It is unfortunate that radio “shock jocks” now influence personal financial planning. Dave Ramsey appears not to be very well educated in basic personal finance. In spite of this, the power of the radio gives him a following. What is really terrible is that it appears he does not care to clean up his mistakes. He has to “appear” to be right at all times to maintain his standing among the ignorant who listen to him.
I am not saying all of his advice is bad. However, once the advice goes beyond “do not take on debt” and “be careful about what you spend your money on,” he basically seems lost.
Dave Ramsey made the following statements which are just not true.
1. Roth IRA vs. the traditional IRA
“The Roth IRA is always superior to the traditional IRA.” (Listen to the radio clip here.)
According to Ramsey, the Roth IRA is superior to the traditional IRA because you can take out the funds tax-free. But the math says otherwise. If you are in a lower tax bracket at retirement, you are ahead with a traditional IRA.
2. On participating in a company’s employee stock purchase plan (ESPP)
“I would not do it. Honestly, how much would you make off it?” (Listen to the radio clip here.)
Basically, an ESPP allows an employee to buy company stock at a 15 percent discount. Assuming the stock does nothing, you make about 15 percent. Unfortunately,I do not think Ramsey even knows what an ESPP plan is.
3. Concerning investments
“I recommend mutual funds because they always beat the S+P 500.” (Listen to the radio clip here.)
Not true. Some studies indicate that about 80 percent to 90 percent of mutual funds do not beat the S+P 500.
4. FICO scores
“If someone has no debt, there [sic] FICO score is zero.” (Listen to the radio clip here.)
Nice try — but the minimum FICO score is 300.
5. It does not stop
His other statements like, “a CD is not a safe investment” due to potential losses which take place because of inflation and “mutual funds which have high expense ratios are more popular” may be subject to debate. It appears that he has no peer review — in fact no review or supervision whatsoever.
My opinion as of today? He is not qualified to opine on financial matters. I suggest he enroll in a CFP, QPA, or QKA program to learn about financial planning and/or retirement planning.
Editor’s note: All images and screenshots from daveramsey.com.