendously huge. He makes Susie Orman look like she's down there somewhere. And he is on the radio five days a week. And his first of all, his backstory is Dave Ramsey was a wheeler dealer in the 1980s, lands in bankruptcy court, comes out and says nobody should be in debt ever again. And he takes to the radio and 20 years later here we are with 500 stations. So first his take is don't declare bankruptcy, which I find amazing. But he found it very hard, so you shouldn't do it. Second, he develops an entire financial network. And when I say a network, I mean he has the Lampo Group, which has Dave Ramsey's ELPs, endorsed local providers. And then he goes on the radio and says things like, and on Twitter, you can still get 12% average annual returns in the market. And now anybody in this room think you're getting that? We're Helene. Dave Ramsey's ELPs can help you, people. And these are commission-based providers. And Dave gets on the radio and says, there's nothing wrong with not paying a commission, but there's nothing wrong with paying a commission. And you should be paying a commission. And don't worry about it. And my endorsed local providers have the heart of a teacher, quote unquote. And you should be considering this. I mean, this is essentially a three-hour commercial on the radio every day in pretty much every major market there is. So there's that problem. The second problem is, of course, once again, this feeds into this whole ideology of you can do it. When I started to talk to people who were considered themselves Dave Ramsey, not only followers, but success stories, it was horrifying. I mean, there were people paying down hundreds of thousands of dollars in debt that anybody credible would have said, you need to declare bankruptcy. In one case, I spoke to somebody who came to me truly when I was looking for Dave Ramsey people. And he was several hundred thousand in debt. And I said, well, when did the debt start? And he says, oh, I did an old-time home renovation. I'm like, oh, OK, so Dave Ramsey. Well, I was a pilot for the airlines. And this was just before 9-11. Now, we all know what happened. A lot of these airlines, including the one this guy worked for, salaries were cut by 40%. And eventually, they declared bankruptcy and tossed the pensions into the Pension Guarantee Board, where the pensions get cut massively. So he's got this major problem, right? So he's already in debt. He and his wife then decide to start up a small business to make good on their losses, which, again, this is something that we're told to do. There's a whole other book called The Millionaire Next Door, which advocates for this, OK? And of course, as it turns out, like many of us, this guy is a great pilot, but he's not got the mind of a small business man. And this goes belly up. And he and his wife were in even more debt at this point. And I said to him, have you thought about declaring bankruptcy? And he says, well, Dave says not to. And this is what you get for listening to people on the radio. Right. No, it's individualized problems and broadcast advice. I mean, we've seen, in the mortgage crisis, the idea, don't take advice from somebody that's selling you products. It's something that's true across the board. I want to zero in a little bit on retirement. As you said, 401ks are a failure. They haven't worked. We've had Theresa Gillarducci on this stage before and highlighted her research. Bloomberg's Josh Barrow had a great line last week. He was talking about the classic idea of the three-legged stool. And the three-legged stool is supposed to, social security is supposed to be supplementing private savings. But for most folks, as you said, we have private savings just barely supplementing social security. And I want to push you a little bit sort of on the what's next, on the policy side a little bit. Because I think we're in Washington, DC. We have, I think, a policy-oriented audience with us here today. And in this column, Josh Barrow writing from Bloomberg says, listen, it's time to pull back on tax-supported savings products that really only benefit wealthy people. And we need to gross up social security. Because this is the only way that we're going to be able to take care of people in the long run. And I think that's a policy response, right? And it's a choice that one could make. And the other thing that I think we see sort of frequently as people talk about this is, well, the 401k isn't working very well. But if we double down on them a little bit, and if we make them more like pensions used to be, with guaranteed contributions, greater coverage and greater automatic decision making, then we're going to have a better system than the one we have now. And so I just wonder sort of through this process, do you have, in the book, you don't. And I think I understand why come out for specific policy solutions to specific problems. But do you have thoughts about which way we really should be going? I think so. I don't think you can read my book and think I'm not a huge fan of Teresa Giller-Ducci, by the way. I should just say that straight out. Though I don't quite being a trained mainstream daily journalist, I had a little trouble saying that flat out. I look at it this way. If the 401k was going to work, we're close to 35 years now, it would have worked. We know it doesn't work. Everybody has who is defending it, many of whom have a financial interest in defending it. The fact is, it doesn't work. People are not saving enough money in them. And they're not saving enough money for a lot of reasons. The survey data shows, and some of this comes out of Scandinavia, that you give people tax incentives. Most people are just going to save who are going to save anyway. And as a result, they're just getting tax benefit for doing savings that they otherwise would have done. So we know that. Second, again, we're living in a country where the income stagnation is quite