Many of us know David L. Ramsey III as an outspoken financial counselor, an author, and the radio host of “The Dave Ramsey Show.” His advice is certainly several deviations from the mean of what you will hear on the radio and in the office of most financial counselors. Millions of Americans listen to his show each and every day, and hundreds of thousands of them have paid off all of their debts through his “baby steps” financial plan. The question remains, are Dave Ramsey’s teachings everything they are cracked up to be?
Let’s take a look at where Ramsey came from and what caused him to hold the beliefs that he now has and preaches every day. After graduating from the University of Tennessee, Dave Ramsey started a foreclosure real-estate business and did very well in doing so. Most of his purchases were done through leveraging and after the Tax Reform Act of 1986, his businesses became very negatively effected. Several of the banks soon called his short term notes to be due, and eventually the business went bankrupt. Ramsey was bankrupt had had thousands in IRS debt. He dug his way out of the mess, and vowed to never borrow money again.
He began his financial career by counseling other couples in his church after people saw Ramsey recover from such a financial disaster. He soon began offering a private counseling service and eventually came up with a set of lessons and finally self-published his first book in 1992. That same year, a local radio station, WWTN, filed bankruptcy. Ramsey agreed to host a show for free, in hopes of sharing the good information and building his business. By mid 1996, the show became syndicated and since then his business has been exploded. Ramsey has now published several books, has a nationally syndicated radio show, does several live events each year, and is working with CBS on a television deal.
Overall Ramsey offers much more conservative advice than most other financial counselors. He never suggests that his listeners borrow money, even for a house! He also tells his listeners to never file bankruptcy, regardless of how bad their situation is. Dave Ramsey also suggests his readers do not invest in gold, avoid debt management programs, buy new vehicles or get cash value insurance.
Ramsey teaches his listeners to save money for emergencies, pay off debt using his debt snowball plan, invest money in mutual funds for retirement, use educational savings accounts to pay for the kids college, do a monthly budget, teach your children about money, and the like. Most of these things are very common sense things that everyone should do.
A lot of the more sophisticated financial counselors criticize Ramsey because they state his advice oversimplifies complex financial situations, and that not borrowing money is very unrealistic. His advice is almost counter-cultural, so it makes sense that some people are going to think he is a bit off.
First, let’s look at his notion of never borrowing money. Often times consumers really mess up borrowing money, and get into all sorts of debt that they cannot afford to pay off. People get stuck in high interest rate credit cards and payday loans which are financially disastrous. If people knew not to borrow money, than they would never get in these messes.
There certainly are some cases that you can make a little bit more by making use of other people’s money and getting rewards on your credit card and the like, but the problem is that 90% of people mess it up. The statistics say that most people don’t pay their credit cards off each month, and most people have lots of consumer debt that is just beating them up financially. If you’re not very good with money, just saying no to consumer debt all together is a good way to keep yourself from getting in a mess.
If you are one of the 10% of people that take an active interest in your money, than it might be okay to use a credit card if you pay it off each month and can use these things responsibly. You might make a few extra dollars here and there by playing arbitrage games and using rewards points, but you won’t become a millionaire by playing those games. There’s nothing inherently wrong with doing so, but those things alone will not make you wealthy. Don’t lie to yourself and tell yourself that you’re part of this 10% if you aren’t. You’ll only get yourself in financial trouble for doing so. If you are one of these few and far between people, go ahead and use those things responsibly and make a few more bucks doing so.
Let’s look at his thoughts on bankruptcy. He tells us from his personal experience that it’s a gut-wrenching humiliating experience and it’s always better just to fight through the debt as long as you can rather than file bankruptcy. For most of the people that call his show, they really do not need to file bankruptcy, because it won’t solve their overspending or career problems. There are a few cases though when callers call in and there’s no possible way that they can pay off the money, because they are disabled or just have such a massive amount of debt that they will never pay it off.
What good does it do for these people to continue to be harassed by creditors? If you’re just beat-up, broken, have six figures of debt, and no way to pay it off, I wouldn’t feel to bad about them filing bankruptcy. If you’re 30 years old, are in good health, and have five figures of debt, shut-up and get back to work. In the few and far between cases that are so out there, Dave still doesn’t recommend bankruptcy, but he tells them that “if you file bankruptcy, we’ll still be friends”, as if it would be an under the table endorsement of their bankruptcy, without going back on his policy of never endorsing bankruptcy.
Some people have criticized Ramsey because of the fact that he makes a living off income from the people who can probably least afford to buy his books. His starter book, “The Total Money Retailer” retails for $20.00. His live events are around $40.00, and offers a number of other products and services designed at those who are doing very poorly financially. I wouldn’t give these people a whole lot of credence. Ramsey gives out numerous copies of his book and tickets to his life events on his show. In some severe cases, he gives out personalized counseling services for free. There is also the “Share-It” foundation which helps give Ramsey’s course to people who cannot afford it, such as the homeless and battered wives.
Other than those two points of contention, Ramsey’s advice is overall very solid. Everyone should do a budget, everyone should work to pay off debt, everyone should save for retirement, nobody should buy a new car, and no one should buy whole-life life insurance. Nearly all of the time Ramsey’s advice is very solid, and I would have no hesitation to listen to it.