TOPICS > Economy > Making Sen$e

All the financial advice you’ll ever need fits on a single index card

April 14, 2016 at 8:32 PM EDT
At first glance, fiscal planning can seem more complex and time-consuming than it’s worth. But according to Professor Harold Pollack of the University of Chicago, you can fit all the financial advice you’ll ever really need on a single index card. Economics correspondent Paul Solman takes a look at Pollack’s ten easy tips for simple and sensible money management.

JUDY WOODRUFF: But, first, it couldn’t get any simpler. All the financial advice you really need can fit on a four-by-six index card.

And in the next eight minutes, our economics correspondent, Paul Solman, will fill you in and let you know what the secret is. It’s part of our weekly Making Sense report, which airs every Thursday on the “NewsHour.”

WOMAN: Use Fidelity’s analytics to spot trends, gain insights and figure out what you want to do next.

PAUL SOLMAN: On TV, financial advice abounds. But the best advice is: Ignore it.

HAROLD POLLACK, Co-Author, “The Index Card”: Hey, Paul, come on in.

PAUL SOLMAN: So says University of Chicago health policy Professor Harold Pollack, who lives in Flossmoor, Illinois 20 miles from campus.

About personal finance, until recently, he knew squat.

HAROLD POLLACK: I sort of figured it would all work out, and I didn’t have to think about it too much. And so I didn’t.

PAUL SOLMAN: Until, that is, he had to, when, in 2003, his mother-in-law died suddenly, leaving her disabled son in the Pollacks’ hands.

HAROLD POLLACK: The expenses of caring for someone who is quite disabled, you know, are very frightening. When Vincent moved into our home, he was about 340 pounds, and we needed to get furniture that would fit him. One time, we had to go out and just buy a recliner, and it was something like $900.

PAUL SOLMAN: And there were hospitalizations, medical bills. Pollack needed advice. So, he started reading and had what he calls an epiphany.

HAROLD POLLACK: All the financial experts actually had a pretty simple set of things that they suggested that you do, and basically all of them would say tune out all the other stuff.

PAUL SOLMAN: Like the TV ads. So, to be useful to others, Pollack started chronicling his financial education in a blog, and, in 2013, interviewed financial self-help writer Helaine Olen over Skype.

At one point, he said, off-handedly:

HAROLD POLLACK: The really good advice is a — can fit on a three-by-five index card and is available for free in the library.

PAUL SOLMAN: This time around, Helaine Olen joined virtually once again, stuck at home with the flu.

HELAINE OLEN, Co-Author, “The Index Card”: People began to write to Harold and ask him to do an index card.

PAUL SOLMAN: So Pollack put 10 items on an index card, took a snapshot and posted it online. It promptly went viral, touted on The Washington Post’s Wonkblog, on Web sites BoingBoing and Lifehacker.

And thus was born Pollack and Olen’s short new book: “The Index Card,” a few simple rules.

HAROLD POLLACK: And that just seemed much more doable to a lot of people.

PAUL SOLMAN: So, what’s on the card? Rule one: Strive to save 10 to 20 percent of your income, which means slashing your spending on what you don’t much care about.

There are other things that I do spend money on. I go on vacations. I go to things. Take my wife to Bruce Springsteen, so — but I try to spend my money on things that I enjoy. And I really just am apathetic about my car, so I shouldn’t spend any money on it.

PAUL SOLMAN: Though rule one is easier advised than accomplished, Helaine Olen acknowledges.

HELAINE OLEN: I mean, how on earth are you supposed to save between 10 and 20 percent of your income if you’re making $20,000 a year? And the answer is, you probably won’t.

My position is that everybody is helped, if at all possible, to just even get a little bit of money aside.

PAUL SOLMAN: Rule two: Pay your credit card balance in full every month, obvious, yet less than a third of Americans follow this rule.

HAROLD POLLACK: One of the great things that you can do is try to pay cash more often for stuff.

PAUL SOLMAN: And if you must use credit cards:

HAROLD POLLACK: Figure out the one that has the highest interest rate, and stop using that one, and pay off as much as you can on that credit card. Pay the minimum on all your other credit cards. Don’t ever avoid a credit card payment.

