Is Suze Orman's Advice Dangerous?

In Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, Helaine Olen traces the roots of media advising us about money—a subject many find distasteful to discuss in polite company, but nonetheless spawns a billion-dollar industry of products promising guidance as we navigate the thorny territory of debt, need, and desire.

Olen, a journalist who writes the “Where Life Meets Money” blog at Forbes, questions the “guru” model of personal-finance media, which focuses on changing the money habits of individuals with nearly no analyses of the social and economic reasons for why the gap between rich and poor is expanding beyond belief. She argues that personal-finance journalism can be revolutionary, but is often undercut by conflict-of-interest product sponsorships and simplistic solutions that are less empowering than they are appeasing.

In our interview, Olen spoke about the myths perpetuated by personal-finance gurus like Suze Orman and Jim Cramer, why women are particularly targeted by the industry, and how our personal money problems connect to crushing economic inequities.

 

How do you explain the rise of Suze Orman, Rich Dad, Poor Dad, and the personal-finance industry?

They are the end-result of several trends in American life. The first is the rise of the self-help industry, with its insistence that there is no problem that can’t be overcome with grit, determination and a cheerful, can-do spirit.

The second was the increasing complication of our financial lives. I was born in the mid 1960s—the credit card was less than ten years old, brokerage costs were fixed, mortgages were one-size-fits-all and also fixed rate. There were no Individual Retirement Accounts or 401(k)s. Heck, the ATM machine was years in the future. People needed advice as this stuff debuted and assumed a place in our lives.

But then, these two trends combined with a third: the increasing deterioration of our economic lives. As we all now know, incomes began to stagnate and fall, even as the cost of such things as healthcare, education and housing increased at rates well beyond inflation for decades. This left an opening for people such as Orman and (Robert) Kiyosaki, who were offering themselves up as our economic saviors. As Orman said in a 2012 appearance, she viewed her job as “rebuilding America one wallet at a time.”

One thing I should say here: Orman and Kiyosaki are offering up very different solutions to the same problem. Orman’s shtick is that she is explaining it all to you, and telling you how you need to watch your pennies so you can invest and take care of yourself and your loved ones. Kiyosaki sees your lack of income and debt and views it as a cash flow problem that can be remedied—provided, that is, you follow his advice and strategies.

What makes these "gurus" dangerous?

The easy answer is that a lot of their advice is not exactly that great, to say the least. Robert Kiyosaki, for example, has promoted purchasing real estate with little money down for quick riches—this, as most of us now understand, is a quick way to end up in a lot more financial trouble than when you started out.

The other answer is a bit more complicated. Personal-finance gurus, by throwing the problem back on the individual, all-too-frequently deny or underplay the role of the greater economy on our lives. Personal finance can’t do it all. It certainly can make a valuable contribution as an adjunct—I would never argue that one should not try their best to live within their means, or that people like Suze Orman have indeed motivated some to improve their financial lives. But there is no personal-finance strategy that can fully protect us from downward spirals, nasty financial trends or plain out ill luck. Yet all-too-many of these gurus are presenting themselves as our would-be saviors and all but saying that if we follow their lead, we will survive and thrive.

Again, that’s not how it works in the real world. It’s almost as if we are living through economic Hurricane Sandy, and they are telling us that if we put up a few sandbags and umbrellas (that they might well be selling us, by the way) we’ll be fine. This stuff starts veering toward blaming the financial victim for greater economic problems.

Why are so many of us afraid to talk about our money?

We idealize the myth of Horatio Alger in this country. Anyone can make it. Anyone. But we forget that Horatio Alger was a writer of fiction. In our nonfiction lives, we are suffering from some of the worst income inequality in our nation’s history, our salaries are stagnant and falling, and our class mobility is significantly worse than supposedly class-bound Europe. Yet, to talk about our financial setbacks and inability to get ahead is to challenge the heart of the American dream. We believe we are failures and, as a result, there is deep shame involved.

David Graeber's Debt: The First 5,000 Years discusses how our language of debt is conflated with our language of morality: the words debt, reconcile, forgiveness, credit, redemption, and so on, were all once singularly business terms. Do see a connection between the "moral" stakes of who-owes-what-to-whom and the personal-finance industry?

