Dave Ramsey, in Review

This post is the final installment of a series on Dave Ramsey’s Financial Peace University (FPU). The following is my overall impression of the class. For more, I highly recommend taking the class for yourself.

Through the process of going through Dave Ramsey’s FPU class at my church, I have written responses/reviews to each class session, where I go more into detail about what was good and bad from that particular part of the class. I thought it would also be a good idea to wrap the whole thing up with an overall review. If you want more detail, check out the individual articles.

I’m a positive guy, so let’s start there…

The Good

There’s a reason Ramsey is famous and successful. He’s dynamic, funny, energetic, and easy to listen to. In short, he’s an entertainer on (what most would consider) a rather boring subject. That’s saying something.

Behavior Modification. If anyone can get you to change your habits on money, it would be Ramsey. He is motivational and his system is designed to change how people use their money – a good goal for a financial ‘guru’. If you fully buy into his methods, you will handle money very differently. He utilizes “the envelope system” for budgeting so you don’t spend beyond your means. He encourages using cash so you feel the pain of giving your money away in exchange for something. And he says over and over again that finance is “80% behavior and only 20% head knowledge.”

Family Affair. This may have been the best part of the class. Ramsey spends 2 whole sessions (out of a total of 9) on how to interact with people and money…at the same time. In a marriage, both spouses have to be active in the handling of money – no excuses. This is such an important point that many couples miss. Its tempting for the “nerd,” as Ramsey would call them, of the couple to take full control of the family finances. This is a recipe for division. Ramsey also gives great advice on how to raise kids with money as part of the family education. This is another great aspect to the class. Money is a taboo topic in our culture. Most people don’t even talk about it within their own families, resulting in surprises decades later, misinformation, and lack of education.

The Bad

Dave the Debt Hater. You can’t mention Dave without talking about Debt. It’s his M.O. You may be surprised that I’m putting this under “The Bad.” In reality, its actually good. His “Debt Snowball” will get you out of debt. Although its not the most efficient mathematically, its probably the best method in practice because people are subject to emotions. Why am I considering it bad? I place it here because I found it to be unfounded. (There’s an ironic sentence.) Dave never really makes the case for why debt is so bad. He doesn’t distinguish between different types of debt. He cites Proverbs 22:7 as his support, but that verse is much more likely a general rule of the way things are rather than an indication of the way they should be. Grounding almost his entire system of finances on a questionable reading of a single Bible verse is why I have to put this under the “Bad” category.

Broad Brushstrokes. Like the previous critique, I almost could have put this one in the “Good” category, too. Ramsey says a lot of good things. Should you watch what you spend on a regular basis? Absolutely. Does every single person in the U.S. need to do it in the same way? Not at all! I wouldn’t have a problem with how Ramsey lays out his plan if he acknowledged that there are exceptions to his rules. He communicates that there is one way to handle money “God’s way.” Ramsey knows it, and its the same for everyone. Just as Christ has called us to be different members in one body, each serving a different function and purpose, everyone in the church is not going to handle money the same way, nor should they! In personal finance, the more general the rule, the worse it is. Ramsey gives a lot of general rules without knowing anything about anyone’s situation. He does this so people will listen and follow through. He’s trying to keep it simple so it is actionable, but in the process, he gives a lot of advice that isn’t the best for people.

Not of this World. Scripture calls for us Christians to be distinctively different from the culture around us. Ramsey markets his class as “God’s way” of handling finances. You would expect God’s way of handling money to be shockingly different than what we are used to. Indeed, God is often remarkably different than what we expect or are used to (I mean, come on, the King of the universe born in a manger? Who saw that coming?). However, in Ramsey’s system, the key difference is that you live debt free and you give a bunch of money away after you have accumulated a bunch for yourself. Most people are doing that anyway! Wouldn’t God want us to give before we feel secure by the size of our 401(k)?

The Ugly

Proud Incompetence. I’ve heard Ramsey advise a near-retiree to have an all stock portfolio. I’ve heard him say that you should pick mutual funds based on their track record. I’ve heard him say that ETFs are risky and speculative (when they are the same thing as a mutual fund, just cheaper). He argues that its reasonable to earn 12% per year in the markets and that you can safely withdrawal 8% per year in retirement. Many of the things I mentioned earlier are simply matters of focusing too much on one thing over another – a disagreement about priorities. This, however, is just simply wrong, even dangerous for the people listening to his advice, as this CFP-authored article argues. If Ramsey had an investment/finance license, he would quickly lose it due to malpractice.

The Bottom Line

Ramsey does give a lot of really good advice, but he also gives a lot of really bad advice. I’ve read countless articles and listened to podcast episodes from financial professionals – CFPs and other true experts – on the topic of Dave Ramsey. The theme from all these sources is pretty consistent: Listen to Ramsey at the beginning of your financial journey and then move on as you get your feet under you. When it comes to investing, Ramsey is unqualified to give good advice, but when it comes to getting out of debt and budgeting, Ramsey is a powerhouse. Its unfortunate that a guy as popular as him and as influential as he is has not improved is advice on investments over the years.