This is an excerpt from the Pivot podcast, where Kara Swisher and NYU Prof. Scott Galloway interviewed Suze Orman and discussed the personal financial crisis looming for many Americans, the future of the U.S. Economy and why there is no reason to have your money anywhere near bonds.
Kara Swisher: I am so thrilled to have Suze Orman on the line. Suze is a No. 1 New York Times best-selling author, two-time Emmy winner, host of the popular Women & Money podcast, a columnist, a writer, producer, one of the top motivational speakers in the world today. Suze, welcome to Pivot.
Suze Orman: Thank you. Happy to be here.
Scott Galloway: We were off mic, and Kara and I were saying how inspiring you are. And we never agree that the same people are inspiring. Anyway, quick question. You follow the markets and investing. I think there’s this fascinating trend, and I’m curious what you think of it. It appears that a lot of new investors are looking to the stock market to get the same sort of reward or dopamine hit they get from gambling. Because Vegas has shut down, because sports betting is off, we have this influx of young people into the market who may be looking at the market more as gambling versus investing. Do you see the same trend and do you think it’s troubling?
Orman: I see the same trend and you betcha, I think it’s troubling. When somebody buys a stock like Hertz that’s basically bankrupt, where their bonds are selling for 40 cents on the dollar, the stock has no value whatsoever, and yet somebody is bidding it up. And the somebody who’s bidding it up happens to be somebody who doesn’t know what they’re doing on any level. They’re all joining this game right now. The other thing that’s really interesting is that many people right now, younger people, have more money than they’ve ever had. They’re actually earning more money on unemployment, especially with the $600 a week that the feds are giving them, than they’ve had in a long time.
So you can talk to credit unions and banks that have their deposits go up a billion dollars a day. That’s from all the people getting unemployment, and the stimulus checks, and everything else. They don’t know what to do with that money. They’re not having to pay many of their bills. So what are they doing? They saw the market going up, and up, and up, and they joined in, which is why you’re seeing these wild fluctuations.
Galloway: And Tesla at a thousand bucks.
Orman: It’s all I talk about. And the reason it’s all I talk about is that — let’s think about what just happened a few months ago. You had people making $150,000 or $200,000 a year. They were spending every single penny they were making. They had no savings at all. Do you know that 60 percent of the people in the United States, before COVID, had $400 or less in their savings account? So you have people who were making money. They were going on vacation. They were buying cars. Then COVID hits. Not only do they lose their jobs, everything else went too. Those were the same people that you saw standing in the food lines. You had people making $200,000 a year standing in food lines.
On the other hand, if you had listened to me, you had eight months of an emergency fund. I know because I’ve gotten thousands of emails.. You had millions of people applying for unemployment, when normally only 200,000 people a week apply. The system broke down, everything broke down. Everybody was like, “I need my money. I need my money.” But if you had an eight-month emergency fund, you didn’t have to worry about it. This is the main lesson that I hope everybody has learned from what we’ve all just been through. Eight months — so that at times like this, if you lose your job, you don’t have income, nothing’s coming in anymore, you can still pay your bills and you don’t have to freak out.
Swisher: Would you up it any? Would you up it from eight months or do you think eight months is plenty?
Orman: It depends who you are. I think eight months is absolutely fine unless you’re in retirement. As soon as you’re approaching retirement, you need a three-year cash cushion. On average, Kara, it will take 3.1 years for a market to go from its top to its bottom and back again. When you’re in retirement, and you’re living off of your retirement funds, meaning you’re taking money out of your IRA, your 401k — most of the time that money is invested in stocks, because you’re not getting a return on interest rates anywhere right now. And you have to be crazy, if you ask me, to be in bonds at this point in time. You don’t want to be selling out of the stock market to take money out to live on when you are in a bear market. If you have a three-year cash cushion, that can get you by before you then have to touch money that’s in the stock market.
Galloway: Sure, you never want to be a forced seller. You talk about how people need to think differently about debt and savings, that they need a new gestalt, a new approach to their financial health. What it is about Americans — I don’t know if it’s our optimism — where if you’re making a quarter of a million dollars a year, you still put yourself in a vulnerable position? How do we change that mentality? Do you think there’s a concern that when we bail out small businesses, when we provide some people with more money than they would have if they were working, we are just propagating this mentality because we’re creating moral hazard that people believe they’ll be bailed out?
Orman: I don’t know if people believe they will be bailed out. I think the government, as of late especially, has a need to bail people out. But look at what many people have done with the stimulus money. Rather than saving it and building up an eight month emergency fund, they’ve been putting it into the stock market. They could not wait. Recently, I did a podcast on the patience of poverty. When you’re impatient, it will create poverty for you. Many people now are so impatient. They have to get out of the house. They have to go eat again. They can’t stand being in the house anymore. All that’s going to backfire on everybody, I’m sorry to say —in my opinion anyway. But I agree with you, Scott. I have people who wrote in and said to me, “Suze, why should I go back to work? I’m making twice now what I used to make. Why would I do that?”
Which, by the way, caused a big problem for the Paycheck Protection Program, because prior to them changing the formula, you had to spend at least 75 percent on your employees. They had employees who didn’t want to go back to work. That put a lot of businesses in trouble because they couldn’t meet the formula that they were supposed to meet to get that small business loan to be a grant, which I think probably benefited a lot of very wealthy businesses. I think in the long run, it’s really going to hurt the small business that took out that loan and thought it was going to be a grant.
Read the full interview put together by the Intelligencer Staff