Harold Pollack is an American professor at the University of Chicago who has been appointed to two Institute of Medicine committees. His research has focused on public health and health policy. At the University of Chicago, he has chaired the Center for Health Administration Studies.
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My name is Harold Pollack and I'm a professor at the University of Chicago School of Social Service Administration and publish widely about poverty policy and public health. You may know me from a book that I co-authored with Helaine Olen called "The Index Card: Why Personal Finance Doesn't Have to Be Complicated." Our advice was that everything you need to know about managing your money could fit on an index card.
If one index card is all that is needed, why should I read a 256 page book?
Fair question, as the paperback is now out. Arthur Ashe was once asked how he beat Jimmy Connors in the US open. He said: “I hit the ball low.”
A reporter asked: “That’s it? Everyone knows you’re supposed to hit the ball low against Connors.”
Ashe responded: “I actually hit the ball low.” That’s where the skill is. People need a little help understanding when they are ready to by a home, how to start a budget, the differences between different kinds of IRAs, what kind of insurance to buy, etc. Our short book is pretty accessible and around ten bucks. I hope it is useful to people.
Since it’s Passover, I’ll add that the book is the Midrash to the card, for those observing.
Thanks for a great response. I completely agree that knowing what to do, and actually doing it are two different things.
As a professor, have you tried to get high schools to incorporate a book like this into a course on basic financial knowledge that every person should have? My friends and I have argued (on the same side) for years that some type of financial literacy course should be mandatory for high school students, to prevent the abuses of pay day loans, credit card interest, etc.
I agree that financial literacy is important. I would focus on managing a realistic household budget, making it as tactile as possible for young people. Also provides an opportunity to promote basic numeracy. Incidentally, that is also part of my advice to teens to avoid smoking. That is surprisingly costly.
One of your pieces of advice on the famous index card is to never buy individual securities. However, I have seen some of the most risk-averse, financially-savvy people I know break this rule without hesitation.
So my question is, why do you think this is such a hard piece of advice for people to follow? What would you say to them to try to convince them to change their way of thinking?
Great q: And yes, I have seen this. A few reasons:
1. It’s hard to give up the possibility of hitting a home run. Everyone wants to be the person who bought Apple at just the right time. And everyone knows someone who did--or claims to have done--a great move in the market.
2. I also think people derive enormous pleasure from investing the same way they do playing fantasy baseball or going to the track. That’s fine as a form of entertainment and personal challenge. But don’t bet your retirement or your kid’s college on that. I played around with 5% of my portfolio for a few years. I under-performed overall.
Hi! I signed up for Reddit just to participate in this AMA! My question is, if you could give millennials one piece of advice regarding their finances, what would it be and why?
Thank you, professor!
I will cheat and give two: Pay off your credit card in full every month. And start to save early. When I was that age, I didn’t invest in my 401(k). The Dow Jones average was less than 2,000. Make compound interest your friend.
I've thought for years that the failures of the CHA, CPS, and CPD leading up to the demise of Cabrini Green and the surrounding CHA buildings was a prime mover in the increase in violence on the south and west sides as I assume many of the displaced relocated there.
Any thoughts? Has anyone done any sort of epidemiological study investigating how and where crime in the city has moved in the last 30 years?
How has destabilizing larger organized gangs' power structure changed enforcement strategy? How can we effectively fight gang violence in light of modern gang-segmentation in a Set oriented structure with decentralized power?
That’s a complex set of questions. Gang fragmentation and the disruption of gang boundaries have created real dilemmas for law enforcement and public safety. I look to the work of Sudhir Venkatesh, David Kennedy, Jens Ludwig, Phil Cook, and Andy Parachristos on these questions. I would also focus on traditional prevention efforts: Getting a handle on the underground gun market, providing youth employment, doing school-based prevention, addressing police-community relations. Here’s some resources of me discussing some of these issues:
Since you obviously have a penchant for making policy and advice as simple as possible, I'm curious about your thoughts on another simple policy: giving poor people money. Do you support a non-means-tested Universal Basic Income? Why or why not?
Thanks! (and Go Maroons - A.B. '12)
Great question. Dylan Matthews at Vox has written beautifully on UBI. http://www.vox.com/2016/5/31/11819024/universal-basic-income-works I am ambivalent about UBI for two reasons. First, Americans value income supports that honor the dignity of work. So the politics get tough on UBI. Second, some UBI proponents see it as a way to supplant the welfare bureaucracy and a thicket of categorical forms of assistance. For a variety of reasons, this doesn’t strike me as likely or where I would go.
Having said that, I do believe that every American is entitled to a minimum level of economic security. So in some form I would support some versions of a UBI. All I can say for now.
Hi Professor - thanks for doing this AMA!
