PODCAST EPISODE 286 – Dave Ramsey’s PPP Advice Worse Than Fraud?

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0:15

Oh and welcome to the sound finance group podcast. My name is Paul Adams. I’m your host today solo. Corey is not here. I am alone because Corey is out on family vacation but I was out on family vacation last week I missed talking to all of you. And I have a fun episode for us today. Today we’re going to talk about Dave Ramsey, and we’re going to blow up how some of his principles has significantly damaged a great deal of his listenership.

0:43

Now I have the utmost respect for Dave Ramsey what he’s created, He has created a financial empire by giving people financial advice as a non licensed professional. If you listen to his show, you’ll notice that the beginning and the end of every show, much like this has in our disclosures, like Be sure to check with a tax or legal adviser. Before implementing any of this, you should do that with me. You should definitely do that with Dave. Because in this case, I’m licensed, I’m a fiduciary. So are Cory and Jeff and we can our advisors can offer you that advice. And we’re liable if it’s wrong, the difference between us and Dave Ramsey, Dave Ramsey, is not liable if he’s wrong, because it’s at the beginning and end of every show. And if you were to sue him, the judge would simply look and go that is an entertainer that is not an advisor. So we’re going to be taking one specific look at some of Dave’s advice. Now, much of Dave’s advice is wonderful. And where I think Dave’s advice works best is for people that are broke. Let me explain. If you’re having a hard time paying your bills, if you’re drowning in credit card debt, if you’ve yet to take this step of perhaps becoming a tither, to your church, etc. Some of his principles will work great to get you on that basic track. But some of those same principles when carried into higher income households, or more consequential situations, like the ownership of a business begin to falter out and where it comes from is zealotry. Now, what I mean by zealotry is anytime we’re listening to someone, and they say always this or always that and never this thing, when you hear that, well, at least what it does for me is it has me almost instantly say ah, this person’s a zealot like they’re like Absolutely. Chevy no matter what it’s like, well, shoot, I can’t take your advice on what what I should get for next car. Because no matter what I already know, you’re going to recommend Chevy you’re not going to look at me or my situation, and perhaps recommend a Toyota or a Ford. Similar here. He is so vested inside of his principles that he is going to follow that no matter what evidence is presented to him. You guys may have remember years ago, we did an episode on his 12% return in a good growth mutual fund, and how unfounded that is, and how well he’s defended it over the years. Maybe we’ll do another episode on that little refresh. But we’re gonna get into specifically his advice around the paycheck check Protection Program loan, that was forgivable if you use the loan for the purposes it was meant for like paying overhead and paying employees. Totally forgivable in the terms of the contract. Now that’s key. I want you guys to focus on that is that in the contract that we had with the bank, if you had a PPP loan, it said this is forgivable. Now, if you’re not a business owner, I would encourage you to tune in, and maybe even be more easy to listen to. Because you didn’t take a PPP loan, you may not know that much about it, but you’ll get a real sense of how some of this advice that we get can be made or given to us, because that’s the advice this advisor gives, in this case, Dave Ramsey, but it may or may not be the best advice for your situation. And any advice you get anywhere should be tested with a competent advisor or coach to be able to see if it’s the right move for you. Okay, so with that, we’re going to jump in to our first video where a woman calls in to the show and simply asks, What should I do with this PPP loan? We’re starting at just a little bit in because he had a tech issue in getting her into the call. But we’re gonna watch together. And I may pause periodically through this to just offer a little more context to what Dave is talking about.

4:49

There you are, how’s it going out there? It’s going well, thank you. How can we help today? Mr. Ramsey? I’m so blessed to be able to talk to you. I’m the

5:00

Winner have a small business. I’ve been in business for over 20 years, I don’t have any debts. I never took out a loan on the business. And, you know, we’ve been profitable. And I have three employees. Now, I was advised by my landlords that I rent the business from, I mean the space from and by my financial planner to try, you know, to apply for this paycheck protection plan. And like this for the Coronavirus to pause there for just a moment, I want you guys to notice. She’s mentioning to people that have a vested interest in her business staying successful. And her hopefully building wealth over time, certainly her landlord cares that she is able to pay her rent. And definitely her financial advisor wants her to have the greatest amount of success in her life going forward. So the two people she’s gotten the advice from are people that have vested interest her landlord and her financial advisor in her continuing her financial success that she’s had in this business for the last 20 years. Okay, let’s jump back then.

6:13

And we got a lot of business in. So it would be okay. I mean, I could get through this without taking out the loan. But

6:24

I was told that it was free money. And so what do you it’s five?

