Dave Ramsey may be an expert at running a toxic company where employees aren’t even treated with basic respect, but when it comes to giving financial advice, he has a questionable background at best. Earlier this month, he gave some truly dumb advice to a woman whose husband got taken advantage of by a Kia dealer. And even if we ignore his stupid envelopes-of-cash system, that’s far from the only example of Ramsey giving bad advice. This time around, Yahoo reports he’s back on his “a car payment, you’ll die alone, broke and miserable” bullshit.
“I guarantee you’ll be broke your whole life as long as you stay in car payments because it’s the most expensive thing you buy that goes down in value,” he said in a recent TikTok series before claiming, “The average millionaire drives a four-year-old car with 41,000 miles on it, and of course, it’s paid off.” He also told listeners to avoid buying a new car because it will lose between 60 and 7o percent of its value in the first four years.
It’s the same ham-fisted, overly broad advice that Ramsey’s been giving for years and, of course, never bothers to define what “millionaire” really means. Someone who owns a $350,000 house and has $650,000 invested for retirement is technically a millionaire, but that’s far from the type of person that comes to mind when most people hear “millionaire.” Also, cars losing 70 percent of their value in four years hasn’t been true for, what, at least five years?
He’s not exactly wrong that you’ll have a lot more money if you invest $500 more per month for 40 years vs always having a car payment, but what percentage of people actually do that? Some of Ramsey’s fellow mega-millionaires? A small number of more regular people? Because that’s definitely not normal behavior.
Obviously, you shouldn’t buy things you can’t afford, especially when there’s interest involved, and used cars can definitely be a better deal if you find the right one. At the same time, you’re usually giving up the manufacturer warranty if you go used, and that’s not even accounting for how long you plan to keep your car. Someone who finances a reasonably priced car for their income level and plans to more or less drive it into the ground isn’t going to be affected by its depreciation even if it loses 90 percent of its value in five years.
Ramsey’s advice also ignores the time value of money. Plenty of people have the money to pay for a car in cash but decide not to because they’re able to get interest rates that are lower than what their investments are earning in the stock market. If you buy a car with cash that would have earned eight percent a year on a car that you could have financed at three percent, you’re giving up a good bit of money just to avoid a loan.
Let’s also not forget the number of people who need a reliable car to get to work every day. In a perfect world, public transportation in the U.S. would be fast, convenient and affordable, but we don’t live in a perfect world. We live in America where driving is essentially mandatory, and many people can’t afford to pay cash for a car that they can depend on to get them to work day in and day out.
And since at-will employment is the name of the game here, a whole lot of workers have to worry about losing their jobs if they’re late or forced to call out because of a breakdown. If financing a (presumably used) car allows them to finally drive something reliable, odds are, they’re going to be in a much better financial position five years from now than they would be if they took Ramsey’s advice. You know, because of that whole thing where they’re able to not only maintain consistent employment but also because it gives them the ability to switch to a higher-paying position more easily.
The truth is, everyone’s financial situation is different, as are their financial goals. The right decision for one person may be the wrong decision for someone else, and that’s OK. Heck, someone with a massive amount of credit card debt might even benefit from carrying envelopes full of cash with them everywhere they go if it helps them get their spending under control. Unfortunately for Dave Ramsey, the world is full of far more nuance than his “everything is black and white” brain seems to be able to handle.