E-mail a friendSuze Orman
airdate February 9, 2009
Suze Orman wants to change the way America thinks about money. Her books are best sellers, and she's a contributing editor to Oprah's O magazine. Called a "one-woman financial-advice powerhouse" by USA Today, she's written, co-produced and hosted several PBS specials based on her books and won two Daytime Emmys. Orman is a certified financial planner, who directed her own financial group and was previously VP of investments for Prudential Bache Securities and a Merrill Lynch account executive.
Personal finance expert discusses President Obama's economic stimulus plan. (4:24)
Full interview. (24:07)
Suze Orman
Tavis: As we continue our "Road to Wealth" series tonight I'm pleased to welcome back to this program Suze Orman. The popular and respected personal finance adviser and best-selling author is out with a timely new book called "Suze Orman's 2009 Action Plan: Keeping Your Money Safe and Sound."
She joins us tonight from New York. Suze, I have lost track of your number one "New York Times" best sellers, but I was reading my paper again yesterday and there it is, sitting at number one again.
Suze Orman: This is my seventh, Tavis. (Laughter) My seventh consecutive number one "New York Times" best seller. So anyway, there we go.
Tavis: Well, congratulations on that again, first of all.
Orman: Thank you.
Tavis: I want to start with your thoughts on some of the news of the day, and then we'll jump right into the text. In no particular order, these job losses last week, Suze, were staggering. What do you make of it?
Orman: I make of it that they should be expected, they should have not been a surprise. We are in a very, very serious recession. Some people, Tavis, as you may know, are thinking that we're actually in a depression. Now, I don't think it's quite that bad yet, but this is serious, it's not going to get better any time soon, even if we have the stimulus package pass very shortly.
No matter what happens, this is going to take time to work its way out of the system. It was a long time coming. We set ourselves up for this, and now we are taking the fall on the chin. And I'm so sorry, but this is here for some time to come.
Tavis: News item number two, where these numbers are concerned, once you dig into them, Suze, what you discover is that most of the persons losing jobs are men. That women in the not-too-distant future, perhaps, may make up the majority of the labor force in this country because men are the ones who are being so dramatically impacted by these numbers. What are we to make of that?
Orman: What you're going to make of that is the same thing I've been complaining about for years, but now it's coming to help women rather than hurt us. Why are women staying in and men are out? Because on the whole, Tavis, women make less money than men. Why do they make less money than men? Not that they're not as capable as men, but because they're not paid as much by their employers, because the employers know that women aren't going to complain, and they'll accept anything.
So men are first to go here because men are being paid more than women, so women are the benefactors of the fact of why? They haven't been paid as much as they deserve over the years.
Tavis: On the other side of this, whenever we reach the other side - I hear your point; it ain't going to happen no time soon - but when we reach the other side, are you hopeful, then, on that point that we'll start to get a real conversation in this country about economic parity born of the reality that we're discussing right now?
Orman: You betcha, and especially because didn't they just last week sign a bill to that effect? Listen, I know we feel like we're hopeless right now, I know that everybody feels like we don't know what to do, and we don't know what to do currently. However, I have more hope than I've ever had before; I think it will be a few years before this turns around.
But when this current administration turns this problem around, it's going to turn it around in a way that we've never seen before in the United States of America, and maybe once and for all we will have a society that is equal. People will be treated - all kinds of people - with respect, and it will be the always should have been. But we are going to have to wait a few years for that to be true.
Tavis: As I promised a moment ago, I want to get right into the book in just a couple seconds, though. But before that, Suze, a couple of other items in the news I want to get your thoughts about. The stock market of late, at least, closing even. I saw the numbers from today. The stock market closing relatively even, but bank stocks are rallying on the hope, the news of perhaps this pending stimulus package being approved. Your thoughts about that reality?
Orman: I ask everybody to be very, very careful with bank stocks. I think you will see bank stocks rally here for a bit, there's many ways that you can play it. I don't think it will hold, however. I think for the next year or two or three you will see situations where news comes out, everybody feels hopeful, then a situation will come up, Tavis, and everything will turn around and it will go right back down again.
