Our Personal Finance Problem

This is the 100th post to Bad Money Advice.  In honor of that milestone I thought I would get a little more philosophical and reflective than usual.

I am generally very suspicious of arguments founded on the assertion that never in history has some aspect of our lives been more difficult or challenging than it is today. Some parts of life in the good old days may have been less Train_wreck_at_Montparnasse_1895 complicated then they are now, but it was a brutal simplicity.   I remember years ago when somebody remarked to my grandfather how dirty the streets in New York had become.  He rolled his eyes and pointed out that when he was a child those streets where covered in horse manure. And you may think it is stressful to raise kids today, but consider what it was like a few hundred years ago when half of them died before reaching adulthood.

But there is at least one part of our lives that really is much more difficult and harder than it was hundreds of years ago.  That is the somewhat amorphous subject that we call personal finance.  Don’t get me wrong, I am in no way pining for the old days.  In the past there was no such thing as an activity called personal finance for most people because, by our standards, in the past most people spent their lives broke.  A person might save food for the coming winter, but not money for retirement.  Until recently, there was no such thing as retirement for ordinary folks, and, if you go back far enough, hardly such a thing as money.

Most people throughout most of history lived only barely above subsistence.  You worked, rather literally, to keep food on the table and a roof over your head.  If there were coins left over, your choices of what to do with them were limited.  There were no malls to go to, no credit cards to max out, no cars to lease or buy, and no vacations to go on. Medical expenses were also not a big worry.

Even as recently as a hundred years ago, knowledge of the ways of money, of what we now call personal finance, was a non-issue for all but a small elite. There was just so little leeway for a person to do it either well or badly.  But as the 20th Century progressed, and the wealth of the average American grew geometrically, so did the importance and difficulty of personal finance.   Indeed, it probably grew faster.  Today, the impact on a person’s material life of doing personal finance well or badly can be profound.

We are now so accustomed to this rapid growth in the number of choices that we have that we tend to lose sight of the fact that this is all so new and so much more bewildering than it was even a few decades ago.  Lost in the discussion of defined contribution plans occasioned by recent events is the fact that these schemes are themselves only a few decades old.  Current retirees are the first generation to have used them to fund a significant part of their retirement. Today’s 60 year-olds are the first ones to experience a widespread collapse in their self-directed retirement savings just before they planned to retire.

Again, this is all a side effect of the massive increase in the wealth of the average American over the past few generations, which has meant a similar increase in the number of available financial choices.  A person would have to have a very grim view of human nature to think that having more choices was a bad thing.

But by the same token, the consequences of making poor choices have also grown and somehow, as a society, our understanding and knowledge of personal finance has not kept up.  It is as if we all had cars but did not know how to drive them.  There is an entire area of common knowledge missing from our heads.

I spend a lot of time pointing out the faults of the big personal finance gurus such as Suze Orman and Dave Ramsey.   In a way, this is a bit unfair to them.  They are media personalities.  In a more perfect world, they would be the equivalent of, for example, CNN’s healthcare correspondent or a host of a radio talk show on healthy living.  Those roles have their place, but nobody would consider them to be a viable substitute for doctors and hospitals.  The problem is that with regard to personal finance, we have no doctors or hospitals.  We have only Suze and Dave and their ilk.  And in the land of the blind the one eyed man is king.

My self-appointed role is as the guy who points out what is wrong with what little personal finance advice and education we now have. A person could argue that this was counter-productive, that what we have got now should be embraced as a good start and built on. I do not think so. Pretending that mainstream personal finance advice is wise and thoughtful encourages a complacency that the problem is not as bad as it is.  For example, it has been suggested that all we need to do is require high schoolers to take a course in personal finance, a plan which assumes the miraculous appearance of teachers able to teach the course and textbooks for them to use.

Moreover, a lot of the personal finance advice out there is just plain bad.  If I can stop one person from doing something really stupid based on the advice of “experts” then this will have been all worthwhile.

My hope is that by starting a dialog on the merits of personal finance advice, and the state of personal finance in America, we can begin what will undoubtedly be a long process of building that missing bit of common knowledge.


