Daily Work, personal

Is Ramsey As Good,or As Bad, As People Say? (Part 1)

I have to admit that I’m a fan of Dave Ramsey’s Financial Peace program. I first heard about the program when our church hosted a simulcast that Dave held. (He no longer holds them as I understand.) Our minister of spiritual growth asked if I was going. When I asked him what it was about, he told me that Ramsey helped people get out of debt and gain financial peace. I laughed. That was an impossible dream for me. We owed between $30,000 and 35,000 in a number of different debts. I was a teacher, in my early years, and my wife was a part time interpreter and adjunct professor at our community college. It was impossible for us to get out of debt.

He convinced me to help by registering people and taking their money. I sat outside the door. It would be nice to be out of debt – nice but impossible, or so I thought. The problem was that as people went through the door, I kept hearing bits and pieces of Ramsey’s presentation. I started asking myself “what-if.” I had been given permission to listen when I wasn’t working so I began listening after people stopped coming in. Something made sense. Something gave me hope. At the end of the presentation, I discovered that our church was going to have a class. I bit my lip and called my wife. I asked her to bring my business check book.

She later told me that while she didn’t say anything to me, she shook her head and asked herself, “what is Bob getting into now?” I asked her to bring my business checkbook because I had a small business selling chess equipment and I knew I had enough money in that account, but there was no way that we had enough money in the family checking. Those were the days when our checking account was usually in four figures, but that included the two numbers after the decimal point. That day, Ramsey gave me hope and made me believe that I could improve my financial situation, even if I couldn’t ever get completely out of debt.

So, I bought the kit for $99 and together, my wife and I began going through the class. I should note that at that time, I was the person who spent money, while my wife tried to manage it. When we got to the first task, the first “baby step” as Ramsey called it, Lucy laughed. I told her that we were going to save $1000 for a mini-emergency fund.
And so, we began. It started slow. We did a better job of managing finances by not putting anything else on credit – for the most part. Then, when we got the first $100 saved, we rejoiced. After a few months, we were up to about $500 in our emergency fund, and we had to use a large chunk of it to take care of a car problem. But we paid to fix it and we didn’t have to go further into debt to do it. That moment right there made us realize that we were truly on the right path.

To make a long story short, we finished our class and facilitated a couple of other classes at our church. We cut up our credit cards and helped other people cut up their cards. We actually got out of our credit card and student loan debt, and now owe money only on our house.

Back then, we used VHS tapes and we were told that once you bought the kit for $99 you could go to any class, any time. It was a good deal, and the class helped because they gave us accountability. As technology has changed, so has the program. We co-led another class recently. While the overall plan is good, things have changed and I probably wouldn’t lead another class.
I’ve thought about these things recently because an internet friend, Dr. Rebecca Barrett-Fox, recently wrote a couple of blog posts criticizing the Ramsey system entitled “Should you buy into Dave Ramsey’s ideas?” Part 1: Finances and Part 2: Faith. I wanted to look at these articles from the standpoint of someone who supports Ramsey’s process in general, but recognizes that there are weaknesses. I will also add that she has wider experience with other systems and makes recommendations in her posts for where to go as a Christian seeking to honor God with their finances. The last thing to remember that politically and religiously, I tend to be very conservative, while Dr. Barrett-Fox tends to be more liberal in those areas. That being said, let’s look at her concerns. (Side note: when I asked how I should address her, she said, “Just call me Rebecca because we’re friends. I decided to be formal instead because I thought it was more appropriate.) I’ve put her concerns in block quote italics, just to make things easier to see,

First, his program is not for people who do not earn enough money to pay their bills.

When I first began with Financial Peace, we didn’t have enough money to pay all of our bills. Some people had to wait to get paid. As Ramsey discussed this problem in his program, he told people what he had done when he was budgeting. They listed their available cash, then they started listing bills that needed to be paid. Once the “ran out of cash,” they drew a line on their list of bills/creditors and anyone below that line didn’t get paid.

