Dave Ramsey: From Rich to Richer

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Although he’s usually not lumped in with the rest of the right wing grifters, Dave Ramsey is a vocal proponent of the “pull your self up by your bootstraps” mythos. Although, he rarely uses that particular phrase in his writing¹.

His teachings focus on financial techniques that anyone can use, provided you have “extra” income you can save.

Dave Ramsey: Teachings in a Nutshell

Fundamentally, Dave Ramsey’s teachings are very levelheaded:

• Save every penny you can
• Don’t spend money that you don’t have.
• Buy everything with 100% cash; no loans!

Unfortunately, Ramsey shows a serious disdain for those who were born in classes beneath him² and that’s reflected in his “one-size-fits-all” teachings.

“If you really believe $600 is going to change your life, you’re an idiot! Really!”

Dave Ramsey

Cash is King

I can’t really argue with it. Spending cash on hand is always preferable to using credit.

But, he applies it to things like college³, cars⁴, and homes⁵.

The median household income in the United States as of 2022 was $74,580, which was a 2.3% decline over 2021⁶.

The average cost of a new vehicle in the United States as of 2022 is $46,290. That’s an increase of 9.2% over 2021⁷.

I can hear you saying, “Just buy used!”

The average cost of a used vehicle in 2022 was $30,700.⁸ It’s gone up 54% since 2016⁹.

Based on the median household income, it would take two working adults nearly six months to save enough cash to purchase one used car. And that’s assuming they don’t eat, pay rent or mortgage, or do anything else for those six months.

I’m not going to even bother getting into Ramsey’s “100% down payment plan” for purchasing homes. Let’s just say his target home price is $100,000, which is less than a quarter of the median US home price right now ($416,000)¹⁰.

This 1986 Toyota Camry, fully loaded, cost $11,798¹¹; adjusted for inflation that’s $33,050.12¹². The average new car today is 40% more expensive than 37 years ago.

Why 1986? Because that’s the year Ramsey, 26 at the time, had amassed a portfolio worth over $4 million¹³.

Paying for College

He believes that it’s a myth that you need to take out loans for college.

However, he went to college in the late 70’s/early 80’s when the average annual cost to attend a four-year public university was $2,237. Adjusted for inflation that’s $5,013 per year today. That’s pretty reasonable.

Unfortunately, the cost of tuition has risen 179.2% from 2000 to 2020 alone. Average annual cost to attend a 4-year public school is now $13,360¹⁴.

For a college-aged adult going to school full-time paying for college, as well as books, a car, and all the other costs of living out of pocket with a job they’re qualified for is completely unreasonable.

Dave Ramsey: Background

Dave Ramsey was born in Antioch, Tennessee, a suburb of Nashville. Both of his parents were working real estate developers during his childhood.

Unfortunately, there isn’t much information on his parents. I’ve seen this before when researching wealthy individuals. They like to feed the “Self-Made Man” myth and hide the fact that they were given a leg up. Whether that leg up is inside knowledge, connections, or cold, hard cash doesn’t matter. They didn’t start with nothing.

The fact that both his parents worked is unusual and speaks to the fact that they likely earned above the median income. Only 25% of households in 1960 were dual income¹⁵.

At age 18 Ramsey started selling real estate¹⁶. He claims to have worked full-time during his four years at the University of Tennessee, Knoxville, but as anyone who’s met a real estate agent knows, they’re not tied to a desk 8-12 hours per day to earn their money.

Eight years later his portfolio is worth four-million dollars.

Here again, we see fingerprints of his parents’ influence.

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Bankruptcy

During the stock market crash of 1987, the banks that held Ramsey’s loans for his portfolio were called in.

Dave was down and down bad.

He had been living high on the hog. Married with two kids, about to move himself into commercial real estate, Jaguar, expensive suits.

But he filed for bankruptcy. Then rebuilt his career to give financial advice. He learned firsthand what it means to be irresponsible and over-leverage.

Bankruptcy is a legal means of not paying your creditors. It’s often used by the wealthy to get out of responsibility.

But, for some reason, Dave doesn’t recommend it. Furthermore, in a now re-written and redirected article¹⁷, he goes on to say that he will talk anyone out of filing bankruptcy that he can¹⁸.

This is profoundly bad legal advice from someone who is not a lawyer.

The National Study of Millionaires

From November 17, 2017 to January 31, 2018 Ramsey Solutions conducted a qualitative, self-reported, online research study with a third-party research panel and their own in-house research panel¹⁹.

The description of the research methodology should throw some red flags for those of you who know how to do research. For those unfamiliar, here’s what it means:

Qualitative Research

“Qualitative research is a type of research that explores and provides deeper insights into real-world problems. Instead of collecting numerical data points or intervene or introduce treatments just like in quantitative research, qualitative research helps generate hypotheses as well as further investigate and understand quantitative data²⁰.”

Ramsey Solutions walked in with the hypothesis that “The American Dream Is Alive and Available.” The “American Dream” in this case being the rags-to-riches, pull yourself up by your bootstraps, self-made man fallacies. They used this study to attempt to prove this by analyzing whether or not these people are millionaires because of inheritance or “through hard work.”