  • By Austin, May 7, 2009 @ 11:47 am

    And that is exactly why I follow this blog so closely. You serve a necessary function, especially for people who read a slew of personal finace columns every day, as a common sensical detractor and clarifier to people outside the industry.
    So, thanks.

  • By Dan Ray, May 7, 2009 @ 12:01 pm

    Mr. Curmudgeon, sir, well done on No. 100; may there be hundreds more. The choices for consumers has become mind-numbingly complex, and so lacking in transparency that we truly are in the land of the blind.

  • By Dave C., May 7, 2009 @ 12:21 pm

    Hi Frank! This was a nicely thought out post and helped me to put my current finances into perspective with respect to the past.

    I commented on your post at my blog, and mentioned a bit about “many choices” being a good thing. I don’t necessarily always agree with that idea, though being able to exercise control over the direction of our finances does feel gratifying.

  • By Rob Bennett, May 7, 2009 @ 12:31 pm

    The perspective provided here is perfectly balanced.

    We really are in trouble today. As you point out, money management is more important today than it has ever been. And we don’t know what we are doing. That sounds bad because it is bad.

    But the reason why we are so pathetic is that all of this is pretty darn new to us. We have never been this rich a society before. So naturally we are experiencing some growing pains.

    We need to all do what we can to take things to the next level.

    But we all also need always to keep in mind that the reason why things are so troubled today is that we are taking on challenges that did not exist in earlier times. We are experiencing a crisis but we are also experiencing an OPPORTUNITY. I believe that the two are related. We are experiencing the crisis because we have not yet figured out what we want to do about the opportunity.

    We might not make it to the other side. But we might. And, if we do, things are going to be better than ever when we get there.


  • By ObliviousInvestor, May 7, 2009 @ 12:55 pm

    There’s no question that yours is one of my absolute favorites.

    Not to be pessimistic, but I agree with your tagline that “mainstream personal finance advice is not what it should be.”

    In my view, you play an important role. Please, keep it up. :)

  • By ObliviousInvestor, May 7, 2009 @ 12:56 pm

    …your blog that is

  • By Scott Hamilton, May 7, 2009 @ 1:23 pm

    You are not being pessimistic, you are raising the standard of personal finance by educating the masses on how bad it is. If we all demand a better product, then someone will create it. In contrast, if no one demands a better product, we will continue to get bad advice. The ability of everyone to evaluate personal finance guru’s is a noble goal, not pessimistic.

  • By Jim Blankenship, CFP®, EA, May 7, 2009 @ 2:35 pm

    Absolutely spot on assessment as usual, Frank.

    I’d add to your observations that, not only do we find ourselves with too many choices and poor (or non-existent) avenues for advice, the greater majority of people take a dive into the saving/investing pool with, at best, only a vague concept of a goal. And without a goal, how can we determine what is the right way to invest (in this case)? If our goal is simply to make as much money as we can (believe it or not, that’s a common answer) then it’s no shock that most folks take *way* more risk than is appropriate to their circumstances – and suffer the consequences.

    And if it’s not enough that we haven’t set goals, for whatever reason, developing and discussing goals is one of those activities that ranks up there with a campfire “kumbaya” session for most folks: “Great concept. Yeah, everyone should do it. But no, I haven’t done it myself.”

    If Step One is setting goals, Step Zero needs to be determining our personal values. This is even tougher, because it requires the individual to turn inward and actually acknowledge what it is that drives us to do things we do. Tough as it may be, to be truly successful at setting goals, the goals must be based on your values or you’ll have a difficult time reconciling the two; that’s why we often miss our goals or get completely distracted and off course.

    Thanks once again for a well-written and thought-provoking post, Frank. Keep up the great work, looking forward to many more 100′s of posts!


  • By TJR, May 7, 2009 @ 3:16 pm

    I regard your blog as “advanced personal finance”, to be read after the “get out of debt slowly” courses offered by the other blogs.

