Who's Doing More to Fix America's Economy: Barack Obama or Dave Ramsey?
Ever since the financial crisis hit full steam in the fall of 2008, we’ve grown accustomed to thinking of the carnage purely in macroeconomic terms: systemic risks to the financial system, hemorrhaging deficits, an anemic housing market, etc.
Yet lost in that interpretation is the microeconomic aspect, which, while affected by public policy, also depends largely on prevailing cultural and moral norms. America, it turns out, is not just a debtor nation; it is a nation populated by debtors. As a piece in Saturday’s Los Angeles Times noted:
U.S. households owe a combined $11.5 trillion on credit cards, car loans, mortgages and other consumer debt, according to the Federal Reserve Bank of New York.
The piece (which is well worth reading in full) goes on to profile how four Southern California couples unwound themselves from chronic debt. It turns out that two of them had Dave Ramsey, the Nashville-based radio talk show host who offers personal financial advice, to thank. Of one couple:
Following a method in one of Ramsey's books, the couple began tracking every expense.
To get feedback on spending, [they] used the time-honored envelope budgeting system. Taking an envelope for each category — such as groceries, gasoline and entertainment — they inserted enough cash to cover monthly budgeted expenses. Each time they took money out, they noted what it was for (if a debit card was used, they noted the amount).
They dramatically slashed their dining-out expenses from $800 a month to $80. They did away with cable, nixing $70 a month, when a friend built them an antenna capable of picking up digital signals.
Their son gave them a book by Dave Ramsey — whose radio show and personal appearances about handling debt are widely renowned — to show them how they could track their spending. Out came the envelopes … and they began paying for things with cash as much as possible. "Before the month begins, every dollar has a name," Dan said.
It became almost a game to find ways to save. Instead of buying $30 bottles of wine, Dan used his know-how to discover decent wines for $6.99. After they stopped dining at fancy restaurants, they went to chains such as El Pollo Loco. But then they realized they could save more by having chicken and a salad at home.
The first couple cited above has lowered their debt from $106,000 to $1,000, which they plan on paying off this month. The second has gone from owing $680,000 to their creditors to only $3,000, which they expect to be clear of by the time the summer rolls around.
As these examples show, Ramsey – who counsels against the evils of debt at every turn – has become a sensation throughout the country, largely because his methods, when faithfully applied, consistently work. Against the trend of the age – the get-rich-quick scheme – he preaches instead the virtues of prolonged, patient savings, budgeting, and abstention from debt.
That there is such a robust market for his message augurs well for us. That so many Americans had to turn to their radios for lessons that were taught at the kitchen table only a few generations ago does not.