I think there’s more validity in Dr. Barrett-Fox’s argument under the current system which requires a yearly fee to stay up with the official Ramsey program. But, once you’ve gone through a class, you can usually understand the program enough to get an accountability partner who can do for you what members of the class used to do.

As Dr. Barrett-Fox continues this argument she notes that Ramsey doesn’t take into account factors such as low wages, health or childcare costs, racism, or sexism. To be honest, I don’t tend to be sensitive to issues like that in part because of my background. At the time we started the program, we had dealt with a couple of years of low wages. As an asthmatic, we tended to have high medical bills. I think Ramsey is sympathetic to a lot of these concerns because he wants to make sure that people get out of those situations. Again, the new program does seem to seek more ways to separate you from your money, so I’ll grant that argument some credence. Still, Ramsey seems to believe that if you want to get out of a financial mess that you’re in, you can. He makes suggestions to help people overcome those systemic concerns Dr. Barrett-Fox mentioned.

Sometimes, it’s not a matter of seeing people as weak-willed so much as recognizing that people who’ve been beaten down all their lives don’t have much hope. By giving them hope, by helping them to see that the light at the end of the tunnel isn’t an oncoming train, they realize that they can get out of their financial mess, whatever the cause may be.

Dr. Barrett-Fox’s next argument is one that I’ve heard countless times, even from Ramsey himself.

Second, his snowball method is not always the most money-saving way to pay off debt.

The Ramsey snowball method is designed to work on the psychology of building on small wins. The idea is that you list your debts in order from most owed to least owed. Then, you pay minimum balances on all but the debt with the least amount owed. You attack that debt with every part of your budget and anything extra you earn until you pay it off. Then, you take the money you were paying on that debt and apply it to the next debt on the list. This continues with the payments making a snowball effect until you’re making large chunk payments on your largest debt until you pay it off.

A quick glance shows that you might spend more money doing things that way than if you took the debt with the highest interest payment and paid that off first and used the same idea of snowballing the payments until you got all your debts paid off. If I remember correctly, our highest interest rates were on the smallest debts, so our debt snowball would have been the same using either method. I point that out only to say that I didn’t feel the pain of paying more.

Ramsey does deal with that in his program. He notes that there’s a psychological “feel-good” moment every time you get a debt paid off. It inspires you to go to the next one and get that paid off. By starting with the smallest debts first and knocking out those, you gain confidence that you will pay off your debts. I can imagine it would be easy to lose hope if you paid on the largest debt, and, because you weren’t throwing the bigger chunks of money at it, as in the Ramsey system, it takes a lot longer to pay that debt off. Discouragement could lead to a greater sense of hopelessness and giving up on the idea of becoming debt free.

My conclusion to this argument is that while Dr. Barrett-Fox, and many others make a good point about the money paid out, I’d still recommend Ramsey’s debt-snowball method. That being said, if you rejected my suggestion and paid off your debt the other way, I’d rejoice with you. Whatever you do, get out of debt!

Dr. Barrett-Fox makes her strongest point when she mentions the expense involved.

Third, this program is pricey, and the profit goes to Ramsey.

It was expensive when $99 bought a lifetime membership. I would say that I found it worth every penny and then some, but there’s no getting around the fact that the initial investment is steep for someone who’s having financial trouble.

I recognize that you get lots of materials for that money. I recognize that when you put that much money out to pay for the kit, it makes you value the program a little bit more. If you’re fighting to stay alive financially, you don’t want to give up on an investment like that. As I said earlier, I found it worthwhile – but it’s still a lot of money.
The good thing about this was that it was a lifetime commitment. At the risk of comparing apples and oranges, textbooks in universities for one course tend to come at a similar, if not higher price and, while they provide some good course information, they may not provide the life-changing help that Ramsey’s materials do. (And yes, I pointed that out because Dr. Barett-Fox is a university professor and I should note that I let her know privately that I’d be saying this.)

It’s a legitimate concern that all of the money goes back to Ramsey when the churches do all the work and provide the facilities for the classes. Ramsey would make the case that the benefit for the church would be found in members who are stronger financially.and thus, especially with his emphasis on giving throughout the program, will be better givers to the church. There are many ministry/businesses that supply teaching to churches, and Ramsey isn’t out of line in comparison.

