I agree with many things that Dave Ramsey says, this is one of those rare, yet glaring exceptions.
On a Facebook Meme this morning, Dave Ramsey issued, “Debt is dumb. Cash is king.” Without further explanation, I must take an exception to this blanket statement.
“Debt is dumb.” If you’re both broke and in-debt (Mr. Ramsey’s largest audience) adding more debt without asserting some control to increase your discretionary income, to increase your power to reverse that situation, is indeed dumb in most situations. A consolidation loan (more debt), certainly not my first choice of solutions, can help in certain very specific situations. Leveraging your wealth against the wealth of another (using debt) so that you can maximize your profit, is how people who understand money put money to work. Relying solely upon your own wealth is how you stay broke or vastly extend the time it takes to create wealth.
“Cash is king!” At this current point in time, this is the most dangerous idea he could drop on anyone, broke or otherwise. Cash, or US currency more specifically, has lost more than 97% of its value since 1913 and the silver dollar (1 oz of .999 fine silver) now takes over 18 one-dollar Federal Reserve Notes to acquire. That fiat currency system seems destined for ultimate doom and complete loss of its value.
I’ve written on this fact on several occasions and site the work of other industry leaders in so doing. Liquidity of your wealth is very important, and if that’s what Mr. Ramsey meant, he should state it that way. Holding that wealth in Federal Reserve Notes beyond a reasonable level, guarantees that you’ll lose most of your purchasing power if the currency crashes. Of course, a level that is reasonable varies with each person’s need for immediate or emergency cash. There is a museum in Germany dedicated to the history of paper money where you see that every paper currency except those currently in circulation has reverted to its inherent value of zero. Eventually all paper currencies fail, if we are to believe history.
I tried to follow his Facebook post to see if he qualified his post with any explanation, but it was merely a photo, a meme. Brief statements with no explanation. Sorry, but given as an all-encompassing statement, this is advice for broke people who are destined to stay broke. It’s not very effective advice without a good deal of explanation, and therefore earns my Thick as a Brick award.
In most cases, Dave Ramsey’s advice is often useful if you’re broke and trying to get out of debt. He can certainly get you started, but blanket statements like this make me very concerned for how they are being understood and applied by those that follow the advice.