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?
Right now, they have it so great it's not even funny.
Really? What do you mean?
If the economy kept running the way it was, you guys would have been broke for the rest of your life. Real estate was going up and up. You would never have qualified for real estate, and companies were shipping jobs offshore. So where were you going to get a job? The price of tuition was so high [that graduates] owed $150,000 in student loans. The price of milk and other prices were so off the charts. What were you people going to do? The stock market was at 14,000, so every time you put money into your 401(k), you bought less and less shares.
So the financial crisis is a good thing.
This is the greatest thing that has ever happened to youth. It gave you a wake-up call that your parents were living infinancial la-la land. They were just trying to impress everybody with money they didn't have. Your parents and grandparents were trying to keep up with the Joneses without having a clue that the Joneses had $50,000 in credit card debt, and that's why they could afford a third home.
When will we recover from the current crisis?
I've gone on record that the year is 2015. What do I mean by that? We may come out of recession this year or next, but that doesn't mean we won't go right back into it a year or two later. We might see the stock market go up 30, 40 percent. That doesn't mean it won't go right back down. We may need help for longer than we think.
It will take a long time for the ship to turn around. When that boat finally turns around, the people in the back will have solutions to their problems. They can take care of their parents, they can take care of their kids, and they can take care of themselves. They are out of credit card debt and can afford a home and can get a job again when they want one.
It's not over when people simply say we're out of recession. Tell that to somebody who can't get a job and is underwater in their home. [The recession will be over] when there is hope for every class in America. Not just the upper and the middle but the lower class as well. Then Suze Orman will say this economy has turned around. The TV will spin it that it is turned around and hope that you will spend money. Do not listen when other people tell you your personal financial situation is OK. When normal human beings feel hope again, then Suze Orman will say this is complete. I don't think that happens until 2015.
Most of your money is in bonds, not the stock market. Is that a good strategy for everyone to follow?
I'm 58 years of age in June, girlfriend. I'm not looking for growth in my money. I just want my money to stay safe and sound. However, if you have 30, 35 years until retirement, then are you out of your mind? You should be dollar-cost averaging into those markets, assuming you have an emergency fund. What do you care if you had $50,000 in your 401(k) and now it's at $25,000? It's money you couldn't touch anyway. Thirty years from now, you will never remember that it went down 50 percent last year. You're not going to remember, and who cares? However, if you were one year away from retirement or if you needed that money in a few years, then you never belonged in the stock market to begin with.