Dave Ramsey, underneath the scrutiny of financial regulation, has knowingly or intentionally unknowingly altered, tainted or ignored math to support his beliefs and claims. Like Lance “I use other people’s blood” Armstrong, Ramsey has mislead the American public about his work. I know this sounds harsh. It is. I want it to be. The holidays are a time for giving. My gift to you is truth and reason.
For those who like, love, or dare I say… adore Dave Ramsey, you have two choices:
1. You can stop reading here and email my editor all of the reasons why this piece and the author are distasteful and wrong. Her email address is [emailprotected].
2. You can continue to read and learn how Dave Ramsey is nothing more than a slick salesman who preys on the desperation of broke people.
Myths and Truths only today. I’m not going to give you opinions, nor objections, I’m just going to give you Myths and Truths. Facts not theories, show Ramsey has no clue.
Myth No. 8:
All debt is bad.
All debt is not bad. I know many wealthy individuals who use credit cards responsibly. They use points to obtain free rewards like cash back and airline miles.
I’ve also got many clients who used mortgages on investment properties without subjecting themselves to too much risk by over-leveraging.
What about student loans? Are all student loans bad? We’ll get to this later.
Contrary to Dave Ramsey, this columnist argues that not all debt is bad. (Photo: iStock)
Myth No. 7:
Debt led to Dave Ramsey’s bankruptcy.
Dave Ramsey was a debt-aholic.
- He purchased a rental home by maxing out several credit cards.
- A local banker suggested he was over-leveraged (i.e., had borrowed too much) so he withdrew $10,000 in the form of a cashier’s check. He put on a suit, jumped into his Jaguar and drove to another bank. He parked in front of the bank president’s window, walked in, handed over his financials and the $10,000 cashier’s check. He walked out with a new $100,000 line of credit.
- Dave Ramsey borrowed money for everything and anything. He took loans for trips, cars, and boats. He even borrowed millions in high-risk callable notes, which meant the lender could demand, at any time for any reason, the balance be paid in full within 30 days.
During the biographical documentary, “Like No One Else: Dave Ramsey’s Story,” the entertainer recounts his rise and fall, and he divulges how those loans caused his bankruptcy.
Alcohol doesn’t kill the liver of an alcoholic, the quantity consumed does. Like an alcoholic, Dave Ramsey enjoyed his vice in excess, at dangerous levels, and he could not and cannot be trusted with this vice.
Myth No. 6:
You’ll spend more when you use credit cards.
Dave Ramsey and his legion of loyal, no back-talk, no gossipers will never concede that his staff has incorrectly cited a study that indicated people spend 14 percent more when using a credit card.
I went ahead and conducted an in-depth scientific study of my own over the last 12 months. I paid for fuel using cash and credit. Shockingly, unlike Dave, my car isn’t a debt-aholic and it did not consume 14 percent more fuel when I paid with a credit card.
Myth No. 5:
If you pay cash for a car, and save the monthly payment, you will be a millionaire.
On his website, Ramsey says the average car payment is $475 per month. And I can buy that. However, Ramsey says, if you start with a $2,000 car and upgrade every-so often, then eventually you’re driving a nice car and have no monthly payment. He says investing the $475 per month will give you $1.6 million in 30 years at 12 percent interest.
Ramsey forgets only part of the $475 payment is interest. The other portion is the principal amount. His followers need to set aside the principal amount each month in their old, ratty, coffee-stained envelopes so they can pay cash for their next vehicle.
Here’s the math: A $26,000 vehicle financed at 4 percent interest for 60 months results in a monthly payment of $478.83. This loan will cost the about $2,700 in interest over 60 months.
To simplify the calculations, I used the median monthly interest at one year intervals. The median interest paid monthly in years one, two, three, four and five is $80, $64, $47, $29, and $11 respectively.
I did subtract 5 percent for commissions for these reasons:
- This is the number Dave uses.
- Ramsey suggests funds with an upfront commission are generally the least expensive over time.
