Since the financial crisis began, Suze Orman—the queen of personal finance—has been criticized for everything from her conservative investment choices to not having predicted the recession. The author of nine personal finance books, including The Money Book for the Young, Fabulous, and Broke, has changed some of her advice, most notably that consumers should pay only the minimum amount required on their credit cards until they set up an eight-month emergency fund. But in general, her parentlike admonitions for consumers to take charge of their money and not be "stupid" have only become more urgent. U.S. News spoke with Orman about the crisis and what people should do with their money now. Excerpts:
What surprised you most about the current financial crisis?
That it happened at all.
So you didn't see it coming?
I saw real estate coming down; I saw the stock market might be a little whatever. Did I ever, in my wildest dreams, think it would possibly bring down the entire economy of the world? No. Why didn't I think that? I will tell you. I believed the CEOs that went on television and looked in the cameras and told everyone it was going to be OK, that they were fine.
Why did I believe them? I believed them because do you think a normal human being, which I am, would think that after Enron, after WorldCom, after all those debacles and Sarbanes-Oxley and having to sign financial statements, would any CEO be that stupid to go on national television where everything is recorded and look in the camera and lie through their teeth? In a million years, I never thought that would happen.
[For more, read: "Suze Orman and the New Rules of Credit Card Debt."]
Do you think you and other financial experts could have done a better job of anticipating the crisis?
I'm a personal finance expert. My expertise is not as an economist, not as a stock market guru, not as a precious metal predictor, or in interest-rate foreshadowing. My job is to look at what happened in the economy and what is going on in the world of finance and to tell people, based on fact, this is what's happening now; this is what you need to do with your personal money. To that end, I think I was really far and above anybody else, and I got attacked for it.
Do you ever worry that by telling Americans to spend less, you will help slow the economy further?
No, because what good does it do to spend money they don't have, to put it on the credit cards? All of a sudden, they lose their job, get sick, or get hit by a car. I can give youstories that are unbelievable. Here you're in a situation where you put going out to eat, [paying for] gym memberships, and getting manicures on a credit card. Now you can't pay anything on your credit cards. Banks can't survive. They're taking TARP [Troubled Asset Relief Program] money. So it's like, if you feel OK with taxpayers paying for the fact that you have DVDs and televisions, then go ahead, keep spending.
Our problems aren't that we aren't spending money. Our problems were that we were spending money that we never had. We were spending money we couldn't afford to spend. That was the solution to the economy—to continue to get yourself in debt.
A lot of people have lost their company 401(k) matches. Should they still put money in?
If your 401(k) does not match and you have credit card debt, hands down, pay off the credit card. However, if you have credit card debt and do not have an eight-month emergency fund or have no emergency fund whatsoever, then do you pay just the minimum or pay off the debt? You pay the minimum on cards, and you save for your emergency fund. I don't care what anybody tells me, what anybody says. Anyone who said they should do something other than that is someone who lives behind a computer screen and is not out talking to people. . . . [Credit card companies] are indiscriminately—across the board—revoking credit cards and reducing credit limits.
[For more, read: "Suze Orman on Whether to Buy That House."]
Do you think young people have it worse than any other generation, with their higher unemployment rate, high debt levels, and weak job market for graduates?