Technically, banks are insolvent right now. This again is a very serious problem. We have not seen the shoe drop yet. When it comes to commercial real estate, you're going to see many other foreclosures continue to happen with people who already own homes but can't afford to keep them because their properties have decreased 80 percent in value, so they don't want to keep them anymore.
A lot more is to drop, so we're going to trade the hope here. So I currently myself, I'll be the first to tell you, I currently own bank stocks right now, I'm up considerably in the past few days, and as soon as this news comes out and we rally here for a bit, I will be a seller of those stocks.
Tavis: Speaking of news coming out, tomorrow the Treasury Secretary Tim Geithner is going to release his plan on what to do with the second half of these TARP funds. In terms of full disclosure, I've been on this program and many others talking about the fact that I think these things are a joke. I personally hate the way that this money was spent, this first $350 billion. As you know, banks were buying assets, they were paying down their debt, they were buying airplanes, doing all kind of stuff with the first $350 billion.
So Geithner tells us tomorrow what his plans are for the second half of this money. What do you expect, and how disappointed, if at all, are you by these TARP funds and the way they've been spent so far?
Orman: Well obviously the first $350 billion, as you said, was a joke, but you can't do anything about it because that money has been spent by the last administration. Hopefully this intelligent administration, and that is a commentary by Ms. Orman as to what I thought about the last administration, this administration, however, let's just hope and pray that they can be more intelligent and responsible and respectful with this money.
Again, with that said, I really think the problem here still is not only within banks, but within real estate. And I know that Tavis, you keep saying, "Let's talk about my book." Oh, my book is fine. Who cares about my book? I'd rather talk about - to the people what they really need to hear about right now, and the main thing people need to understand is that we have millions of people in the United States of America today that currently own a home.
They're not behind on their mortgage payment. They've done absolutely nothing wrong. But they have seen their homes go from $700,000 to now be worth $250,000. Tampa, Florida, for instance. They're still having to pay a mortgage on $600,000 or $700,000. They're still having to pay property tax on $600,000 or $700,000. They're still having to pay property insurance on $600,000 or $700,000.
They're saying, "Can anybody help me? Why should I continue to pay on a $600,000 mortgage? My house is worth $200,000, I'm never going to get the money back." But the banks will not deal with these people. They don't care about them. Nobody's talking about them. And until we help the people that are in homes that are seriously under water - good people, even though they can afford it, they shouldn't have to pay for it.
We need to do a remodification across the board, a 4 percent interest rate across the board. We need to help everybody stay in their homes as well as give incentives to people to buy homes. Then this problem will start to turn around.
Tavis: I'm going to talk about the book whether you want to or not.
Orman: Fine, Tavis.
Tavis: But speaking of talking to the people, as you and I both know, we all know, President Obama hit the road today, going into the hedges and highways, as it were, talking to the people, as you suggested a moment ago, about his stimulus plan. Today he was in Indiana, my home state. He won that state, of course, in the campaign.
What's your sense of what he ought to be saying? What ought our president, no matter who it is; it happens to be, of course, President Obama. But what ought our president be saying to us if he's going to hit the road to talk about these dire times that we are in?
Orman: I think he should be saying exactly what he is saying, what his beliefs are, why he feels the situation is as dire as it is. The other day, when he addressed the Democrats, and it was televised, where he was saying that he walked into the office and he inherited this problem. I think everybody needs to keep in mind that this was not a problem that he created, and this will be a problem that is going to take years for him to solve, because the problem is of such magnitude nobody knows how to solve it.
So I think what's very important is that he makes sure that everybody understands we're going to try things, we may succeed, but we also may fail. And if we fail, people, please don't give up hope, because we're going to try again, and we're going to try again and again until we get it right.
But I think again, as I keep saying this, it's very important that everybody understand nobody really knows how to solve this problem, and everybody is kind of just pulling this string and this straw out of this hat, and they're just trying. So I hope everybody just has a little bit of tolerance, a little bit of patience, a little bit of leniency, and the faith that the man in the White House right now really has your best interests at heart.
He's just going to have to figure out how to solve a problem that was created for all of us from an administration that he was not involved in, really, on that level at the time.
