Pay Off Your Mortgage
From Zanecorpwiki
As mentioned elsewhere, I like to check up on talk radio pundits. The other day, it was Dave Ramsey who was answering mail (email?). He read one from a guy who said that he'd been in econ class, where the professor told him it was a bad idea to pay off your mortgage. The kid said that he'd stood up to that stupid old professor--speaking "truth to power" I suppose--and the kid told the prof "You're wrong!" because he'd heard as much on the Dave Ramsey show. But the kid could not remember any of the reasons why, and wanted Ramsey to remind him so he could tell the prof off properly next time.
Dave then opines that it's useless to try and tell a professor anything because you only become a professor if you're too stupid to get a real job. He advises the youth to simply nod his head and get his degree because any kind of discussion would be useless.
After taking this courageous stand against what the most of the world regards as the preeminent secondary education system, Ramsey goes on to say that the prof in question must never have had a course in finance because the first thing you learn in finance is that you have to consider opportunity cost. "Pay off your house because you can then use those house payments to invest! It's simple math!"
Well, I did the math... do it all the time in fact, and it's not that simple. Ramsey's system is useful for people that don't know any better and who can easily get into trouble. I'd go so far as to say that most people in the US would be better off following the system Dave proposes[notes 1]
The problem is not his system, but how he characterizes those that don't follow his system. The truth is Ramsey's system is useful because most of us don't have the time, expertise, or incentive to do sophisticated financial planning or the psychology to appreciate non-cash transactions. None of that, however, means that the professor was wrong.
Ramsey, who does know a lot about this stuff and used debt leveraging himself in a previous life, is being disingenuous on this point. Rationally, he knows the professor isn't wrong and that's the reason the kid shouldn't confront the prof.
Injecting this artificial "us vs. them", "the powers that be are lying to you", "this is the truth", and even going so far as to lie about how basic arithmetic works is unnecessary. It simplifies things to the point of making them simplistic and wrong. It's signaling irrationality, part of the martyr complex, and deeply ingrained in the Modern Evangelical Narrative, but it's bullshit.
Debt isn't terrible, the inability--for whatever reason--to deal with debt is terrible. Most people, with moderate incomes and moderate goals wouldn't get much benefit from a finely honed financial strategy anyway so a no-debt strategy that trades some small probably gain for a significant reduction in risk is a perfectly rational strategy.
It's one thing to make irrational claims. The need to be irrational is so strong, however, that Ramsey is taking perfectly rational advice and making it irrational. That's nefarious.
Notes
- ↑ Which is, of course, nothing Ramsey invented or you should pay him any money for, he's just popularizing cash based budgeting that our grandparent's used before credit cards and the like.
