Saturday, January 17, 2009

A second opinion on Dave Ramsey

In a recent blog post I wrote about how my company has been sponsoring Dave Ramsey personal finance classes.

In my experience, the value of the wisdom that Mr. Ramsey offers his customers is often questionable. This is not just my opinion, it is the opinion of many other people as well.

Of course, opinion of Ramsey is extremely varied. Many people seem to think that Ramsey is a the next best thing to a prophet sent by God. Others think rather the opposite of him. His approach to personal financial advice seems to have a polarizing effect on people. This apparently makes him a popular subject among bloggers.

Way back in April 2006 a fellow named Ariah Fine from Minneapolis wrote anecdotally about an episode of Ramsey's radio program. A woman called in and asked for some advice about a vehicle purchase decision over which she and her husband were deliberating.

Ariah Fine's opinion of Dave Ramsey is critical, but tamely so.

As Fine tells it, Ramsey's advice doesn't surprise me -- I've heard it before.

What does surprise me is the impressive number of comments on the post, especially considering the luke-warm tone of Fine's post. To date there have been 306 comments and still and counting three years later. The comments are widely varied, alternately digressive and tangential, and passionately written.

I had no idea that Ramsey was such a controversial figure, until I expressed my opinion of him -- that he is just another wanna-be messiah, a false prophet, and a snake-oil-salesman who sells nothing but common sense packaged with fluff, the tricks and illusions of slick marketing, and a convenient association with the Christian religion -- and was met with passionate opposition. Greg Lange notes many of the points often argued (and that I have argued) about Ramsey.

My first impression of Ramsey was that he seemed to have taken to the spotlight of motivational speaking like a true showman. He has the charisma of a new car salesman (American-made), and he consistently delivers smartly packaged morsels of enlightenment and crafted anecdotes like a professional preacher.

Ramsey is on AM talk radio every day. There he offers free financial advice to thousands who really need it. This would be commendable, and admirable, if he wasn't selling something at the same time. This air time is essentially a three hour commercial for himself and his products.

In fact, if I had to put my finger on one thing in particular that I dislike the most about Ramsey, it is his shameless self-promotion. Of course, for him this is necessary since his brand, Dave Ramsey, is all that differentiates his product from every other financial self-help product out there. The only thing Ramsey teaches is common sense principles about money management -- but because it is Dave teaching it, somehow that's worth three easy payments.

People are drawn to him. He has developed a large and ostensibly sustainable following over the years. The dramatic economic meltdown of 2008 only seems to guarantee a continued and prolonged success as new potential customers, desperate for hope and relief from financial burdens, are created every day.

Background

Certainly he deserves his prosperity. I honestly believe that. After all, he has found something in life that he is good at, and he does it for a living. We should all be so fortunate.

Of course, he certainly wasn't cut out for his first profession -- real estate.

Ramsey started out his real estate career in the foreclosure market around 1982. He would purchase houses below market value and then resell them for a profit. Leveraging that success, he got into the rental business, and soon he owned and operated $4 million worth of property. Towards the end of the 1980's however, his multi-million dollar real estate business went bust because he couldn't pay his creditors. He filed for bankruptcy after he was given a 90 day notice to pay $1.2 million worth of short-term notes.

Experiencing the financial failure of his business that he built with foreclosure and rent profits caused Ramsey to re-evaluate his approach to finances. Ramsey soon began to give one-on-one personal financial counseling to members of his church. That worked out well for him and so he began a limited liability incorporated company called Lampo Group to provide financial counseling services in 1991.

In 1992 he wrote a book about his failures and the lessons he learned since. Between 750,000 to a million copies have been sold as of 2008. At list price of $23.95, that is around $20 million dollars of revenue. Quite an accomplishment.

Since then he has written two more books (including one titled "How to Have More than Enough" and sold at Christian book stores everywhere) and is now the face of a large and rapidly growing media powerhouse that provides multiple services and resources for financial education. What was once a modest counseling business has been transformed into a phenomenon, and Dave Ramsey himself transformed into his company's brand.

Religion

Ramsey is a professed Christian, and some of the values of his religion do shine through in his talks and material. His main message of avoiding the burden of debt and living sensibly within one's means is an ideal of many Christians.

Yet at the same time, Ramsey's stated goal is to live, and teach his readers and audience to live, in a sensible way in order to accumulate wealth and "have more than you need". Certainly, he qualifies this goal with the recommendation of stewardship and charity, but the frequency of such statements are dwarfed by promises of earning a million dollars by retirement age. While this is not a lot of money, it is enough to put dollar signs, sports cars and hot tubs in the minds of his audience, who are often in dire financial straits. He enthusiastically promises wealth and luxury for those who follow his advice, and buy his book -- and people latch onto those promises and the hope that he offers.