Tavis: Right, so the reason why your book is number one on the "Times" list is because it is an action plan for what we can do to help the president, at least where our own issues and circumstances are concerned. And I want to just go through some issues that you talk about in the plan specifically, and let you kind of unpack it for me. You talk in the book about credit. Talk to me about what we do about our credit at the moment.
Orman: Yeah, here's what everybody needs to understand, is that while it is true that President Obama is going out and trying to solve all these problems, every single one of us needs our own economic stimulus package. We need our own TARP program, so to speak. And the people that are targeting you now at home, everybody, whether you know it or not, are companies known as credit card companies.
They were so nice to all of you in the past. They extended you credit - credit you never should have had. They let you keep getting yourself into trouble and charging more and more and more. And now what are they doing? If you're one of the many out there that simply are paying your bills on time but you are just paying the minimum payment every single month, you'd better listen to me. Because they are looking for people who are living off of their credit cards, and paying the minimum indicates you're living off of your credit cards.
If that is the case, most likely you are going to get a letter in the mail very shortly that says the following: They are either going to revoke your credit and increase your interest rates to 32 percent, they will rescind your credit line. So let's say you have $5,000 of a credit limit and you've only charged $2,000, they're going to reduce it to $2,000.
They're going to do anything and everything they can to make sure that they get their money back. You, on the other hand, are going, "Oh, my God, what am I going to do?" If they rescind your credit lines, if they revoke your credit cards, that reduces your FICO score.
If your FICO score goes down, car insurance premiums go up. It affects you in every way. So how do you battle that? There are certain situations that all of you are in, there are actions that you need to take. You need to have a plan. Again, we don't have time on the show to go through them all, but in this particular chapter of the book, Tavis, I go through situation, action, situation, action, to make sure no matter what your situation is, you know what action you should take.
Mainly, overall, if you have a secure job and you know you're not going to get laid off, that money needs to go to pay down credit card debt currently if you have it. On the other hand, if you think you're going to lose your job, you do not have an emergency fund, let the credit card payments go, everybody, and make sure that you save that money, because what are you going to live on if you lose your job? Because they're going to close down your credit cards anyway.
Tavis: Speaking of what you're going to live on, a lot of people, as we all know, have lost what they thought was going to be their retirement. You have a chapter in the book where you talk about even in these difficult times, retirement investing.
Orman: Yes, and you have to really look at this carefully for yourselves. If you're older, if you know I'm currently 57 years of age - some people would think I'm older; I currently think I look very good, but that's besides the point. (Laughter)
But the truth of the matter is if you have at least 10 years or longer, preferably longer, until you need your money - need your money to what? Generate income for you to pay your mortgage, pay for your retirement, whatever it may be - that is not money that currently belongs in the stock market.
I know you're going to see the market go up and up and you're going to feel like it's okay. Watch what happens at the end of the year. This market could go down dramatically. These are up and down markets; the problems have not been solved. The economy and the stock market are two separate entities, everybody.
If, however, you're younger, you're 20, 30, 40 years of age, you have time on your side. If you could just continue to dollar cost average, meaning take a little bit of dollars every single month and continue to invest in your 401k plans, only up to the point of the match, hopefully in Roth IRAs, if you qualify, and if you can, invest in exchange traded funds that pay a high dividend yield, that is the way to go.
Almost 100 percent of my money that's in the market today, Tavis - now, most of my money is in municipal bonds, and two years ago everybody was making fun of me. Ms. Orman is in municipal bonds, what does she know? Well, everybody, you should have listened to me two years ago. But because there were writers out there that made fund of me, you continued to go into the market because that's where everybody was. You all are down now 40 percent; I'm up 20 to 30 percent on my money. Big difference.
So most of my money is in municipal bonds to this day. But the money that's in the market happens to be in exchange traded funds, or individual stocks that are paying me a high, save dividend yield, a dividend that I do not think is going to be cut. So therefore, I'm making anywhere from 4 to 12 percent in dividends per year on stocks and exchange traded funds, and I'm doing it every single month. That is how all of you should be investing today if you have time on your side.