6:30

I want to pause there for a moment, because of something that she said is I could get through this without the loan. Something I commend that Dave Ramsey does here is he actually digs in a little bit like what do you mean? How long is that watch? Do I take out the loan? Or do I lay off two of the people that work for me? I thought you said you can make it through it. I can make it through it. But only if I’m by myself? Because I’m the third person, what kind of business? Is it?

7:03

It’s a service industry. Specialized.

7:08

Okay. And so how long before you run out of money? If you don’t take the loan?

7:14

I would say three months. So why can you not make it three months? I can make it three months without laying anybody off?

7:23

No, I

7:25

think she would have to lay them off. If you don’t lay someone off. How long can you make it?

7:30

If I don’t, I would say a month and a half. Okay.

7:35

All right. So why do you have to make the decision now to lay someone off? Or take the lead? Because I submitted the loans to four different banks? I mean, if you didn’t take the loan, yeah, okay. And a month and a half out, assuming the loans are still available, they may not be, but you could take it then right?

7:57

Now, he’s making a point, he’s like, You don’t have to make a permanent decision here. You could take it later. But at least he discloses if it’s still available. Now think about for a small business owner, to employees on payroll, some kind of service business, let’s say that’s $160,000, that could be on her balance sheet that she could take out of an abundance of caution. And as long as you use it for the prescribed purposes, payroll in certain expenses, like overhead, then it’s forgiven, contractually. Okay, here we go.

8:33

Well, that’s a good idea. Hadn’t thought, after a month and a half, I think you could be turned around what service do you provide?

8:41

Now, this is early in the pandemic, he said, a month and a half to turn it around. So I’ll forgive that. Certainly, I don’t want to condemn Him for that part. But just saying if it’s still around, then you could do it. Well, is the principle Dave, we no matter what, don’t take on debt, or after you’ve exercised all these other options, which is really what you see is he says, As you do all of these other things, he’s going to talk about the Ramsey enterprise here in a moment. And he says, As long as you do all these other things first, that before you borrow money.

9:14

And the problem is if the if the principle you’re following is specifically in this case, and I say this as a fellow person that gives testimony to faith in Jesus Christ. He’s following the bible of the borrower is the slave to the lender that you shouldn’t pursue debt, etc. But it’s okay if to do debt, or sin in from his view. It’s okay to sin as long as we did all these other things first, okay. That’s something I can’t theologically agree with. It’s either we’re being good stewards with the capital that we’ve been given given up to and including the capital inside of our companies, or we’re not being a good steward. And I think that that can be measured with math as opposed to be measured in the amount of condescension

10:00

In that you can muster to a color into your show.

10:03

Well, it’s a it’s an art service.

10:07

Okay. All right, cool. Well, the thing is what we told our folks here is,

10:14

are you and your husband in good shape financially, where you don’t have to take an income from the business for a while?

10:24

I’d say we’re okay for a few months. Yeah. Like, if you didn’t take an income for one month, you could keep your people.

10:34

Yes, yeah, I would look at you not taking an income before I laid people off. And I would look at laying people off before I took out a loan. So that’s my point is that here he’s talking about you go ahead and work without pay. Which, by the way, as a business owner, I think one of the most important things like maybe you don’t pay yourself bonuses, etc. But you’re in working that business, you should have the discipline that your business should be able to afford somebody who runs it. So if you overpay yourself, you run your business, you pay yourself 800,000. But if you really hired somebody else, you’d only pay like 200,000, maybe cut your pay back to something more reasonable when things are tight. But you don’t have a business. If you can’t afford to pay your employees and pay someone to run it, you are digging it out of cash, that may be good reason, you got to pare down real quickly, if you can’t even pay your own income, as opposed to, we’re going to do this first and then pare back employees, there is a situation is the boss, perhaps business being slow means we don’t need those same employees, or we could train them up when we need them again, many, many many of person have dug themselves into a tremendously deep financial hole, following this advice Dave Ramsey just gave. And here’s the problem. Dave Ramsey will say, Well, this works, or, but the real problem is people who have done this, and then their businesses fail, they end up deeply embarrassed and ashamed. And if that happens, they’re not going to be talking to you at the brunch on Saturday at church on Sunday or the golf course on Wednesday, about how their business really failed. And the order of operations that they missed in the way they handled their capital. It’ll be the economy or I decided I’d rather work for somebody else. You don’t get that real straight poop. So there’s almost a survivorship bias in the way that we observe the reality of what Dave is saying. Okay, let’s jump back in. The problem with the PPP loan is it is a loan, it has a term with an interest rate, it is not a grant, agreed. PPP was a loan, but it was a loan with a contract that said, if certain conditions were met, it would be forgiven. Okay. Again, say that, again, if certain conditions were met, then the loan was forgiven, not a grant, it is a loan. But what he’s leaving out is that the loan has contractual provisions around forgiveness.

