10/17/2012 12:09 EDT | Updated 12/17/2012 05:12 EST

How the Rich and Famous Can Teach Us to Save


Those who have seen the documentary Queen of Versailles usually laugh at the outrageous lifestyle of David and Jacky Siegal, a billionaire and his trophy wife. This film portrays their ostentatious lifestyle and their insatiable desire to spend. The film begins in 2008, before the market crash. The economic downturn froze the construction of their incredible 90,000 sq ft mansion in Florida, devastated their businesses and forced them to cut back their lifestyle. Of course, cutting back in the Siegals' world meant going from 17 staff in their house to four nannies.

The Siegals were caught in the same morass as the rest of the population -- access to cheap money. As the economy exploded and seemed to be on an endless upswing, David Siegal expanded his empire. He and his wife embarked on building their dream house, using the same cheap money as everybody else. As the population lived the high life, nobody would admit that things were spinning out of control. After all, who would want to spoil the party?

The financial institutions were complicit in this by loaning money to people who clearly could not afford to repay it. People were borrowing up to 100 per cent of the cost of the house. Everybody, at every step in the process, knowingly approved these loans. "Whatever they wanted to state for their income. The bank accepted that at face value and made the loan based on that income," Jerry Abbott of Coldwell Banker says in a 60 Minutes interview.

Why would everybody buy into this? Is this the American Dream that people were determined to get, at any cost? What lessons are we teaching our children when their parents and the system were so completely irresponsible? This is the clarion call for everybody to take a pause and look at their values and their assumptions about the American Dream. This is the dream that the Siegal's pursued. (And still are -- it seems they've learned nothing.)

Child psychologist David Paitlin believes that the financial industry is still pushing the idea of spending and offering teen-friendly cards lessons in 'smart' ways to use credit. What kids and adults need are some lessons in the lost art of budgeting, living within your means and learning not to spend what you don't have.

What should financial institutions do?

1. Educate your clients about financial literacy, without an accompanying product pitch. Since the financial sector contributed to the mess their clients are in, they should help their clients avoid the same mistakes. It isn't helpful to anybody to have clients in bankruptcy.

2. Stop marketing to teens. They don't have the maturity or experience to understand how to control credit card spending. If they do market to teens, all marketing should be accompanied by a disclaimer or warning about credit card debt and about consequences for spending beyond your capacity to pay. Teen cards should not have a minimum payment. They should be required to be paid in full every two months.

3. Fund financial literacy programs in the schools -- no strings attached. It's time for the industry to take their social responsibility seriously. If you want to be seen as institutions of integrity, then show everybody that what you espouse to believe and what you do are aligned.

4. Revamp the corporate culture so that the reward and performance management system is less tied to product sales and more tied to client service. Tying rewards to sales breeds a culture of success at any price. Tying rewards to service puts the client's need in the centre.

The economy continues to drag and many people are struggling financially. There are no easy answers and accountability rests on customers, regulators and the financial sector. Unless there are changes, we are doomed to repeat the disaster of 2008.