PAUL SOLMAN: Three: Max out your 401(k) and other tax-advantaged savings accounts. To this day, only 12 percent of Americans do this. When Pollack started working, he wasn’t one of them.

HAROLD POLLACK: It’s too much trouble. It was boring. It was — you know, it was something that was really far off in the future, and, you know, the stock market was like one-tenth of what it is right now, and, boy, I wish I could have that back.

PAUL SOLMAN: Rule four: Never buy or sell individual stocks, because less than 1 percent of us have the ability to consistently outperform the market.

HAROLD POLLACK: It turns out that the individual people are not good at picking winners and losers in the stock market, and financial professionals aren’t that great at picking winners and losers either.

PAUL SOLMAN: No matter what they tell you.

JIM CRAMER, Host, “Mad Money”: Other people want to make friends. I’m just trying to make you some money.

PAUL SOLMAN: According to Pollack, a PBS show from the ’70s and ’80s bears some responsibility for our faith in stock-picking.

LOUIS RUKEYSER, “Wall Street Week”: Good evening. I’m Louis Rukeyser. This is “Wall Street Week.”

PAUL SOLMAN: The show returned to TV on FOX Business News last month.

HAROLD POLLACK: They were pushing people away from what they should be thinking about, which is I’m not going to be able to pick which stocks are good. I shouldn’t even try to do that. And what I really care about is what the stock market is going to be in 20 or 30 years, not what it’s going to be next year.

PAUL SOLMAN: Or next week or tomorrow. So, rule five: Buy inexpensive, well-diversified mutual funds and exchange traded funds, index funds, that is, and hold them.

HAROLD POLLACK: Many, many people believe that their financial adviser is free

PAUL SOLMAN: Rule six is related to five, but it’s more subtle: Insist your investment adviser, if you have one, commits to a fiduciary standard, putting the client first, instead of the suitability standard, which requires no such commitment.

To illustrate, Pollack posted a video with cakes.

WOMAN: Thanks for sharing your cake, Jim. It was suitable. From now on, I will keep my cake for myself. That’s fiduciary.

HAROLD POLLACK: If you put your money into sensible index funds and save for your retirement, and did everything properly, you would end up with this whole cake. If you invested in basically the same types of investments, but the sorts of things that people recommend on the suitability standard, which have higher fees, you would end up with less cake. And there’d be this slice missing, which could be significant.

PAUL SOLMAN: That missing slice costs American investors about $17 billion a year in fees, says Pollack. And just last week, the Obama administration proposed a new rule that would hold all investment advisers to this higher standard.

OK, let’s zip through to the end. Rule seven: Buy a home only when you are financially ready.

HAROLD POLLACK: You can stop going to Starbucks. You can buy a cheaper car the next time around. You can’t do much about your 30-year mortgage. You’re kind of stuck with that. So, it’s important that, in these big things, you know, that you are appropriately modest in what you can afford.

PAUL SOLMAN: Eight: Insurance. Make sure you’re protected.

HAROLD POLLACK: Get the largest deductible that you can. You want your insurance for the $50,000 problem, not for the $500 problem, and you can save yourself a lot of money if you get a higher deductible on your homeowners and your auto insurance.

PAUL SOLMAN: Nine, the most controversial on the card: Do what you can to support the social safety net.

HAROLD POLLACK: To me, it’s incredibly important to appreciate that we all have to protect each other against some of the risks in life that would just crush any one of us if we had to face it alone. And when Vincent moved into our house, we would have absolutely been bankrupted without Medicare, and Medicaid, and Social Security, and all the programs that helped our family.

PAUL SOLMAN: And finally, 10: Remember the index card.

HAROLD POLLACK: The idea is, you have to be methodical and stick to this, and, you know, the advice that we give is good, but it’s the execution that’s really going to matter.

PAUL SOLMAN: For the “PBS NewsHour,” this is Paul Solman, an economic correspondent for 39 years now, here to tell you, if Harold Pollack and Helaine Olen have it wrong, I have learned nothing over all this time.