extreme at this point. And the inequality is extreme. You're not going to get tremendous savings from people under those circumstances. There's always going to be something else that seems like a better idea. Susie Orman's very fond of now getting on TV and telling people, don't pay for your children's college education. I have two children. I would live in poverty before I did not pay for my children's college education. I think a lot of us who have children would agree with that. I think this is not taking into account how humans really think about things. But the most important point is the 401k doesn't work for a lot of reasons. It doesn't work because people don't put enough money in. They can't afford to put enough money in. If they do put money in, they can't afford to fund it at an adequate level and still maintain emergency savings, still save for their children's college education, and still save for the occasional vacation because we really want to condemn people to some ghastly life in which they just work and work and don't do anything fun until they go. It doesn't work because in our country we have limited social safety nets, which have really been decreasing over the years. And as a result, you can get completely wiped out in a matter of weeks in this country by a bad bout of unemployment, a health care crisis. You get sued. I mean, other things can happen to people in this country. That just don't seem to happen in other places. And one person I spoke to for the book, who is Kate Michaelman, who used to run NAIRAL, went through a seven-figure retirement plan after one of her daughters was in a horseback riding accident and was an adult and not insured. Again, I think some of these financial gurus would get on television and say, well, you can't bankrupt yourself to pay for your kid's medical expenses. I'm not sure I would have made done that. And Kate Michaelman certainly did not do that. She said she turned up at the hospital, and they said to her as they're saying how her daughter is. And by the way, who's responsible for this? And of course, she said me. And then her husband got ill. And even though they had good long-term care insurance, as she put it to me, it's still $10,000 here and $10,000 there. And pretty soon, seven figures was no more. There's more that I want to get to. I want to talk about financial education. I want to talk about automation and a couple of other things. But I think this is a good time to bring the audience in. We've got a microphone out here. And so if we have questions, we'll start over here on the right-hand side. And if folks can please remember we have a web audience. So if you can, go ahead and introduce yourselves. And then statements are welcome, but we prefer a question mark at the end of the collection of words. We'll start right over here about halfway back on the right. Hi, I was wondering if I could get your thoughts on the situation in Japan, where what you have is elderly Japanese savers. What they tend to do is they buy government debt. But now there's this fear of inflation. And there's this talk now that all of these good, dutiful Japanese savers, lifetime savers, are going to be wiped out and they're not going to have retirement. When I hear those stories, it impacts me. I'm in my late 20s. Even though it's the same thing here in the United States, it's like, what if that happens here? Like, is it worthwhile, like, really dutifully saving when there are just so many uncertainties, you know? I can't address the Japanese situation specifically, because I would not say I'm an expert at this at all. What we do know is that the Japanese stock market has not really gone anywhere now in 20 years. And they also have a massive demographic problem, which is they have a lot more older people than younger people who can support them. They're also dealing with a society where it used to be that you took older people into your home to live with you, like your parents and your elderly aunts and uncles. And people are less inclined to do that now for any number of reasons. So that's a lot of their issues over there. But your question points to another thing, which is we're presenting a lot of what personal finance and investment advice right now as a kind of done deal, by which I mean, hey, put your money in the stock market. Jeremy Siegel wrote this book that says stocks for the long run. They'll go up 9%, 10% average annual returns a year. Don't worry about it. And in fact, that might be true, but it might not be true. We don't really know how a particular investment is going to be in six months or six years. That's why every prospectus contains a line saying, past performance is no guarantee of future returns. Does it work that way? And there are other people who would say that our stock market has been a lucky beneficiary of a lot of trends over the past 100 years, specifically World War I and World War II, which did not destroy us the way it destroyed a lot of other countries, which first allowed our stock market to grow, but second, gave us no economic rivals for a nice 30-year period. You look at histories of other stock markets in the 20th century, there's only one or two countries with returns similar to ours. So there's really no way to know. And you can follow the other thing I'd say right now is to follow the debate over the bond bubble, whether there's a bond bubble, if there's a bond bubble, if it is, what will happen, if it goes, should you be investing in bonds, what will happen to people? And nobody knows the answer. And anybody who, by the way, claims to know the answer doesn't know the answer, because if they did know the answer, they wouldn't be on television telling you the answer. I mean, there's no doubt that there's tremendous, it's, you know, there's a lot of uncertainty out there for folks, right? If you save your money in your bank account, you're very fortunate to be getting 1%, right? If