As if he were following the example of another popular figure who found that being a born-again Christian has the advantages of an assumption of trustworthiness by a large support base of Evangelicals, Ramsey is more than just open about his religion, he emphasizes it. Although it is impossible to determine his genuineness, Ramsey shamelessly uses his Christian faith to promote his brand (himself). Because of this, a Christian perspective from his critics is more than suitable.

The Bible has much to say about money and the pursuit of wealth. Here are some references: Matthew 6:24, Matthew 19:21, Luke 18:22, Mark 10:21, 1 Timothy 6:10, Isaiah 55:2, Exodus 22:25.

Especially on the nose is this passage from Matthew chapter 6: verses 19 and 20.

Objections to my criticism of his exploitation and advertisement of his religion are predictable. However, there are passages in the Bible about teachers being required to stand up to a higher level of scrutiny. Here are those references: James 3:1, 2 Peter 2:1.

There are also passages that speak about the emptiness of words in the absence of love. Ramsey is a showman, first and foremost. It is simply inarguable that this characteristic is his single most important asset. It seems difficult to trust a showman because with such a person it is often impossible to distinguish what is sincere from what is facade. If Ramsey preaches love, charity, and sacrifice, it is a small bullet point on his PowerPoint presentation on money management. For motivation he emphasizes not virtue or a love for God and the less fortunate, but simple financial gain.

In other words, Ramsey is a money changer in the temple.

Ramsey seems to reject the opportunity that he has to address the real root causes of the downfall of individuals and families: greed, self-absorption, envy, and a market for labor made unfair by a United States currency that represents debt, and nothing more.

Supporters of Ramsey seem to dismiss the suffering of those experiencing financial difficulties as the result of poor decisions. In other words, their perspective is, poor people have made their bed, and now they must lay in it.

Ramsey does not advocate a holistic improvement of the sociological environment in this country. Ramsey is less concerned with making a real difference by educating, shepherding, and integrating disenfranchised citizens into the exclusive culture of prosperity in the United States than he is with promoting his brand and profiting from people's desperation. The Bible is clear about this kind of thinking and teaching: 1 Corinthians 13:1.

Politics

Ramsey has publicly aligned himself against Democratic politicians such as Barack Obama and Joe Biden. In a radio segment during the election race, Dave Ramsey rants redundantly for 7 minutes about politics, calling Joe Biden a "twit", an "idiot", and a communist. This clip will surely only further endear Ramsey to some.

Ramsey should keep his politics to himself, and to his credit, he mostly has. Economically speaking, I don't really find all that much on which I disagree with Ramsey. He supports a fair tax, and a fiscally responsible government, both of which are things that I think are good ideas. But he should still leave politics alone.

Already a divisive personality, the last thing Ramsey needs is to be perceived as a right-winger. Right-wing politics have allowed this country to be led right up towards the abyss, and its leader has not hesitated. There are still people out there who will argue with me on this one, so let me briefly elaborate.


Most economic and political analysts say that the fiscal policies of President Bush has been one of the single largest contributors in recent history to the national US debt. What's left of the defenders of Bush economic policy will claim that a liberal, Democratic Congress are somehow to blame for such insanities. This is impossible since the Republican party has been in control of Congress between 1995 and 2007.

As an example of fiscal responsibility, the Bush administration has been a failure. Americans have had a terrible role-model in their highest elected representative, and it shows. In the US, debt per family versus gross domestic product has risen dramatically and unprecedentedly since 2000 when Bush was elected.

When challenged to explain how the government was to continue to pay for an expensive war, Bush and proponents of the Bush tax cuts insisted they would "pay for themselves". It was apparently assumed that by putting more cash in taxpayer's pockets with which to purchase things, the demand for goods and services would increase, which in turn would increase trade and production. What Bush obviously doesn't understand is that Americans have been buying whatever they want, whenever they want, with higher taxes or lower, with or without any real money. Instead of money, Americans have been purchasing their "increased standard of living" with credit cards and cash loans against their mortgages. Currently the average household's credit card debt is $8,565.

Bush's tax cuts were indeed effective at stimulating the economy in the short term, and yet failed to prevent massive budget deficits. Lee Arnold explains using his remarkably simple ecolanguage developed precisely for complex economic subjects such as Bush's tax cuts. But I am digressing.

Bush appealed to the same ideological values to which Ramsey appeals, and yet Bush has consistently missed opportunities to demonstrate his supposed conservative values in the policies of his administration. For success, the Bush policies on the economy have relied on Americans continuing their selfish consumerism unfettered. It could only have lasted so long.

