Suze Orman’s rules for college funds, credit cards

Suze Orman is a stickler for rules.

For more than 20 years, the financial adviser, author, talk-show host and motivational speaker has been preaching about following a basic game plan to be financially successful.

I caught up with Orman for a telephone interview before her scheduled speaking appearance this month in Kansas City, Mo., at a daylong life-skills workshop that was sponsored by O, The Oprah Magazine.

Here are excerpts, edited for clarity: Q:Many parents are totally stressed after watching their college savings funds evaporate over the past year. What do you recommend if college is just around the corner?

Answer: "The truth is, if you had invested with rules -- rules that are essential whether it's saving for college, retirement or a down payment on a house -- you wouldn't be wringing your hands now. If your child was within five years of needing the money for college, why was it all invested in stocks in the first place?

"If your child will be going to school within six years, start phasing out your investments by about 25 percent a year so you are not out of the market all at once.

"If you've recouped some of your losses over the past year and are going to need the money in the next year, come on out. You cannot take another risk. Pull it out now and do not look back."

Q:What if college is 15 years off?

Answer: "Now is the time to dollar-cost average [by investing a set amount each month whether the market is up or down]. While the stock market went down considerably in 2008, the markets have been up considerably in 2009. The point is that if you had time on your side and continued to invest by dollar-cost averaging, you probably would be coming out ahead today."

Q:As someone who has watched the price tag for college education soar over the past 20-plus years, what concerns you?

Answer: "We are outpricing ourselves, and the end result is that our students are graduating with high amounts of student loan debt. We are saddling our children with no hope of getting their heads above water. We have many high school graduates looking at the cost of attending college who are giving up without even trying."

Q:There's a lot of irresponsible behavior involving students and credit cards. How can we help prepare our children to use plastic wisely?

Answer: "Most students have never been taught how to use credit cards. They need to pass an exam in school and understand late-payment penalties, their FICO [credit history] score, grace periods and the real cost of credit when you pay only the minimum amount on the balance each month. If they can't ace the exam, they shouldn't get a credit card."

Q:Don't parents have a role in teaching the financial ABCs?

Answer: "I'm concerned that parents are passing their lack of knowledge about money to the next generation. People need to learn to live within their means."

Contact Steve Rosen at or write to him at The Kansas City Star, 1729 Grand Blvd., Kansas City, MO 64108.