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Dave Ramsey: Recession doesn't change advice

The silver lining of the downturn is that more people are learning to live within their means, he says.

By Teresa Mears Jan 12, 2010 3:23PM

What should people do to improve their finances during a recession?


The same things they should have been doing before, financial author Dave Ramsey tells Success magazine: “Live on less than you make; get out of debt; have some money set aside for a rainy day, because it’s going to rain; invest for the future; learn to give.”


Ramsey tells Success that the recession hasn’t changed his advice, though reduced incomes and job losses have made it more difficult for some of his followers to pay off debt.


“What the recession has done is turn up the volume, so [that consumers] sometimes experience more hopelessness,” Ramsey said. “We try to show that there’s a light at the end of the tunnel, not a train. Hope is a major product of ours.”

Back in September, Ramsey actually wrote a paper entitled “Has Dave Changed His Views on Anything?” The short answer is no.


Ramsey has a strong following nationwide. Author of “The Total Money Makeover," he is particularly popular among evangelical Christians, and his course, Financial Peace University, is taught at many churches. He also has radio and TV shows.


Some of Ramsey’s advice goes against the conventional personal finance current. For example, he doesn’t care about FICO scores, because he is opposed to using credit. He advocates “The Weird Way to Buy a House”: If you absolutely cannot pay cash, put at least 20% down and get a 15-year fixed-rate mortgage with a payment that is no more than 25% of your take-home pay.

He advocates the “debt snowball,” attacking the smallest debts first, even if those aren’t the ones with the highest interest rates.


Jim Wang at Bargaineering likes the debt snowball approach, saying: “Dave Ramsey might not be giving you the mathematically correct plan but he also knows that personal finance is as much about psychology as it is about math.”


MSN Money columnist Liz Pulliam Weston explains the difference between the “debt snowball” and “debt avalanche” methods of paying off large debts, saying that some people do better with one approach and some with another.


On his Web site, Ramsey reminds his followers to “recession-proof” themselves and avoid panic:

Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won't feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? You are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.

In the Success story, Ramsey talked about a landscape company owner who doubled his income during the recession. “He really, really wanted to get out of debt,” Ramsey told the magazine. “He worked twice as much, and he worked twice as hard to get clients. He refused to participate in the recession.”


Jason at Frugal Dad describes himself as “a huge Dave Ramsey fan,” but he is skeptical that everyone has a choice about whether to participate in the recession. He writes:


My mom suffered an aneurysm and stroke at 53 years young last September.  She did things the right way – had a good job, good insurance, a little (very little) socked away for emergencies.  But nothing could fully prepare someone for 162 days in the hospital out of the last eight months, being reduced to disability pay, and watching her retirement savings be decimated in a bear market. It was a perfect storm in her financial life, and it will probably affect her for the rest of her life.

Megan McArdle, business and economics editor at The Atlantic and “a secular journalist with one of the pricey M.B.A.s he likes to poke fun at,” decided to try Ramsey’s system. She wrote

I have never felt as serenely in control of my finances as I have during these months of knowing that every single dollar is where it is supposed to be: either in the bank, or on a well-chaperoned date with our envelope organizer. The process has been surprisingly painless but, even more surprisingly, pleasant.

Frank Curmudgeon at Bad Money Advice is not impressed with Ramsey’s advice. “His advice on higher level personal finance topics such as investing and taxes is weak and often misinformed because his knowledge in those areas is limited,” Frank wrote.


It’s hard to argue with Ramsey’s core advice: Live within your means, don’t go into debt and save for a rainy day, because there will be one. Debt snowball or avalanche? Mortgage or not? Credit cards, yes or no? We could find dueling financial gurus on all of these topics.


Ramsey told Success he sees a silver lining to the recession:

The wonderful news about this recession is it will permanently change some people’s attitudes about spending and debt. It’s this generation’s Great Depression. People in their 30s have never experienced anything like this. They’ve learned their lessons. They’ll limit their lifestyle to stay under their income for their lifetimes. They’ll curb their spending and stay out of debt.

What do you think? Have you found Dave Ramsey’s advice useful? Do you think we are learning any lasting lessons from this recession? And if you follow his advice and keep your finances in order, can you “opt out” of participating in a recession?


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