Economics According to Suze Orman and Eric Tyson - Assignment Example

Economics According to Suze Orman and Eric Tyson June 22, Life in the United s has come down to economic hard times. This is not somethingmost Americans want to admit, but it is true. Worst, in this depression people still do not know how to save their money, especially the young. For these reasons authors Suze Orman and Eric Tyson have published their respective works, The Money Book for the Young, Fabulous, and Broke and Let’s Get Real About Money: Profits from the Habits of the Best Finance Managers. Orman’s work is perhaps the easiest for the younger generation to read through. Orman’s writing style is more like a face to face conversation, and it keeps the reader focused and educated. Orman’s top financial tips revolve around knowing the FICO score, saving money on the side, and making wise purchase decisions. Orman (2005) starts off by stating that being broke is a matter of “relying on a cash advance on your credit card to pay the rent or mortgage, and praying that you have enough on your credit line to do so,” as well as “having a ton of student loans” and “not opening credit card bills” out of fear and then taking the late fees when they are not paid (p. 12). This differentiates people who are broke from people who have a limited amount of money. Therefore this book, unlike Tyson’s, is taking a stance on where their reader’s are in their lives. Instead of dictating how to save money as a passing habit, Orman is dictating how to save money and recover if the reader is already close to being, or is broke. Orman’s first bit of advice comes from the Fair Isaac Corporation, or FICO score. According to Orman (2005), one’s FICO score not only demonstrates where a person is financially, but it also determines the sort of things a person with a good FICO score will be capable of purchasing over someone with a poor FICO score. For instance, someone with a good FICO score would receive a lower interest rate on a car loan over someone with a poor FICO score. Score range from 500 to 850, with 850 being the best and 500 being the worst (p. 23). FICO rates depend on not only the rate at which bills are paid, and whether they are paid in full or not, but also by shopping habits. According to Orman (2005), credit card companies share spending habits with FICO, so that they are better able to generate the report. Student loans as well as careers are also piled into this report. Orman (2005) suggests readers learn their credit score to be sure that everything is correct. She even offers three credit bureaus and contact information, as well as how to go about correcting wrong information (p. 25-26). From there Orman (2005) goes on to tell readers how to improve their FICO score, as well as deal with identity theft. Orman (2005) also provides readers with spending tips, from saving money on the side, to making wise purchases. For instance, Orman suggests putting money into 401K’s as a means of saving for one’s retirement plan. She also includes various types of 401K’s, as well as other means of investment (p. 182-83). On the other hand, Tyson’s book is not as straightforward. Let’s Get Real About Money: Profits from the Habits of the Best Finance Managers is more wordy than Orman’s, and less focused on the younger generation. Tyson’s book is not about getting someone who is already in a slump out, it is about improving one’s financial standing. Tyson provides’ personal quizzes as well as little examples to get his point across. Tyson’s book is more about financial education. So, according Tyson, the three most important things to know about finances are knowing one’s financial background, valuing money in order to spend it, and having a spending plan. When it comes to knowing one’s financial background, Tyson (2008) argues that people who are living beyond their means are not realistic when it comes to their financial situation (p. 43). In order for one to move forward financially, they must first take into account their credit score, as well as what they are spending their money on monthly. Tyson (2008) says that people should be asking themselves if there are things that can be cut out of their monthly payments or not (p. 43). Tyson later uses the example of Michael Jackson as well as other celebrity ‘shopaholics’ to demonstrate how people easily get caught up in credit spending and just shopping (p. 104). Tyson (2008) says that “consumer debt is how most people buy things that they often don’t really need” (p. 105). Tyson goes on to say that this unnecessary debt can also be a result of loans, credit loans to car loans all tie into what can keep people in debt. While some of these things are normal, they are not exactly healthy, and Tyson suggests readers find a way to cut back on unnecessary spending (p. 105). When it comes to having a spending plan, Tyson (2008) believes that it is important to ‘shop around’ before settling on something - especially big purchases. When searching for a new car, Tyson (2008) agrees that comfort is nice, but there is no reason for going outside of one’s money means in order to have a comfortable, luxurious car (p. 143-144). When it comes to supplies for children, Tyson (2008) says to “check that your analysis of what you earn and what you spend on child care makes sense” (p. 146). For example, if someone had a side job two hundred dollars every two weeks with a commute of forty-five minutes and they were supporting one child, it would not make sense to spend the extra gas money. Tyson