You can't teach money

[BigBob]

Big idea: Why you can't teach money - Aug. 26, 2008

Is she on something? She is basically saying that finances nowadays is too complicated, so we should all just hire a financial planner - but not trust the FP.

To me, that's like saying that too many things I eat can cause cancer, so I am just not going to eat.

Anyone else feel the same as me?

 

[Leonidas]

I agree with her on this point.

Sellers of financial products spend billions drowning out well-meaning messages to consumers from nonprofits or government agencies.

Also, financial products are always changing - credit and insurance products have changed dramatically in the past 20 years - making it hard for educators to keep up.

But I don't think that means we should give up on educating ourselves about how this stuff works. My goal is to be able to know enough about this stuff to know when I need the help of a professional and to be a smart consumer of those professional services.

 

[W2R]

I am a scientist and whatever I know about personal finance I have learned out of need, not out of desire to know (though the more I learn, the more interesting it seems to become). In my dreams and fantasies, I wouldn't have had to learn about it - - I could just call up a financial planner out of the yellow pages and he wouldn't try to con or take advantage of an aging woman living alone with a substantial nestegg.

Yeah, RIGHT!! ? I know, what have I been smokin'!!! Greed is pervasive. I'm not saying all FPs are dishonest, but I am saying that the temptations are too high and there really are very few ways for some of us to find an honest FP.

I have read here and many other places that even if one gets a financial planner, it is wise to know a lot about financial planning onesself to make sure he is doing a good job. I have also read about brokers and their fees, and how one can do better at Vanguard. Basically, I have been dragged into DIY against my will, kicking and screaming, but here I am and I am determined to do a decent job of it.

If some aspect is "too complicated for little old me", then I will just work harder at learning about it since I would have to do that anyway, were I to hire a financial planner. I am just thankful I have no problems dealing with numbers. Imagine how awful it must be for some rock stars and some basketball players and such - - all that money, and sometimes no mathematical inclinations. They would be low hanging fruit for greedy, unscrupulous FP's.

 

[CompoundInterestFan]

I have read here and many other places that even if one gets a financial planner, it is wise to know a lot about financial planning onesself to make sure he is doing a good job.

One problem, at least as far as retirement planning goes, is that it's difficult to know if the FP is doing a good job until it's too late.

But yeah, I agree with BigBob--she's really not giving any useful advice.

 

[REWahoo]

But yeah, I agree with BigBob--she's really not giving any useful advice.

What? You don't think "There oughtta be a law...!" is good advice?

 

[cute fuzzy bunny]

Imagine how awful it must be for some rock stars and some basketball players and such - - all that money, and sometimes no mathematical inclinations. They would be low hanging fruit for greedy, unscrupulous FP's.

Thats why we regularly hear about the Jose Canseco's and the Ed Mcmahon's of the world. In many cases these guys just make so much money that even a thoroughly unscrupulous or incompetent financial advisor cant empty the coffers fast enough.

I'd imagine financial 'helpers' are just like any other profession like car mechanics. Some are more competent than others, some are more honest than others, some only do exactly what you need while some will go overboard in their zealousness, because after all you're footing the bill. And then there'll be some that will charge you for stuff that didnt even get done or need to get done.

Unfortunately the guys that are the most honest, capable and do only whats needed wont make the big money and be as visibly successful as the guy who rips everyone off a little bit and does more than whats needed.

And who do we gravitate towards? The little guy that looked like he's barely making it or the big guy with heavy advertising, a big fancy place of doing business, and lots of customer cash bleeding from every seam?

Mmm hmmm...

 

[Sarah in SC]

Chick's on crack. She's some rarified air academic that doesn't live down here with the rest of us. People can and should learn about their finances, and many do a good job of it. What did our grandparents do without FAs? Puh-leese!

I just love the ideas put forward that say, in essence, that people are too stupid to be responsible for x,y or z, so the gov't should regulate it for them. Damned head-patters, don't they know you can't outlaw stupidity? I'll take my chances after learning about my finances, I think (obviously) there is a place for professional advice, but by no means would any responsible FA advocate giving up control of your finances to anyone!

