In Praise of Suze Orman

The kind of people who read Portfolio.com — or, for that matter, The Big Money — are not Suze Orman’s target audience. You, dear reader, are likely an urban sophisticate; you’re probably male; there’s a very good chance you work somewhere in finance or the media; and when you ask questions about money, it’ll be about something specific: the relative merits of index funds and ETFs, for instance, or the amount that mortgage rates have to fall before it makes sense to refinance. You probably think that trying to live on $40,000 a year would be a real hardship.

Suze Orman, by contrast, has a very broad appeal, although it skews very female. Her base is emphatically not urban sophisticates: instead, she talks directly to millions of people that the financial media never normally reach. To give you an idea of the difference in audience, the median US adult female earns $20,014 per year. Even when you look at women with bachelor’s degrees, the median income rises only to $35,094. And yes, these women will, on average, raise 2.03 children.

Orman’s audience is not necessarily stupid — although they can and do make just as many boneheaded decisions as the rest of us — but they’re also not necessarily educated, and many of them lack even basic financial literacy: they have no idea what a percentage is, or an interest rate, or how to read a bank statement to work out how much you’ve been charged this month in fees. When they get promoted to supervisor in a call center, they’re the kind of people who say that whether or not there’s a difference between 0.2 cents and 0.002 cents is "a matter of opinion".

There are very few people who talk to these people and provide them with the financial basics; Suze Orman is by far the most successful, and for doing so she deserves medals rather than the kind of brickbats being thrown at her by James Scurlock in The Big Money.

Scurlock, from the beginning of his piece, clearly has no intention of treating Orman fairly:

How a bottle-blond former waitress and self-described "55-year-old virgin" with a taste for the good life became the financial messiah for millions of Americans might be a fun Lifetime original movie. Why the masses continue to invest their faith in Suze Orman in the wake of a financial meltdown she never saw coming is a more timely question.

Scurlock won’t tell you that the "55-year-old virgin" quote is taken, out of context, from an interview in which Orman is quite open about her life-long lesbianism and the fact that she’s been living with a woman for the past seven years. And yes, most people develop "a taste for the good life" once they’ve made tens of millions of dollars. But more to the point, Orman is not some kind of stock-market pundit whose job is to predict macroeconomic financial meltdown. She’s a personal-finance guru whose job is to help women manage their household finances in a healthy manner.

Yes, Orman lards her books with no small amount of Oprah-level pop-psychology — but when she does so, she’s generally right. It’s easy for the analytically-skilled elite of the information economy to scoff at such things, but something as basic as spending less than you earn really is akin to eating fewer calories than you burn: conceptually easy, but very hard in practice, especially when the world seems to be conspiring against you at every step. And succeeding in such matters requires a level of psychological discipline, while failing in them often has psychological causes.

Scurlock mocks Orman’s statement that "you will never achieve a sense of power over your life until you have power over your money," but it’s a great way of harnessing the imperatives of the otherwise largely destructive self-help movement and putting them to good use. As for "the stock market is like a pot of soup" — that’s as good a way as any to explain diversification. You want she should go into details of capital structure and limited liability corporate entities?

Orman’s audience is struggling with money woes. That’s true pretty much by definition: someone who has these things all worked out is not going to read her books. But it’s also true that most of Orman’s readers and viewers aren’t going to declare bankruptcy: there’s a huge terrain of financial difficulty between bankruptcy and health. It’s simply obtuse to imply, as Scurlock does, that because most bankruptcies are caused by catastrophic events, the people who don’t suffer catastrophic events and who don’t declare bankruptcy are probably fine, on a financial level. They’re not. Many of these people are in desperate need of financial help, and Orman is providing a very valuable service which America’s financial institutions have every incentive not to provide.

Financial wellness is about spending less than you earn, being happy with where you are financially, and not being greedy. Orman fits the bill. Yes, she spends a lot of money — but then again, she earns a lot of money too. In fact, she’s set for life, which means she has no need to risk her money in the stock market. So she doesn’t. There’s no hypocrisy there, only common sense.

On the other hand, it’s true that Orman says that if you need to see your investments grow, in order to be able to live comfortably in the future or provide a nest-egg for your heirs, then the best way of doing that is to reliably and consistently put a certain amount of money into the stock market every month. It’s good, basic advice: she would never advocate trying to pick stocks, or time the market, or anything idiotic like that. And if you’re investing a set dollar amount each month, then you buy more shares when they’re cheap and fewer when they’re expensive.

This is "dollar cost averaging", which for some reason makes Scurlock see red. He asks: "Since when does throwing good money after bad make you rich?", as though the alternatives — selling stocks after they’ve gone down, or not buying stocks when they’re cheap, or investing new money only during bull markets — are obviously better. They’re not: they’re worse.

It’s telling that Scurlock’s criticisms of Orman concentrate overwhelmingly on her investment advice — the one part of the large Orman oeuvre which might be relevant to most Portfolio.com readers, but also the one part which is probably least relevant to Orman’s real audience. Orman is not some get-rich-quick shill: she basically peddles common sense, which is a commodity the country could do with a lot more of.

In this debt-addled country with its lapses into the unsustainable world of negative savings rates, the pressing problem facing most Americans is not the fact that the stock market has fallen 40% from its highs, but rather the fact that they owe more money than they can realistically repay. That’s why Orman spends so much time on credit cards, and credit scores, and other aspects of the world of debt-peddlers. There are millions of Americans out there who fail to pay their credit card in full each month despite the fact that they have money in the bank to do so. There are tens of millions who have stock-market investments in taxable accounts alongside large consumer debts. And there are probably a hundred million or more Americans who are simply having a huge amount of difficulty living within their means, especially after taking into account their financial burdens.

Orman provides hope for these people — an eminently sensible roadmap for the future — in a quintessentially American demotic as opposed to the arcane language of the financial press. Not everyone who buys her books will end up acting on her advice: the temptation to borrow and spend is all around us, after all. But from a financial-literacy perspective, Suze Orman has made America a much better place than any other individual alive. Long may she continue to do so.