Category: Dave Ramsey

College Students Borrow Money for Pizza and Beer

Free Money Finance has a post this morning which is a riff on a quote from Dave Ramsey to the effect that the average college student graduates with Green Beer - Kathleen Conklin $15,000 in debt, which is also about how much the average student spends by living off campus and not eating in the cafeteria.

The $15K figure is, at the very least, out of date. The quote was from Ramsey’s book, published in 2003, and he cites as his source a conversation he had “a couple of years ago.”

But it has a bigger flaw than that. This is one of those numbers where average should not be confused with typical. Strange but true, many college students graduate with no debt. Others graduate with many multiples of the average.

So I have a lot of trouble with the premise that there exists a big population of college students who would have graduated without any debt, had they not modestly improved their lifestyle by living off-campus. But for the sake of argument, let’s accept the premise at face value. Assume that a college student has borrowed $15K solely to live a little more comfortably, that is, for pizza, beer, and the like. Is that a bad thing?

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The Difference Between Food and Money

From some spam I got yesterday:

Dear Customer,

As someone who has shown interest in books and magazines on cooking, you might like to know that you can get a $5.00 instant discount on SmartMoney this month.

Ice Cream Lotus Head

I’m not entirely sure what is going on here. It’s possible that it’s just a mail-merge typo, that the text "cooking" was accidentally put in where Amazon meant to write "finance and investing." I like eating as much as the next guy, but describing me as somebody "who has shown interest in books and magazines on cooking" is quite a reach. On the other hand, I do keep buying books about finance, so flogging SmartMoney to me makes some sense.

But there is another, less likely, explanation that I would rather was true. I would rather that the algorithms at Amazon that tell them that people who bought A might like to buy B have found that personal finance and cooking/nutrition/dieting are similar topics with similar audiences.

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Bad Times for Credit Cards

On Monday the New York Times ran a piece that, in a better world, would not have been news. Turns out that credit card companies are often willing to settle delinquent accounts for less than what is owed. Golly.

The article did contain an important tip for those in serious credit card trouble. When the card issuer calls you out of the blue and offers to let you C Cards 2 (Andres Rueda) settle the whole thing for 80 cents on the dollar, you should, without hesitation or reflection, say no. Then hang up. They’re not calling because they think you’ll pay them eventually. That 80% is what we Wall Street types call a “first offer”.

The Times piece tells the story of a guy who got a call like this, said no thanks, and then when the company called back a few weeks later, offered them 50%.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

Where I come from, the account rep would be considered very rude. Proper etiquette would have been to put the customer on hold for thirty seconds while pretending to beg a supervisor to okay the deal. At the very least, the rep could have heaved a big sigh and mentioned something about how will probably be fired for this.

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On Money and Psychology

One of several recurring sub-themes here at Bad Money Advice is that some givers of personal finance advice, particularly the mass market gurus, say things that can only be justified assuming an irrational audience incapable of acting in their own best interest.

Freud Note So, for example, when Suze Orman tells her readers that they should absolutely never borrow from their 401k account to pay off a credit card balance, I give her a hard time for giving terrible advice based on the assumption that her audience has no willpower and will merely run up the credit card balance again.

But when I criticize the gurus for giving bad money advice that is, in fact, bad psychotherapy, I do not mean that everybody ought to be able to behave in a perfectly rational manner around money. Quite the opposite. We are all merely human, not uber-logical Vulcans. We act sub-optimally around money (and everything else) for a variety of emotional and behavioral reasons.

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MIllionaires as Role Models

Free Money Finance had a post yesterday asking How Much of a Role Does Luck Play in Money Success?  This was in turn inspired by a Wall Street Journal blog post similarly titled What Role Does Luck Play in Getting Wealthy?A-Rod

(I have trouble making heads or tails of that blog, The Wealth Report.  Sometimes it sounds like serious reporting on the world of the seriously loaded, e.g. Switzerland Ranks No. 1 as Home for the Rich, and sometimes sounds like The Colbert Report’s Colbert Platinum segment. e.g. Oprah: It’s Great to Have a Private Jet.  Alas, I digress.)

The degree to which financial success is correlated with talent and hard work, which is to say the degree to which money is distributed justly in our society, is a fundamental question of great importance that I don’t have the energy to tackle today.

What I do want to consider is a smaller and related question: are rich people necessarily good at personal finance?  It’s a basic premise of a large segment of the personal finance literature from The Millionaire Next Door to Secrets of the Millionaire Mind through Kiyosaki’s Rich Dad series.

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