If you are asking if I believe the personal finance and investment industries prop up the status quo instead of challenging it, the answer is hell, yes. One of my complaints with the whole personal-finance industrial complex is the censorious, judgmental tone, that all too often sounds like a modern updating of a Victorian morality tract, complete with the wealthy so-called personal-finance experts lecturing the less financially well-off on how to behave. Dave Ramsey—a man who declared bankruptcy himself—has based an entire multi-million dollar personal-finance empire on telling people that bankruptcy is to be avoided at all costs, that it can destroy your marriage, job, and peace of mind. Others tell people to that their problems are a result of luxury spending like smartphones or at-home Internet access. For better or worse, these are the basic accoutrements of modern life.

The fact is it is a lot easier to live within your means if you are a personal-finance guru who makes their money by preaching the virtues of restraint to the rest of us, than if you are a minimum wage retail worker lacking health insurance and other benefits. It would be nice if this fact were acknowledged.

Why are women a particular target for promotions from the personal-finance industry?

Women are targeted for a number of reasons. First, we control increasing amounts of wealth, with the result that we are seen as a valuable niche in the business of financial sales and advice. Second, we are more likely to turn to others (for) financial advice than men so we are, you might say, perceived as an easier sale. This might be because we are routinely portrayed—in the face of very little evidence, by the way—as less capable and knowledgeable than men when it comes to managing our funds, too emotional to get it right. This is, sad to say, a myth that even those who claim to support women perpetuate. It was Suze Orman who claimed that women lack “competence” when it comes to money. Of course, all this talk obscures the real reason women have less money than men: we earn less and live longer.

Given how much of the personal-finance media come up for critique in your book, what are the best sources of information for those of us trying to understand our money? What do you listen to or read yourself?

Liz Weston, now at MSN, taught me lots about personal finance. She’s a great resource. If you want to pick up a book, I still say Personal Finance for Dummies is the least intimidating book out there. For day-to-day news coverage, Reuters and Bloomberg are just terrific. When Linda Stern—who does the Stern Advice column at Reuters—interviewed me for a feature about Pound Foolish, I told her I was convinced it would have been an even better book if she had written it, and I wasn’t kidding. I also read a lot of economics blogs. Both Yves Smith at Naked Capitalism and Barry Ritholtz at The Big Picture offer first-rate takes on the greater economic world, not to mention daily links features that are great curated guides to the world outside of our own personal microeconomic space.

You write that financial literacy is part of the myth perpetuated by the industry. But isn't it empowering to understand how our money works, and how to use it with wisdom?

It is unbelievably empowering to learn to manage and control our own funds. But that’s a very different thing from something called “financial literacy,” which is, in reality, a mostly corporate-funded scheme that is used, at least in part, to head off more substantive government regulation. It would be much easier to offer up products that are easy to understand and lack “gotcha” clauses, but you don’t see many in the industry do that. Instead, the financial services industry uses our lack of financial literacy to justify their own ill behavior. Do you really want people learning how to manage their funds from such outfits as Capital One and Visa, both of whom sponsor extensive programs in the nation’s schools? I don’t.

You were behind The Los Angeles Times' wildly popular "Money Makeover" series for years. Do you see your own work as part of the "personal-finance industrial complex"?

Absolutely. The genesis of this book was my attempt to acknowledge my own (very small, admittedly) role in all of this.

You write that "the greatest economic wound many of our families of origin bequeath us is not a dysfunctional relationship with money, but a dysfunctional relationship with class." What do you mean?

We have a serious problem with class mobility in this country, one we rarely admit to. Most of us—no matter what our psychological financial baggage—will remain within the class we are born in, or very near to it. Yet, one of the current “it” concepts in personal finance is a thing called financial therapy. It claims to look at our financial behaviors in terms of our emotional family history with money. So, to take an example, we don’t save money because we were brought up to think money was a bad thing. Maybe that’s true for some people, but it’s not why we have increasingly limited class mobility.  

What would it look like if the self-help ethos of the personal-finance industry were well balanced with a smart systemic understanding of the economy?