Things have changed in one area, though, and that is why I probably wouldn’t teach a Ramsey class again: whereas before, the investment was $99 for life, now, in order to get the website access, you have to pay $99 per year. While Ramsey has a lot of good stuff on his website, I still think that’s a steep price to pay.

Finally, as we talk about the price, I’m going to reiterate that the $99 I spent was the best investment I ever made. When people in our church wanted to go through the program and asked me to teach, I willingly paid for the teacher kit instead of asking the church to do so because it was my way of giving back to members of our church. I’m willing to ask people to make a one time $99 investment in themselves, knowing that I don’t make anything from it. I’m not willing to ask them to make that investment every year.

As I said earlier, Dr. Barret-Fox is a friend of mine. I don’t think she would deliberately misrepresent anyone, but I think she misrepresents the spirit of Ramsey’s teaching in her discussion of his investment advice. I’ll be interspersing her quotes a lot, here.

Fourth, Ramsey gives a lot of bad advice. In particular, he claims that steady investment in the mutual funds will yield a 12% return. He gets this number by averaging the returns since 1923. He also breaks it down by decade and finds that 12% is still a good estimate. His dismisses the “lost decade” (2000-2009) as an anomaly–after all, we had a terrorist attack and a recession. And if you combine the ’90s and first decade of the 2000s, you still get a 8% return.

Ramsey has crunched the numbers on returns and his comments on the average return over the years seems to be on target, but let’s look at the spirit of Ramsey’s advice. In short, Ramsey teaches that you get better, safer returns from the stock market than you get from any other investment tool. He urges investments in mutual funds to diversify risk and get professional management for your money.

I think that this is pretty standard advice for most financial advisers who aren’t selling a specific product such as annuities or whole life which are much better deals for the salesman than it is for the investor. To call this “bad advice”, which the good doctor seems to be doing. (Forgive me if I’m wrong) is to call into question the whole system of financial advice in this country.

Dr. Barrett-Fox sees Ramsey’s advice to prepare as an attack on Social Security and things like union pension plans. Let’s face it, even if little old white ladies take out more than they put in, or their husbands may have, their return isn’t as large as if they had also invested and built up their own nest egg. We’ve also seen that union pension funds can have problems. I don’t see that Ramsey is attacking these plans specifically, I see it as Ramsey suggesting people find ways to care for themselves. He speaks about company pensions and advices investing in them when the companies or unions will match them. Ramsey looks at following his plan as “both and” not “either or.”

Dr. Barrett-Fox didn’t offer any suggestions on the best way to prepare for retirement other than depending on Social Security or pension funds. As to investment tools, I don’t see other advice from her, although in her second article she mentions value investing. (I’ll talk about it in a second post.)

Ramsey assures us that the stock market is safe because, on average, it works out. But the problem is that no one is average. We don’t retire over a decade; we retire at a specific period in time. Even if we look at our retirement account and think, “Well, the stock market took a turn for the worse last year, so I can’t afford to retire this year,” we don’t have a decade to delay retirement until the stock market “averages out” again.

Here’s where Dr. Barrett-Fox truly misunderstands Ramsey. While he plugs his endorsed investment people in terms of getting investment advice, he does tell you to get advice. (Which is why we don’t hear from Dave what funds he invests in.) From what I understand of most investment advisors, they’re going to advise you based on your risk tolerance and your stage of life. As you get closer to retirement, they’ll advice more investment instruments that provide capital preservation as opposed to stock investments that are high risk. If you look at your portfolio and say, “Well, the stock market took a turn for the worse last year, so I can’t afford to retire this year,” then you probably weren’t following good financial advice nor were you following Ramsey’s program. His program is a long term program that’s best begun in one’s 20’s or 30’s. Once you get to a point where you’re close to retirement, your investment philosophy, as well as your investments will change so that you should be protected from a major downturn in the market.