13:09

It has provisions and you can pull the law up and read it. It’s available on the internet. It has provisions for forgiveness of the loan. And that’s why your advisors are acting like it’s free money. If you meet those provisions. Exactly. They’re acting like it’s free money, because they understand contracts. And they’re operating based upon the contract, not based upon. I’ve told people for many, many, many years to not take on any debt, so I can’t possibly change my mind. Now. See, that’s the problem with a zealot. They they can’t adapt badly. And if they don’t change the game in the middle of it, and you’re dealing with the SBA and the federal government, and frankly, I don’t trust their competence. And I don’t trust Congress to not change the game. So this would be my question. I am never going to borrow money.

13:58

So he’d been my question for Mr. Ramsay. I don’t trust them. Okay. So then everybody else you do business with every one of your vendors, the contractors that built your studio, the producers that are behind the scenes any, any contracts he has on his real estate stuff. He does that on a handshake because he only does business with people he trusts or does he have contracts in place? And the contracts dictate the relationship and many, many people he in the Ramsey organization have a relationship with he may not even know well enough to know whether or not he should trust them.

14:30

So what he does is rely on contracts in that instance, but for some reason, not in this relationship to the PPP loan. I can tell you at Ramsey The first thing that will happen is is our leadership team will go without pay. The second thing will happen is is that another layer of our leaders would volunteer likely to go without pay. The third thing that Incidentally, I wonder how that felt to his other leaders.

14:57

They would like to go without pay

15:00

so that I can’t borrow money at 3.75% That would be fully forgivable based upon the contract. I don’t make just think about that for a moment. What does that communicate to your employees? That the federal business right down the road, and I know I get a little impassioned about this. And I don’t mean this is like a disparagement of Dave Ramsey, but I do mean it as an imploring to always filter no matter how much authority somebody has filter, what they’re saying against reasonableness. Think through the consequences of whatever decision they’re recommending that you make. Now, this is three plus years ago. So the damage has been done. But imagine your employee, one of your leaders who’s now having to get partially furloughed, and then there’s a business next door, and not only are they not getting furloughed, but because they’re coming through the pandemic, okay. They are in the position that they’re getting bonuses, why are they getting bonuses? Well, the business owner was smart, and prudent, and read the contract and got a PPP loan. And lo and behold, they managed to also navigate the pandemic in a way that they had growth, that they had profitability, etc. And the PPP loan was still forgiven.

16:12

Every one of those people were the employee had to be furloughed. And it was all because Gosh, darn it, I’m not going to take, as they’ve called it, free money from the government. And as a result, left their employees, maybe their top leaders felt like wow, you’re willing to totally betray me and my family and make me pay part of this, even though I have no equity in the company, because you didn’t want to have a loan for a period of time that was to be forgiven. Let’s put it in perspective. If the SBA in masse said we’re not forgiving these loans, people would be carrying like pitchforks to Congress, like it would be bananas. And yet, we know that they got forgiven. So I’m going to jump out of this video, and I’m gonna show you another.

17:04

Here’s the funny thing. So I want you to notice this clip is three years ago, and one particular thing and you whenever somebody is a zealot, you can usually pick it up from this kind of language. So I’m going to start about two and a half minutes into this one. And here we go. Alright, so let’s get back to the clip here. We’re about two and a half minutes in and we’re going to hear a Dave Ramsey make certain statements. And when people make statements like this, you just know you’ve got a zealot on your hand, it just means you need to double check with this, it doesn’t mean what they’re saying is not accurate. Just got to double check it because you know, they’re not thinking about any more they made their decision years ago, and they’re sticking with it. Here we go admired about you is you have figured out that there are principles when proverbs 22 seven says the rituals over the poor, the borrower is slave to the lender. When you take that as a principle, even when you can technically justify the specific context of a situation, logically, you might can justify taking the PPP.

18:03

And by the way, I’m leaving this in, because for some who are enormous Dave Ramsey fans, this is one of the best arguments for him doing what he does, because he’s sticking to his principles. But as I said earlier, so if Dave, what you were looking to do was follow principles and to you taking out debt is a sin you’re working to avoid why is that sin okay to engage in? After I’ve furloughed, my top executives after I stopped taking an income? And after I’ve fired a bunch of employees? Why is that now the moral thing to do? It’s moral that I put these people out on the street, because I didn’t want to sign a contract that fully said that as long as I deployed the money within my control to the uses, they said to use it for, and I’m going to be no worse economic condition that I was going to be if I had no money, put that together guys, meaning if I had $300,000 for the payroll, and I got $300,000 of PPP, I spent it on those $300,000 worth of people. Now I get it forgiven.

