IAP Political Forum

I consider myself a Christian. Not a Catholic Christian; or a Protestant Christian; or an Evangelical Christian; but just a plain “Christian” (in that I try to use the life and teachings of Jesus Christ as a model for my own). Therefore, I listen to a lot of Christian radio. But not for the reasons you probably think. I actually listen to a lot of Christian radio because I feel that it serves as an excellent guide for the kind of Christian I shouldn’t be.

And on most Christian radio stations you likely hear The Dave Ramsey Show, and if not the show itself, some form of Ramsey-style financial advising. In true Evangelical fashion, Ramsey preaches there is only one “correct” approach to personal finance that every person should follow:
 
1.Never borrow any money for any reason.  If you can’t pay cash for it don’t buy it.
2.If you are already in debt, invest 100% of your disposable income to paying off all your debt (house, car, everything).
3.Once out of debt, begin investing a significant amount of your income – but only in ultra low-risk investments (401k’s, IRA’s, Money Market’s, CD’s, etc.)
4.Remain out of debt, live frugally, and use these conservative investment vehicles to build wealth very slowly over many years.

These are the main four financial instructions Ramsey preaches over-and-over again day in and day out. And it certainly itsn't hard to see what he's gained so much popularity. At a time when the average American carries well over $10k in credit card debt alone, and with personal bankruptcy filings and foreclosures at record levels, this kind of nonspecific "play-it-safe" fatherly advice is like financial porno for a terrified and struggling middle class.

Unfortunately, like most Evangelical preachings, it looks great on paper and works wonderfully in hypothetical discussions, but has little or no basis in reality.

For example, let's say I am young man just starting out in life, just graduated from high school, I and want to live my life according to Dave Ramsey's advice. In high school I received good grades but not good enough for a scholarship. I've been accepted to a prestigious university where I want to study medicine, but cannot afford the $50,000 a year tuition. My parents earn too much for me to qualify for grants, but not enough to pay the tuition. I could easily qualify for a student loan to cover the full amount, but according to Ramsey if I can't pay cash for it I shouldn't have it. Therefore, I am going to get whatever job I can and work really hard so that I can pay cash for my entire education. At $10.00 an hour (a really good job for someone with only a high school education), I should be able to save $500 a month and have the full tuition amount in only 33 years. I can then start college at age 51.

Or about homeownership? Is it smart to rent for 20 or 30 years until you've saved up enough money to pay cash for a home?

Starting a business? Should you not start your own business unless you can pay for the entire venture at once with cash-on-hand?

Running a business? The businessowners here would probably agree with me that the concept of trying to run a business on a cash-only basis is not only bascially impossible - its a retarded concept. Purchasing materials on credit and paying off those materials upon completion of the project is the foundation of business finance.

Emergency? If your mother who has no life insurance suddenly passes away, and you do not have the $10,000 cash in the bank for her funeral, do you let the city bury her? Drop her off at a local hospital?

What if you live in a city without public transportation and the engine in your only car blows and you don't have the cash in the bank to fix it or buy a new one? Do you just not go to work? Get up 2 hours early each morning to walk to work?

What if your spouse or child suddenly falls seriously ill and your health insurance does not cover the cost of their treatment and/or medication and you cannot afford to pay for them out of your pocket? Do you just not buy them the medicine? Not provide the necessary treatment?

What if you and your spouse are both suddenly laid off and they only thing you have to buy grocercies for your family is your credit cards. Do you just not feed your children? Go to a homeless shelter and ask for food?     

These aren't crazy concepts. These are common situations average Americans find themselves in everyday. Most Americans don't find themselves mired in debt because they went on exotic vacations or purchased expensive furnishings and jewelry. Most people who are in truly serious financial trouble are there because a job loss or medical expense or other unexpected expense that forced them into inescapeable debt.

That's why Ramsey's one-dimensional advice is great for discussion but little more.   
   

He's the get out of debt fellow, right?
I've listened to him. It's an entertaining show.

I agree & disagree.

Taken as debt reduction for dummies, his advice makes sense across the board.
Some folks simply lack self control.

For most, I believe his advice is best taken in pieces. As you illustrate above, certain
situations call for a measure of debt, but there's nothing wrong in buying a car with cash, & building up a savings for maintenance on what would likely be an older car.

$300.00/month adds up pretty fast.

Sure, I agree. Certainly, many average Americans (dare I say most?) live beyond their means and fall back on their credit cards to cover the difference between what they earn and what they spend.

Even in the emergency situations above there can be room for criticism. Most people will say they got into credit card debt trouble because an emergency came up and they only had their credit cards to use. That's all well and good, but what created the situation in which credit cards were the only answer to an unexpected expense? Obviously, up until the unexpected expense this person was spending as much or more than they were earning - otherwise they would have some sort of reserve to fall back on.

I guess was bugs me most about Ramsey is the position he is arguing from. Anyone who knows Ramsey's story knows he got burned by banks very badly in the early 1980's. At the time he had built up an impressive real estate portfolio of investment properties in which he owed a total of about $4 million in mortgages on. Due to some new fed law changes the banks holding Ramsey's mortgages freaked out and called his notes - instantly bankrupting him.

Ramsey was understandably bitter. Shortly thereafter he "found" God and began preaching the evils of borrowing money. Well, its too bad Ramsey's attempt at leveraging credit to build wealth failed miserably. But that certainly doesn't mean others are also doomed to failure doing the same thing. In fact, many if not all of the wealthiest people in America either had used, or still use, personal and professional credit to create and continue to grow their fortunes.

So in essence, I think The Dave Ramsey Show is, in a way, more about helping Dave Ramsey work through his own personal demons than actually helping others build wealth. Because if you really think about it, the entire reason Dave Ramsey even has a radio program on which to preach against the evils of debt, is because of debt Dave Ramsey went into debt.

Seriously, think about it. Had banks never loaned, and Ramsey never borrowed, the millions of dollars he did allowing him to become a real estate tycoon-gone-bust, he wouldn't have this so-called vast financial experience and finanical knowledge entitling him to his own radio program. Pretty screwed up, huh?    

Ramsey gives bad advice though. Or atleast I have HEARD him give bad advice.

His entire focus is being debt free, sometimes debt is not a bad thing, sometimes it can generate profit.

Was listening the other day and some lady called in and said she had inherited 40k and wondered she she invest it or pay off the 3% interest studebnt loans she had that would STAY at that rate for like 4 more years.

Now it takes no genius to know that you can make MORE than 3% in a very secure investment like a Roth, then when the 3% interest is about to expire, pay it off.

Not only that but the little interest that is paid on that student loan is 100% tax-deductible. How big of a financial moron do you have to be to instruct someone to use interest-bearing liquid assets to pay off tax-deductible debt?

He does the exact same thing with mortgages. The only reason the vast majority of families are allowed to itemize their income tax deductions is because the interest paid on their home mortgage is what pushes them past the standard deduction for their marginal tax rate - and almost always their single largest annual deduction.

Following Ramsey's advice the average family would have basically zero write-offs and one hell of a tax bill from Uncle Sam.

I heard Ramsey once.  Laughed and changed the station.

LOL! This is the best comment about Dave Ramsey I think I have ever heard.