Tavis: Speaking of investing, I love these segues you keep setting me up for. You talk in the book about saving and spending. We'll come to spending in a moment. Let's start with saving, and tell me why I shouldn't just laugh at you, speaking of those persons who made fun of you. How the heck, Suze, are you going to tell me to save money right about now?
Orman: Well, I've got to tell you to save money, and the reason is if you're not going to save yourself, who is? You just started this show by saying unemployment is skyrocketing. As of today we're at 7.6 percent. Oh, give me a break. We're a lot higher unemployment than that. There are many places that are at 10 percent unemployment, 12. You're going to see unemployment is going to continue to skyrocket on us.
So let's imagine out there, everybody, you're laid off, you're fired, they didn't give you a severance. What are you going to live on? You're under water in your real estate, your stocks aren't worth anything anymore, if you have anything in the stock market.
All you have is credit card debt, student loan debt that you can't get out of. How are you going to live? Therefore, you need a savings account. Now, to that end, I have partnered with a company, TD AmeriTrade, to create what's called a save yourself account. Go to SaveYourself.comor SuzeOrman.com; it's right there. If you put away just $100 a month every single month for 12 consecutive months, they'll give you $100. That's like a 15 percent return on your money. It's FDIC insured. You start off three or four months, you can't finish? Take your money out.
After 12 months, take all your money out. No strings, nothing attached. This was my way, Tavis, to get America to start savings again. We started it about two years ago. Over 100,000 people have already done it, where you are being paid to save. That's how you save everybody. You say you can't do it? I'm telling you, you most certainly can.
Tavis: So you're telling me on the one hand that we need to save, and I understand the logic of what you're suggesting to me. But isn't what I'm hearing from President Obama and the government is that they want me to spend money and that's how the economy starts to run again? That's how we start to thrive again, that we take money and pour it back into the economy? I'm hearing you say save, and I think I hear my government telling me to spend.
Orman: There is no way that a responsible government - there is no way that a responsible government would say to somebody who has credit card debt, nothing in savings, is under water in a home, nothing in a retirement account, that they should be spending money. A responsible government would say, "You save your money and you make sure that you're okay." And -
Tavis: So how does the economy then get jump-started again if we're not spending?
Orman: Well, the economy gets jump-started by people like me and other people out there that do have money to spend. Tavis, do you know since November - I don't know if I look a little pudgier to you since I'm coming to you whatever - I've gained 10 pounds. Why have I gained 10 pounds? Because since November, I have eaten out almost every single night at a restaurant, and I've taken two or three friends that can't afford to eat out.
So if people who have money could simply continue to spend their money, people who have credit card debt simply continue to get out of debt and save their money, we'd be better off. Because here's the problem: If we have credit card debt you continue to spend - let's say you go out to a restaurant or whatever it is, and you put it on your credit card. Now, the bills start coming in. Now you get laid off. Now you can't pay your credit card payment.
Now the credit card companies, which are the banks, don't get their money. Now the banks are in trouble, now what happens? Now the taxpayer has to save the bank, so the taxpayer treated you to go out to dinner. What's that all about?
Tavis: (Laughs) All right, you have advice in the book specifically for people - and you referenced this a moment ago; let's drill down on it - specifically for people who have already been laid off. Already lost their job.
Orman: Yeah. If you've already lost your job, here's what I ask you to do. It's like I know it is very, very difficult out there. If in fact nobody's hiring, you don't know what to do, you have to understand this: You've got to get creative; you've got to do whatever it takes to get any money coming in. Here's what I'd like just some of you to try. I've tried this with a few people and it's at worked.
I want you to go into a company and say you'll work for free. You'll work for free for three or four weeks to show them how really vital you are, how great you are, and see if anybody will take you up on that.
There's also things that possibly you can do, which is if you happen to have money within a Roth IRA, and any money that you put in a Roth you can take out at any time without taxes or penalties, regardless of your age or how long it's been in there. You might want to access that money first in case of an emergency.
