Personal Finance Gets Political

Suze Orman's seven-day December cruise around the Caribbean has been cancelled. In between shuffle board and sunning, the popular financial adviser had been slated to dispense wisdom on "How to Make More Out of Less," "Retirement Planning," "Investments," and "Estate Planning." But at a time when 2.2 million people have lost, or risk losing, their homes due to the mortgage crisis, when credit card debt has nearly tripled, and when the average student leaves college with $21,000 of student loan debt, it seems few people were willing to drop the $1,000-plus ticket price to learn the mantra of the personal finance industry: You, and you alone, have the power to control your financial destiny.

During the fat years, this message defined the attitude of both the personal finance industry and the average American toward our money and our debt. But in these leaner years, some wise finance-watchers are seeing the limits of the up-by-your-bootstraps mantra. And now, surprisingly, even Orman has begun to change her tune.

At its core, the personal finance industry is a conservative one. Personal finance is all about the individual—taking responsibility, learning about loans and mortgages, taking steps to ensure that you come out on top.

Orman's biography reflects this ideology. Hers is a hardscrabble story: waiting tables, dreaming of owning a restaurant, walking into a Merrill Lynch interview in a tacky Sassoon 1980s pantsuit and cowboy boots and landing a job despite her lack of financial background. She got her break when her book You've Earned it, Don't Lose It sold out in a run on QVC, and her success on the well-known shopping network led her to PBS, where she became one of its top fund-raising attractions. She serves as contributing financial editor to Oprah Winfrey's O Magazine, and hosts The Suze Orman Show on CNBC. She's had six New York Times bestsellers, and impressed many with her offhand coming out to the Times' Deborah Solomon in an interview this past February. "K.T. is my life partner," she told Solomon. "K.T. stands for Kathy Travis. We're going on seven years."

Orman has built a business around her insight that lack of technical understanding about finances is usually combined with general fear and anxiety toward money. Take Orman's 1997 bestseller, The 9 Steps to Financial Freedom: Steps four, five, and six contain the meat of fiscal explanations (trusts versus wills, how and when to invest, the different types of mortgages) while the six other steps walk you through your hang-ups and personal history surrounding money, and empower you to "be open to all you are meant to receive."

Orman has come under criticism for her approach. She is frequently dismissed for her spiritual, holistic discussion of money. In a 1999 profile in The New Republic, Christopher Caldwell wrote that "the structural resemblance between Alcoholics Anonymous's twelve steps and her nine is uncanny, and, outside of the recovery movement, Orman may be America's most forthright champion of slogans—and of their thought-eradicating potential."

But Orman, with her chatty and confident style, has struck gold by offering what people are actually looking for when they seek personal financial counseling—a basic literacy in how it all works, coupled with the reassurance that despite what past experience has shown them, the market will work for them. That is the promise of financial planning: Markets do work, as long as you have the right tools.

The industry of personal finance planning sprung up in the late 1970s, a time of deregulation of consumer credit protections. In 1978 a Supreme Court ruling turned the regulation of credit card interest rates over to the state where the lender was based, allowing a regulatory race to the bottom. This is why—as Tamara Draut, director of the Economic Opportunity Program at Demos and author of Strapped: Why America's 20- and 30-Somethings Can't Get Ahead, points out—nearly all your credit card solicitations come from South Dakota or Delaware, states that have no caps on interest. "This essentially made state usury laws in regard to credit cards completely useless, and Congress has done nothing to fill that void," Draut said. By 1985, the personal finance planning industry had created its own body, the Certified Financial Planner Board of Standards, which holds a trademark on the phrase "certified financial planner" and requires planners to meet strict criteria for certification. In 1991 there were 22,599 certified financial planners; as of August this year, that number has more than doubled.

Orman, who has held certification since 1986, champions personal responsibility. She is quick to chastise women who call in to the show confessing that their husbands handle the bills, and she regularly admonishes folks to get a second job when faced with debt, telling a woman on a recent show, "We are not the victims of our circumstances; we are the creators."

But this past year, Orman veered from the party line. In mid-February, Orman was called before the Senate Health, Education, Labor and Pensions Committee to testify about the need for reform in student loans. In her testimony she called for an increase in Pell Grants, a reduction of student loan interest rates, an increase in the income limits for student loan deductibility, and changes in the repayment rules. In other words, she called on the government to help students help themselves.

This summer Orman also brought her concern to The Suze Orman Show, starting two shows with segments on students who had been caught in the web of high student debt. In a switch from her usual format, in which callers are offered a 15-minute Orman fix-it plan, she presented two students as case studies in the pitfalls of education loans. She talked to Adam on Aug. 18, and asked about the interest rate on his private loan. He answered that it was 9.5 percent. "Thank you!" shouted Orman, "Nine point five percent. Shame, shame, shame on you lenders. Look at what you are doing to the future of the United States of America." And then she really let loose: "But here is the problem. … We can't do anything about it, because our great legislators have allowed these private institutions to be protected against you claiming bankruptcy."

Orman's take on student debt is twofold—she sticks by her point that student loan debt is "good debt" (unlike most credit card debt) because you are purchasing future earning capability and investing in yourself. But her calls for regulation are novel in the industry, and new for Orman. "Adam," she says, addressing the young man facing $85,000 in debt who looks as if he is about to cry, "a lot of it isn't your fault. Shame, and I want all the parents to be listening to me right now, and all the educators, and all of the loan companies. Listen to me. You should have been educated, you should have been counseled!" In another segment, she interrupted Holly, a culinary school graduate with $119,000 of debt (some loaned at 16 percent interest) to ask if she had received counseling about her loans before signing. "I don't often get political here on The Suze Orman Show," she said, "but we need to make it mandatory that when a student signs up for a loan that he or she knows beforehand exactly what the monthly payments are going to be."

Draut, author of Strapped, said that it is refreshing to hear Orman take on the problem of student loans. "It would be great if we could get more personal finance experts to realize that it's not just an issue of individual responsibility, but also an issue of lender responsibility. What is missing is matching that personal approach with a political approach."

But so far, Orman is not making the same calls for regulation in say, the mortgage industry. In an episode a week after her interview with Adam, she offered five ways to avoid possible foreclosure—but she didn't address the ethics of handing out sub-prime mortgages in the first place. She also regularly suggests transferring debt to credit cards, without acknowledging that the credit card industry is plagued with many of the same problems as the student loan industry.

"The student loan industry is certainly not alone in being problematic," agreed Sarah Byrnes, campaign manager of Americans for Fairness in Lending, a coalition, formed last August, of 17 consumer advocacy groups looking to protect consumers through better regulation in a handful of lending industries. The idea is that personal finance instruction can only take people so far. "As soon as you teach people one trick, the lenders will come up with another one," Draut said. "In order to distinguish, and know, all of the minutia about your mortgage contract or your credit card contract, you do have to be a personal finance expert, or even a lawyer." It is now becoming clear that much of the personal debt problem in the United States is not the fault of individual spending run amok, but of a systematic failure to protect the consumer from a lending industry that has spun out of control. Could Orman's realization about student debt spread? Could she see the structural weaknesses in other areas of the economy? Could she inspire others? "Debt," she admonishes, "is too big a part of our overall money picture not to give it the respect that it is due. How we treat our debt and the people who are a part of that debt plays a major role in our path to financial freedom." Lead the way Suze!

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