you want a more stable investment, and you want to buy bonds, the US government has actually made it very difficult for citizens to buy bonds over the course of the last couple of years. Getting savings bonds is not as easy as it once was. And then there's a series of flawed products on the other end as well. So let's stay on the right side here, and we'll go right here. And then Hannah will come up front afterwards. Hi, I have a question about, you know, the books that you've mentioned, this one theme that rolls through them, become a millionaire, get rich overnight. And, you know, our culture has moved toward one where the people on, the images that people receive, you have to drink crystal, and you have to, so being wealthy, and I mean, I think back to my mother's generation, my mother, she's older, she's a depression baby, but, you know, it wasn't a point of getting rich. And when you put that expectation out there of getting rich, so all of these personal finance people are telling you, you know, rich dad, poor dad, rich wealth, whatever, but what do you think about, how can you combat that? Because to the ladies come in here, you can save and have a very reasonable lifestyle, but you won't be rich. So how do you, do you address that in the book and what are your thoughts on this whole culture of, you know, if you're not rich, you're not anything? I address it a little bit in the book, and I can talk more about it. In the book, I point out that we've had this sort of false idea of what we're spending our money on. One of the reasons there's so much stuff floating around, for lack of a better word, is because stuff became cheaper. You know, we began manufacturing in China, the cost of clothing fell with the result that to this day, even though we probably own a lot more clothes than we did in 1975, we're still spending a lot less on them. So some of it is that. What I didn't talk as much about in the book, which I would have liked to, but my editor's limited me to 85,000 words, so at a certain point we had to say enough, is how this whole culture grew up. And I've had a lot of talks with people about this. My dad is a market researcher and he remembers the days before television. And if you would ask him, he feels that one of the changes was just getting all the stuff in the house. The way he puts it to me is he says, I remember when skiing was something you saw rich people do in a movie for five seconds in the matinee in 1950. And then suddenly it was in your house, and it seemed like something everybody else was doing. So I don't know how you go back from that is the answer, because the answer that has come up from a lot of these people, and I would certainly put Susie Orman and Dave Ramsey on this camp, is that you should just accept your status, sacrifice and not spend money. As I say, a lot of the stuff starts sounding like some weird mix of a Victorian morality track with an iron-brown self-determination view of life. Well, you know, if you can make it, you can make it big. As for the rest of you, you know, just take the sack cloth and learn to be grateful. And that becomes a real, real problem. But the third thing I would say is there's a reason a lot of these books that promote being a millionaire exist, and it's because it's something a lot of us want to know. And we think there's a secret out there, and that I do blame the personal finance and investment industry for, because that's how they market. They market that they've got a secret and they're going to share it with you. Now nobody wants to know the secret of how to live a reasonable little life and to not worry about things that's just not going to make for a best seller. Or there are people who want to know that, but it's not enough to really make it big. You want to make it big. You're doing the millionaire next door, rich dad, poor dad, and other secrets as to how to be a multimillionaire, because that's what people really want to know. And the more money you dedicate towards obtaining those products that are going to tell you that, the less money you have off for other things. And the one other thing I would say Robert Kiyosaki is the rich dad, poor dad guy. And the thing that to me resonated about his message in the past couple of years at least, is a lot of people are starting to give you this version of sacrifice, this tough love like Dave Ramsey does. And Kiyosaki's getting at one truth that a lot of these other people are forgetting, which is we do want to be rich and we do want to have our lattes. So as I say, Dave Bach is telling you to give up your lattes. Robert Kiyosaki is telling you not only don't you have to give up your lattes, you can buy the ground underneath where the latte stand is located and then you can drink as many lattes as you want. It's a compelling message. It's great here. Is there any personal finance advisor that you do respect? And one person in the Washington DC area, Rick Edelman seems to be well regarded and I just wondered if you had heard about him and who do you recommend? Who I always recommend are, I will say the two people who have columns that taught me everything I needed to know at the LA Times after I talked my way into this gig that I shouldn't have had, where Liz Weston who writes now for MSN and Kathy Christoff who could honestly be a little right wing for my taste sometimes but is still a good friend, writes for Kiplingers and they're both terrific and you should read them. I also read Ron Lieberg at the New York Times, Jason Zweig at the Wall Street Journal religiously. I also just think generally Reuters and Bloomberg are doing fantastic coverage and these are all places you should check out. I should also say I'm starting to write for the British Guardian which has an American edition. They're going to have a lot of very decent stuff too because trust me, if they don't, I won't be there. But Rick Edelman gives decent advice. My one