Can The Best Financial Tips Fit On An Index Card?

Jan 8, 2016
Originally published on January 10, 2016 3:51 pm

A couple of years ago, University of Chicago professor Harold Pollack did an online video chat with personal finance writer Helaine Olen. The topic was how regular people get steered into bad investments by financial advisers.

Pollack said that the best personal finance advice "can fit on a 3-by-5 index card, and is available for free in the library — so if you're paying someone for advice, almost by definition, you're probably getting the wrong advice, because the correct advice is so straightforward."

After they posted the video, the emails started pouring in — people wanted to know, where could they get this index card? What was this fantastic yet simple advice for managing their money?

"Since I was speaking metaphorically, I was kind of stuck," Pollack says. "But I just took one of my daughter's index cards and I scribbled a bunch of principles, and I took a picture with my iPhone and I posted it on the Web."

The index card got into Google's news results. It got into big newspapers. Famous economists tweeted about it. Self-help sites like Lifehacker mentioned it.

In short, it went viral.

The ideas on the index card weren't new — pay off your credit cards, invest in low-fee index funds, etc. — but there clearly was an appetite for this simple, good financial advice.

So Pollack and Olen have now written a book (The Index Card) about it. Which — if the whole point is that this stuff is so simple you can fit it on an index card — might seem counterintuitive.

"Well, I would just say that, why do we need an entire Bible really? We have the Ten Commandments and the Sermon on the Mount," Pollack says — adding that he does not mean to elevate his work to the level of scripture.

The point is, sometimes you need more than the basics.

"We all know, for example, in tennis, how do you win a tennis match?" Pollack says. "You hit the ball low. I could tell you that, but I haven't told you how to do that."

And this actually gets at what many economists say is the reality with financial advice: Most of it is pretty simple. The rules on Pollack's index card start with saving 10 to 20 percent of your income, maxing out your 401(k), not buying or selling individual stocks.

But there also are more subtle points of advice — including whom you should bring on to help advise you.

"I'm struck by the number of my friends and relatives who believe that their financial adviser is free, and say things — 'Oh, the funds pay for that,' " Pollack says. "I don't know about you, but I generally don't work for free. So you want to understand, how is this person being paid?"

Rule No. 6 on the index card is to make your financial adviser commit to the Fiduciary Standard — meaning that your interests come first.

But the regulations around that can be mushy. Some economists say an easier approach is to use what's called a "fee-only" adviser, who can't take commissions for steering you into overpriced mutual funds. If you have an adviser, Pollack and Olen say you need to talk about this stuff.

"It shouldn't be awkward — if it's awkward, there's already a problem," Olen says. "If somebody is making you feel guilty for asking questions, you shouldn't be there — period, full stop — no matter what standard they're working to."

That said, both Pollack and Olen say a good, reasonably priced financial adviser can sometimes be helpful — especially when life gets too complicated to fit on an index card.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

RENEE MONTAGNE, HOST:

Personal finance is one of those complicated subjects most folks avoid talking about, even though everything you need to know about it can fit on a single index card. A blog post went viral showing just how. Now that blog is a book. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: A couple of years ago, a University of Chicago professor did an online video chat. He was talking with a personal-finance writer. The topic was how regular people can get steered into bad investments by financial advisors. And the professor, Harold Pollack, said this.

(SOUNDBITE OF ARCHIVED RECORDING)

HAROLD POLLACK: The really good advice can fit on a three-by-five index card and is available for free in the library. So if you're paying someone for advice, almost by definition you're probably getting the wrong advice because the correct advice is so straightforward.

HELAINE OLEN: I would say that's true about 90 percent of the time.

ARNOLD: Pollack was talking to Helaine Olen, the finance writer. And after they posted the video...

POLLACK: ...I started getting emails saying, OK, where's the index card?

ARNOLD: People wanted to know, what is this super great yet simple advice for managing money?

POLLACK: I just took one of my daughter's index cards, and I scribbled a bunch of principles, and I took a picture with my iPhone. And I posted it on the web.

OLEN: So I start getting these Google alerts for an index card, right? Then it started going all over Twitter.

POLLACK: And it got picked up by the Washington Post.

ARNOLD: OK, so the index card went viral, even though the ideas weren't particularly new - pay off your credit cards, invest in low-fee index funds. But there was clearly an appetite for this simple, good financial advice. So Pollack and Olen have now written a book about it, which they've named...

OLEN: ..."The Index Card."

ARNOLD: But wait a minute. If the whole original point was that this stuff is so simple you can fit it on an index card, why write a book about it?

OLEN: Do you want to go ahead, Harold?

POLLACK: Well, I would just say that, why do we need an entire Bible, really? We have the 10 Commandments and the Sermon on the Mount, depending on your theological orientation - if you're Jewish or Christian. We need some backup material.

ARNOLD: You're elevating your book to some very lofty heights here.

POLLACK: Yeah, fair enough. No, I would not say that our book is scriptural in...

OLEN: Oh, come on.

POLLACK: But I think the idea that - we all know, for example, in tennis, you know, how do you win a tennis match? You hit the ball low. I could tell you that, but I haven't told you how to do that.

ARNOLD: And this actually gets at what many economists say is the reality with financial advice. Most of it is pretty simple. The 10 rules on the index card start with save 10 to 20 percent of your income, max out your 401(k), never buy or sell individual stocks. But then, some of them are more subtle. And a big one of those is who you bring on to help advise you.

POLLACK: I'm struck by the number of my friends and relatives who believe that their financial advisor is free and say things like, oh, the funds pay for that. I don't know about you, but I generally don't work for free. So you want to understand, you know, how is this person being paid?

ARNOLD: Rule number six is make your financial advisor commit to the fiduciary standard - that means they'll put your interests ahead of their own - but the regulations around that can be mushy. Some economists say an easier approach is to use what's called a fee-only advisor. They cannot take commissions for steering you into overpriced mutual funds, which can be a big problem. If you have an advisor, though, Pollack and Olen say you need to talk about this stuff.

POLLACK: It's sort of an awkward conversation. I think you need to be direct and cordial about it.

OLEN: I would say one other thing - it shouldn't be awkward. If somebody is making you feel guilty for asking questions, you shouldn't be there - period, full stop.

ARNOLD: That said, both Pollock and Olen say a good, reasonably-priced financial advisor can sometimes be helpful - especially when life gets too complicated to fit on an index card. Chris Arnold, NPR News.

MONTAGNE: And you can check out NPR's personal finance Facebook group at npr.org/moneyandlife. Transcript provided by NPR, Copyright NPR.