19:05

I could have fired everybody destroyed my business had a bunch of employees that never want to work for me again, all because I didn’t want to take a loan.

19:14

Where’s the morality? Okay, sorry, that was me getting a little. Watching these with you guys really has me tuned up.

19:21

So I wanted to leave that in about the principles. Now let’s pick up as Dave speaks to, and go down the list and say, but it’s logical that and it’s logical. And I can rationalize this. If I want to ignore the which he says, rationalize it, if I ignore the principle,

19:38

all they’re doing is putting extra steps in front of the rationalization

19:43

principle, but there’s some things that are just worth standing on your conviction on a timeless principle. That is, again, a timeless principle that if you’ve already stopped taking an income and you’re already stopped paying your leaders and you’ve already fired some employees, then go get the loan. It’s based on wisdom. Well, let me ask you both this isn’t the

20:00

there’s a trade off of short term pain because you don’t want to have to let anybody go. No leader wants to do that. That’s awful. You’re trading short term pain, to then have long term pain cuz you’re gonna be stuck with this long over the long haul. And Dave, now that right there, this is where

20:17

I’m not going to put it like they’re lying. Because they thought this is true. They had no basis to think this is true, because the contract is very clear in the loan document. But they think it’s true. They’re gonna say it like this. And whether it’s just misinformation or false belief, zealotry, it doesn’t matter. It puts you in the position that somebody may as well have lied to you. Because you have the consequence of not having the hundreds of 1000s of dollars of PPP money because you listen to the Dave Ramsey, who doesn’t know anything about your situation, your employees where your business is going your growth plan. No, no, just

20:57

the only thing they have is this principle that they’re perfectly willing to compromise. As long as they took certain steps. First, Daniel, aren’t we going to see a lot of small businesses that were otherwise healthy, until cashflow stopped, strapped themselves with something they got? So I just think that’s what people aren’t thinking. They’re not thinking of the long term trade off. Isn’t that the real problem? Which incidentally, in some ways, these guys are like freely collapsing the eidl loan, economic injury, disaster loan that was offered with PPP, because you won’t be stuck with the loan. If you use it to do the thing the loan is meant to do. It was 100% forgiven. We’re going to talk about those stats before we’re done here today. We’re not thinking about the fact that they’re increasing their risk. They’re increasing that they are now about to be slave to the SBA or the bank and all these things that Dave’s talking about. And so it’s not free money. Here’s no here is your total tip to hearing a zealot is what’s going to come out of Dave’s mouth next does not no strings attached. Here’s the thing. How many people out there saying right now? And I haven’t rubbed anybody’s nose in this publicly anywhere? We’re about to rub it in his. Okay. I will admit to I have had the thought, but I have not done. I have not done it. How many people are out there saying, Gosh, I wish I had listened to that stupid Ramsey guy that I thought was crazy. And I wish right now I was out of debt. And I had an emergency fund in place.

22:27

And now we’re sitting on it sitting here discussing going into debt in the middle of a time when you just supposed to have learned that this crap doesn’t work. Yeah. I mean, my God, you have the lessons sitting right in front of you. And then you look to your right and go, I’m gonna borrow money. You know, it’s so freakin illogical. It violates two things. One is it tells you that, let me just tell you, there’s one time that debt works. And that’s if everything works.

22:58

False, just false. anybody listening to this, who has a business is ever borrowed money. It doesn’t require everything works, it requires you made a prudent decision. So when some things don’t work, which is always the case, you’re still fine. But debt does not completely fail. If everything doesn’t go exactly to plan. Number one, number two.

23:18

Keep in mind, if you’re five minutes into this video clip, if you were just watching on your own, and it’s really easy to forget that it’s totally forgiven in the contract, if you simply follow the contract, like they leave all of that out.

23:36

And I have never in my life and my personal life or in my business life, and I’m old, had everything work the way it’s supposed to. I can afford the payments, Says the guy who didn’t lose his job until the Coronavirus shut down here.

23:53

And now I can’t afford that car anymore. Which means that by the way you couldn’t afford it to start with.

24:00

And the same is true walking into this. And it’s like, wow, I mean, I could just put the money in the account. And I could turn and pay it off. And yeah, my entire why. Listen, you need to sit down leaders that are running churches.