concern with Rick and I openly say this is I wish he wasn't charging people 2% fee management which strikes me as a little high but he is a huge promoter of index funds which I believe in as well. One of the things I wanted to ask you a little bit about is so I spend a fair amount of my time and I see some colleagues in the audience that I know do as well up on Capitol Hill talking about issues about savings, talking about sort of problems with products that are in the marketplace and problems with our systems and structures and one of the most common responses that I get at the risk of speaking for some of my colleagues at Wager that they get as well is that, well listen, the answer is that people just don't understand these products. And if they knew, if they were taught the right way to sort of engage with them then they would make better decisions. And truth be told, like everybody's in the financial literacy space in one way or another, right, there's MyMoney.gov from the federal government, there's Jumpstart, there's a bill in front of the Florida legislature right now to take personal financial education and make it a graduation requirement. And I think the default thing that a lot of people sort of out there generally think when they hear about that sort of stuff is good. People should know. They should be taught the basics and they should be taught. And yes, if they do receive appropriate information then they'll be able to do better. Especially if they receive appropriate information as kids they'll do better as adults. And your take on this does not line up with that. No, and I should say financial literacy broke my heart. I had the proposal that became this book. I actually included it as a solve. And I wrote one sentence saying, but intriguingly, as all this personal finance information and investment advice flowed over us over the past 20 years, the need along to financial literacy did not move at all. It stayed very low. How could this be? So I start to look to answer this one sentence in my proposal and I have a chapter in the book there on it. Coming out against financial literacy is like coming out against apple pie. You think how could this be wrong? In fact, financial literacy is a really fancy way of saying why should we give people proper legislative and government protection when we should just teach them how to get around got-your-products offered up by the financial services industry? That is what financial literacy boils down to. Unfortunately, which I wasn't saying this. What we find, and in some ways it can make sense, right? The idea that's being promoted right now is kids aren't learning financial skills from their parents so they need to take a class at school. And then 20 years later, they will understand that when the salesman is telling them something or they're being shown a mortgage that seems to have 100 pages small print with a lot of gotcha clauses and the broker is saying it has one thing in there but in fact, it doesn't have that. You'll take a class in financial literacy and you'll be able to know your way around this. This makes no sense. As I like to say to people, talk to me about what you learned in high school. Tell me about the French and Indian War and how did that impact the American Revolution? There's probably people in this room who can answer that question. In New York, there's no one, trust me. You know, first we don't remember what we learned in high school or we don't remember a lot so to reliably assume that we will is a little nuts. But second, even if we did, let's assume there's a perfect world, I went to high school in the early 1980s. I probably would not have learned about gotcha mortgages. I probably wouldn't have learned about a lot of the stuff out there and whether you should buy numerous houses and try to rent them out and see if you could make money. Or perhaps even a better way to put this is as I was born in the mid 1960s. Mid 1960s, credit card is less than 10 years old. Married woman would have no right to one for almost another 10 years. Probably they probably would have never taught me about a credit card in other words in high school. No ATM machines. I still remember seeing my first ATM machine. It was really cool, right? My eyes were popping out of my head. There were no gotcha mortgages. More important, there were no retirement accounts. The IRA doesn't come into the late 1970s. The 401Ks are the early 80s. So I never would have learned about any of this. So somebody in their 60s, for example, would never learn about any of this in school. Why would you assume that they would, because they could take a class, they would know this? Does it make sense again? The pace of financial innovation essentially ensures that any class you take, even if it works, isn't going to work for a long time. Finally, when you look at the rest of the data, couple other things. Students who take a class in financial literacy know no more than students who have not taken a class. So never mind remembering it in 20 years. They can't remember it two months later. Second, the financial establishment knows this. And you've got to start saying, why are they promoting this? And then you start looking, who's promoting this? And the answer is, this is not a lot of disinterested parties. It's people like Capital One, Visa, all sorts of groups that have a vested interest in preserving the system as is. Yeah, one of the things that we've often talked about is that there seems to be more promise in education that's paired with actually the product at the time. We've seen lower rates of foreclosure on families that receive appropriate levels of housing counseling and, of course, a decent product at the same time. And if you pair a kid with an accountant who comes with the education, there seems to be more promise in that. What we've called, and others, of course, have called a financial capability approach as opposed