Wednesday, January 21, 2009

Allstate, American Funds : Misleading Advertising

Even after all the current financial market and investment related issues that have swept the market, I keep encountering advertising and marketing propaganda from investing, insurance, banks, and related financial companies that are nothing short of misleading - if not plainly incorrect or impossible.

Allstate (Allstate Insurance Company - NYSE:ALL)
The first example of misleading advertising I want to point out is from Allstate Insurance Company / Allstate Life Insurance Company. I was reading the February 2008 issue of National Geographic, and noticed the Allstate advertisement that occupied the entire back cover of the magazine.

This advertisement was about women, and how the average woman spends 11 years out of the workforce taking care of family - and, how this left the average woman without enough retirement money, due to missed earnings and corresponding missed 401K contributions during the same time. I am OK with this argument in concept, but where it fails is the specific numbers that Allstate provides in the advertisement. I challenge them to show me some real statistical proof of this following statement they make:

"Unfortunately, those 11 years out of the workforce put a woman even further behind, costing her an average of $659,139 in earnings."
YEAH, RIGHT! What a ridiculous statement or assertion! So, Allstate, you are trying to tell me, and the rest of the population, that the average working woman is making $60,000 per year!? This is impossible. And this utterly false statement follows a sentence (of your own writing) where you state in the same ad: "Fact is, women are still earning less than me do...". So, by that same logic, Allstate is telling us that the average man obviously earns substantially more than $60,000 per year!? ABSOLUTE FABRICATION.

Let me at least cite a source for my own assertion that Allstate is utterly full of it with this misleading ad of theirs. How about information from the US Census Bureau:
In 2007, the median annual household income rose 1.3% to $50,233.00 according to the Census Bureau. The real median earnings of men who worked full time, year-round climbed between 2006 and 2007, from $43,460 to $45,113. For women, the corresponding increase was from $33,437 to $35,102.
Now, could it be that the primary distortion that Allstate is using to inflate their case for whatever product/services they are selling has to do with the use of AVERAGE vs. MEDIAN. Allstate is asserting that women, on average, make nearly twice as much per year as the MEDIAN earnings for women. But, if that is their game (using Average vs. Median), it is just that - a statistical abuse to mislead.

Fact is, if you throw Oprah's earnings, and those of a few other top 1%+ earners, the AVERAGE earnings are skewed substantially. But, the true likelihood that an "average" woman in America is missing out on making $66,000 per year is statistically incorrect. I guess Allstate did not feel that 11 years of missed earnings, times the median of $35,000 (for a total of $385,000) was shocking enough to sell their product. Sure sounds like a lot of money to me, but I guess that it sounds so much better to throw out a number twice that high instead.

This is quite typical of so many financial service advertisements in America. Abuse statistics, or use statistics misleadingly, all in hopes of selling more of your products. And you wonder why people lose faith in your companies and products, especially as of late, financial industry.

American Funds
Next, I was reading over the latest American Funds Investor magazine from Fall/Winter 2008. American Funds is generally a decent mutual fund company from what I can gather, but I take issue with the fact that they, in their attempts to sell people on their products and services and the concept of long-term investing in general, make rather optimistic assumptions to say the least - especially given the current stock market meltdown.

My particular issue with their latest magazine / pamphlet has to do with their little push for College-Savings plans (i.e., 529 college savings plans) and how to build up funds for your childrens' college education. They show a graph of how, if you contribute $100/month for 18 years during your kid's childhood, that it can grow to an amount between $39,000 and $48,000 by the end of that period (taxable vs. tax-free savings respectively).

OK, that all sounds great, UNTIL you read the bull @#$! below the graph about how "this example assumes an 8% annual rate of return (compounded monthly) for both investments". EIGHT PERCENT AVERAGE RETURN PER YEAR OVER 18 YEARS - GEE, THAT IS JUST A BIT AGGRESSIVE! Wake up American Funds! The stock market is FLAT over the past decade now. Where are you making an average of 8%? If you can GUARANTEE me such returns, I will have you manage all of my money.

