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Monday, May 02, 2005

Suze Orman: FUD* in Detroit

I heard Suze Orman, the well known motivational speaker and "personal finance expert", on Paul W. Smith's morning show (760AM WJR) this morning. Paul W. asked Orman what she thought of President Bush's proposal to create private investment accounts as part of his social security reform package. I was a little surprised at what I heard: (quotes are approximate, based on my memory)

Orman: "Why can't the government just take care of us, like it is supposed to?"

Paul W: "Suze! You sound like a socialist."

Orman: "Not a socialist, a realist. Look, we go around the country and ask people, "do you have a will? do you have an irrevocable trust?", and people don't even have those. And now we expect them to invest their social security money? These are the same people who mortgaged their houses to buy technology stocks in the 90's bubble... the stock market still hasn't recovered from that yet, and financial planners, they still don't know what to tell people to do."
This is surprising because of what Orman teaches in her PBS shows and books: that people have to take charge of their retirement. From the Oprah web site:

Maximize retirement accounts. We can't rely on Social Security to meet our
retirement needs
, so it's crucial to save as much as you can now. This pertains
to single, life partner and married retirees: Those who are single won't share
living expenses. If you're married and you're both planning on drawing Social
Security income, when your spouse dies, you'll go from two checks to one.
Maximize your contributions to 401(k) or 403(b) accounts, and if you qualify, take advantage of funding a Roth IRA.

So Orman says that we can't rely on social security, and that we have to plan for our own retirement... but we can't be trusted to make the decisions? Doesn't Orman make a handsome living teaching us ignorant Americans how to structure our finances? I would think that Orman should be heartily supportive of private retirement accounts, more people would buy her books.

Orman also implies that people would be able to invest their social security accounts foolishly, but that is not very likely to be allowed. Details are still scarce, but the likely scenario is a basket of low fee funds that offer asset allocation choices, which an investor can pick from based on their level of risk tolerance. People who are willing to risk more can pick the fund that is stock weighted, while people who are conservative can pick the fund that is invested mostly in government bonds.

What better way is there to educate people about money and investing than to offer them a chance to actually do it? If everyone had a retirement account, and had to make investment decisions, the level of involvement would invariably increase.

*Fear, Uncertainty, Doubt


Anonymous said...

It's obvious you're a conservative. Past posts have alluded to the fact, but this one proves it. Ms. Orman realizes, as most intelligent people do, that the vast majority of Americans are under-educated when it comes to the subject of personal finance. This is due to the fact that it is only required in the high school curriculum of two states in this great country of fifty. She isn't capable of reaching nearly as many people as the POTUS, so her stand on the matter takes into account the well-being of the vast majority of Americans, and not the small group she reaches. Americans will not learn any more about personal finance by investing through private investment accounts than they have investing in their 401Ks. I thought this blog was about the automotive industry anyway! Stick to what you know.

The Auto Prophet said...

Carpundit is allowed to blog about Boston politics, and I can't blog about stuff that tics me off?

You are right, the level of basic financial education in this country is poor. However, it is not rocket science, and many of us already make basic decisions regarding things like 401(k), which we are not considered too ignorant to take care of.

With choice comes responsability, and I think that most people, with a little nudge, will be just fine.

Mark said...

Well, unlike Anonymous there, I'll leave my name. Blog about whatever you's your blog, after all. I find the statements by Orman to be ridiculous, as well. I certainly won't hold my breath waiting for Washington to take care of me, nor should the rest of the taxpaying public be responsible for my financial stupidity. Keep up the good work!

The Angry Engineer said...

Thank goodness we still have Dave Ramsey promoting financial independence and personal responsibility. I don't see Americans learning more on the topic if the government continues to pretend to have all the answers, and anyone who thinks that we can elect officials who are smarter than the average person places way too much faith in their fellow voters.

Now, if only someone can figure out how to get us out from under this SS mess without putting us trillions further into debt.

Anonymous said...

