Financial guru Suze Orman thinks most consumers are, or soon will be, in dire straits in an environment of higher interest rates, higher inflation and high stock and bond volatility.
“ “Most of America today has absolutely no money, if you look at it.””
Orman’s comments, made on CNBC Wednesday afternoon, came as SecureSave, an emergency savings account company she co-founded, released a survey that found 67% of workers cannot afford a $400 emergency expense and that 74% of Americans live paycheck to paycheck.
Kristi Rodriguez, senior vice president of the National Retirement Institute, said last fall that “Americans’ monthly spending has outstripped their personal income growth.
“Households are spending more, not so much because they want to, but because they have to with increased costs for essential items,” she said, as quoted by Quentin Fottrell of MarketWatch.
Check: Market Snapshot by MarketWatch
Indeed, personal savings rates have fallen about 2.4% from a pandemic peak of 33%, according to the most recent data available from the US Bureau of Economic Analysis.
US Bureau of Economic Analysis
Orman explained the dip in savings this way on CNBC’s “Fast Money”:
They were so full of money because during the pandemic they had no where to spend the money that unemployment was giving them, additional unemployment, all kinds of stimulus checks. They didn’t have to pay their mortgage, their rent, their student loan. And here we are now, a year or two later, interest rates have skyrocketed, for most of them…they can’t afford rent, they can’t buy a house, they can’t buy eggs, they can’t buy a car.
She speculated that “soon they’ll be using their credit cards, not being able to pay,” she said.
Orman also noted that car repossession, where borrowers defaulted on auto loans, is at levels not seen in four years.
According to credit rating agency Fitch, for consumers with the lowest incomes, the default rate is now above 2019 figures. were 7.11% last month, marking the highest delinquency rate since 2006.
Orman’s comments on Americans’ fiscal instability are at odds with some other pundits who say the consumer looks healthy despite the tumult in the S&P 500
SPX,
Dow Jones Industrial Average
DJIA,
Nasdaq Composite Index
COMP,
and the perceived security of treasury bills, notably the benchmark 10-year treasury bill
TMUBMUSD10Y,
Earlier this month, JPMorgan Chase CEO Jamie Dimon said that “Americans’ balance sheets are in good shape,” adding that they were spending 10% more than the pre-COVID period. That said, Dimon predicts a mild recession for America, as a reference case.
So what does Orman buy against the headwinds she anticipates?
She says she avoids tech stocks and is 80% cash, with the rest of her funds remaining in months of short-term treasuries, or treasury bills, no longer than six months.
TMUBMUSD06M,
which currently yield 4.8%.
Register! Need to Know starts early and updates until the opening bell, but sign up here to get it delivered to your inbox once. The email version will be sent around 7:30 a.m. EST.