 

[Marquette]

Q. But aren't basics such as budgeting always applicable?
A. Teaching them is a waste of money

Q. Should parents stop teaching their kids about money?
A. Of course not, especially when it comes to day-to-day spending choices.

Color me confused!

 

[cute fuzzy bunny]

Chick's on crack.

I just actually read the article. I agree.

I dont think that its impossible for people to learn enough to make good financial decisions. I think its more that most people really dont give a hoot. There is no immediate gratification involved in learning how to balance a check book, develop a budget or make good, educated financial decisions.

If theres any 'badness', its going to come along well down the road. And if it does, we'll just blame it on the person who handed us the documents to sign or claim victimization. That always works.

See my sig...

 

[Westernskies]

Big idea: Why you can't teach money - Aug. 26, 2008

Is she on something? She is basically saying that finances nowadays is too complicated, so we should all just hire a financial planner - but not trust the FP.

To me, that's like saying that too many things I eat can cause cancer, so I am just not going to eat.

Anyone else feel the same as me?

Balderdash! Bring on the Bacon!

 

[Frugality_of_Apathy]

I just love when articles have a headline that lets you know they are going to answer a question but then as you read you learn they never intended to answer that question in the first place. At the end I just wanted to ask one question to clarify, "So, why can't you teach money?"

I also like the "Studies show that..." where she doesn't list any actual studies or even give any actual data but instead offers her analysis without any way to verify it. As far as I know there might have been a study with 1000 participants that were all in such dire straights that they had court orders to attend personal finance classes and over the next 5 years only 49% of them became millionaires, the rest were mere hundred thousandaires. And since 49% is clearly in the F grading range that whole group can clearly be tossed into the failure group in her mind.

Maybe when she said teaching people the very basics of finance was dangerous, she meant it would endanger her career as a writer for money magazine?

 

[Culture]

I think that she is right, but has reached the wrong conclusions. This is inevitable given what she does for a living, which is study complicated financial products.

The reality is that many financial products are so convoluted that no normal person has a realistic chance of understanding them. Derivatives are a classic example, as are some of the exotic mortgage securities currently causing so many problems. Some types of futures contracts, private equity, hedge funds and many annuities would also fall into this category IMHO.

However, consider where these product originate: In a substantially fruitless search for alpha or in a search for higher fees (I suspect the actual impetus is split about 50-50 between the two). The risk is not worth the return.

I think what consumers need to be taught is that if they cannot understand it, they should not be investing in it. The actual chance of gaining any alpha is small or zero (I personally believe it is larger than zero for specific products, but below zero for the group. Good luck finding the one that is greater than zero.) Additionally, the vast majority of financial planners (using the broadest definition) do not understand these product either.

Thus, I think that consumers need to be taught KISS (Keep it Simple, Stupid), and to avoid these products like the plague that they are. Am I wrong?

 

[REWahoo]

One thing to remember - this piece was written by a 'financial journalist', not Lauren Willis. As almost anyone who has been interviewed by the press can attest, what was published may bear no more than faint resemblance to what was actually said or what sources were cited.

Regardless, the article is fluff at best.

 

[cute fuzzy bunny]

But it does tell people what most of them want to hear. Its too hard and you probably wouldnt get it right, so dont try. Now party on...

 

[haha]

One thing she is quoted as saying-thanks F-Dude- is that customers would be required to be offered a default product that is safe. I am not sure that anyone would choose this product-after all we already have default products that are safe-index funds, CDs, insured bank accounts, government bonds and savings bonds, TIPS. I think a one hour course could show people the benfits of these. Still, when speculative stocks get to running, there will always be a number of folks who want to run with the bulls. A simple one stop thing like some of the Vanguard Target Funds might fit this simple product very well. It could be allowed to be sold with a small one time load so that the agents might not shoot it down. Another good idea is part of a SS makeover. a huge professionally managed fund similar to TIAA-CREF into which every worker must contribute. I know there are criticisms of anything one might imagine, but that doesn't mean that some are not better than the status quo- which is on course to give us a lot of underfunded retirees.