In my budgeting, I'm struggling to decide between using debit cards or credit cards. I find it easier to save with debit cards - I can limit my spending by only putting a certain amount from each paycheck into my checking account. However, given that I have been lost a card here and there and been a victim of fraudulent charges, I'm inclined to use a credit card for more robust protection. You mentioned that credit card reward programs cause us to spend more money, and I'm certainly a victim of that type of thinking. I also find it easier to control my budgeting when I'm "counting down" from a certain amount in my checking account rather than "counting up" my balance on my credit card.
What is your take on credit vs. debit cards for budgeting purposes?
I agree that the debit card is nerve-wracking in its lack of protections. It also doesn’t always work for some purchases like car rentals. But if it helps you to manage your money to use a debit card, that’s a huge plus. You might set up a separate account with $500 or whatever for this purpose. That allows you to limit the damage if someone gets hold of the card.
A student asked me offline about whether I see value in financial advisors. I actually do--as long as you are the only person paying them and they commit to a fiduciary standard.
My advice in Vox (http://www.vox.com/2016/1/1/10644348/financial-new-years-resolutions) is pretty good for this one. When it comes to retirement savings, a financial adviser can be either part of the problem or part of the solution. Much depends on which advisers you listen to, and for what purposes.
It’s true that many advisers provide biased, self-serving advice. In a famous empirical study by Sendhil Mullainathan and colleagues, the majority of audited advisers steered investors away from the excellent and economical investments that would be chosen by independent experts into wasteful, actively managed funds that, oddly enough, tend to pay larger commissions to the advisers.
This is a real problem, but it shouldn’t sour you on the importance of seeking financial advice. A good financial professional, facing the proper incentives, can offer genuinely valuable advice. Just having a sympathetic stranger talking through sensitive issues can be quite valuable.
A good accountant can play a similar role. You can ask about whether to prioritize your retirement savings over saving for your kids’ college, how you might set aside more for your retirement, the pluses and minuses of a Roth IRA, disability insurance, and whether you are financially ready to buy your dream home. A financial adviser provides critical distance and another pair of eyes for some important life decisions.
The key to finding an adviser who will actually work for you is simple: Pay the adviser out of your own pocket. So-called fee-only investment advisers typically bill by the hour and eschew commissions and other third-party payments. If you’re not sure if an adviser gets paid on commission, ask cordially but directly at the beginning of the meeting about how this adviser is paid — in all of her dealings with you.
You might feel some initial sticker shock when asked to pay (say) $250 for an hour of someone’s time. But remember the old adage: If it’s free, you are the product. The reality is that you’ll pay a lot more in the long run if you go with a nominally free financial professional whose business model is to make extra money by steering customers to particular retirement and investment products.
I’ll close with two more solid pieces of advice from my recent Vox piece.
SEEK CHEAP THRILLS:
Cultivate some new cheap sources of pleasure that protect your budget without making you feel that you're missing out. Taking a friend to a high school basketball game, finding that inexpensive Middle Eastern restaurant, or hitting the state park or a public beach are all pretty fun. They don’t cost much, either.
Not coincidentally, cheap thrills are often shared experiences with people we like or love. A long line of psychology research initiated by Thomas Gilovich documents that memorable experiences give us more lasting happiness than do enjoyable new things.
QUIT SMOKING (and cut down your restaurant drinking, too):
I’m a zealot about smoking, both my in-laws died horribly and young from lung cancer. Smoking is expensive, too. The national average price of cigarettes is about $6.25 per pack. A pack of cigarettes costs more than $10 in many localities. So pack-a-day smokers are spending thousands of dollars on cigarettes every year. You can save a lot of money by quitting or cutting down. If you do this, make sure to do something you enjoy with some of the money you save. That will help your finances. It may also lengthen your life by bolstering your mojo to keep it up.
Watch your drinking, too, particularly when you are dining out. Vox readers already know that alcohol is a serious public health problem. More to the point of this column, alcohol is the most notoriously high markup on restaurant menus. Economists debate why the markup is so high. One theory holds that consumers like to buy expensive wine to signal their affluence and sophistication. Another theory holds that restaurants dramatically overcharge for things like coffee and wine because these complement the ambience, which is nominally free. Whatever the explanation, you can save a lot of money by not buying into it.
Are you selling just the index card or do I have to buy the whole book?
You can see the original index card by itself here: https://www.washingtonpost.com/news/wonk/wp/2013/09/16/this-4x6-index-card-has-all-the-financial-advice-youll-ever-need/?utm_term=.b65266b893c2
(Yeah--it’s free! What I really need to do: Sell a premium investment newsletter and then invest the proceeds in index funds.)
Could you name some index funds you like or talk about how you go about choosing one?
