In October, I had the privilege of interviewing award-winning journalist Gail MarksJarvis (www.GailMarksJarvis.com). Gail’s Chicago Tribune columns reach millions of readers throughout the U.S. Prior to starting her personal finance column, she spent a decade covering business, won one of the nation’s top awards for airline reporting and wrote for publications ranging from USA Today to the St. Paul Pioneer Press. During her 10 years as a personnel finance columnist, Gail heard from thousands of distressed readers about their investing mistakes. As a result, she wrote her book Saving for Retirement without Living like a Pauper or Winning the Lottery (FT Press, February 2007) so that anyone can get firepower out of their savings without laboring over their investments.
Research: Why did you write the book and who is it for?MarksJarvis: The idea came from research that was done by the Financial Planning Association a couple of years ago. The FPA along with the Consumer Federation of America asked Americans if they ever thought they would be able to accumulate $200,000. Seventy-four percent did not think they would ever be able to save that amount. In fact, almost 25 percent honestly believed that they would be more likely to win the lottery. I thought that was just tragic, and it went along with the calls that I had been receiving from readers — people who were trying hard to save but thought it a hopeless endeavor. So I determined to show them, step-by-step, what they can do. I start the book by showing that if a person saved just $20.00 a week, starting with their first job, that they could eventually have a million-dollar portfolio if their money was invested and grew like the stock market has historically grown.
So this book is for everyone?Yes. What I hope to do is to start people from the very beginning and motivate them, showing them that they can do it, giving them hope and then telling them step-by-step what they can do. My dream would be if this book could get in front of everyone — perhaps older teenagers through their 40s. It could help someone in their 50s, too, but it could be extremely valuable to people earlier in their saving years so that they could get themselves on the right track and not make the terrible mistakes that I have seen people making.
I think people do not save enough but I think one of the reasons people end up in such bad shape is because they blow it as investors. So they actually have gone through the pain of saving but then they do not make their savings work for them.
The introduction to my book is about a professor who called me one day. He was in his 40s and had saved about $200,000, all of it in a savings account. I had just written a column where I said that a million dollars in savings would give you perhaps $40,000 to $50,000 a year to live on in retirement, and he was just terrified. He told me he was going to end up eating cat food because he only had $200,000 and it was not growing. He was afraid of mutual funds and did not understand how they worked. This person had even studied quite a bit of economics, and you would think a professor would know what they are doing. But the fact is that almost no one in this country knows what they’re doing. I do not think it is rocket science — I just think you have to explain to people, step-by-step in simple English, what to do.
Chapter 15 in your book is titled, “Do You Need a Financial Adviser?” What high points would you like to share?If I had my way, every American would get professional help from someone who would give solid advice, in a way they could afford. The problem is the average American does not have that kind of money. According to the Congressional Research Service, half of the Americans who are 10 years from retirement have not saved any more than $88,000 and that is often in their 401(k) plan — which is not the kind of investable assets that most financial advisors make their money off of.
Along the way, I have seen terrible mistakes that people have made, when they are this average sort of person with almost no money, who has gone to someone calling him or herself a financial planner. People often confess to me their ignorance; oftentimes they’re widows. And I have seen awful abuse, just awful abuse.
One of the people that I talk about in my book is a 23-year-old parking lot attendant. He made almost no money, but wanted to do the right thing with his money. Someone who parked his car in the lot was some kind of a financial consultant. This person talked the parking lot attendant into buying a whole life insurance policy, instead of putting his money in an IRA or saving it in some other way. The parking lot attendant did not have children or a spouse. These are the kinds of mistakes I see.
The other problem is that, as a whole, financial planners are only interested in working with the affluent. They do not have the background or inclination to work with the average person who needs some help with debt or budgeting or college planning. Financial advisers who are used to working with affluent people will make wrong assumptions — for instance, that the average person is going to save everything they need to save for college. However, that is pretty difficult for most people, even affluent people, to do. Most families need financial aid and too often I find that financial planners give regular Americans bad advice because they do not realize the implications of some of their suggestions, particularly as they relate to the financial aid process. I would like to encourage financial planners to really make themselves aware of the financial aid process so that they steer regular Americans in the right direction on that. There is a good book called Paying for College without Going Broke (Princeton Review, October 2007).
Another reason I wrote my book is that there are many books out there that are written by financial planners, but they use their technical jargon from the start. Here’s an example: I was having lunch with a financial planner who was praising me for the book, and of course I love to hear praise, but at one point she said, “You spent a lot of time talking about asset allocation. I do not know why that is so hard for people. Asset allocation is exactly what the words say.” I replied, “I am glad you like the book but I have to differ with you. Asset allocation might mean ‘exactly what the words say’ to you but to the average person those words are strange and spooky and they mean nothing.”
Regular people do not talk about their money as assets, they talk about their money as money. I think the financial services industry has really scared people with ads on TV, and by throwing out words like “large-cap” and “small-cap” and intentionally trying to make things seem complicated. Those are not complicated concepts if you just talk English to people.
Talk about other strange and spooky terms. In addition to “asset allocation,” “mutual funds” have to be explained. Most clients do not know the difference between “growth” and “value.” Most people do not understand the concept of “compounding” and that includes college graduates. And if you do not understand the concept of compounding, you really have problems with investing unless someone illustrates it for you.
Marie Swift is the president of Impact Communications, a marketing and communications firm for independent advisors; see www.impactcommunications.org