SKIP STEP ONE

Mike Konczal brought this brief Ezra Klein piece to my attention earlier this week. In it, Klein claims that all of the financial advice you will ever need can fit on a 4×6 index card.

The advice is as follows:

1. Max out your 401(k) or other employer contribution plan
2. Buy inexpensive, well-diversified mutual funds
3. Never buy or sell individual stocks
4. Save 20% of your money
5. Pay credit card balances in full monthly
6. Take advantage of tax-advantaged accounts like Roth IRA and 529s
7. Pay attention to fees
8. Make your financial advisor commit to a fiduciary strategy
9. Support social insurance programs

Certainly this is all sound advice. So why does it just add fuel to my "God I want to punch Ezra Klein" fire?

Like most Beltway insiders, he is a mouthpiece for the politics of consensus and Reasonable People. He is a younger, hipper David (Gergen or Brooks, take your pick). This sounds like exactly the kind of financial advice we would hear from someone who would be shocked to learn that, what, maybe a third of Americans have 401(k)-type plans? That most people barely make enough to live paycheck-to-paycheck and saving 20% (is that in addition to or including the 401k?) isn't feasible? That there is an entire universe of Americans outside of DC and Manhattan who don't have a financial advisor?

This is great advice for people who don't need this advice. Honestly, if you have a job that pays you well enough to save a fifth of your income and take advantage of an employer contribution plan, you have to try pretty hard to fail to save money and have relatively solid finances. So thanks, Beltway journalists and Ivy League academics – we have solved a problem that didn't really exist. To the extent that there are people who earn enough to do all of these things but instead blow all of their money on shopping and a McMansion, I guess this could help. But are they going to start taking financial advice now if they haven't yet?

The index card needs one additional line at the top; "Step one – get a high paying job with excellent benefits." Without that, the rest is as useful as Esperanto.

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34 Responses to “SKIP STEP ONE”

  1. Dr. Mac Says:

    I knew there was something about that dude…. and it wasn't just be subservient to Rachel Maddow.

  2. Dr. Mac Says:

    "because he is"… sorry

  3. Leon Says:

    Yeah, I saw that, too, and thought that 20% savings rate is unrealistic for the vast majority of Americans. I don't want to punch him in the face, but that notecard rubbed me the wrong way for the very reasons you mentioned. And the funny thing is that he's well aware of the reality of poverty in America, but clearly only theoretically and academically. His heart, I think, is in the right place, but he clearly sometimes stumbles by speaking from a privileged place.

    I can't really hold it against him too much, though, being a white male in America. I just have personal experience with poverty that makes it so I would never post such a postcard as a panacea without acknowledging the caveat of having to first secure an upper-middle class career before taking this advice. Limousine liberals have blind spots, to be sure.

  4. argleblargle Says:

    "Pay credit card balances in full monthly"
    This one really boggles my mind. I mean… duh? Are there people out there who think "yeah, I could pay off my credit card balance this month, but I think I'll let it ride. It's my gift to the good people at Visa"?

    You might as well add "don't play slot machines" and "don't borrow money from loan sharks" to this list of financial advice, if that counts.

  5. middle seaman Says:

    There are kind of two claims here. The 1st is that Klein is a member in good standing of VSP (Very Serious People), The 2nd is that Klein dishes out empty advise.

    For a reason way beyond me this society selects 2nd rate people to its 1st row jobs. Tom Friedman, Ezra Klein, Matthew Yglesias, etc. Infrequently, a really intelligent person penetrates the 1st row.

    Once you have a column in a paper you are, naturally anointed as an expert on everything. This case finances. Since you start with an incomplete set of tools the result is ridiculous.

    Personally, I do pay off my credit card, I do have a 401K, have a financial adviser, have an IRA, but I give 45% of my income to the monster who used to be my 1st wife.

    What the heck is "Support social insurance programs?"

  6. Anonymouse Says:

    The 401k advice doesn't take into account that for most of us who work for companies that hire financial firms to manage our accounts, we're stuck with the stocks owned by the financial firms. I'm getting a better return-on-investment in the money in my bank account than the money in my 401k because my company hired a crappy financial company and they are not going to change because the owners are getting quite the kickback for using this firm.

  7. c u n d gulag Says:

    He forgot to add the following:
    -Don't go for the most expensive sports cars on the market, but settle for a nice luxury car or SUV – and upgrade the features to get more bang for your buck.
    -When buying a summer home, you don't have to get one right on the ocean or lake, or on the peak of a mountain or hill. You can get a better deal on a home a block or two away. But do spend time researching to find one with a nice view – you'll be glad you did.

