Ryan Mack: Suze Orman vs. Suze Orman – Money Vs. Principle

31 Jan

by Ryan Mack

I have long admired the work and writings of Suze Orman; I have often taken her advice and advised others to do the same. As a financial advisor I have taken the path to teach financial literacy to individuals in economically challenged communities across the United States – those who do not have access to solid fiscal management principles, those who can least afford to be irresponsible with their money, and those who also know and respect the name Suze Orman. Therefore I was sadly surprised and disappointed to learn that someone for whom I had so much respect would be an advocate for the prepaid debit card. My “unofficial mentor” had chosen to make money from the very people I am attempting to help. She had joined the ranks of the Lil Wayne, Tom Joyner, Russell Simmons, and the Kardashians.

Just as I have, other financial experts have spoken out against these cards. I have been on Fox Business discussing her card, I have been on CNN discussing the dangers of prepaid debit cards, and have written about her card as well. Many have stated these cards which are armed with a high fee structure are “not a viable option”, stated the importance of the secured card to reestablish credit, and have advocated in favor of the use of credit unions.

Ironically, when other prepaid debit cards first emerged, the strongest advocate that I could find against the use of prepaid cards was none other than Suze Orman herself! I refer you to previous quotes (highlighted) from her publications:

Quotes from Suze Orman’s “The Money Book for Young Fabulous & Broke” Copyright 2005

Suze Orman on what do to if you can’t get a regular credit card…

“If you have sworn off credit cards and stuck with a debit card that automatically deducts your payments from your bank account, I want you to rethink your strategy and consider moving to a secured card so you can eventually get a regular credit card.” Page 95

Suze Orman on prepaid debit cards…

I don’t think prepaid cards are a viable option…” Page 96

Suze Orman on the purpose of a secured card as a means of getting to use a real credit card…

“Read the fine print of any offer; with that bit of elbow grease, you can the secured-card strategy work to your advantage. It’s just a short-term solution to get you to your real goal; a regular credit card with a low interest rate.” Page 96

Suze Orman on getting a retail card AND a secured card to establish credit…

“In addition to a secured card, I also want you to apply for one retail credit card, such as a department store card. Each month, you are to buy one item that you need and pay the bill immediately.” Page 97

Ryan Mack’s Note: Here Suze Orman and I differ because I feel the interest rates and fees on retail cards are very high; they promote frivolous consumption (especially by the population of people I work with). The secured card provides a suitable alternative. However, here you can clearly see that despite the possible high interest rates, Suze Orman gives this advice knowing these high interest rates can be avoided with the proper use of fiscal responsibility by paying your bill immediately.

Quotes from Suze Orman’s “Women & Money –

Owning the Power to Control Your Destiny” Copyright 2010

Suze Orman on using a secured card if you can’t get a regular card…

“If you can’t qualify for a credit card, I want you to start with what is known as a secured card. A secured card is a stepping-stone to getting a regular credit card.” Page 117

Ryan Mack’s Note: The secured card with no fees attached is clearly a better option than a prepaid debit card because it helps you reestablish credit (as you will see Mr. Orman states in later quotes) and especially if you locate one with no fees attached to it.

“Within a year or so of using your secured card responsibly, you will in fact have a ‘record’ at the credit bureaus that should make it possible for you to qualify for a regular credit card. Again, please remember the reason you are doing this is to establish a good record so you can have a good FICO score. So the key is to make sure you pay your balance on the secured card in full each month and that you are never late with a payment.” Page 119

Ryan Mack’s Note: Before her Approved Card, Ms. Orman was advocating in favor of using a free method to establish credit. Paying your bills on time using a secured card will help you reestablish credit. Now she believes the only way to demonstrate fiscal responsibility is to pay fees to her prepaid debit card.

Suze Orman on the differences between a debit card and a secure card…

“It is important to understand that purchases you make with a debit card are not reported to the credit bureaus; they do absolutely nothing to help build a profile. Please do not rely solely on a debit card. You must have your own bona fide card.” Pages 119-120

Ryan Mack’s Note: Here, Ms. Orman correctly states that a record of debit card transactions will not help you establish credit. While she claims to be attempting to change this with her Approved card, this is a far-fetched dream for a few reasons.

1. If organizations thought it would be useful to gather data of the use of those who use prepaid debit cards as a referendum of responsibility they could have done so already with information that is currently available from other prepaid debit cards on the market.

2. The data is only being shared with TransUnion which has agreed to collect specific data to determine if it can relate to the Vantage Score. FICO is not involved at all in this research and the primary tool to rate credit by use of lenders is FICO. Therefore, Vantage scoring is essentially useless and does little or no good to the consumer.

3. Prepaid debit cards are the same as cash and therefore will never have any bearing on credit. When you attempt to purchase a home, a lender’s primary question is “how responsible were you in paying back your debt?” The data gathered from a prepaid debit card that shows a consumer has an ability to spend money is pointless; everyone has the ability to spend money but not everybody is responsible in how they repay money.

Quotes from Suze Orman’s “The Road to Wealth – The Answers You Need to More than 2000 Personal Finance Questions” Copyright 2010

Suze Orman on paying an annual fee…

“In my opinion, no credit card should carry an annual fee. If the card you are considering has one, take your business elsewhere.” Page 7

Ryan Mack’s Note: Ms. Orman is now endorsing a card that has the highest number of fees than most other prepaid debit cards in the market.

Suze Orman on avoiding fees on cards and advocating for the use of secured cards…

“I would advise you stay away from these cards, since you will likely only be covered for the amount of money you have in your account anyway, and you could simply pay with cash and avoid the fee charged for the use of the card. Better to look into a secured credit card.” Page 49

Ryan Mack’s Note: The card Ms. Orman was referring to was a “check guarantee” card but the rationale of simply paying with cash and avoiding the fee charged for the use of a card also applies to prepaid debit cards as well.