One area where I have recent personal experience of a basic financial product that it safe is Medigap insurance. Buying this is not stressful at all, because there are no smoke and mirrors. A policy in each class and must offer certain coverages to all comers. Within a class geographic area, policies only differ in cost. I believe also but I am not certain, that to participate in the program an insurer must offer the base product- the cheapest bare-bones policy. And of course you do not need to buy any Medigap, but in my opinion one would only want to do that if she were really strapped for money and couldn't find herself on the hook for a large medical bill.

Ha

 

[kaudrey]

Hmmm...I guess I should stop spending time volunteering to help women in shelters who are trying to get away from bad relationships how to budget and plan their spending so that they can get back on their feet...not.

 

[FinanceDude]

Chick's on crack. She's some rarified air academic that doesn't live down here with the rest of us. People can and should learn about their finances, and many do a good job of it. What did our grandparents do without FAs? Puh-leese!

Not to pry, but aren't you an FA??

 

[Sarah in SC]

I'll take my chances after learning about my finances, I think (obviously) there is a place for professional advice, but by no means would any responsible FA advocate giving up control of your finances to anyone!

Read a little further, there Sparky, aka Attention Deficit Disorder FD.

Yeah, I did the CFP and passed the exam thanks for asking! How's yours coming along?

 

[FinanceDude]

Read a little further, there Sparky, aka Attention Deficit Disorder FD.

Yeah, I did the CFP and passed the exam thanks for asking! How's yours coming along?

Sorry.........man, I am having "one of those days". CFP is not on the table for 2008, too many personal distractions with the family..........

 

[cute fuzzy bunny]

You mean you're not even CERTIFIED?

Oh dear, and I was thinking you had a modicum of credibility!

 

[FinanceDude]

Imagine how awful it must be for some rock stars and some basketball players and such - - all that money, and sometimes no mathematical inclinations. They would be low hanging fruit for greedy, unscrupulous FP's.

They usually listen to their agent, who knows less than ANYONE on this board about personal finances...........

I had a Major League pitcher as a client once. I don't know WHERE those guys get their ideas from. He once paid $750,000 for a WATERFALL in his backyard. He transferred his accounts out because I wasn't aggressive enough for him. Last I heard he was a mortage broker out East somewhere..............

 

[Sarah in SC]

Sorry.........man, I am having "one of those days". CFP is not on the table for 2008, too many personal distractions with the family..........

Sorry to hear, Dude. Didn't really mean to give you such a hard time.

 

[W2R]

They usually listen to their agent, who knows less than ANYONE on this board about personal finances...........

I had a Major League pitcher as a client once. I don't know WHERE those guys get their ideas from. He once paid $750,000 for a WATERFALL in his backyard. He transferred his accounts out because I wasn't aggressive enough for him. Last I heard he was a mortage broker out East somewhere..............

$750K for a waterfall? Yikes! That is a man who REALLY wants a waterfall. You definitely had a "problem child" on your hands.

 

[cute fuzzy bunny]

Hmm...I took a trip down to san simeon to tour the Hearst Castle about 15 years ago. That was the first time it really occurred to me what it was like to be truly, ridiculously rich.

Around the back we got to look at a 'fountain' that would have qualified as a full blown major pool in the average homes back yard. Story was that Hearst saw it somewhere in europe and liked it, so bought it, had it disassembled and transported to his place and reassembled. Further story was that he rarely even looked at it or spent any time near it.

Just to reinforce this, the only way to bring stuff like this to his estate at the time was to bring it in by boat to the shore and haul it up a series of cliffs.

IIRC it cost something like $5M to deconstruct, move and reconstruct it. And that was in the early 1900's.

So perhaps a $750k fountain is really a pretty LBYM item.

 

[FinanceDude]

$750K for a waterfall? Yikes! That is a man who REALLY wants a waterfall. You definitely had a "problem child" on your hands.

Yeah, but it was a NICE waterfall. Professional athletes are some of the WORST investors I have ever seen. His agent kept calling me and asking for "stock tips", but never gave me any money to invest...........