24:14

And you need to take a pay cut

24:17

or a pay vacation. By the way Congress, you ought to take a pay vacation

24:23

and donate all that money to something. So what we’re going to see here in a moment is he just is walkthrough again, that the Ramseys wouldn’t get paid, my leadership team wouldn’t get paid. Some employees are okay with not getting get paid, so that we don’t have to have any layoffs and then we would have to do layoffs before we would borrow debt. You see, this is where the you know, the this idea of it being a principle would be you know, if you had a principle a moral one, like I’m not going to cheat on my taxes.

25:00

What you don’t do is then give yourself three or four qualifiers, will after those things I can cheat on my taxes. It’s either a principle or it’s not. And it sure seems like what he’s doing is keeping his zealotry in place, and getting the cheese hold his moral ground. Meanwhile, maybe many regular employees have to endure undue suffering, because he doesn’t want to sign a contract that gives the ability to have money come into not his organization, he make his own choice. But he’s telling lots and lots and lots of people that grant him all the authority in the world, that they shouldn’t touch it based upon principle that they should first do all these other things. And in this clip, he says, also sell your assets

25:49

so that there’s enough money to make it.

25:54

Cut your own pay, preserve cash, preserve cash, preserve cash, sell off assets, and protect your people.

26:04

Protect your people. That’s what you do. Okay, so that’s the last part of that super moral statement of protect your people protect your people, unless it requires you signing a contract that Dave Ramsey has a problem inside of his zealous philosophy with you signing, in which case abandoned all that morality. Lay those people off because you didn’t want to sign a contract that was going to have a loan entirely forgiven based upon choices that are 100% in your control as the business owner to keep those employees employed for long enough to have the PPP loan, totally forgiven. Okay. Now, I’m going to share I wanted to share more with you guys. I came loaded for bear today, because I was going to show you how one of his people said, Oh, this is you know, one of His followers like this is such a good idea. I’m not taking PPP there all kinds of YouTubers were doing that.

27:02

It cost he cost his audience a truckload of money, a truckload? Let me give you a little taste of two more clips. All right, so in this next clip, Dave is going to talk a little bit about how it is that there’s all this fraud and such a terrible idea. And this is two years in and these aren’t going to get forgiven, etc. And then we’ll talk about where the real financial damage was done, wasn’t in the fraud, but was in his zealous advice to his listeners. Let’s watch. The easiest thing about doing the show is the answers are always the same.

27:40

That should give you an indicator. That’s why he’s able to do all of his stuff is a show. And he doesn’t have to actually sit with somebody and ask them enough questions. Because financial entertainment, he’s just given somebody the nugget, His answers are always the same. Like he’s telling you he’s a zealot without telling you he’s the zealot.

27:57

You guys riding around in your car, you already know what I’m gonna say. If you’ve listened to show for six months, you know what I’m gonna say when somebody calls in? And why are the answers always the same?

28:08

Because they’re not based on

28:11

nuanced concepts. They’re based on principles. And they came out with a PPP loans, you remember the PPP loans, were gonna give businesses these loans because we told these businesses that they had to shut down because the whole world is going to freakin die. And if you go to a restaurant, you’re going to kill your mother. And so you must die at home.

28:33

And we shut the whole economy down and everyone’s at home sucking their thumb in abject fear. And poverty sets in and the government comes riding in on a white horse and says, We’re gonna give you free money. Oh, wait, it’s a loan.

28:47

But it’s not really a loan. It’ll be a grant because we’re going to forgive it as long as you maintain your payroll.

28:52

I got death threats from some of you morons. Because I told no one to take out these ppb loans.

29:01

I just think it’s important here for me to mention, I do not endorse as much as I don’t like some of this advice for Dave. Threats are inappropriate. But maybe the reason people were angry is maybe they were some of those people whose businesses went under all of their friends had their PPP loans forgiven. And those people’s lives were completely and utterly destroyed by Dave’s advice

29:28

that’s kind of heavy I still don’t endorse shouldn’t threaten acts of violence. But there is zero compassion despite him talking about compassion, zero compassion for the people that his advice may have destroyed by the way, no apology for it. He just quit making any videos about it. This is the last one I could find that PPP in it. Let’s carry on.

29:49

Stay away from it. It’s a trap. Don’t step up on the door. They’re gonna pull the lever. Your churches are absolute idiots for taking out a loan

30:00

All from the government, as if they’re not going to come in and interfere and tell you how to operate and violate your freedom of religion.

 

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