to that pure financial education approach. And now I'm actually going to explain the French and Indian more. Actually, no, I won't do that. I think it's probably smart to go back to the audience. Can we come right up front here? Robert Schrader with International Investor. Quick comment, first of all, with the lady with the question about Japan. Our calculations show us that the average Japanese household has about 220,000 in savings. Most all of them avoid the stock market because they know the pearls within. So there are different ways to achieve your financial goals without all the risk. And that's my question. It seems that a lot of Americans feel compelled to enter the stock market or more risky investments because they've all been told by their advisors, and they all know by simple mathematics that they're not getting anything from bank interest or those safer alternatives. In such a world, aren't we really kind of pushing them in that direction? And it seems that even the government entities continue to reinforce this idea and this notion that you have to sit down with your advisor to allocate your funds in a way that will provide some sort of inflationary hedge. The stock market can feel like our national culture now. I admit it. There's definitely a push because it has worked for the past 100 years for the most part. So you can understand where this push comes from. On the other hand, there's also a lot of money behind this push. A lot of forces saying who are donating money on Capitol Hill to various campaigns who are doing well off of this. So that's part of it too. As a culture, however, the stock market works for us because we are something of a get-rich-quit culture. We do like these promises. And I don't want to say people are falling for it because what we're seeing actually in the post-2008 world is people being quite afraid of it. And when you see them coming in at all, and this is, again, one of the reasons why people like Teresa Gillarducci argue that people should have nothing to do with their own retirement savings, is people will only put money in when the market is going up. So the past several weeks have seen an inflow into the stock market funds again. Last year, there was only a couple of weeks where you saw a flow in. People were withdrawing money constantly. Certainly, when you should have been putting money in in 2009, nobody was putting money in. I know two people personally who put money in. I wish I was one of them. I wasn't. The fact is we're not going to behave like rational actors. There seems to be this whole idea out there that we can teach people how to invest properly. And that's assuming the idea of investing properly exists, as you just pointed out. But even if it does exist, you're never going to teach people to do it. It's not possible. We're never going to overcome our own biases. And we're never going to invest in the market when, say, it's March 2009, when it's exactly when you should have been shoving all your money in. Can I have a quick follow-up? Yeah, go ahead. Very quick. Do you find that it's natural tendency for people to overestimate their returns and underestimate their losses? I think it's both inadvertent and sometimes purposeful. Both of the above is the answer. What you find is when the going is good, people overestimate their returns. I have a favorite Gallup survey from the late 1990s. I think it's 1999, where people were queried and told Gallup they expected 30% average annual returns in perpetuity. So hey, it was a couple of great years there. Conversely now, if you look at the numbers, people are expecting nothing. Obviously the truth is somewhere well in between these two places. What we seem to do is, I think, financial behaviorists would call this the recency effect. What just happened in the past, and I mean the past is in two weeks ago, is what we expect to be in the future. So the market's up, we expect the market to go up. The market's down, we expect the market to go down. Bonds are up, we expect bonds to stay up. Bonds are down, we expect them to stay down. And as a result, we're not very good at forecasting where our money is going to be. I would argue the issue with retirement savings is less that than the first, the fact, again, that people couldn't afford to put the money away. And second, another thing we all do is we try not to think about things that are unpleasant. Let's, give me your take on automation a little bit. You know, we, you know, one of the big concerns of sort of the crash and people being sort of heavily into the market is what happens when you're 63 or 62 or 64 and a half and you're heavily exposed and the market goes down. You're really, that's the worst case scenario for people who have something. Not having anything is obviously worse than that. And there's a lot of people that are out there who have that financial experience. But you know, more and more there's been a push for funds and for individuals to adopt, you know, life cycle funds where you sort of reduce your exposure all the time. And this is an example of automation is supposed to take care of this problem. And you know, there's been a lot of work that done that we've advocated for automating people's entry into the market and automating their sort of amount of savings and sort of setting appropriate defaults for people so that we know people are going to make bad decisions. And if we set them up to a low hurdle path for generally speaking good decisions that we're gonna see sort of better outcomes in the long run. Is there a lot of promise there or are we selling ourselves short? There's both promise and we're selling ourselves short and we're selling ourselves very short. Automation sounds like a great idea and in a perfect world it will work. We live in the United States. We do not live in anything resembling a perfect world, okay? There's a lot of problems with automation as of right now and