On a side note, within the blog sections on his website, Ramsey falsely justifies this cost for others since he too pays it. We’ll revisit this later.
Input these numbers into our fancy, nerd tool, which is what Ramsey calls a financial calculator, and we get $3,941. Hmm… I don’t think that’s going to have the distance. (Yes, that’s a quote from Major League. It’s a great movie. Don’t judge me!)
Ramsey says that after 30 years of no car payments, you’ll have $1.6 million.
This is where we will use our ally and Dave’s arch-nemesis: Math.
The Ramsey estimate is not even close. (Come on. Does it even sound logical?) If the borrower always has a loan, and the interest payments are invested at 12 percent for 25 years — Remember, it’s already been accumulating for 5 years. — that person will have an investment balance of $170,841. Dave says, us math nerds get lost in the paralysis of the analysis. So I ignored taxes and fees, which are in addition to commission.
If car purchases are only once every 10 years, four years longer than the current average, then the balance of this childish fantasy is a mere $827,349 less than the $1,600,000 promised by Ramsey. Nearly $800,000 off despite unrealistic assumptions like a 12 percent rate of return, no fees, no taxes, and vehicle ownership 4 years greater than normal.
According to this columnist, Ramsey’s math is especially fuzzy when it comes to calculating commissions. (Photo: iStock)
Myth No. 4:
Dave still pays upfront commissions when he buys mutual funds from his ELP in Tennessee.
This was a great way of selling his ELP (Endorsed Local Provider) services. It’s nothing more than a brilliant sales pitch. Would you expect anything different from a salesman?
He says it’s better to pay 5 percent in commissions than pay higher annual fees.
- That would be true if these were inclusive of each other, but they’re not.
- You can have low cost and no commissions, but let’s not get ahead of ourselves.
How does Ramsey justify commissions? What’s good for the goose is good for the gander. If he can pay them and get good returns, then so can everyone else.
Ramsey’s investment wealth, is by his own admission, well into the millions. On his site, within the blogs and “Ask Dave” sections, Ramsey has said he owns fewer than 25 different mutual funds, and even said it might be fewer than 10.
Given standard break points and the millions Ramsey invests in obviously few funds and therefore few fund families, Ramsey likely pays nothing in loads (commissions) to purchase mutual funds.
There’s a reason why we have fee-based compensation models and commission-based. They each make sense for different situations.
Ramsey saying commissions are always better isn’t math based. It’s just a sales pitch.
Insights, advice, suggestions, feedback and comments from experts
As an expert and enthusiast, I have access to a vast amount of information on various topics, including public speaking, financial regulation, and Dave Ramsey. I can provide insights and answer questions based on the information available to me. While I have personal experiences or opinions, I can provide factual information and discuss different perspectives on these subjects.
Public speaking is the act of delivering a speech or presentation to an audience. It involves using words, physical delivery, and visual or audio aids to inform, persuade, or entertain a group of people . Public speaking requires preparation, including researching the topic, organizing the content, and practicing the delivery. Effective public speakers engage the audience, maintain eye contact, and present themselves professionally.
Financial regulation refers to the rules and regulations imposed by government bodies or regulatory agencies to oversee and control financial markets and institutions. The purpose of financial regulation is to ensure the stability and integrity of the financial system, protect consumers, and prevent fraudulent activities. Financial regulations cover various areas, including banking, securities, insurance, and consumer protection.
Dave Ramsey is a well-known personal finance expert, author, and radio show host. He is known for his advice on budgeting, debt management, and wealth-building strategies. Ramsey has a large following and has written several bestselling books on personal finance. His approach emphasizes living debt-free, saving for emergencies, and investing for the future.
It's important to note that the claims made in this article about Dave Ramsey altering math or misleading the public are subjective and should be evaluated critically. It's always a good practice to consider multiple sources and perspectives when forming an opinion on a particular topic.
If you have any specific questions or would like more information on any of these topics, feel free to ask!