If you can’t fit your financial plan on an index card, it’s too complex


In 2013, Harold Pollack, a University of Chicago public policy professor, was interviewing the author Helaine Olen about a book she was writing on the financial advice profession. To illustrate the point that too much advice is overly complicated, he grabbed an index card and wrote down nine basic financial rules that he had been living by.

When Pollack posted the card on his blog, it quickly went viral, and the reaction prompted him to co-author a book, with Helaine Olen, called The Index Card. I recently interviewed Harold and started by asking him to recall the moment that first sparked the idea.

Tell me about your meeting with Helaine Olen that started this whole thing off?

I was interviewing Helaine about her book Pound Foolish for my blog. In the middle of the conversation, I joked that the financial advice industry’s real problem was that the best advice is available for free at the library and would fit on an index card. We chuckled, and the conversation moved on.

I had made that joke before. No one had ever paid too much attention. But this time, I started getting emails asking: “Where is the index card?” I had been speaking metaphorically, but I had planted a flag. So I felt that I had to deliver. I grabbed one of my daughter’s a 4×6 index cards and scribbled down some basic rules, took a picture with my iPhone, and posted it on the web. It got something like 400,000 hits and was picked up by the Washington Post and many other sites.

There was something about that index card that seemed quite helpful to people. It reduced the daunting complexity of saving and investing to the task of mastering what was on a simple card.

What did you aim to achieve with the book?

We wanted to provide a simple but accurate guide for the newbie investor starting out. We also wanted something that would not intimidate people, as many investment guides do.

Some items on the card required no further elaboration: “Do not buy or sell individual securities.” Other items needed a bit more explanation. Hence our simple book. For example, we note that one should not buy a home until one is really ready, and what “really ready” actually means.

I’m embarrassingly passionate about the idea that we can improve our lives by being attentive to these matters. As I did not until I was 40 years old.

You don’t have a financial background. How surprised were you when you started to discover how the investing world worked?

When I really set out to learn this stuff — my PhD in public policy certainly gave me useful tools — I was surprised that the genuine expert conversation about saving and investing was actually a good deal simpler than the conversation one encounters daily on TV and in the financial press. Financial economists have understood the virtues of index funds for decades now. The average small investor just shouldn’t be stock-picking or trying to pay someone else to do that for him. The data are overwhelming that this doesn’t work. It is also a tremendous waste of time and brainpower.

You set out 10 rules in the book. If you could pick out a couple of them as being more important than the others, which would it/ they be?

The best investment that most people will ever make is to pay off their credit card and other high-interest debt. So that rule is quite valuable.

Also, strive to save 10–20% of your money would be another. I am more of a Puritan than Helaine is. I had originally suggested to save 20%. I got a lot of hate-mail over that. 20% is incredibly hard for many people and can become a demoralising goal. But 10–20% is a sensible goal, especially if one makes saving automatic.

What part do you think the financial media plays in the investment decisions people make?

Overall, the financial media plays a toxic role. The fundamental problem is that the correct advice for most people is simple and boring. The problem isn’t just gonzo personalities such as Jim Cramer. Wall Street Week and other programs may be more harmful — precisely because they are less tacky they are more likely to lead people astray.

What sort of response have you had to the book?

It has been quite gratifying. I had a great experience writing the book with Helaine, who is a much more experienced financial writer. I have had so many great conversations about financial matters with friends, relatives, and strangers. Money is intimate to our humanity in so many ways. That’s true if you are Harvard PhD with a 401(k) and a big mortgage. That’s true if you are a young couple who know each others’ Facebook passwords, what each of you really did last summer, and yet never discuss each others’ VISA bills because that’s too private.

I’ve also had a great experience with the journalism I’ve done since the book was published, much of which is collected at

https://www.facebook.com/theindexcardguidetopersonalfinance/.

I even produced a goofy educational video, which you can watch at

http://fiduciarystandard.info.

A version of this interview first appeared on The Evidence-Based Investor.