I'm gonna try to be very brief and go through some of them. First right now the default rates in are very low. The reasons the default rates in are very low is because they're roughly usually 3% or so is because if they were any higher no one would put their money in because people can't really afford to save lots more money. Second problem we have right now is we have a massive 401k what they call a leakage problem and this is not a commercial for certain products on TV. This is a problem of people taking their money out and the reason they're taking their money out is because they need it, okay? So we're defaulting people in and they're often using it as their emergency savings, okay? So putting them in stock funds as has been pointed out by other people is not always the best idea because people are often using this as emergency short-term savings often not meaning to but the result is they're pulling money out of funds where they should be invested for 20, 30, 40 years so that's not a good outcome. If you just tell people they're gonna automate and you can't take it out unless you make this mandatory for everybody which I don't think there's any movement to do in this country though people like Theresa Gill or Ducci are strongly arguing for it. It's not, people are going to opt out more and the reason they're going to opt out more is because they need that money and they need that money because first again most of us don't have emergency savings second of all we have other needs and third because you start falling into if you remember Elizabeth Warren's take in the two income trap where people sent their wives to work and then pretty soon the people who had wives working were able to buy more expensive homes in the better school districts and then more people sent their wives to work you're gonna get into the same problem. People are still there's if not everybody's saving their money some people are gonna be living better than others and people are gonna stop saving making it automatic that's common sense. The last issue is the idea of these Target and Lifecycle funds themselves. There are in theory a good idea and if it works I'm all for it. First it's a very broad term everybody seems to have a slightly different definition of what an appropriate long term investment is people don't seem to realize this I mean and I should stress here the ignorance of the average investor should never ever be underestimated it's not possible to do this. So that's going on. Surveys have shown repeatedly that the majority of investors see target date funds not as a target but as a guarantee and you can guess at reasons for this it probably includes everything from advertising that made it sound that way I don't think deliberately to the fact again that people are just fantastically unknowledgeable about these things. But third for every target date fund that's run quite well there are other mutual funds who have discovered that this is really a great way to ratchet up the fees. And for people who don't know mutual funds come with fees attached to them. Now people who are being opted into these life cycle funds are often the most ignorant of investors. They're not people who are looking. So they're actually quite an easy group to go after in a way. So you see life cycle funds and target date funds that are run with incredibly reasonable 20 basis points and then you see life cycle funds that are run with 168 basis points and nobody seems to know the difference who are investing in them and often they don't have a choice if they do because it's through their 401k and we all know 401ks are a pretty limited menu for the most part. So there's a lot of issues there and it's why I think in the end if you're gonna go that route you need a much greater solve like something Teresa is talking about. Move back to the audience here. More questions? Start on the left and then come to the right. Joe. Joe Valenti Center for American Progress. You've spoken a lot about savings and on the debt side you've spoken about bankruptcy. What about credit more broadly? If we look at access to student loans, access to mortgages, credit cards, as you had mentioned, it's a very different world from 30 or 40 years ago. How does that play into this environment? It's playing a greater and greater role and one of my regrets in the book is I did not discuss student loans anywhere near enough I should say. I think I mentioned them as part of the debt crisis but I didn't really go into what is going on there. Student loans have really become a way in which costs can be, I really believe this, the costs for colleges have gone up at rates well beyond that of inflation now and there's no question in my mind that this is a very hard thing to prove that the loan industry is in part responsible for this because what people are doing is essentially turning to temporary third party payers so that they can pay these bills because we're telling them if you don't go to college you're never gonna have a decent job, you're never gonna earn a decent income and of course everybody's gonna go to college and I believe people should go to college by the way that's not an argument for not going but what has changed and changed dramatically as we all know is that over the years it became harder and harder to get rid of these debts in bankruptcy court till finally in 2005 in the bankruptcy reform legislation you could no longer get rid of private student loan debt in college, from colleges, I mean from college loans and this is where the real trouble really begins because those are the loans that have the highest interest rates that are next to impossible to renegotiate that are really with the most scotch of terms and surprise, surprise what happens the loan debt ratio starts to go up dramatically and we now have a situation where we have people in their 20s who are still in a very fraught economic environment or having very