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Tuesday, November 09, 2004

The debt trap

loving this is wrong

Crusade Against Credit

Nov. 4, 2004

"Debt has become a part of who we are. ...That spoiled kid in the grocery store. 'I want it. I want it. I deserve it because I breathe air.'"
Dave Ramsey

With a degree in finance from the University of Tennessee, Dave Ramsey was a millionaire at 30, and again at 40, but in between, he lost everything. Now he crusades against credit to a radio audience of 2 million and growing, offering a how-to, step-by-step plan to eliminate debt.

60 Minutes sat in on the show on a day when listeners called in to perform what Ramsey called an "on-air plastectomy," which means chopping up their credit cards. Kenny from Mississippi used a blender to chop up his seven credit cards.

Ramsey: "Hey, dude, you know that might break the blender, don't you think?"

Kenny: "I don't care."

Ramsey: "Does your wife know this is happening?"

Kenny: "Yes, she's listening."

And when the noise of the blender came, Ramsey commented, "I'll bet that next daiquiri tastes different. Way to go, Kenny!"

For three hours a day, Ramsey takes calls from listeners he calls “typical Americans,” buried under student loans, car payments and over $30,000 on their credit cards.

"This is not a game," says Ramsey. "Debt has become a part of who we are. It's become that spoiled child in the grocery store with their lip stuck out: 'I want it. I want it. I deserve it because I breathe air.' And, well, that's an uphill climb in our culture, right now, to go against that and say, 'Hey, let's be grownups here. Let's be mature, learn to delay pleasure, save up and pay for things.'"

Ramsey is tough on his listeners, but he’s also a harsh critic of car dealers and bankers who hand out easy money and 5.2 billion credit card offers a year, even to people they know can’t make the payments, playing on their self-esteem.
60 Minutes replayed one recent call for him, from a woman named Joan, calling about her husband, and they are deeply in debt.

Joan: "I know you don't advocate bankruptcy, but my husband is so depressed over our debt, and he's talking about it. I'm wondering if there's something we could do."

Ramsey: "He's talking about bankruptcy?"

Joan: "Talking about suicide."

Ramsey: "He's talking about suicide. When did that happen?"

Joan: "Well, just in the last month or so."

Ramsey: "Well. I'm not a counseling expert, but I will tell you, when someone talks about suicide, I go into emergency lifesaving mode. You get in high gear. Do you understand me?

Joan: "Well, he's not the type that would –"

Ramsey: "No, you… no, listen. You did not understand me. OK? This is serious. When it comes out of someone's mouth that they are considering suicide, honey, they're considering suicide today. You get him in counseling. Do you understand me?"

Joan: "Yes."

Ramsey: "Your husband's life depends on your action right now."

Stahl observes that it is almost as if Ramsey took Joan by the shoulders and had to shake her.

"Yeah. Well, she was in denial about how serious it is," Ramsey replies. "The number one cause of male suicide is financial."

When they turned 15, the girls got checkbooks and had to manage their own money. No credit cards or allowances for these kids; they get a "commission" for doing chores like making their beds and cleaning their rooms.

But they can't spend every penny. Following Dave Ramsey's method, they have to put money aside for saving and giving, and they have to live within their means.

Denise: "When our friends would be, like, 'Hey, let’s go to the movies,' it’s like: 'I don’t have the money,' you know. 'Dad, please.'"

Did his kids ever go to their father and say, "This isn't fair"?

Rachel: "Oh, I did."

Denise: "Oh, yeah, at first."

So they would go to him and say, “Will you give me something for the movies?"

Says Rachel, "He's, like, 'What’s in your account?' We’re, like, 'Nothing.' He’s, like. 'No, you’re not going to the movies.'”

And he didn't give in.

But there's a payoff. By the time she was 16 years old, Rachel had saved $8,000. And their father matched their savings to help them buy a car: a used 2001 BMW.

Ramsey spells out his method in books, budget kits, and videos, with instructions on belt tightening, budgeting and, above all, getting rid of all the plastic.

What is wrong with having credit cards, as long as you pay them off immediately and don't have the interest problems?

Ramsey's answer: "The big thing you have to look at, though, is this: When you spend cash instead of spending plastic, you spend 12 to 18 percent less... You know why? Because cash hurts. You don’t register the pain with plastic. I mean you go buy a stereo you start layin' out Uncle Benjamin on the counter you're goin', 'Wait a minute. I want to think about this a minute.' Whoa!"

Ramsey knows he is up against the credit card industry, one of the most powerful industries in the United States.

"I'm not in the macro business, I'm in the micro business," he says, emphasizing reaching out to one person at a time. "But we’ll see some shifts. For instance, this year, debit card charges outnumbered credit card charges for the first time ever."

Back in the radio studio with Ramsey, 60 Minutes listened as a bachelor named Fred from Nashville called in. He had sold his ski boat and two cars and was finally debt free.

Ramsey exhorted him to, "Scream 'I'm debt free' at the top of your lungs." And Fred did it.

Ramsey concludes, "$46,000 paid off in three years. Don't miss the numbers. $46,000 paid off in three years, making $36 grand. Why? Because he decided to take control of his life. Rather than letting life and bankers happen to him. It's the Dave Ramsey show."

One of the things Dems will have to explain to people is that the cycle of debt they are living in is no accident.

Values issues are the vehicle of economic anxiety. No one wants to face a cruel truth about America. To live middle class is to live facing large debts. We have created a sense of consumerism which is deeply embedded in every aspect of our lives. Sunday morning, after you walk the dog and make the coffee, turn on one of the church services, Creflo Dollar, TD Jakes, doesn't matter. All of them pander to their buppie audiences and tell them that making money is what God wants you to do.

I get pissed when I hear that. Of course, they tell you the route to success is making sure that your church gets their tithe as well.

Europeans share the costs of their middle class lifestyle in their taxes. Americans don't. We make economic issues personal issues. Dave Ramsey is using common sense. We think that owing money is just part of life. Jen wants a new TV. A nice flat screen TV. Now, she could place this on her credit card, but why? It's a TV. She's not going to get a sattelite dish and Sunday ticket. She might watch the Sound of Music on DVD. Instead, she's paid down her debts, like I did when I got some cash, and is going on vacation. Now, she could have bought that TV, but then she wouldn't be going on vacation if she did. I bought my TV, and will not be going on vacation until the dead of winter. Of course, I'm going to Miami, I hope.

But many people think that they have to have everything, the vacation, the TV, that their personal well-being depends on athe things they own. They simply refuse to make choices. They don't want to choose what matters.

But the middle class are lucky in that they can pick and choose. The poor face the same desires and less options. There is a large industry based on renting furntiure and jewelry to the working poor. Rent-A-Center, Colortyme, they prey on the poor. They hide the cost in low, monthly payments, which when you add it up, costs more than simply saving.

Now, the credit card companies are looking to jump to the head of the line again with the new bankruptcy law. Ahead of everything but child support. Why? Because people can't pay off their debts.

This is political, not just financial. People are in debt because the laws allow companies to underpay their workers and keep their profits. Too much of this is based on blaming people on not saving and not exploring the way American companies do business and treat their workers. But Ramsey is right in the sense that we do not teach financial discipline. And the credit card companies rely on that.

posted by Steve @ 1:46:00 PM

1:46:00 PM

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