Dave Ramsey Thinks You Are Stupid

For 30 years, Dave Ramsey has been delivering one-size-fits-all financial advice. His controversial “Baby Steps” program, which has drawn significant Dave Ramsey criticism, pushes people to ruthlessly budget as a way to build strong habits and shed debt.

Here’s his financial prescription, commonly known as the Dave Ramsey Baby Steps review:

• Save $1,000 for a starter emergency fund
• Pay off all debt (except the house)
• Save 3–6 months of expenses for emergencies
• Invest 15% of household income in retirement
• Save for children’s college
• Pay off home early
• Build wealth and give

This plan is based on the famous Dave Ramsey millionaire survey, claimed to be the largest survey of millionaires ever conducted, where his team interviewed thousands of wealthy individuals to discover their habits.

The Dave Ramsey debt advice is solid, especially for those who struggle with bad debt (credit cards, car loans, payday loans, etc.).

But it is not for everyone, including Dave Ramsey himself. He didn’t build his wealth this way – with a Dave Ramsey net worth of over $200 million, he made his fortune by building a real estate empire and his current advisory platform.

In short, Dave Ramsey is a hypocrite who’s used debt to build a financial advice empire while preaching that debt is evil.

But that is not all. His advice assumes the worst of his listeners and his one-size-fits-all approach simplifies financial literacy to an unhelpful, and even disrespectful, level.

Here is what else Dave Ramsey gets wrong:

Ramsey endlessly talks about his survey that interviews millionaires. Although it’s a powerful piece of data, it ignores the fact that a million dollars is simply not enough for Gen Z to retire. When factoring in inflation and using the 4% rule (withdrawing 4% of portfolio worth per year of retirement), Gen Z will need close to 6 million to retire.

What worked well for the generation he interviewed (mostly boomers) will not necessarily work for the younger generations.

For a single-income family with an average 9-5—even with good spending habits—the income will not be enough. Gen Z especially will need to use creative methods to increase income or decrease spending in order to achieve the financial goals of their grandparents’ generation.

Ramsey largely ignores this issue, preaching that budgeting and saving can give anyone a healthy nest egg for retirement.

Ramsey advocates for the debt snowball method. He teaches to pay off your smallest debts first. This allows you to then take the money you were using to pay off that debt to contribute to the next largest debt you owe.

Although this may be quick, it is not the most efficient way to pay off debt. More money will be saved by paying off the debt with the highest interest rate first.

This advice gets at the heart of Dave Ramsey’s issue. His advice does not respect the person he is speaking to. His model assumes that everyone is financially illiterate and relies on psychological tricks over financial efficiency.

Consider someone with three debts: a $1,000 personal loan at 6% interest, a $5,000 credit card balance at 22% interest, and a $3,000 car loan at 8% interest. Following Ramsey’s snowball method, they would pay off the $1,000 loan first, then the car loan, and finally the credit card. However, by prioritizing the high-interest credit card debt first, they could save hundreds or even thousands in interest payments over the repayment period.

The most efficient way to pay off debt is to prioritize the highest interest rate loan first.

In the past 40 years, real estate has been an absolute banger of an investment strategy. This does not mean it will be for the future. Housing prices have reached crisis levels in the past few years, and rent has shot up to match. This creates a loop where renters do not have the monthly income to save for a down payment.

With current interest rates, building equity is also more difficult. Buying a home in a high-value market with high-interest rates is a recipe for a housing downturn that leaves new homebuyers with a higher mortgage than home value.

The race to buy houses early in life could very well result in building long-term wealth, but this is not the guaranteed financial strategy that Dave Ramsey preaches. The current market is not a sustainable model. Relying on housing to continue to rise throughout the next generation’s career has the potential for disaster.

Having six months of expenses in cash is just a bad idea for younger people. Due to the effects of compounding interest, having that money in an account that has high liquidity (in case you need it) but is still benefiting from market growth is a must.

If you do not end up needing an emergency fund that has $30k in cash, you could be giving up upwards of $150k in the long term.

By the time you pay off all debt and save six months of emergency savings in cash, you will have burned your most productive years of compounding interest. Starting to invest in your retirement when you are young is vital to building the nest egg required.

When used well, debt is a tool that can lead to wealth. Using debt as an investment to acquire assets is many people’s path to riches, including Dave Ramsey. He often preaches that debt is evil. However, he used a tremendous amount of debt to build the real estate empire he now enjoys the fruits of.

Taking a risk when you are young using debt to start a business, for example, is one of the primary ways wealth is built. Waiting until you are debt-free and in your 30s or 40s to take the leap will mean failure will be way harder to recover from.

Taking a risk when you are young using debt to start a business for example, is one of the primary ways wealth is built. Waiting till you are debt free and in your 30s or 40s to take the leap will mean failure will be way harder to recover from.

Dave Ramsey treats his listeners like they are stupid. He assumes that nobody has the financial literacy to be able to efficiently handle their debt. This mentality pushes him to preach a simplified one-size-fits-all financial plan that is not efficient for a huge number of people. This is disrespectful.

Those who are behind financially do not all need the same plan. Personalized advice will always outperform a broad brush.

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Thanks for reading, 

JP

Disclaimer: This article is for informational purposes only and should not be considered financial advice. The views expressed are personal opinions and do not constitute professional financial recommendations. Always consult with a qualified financial advisor before making any investment or financial decisions. Past performance is not indicative of future results. Your financial situation and needs may be different from those discussed. Consider your unique circumstances, risk tolerance, and goals when making financial decisions.