A total stock market index fund with low fees is good. I don’t want to endorse a particular commercial product here. But the biggest firms have low-fee versions of this. No reason to pay over 0.2% per year for this. Make sure to look up all the fees.
Hi Harold, big fan. I follow you and Atul Gawande on Twitter and saw a YouTube video of a lecture that Atul was presenting where you were there.
My question is who are the people that you think we should be listening to on various topics, such as Atul on healthcare and you? Perhaps people who have a slightly lower profile but are producing interesting work. Thanks
Atul Gawande is my spirit animal. He’s actually the perfect person you meet the first week of college who aces all the courses, is the crush-object of all the young women. And you want to hate him except that he stopped by your dorm room because he saw that you needed some help getting your wi-fi to work.
Of course my co-author Helaine Olen tops the list!
Some others I follow: Rebecca Traister and Katha Pollitt are great on feminism. Jamelle Bouie, Jelani Cobb, and Ta-Nehisi Coates are excellent on race issues.
On health care, Tim Jost, Ezra Klein, Hank Aaron, Brian Beutler, Sarah Kliff, Greg Sargent, Steve Teles, Jonathan Cohn are essentials. So many good people. Of course I am leaving people out. I read the Monkey Cage and the Journal of Health Politics, Policy, and Law religiously. I am intrigued at the intersection of health policy and political science.
If you were advising a 2020 Presidential candidate, what policy positions would you advise on personal finance and healthcare?
Is there anything people aren't thinking about as much that could make a big difference for the average person?
On personal finance, I would pretty much advise the photographic negative of what Republicans are trying to do in DC. I would include stronger enforcement of the fiduciary standard, as President Obama was set to do. That’s important for small investors and ordinary people. I would allow states to offer simple IRA-type products for people who can’t otherwise gain access to these things. I would support ways to help young people with student loans. And I would support higher taxes on people like myself, for example by limiting tax-advantaged savings vehicles.
On health care, I’ve proposed many incremental fixes to ACA. https://tcf.org/content/report/key-proposals-to-strengthen-the-aca/ Right now, Democrats should push the idea that everyone over 50 should be able to buy into Medicare if he/she wants to. I would also push the Trump administration to actually do its job and support the marketplaces. The threat to sabotage them as a way to pressure Democrats makes no sense to me. Because Republicans control everything in Congress, they are effectively holding themselves hostage. We’ve seen this before. https://www.youtube.com/watch?v=Z_JOGmXpe5I
For me personally, credit cards have established my credit score and allowed me to qualify for low rates on mortgages, home line of equity and an auto loan. Do you have a position on whether people need credit cards to function well in today's world?
Not a bad idea to have a credit card for the reasons you cite, and to use it transactionally. But you don’t need to do too much with it. The downside of credit cards is pretty big. One more thing. Ignore your credit card reward program. The research suggests that these simply lead us to spend more money.
Dear Prof Pollack,
Students always ask us about refinancing student loans. Do you have any advice for them? Thank you!
On student loans, a few pointers:
1. Think federal first when you borrow. Federal loans have the best protections and refinancing/payback options.
2. When you do consolidate or refinance, don’t mix federal and private loans. That undermines many of the protections and options that come with public loans. The Department of Education has good resources. https://studentaid.ed.gov/sa/sites/default/files/your-federal-student-loans.pdf Always check that first.
3. Be careful with private counselors. They sometimes have mixed incentives to steer you into less-than-ideal refinancing options.
I am a high school senior who is committed to UChicago. My questions is: As a teenager who comes from the lower-middle class at best and a low resource school, what are some classes and activities I should take to adjust to independence and the change in rigor?
Great question! Come visit the school and arrange to speak with faculty in your interest-area. What is your likely major, if I may ask? There are great resources here to help you along the way. Might also speak with current freshmen about their experiences and their advice.
Current UofC grad student here - what's your favorite place to eat near campus?
You are asking the ultimate non-foodie. I like to eat with undergraduates, often in the dining halls. Often Cobb at lunch. Food quality rarely enters my calculations. That’s why my SSA colleagues never let me pick the restaurant when I am hosting an event. I like quiet and cheap. Picolo Mondo is really nice to us when I have my intellectually-disabled brother-in-law with me. So we go there often. This Maroon article is fun. https://www.chicagomaroon.com/article/2012/5/4/campus-coffee-shops/
I’m looking at grad schools and I’m not sure if it’s the right way to go. What’s your advice?
I love being a professor. I can’t see myself doing anything else. But it’s a difficult and competitive process. I never try to sell ambivalent people on it, given the realities.
1. Don’t fall in love with any single place. Apply to many programs, and see what they offer. There are many reasons not to attend a particular program, fewer not to apply. Don’t assume you understand how much it costs before you apply.