hard time getting jobs or if they do get jobs there or not anywhere near the levels they were 10, 12 years ago in terms of payment and they're stuck paying these massive bills and you can't renegotiate them because nobody's gonna renegotiate with you why would you renegotiate if you're the bank, right? These kids can't declare bankruptcy where's the incentive for you? So it's becoming this huge drag on the economy I believe there are people who believe it as a drag on the housing market there are people who believe it as a drag on housing formation it is appearing to be a drag on marriage by which I mean we now have data that shows that while for men having student loan debt doesn't seem to have any impact on their marriage rates for women as I joked into a column I published today in The Guardian I said men don't make permanent passes at girls with student loan debts they don't get married or they get married later or they have a less likelihood all in all to get married and that's becoming a real issue I find it hard to believe that women who just have student loan debts are in some group that just doesn't feel like getting married Right here we'll go these one, two My name is Bruce Murie I'm a retired federal employee from the US Department of Education I used to do student loan statistics by the way actually my question though is about long-term care insurance that seems to be rather universally recommended I had an experience with it with my mother who lived to be 98 and was seen now for 17 or 18 years and she kind of went through her long-term care it helped a little but in the long run not a whole lot do you feel that that is truly a good thing for a person well I'm getting pretty old myself now to think about having it again but I didn't bother to get it when I was in my late 50s or early 60s is it something that you think is really worthwhile? It was worthwhile and you're probably if you're not in your late 50s or early 60s any longer you probably can't afford it any longer unfortunately the problem is and we really won't know this now for several more years is that the terms of the long-term care insurance are now changing because the actuarial tables from these great things that helped your mother for instance turned out to lose the insurance companies a heck of a lot of money they weren't counting on people living as long they weren't counting on them living as sick so now you're starting to see stuff being sold without the same inflation protectors without the same guaranteed structure in terms of what you'll be paying so you're starting to hear stories of people whose long-term healthcare insurance bill has suddenly doubled on them making it unaffordable after years of paying the bill they are covering less they are also charging women a heck of a lot more than they're charging men because women live both longer and sicker so while I wouldn't necessarily say don't buy it I wouldn't run out there I'm not in the crowd of people who says you must have this either the other issue is of course it depends and this is why I hate blanket answers it depends on how much money you have if you've got $10 million you probably don't need long-term healthcare insurance if you have less than $100,000 same issue you probably don't need it the government will probably step in and cover you probably don't even have enough money to pay the premium anyway it's everybody in between that it starts becoming a sort of guessing game for and you can play with various tables and go to various financial planners who will give you different answers on this and of course the real challenge is is that there's a guessing game involved in what your social security is going to look like what your 401K is going to look like what your IRA is going to look like what your long-term care insurance is going to look like what your HSA is going to look like what your 529 is going to look like it's a very very complicated world across a variety of things and we have to sort of ask whether that increasing diversification and shifting risk for all of these different things onto individuals where that's going to get us in the long run and whether it's going to be any better or worse than today I want to take a couple more questions and then we're going to sort of move towards wrapping up can I see one last show of hands we'll go one, two, three we'll take those three questions Hannah and then we'll hold a response until we've heard all three of the questions I'm Weneek Cohen I'm interested when you talked about financial education your conversation, your critique was primarily about school-based financial education and I would totally agree with you about that but what about financial education at more important moments in people's lives when they're making transitions when they're acquiring a house when they're getting their first job they're exposed to in the world I live in mobile money there seems to be a role for financial education but probably not in the way that we think of classroom training that's great and then we'll ask we'll pan the mic over there, thank you so much hi, Lara Hines with the Women's Institute for Secure Retirement and one of the challenges that I feel like we're always facing in trying to get out there and provide a lot of education on these issues help individuals, especially women sort of feel like they can take some control over their financial futures is that we are bombarded in the media everywhere with information that people don't know what they're doing the systems aren't working financial industry is corrupt all these sorts of messages social security's going away and in the face of that it's like well why bother I'm just gonna throw my hands up I don't know what to do and so my question for you is until we can get some of these bigger fixes that may help what should we be telling people on an individual daily basis who have to work within these systems that