Protecting yourself

Financial missteps and fraud foster fear, distrust

Julie Sherrier

What was the worst financial mistake you’ve ever made?

If you’ve never had a big money mishap, you’re in the minority and should pat yourself on the back.

According to a new report, “The Financial Status and Decision-Making of the American Middle Class,” by the Consumer Federation of American (CFA) and Primerica, 67
percent of middle-class Americans admit to having made a “really bad financial decision” and almost half made more than one.
Financial missteps and fraud foster fear, distrust

What surprised me, however, was the high cost of these mistakes: the average loss was $23,000.

What wasn’t highlighted was whether these mistakes were self-inflicted (buying more house than you could afford or investing thousands in Facebook’s stock offering, for example) or the result of following poor financial advice or even fraud.

My biggest financial mistake was being seduced by a high but fixed rate of return on a savings account (that claimed to be FDIC insured … not) — which turned out to be a Ponzi scheme run out of Florida by former boy band mogul Lou Pearlman (who is now in jail). I guess I take a little comfort in that even the wealthy and famous have been victims of Ponzi schemes (Bernie Madoff went after the rich; Lou Pearlman went after people like me, as well as members of his own family).

And while the study highlighted the average Americans’ aversion to taking financial risks, the respondents also cast their ability to make sound money decisions as “good” or “excellent.”

While the CFA and Primerica may try to make that disconnect, I don’t see it that way at all.

There’s no doubt that knowing how and where to invest your savings can be daunting to the average citizen. Yes, we can pick up personal finance books, devour the infinite number of investing advice articles online (which we don’t really do anyway, according to the study), but after making at least one big mistake, no advice is going to alleviate the feeling and fear that you’ll make yet another one.

It doesn’t help that many of us lost so much during the Great Recession. If you didn’t lose your job, you may have lost equity in your home. If you didn’t lose money in your 401(k), you may have lost value in your kid’s college fund. Or, like me, lost your kid’s entire college savings fund in one fell swoop.

What the survey respondents may mean when they say they have “good” or “excellent” financial management skills may not so much be that they can make wise investment choices; instead, they may be referring to their ability to make basic financial and budgeting decisions ranging from avoiding getting over their heads in credit card debt to living within their means. It may mean that we know to explore our options when shopping for insurance, mortgages and credit products. It may also mean that if we don’t understand or trust an adviser or financial institution to have our best interests in mind (rather than theirs), we’re not going to invest in it.

Hence, this comment from CFA Executive Director Stephen Brobeck in a press release can come across as, well, just a little patronizing: “Considering their past mistakes and the complexity of the financial services marketplace, we were surprised at how highly most middle-class Americans rate their ability to make a variety of financial decisions and how infrequently they rely on information from the Internet and publications.”

John Addison, co-CEO of Primerica, an investment company that markets to middle Americans (“a Main Street Company for Main Street North America”), also says in the release, “The trend on Wall Street is to work with wealthier and wealthier clients, but this report lays out very clearly the urgent need for more financial services aimed at middle-income earners.”

Yes, we could all benefit from more financial education and wise counsel. But given that so many of us have lost so much for so many different reasons, the thought of investing in products or services that have become so complex and out of our control just doesn’t sit very well with a lot of people right now. Especially for those of us whose trust has been broken.

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  • janet

    We all need to take responsibility for the descisions we make. If we have made mistakes in the past we need to educate ourselves so we do better going forward. Unfortunately, I think most people prefer to spend more time planning their summer vacation than panning their financial future. No one can afford to be fearful or ignorant about their money.

  • jay dodge

    Be cautious around Primerica. They are more concerned about recruiting you than selling a product. Once recruited, you’ll feel almost obligated to buy their term insurance, as well as getting friends and family members to sign on too. Their annual reports state the average rep sells only 2 1/2 policies a year, but they will tell you that you’ll make $100k by just signing up a few friends to sell on your behalf.