The Index Card: Why Personal Finance Doesn’t Have to be Complicated
by Helaine Olen and Harold Pollack (Portfolio/Penguin, $25, 256 pages)
Is there a subject more fraught with unnecessary complication and outright misinformation than personal finance? Despite a torrent of articles in popular magazines like Money and innumerable financial websites and even entire networks like CNBC devoted to money matters, Americans’ knowledge of the subject remains abysmal. In a 2016 survey reported on Fortune’s website, nearly two-thirds of more than 27,000 respondents surveyed couldn’t produce at least four correct answers on a simple five question test of financial literacy.
That ignorance wouldn’t be of more than passing interest if it didn’t have considerable real-life consequences. In May 2016, for example, the Federal Reserve reported that 47 percent of American households would have trouble meeting an emergency expense of only $400. The average Baby Boomer in his or her final pre-retirement decade has saved a paltry $136,200 for retirement, a sum far short of the estimated $1.1 million nest egg those same Boomers will require to generate the $45,500 they think they will need annually to live comfortably in retirement.
These dreary statistics are what make a deceptively simple and yet immensely valuable book like Helaine Olen and Harold Pollack’s The Index Card: Why Personal Finance Doesn’t Have to be Complicated required reading for so many people. A single evening spent reviewing the 10 simple rules of money management and investing explained in these pages will pay enormous dividends in financial well-being and, most importantly, peace of mind.
Olen, a personal finance writer for the online magazine, Slate, and other publications, and Pollack, a professor at the University of Chicago whose research focuses on health and urban policy concerns, connected after the publication of Olen’s book, Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, in 2013.
Owing to his own financial challenges – among them caring for his wife’s special-needs brother and her own health crisis – Pollack brought his academic training to bear on the “cacophony put out by the financial services industry,” seeking to “distinguish the useful advice from the useless or worse.” The result of this painstaking exercise was a “new financial regimen” that slowly brought about a marked improvement in the Pollack family’s financial picture.
Pollack reduced his prescription to 10 simple rules that can fit on an index card. (The book helpfully includes a copy of the card that can be detached and affixed to the refrigerator door with a magnet or, better yet, framed.) The authors understand why some readers may not feel the need for more than the card, but as they note, the rules “may be simple, but they aren’t always self-explanatory.” One compelling reason to read the book is Pollack and Olen’s candor about their own financial blunders, as when Olen ignored the warning not to invest in individual stocks and opted to put her money in AOL rather than Amazon amid the tech bubble that burst in 2000.
Much of The Index Card’s advice will be familiar to readers of personal finance writers like former Wall Street Journal columnist Jonathan Clements, whose work, sadly, no longer appears in the financial pages of the Sunday Harrisburg Patriot-News, or investment icon and founder of the first index fund, the Vanguard Group’s John Bogle.
For those who think Olen and Pollack’s prescriptions – like saving 10 to 20 percent of your income, investing only in well-diversified index mutual funds and exchange-traded funds or making sure you have enough (but not too much and also the right kind of) insurance – are obvious or unsophisticated, the authors offer pertinent examples of how the failure to follow this kind of unadorned advice has helped pave the road to financial disaster for many.
Though there’s a distinct do-it-yourself flavor to the book, many readers, even those who diligently follow its recommendations, might desire more specific advice and would be well-served by turning to a personal financial advisor for guidance. Drawing on Olen’s investigative journalism, the authors make a compelling case for why that advisor should be a fee-only fiduciary, who will sign a legally binding commitment to act in the client’s best interests.
Hard as it might be to imagine how one could distill the advice on an index card any further, in an email exchange with Pollack after I had finished this cogent and, for some, possibly life-saving book, I asked whether he could reduce the prescriptions he and Olen offer to a bumper sticker.
“Be simple, automatic and methodical, and start early saving your money,” he replied.
Though it may be harder than it sounds, it’s certainly not a bad place to start. There’s a lot more sound advice than that packed into this small volume, and if you find yourself thrashing about in the financial thicket, the few dollars you spend on it may be one of the best investments you’ll ever make.