The Auto Prophet should stay on the topic of autos.
How can you trust anything Bush tells you after he mislead us into the invasion and occupation of Iraq?
Bush stands to inherit billions from his family. He doesn't have a clue about how the average American working stiff lives.
Bush is following a Neocon agenda that benefits a few extremely wealthy ultra right wing conservatives.
His mission is to destroy all federal entitlement programs. There is a reason why the Neocons have yet to present their Social Security reform plan in writing.
Do not let Bush screw up Social Security!

The Auto Prophet said...

If you believe theat Bush knew everything about Iraq before invading, and lied for some bizarre reason, because the "neocons" wanted him to, then you have been spending too much time watching Michael Moore movies.

Numerous intelligence agencies (Russia, Britain) other than our own had similar information--that Saddam was working on WMDs, and may have had them. After 9/11, we can't afford to wait and see if someone is going to hit us. You strike first when you are in danger.

Look what happened to the middle east after we took out Saddam and the Taliban. Qaddafi backed down. Elections. Pro-democracy rumblings in Lebanon. Millions of people are now better off, and are grateful to the US.

What benefit was there for Bush to invade Iraq? Cheap oil? Have you checked the price of oil lately? Do you really think Bush wanted to spend billions of dollars rebuilding Iraq? He started as a domestic agenda president, remember. He would have been happy with more education bills, tax reform, etc.

Social Security is a Ponzi scheme. Is is unsustainable. It must be fixed, or it will be an economic disaster. Do you want to pay 18% payroll taxes on top of your state and federal income taxes?

All the Democrats can do is stick their heads in the sand and say "it isn't really broken".

The Angry Engineer said...

Boy, if I were going to sidetrack a discussion about SS by bringing up the Iraq war, I'd probably be so ashamed as to post anonymously, too. Our host would probably appreciate it if we kept things on-track.

Back to the topic - we seem to have two options being presented to us right now. The Democrats feel that there's no problem, even though the last few yearly statements that I've received from Uncle Sam show SS going broke around 2042. Coincidentally, that's the year I reach the retirement age. Wonderful. For some reason, I don't consider this an attractive proposal.

On the other hand, Bush wants to borrow $1-2 trillion dollars (hopefully those numbers aren't underestimated like the Medicare reform) to give us personal accounts. Say whatever you will about the "claw-back" or the meager size of the accounts - those issues are insignificant compared to the increased amount of debt that this nation would add. Bush's "means-based test" proposal is interesting in that it's dramatically socialist in nature, and the sort of thing that Democrats would love if the idea wasn't coming from Republicans (likewise, Republicans would hate the idea if came from anyone else but their Fearless Leader).

My proposal would cut off SS benefits for anyone under, say, 35 years of age. Nothing, zip, nadda, everyone out of the pool. Sorry, but the older generations wrote a check that our butts will need to cash. Our SS "contributions" would be reduced to a simple tax to pay benefits for current and near-future retirees, and hopefully it'd eventually taper off to nothing or something close. Yea, that sucks, but the end result is no different than what's projected under the current system. I don't see any other way to fix the current mess without taking on more national debt, and for me any proposal that suggests long-term borrowing is a non-starter.

The Auto Prophet said...

There is definite appeal to the "cold turkey" approach--ramp it out, and we're on our own after that. It is too Ayn Rand for our citizenry, I think. Most people want some sort of "safety net" (other than welfare, apparently).

And many people don't want Grandma to move in.

Anonymous said...

Suze Orman is totally ignoring the fact that investing your SS dollars is entirely OPTIONAL. If you don't feel safe, get your 2% return and don't worry about financial planning. After all, the original intent of social security was to take care of 100% of retirees' needs, right? Not. It was supposed to HELP people, but not carry them entirely.
And yes, I'm surprised at her. Part of the reason I used to respect her is that she preached responsibility for your own finances.

Dave in NY

Anonymous said...

Maximizing contributions to a retirement account is some of the wost advice anyone in finance can give. It's because of "gurus" like Suze that people are underinsured, have term insurance, and no access to their money because it's locked up in a qualified plan.