Instead of perpetuating the language of blame and shame, I like to think we would be asking for more changes to help all of us. Personal finance would become about “we” instead of “me.” So instead of blaming people for their excessive health care bills, our personal-finance gurus would be questioning why those bills were so high in the first place and how we got to a place where they have the ability to wipe out decades of savings in a matter of weeks. Instead of chewing (out) low-wage workers who cannot live within their not-particularly substantial means, personal-finance gurus would ask why so many jobs are not paying a living wage. 

Comments

Decades of de-unionization have left half our hourly wage workforce earning less than what the minimum wage woulda-coulda-shoulda been. Today’s median (not minimum) wage is $15/hr.

LBJ’s 1968 minimum was $10.58/hr ($1.60/hr adjusted). Doubled per capita output since 1968 -- as jet engines, copying machines (put millions of pool typists out or work), computers and improvements in between made us twice as productive per capita – would expect the minimum wage to increase at least 50% -- to $15/hr.

After the “big” $2.10/hr federal minimum wage hike, in early 2007, it remains $3.28/hr below LBJ’s. A $15/hr federal minimum wage would give half of America's hourly wage earners a raise at an easily computed cost of 4% direct inflation. My Chicago neighborhood Mac's traffic seemed to go up with Governor Blagojevich’s $8/hr minimum wage (Ike’s 1956 level!) – mostly in the third world end.

******
Over the past two-thirds of a century and around the world only one collective bargaining mechanism has proven able to fend off the race to the pay and benefits bottom as well as guarantee representative political forums via labor lobbying power: legally mandated, sector wide labor agreements -- wherein every employee working the same job in the same geographic locale (nationwide for airline workers, etc.) works under a single collectively bargained contract with all employers.

In every OECD economy where sector wide labor agreements is not the bargaining model the average person’s interests have gone bye-bye: in Japan, the lifetime security half of the workforce pays for it with 60 hour weeks, the other half may live more like our illegals; in Australia, unionization has dropped from 40% to 20% over 25 years; in England (did not adopt sector wide postwar; not sure if or how much since), watch TV; in Israel reformers complain of “ 'an economic policy of privatization that leaves the free market without reins…making our daily existence a war for survival to subsist with dignity' ”, read para. 4 & 5 in "What to make of the Israeli movement for social justice." In America, the "Great Wage Depression" prevails (also known as "inequality" to our progressive elite), see above.

American supermarket and airline workers would kill for sector wide agreements – the perfect places to introduce the only fair and balanced labor market model known to contemporary economics (if never, ever heard of from our contemporary progressive economists).

So I had my call with Suze Orman yesterday on her segment titled “Can I Afford it?”. Let me tell you everyone, she is one MEAN lady. My question to her and the purpose for my call was whether I could afford spending $3,000 on ordering more books from the printing company for my children’s book “Money Doesn’t Grow on Trees”.
I indicated to her that by ordering a larger quantity of books (750 books), I am able to reduce the cost per unit drastically, which in turn would allow me to reduce the sale price to the public. My intentions were to take this out of our savings account, and not charging it on credit cards (which we paid off a long time ago). Her answer was that I needed to have 8months worth of monthly expenses as emergency savings. This would equal for me to basically have $45,000 in my savings account. So I would need to have $45,000 in my savings before I can spend $3,000. Really?? Is this realistic??

I am not trying to spend $3,000 on a designer purse or a sparkly diamond ring. I am trying to do something greater by becoming an entrepreneur, feeding the American dream of small business ownership. This wouldn’t be an expense but an INVESTMENT that I intend to see pay for itself. Isn’t this what America is made of: Risk takers who put forth some money and make it work. Some fail, some succeed but they all TRIED.