aren't gonna change anytime soon that's great and we have one more question in the back so I kind of feel like people there's been a lot of diagnosis of what's wrong with the issue and so now I'm thinking about well what are some solutions you touched on massive inequality and what the Occupy Wall Street movement brought to it by identifying that it's in the hands of a tiny minority the wealth what I guess I would like to hear if you have any thoughts even if you didn't suggest in the book is the solution something like requiring corporations to invest profits more and if we can't get back the pension of 401k I mean what from a policy standpoint can we do because we're kind of getting around the getting around to the idea that it's not fair to put all of the onus on the individual to save for the retirement I'll try to do these in order first what you described isn't financial literacy though people like to say it's financial literacy it's called coaching and it's actually something I've become a bigger fan of over time the trick is to make sure people have access to coaches this is how we actually met was talking about this together online have access to coaches and that these coaches are non-conflicted I will tell you I use the coach myself now it is wonderful however it is not at this point in time a very cost efficient and going to a coach privately you know can cost you a couple hundred dollars an hour I don't necessarily think that's a huge burden given what you're going to be paying out otherwise but for a lot of people it is but there's a lot of promise in that area but it is often confused with financial literacy the problem of course is is that doesn't solve the problem you just articulated which is that there's a ton of barrage coming at you constantly you're going to go to a coach for a very specific thing the chances are you're still going to be barraged with all of this stuff and to me there is no solve for teaching people how to withstand this barrage it's why I walked away from financial literacy saying we need loss there's no way you're never going to beat the financial services sector at their game I'm not, you're not, no one is not and as a result we have to stop pretending that it's possible and I guess this is where my conclusion for the book was we need to talk about this what I didn't want to do was write a list of ten policy suggestions that everybody would go not virtuously as they were reading the book then shut the book and never discuss again which as we all know is sort of the standard formula out there right now is I really wanted people to engage with that and while I have gotten flacked for not putting suggestions in the book I have to say I'm having great conversations as a result of not putting those suggestions in so I think I was right in the end what do I think needs to be done it's all over the place I think I don't think you're really going to truly get at this till you get at the wealth inequality gap I don't see how it's possible they know the salary issues that involves a lot of taxation issues in our country you know the while these gaps have opened up in many first world countries in fact ours is much more significant than most others and the reason that is is likely because of the tax policy issues that we're encouraging this insane growth of inequality the carried tax exemption is a perfect example of this I live in New York so that one really hits me at home I am not paying 15% on anything but somehow if you're running a hedge fund you are that's a problem getting people to engage though and really one of the things the individual culture of personal finance and our individual culture in general has done is it's made us all feel like personal failures and it has for a large extent stopped a lot of social engagement I believe and that we have stopped seeing ourselves as a group and we see ourselves as individuals so if we fail it's individual to bring this back to some of the occupy stuff so the only way you're going to get change is by demanding change I mean I know that sounds kind of simple but we haven't done it for a very long time we have simply accepted it we've privately groused about it but most of us are way too embarrassed to say anything about it you know the average person here's the word retirement and they're screaming massive panic but it doesn't occur to them that everybody in this room's got the same problem so until we reach that point and we're willing to start taking action and talking to Congress and writing to Congress and got a loan there's maybe I don't know a mass of people in their fifties who don't have enough money in their 401ks let's talk to them you're not going to get anywhere because as long as we present this as an individual solution I might be able to save two people in this room but I'm not going to be able to save everybody else that's great that's actually that's the question I wanted to end on is what do we do about it and I think you've pointed out a great starting place that people need to have more open more honest conversations it's easier to get people to talk about just about anything than it is to get them to actually talk about their personal financial lives and I'm also really glad you brought up coaching because I think that's something where we see there's a lot of promise as well and we're starting to see municipal efforts to provide this service to people we're starting to see some interesting nonprofit and state level efforts to provide those kind of services to target populations and you're right, it's not particularly cost effective yet but we're seeing some really interesting progress being made there and that's something that I hope that we'll be highlighting here at New America later this year thank you audience very much if you can join me in thanking Helene Olman for being here with us today we look forward to seeing you again soon thank you very much