Self-Reported

Just what it sounds like. The study participants were asked questions and trusted to answer truthfully and no fact-checking was required.

What were the results?

That the American Dream is alive and well and 79% of these 10,000 millionaire households got rich by being careful with their money. NOT through inheritance.

Of course this is what it found. It’s a study run by the organization that put forth the hypothesis.

Let me be clear: hard work can pay off. I will never dispute that.

But it takes more than hard work to hoard the kind of wealth this study is focusing on.

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When the study was done, there were 11 million millionaire households in the United States. Ten-thousand is .09% of 11 million²¹.

It’s hardly a representative sample. In both the book²² and the PDF posted later on his site, Ramsey doesn’t reveal the methodology of the study. He provides no insight into how the millionaires were selected. He provides no demographic data.

According to the information I could find:

• The study only reports and asks about inheritance. Not loans from still living relatives. And it doesn’t ask about social connections.
• There was no control group identified. No information was offered about the people who DID inherit money.
• There is no information about how far people rose; amassing a millionaire dollars isn’t hard if you start off with $900,000 from intergenerational wealth
• The study was not peer reviewed.
• The study was not fully independent.

Takeaways from the Study

The study was… not a study.

Therefore, everything he claims as fact and proof based on the study is neither. Because the study is pseudoscience and lacks the necessary transparency to be refuted as fact the way Ramsey does.

He could have gotten similar statistics with equal validity by walking around a country club and asking the members there how they made their money.

These days the average person is even less likely to become a millionaire. More than half of Millennials and Gen Z are on track to remain within one level of the socioeconomic standard they were born into. That’s a stark contrast to Baby Boomers and Generation X²³.

Implications for Mental Health

Nearly two-thirds of all American adults (64%) say that money is a significant source of stress in their lives²⁴. That number jumps to 79% if you only focus on households below the poverty level.

Dave Ramsey believes the “…economy’s problems are not structural or political, but instead stem from the fact that most people, including his listeners, are weak-willed, self-indulgent, and stupid…²⁵“

Like many other right-wing grifters, Dave Ramsey has found a pain point for many people and exploited it. It’s no different from Donald Trump promising to build a wall for all his fearful conservative followers to be safe from our neighbors south of the border.

His exploitation of people’s fear around financial matters isn’t the most dangerous scam, because he suggests methods that are at least plausible for fixing it. But he’s been hawking his books and seminars for more than 30 years. How many different ways can you say “save money, don’t take on debt?”

And do you really need to belittle people while doing it?

No.

TLDR (Too Long Didn’t Read)

Fundamentally, Dave Ramsey’s advice is good. Avoid debt. Don’t spend outside your means. He learned this lesson the hard way.

Unfortunately, his overall attitude towards and verbal attacks on the poor and working classes are despicable. Most of the people he ridicules publicly were never taught how to handle credit or leverage debt.

He’s spent a lot of time talking about how his parents inspired him. But spent no time discussing the assistance they gave him. Fundamentally, this is a lie of omission.

Dave Ramsey is excellent at masking the truth and punching down. Worse than that, he’s selling snake oil by trying to convince large swaths of the population that they can become wealthy based solely on their own hard work.

Citations

1. Dave’s Guide to Becoming a Baby Steps Millionaire RamseySolutions.com (The only place on his site I could find the phrase) ↩︎
2. If a $600 Stimulus Check Changes Your Life, Then You’re Already Screwed YouTube.com ↩︎
3. Parents shouldn’t co-sign student loans KnoxNews.com ↩︎
4. Dave Ramsey: Why You Should Always Pay Cash for a Car finance.yahoo.com ↩︎
5. 3 Simple Steps to Pay Cash for Your Home RamseySolutions.com ↩︎
6. Income in the United States: 2022 census.gov ↩︎
7. New vehicle average selling price in the United States from 2016 to 2022 statista.com ↩︎
8. Used vehicle average selling price in the United States from 2016 to 2022 statista.com ↩︎
9. Used vehicle average selling price in the United States from 2016 to 2022 statista.com ↩︎
10. Average House Price by State in 2023 www.fool.com ↩︎
11. 1986 Toyota Camry Reviews, Pricing & Specs CarGurus.com ↩︎
12. $11,798 in 1986 is worth $33,050.12 today In2013Dollars.com ↩︎
13. Dave Ramsey wikipedia.org ↩︎
14. Average Cost of College by Year EducationData.org ↩︎
15. The Two-Income Trap: Are Two Earner Households More Financially Vulnerable? census.gov ↩︎
16. The Gospel According to Dave NashvilleScene.com ↩︎
17. The Truth About Bankruptcy – DaveRamsey.com web.archive.org ↩︎
18. The Truth About Dave Ramsey’s “Truth About Bankruptcy” (Original quote) NasonLawFirm.com ↩︎
19. The National Study of Millionaires RamseySolutions.net ↩︎
20. Qualitative Study nih.gov ↩︎
21. US added 700,000 new millionaires in 2017 cnbc.com ↩︎
22. Book Review: Everyday Millionaires EmpathicFinance.com ↩︎
23. Economic Mobility is Fading-And So Is The American Dream psmag.com ↩︎
24. Stress in America 2020 apa.org ↩︎
25. The Prophet psmag.com ↩︎

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