This is not an OLD issue of the magazine... it is current... and yet it ignores that simple fact that there will not be such huge returns available anywhere for years to come, barring massive inflation to go with it, and/or devaluation of our currency embedded in such numbers. It just is not going to happen. And, it has not happened (past tense) either looking at the numbers for the past decade or more. Consider the Nasdaq, that was around 5000 points a decade ago, and now sits around 1500. And, you surely are not making 8% in government bonds, notes, T-Bills, or bank accounts.

I am so sick and tired of these ridiculous advertisements that make, via assumptions, the case that you will essentially realize some fantastic pile of cash after a set period of time by using interest-rates and rates-of-return that are essentially unachievable (certainly not realizable as an AVERAGE of any sort). This is not just an issue with Allstate or American Funds, but nearly ALL financial service companies - I see this abuse of statistics and math constantly.

I guess companies just can not sell their products by making the only clear and honest statement they can, which is: SAVE MONEY, AND YOU WILL BE IN BETTER FINANCIAL SHAPE THAN THOSE WHO DO NOT, BUT WE HAVE NO WAY TO TELL YOU HOW MUCH BETTER. That just doesn't sound good enough... people want that chart showing that, if they save, they will be "rich" or have a huge pile of cash in the future.

Forget that stuff people... just start saving, and once you have established a decent record of saving, then you can start focusing on average-returns and projections if you still feel the need. But, projections are nearly meaningless; it is your ability to save that matters most.


DED said...

Good post.

Mike Eberhart said...

Thanks ded.
I sure hope other people like what I write also (though, I doubt Allstate will. heh).

DED said...

Well, you've been doing this for a while now. Have any friends or family come up to you and told you that they like what you write?

Mike Eberhart said...

Ded, yes, my friends and family all like what I write, but I just can not seem to get a following for lack of being able to rise above the cacophony that is the Internet at large.

There is so much on the web, that it is definitely becoming difficult to stand out enough to be heard. Millions of web sites, perhaps millions of bloggers,... and, if someone does not happen by this blog by luck and tell others, it does not rise to the surface.

You also write great articles, and you have some regular followers, but again, it is hard to get past the few followers and reach 100s, 1000s, etc. Oh well, regardless, this "venting" of my frustration with so many things at least makes me feel better... I know I *tried* to be heard at least :)

Thanks for reading Ded, and thanks for the support. m.

Yophat said...

As for money....keep it in cash! or at least spread it around a couple of banks.

As for has to be a labor of love or a good chance to vent - IMO.

DED said...

I just can not seem to get a following for lack of being able to rise above the cacophony that is the Internet at large.

Join the club. :)

One method that I've seen work for some people is: visit a lot of blogs, comment on them, and link to their blogs from your own (assuming that you enjoy reading what they have to say). Hopefully, they'll link back to you as well. No offense, but the few, and the type of, links you have aren't going to cut it.

Now that requires a lot of time as you'll have to read their blogs to get an idea of where they're coming from. Since you run your own business, you really don't have the time for that (As a stay-at-home Dad, neither do I). Some cubicle drones have lots of time on their hands and blogging makes it look like they're busy. For others, this is their #1 hobby.

It's too late for any blog to become popular just because it's out there. We came into the game way too late for that. Unless you have some sort of natural advantage (like being a celebrity), there are no more quick routes to blog popularity. You HAVE to put the time into it (as outlined above). But before you even do that, you have to ask yourself, is the ROI worth it? For me, it isn't.

Mike Eberhart said...

As always Ded, you are so right. And, not being a celebrity, this blog will have to be a "labor of love" like Yophat said.

I do not have time to visit a million blogs to try to draw attention... I only make it around to a few per day regularly. So, I just have to hope Google indexes some of my content in a way that it is "relevant" to someone looking for information about a particular topic.

DED said...

You have some very insightful posts, Mike. Whether you're talking about some new software release or remarking on businesses and the economy, your posts strike me as well thought out and researched.

Yeah, hopefully Google's search bots will pick you up and then someone will like what they read and come back for more. :)

I keep coming back. ;)