2. Actually visit. You will learn a lot about the atmosphere. It also communicates your own seriousness.
3. In public health and social work--the fields I know best--I would focus on top programs with more than one or two people in your core area.
4. Don’t be afraid to bargain.
Thanks everyone for participating. Off to a doctoral seminar--HAP
I might be misremembering, but I feel like it was a while ago that your index card was first publicized. I think it's great advice and am glad to say that I have followed a lot of it! Now that I have a bit more money, however, I wonder if you think there is still never a place to buy individual stocks, or if you think using a service like Morningstar can be helpful to the intermediately-skilled investor?
My entire investment portfolio is spread across maybe five index funds. There is almost never any reason to buy individual stocks or actively-managed funds. Today’s WSJ included a statement that >90% of actively managed funds under-perform their corresponding indexes. If skilled fund managers can’t beat the market, it’s silly for intermediately-skilled investors to play that game. Save your time and energy for your day job, your family, and friends….
UChicago is all about the evidence, right? Does the book provide any evidence suggesting that these financial strategies actually work if followed appropriately?
There is significant evidence that index funds outperform more than 90% of actively managed mutual funds. Just today in WSJ is a pretty typical finding. https://www.wsj.com/articles/indexes-beat-stock-pickers-even-over-15-years-1492039859 My financial-economist colleagues have read this over pretty carefully. That’s all for now, but this is evidence-based. See also Helaine’s book Pound Foolish.
happy passover, prof pollack! i'm unfamiliar with yr work, so forgive the naivete.
as a u of c student likely majoring in the humanities, what are good first steps to take in re: learning how to manage money? i do my best to be frugal, and my biggest expenses are laundry and supper when the dining halls are closed (which is to say--not much). but i've never had a 'formal,' or even informal education in this sort of thing.
thanks v much! enjoy the music (this guy is from chicago and kicks ass--such a beautiful song)
Pay cash as much as possible. Write down everything you spend money on for the next two months, and make sure that you are spending money on the things most important and gratifying to you. Watch peer pressure to spend more money than you are comfortable spending, too. Think hard on the income side, too. Plan ahead for the summer, things like that. That’s a good start.
As a an early 20's male just starting off. Should I pay my credit card bill all at once, once a month, or should I pay it off anytime I see a balance?
Pay at the end of the month, in full. And pay cash as much as you can. Ignore the reward program. Good luck!
I was wondering what advice you have for those self-employed or in graduate school who have to buy their own health insurance. Healthcare and health insurance are a substantial cost for my wife and I. How should I think about finding health insurance and choosing health insurance until I have a job providing it as a benefit?
Much depends on your individual circumstance. If you are a graduate student, speak with your university benefits office. They often have good advice. Self-employed folk should get on their ACA marketplace and comparison shop for a silver-tier plan. As you go through the website, you may qualify for financial help or for Medicaid, depending on your income and your state. Make sure to shop around every year. And please don’t go uninsured. That’s a very bad idea.
Former SSA student here. Feeling anxious re: Public Service Loan Forgiveness. Should we depend on it to be there or start hedging bets?
I hear you. That is a source of anxiety. I believe these options will be there, despite the shambolic behavior of the current administration. It would be incredibly stupid and politically counterproductive to mess with that. I would follow the three points I mentioned above on student loans. There’s not much else you can do there.
Do you have any "tax hacks" for young people who don't really know the ropes yet?
Use tax day as an opportunity to do two things:
1. To understand how you spend. Read over all your credit card statements. Look over your checkbook. April 15 is often the time that I find that subscription I no longer need, the service I am auto-billed on my credit card, etc.
2. Open an IRA. Often a Roth IRA is the best option for young people. It offers no immediate tax deduction, but the investment gains won’t be taxed. You can also withdraw the principal from your Roth IRA without penalty in a financial emergency. Your future self will thank you.
A few other pointers for tax day:
Make sure that you are maximizing your retirement contributions. If you are self-employed or have consulting income, an SEP-IRA is easy to set up at Vanguard or a similar site. I wrote a tongue-in-cheek advice column riffing on the idea that Women’s Marchers were being paid that lays out the mechanics…. http://www.huffingtonpost.com/entry/hey-paid-political-protestors-invest-your-earnings_us_58d74092e4b0f633072b386c There are some fun pictures there too.
Do you know my sister Carly pace? I think she has you as a professor.
I believe that she does. She seems very smart and nice.
That's one of my biggest problems. I was dead set on comp-sci and math for the past three years but now my interests vary greatly.
That’s fine. You are young. You’ll learn a lot about the world and yourself when you get here. Whatever you do, pick a solid major that you like a lot and really commit to it. That matters a lot more than the prestige of the school.