Business December 2009

Lead Us Not Into Debt

Finance guru Dave Ramsey wins followers with a simple message: find God and lose your credit cards.

Dave Ramsey looks nothing like a televangelist. He’s a little on the short side, neither fat nor thin, and he wears jeans and a sports jacket, not a shiny suit and an oily smile. With his goatee and what’s left of his graying hair trimmed close to his head, he looks mostly like what he is—a well-groomed, middle- to upper-middle-class American professional. But when he runs out onstage and starts dispensing financial advice, you realize that he could have been a great preacher.

On a fine summer day at the end of August, I paid $220 for front-row seats on the floor of a minor-league hockey rink in Detroit, just to hear Ramsey talk for five hours. The ostensible topic: getting your financial life in order. Afterward, my fiancé, who grew up in the Bible Belt, called me to ask what I’d thought.

“I think I just attended my first prayer meeting,” I told him.

There was, of course, a great deal of talk about money, and what to do with it. But the format was more tent revival than accounting seminar, with the first 90 minutes or so mostly devoted to Ramsey’s personal story of ruin and redemption. We heard how, during the second half of the 1980s, a young Ramsey built up a multimillion-dollar real-estate empire—then lost it all as the bank got nervous and called his loans, ultimately forcing him and his wife into bankruptcy. How, searching for help in his hour of need, he turned to the Bible and discovered Proverbs 22:7: “The rich rule over the poor, and the borrower is slave of the lender.” At that moment, he told an audience so hushed that we could hear the ice squeak, Ramsey decided to never borrow another dollar again.

By all accounts, he hasn’t—a commitment that many business owners would like to catch him out on, since his disciples routinely shun lucrative financing deals at car dealerships, furniture stores, and electronics warehouses. The merchants’ loss is Ramsey’s gain: he has become rich spreading his debt-free gospel. The Dave Ramsey program got traction in evangelical churches, which are still one of the biggest distribution networks for his 13-week video program, Financial Peace University. Ramsey is not the first evangelical to sell financial advice to his co-religionists, of course. Jim Sammons, Crown Financial Ministries, and others all offer similar messages to get out of debt, tithe, and so on—not to mention the far more numerous proponents of the so-called prosperity gospel, who encourage consumption rather than restraint because they believe that God will shower the faithful with riches (see “Did Christianity Cause the Crash?,” page 38).

But although other evangelical financial advisers flourish mostly within their religious communities, Ramsey has made himself the breakout act, bringing his basic message to the wider world. His programs are available in high schools and on military bases, and Ramsey himself can be heard through his daily radio show, his nightly Fox Business broadcast, his Web sites, his live events, and his many books, including a special line of children’s stories. His company, the Lampo Group, now has hundreds of employees.

Ramsey offers some investment advice (much of which would have struck horror in my business-school professors), but for most of his followers, the main attraction is a simple program: give 10 percent of your income to charity, save 15 percent for retirement, build up a sizable emergency stash and a college fund for your kids, and above all, stop borrowing money. Ramsey devotees pay cash for everything they can. They are allowed only one exception to the no-more-debt rule: a 15-year fixed-rate mortgage. He is so serious about shunning debt that his Web site takes only debit cards; try to pay with a Capital One Visa, and the system rejects the card, then tut-tuts at you. These simple, austere, unbreakable rules are, as Ramsey likes to say, “the advice that God and Grandma gave you.”

Video: Watch a scene from Ramsey’s “Town Hall for Hope” event in April 2009

Most things sound a lot crazier from the outside, and so once I’d decided to write about the friendly, slightly bombastic man on the television screen, I thought I should try his program, as outlined in his book The Total Money Makeover. At the beginning of August, I had dutifully sat down with Peter, my fiancé, to draft a budget. Once we’d given every dollar a name (as the book puts it), I drove to the bank and withdrew 1,800 of them. Huddled over the wheel to hide this stupendous wad of cash from prying eyes, I doled out the money among various envelopes for groceries, parking, entertainment, clothing, and so on, as recommended by Ramsey—and, funnily enough, by my grandmother, who invented a nearly identical system to manage my grandfather’s meager earnings from delivering groceries during the Great Depression.

When you pay for something with a credit card, or even a debit card, you can easily spend a few extra dollars here and there. But as Ramsey explained—while waving a handful of hundred-dollar bills to illustrate the point—if you have to actually hand over some of your dwindling cash supply, you tend to ponder every purchase. That impulsive latte buy becomes a little less enjoyable when every time you haul out your wallet, a quavering voice inside your head asks, “You want to send Uncle Abe away?” And sure enough, though we thought we’d budgeted conservatively for just the necessities, we nonetheless finished the month with extra money in every envelope.

It’s also hard to spend cash, because so many people look at you funny when you try. The very first day, I spent almost 20 minutes trying to check out in the “better dresses” section of a department store. The saleslady stared at the hundred-dollar bill in her palm as if I’d just handed her an eel. After a series of plaintive looks at my obviously card-free wallet, she started stabbing at the cash-register keyboard with a sort of bleak despair. To my immense surprise and relief—and clearly, also to hers—the cash drawer eventually opened.

Ramsey calls this “being weird.” The phrase came up over and over again in his five-hour spiel, always punctuated with the same rejoinder: “Normal is broke.” During our first month on the Dave Ramsey program, I was startled to find out how true this is. When I described my project, a really shocking number of people, many of them married professionals with good incomes, confessed that they had no control over their money.

They aren’t much different from most of America. According to a recent survey from CareerBuilder, six of every 10 workers “always” or “usually” live paycheck to paycheck. Affluent, educated people do a little better, but they certainly aren’t immune—three in 10 of those with salaries above $100,000 also report that they’re spending it as fast as they make it.

In fact, in some ways, education makes living above your means easier. In business school, my fellow students and I became big fans of the idea of “consumption smoothing,” as laid out in the work of economic luminaries like Milton Friedman and Laurence Kotlikoff. At least as we read it, the theory told us to do what we wanted, which was to spend money on stuff we didn’t quite need. After all, we’d be making good money when we graduated, so why not borrow a little against that future income to buy a car or go to Cancún?

Ramsey could have told me why not, but I doubt I would have listened; it’s a lesson you can perhaps learn only firsthand. I graduated into the teeth of the 2001 recession $100,000 in debt. My six-figure job offer evaporated when the consulting firm fell on hard times. It took me two years to find a permanent job, and when I did, that job was in journalism, which paid about a third of what I’d been expecting.

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Megan McArdle is The Atlantic’s business and economics editor, and the editor of the business channel at

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