The Tricks of Financial Scam Artists

One side effect of being a personal finance writer is that you eventually wind up on the mailing list of all kinds of different financial publishing companies who want to send you copies of their books. I get at least a couple of emails a week offering to send me a review copy of some personal finance book or another and, to be honest, I usually don’t even bother with them unless there’s something distinctive and new about the book.

Most personal finance books fall into one of three categories.

Many books offer very basic personal finance information and serve as a basic reference guide on finances, explaining things like what a 401(k) is and why you might want one, or provides a big collection of tips and tactics that don’t build up into an overall strategy. These are great books for people just starting out, but in a universe where you can look up such information online, you really don’t need to read more than one of these. Sometimes, you’ll find one from a really great author with a great voice, like Amy Dacyczyn’s “The Complete Tightwad Gazette,” and those are worth reading.

Many more offer what I would call a gameplan of some kind, one that involves putting specific strategies to work in your life to achieve larger financial goals. These are generally the most interesting ones to me as they’re usually oriented around some central philosophy. For example, “Your Money or Your Life” is all about finding financial independence through strict frugality. “The Total Money Makeover is about debt freedom through a smart debt repayment plan and self-motivation. These books are usually very clear right from the cover as to what their plan is all about – there’s no smoke and mirrors, just a path that involves some real work on your part.

Of course, there’s a third kind of book. I like to call this one the “secret” book. It’s the kind of personal finance book that claims to have some kind of “secret” that “they” don’t want you to know about that will lead you to financial riches. The language these books use is designed to make it sound like the world is a giant conspiracy and that the only way to success is knowing an obscure secret strategy or two that will bring you unimaginable wealth.

This latter group is the group of personal finance books that I have a real problem with. There is no secret to personal finance. There is no “hidden plan” that “they” don’t want you to know about. There is no hidden strategy that is going to suddenly bring you wealth. It doesn’t exist.

Trust me – I’ve researched and/or experimented with almost every financial tactic under the sun. What I’ve found again and again is that there are a handful of very telltale signs that indicate that a personal finance book is pitching some complete garbage that doesn’t ever work, doesn’t work without extreme luck, or makes someone else a lot of money while leaving you in the dust.

If you see a personal finance book or article or pamphlet doing any of these things, just close it and walk away. It’s probably a scam and even if it isn’t, the information they’re peddling is available elsewhere.

The Strategy Can’t Be Summarized in a Single Sentence

Almost every good personal finance strategy can be summed up in a single sentence. Spend less than you earn and save the difference to live a comfortable life and retire comfortably. Spend way less than you earn to retire early. Organize your debts by interest rate and make large payments on the top one on the list.

Naturally, such plans have many details that can be discussed, but you can understand the core idea in just one relatively short sentence and that short sentence makes sense.

Plans that are claimed to be more complex than that are suffering from one of two key problems. Either they truly can’t be compressed down like that, which means that they’re talking about some sort of short-term inefficiency that has likely already been gobbled up by the time you hear about it, or if you compress their plan down to a single sentence, it doesn’t make sense.

I call this the “single sentence test,” and it’s a powerful way to filter out some of the real nonsense out there.

The Plan Isn’t Clear From Reading the Book Cover or the First Few Paragraphs of the Article

If a personal finance plan passes the “single sentence test,” then that writer and that publisher is going to want to tout that single sentence right up front. After all, the value of a personal finance book isn’t in that single sentence, but in the implementation of that sentence.

Thus, if you read the back cover of a book or the first few paragraphs of an article and still don’t know what the single sentence summary of the plan they’re touting is, then your alarms should be going off. If they’re not leading with this single sentence plan summary, then it likely has one of the two flaws I discussed above.

Why is this? It’s because the single sentence plans that actually work are everywhere. It’s easy to find quick summaries of plans that work. Almost every personal finance blog out there is loaded with them. The value of the book is in how to implement that single sentence summary. Thus, if they don’t give you that summary up front, something is amiss and you shouldn’t waste your time with it.

The Article/Book/Pamphlet Is Telling You to Buy Additional Seminars

Many groups like to write articles or record podcasts or even produce full books or pamphlets for the sole purpose of promoting their seminars or other educational materials, which are often sold at a really high price. If you see any mention of high-cost materials or seminars, run.

Why run? I have seen a lot of seminar packages over the years and I have yet to see one that wasn’t just a repackaging of material you can find online or at your local library. Even worse, some of them don’t even pass the “one sentence test,” which means that they’re peddling a strategy that really doesn’t work all that well.

The purpose of personal finance seminars and learning materials is so someone can walk you through a Powerpoint presentation of something you can get from a book at your library or from a blog online – and you’re paying exorbitant amounts for this. They’re not offering secrets you can’t get anywhere else – they’re just charging you a huge premium for the same material you can get elsewhere. (If you really like to have someone talking to you, go to the audiobook section of the library instead and you’ll find exactly what you’re looking for.)

The Author Talks About Conspiracies and Insults Those Who Use Other Strategies

As soon as an author starts calling people who don’t follow his plan “hamsters,” you’re seeing a sure sign of someone who can’t rely on the strength of his plan alone. Instead, he has to stoop to personal insults to get the point across.

As soon as an author starts talking about vague powerful groups that are keeping knowledge from you, you’re seeing another sure sign of someone who can’t rely on the strength of his plan alone. Instead, he has to try to tweak your sense of the world being unfair to get you to listen.

A good personal finance plan makes sense on its own. It doesn’t need personal insults. It doesn’t need conspiracy theories and shadowy powers. It just needs to make sense and be followed with a clear plan of implementation.

If you have that, you don’t need to call people “hamsters” or imply that you have “secret knowledge” or talk about the “shadow governments” that are keeping you from personal finance success.

The Author Talks About Results That Are Exceptional Without a Lot of Work Involved

Many personal finance books claim good results if you follow their plan – and they’re usually right. The catch is that the plan usually involves a lot of personal effort above everything else.

It usually involves years of frugal choices, lots of introspection, and likely many more hours per year spent working to earn more money. Investment books might even tout great returns that “beat the market,” but they narrowly beat the market and involve lots and lots and lots of research to gain even a little bit – and even then, that little bit is often fleeting.

Why is that? It’s because getting ahead financially takes a lot of work and it’s because there is no way for the average investor to “beat the market” because any inefficiencies are already gobbled up by hedge funds and huge institutions with far more attention and resources than you have. That’s just reality.

That doesn’t stop some writers from telling you that they have the secret to huge returns on your investments or quick ways to pay off all of your debts or strategies for getting houses for free.

Here’s the catch with all of this stuff: If it truly were that easy, everyone would do it.

These plans either don’t work or they’re hiding a tremendous amount of effort that you have to contribute yourself to make them work.

Final Thoughts

There are a lot of good personal finance books and articles and plans out there, but the good ones always have a few key traits. The core of the plan is easy to explain and it’s never hidden. The author isn’t trying to sell you additional items like seminars or expensive learning materials. The author isn’t claiming unbelievable returns or making insane claims, nor are they spending their time talking about conspiracies or insulting people who aren’t following their plan.

Once you realize those things, it becomes pretty easy to filter out a lot of the nonsense in personal finance writing, and if you do that, you’ll be left with just good advice that makes sense and will work for you.

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Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.