Suze Orman on secured cards when asked if she recommends them…

“Yes, I do. In fact, I recommend them even for people who are not in credit card trouble, since they are so safe. Of course, they are especially useful if you are trying to reestablish good credit after a period of delinquency.” Page 50

Ryan Mack’s Note: If you can use a secured card, many of which exist with no fees and actually do help you to reestablish credit, why would anyone want to use a prepaid debit card?

Quotes from Suze Orman’s “The Money Class – How to Stand in Your Truth and Create the Future You Deserve” Copyright 2011

Suze Orman on using debit cards tied to a bank account or credit union…

“Using a debit card tied to your bank or credit union checking account is the next best thing to paying with cash and it’s undeniably convenient.” Page 22

Ryan Mack’s Note: Here she states the undeniable convenience of using a debit card tied to a bank account or credit union as do most financial experts. Her arguments today state that not everyone is eligible to open an account; however, in her previous books she has advocated the use of the secured card to reestablish credit; there was never any mention of the prepaid debit card.

Suze Orman on using credit unions as a great place for savings…

“Credit unions are nonprofits and that makes them a whole lot nicer to do business with because they aren’t motivated to squeeze every dollar out of you with penalties and exorbitant fees. They are also less likely to shut down your credit card for no reason, and the fees they do charge are typically lower than bank-issued credit cards. Best of all, especially for those of you who are still not out of credit card debt, the maximum interest rate on all federally chartered credit union credit cards is capped by law at 18%, whereas some bank cards are charging 28% or more these days.

Credit unions are also a smart place for your checking and savings accounts. You can often qualify for absolutely free checking at many credit unions, and the interest rates paid on your bank deposits are typically better than at many banks that are in the business of making money for themselves, not you.” Page 23

Ryan Mack’s Note: This is a very common argument for financial experts to advocate for the use of credit unions. Many credit unions provide free secured credit cards, free checking, and offer credit building programming because they are truly established for the empowerment of community residents. Suze Orman even formed a relationship with NCUA as an advocate for credit unions because she is aware of the benefits. Many in the credit union industry are upset by her sudden endorsement of the prepaid debit card.

SUMMARY OF MS. ORMAN’S ADVICE GIVEN IN PREVIOUS PUBLICATIONS:

· prepaid debit cards were “not a viable option”,

· in favor of secured cards,

· in favor of the use of credit unions,

· paying your bills on time,

· using free resources to help to reestablish credit,

However, in her next book (A REVISED version of the same book quoted above) there was an obvious shift:

Quotes from Suze Orman’s “The Money Class – How to Stand in Your Truth and Create the Future You Deserve” (Revised and Updated) Copyright 2011

Suze Orman on using debit cards…

“There are two types of debit cards: There is the debit card that is tied to your bank or credit union checking account, or there is the increasingly popular option of a prepaid debit card that you can load money onto and then pay bills or make purchases up to that amount.” Page 22

Ryan Mack’s Note: In the new revised and updated version appears the mention of the “increasingly popular” prepaid debit card. In this revised book we see why – on pages 24 and 25 of her revised and updated book there was an advertisement for her brand new Approved Card. I have known her to justify this shift in principle by saying that “millions” of people are using these cards. Yes….and millions of people are using Rent-A-Centers, cash advance “stores” and the services of other financial predators. Most importantly those who fall prey to these predators are those who cannot afford to pay the high fees for their services.

Quotes from Suze Orman’s “The Money Book for Young Fabulous & Broke” Copyright 2005

Suze Orman on trusting people who have a financial stake in giving you advice…

“Many financial advisers will offer you free advice, but because they count on getting paid when you actually buy the invest they suggest. Their mortgage payment, their car payment, their student loan payment, and their vacation funds are all dependent upon what their clients – that’s you—buy and sell from them. That creates a conflict of interest. Do you really think that commission-based financial advisers never have it in the back of their mind exactly how much money they will make if you follow their suggestions?” Page 220

Ryan Mack’s Note: Isn’t Suze Orman getting paid by going on the OWN Network and giving advice to purchase a prepaid debit card? Isn’t that a conflict of interest as well? Do you think that she never has it “in the back of her mind” how much money she can make by pushing people to purchase her card?

Suze Orman on trusting people who have a financial stake in giving you advice continued. Here she advocates you use fee-based advisers who don’t make a commission…

“They make no money off of commission, so they have no incentive to suggest that you buy something that really doesn’t make sense for you.” Page 221

In short…Suze Orman has been an advocate against financial predators, including prepaid cards which she stated were “not a viable option”. As late as 2011 she was advocating the true principles of financial literacy and fiscal responsibility. It was only after she had invested her own money into her own prepaid Approved Card that she began to advocate for the use of a prepaid debit card deeming this industry as “increasingly popular”.

Ms. Orman has earned the respect of many. Yet there is a reason many financial advisors/institutions have refused to support her latest prepaid debit card venture. That many people cannot be wrong. Many of them have not invested the passion and energy in helping the underserved as I have. I cannot sit idly by and know that so much of what I have taught to so many will be spent on exorbitant fees which I know they cannot afford…especially when they can utilize free resources to achieve the same goal. This is what was taught by Suze Orman in most of her books!

One Response to “Ryan Mack: Suze Orman vs. Suze Orman – Money Vs. Principle”

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  1. Ryan Mack: Suze Orman vs. Suze Orman – Money Vs. Principle | Your Black World - January 31, 2012

    [...] Continue reading on African American Money [...]

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