Ramsey ridicules Obama and Biden for their "Robin Hood" tax plans. Considering that Bush has been doing exactly the opposite by reducing capital gains taxes, benefiting richer Americans disproportionately, Obama's tax plan will more or less be simple compensation for the unbalance. Still, Ramsey seems to believe that McCain would have had a better tax policy. He can believe anything he wants, the American people have spoken.

Personally, I think that Ramsey is still a far better person than President Bush will ever be. But my contention remains: Ramsey should leave his politics out of his sales pitch. Again, like his religion, Ramsey is using his political views to attract a market demographic, and that is simply bad form. In fact, were it not for those things, I might be inclined to cut the man some slack.

Ramsey and bankruptcy

Shifting gears, I'd like to talk about Ramsey's stance on bankruptcy. He seems to believe that bankruptcy is perceived by many as an "easy way out". Bankruptcy is not easy in the least, he says, and should be avoided at all costs. He is right that bankruptcy is not easy, but to many his tremendously negative opinion of it as an option to people who have no other options just adds to the stigma and humiliation associated with the difficult decisioni to file and liquidate.

Ramsey reasons that he is a well-qualified expert on bankruptcy since he went through it himself. He is right to warn people that bankruptcy is not as easy as it might appear: "Few people who have been through bankruptcy would report that it is a painless wiping-clean of the slate, after which you merrily trot off into your future to start fresh." Who says that it is?

Chapter 7 bankruptcy involves being forced to sell off all non-exempt property in order to pay off your debts. Imagine losing your home, your car, a priceless family heirloom, the wife's jewelry, and so on. The emotional toll is inevitable. Many people who go through the bankruptcy process report battling with depression.

Bankruptcy is certainly not easy, but consider this: the median household income in the US is around $50,000. After taxes and the average monthly mortgage/rent payment ($684), that's about $2200 a month to split between 3 people per family. Seems difficult enough, but that's not even the average filer for bankruptcy, those are the numbers for average Americans. Most filers of Chapter 7 have lost a job and have suffered a significant decrease of their income. As mentioned earlier, the average household credit card debt in the US is around $9,000. In 2007, debtors filing for Chapter 7 reported median average monthly expenses of $2,433.

There are many different kinds of bankruptcy. Chapter 13 is a less commonly-selected option for individuals seeking debt-relief, but has some significant advantages over liquidation under Chapter 7. For one thing, Chapter 13 offers filers the opportunity to avoid a foreclosure on their home, in exchange for promising to pay off their debt over a longer period of time at a renegotiated, lower interest rate.

If the average bankruptcy filer took Dave Ramsey's advice and did all they could to avoid filing bankruptcy, their only alternative is years of paying off thousands, sometimes hundreds of thousands of dollars of debt at an interest rate entirely determined by their creditors. Who benefits the most from that? The credit card companies. People with credit card debt are slaves, plain and simple. What wouldn't you give to be free from slavery?

From a Christian perspective, the Bible is completely contradictory on this issue. Christian lawyers don't hesitate to use the Bible to ease the minds of potential clients on the matter. Yet, Christians who make their living offering personal financial advice use the Bible to oppose the taking of such action.

Also consider: roughly 2.0 to 2.5 million Americans seek the help of a credit counselor each year, mostly to avoid bankruptcy. This is Ramsey's market. If more people declare bankruptcy, that's less people from whom Ramsey can make money.

It seems far-fetched to suggest that Ramsey actually has an interest in keeping people in debt. Doesn't it? Considering the voracity with which credit card companies pursue people with poor money-management skills, perhaps not.

My opposition to the advice Ramsey offers on bankruptcy is mostly rhetorical, because bankruptcy is such a personal life decision. But really, Ramsey is the last person you should listen to for advice on the subject of bankruptcy.

If only...

Seriously though, if I could recommend anything for Dave Ramsey to do that would completely win me over, it would be this: stop selling your stuff.

Just don't put a price tag on it. Stop marketing it.

Instead, accept donations for your cause. Close the doors on Lampo Group Incorporated and start a foundation. Give yourself a modest salary, and disclose it.

Alternatives

First, as a counter example to Ramsey I draw your attention to Rick Warren. Warren is a Christian whose book The Purpose-Driven Life has brought him wild success and dramatic personal wealth. What he has done with the income from his publication is a humbling example to us all. I don't agree with everything Warren has to say, but he is still a good role-model.

Billy Graham is another example of personal integrity. In 1948 he and some associates penned "The Modesto Manifesto". The number one article in this manifesto was an insistence of a modest income so as to differentiate themselves from other televangelists of the day.