Over the long term, the stock market does give better returns than inflation. Over the long term, you’ll have a better financial situation if you invest in the stock market. Mutual funds provide the best way for people who don’t have a lot of money to create a diversified portfolio.If you want to prepare for your future financially, then find an advisor you trust and begin the process early. I wouldn’t call that bad advice.

As Dr. Barrett-Fox finishes her first article, she admonishes Ramsey for using the “s-word.”

Finally, Ramsey relies on shame to motivate you.

Yes, Dave throws the “s” word around a lot. He talks about people doing stupid things. I never saw that as shame so much as reminding people that we’re all in the same boat and we’ve all made mistakes. When Ramsey describes his personal experiences, he talks about himself as doing “Stupid with lots of zeroes on the end of it.” In other words, “Whatever you’ve done, I’ve done, and I’ve done far worse.

I saw a lot of empathy in Dave’s reactions to people who made mistakes. He told the story, at one time, of a single mother who was so tired and frustrated that she did something she knew would cause checks to bounce because her kids were hungry and by the time the air cleared, she had hundreds of dollars in overdraft charges. He didn’t run her down, he told the story because he never wants to see anyone go through that kind of pain.

I’ll be answering her comments on faith in another post, because this one’s gotten a lot longer than I expected. Let me just say that when I started talking with my financial advisor as I prepared for retirement, he realized that while I didn’t have a lot of investments, the fact that the only debt I had was my house was amazing. He was a lot more comfortable when I did decide to retire because I was debt-free. Yes, I have my teacher pension. Yes, I won’t collect what other people might collect in Social Security even though I put into Social Security for many years before I became a teacher. I was able to retire early so that I could take care of my wife while she went through her cancer treatments because we had followed Ramsey’s program. There are issues with it, as there would be with any program. We personalized it in ways I’ll mention in the next post. Dr. Barrett-Fox recommends some other programs that she feels are better and I would suggest that if you haven’t done any planning for the future yet, check them out. I don’t know anything about those programs, but even though we disagree about Ramsey, I don’t think she’d lead you astray. Just in case you didn’t see the link, her article is here.

Daily Work

It’s Time to Take on the White Whale

With all the preparations I’m doing at home for my mother’s memorial service, I’ve needed to put my bird photography on hold. Never fear, I will resume the Bird Brain Chronicles soon. In the meanwhile, I’m taking on my white whale. (Please note the clever Moby Dick allusion there.) My White Whale is the story of how my wife and I battled her breast cancer. We got the official notice on the last Saturday of January in 2016. I kept notes throughout the journey, knowing that while we couldn’t be sure of the outcome, we were confident that God had things under control.

About a year ago, I finished the first draft of the story, and then began editing. I can’t tell you how many times I’ve gone back to working on the story because I wanted to get it just right. And yet, it was always my next project and then something else came along. Last year, my writing time was consumed with work on my devotional series. I wanted to make sure that I had the whole series edited and ready for publication. And, that happened. mind you, I still need to work on marketing, but I’ve been blessed in some great ways because of this process.

This church, Troy First Assembly of God, is using my devotionals to support the spiritual growth of their church. The pastor asked permission and offered to compensate me. He showed a lot of integrity in the way he asked and set things up. A couple of times he’s passed along comments that gave me an emotional lift when I was a bit down.

See how easy it is to get distracted from my white whale? I’m not sure what makes this so had to edit, aside from the fact that I hate editing in general, but I think it’s because this is a story that I think will have such importance and be such a blessing to others that I want to be sure that I do things right. When people get a cancer diagnosis, it’s frightening – at least to us it was both times. Cancer isn’t the death sentence that it used to be, but it’s still a killer if not dealt with properly. The purpose of the book is to give hope, but show the practical steps we took. It’s meant to prepare people for the depths of chemotherapy and the drudgery of the process of waiting for the next treatment.

No one has the same experiences with cancer or with the treatment, but, people can live with hope and they can conquer cancer. And I’m trying to convey that in one short little book. And it scares me because I want this book to help others. Pray with me, will you?