    And let me add one more:
    -When you finally get your inheritance, don't put all of the money in US banks or investments.
    Make sure you ask your financial advisor for offshore banks, and put a majority of that inheritance there – and keep just enough here in America, to live your life of 'champagne wishes.' Bank that 'caviar dream' money in offshore banks, for the future.
    This may not bring immediate results (except to hide that money from the IRS), but when the revolution happens, if can you can avoid the people with the tumbrels and head-pikes, and make it overseas, you'll be glad you have easy access to your money, so you won't have to fight to get your money out of the new USSA – the United Socialist States of America.

    That's about as useful as the advice from Young Ezra.
    What an @$$hat.

  8. TheStone Says:

    You forgot a David- Broder, that is.

  9. Well mostly Says:

    I give Young Ezra points for brevity, clarity. Yes, "eat your vegetables" by all means. Gosh, thanks. Right up in the clouds.
    Ed's right again. The assumptions in place speak louder than the writing, and rule out taking it seriously.

  10. Michael Says:

    Hey what's wrong with Esperanto? :-)

  11. sluggo Says:

    HOW TO BECOME A MILLIONAIRE:

    Step 1: First get a million dollars……….

  12. sluggo Says:

    Let's not forget winning the genetic lottery.

    Hell, it isn't even that. Fifty years ago my folks where looking for a house. It came down to two choices. Lincoln Park or the Southside of Chicago.

    Maybe if Grandpa outlived his second wife, the inhertance would have flowed differently.

    I would have to work, but I would have enough cushion to follow the advice on the card.

  13. Margarita Says:

    Well, when you include the part about "once you have an income that you can live off of and save a little bit besides," this is the same advice that Elizabeth Warren provides in All Your Worth.

    The part that's too smug by half is that it then "shouldn't be all that hard." It is, and Warren explains why — it has nothing to do with shopping and McMansions, by the way. But then again, that's the only part you agree with! ("you have to try pretty hard to fail to save money and have relatively solid finances")

    This is just nit-picking a good rant though. Sorry, I was just in the mood.

  14. Major Kong Says:

    Step 1 – Choose your parents wisely.

  15. GunstarGreen Says:

    It's important to always keep in mind just how far out of touch these people are with the realities of the vast majority of their fellow Americans. So much so, in fact, that it's no longer really appropriate to call them 'out of touch' — they're on a completely different planet so far away that touching was never even a remote possibility.

    My income places me in the 93rd percentile of individual wage earners according to 2011 government figures. Yet despite being that high up on the totem pole, in the top 7%, the people above me are SO FAR above me that I can't even begin to fathom the kind of wealth they have. A lot of people may tend to gloss over the whole notion of 'we are the 99%', but really sit back and think about it for a moment. There are six percentage points up there to still be part of the 99%.

    Privilege doesn't even begin to describe the place that people like Klein come from. He begins from the assumption that you have an assload of money and amazing benefits because he literally cannot comprehend a world where that's not an automatic given.

  16. witless chum Says:

    If his point was: So, affluent people really, really never listen to any of the moron brigade on CNBC. Seriously, they're a joke and the punchline is your wallet emptying. They're the monkey, you're the audience and the organ grinder has guys picking your pocket while you're watching the monkey. Just don't. Then, it's not so bad.

    But yeah, he could use a good punching.

  17. SomeLoser Says:

    Kial birdoj flugas suden por la vintro? Estas tro multe por marŝi.

  18. quixote Says:

    Um, did young Ezra not cite his sources? That was a it's-funny-because-it's-true index card by Harold Pollack making the rounds of financial web sites. Not directed at general audiences trying to make it on a median wage, even if Ezra missed that part. See: h ttps://twitter.com/m_sendhil/status/375421035127910400. I saw it via Counterparties h ttp://counterparties.com/?s=financial+advice+index+card. (urls given an extra space since I don't know how your commenting software will deal with links.)

  19. Nick Says:

    This reminds me of all the hand-wringing bullshit about millennials–"Oh, they're refusing to buy houses and get married and have kids because they're stuck in extended adolescence!" As though people under 35 just LOVE moving back home and not being able to support themselves.

  20. Sagas Says:

    Ezra's points are all good advice. If they are achievable (by choice, or by other limiting factor) is another issue.

  21. mothra Says:

    What the heck is "Support social insurance programs?"

    It's a reminder to the rich that they'd best not be on record dissing the crumbs our overlords toss us in the form of food stamps (being cut down to nothing daily by our elected reps), Medicare and SS (in danger of being abolished as soon as Repubs get the majority in the Senate and House), because the angry peasants will have Google Maps and will use it. Or it's a reminder to the rich to donate to food banks–for the same reason.

    Also, I would add one more item to Ezra's list: Do not get laid off from your job, particularly when you are 50.

  22. GunstarGreen Says:

    @Nick: Yep. Like I said, so out of touch they're on another planet.