Next, please watch this anti-consumerism video by the Advent Conspiracy. It delivers a compelling message that transcends the now past Christmas season and is just as relevant to the new year. After all, as it is often asked, why can't we act like it's Christmas all year?

So, instead of buying crap you don't need, like Ramsey's books and online university memberships, just take my advice. It isn't even my advice, it's just common sense, so there's no charge:
  • Stop buying stuff with a credit card. Just stop using credit.
  • Pay off your credit cards or declare bankruptcy.
  • Can't keep up with the Joneses? Sell your house and move to a more modest neighborhood. Schools in the new neighborhood not good enough? Do something about it.
  • Have a budget. Have a plan. Add up how much you spend each month. Guesstimate if you have to. Extrapolate your yearly costs. If it turns out that you spend more than you make, figure something out. Reduce your spending.
  • Budget for saving.
  • Be disciplined and stick to your budget no matter what.
  • And finally, educate yourself. Learn. And don't listen to just one person. Read everything.
Here are some free personal financial advice websites:That's it.

Sound like too much sacrifice? Too much work? Not happy unless you're living the easy life? Maybe Ramsey does deserve your money, after all.

9 comments:

Ariah said...

Thanks for the link and thoughts.

N. Seth said...

This is interesting; thanks for writing it and calling attention to these issues. I really like your financial "advice" at the end. Very good.

I still think there is nothing wrong with Ramsey's commercialism, especially since practically all of his teaching can be obtained freely (from libraries, radio - where he also regularly gives his material to some of his callers, and gifts from friends). Those who can't afford to pay Dave for his services don't have to. Yes, he sells his product, but he also displays his generous loving concern for people in his effort to provide a user-friendly educational package (e.g., radio show; Financial Peace University class; his school curriculum, etc.) to countless people who apparently do not grasp what should be common sense and are willing to learn from him. But I've already made this point in your other post, and I think you disagree.

I also agree that we should not treasure earthly things (i.e., idolatry; cf. Matt. 6:21). But I don't think this contradicts the Biblical teaching that we should be good stewards by saving/improving our resources, even to the point of having stores of valuables (cf. Prov. 13:22; 21:20) and the Biblical examples of this. Pursuing wealth instead of poverty is a legitimate motivation for good stewardship, but I agree with you that is should not be our primary one, much less our exclusive one. I also agree that Dave does appeal to this motivation most regularly, but in all of his venues (radio, books, live events, classes) he also emphasizes the motives of obedient stewardship and charity.

Also, I know of no reason to doubt his personal integrity regarding his beliefs. When he professes his Christianity and his political convictions on his show (i.e., "The Dave Ramsey Show"), I think the charitable thing to do is to believe him (unless we have good reason to do otherwise).

Vargas said...

Nowhere does the Bible encourage Christians to pursue wealth. It does however ask us to "Seek first the Kingdom and all these other things will be added to you." meaning the necessities of life, not riches. Also, it says to be "content with sustenance and covering."

I think you need to read your Bible a little more closely.

George said...

Dave Ramsey does not promise luxury; he holds out the promise of being able to put food on the table and own a car. He holds out the promise of sending your kids to college. He holds out the promise of being able to retire at some point with enough money to keep your lights on until you die. All this without giving up your freedom to become an indentured servant to your corporate creditors or cling to the government for your retirement livelihood.

George said...

Dave Ramsey does not shamelessly use his Christian faith to promote his brand; he shamelessly uses his brand to promote his Christian faith. If you are a successful person in the public eye like Dave, you would be a hypocrite if you did not talk about your faith, which is the root of all your beliefs and motivations.

George said...

"Ramsey seems to reject the opportunity that he has to address the real root causes of the downfall of individuals and families: greed, self-absorption, envy"

On the contrary, this is the very foundation of his teachings. It is surprising that you could misunderstand so deeply. Greed, envy, and self-absorption causes people to make poor choices like going into debt, buying things that they cannot afford, and neglecting to save money. This is what keeps them from "financial freedom" and this the most fundamental thing that Dave wants to teach people about.

George said...

On bankruptcy, Dave does not say that the Bible does not allow it. Dave simply discourages it because the people who call him routinely express their belief that it is a "painless wiping-clean of the slate." Dave understands that most people can in fact avoid bankruptcy, but they need encouragement and guidance. For many of these people, the difficulty lies in the fundamental behavioral change of going from incredibly irresponsible to being responsible.

George said...

I must say, your conclusions seem to be based on nothing more than personal prejudice, an irrational distrust of Dave's profit motive, and a bias due to political disagreement.

Nels said...

Interesting comments, George. Thanks for your thoughts.