Do self-help books actually help?
Safest of thoughts and best wishes to all in Japan and anyone affected by the earthquake.
Yahoo! Finance recently ran an article on why most self-help books “stink” based upon research conducted by Christine B. Whelan (the long-form abstract can be found here). As Whelan’s research indicates, self-help books have exploded accounting for 1.1 percent of all books in print in 1973 to 2.4% by 2000.
The increase in self-help books has corresponded with criticism of the self-help industry itself from the book I’m Dysfunctional, You’re Dysfunctional, which criticized the dogmatic approach to those in the industry, to the more recent entry, Sham: How the Self-Help Movement Made America Helpless (Sham cleverly stands for “self-help and actualization movement” in the book), which explores how lowering the reader’s self-esteem is good for business.
As a subset of the self-help industry, do personal finance books fail on the same grounds as other self-help books- mainly, promise of the easy and painless solution based on the generalized narrative- or are they the exception rather than the rule?
The answer is, as always, it depends. I suspect I come across more than my fair share of personal finance books through the course of the blog. As a gross generalization, I would lump the personal finance self-help industry into three groups.
I can see the future….and, if you follow me, you will make tons of money. I call this the Harry Dent school of financial self-help books. Harry Dent is best known for using demographic trends to predict the future. There’s one problem. No one can predict the future accurately. Backtesting and creating narratives/spin to explain away past events one missed does not make one a predictor of the future.
As Canadian Capitalist once commented about Dent (to paraphrase), if Dent had known that random events in the past were not so random, then the past would be predictable. This is tantamount to saying if you knew the answers to the quiz beforehand, you would have scored a perfect score. But because you did not, you scored less than perfect… BUT accounting for the fact you now know the answers, you should be credited with a perfect score. Oh, and Dent himself, has a spotty track record as an investment manager.
As a genre of the personal finance self-help industry, the utility of predictive books is limited given that the authors tend to view life as a series of perfectly sequential events rather than in parallel and it fails to account for utterly random occurrences which characterize our daily lives.
The second group I call the step-by-step investment guide. The Wealthy Barber is a good example. There are three main pitfalls about this genre of books. First, and most importantly, many of these books deal with tactical issues (how to be a dividend investor, how to invest in gold, how to make money on-line etc). The issue is that tactics should always follow strategy and the books do not make much sense, no matter how good, if you have not figured out your financial plan.
The second is contextual. The “how to become a successful real estate investor” books fall squarely in this issue. Many of the authors made their money in real estate before the bubble started escalating prices. This is not the fault of the author per se but the reader should be mindful of the context of the author. A book on how to invest in Florida real estate published in 2005 would look a whole lot differently than a book on the same subject written in 2011.
The third is the creditability of the author. Some authors support some ethically suspect tactics or make the system seem far too easy (see Financial Blogger for taking Tim Ferriss’ 4 Hour Work Week to task; the E-myth by Michael Gerber deals with the same topic but without the over simplification and over-sell characteristic of selling in the web 2.0 age).
Similarly, some self-help books read as commercials for seminars or workshops. One of the reasons to read self-help books is to create some self-reliance and not to become a crutch to someone else. You don’t need to pay a “real estate guru” to help you become a good real estate investor (or have him/her use your money while they control the project). You need an understanding of cash flow, patience with people and control over your emotions.
The third group I call the “think successful” books which is admittedly an amorphous description but describes anything which asks you to think like a successful investor without necessarily going into a step-by-step program. This whole genre is filled with anything from the spiritual (The Secret being a good example) to more analytical (The Millionaire Next Door). The primary point is to engage the reader to think about personal finance a certain way.
The best works in this genre are the ones that do not sell an easy answer but prescribe a methodical approach to thinking about personal finance and how to be good at it. For anyone interested in personal finance, a good starting point should be to read something this genre of books followed by the more tactical “how to” guide since it is hard to implement any system without the right approach.
The above is a over-simplification of the personal finance self-help books but, as the research indicates, the ones that work best ask the reader to think the right way (not just thoughts but in values), offer a step-by-step approach and stay away from the easy solution. Best of luck.