    Millenials don't buy houses, don't get married and don't have kids — not because of some absurd 'extended adolescence', but because we know for a goddamn FACT that the American Dream that our boomer parents have been selling us all our lives is bullshit. We know that it is outright stupid to throw yourself under the train of debt obligation when modern-day employers do not give one single, rotten shit about you and will crush you at the earliest opportunity. They'll help tie you to the tracks if it will help get their CEO another million-dollar bonus.

    For the longest time I refused to get into the housing market, even at the very bottom when prices and rates were the most favorable they would ever be in my lifetime, and continued to rent. Why? Because if I lose my job tomorrow, being on the hook for 3 months rent is far better than being on the hook for 70 grand or more of mortgage debt.

    I finally did pull the trigger on a mortgage after five years of working for the same employer and being universally praised for my excellent work.

    They laid me off the week after I signed, and did not give one single shit about it. Just some platitudes from the rat bastard in the suit that still had his job collecting multiple times what I made and doing a quarter of the work.

    Fortunately I'm damned good at what I do, a specialized field in high demand, and I was able to get another job inside of a week. But never again. All of my funds are dedicated to paying off this house as soon as humanly possible, and then never again. Not one dollar of debt. The economy can burn for all I care, it's what they deserve.

  23. Dave Dell Says:

    As I told all my nephews, nothing beats marrying well. Marry a woman who not only has a job but thinks being employed is the natural order of things. One who thinks one child (or fewer) is the perfect number helps as well.

    As I've told all my nieces, take all the math and science courses you can. It's not only more interesting but you'll almost always be the Queen if you so choose. It's good to be the Queen. Find the nerd that finds the difficult things easy but still remembers to bathe regularly. Then, if all else fails, fall in love with the tax accountant.

  24. Aaron Says:

    Eh, I still thought it was relevant. There's an industry (I won't guess the size/scope) of people charging too much money to middle-to-upper-income folks for not-very-good financial advice, portfolio management and stock-picking. There's whole books on this kind of stuff. And you don't need it.

    People who have just gotten professional jobs with 401ks will ask "Who's Ira Roth?" and this is useful information for them.

    It is not applicable to everyone of course. But it's still good advice and is at least as good, and far cheaper, than a paid financial advice professional.

  25. giri Says:

    There is an entire universe of Americans INSIDE DC and Manhattan who don't have a financial advisor. Don't make this an East Coast thing. And the advice is actually pretty solid. Not all advice can apply to all segments of the population. There are plenty of people who can, and do not, do any of those things and they should.

  26. Andrew Says:

    No matter how much you make, it's easy to spend all of it and more. I know of a couple who each make six figures, live in a $300K house, have no kids, and have zero savings and a mountain of debt.

  27. Andrew Says:

    Not buying a house because you're unsure of your job only makes sense if you live in a recourse state (not California, for example). In California, if your house is worth less than the amount owed, even if you CAN make the payments, you can just walk away with few consequences. If the house rises in value, you get all that money. If it falls, the bank takes the loss. It's a wonder loans don't cost more in California for this very reason, but they don't.

  28. Diana Says:

    I'm hearing a lot of hating on poor Ezra.
    Now, I'm not sure I agree with a lot of his recommendations — mutual funds, really? wouldn't it be better to buy an index ETF? – but most of the hate here seems to be directed at the recommendation that you save 20% of your income (although the most hateful don't seem to be terribly precise on why).

    Just asking, are you the same people who read Orson Scott Welles? Because I remember a thread here about everyone remembering Ender's Game.

  29. Diana Says:

    sorry, meant Orson Scott Card.

    (I don't like the guy and misremembered the name).

  30. Evan Says:

    "Esperanto estas utila" is a tautology if you are able to understand it without having studied Esperanto.

  31. Jack Says:

    I agree with you in every respect, but to his (not well deserved) credit, he did kind of make that point at the end:

    "It's really hard to be poor (see Pollack's amazing interview on how being poor changes the way people think for more on that). But the lesson here is that once you have an income that you can live off of and save a little bit besides, managing your finances shouldn't be all that hard. The people making it complicated are often trying to make money off of you."

  32. Linda Says:

    Klein isn't a bad guy, and he has a good grasp of his privilege most of the time. For instance, his priceless take on why elite austerians think the retirement age should be raised: because they have nice, cushy jobs that they want to keep forever, and they don't understand why everybody else doesn't. Maybe he is just making an assumption about his readership.

  33. Bitter Scribe Says:

    I got forced into the housing market because having a paid-off house is the only way I'll ever be able to retire. But I bought at exactly the wrong time and, while not quite underwater, lost so much value that I'm chained to the goddamned place for the rest of my life. If you work in any field that will require to you change jobs a lot—and these days, that means "any field at all"—welcome to a two-hour commute each way.

    Oh, and I can't remember the last time I had a 401(k) that offered an employer match.