Let's say you have absolutely no money whatsoever and you've got to feed yourself. It's better to take money from a Roth IRA up to the point of your contribution than withdrawing money from a 401k if you're not of age, which would be 55 or older in the year you lost your job, you're going to pay taxes and you're going to pay a 10 percent penalty. Let your 401k money just sit there. In case of an emergency and you have nothing, Roth IRAs are the place to go.
But everybody, please remember this: Money that is in a retirement account is protected against bankruptcy. If you think that you are heading towards bankruptcy, do not touch your money in your retirement accounts. Claim bankruptcy and then after bankruptcy you still have all that money in your retirement accounts.
Tavis: What do you say specifically to young people who are coming out of school with a great degree but in a horrible job market?
Orman: Yeah, I say be very, very careful of your student loans. For whatever reason, students, even to this day, have not been educated on the legal ramifications of not paying a student loan. It is the first debt, Tavis, that they let slide. And here is the problem: In most cases, student loans are not dischargeable in bankruptcy.
So even if you claimed bankruptcy, unlike a 401k plan that's protected, your student loan cannot be discharged in bankruptcy. So what happens is these students are graduating, they have $40,000 of student loan debt, they stop paying it. Then $40,000 grows to $80,000 grows to $100,000 and $150,000, and that's when the student loan companies come after them.
And now they have problems because their payments are what? A thousand to $2,000 every single month, and they can't get out of it. So students, I am asking you - I know there are many bills out there, I know that there's all kinds of things you're going to have to face, but if you have student loan debt you have got to address it. You can't just continue to defer it or do forbearance unless the interest is deferred as well. Please be careful.
You ought to think twice, everybody. There's nothing wrong with going to a community college, there is nothing wrong with graduating without a lot of student loan debt, because your parents can't bail you out anymore. And one of the good parts of hopefully the stimulus package will be that the Stafford loans will be increased a little bit so that it's easier for people to borrow money. But be very careful of private student loans, it's absolutely absurd.
Tavis: My time is just about up, Suze, and you've shared a wealth of information here, but you mentioned bankruptcy a few times in this conversation. I know this is a case-by-case situation, but what advice can you offer for when bankruptcy is the best option?
Orman: Yeah. A simple rule of thumb usually is this: When you owe as much as what you already make, so you have $70,000 of credit card debt and you're only making less than $70,000 a year, technically you are already bankrupt. Now there's going to be many of you out there that owe $40,000 or $50,000 in credit card debt and you don't have a job anymore. Bankruptcy may be a very viable option for you, and it's something - and it is legal - that you might want to look into.
And again, remember, retirement accounts are protected against bankruptcy, so do not take money out of retirement accounts to catch yourself up on mortgage payments just to get behind on mortgage payments again to then go into foreclosure, and then you lost your retirement and everything else. Be very careful. You need to know the actions to take in the situations you happen to be in.
Tavis: Got 30 seconds, Suze. You talk in the book about protecting your family; specifically you argue do not, whatever you do, go without health insurance.
Orman: Yeah. The number one reason for bankruptcy today in the United States really is medical bills - the inability to pay for services that you need. You need term life insurance on yourself, you need health insurance. COBRA, which is what your old employer will extend to you, normally is absolutely too expensive.
The time to look around for everything is before you're laid off, before you've lost your job, as to what alterative will you have. There are many states that will insure your children for absolutely free. Check into them. There are ways that you can reduce your costs if you have to.
Tavis: Suze Orman is a force of nature, and I love talking to her every time I get a chance. There's a reason why she's a seven-time number one "New York Times" best seller, because the information she shares is so valuable. Her new book is called "Suze Orman's 2009 Action Plan: Keeping Your Money Safe and Sound." Suze, I'm in New York next week. I want to be one of the friends you take to dinner.
Orman: You got it, Tavis. Just to set the record straight, it's not seven number one "New York Times" best sellers; this is my seventh "New York Times" best seller. This one also happens to also be number one.
Tavis: Whatever. Anyway -
Orman: You got it, just want to be (laughter) - I've got to have the facts straight. Got the facts straight.
Tavis: She's selling books like hotcakes. Anyway, I love it. Suze, nice to have you on.
Orman: You got it.
Tavis: Take care.
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