I am trying to do something with my life and if it costs me a bit up front, then let it be (a $3,000 expense is not going to ruin us, we have other emergency funds). My husband and I have worked hard to pay off all of credit cards and I diligently and constantly review our expenses to keep them in check (I actually have to be the bad guy, believe it or not ).
Ben and I are hard workers and I KNOW this book it will be a good investment considering its reception by the public so far. But even more importantly, I truly believe that my book carries a message that is important to youth. I have received great feedback from the many people who have purchased it. Great feedback also from notable Financial experts and speaker such as Nathan W. Morris. Libraries are loving my book too and asking that I come do a reading and book signing (some even want a craft session with the kids to decorate their jars). It will also be available at the Eastwood (Lansing) Schuler bookstore starting 01/17/2013 and MSUFCU is reviewing my book as we speak. It doesn’t necessarily mean that I will be successful and can quit my job, but the reasonable expense it would require is worth the risk in my opinion. How many successful entrepreneurs can say that their venture required no risk at all?

Suze yelled at me “You don’t teach what you don’t know!”. Just because I am not sitting on a pile of cash as she is, it doesn’t mean that I don’t have an important message I want to voice and carry. If my parents had taught me the financial values my book covers (how to earn money and how to save it using the Spending jar, the Savings jar & the Giving jar) maybe I would be able to claim a savings account with $45,000 in it. Life happens and it doesn’t mean that I need to sit and be quiet because her media popularity inflated HER bank account and not mine. I can STILL send a message that will make a difference in kids’ lives and set them up for success.

The whole “one-way conversation” lasted about a minute during which all she did was scream and not let me say anything (I was of course cut-off). She clearly was only looking to destroy someone to increase her ratings. She provided no constructive feedback whatsoever (which I would have been happy to receive) and simply played her role of a female “Simon Cowell”.

In spite of your “Denial”, lack of constructive feedback and rudeness that made me cry (I don’t like it when people yell at me), I will go on and fulfill my dream of making a difference. I will go on and press on becoming a successful entrepreneur. You tried to be hurdle and an ambition killer, but you will not break me.

I hope you all feel the same.
Karima.

Below is the response I sent to NBC Nightly News.

Hello,
I am offended by what seemed like a one sided bashing of Americans
using their retirement funds in these troubled times and disagree with
Suze Orman’s statement that it makes no sense in any circumstance to
take a loan from a 401k {NBC Nightly News (1/15/2013)}. “One size
fits all” statements like that makes light of the dire circumstances
many families face today and insults the intelligence of us all.
Although I do not advocate cashing out of a 401k or IRA, I am grateful
for the ability to borrow from “myself”. To keep this in perspective,
I am 57 years old, hold a good job and have saved 10% of my income for
most of my working life. I have lived through and survived the savings
& loan debacle and incredibly having not learned anything from that,
the recent financial institution failures both of which were beyond my
ability to control. To say I mistrust financial advisors is an
understatement! I have been “advised” to borrow much more than I felt
comfortable with on my first mortgage because “it’s a great investment
and real estate always goes up” and to go for “growth” with my entire
401k. Fortunately, I didn’t heed that advice! I lost a considerable
amount in my children’s college fund because I did heed the advice of
another financial guide to cash out of savings bonds and go with
mutual funds. Despite contrary advice, I have built a comfortable 401k
nest egg by systematic savings and conservative investments. I admit
that I may have done better but I never lost any sleep over my
investment choices and I could have certainly done worse. I have put
two kids through college with the help of my 401k and paid myself back
with 6% interest. The fee for my loan was 25 dollars. Despite what
Suze says, it made perfect sense and I am certain that my
circumstances are not unique! My hats off to those American’s who find
a way to self sufficiently survive when institutions they’ve grown up
trusting in violate that trust and my advice to the financial experts
is to fix your own house and leave our 401k’s alone!

Sincerely,

Frank from Pennsylvania

To Karima - why pay attention to the heartless clueless bitch who will never know anything about living like a real human being? Just do your thing. Why are people so anxious to have others tell them what to do is absolutely beyond me in any event - I say 'you get what you pay for'

Since the beginning of time people have financial issues from abundance to scarcity, now presently the ever reality of rich and the poor. For rich people there is no satisfaction but the need to continue to want more thing and want more while the poor are keeping on fighting for survival. With regards to economic status the rich have the upper hand from justice to the needs while the poor have to dig just to eat and there is always injustice in their world. Sometimes people are just believing of something that cannot be the reality yet still try to believe because of the false input for the people.

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