Issue with advice Dave Ramsey gave yestereday

[disneysteve]

Thanks to my new iPhone, I have started listening to the DR show, something I couldn't do before because it isn't carried in my area. Overall, I have to say I've been enjoying it. I still disagree with him on a couple of specific issues but I think his advice is sound and helpful to a lot of people.

He said something yesterday that I take issue with, though, and I'm curious what the DR followers here think. A guy called in who is considering going back to school to finish his degree. He didn't mention his age but he has a 12 year old child so I'd guess at least mid-30s to 40ish range. He and his wife have been contributing to their Roths but not to any college savings. His question was that he can't afford to do a 529 and go back to school and wanted Dave's advice. Dave's answer was to stop the Roth contributions, go back to school and start the college fund. His reasoning was that the guy would only be in school for 2 years and after that he could restart the retirement savings.

I think retirement should come before college savings. If you only have enough money to fund one of those goals, it should be retirement. The kid can always find ways to finance college but you can't get financial aid for retirement. Am I missing something here?

[jIM_Ohio]

This is "behavioral finance"... I read other articles on this too-

basically its at times the advice which is taken is the one closest to what the person wants...

in this case person wanted a college fund, so a solution was given to make that happen

whether that advice is really in best interests of the investor is not the point

[disneysteve]

The guy was actually asking if he should skip going back to school. He was surprised when Dave said to suspend the Roths. That wasn't the answer he was expecting since even in DR's baby steps, retirement savings comes before college savings.

[Ima saver]

I agree that retirement saving should come before college savings.

[cicy33]

The guy was actually asking if he should skip going back to school. He was surprised when Dave said to suspend the Roths. That wasn't the answer he was expecting since even in DR's baby steps, retirement savings comes before college savings.

but doesn't that generally mean college savings for one's kids? this guy wants to go back to school himself. obviously if one is being advised to save retirement before worrying about school then one would think they weren't going to be the student. I actually agree. what if the guy kept on the savings path for retirement and then it was too late to do the schooling? and yes, this can come too late. if he was going to school to further his job, or even get a better job or even learn a new job then time is of the essence. If he were to wait 5, 10 or 20 years when he could have both savings in place the options for jobs could be gone. Of course these days there are options to go to school on grants and loans.

[disneysteve]

but doesn't that generally mean college savings for one's kids? this guy wants to go back to school himself.

The advice was regarding starting a college fund for his child, not for himself.

[cicy33]

The advice was regarding starting a college fund for his child, not for himself.

exactly so then it would stand to reason that the advice would change if it were he himself returning to school, right?

[MonkeyMama]

I listen to DR on the internet. Entertaining, and I probably agree with him 95% of the time.

There's something missing to this story. I generally agree 100% with Dave's college saving advice, which veers a bit from most personal finance college advice.

College savings comes after retirement. According to his baby steps and his usual ranting and raving. So, not sure why he recommended college first, in this case. Sounds unusual.

[Joan.of.the.Arch]

I wonder if Ramsey was mixed up about what was being asked. I sure think I have heard that happen a lot on radio.

[fruitbowlk]

I think because it wasn't going to take the caller long to get his degree is why he made the decision that he did. I think it would have been another answer if it would have taken the caller longer than 5 years.

[creditcardfree]

I wonder if it has to do with the age of the child? College for the child will come much faster than retirement, which is always the case. But the two years delay in Roth contributions could be made up over a much longer period of time than saving for the child's college costs.

I assume the roth suspension was to pay for the callers school, right?

[LMA]

It sounds odd because I have heard DR many times say the same, that retirement comes before College savings. Anyway you can use a Roth to save for college also. So I agree with you Steve.

[EEinNJ]

I've only heard about Dave Ramsey, not listened to his program, so take this FWIW. I have to wonder about didactic advice that may be short-sighted and seems to put accumulating money above all else.

There are no guarantees that money put into retirement investments now won't be worth LESS in 2 years, or even 5. Education is a much more likely pay off, whether it's for yourself or a kid. Sometimes the payoff is intangible- you get into a career you like more, or your kid is a success instead of unemployed and sleeping in your basement.

[poundwise]

The Dad's question assumed the premise that, while he was investing for retirement, he could return to school but it would mean that he couldn't save for his child's education, which was important enough to him that he was considering not completing his own education. Dave suggested that he stop retirement funding and go back to school, while beginning to save for his child's education. Then, once he had his own schooling paid for, he should resume retirement investing.

Dave's policy is to help people "where they are" and so began working from the Dad's premise and desire. The Dad felt a strong draw (I think he referred to it as a personal calling) to teach and wanted to complete his schooling so he could leave retail and become a teacher. Dave takes a lot of this into consideration when giving advice, not purely the financial.

Even so, with the child at age 12 and Dad only needing one or two years of schooling to complete his pursuit, I would have suggested that the Dad keep his retirement investing going and return to school. Then, once completed, he could begin saving for his child's education. What he couldn't save, he could probably cash-flow in part and, of course, the child has options like choice of school, working part-time while in school, etc. if it came to that.

To take it a step further, since the Dad was talking about investing in Roth IRAs (his and his wife's) he could consider it "safe" to continue to invest in retirement. If something happened later and he couldn't manage to help his child as his desired with his education, he could always withdraw money (up to his contribution level) from his Roth at that time. I don't think that extreme would be necessary, as I believe my suggestion above would work, however, it would be an option.

[disneysteve]

Even so, with the child at age 12 and Dad only needing one or two years of schooling to complete his pursuit, I would have suggested that the Dad keep his retirement investing going and return to school. Then, once completed, he could begin saving for his child's education.

That's what I thought. It still would give him 4 years to put money away for college. You can never make up for years when you fail to contribute to a Roth no matter how much you cut spending and boost savings. You aren't allowed to go back in time and make your 2007 contribution today.