  • By Mary, May 7, 2009 @ 3:39 pm

    Congrats on the 100th post. As has already been said – looking forward to many more. Your blog is by far, the best one that I’ve added to my reading list in a long time.

  • By SJ, May 7, 2009 @ 4:59 pm

    Bravo and congrats.
    I enjoyed the picture :D

  • By SaveBuyLive, May 7, 2009 @ 5:28 pm

    Personally, I’ve found my own education in personal finance to be a very mentally stimulating journey. Probably because of all the complexity buried in it.

    From the more practical standpoint of needing to do things with my money, I’ve found personal finance to be a bit aggravating. Too much complexity, too many contradictory opinions and not much in the way of readily available supporting data.

  • By racy, May 7, 2009 @ 9:12 pm

    BMA is a daily read for me, Frank. Thanks & keep up the good work.

  • By GPR, May 8, 2009 @ 1:05 am

    Congratulations. It’s a well written blog, even when you get all wonkish about statistics! :-)

    Your story is making me picture my grandfather, who made it through a depression and a war. When he started at the paper mill he stood at the gate every morning hoping to be picked to work that day.

    I doubt he’d have much sympathy for people who have trouble getting 72 month loans for a new car.

  • By GPR, May 8, 2009 @ 1:07 am

    Earn more. Spend less. Everything else is trivia.

    That’s the title and full contents of my new book.

  • By Kevin M, May 8, 2009 @ 10:23 am

    I never thought about the issue of people to teach the high schoolers personal finance, but that is spot-on. How can we trust other people who have failed at personal finance to teach our kids the “right” way? I guess textbooks can help, but I think experience is a better teacher most of the time.

  • By Don P, May 8, 2009 @ 11:37 am

    Marcus @ creditmattersblog turned us on to your blog. Thanks Marcus. You’re a peach.
    ~Don from SW OH

  • By Johnson, May 8, 2009 @ 10:02 pm

    Why do you reference hacks like Orman and Ramsey? Why not Jane Quinn, Eric Tyson, Andy Tobias and others who have expertise, credentials and a track record of excellent advice

  • By Frank Curmudgeon, May 9, 2009 @ 8:50 am

    That’s a good question. I did reference Tyson the other day, but I probably should spend more time on the saner members of the second tier.

  • By Kimberly Cole, April 7, 2010 @ 4:49 pm

    Great post! I agree that personal finances are more complicated than ever and that we are indeed going through some growing pains. However, I think there have been a number of instances in history when we’ve had to go through some uncomfortable transitions financially. For example, Andrew Hamilton suggested the idea of a central federal bank in the 1700s to create a standard form of currency. Up until then, coins and bills were issued separately by state banks. There were certainly a lot of kinks to work out then, and I think we’re still working out some of those kinks, but there’s no doubt that we’ve come a long way. Hopefully there will be similar progress in terms of handling our current financial changes. It’s just too bad that the most sophisticated way we seem to be able to handle these problems is through trial and error.

  • By monica, February 24, 2011 @ 11:10 pm

    so, i’m someone who makes 15K/year has debt, no savings and a poor budget. isn’t dave ramsey a good place to start?

  • By Professor Lembach, March 11, 2011 @ 4:16 am

    I’m afraid you indulging in a bit of ahistorical arrogance here. “Personal finance” has always existed, and don’t you think it was a far more difficult subject when most people were just hanging on and were mostly illiterate? Reading ROeder’s “The Man Of The Renaissance” keenly illustrates that even lowly clerks like Machiavelli lived on credit and well beyond their meager means. It’s just that most of the history we know has no concern for the day-to-day of even important people. All we get are big events and important dates. How much do we really know about, say, the credit market for grubstaking in the California Gold Rush?

    I will concede that, in the West at least, the standard of living considered “normal” or even “necessary” is higher than almost anyone in the past (and, alas, most of the world in the present) could even aspire to, but that doesn’t mean the fundamental issues have really changed. Indeed, the greatest change isn’t even mentioned in your post: the explosive increase in life expectancy in just the last 100 years or so.

    BTW, Bismarck introduced a pension plan in 1889.

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