3 Ways Suze Orman Disagrees With Economists' Advice

Ultimately, you should manage your money in a way that works FOR YOU.

Spend enough time in the world of personal finance and you'll hear from many of the same big-name financial experts frequently. Suze Orman is one such expert. She has hosted TV shows, written numerous books, and currently has a twice-weekly podcast called Women & Money. Orman has a lot of strong opinions, but it may surprise you to learn that a few of them go against advice offered by economists.

Economists' research and insight is used to shape broad policies for taxation, employment, interest rates, and more, so it might stand to reason that they know a thing or two about how best to manage money. Yale University economist James Choi recently took a look at the most popular personal finance books to see where the personal finance gurus' ideas and recommendations differed from academic economics theories.

The insights in the resulting paper illustrate how far removed academic theories can be from the lives of Americans and our struggles with money. As Choi notes, "popular advice tries to take into account the limited willpower individuals have to stick to a financial plan."

Think about it: Is it easier to follow a half-dozen directives from a finance guru, or to track the broader economy and make your money moves based on it? Here are three key aspects of money management where the economists and Suze Orman don't quite see eye to eye.

1. What kind of mortgage should you get?

The economists: An adjustable-rate mortgage (ARM)

Orman: Approach ARMs with extreme caution

Homeownership is something many Americans aspire to, and one of the many decisions to make is what mortgage type to get. After all, a home is likely the biggest purchase you'll ever make, so it's crucial to ensure you can afford your payments -- you'll likely be making them for a long time. The economists recommend pursuing an adjustable-rate mortgage (also known as an ARM).

True to their name, ARMs have interest rates that change (usually annually) after an introductory period of several years. They are back in the news thanks to higher mortgage rates in 2022 and 2023; CoreLogic found that in the year between May 2021 and May 2022, the rate of buyers getting an ARM more than doubled.

Suze Orman is wary of them. But if you're interested in buying a home with an ARM, Orman recommends you do your research first and find out what the maximum rate increases might be for your loan. She also says to make a plan for what you'll do if your ARM becomes unaffordable and you can't refinance to a fixed-rate loan. This is great advice, actually -- don't go into any major money decision, like buying a home, without truly thinking it through first.

While it may be a scary prospect to sign on for a mortgage whose rates can change over time (therefore changing your monthly payments and making for a less-predictable housing budget), you'll generally get a lower starting interest rate with ARMs. Plus, your rate/payment isn't guaranteed to go up -- it may even go down, depending on inflation rates during the life of your loan. So ARMs could be worth considering, especially when rates on mortgages are up across the board, as they are now.

2. How should saving money work?

The economists: All the money you have saved or invested is fungible

Suze Orman: Create a dedicated emergency fund

Saving money is something many Americans struggle with, and so it's no surprise that economists and finance gurus have thoughts on the subject. In the case of economists, Choi notes that "Standard economic theory does not earmark portions of household savings for specific purposes; money is fungible." This means you don't have to save with particular goals in mind, such as your emergency fund, a vacation, or purchasing a new car.

Finance gurus, on the other hand, including Orman, are big fans of dedicated savings. Saving a solid emergency fund is a major cornerstone of the advice Orman gives because it's impossible to predict what life will throw at you (such as a job loss, medical emergency, or pandemic). Ultimately, Orman has been recommending that her followers have up to a year of expenses saved. This is money that is earmarked just for emergencies. Orman also likes high-yield savings accounts as a home for your emergency savings.

This is pretty solid advice, as your emergency savings will be easily available when you need it, and watching it grow can be motivating. And the best savings accounts are currently paying upwards of 4% APY and offer handy money management tools like mobile apps, so it's worth opening one.

3. Should you receive stock dividends?

The economists: Dividends are a disadvantage due to taxes

Suze Orman: It's good to own stocks that pay dividends

Economists and finance gurus alike have thoughts on investing, and a particular point of contention is whether it's worth it to invest in stocks that pay dividends. Economists believe that a company's dividend policy is irrelevant because if you own stock in these companies, you'll owe capital gains taxes on what you earn. If you desire money from an investment, economists believe you should sell the investment rather than rely on it generating income for you via dividends.

However, many finance gurus, including Orman, are fans of stocks that pay dividends, especially when it comes to funding retirement. In fact, Orman noted in a recent podcast episode, "I would only really feel comfortable if I was a retiree owning stocks that paid a dividend."

Ultimately, economists and Orman agree about the importance of passive funds for retirement investing. This is a lower-cost way to invest than actively managed funds, and as Orman notes, very few actively managed funds consistently earn more than passive ones.

Orman likes long-term investing, too, which has long been an effective way to build wealth. The S&P 500 gained value in 40 out of the 50 years between 1972 and 2021, generating an average return of 9.4%, so if you're looking to start investing, this strategy should be on your list.

Should you stop listening to personal finance gurus?

These differences of opinion might have you questioning the tips and tricks you've heard from finance gurus like Orman. But it's not necessary to disregard her advice, especially as a lot of it is very helpful. And as noted earlier, people like Orman talk to a lot of ordinary Americans about money troubles and give advice that may go against economists' recommendations, but is often easier to understand and follow.

Advice from finance gurus is more accessible, too. You can listen to Orman's podcast on any one of the big podcasting aggregators out there, and it's free. You can check out her books from the library. There's no paying for academic articles or digging into research journals. Just remember to consider all angles and possible solutions for your money management concerns, be they buying a house, saving money, or investing.