Monday, May 14, 2007

Suze Orman's show

I have read a few of Suze Orman's books and while I do agree with some of her advice, I recently watched her televised program "The Suze Orman Show". Personally, I don't particularly consider television to be a reliable source of financial advice. This show had a program called "Can I Afford It?" where Suze talks to someone on the phone for 30-60 seconds and evaluates their ability to afford something or other. Getting such flimsy advice has its own problems, but I found it entertaining just for the brief financial information that it gives on its callers.

The people with spending problems are immediately obvious, and interestingly they also were the ones calling in asking to buy rather ridiculous items (mostly for personal entertainment).

One thing I noticed was that people generally had 1 savings account and 1 retirement account. Yes, it's impossible to know if they are reporting all of their assets, but what struck me was the relative consistency of their savings accounts. 401ks were most common, some with huge balances. Some had IRAs, but none had both. And savings? There only seemed to be one savings vehicle for all of these people, if any at all! I definately don't agree with that, as evident by my belief in 6 essential savings goals. #1 is a diversified retirement portfolio, and a single 401k or IRA doesn't cut it. Have both? Now you're talking. Have a savings account? What's it for? You need a savings account, you need a spending account, you need an emergency savings fund...and you haven't even paid your bills yet.

It was adorable when a little girl called in asking if she can afford $70 for 2 goldfish and tank. She had saved up $178. Verdict? She should buy the goldfish. But how are you supposed to say no to a little girl calling into your TV show? 40% or so of her savings would go to this goldfish. She only got $8/mo allowance, so she must have been saving for a long time. I think this would be a good chance to teach about what money buys. $70 is a heck of a lot of money for 2 goldfish. First of all, goldfish cost 30 cents. Second, they don't need much of a tank, and a simple starter tank with everything included runs around $20. So now we're up to $20.60 + tax. If she keeps the goldfish alive for a year, maybe she could spend another $70 for a tank upgrade. Should that be her initial investment? I'd say not. Guess that's why I'm not on TV.

One thing that caused me to yell at the TV was her opinion on a gentleman wanting a $35k swimming pool in his house. A house he owed $81k on, and was valued at $100k. He was going to fund it with cash (15k from a 25k savings account - his only savings other than a 401k retirement) and a home equity loan. She gave him good advice, that he couldn't afford it and cashing out all his equity would leave him ripe for a financial disaster. Then she said something that struck me as odd, that he should continue saving for that pool.

Continue saving? Why would you put a $31k swimming pool in the backyard of a $100k home? Is that pool really going to increase the value of the home that much? We don't know what the homes around him are valued at, so he could be on the low end of the market, but investing 31% of your home value in a pool is not smart, in my opinion. For one, that's a huge investment in a property worth a small amount. What other renovations could be done to improve the value first? Second, a swimming pool statistically does not pay for itself. In fact it's on the lower end of the scale. And it may make it harder to sell your home, because it really takes a special buyer to get a house with a pool (certainly this risk is lower in warmer climates) and some will balk at the all the maintenance time/cost associated with it.

The swimming pool was a bad idea, for so many more reasons than just not having the cash on hand. Join a fitness center. But how much can you go into for 60 seconds? Another reason why I don't particularly like what she's doing. The potential to give very bad advice is really high here.


Jim said...

I've read one Suze Orman book and have glanced at a few of her other books. Her TV show is pure entertainment though in the sense that most of her callers want her 'blessing' to buy something. If you have credit card debt, she is guaranteed to say no. If you are thinking of starting a savings account but have credit card debt, she tells you to eliminate the debt before saving money. However, sock money away in a retirement account like 401k or IRA first before doing anything else. Come again?

The biggest problem with debt is building up and carrying a large balance and then asking her for advice on something you would like to buy, she will always say no. Once you are debt free then you save for that thing you want to buy. The mentality that many grow up with is buying first then pay much more for it later over a longer period of time. I keep a small amount of money available in a savings as an emergency fund just incase there is a bind, but by no means would it cover a few months of expenses. The ultimate goal is to become debt free then save up a real emergency fund.

I watch the show for entertainment and most of the people who call in need to look at their situation closer than asking Suze if they can buy something.

David said...

I thought that little girl with the goldfish was awesome. Clearly not someone who really needed Suze's advice but quite entertaining.

I think all of Suze's work is great since it helps people become more knowledgeable about their money as it relates to their lives. I was suprised there's no forum on her website so I just created one to help unite her fans ->

At this moment, if you register you'll be user #3! If you know any Suze fans please send 'em an invite. It's kind of exciting starting something like this so hopefully it grows to become a great resource.