TEXT OF INTERVIEW
Tess Vigeland: Can you imagine living without credit? I know, I know, plenty of you do. Bully for you. No really, it’s great.
But lots of us do use credit and that means we have debt. Mortgages, car loans, credit cards, of course. Well, last week we brought you the first part of a conversation with a man who preaches the gospel of being debt-free.
Dave Ramsey hosts a radio show and has written several personal finance books. And we were interested in getting his perspective, which is in many ways different from what we say on this show. Example: we talk about how to boost your FICO score. He says the only reason to have a FICO score — and worry about it — is if you love debt.
Ok. So. Today we’re starting with the question of why and how we became this nation of borrowers and exactly when debt lost its social stigma.
Dave Ramsey: It’s roots are in the 70s, when debt became a product that was marketed by some of the most masterful marketing minds that the planet has ever known. The selling of debt as an absolute necessity to live, is really one of the most masterful marketing jobs in the history of the world. We live in the most marketed culture in the world and the most money and the most sophistication used to sell any product, is used by the banking industry.
The credit card people have done a phenomenal job of integrating their product line into our psyche to where we truly believe that we can’t live without it. That’s amazing marketing. THat began in the 70s. It took deep roots in the 80s and by the 90s we were seeing five and six billion credit card offers a year going out to where, dead people and dogs were issued on a regular basis.
Vigeland: Once people have paid down their debts, you do talk about investing in growth stocks and at least in “The Total Money Makeover” book, you talk about how they earn an average of 12 percent or so over a very long time horizon. I wonder if that or if any of your other advice has changed because of what happened on Wall Street over the last 10 months are so.
Ramsey: Well the history of the stock market doesn’t indicate 12 percent as of today, any longer. The book was certainly printed before this last year that we’ve been through, which has been really terrible. But you know, the weird thing is, is since inception the S&P has averaged 11.4, even after all of this. Or 10.8 depending on which year of inception you want to go back and dig out. Somewhere in that 11 percent range is still fairly realistic over a long time horizon.
And you really should not be invested in the stock market, unless you’ve got a long time horizon. People who lose money in the stock market are people who jump in and out all the time. And there’s, as you know, thousands of indicators of that in studies that were done. A buy-hold scenario or a Warren Buffett approach is the only way to play. Gosh, if I thought I’d try to time the market, that would scare me to death.
Vigeland: So you still trust Wall Street?
Ramsey: There are components of Wall Street that we should never trust, because there are people who are always going to misbehave. But in general, do I believe in American business? Absolutely. I mean 10, 15 years from now, are we going to be glad we’re invested in Coca-Cola, Wal-Mart, Microsoft, Home Depot? Well I think you’re rather foolish if you’re not.
Vigeland: Do you think that the current crisis will change our behavior long term?
Ramsey: For a number of people under 40, emotionally, this will be their Great Depression. It’s nowhere near it economically. But emotionally, this will be the time “I remember back in ’08,” and they’ll be telling their grand kids that when they’re trying to convince them not to go deeply in debt. You know, instead let’s be conservative, let’s be mature. And this event will be that for a number of that generation.
Vigeland: And finally, what do you think this country would look like if we all stopped using credit? There are those the who say the economy would go to hell in a hand basket, not that it already hasn’t.
Ramsey: If we stopped using credit instantaneously, it would destroy the economy. If i had the power, I would not suggest that. But here’s an interesting thing. Think about the people out there today, who are walking around in this recession, who have no debt and who have an emergency fund and have some liquid cash, they’re going to make more money in the next 18 months than they have ever made in their entire lives probably. This is a wonderful opportunity to buy real estate and the stock market’s on sale.
Instead, what we’ve got is people on the other side of that coin, who are leveraged to their eyeballs, can’t breathe and the scare, just the fear that they might lose their job has completely paralyzed them as consumers. If we had a larger portion of our culture without debt, with some cash reserves, the economy would grow more steadily and with a lot less volatility. Because consumer confidence, the whims of emotion, would not drive the market up or down every month, because they weren’t living on the edge.
Vigeland: Dave Ramsey is the author of “The Total Money Makeover” and also the host of the “Dave Ramsey Show.” Thank you so much. It’s been a pleasure talking with you.
Ramsey: Thank you for having me. Any time we can help, OK?
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