leaves off by reminding parents to share their financial standing with their children, so that they have no delusions about what they can afford. All of these things must be calculated into one’s spending plan before they can decide what to do with extra money, or if there will even be extra money. In a lot of ways Orman and Tyson are arguing the same things. Orman believes it is important to know one’s financial background, and so does Tyson. The two also agree that overspending is just asking for trouble, and that readers should focus primarily on necessity first, and then entertainment. However, Tyson stresses solely goals and the money factor and how they play into finances, rather than human factors. On the other hand Orman seems more human oriented and focuses a lot of time on simply getting oneself out of a rut. While both authors provide good information on how to become financially stable, some of their advice is flawed. In his article, “Tight Credit is Turning Franchisers into Lenders,” Kermitt Pattison discusses how even a good credit score can lead to denied loans. Pattison writes about the case of Remi Tessier, the owner of a Georgia liquor store, was unable to get a good loan even with a decent credit score. “The terms and conditions were just ridiculous” Tessier said (Pattison, 2010, p. 8). He had to resort to borrowing the money from a franchiser turned lender. Recently the United States passed a bill which allows for a financial overhaul. According to the New York Times article, “How the Finance Bill Affects Consumers” by Ron Lieber, banks will be required to provide discounts to businesses using debit card transactions, discounts could be offered to customers with cash transactions, It is likely that “mortgage prepayment penalties will go away” (Lieber, 2010, p. 1), as well as a Consumer Financial Protection Agency will be put into effect. This Consumer Protection Agency is believed to provide consumers with somewhere to turn when banks and lenders have taken unfair advantage of them. The Agency would be expected to sort out the fine print that loans are notorious for. It is also important to point out that this bill makes it so that “mortgage lenders would face restrictions on when they can charge borrowers a penalty for paying off their loan before the term of the mortgage is up” (Lieber, 2010, p. 1). The bill has also made it so that banks are no longer able to pay mortgage brokers money to provide customers with loans under high fees and poor terms. With all of these things going into effect, it is likely that consumers will not have to be as afraid of loans as Tyson suggested. At the same time, it is noted that consumers should still be wary, because it is unknown how these changes will affect bank fees and the like. As for consumers themselves, everyone is cutting back because of the poor economy. In his article, “Cheap Thrills,” Brad Tuttle talks about the rise in books on how to save money and how they are becoming more common now that the economy is somewhat troubled. He argues that consumers are taking drastic measures when it comes to spending, and even talks about one woman who has given up shopping for any clothes for an entire year. “Its difficult, particularly for affluent consumers, to stick to their own arbitrary rules” (Tuttle, 2010, p. 48). There are some people who have taken the idea of giving everything up - and therefore only buy what is absolutely necessary, such as food - too far. He even points to Adam Greenfield, a man living as a documentary maker in San Francisco who decided not to drive a car for a whole year. At one point Greenfield bought a good amount of stuff from a lumber yard, and because of his pact he had to call on a friend to come and pick the stuff up (Tuttle, 2010, p. 48). Tuttle argues that, as nice sounding as the idea is, it is impractical. This is not to say that everything Orman and Tyson discuss is impractical. In fact, they offer a good amount of advice. Even with the coming changes in financing, people should know their credit score. They should study their options carefully and know their financial limits before spending. It also important that consumers make a budget, or at least have a financial plan based around what it is they need to pay on before any free money can be accounted for. It is also important to find some way to save money. Orman’s advice on 401K’s and Tyson’s discussion on ways to save money by not spending are both practical in certain situations. All in all these books demonstrate ways to progress forward with one’s spending rather than to be hindered by it. Readers can choose different options, out of many, that apply to their own financial situation. From saving, cutting back on frivolous spending, or even choosing the cheaper car over the more expensive - Orman and Tyson demonstrate ways to become financially free, but still responsible. Outline A. Importance of Financial Stability B. Suze Orman C. Eric Tyson D. Three Articles Relating to Current Financial Situations E. Conclusions Citation Lieber, R. (2010, May 21). How the Finance Bill Affects Consumers. New York Times Retrieved from ://nytimes.com/ Orman, S. (2005). Money Book for the Young, Fabulous and Broke. New York, NY: Penguin Groups. Pattison, K. (2010, June 10). Tight Credit is Turning Franchisers Into Lenders. New York Times. Retrieved from http://nytimes.com/ Tuttle, B. (2010). Cheap Thrills. Time Magazine 175(13), 47-48. Tyson, E. (2008). Let’s Get Real About Money. Saddle River, NJ: Pearson Education, Inc. Read More