The Difference Between Being Poor and Being Bad with Money

by Kevin on September 22, 2011

From time to time I like to point out insightful or interesting comments that my readers make, even if I disagree with them. This is one of those articles where I share my opinion, so I’d love to hear your take on it in the comments.

I shared an interesting discussion with one of my readers last month. He was replying to one of my all time most commented on articles, I Like Dave Ramsey, But He’s Still Wrong, and brought up a point of disagreement he has with Dave Ramsey.

Here’s what he wrote:

I have a different perspective from the other people commenting here. I had never heard D*ve Rams*y speak until two days ago. He said on a video: “You’d be wealthy if you stopped doing stupid stuff with your money.” I was so shocked I replayed the video, just to write it down.

I volunteer in my church to help poor people, some who are excellent with money and some who are terrible. I think his 7 baby steps are flawed from an accounting standpoint, but they are basically okay.

But his unspoken attitude that “If you are poor it’s your fault” is completely contrary to Jesus’ teachings.

He then proceeds to tell an admittedly sad story of a friend of his. I’m paraphrasing because you can read the whole comment here. But essentially his friend’s husband always worked under the table (no W-2 wages), she stayed home with their four kids, and the husband has an affair and leaves her penniless. His under the table income helped his evade wage garnishment, and she made minimum wage because she had been out of the workforce so long.

My reader’s disagreement with Dave is that it isn’t just handling finances poorly is what makes people poor. Sometimes it is illness, disaster, or betrayal. So telling people to stop being bad with money is pointing the finger at the wrong problem.

Here’s my take on this.

Am I Poor or Bad with Money?

Aren’t they the same thing? If you don’t have any money at the end of the month, aren’t you poor?

No. There is a significant difference between the two.

Poverty in America

If you are poor, you are living on less than $22,350 per year in the United States.  Some people are born into poverty and unfortunately stay there throughout their lives. They are never able to dig out — whether caused by lack of education or skills, motivation, or understanding is dependent on the individual.

Yet some people born into poverty, or those that fall into it during life, are able to somehow scrap their way out of “being poor”. They find success, they provide for their families, and they rise up above the poverty line.

Being Bad with Personal Finance

On the other hand, a majority of Americans are terrible with money. Dave Ramsey states in his Financial Peace University than if you drive down the block and look at 10 houses, 7 of the families living in them are living paycheck to paycheck. That’s 70%! (Perhaps that is why 51.4% of Americans will experience poverty at some point in their lives, according to

How are Being Poor and Bad with Finances Different?

In my opinion, being poor can be the result of many issues: disaster, illness, something that turns your life upside down, and yes… being bad with money. However, you can dig yourself out of being poor. One of the ways to do that is to be exceedingly good with the income you earn. The person who wisely spends (and saves) $8/hour is better off than the lottery winner who wins $1 million and spends $2 million. Yes, “getting ahead” on $8/hour is incredibly difficult; I’m not arguing that point. You need some luck, some support, and probably some skills that earn you a higher level of income, but even if you have all of those things and you are horrible with money, you will never truly prosper.

On the other hand, if you manage your finances poorly your entire life, you have only one direction to go: to being poor. If you have no emergency fund, no savings, no preparation for the future, one day something will happen to take away your income and you will be unable to pay the mounting bills. It doesn’t matter if you are a professional athlete making millions of dollars per year, or the average Joe that brings home $40,000, or the person working for minimum wage. Spending more than you make only takes you — and keeps you — in one direction.

Is Dave Ramsey Wrong?

So back to the reader’s comment. Is Dave Ramsey wrong to say, “You’d be wealthy if you stopped doing stupid stuff with your money“?

In some cases — and to the readers story — yes, that isn’t 100% accurate. There are unfortunate circumstances in life that can prevent you from being wealthy that don’t have much to do with being stupid with your money.

But a majority of the time, Dave is right. Even in the reader’s sad story, Dave is right.

First, you have to know Dave’s audience. A majority of the people that are helped by Dave’s plan are individuals or couples that are working. They are the “average American family”. They have decent incomes. They have debt. They know how to spend, but not how to save. For these people Dave’s plan is a bucket of cold water to the face. It’s a wake up call. And it works. Why? Because people are stupid with money. They buy everything with monthly payments and high interest rates. And when you get a dose of reality from Dave, it wakes some of those people up and they stop being stupid with money. These people are incredibly happy with Dave’s program, as they should be.

But what about the sad story? How is it the fault of a lady who tried to do the right thing, stayed home with the kids, and was betrayed by her husband? I’m not putting 100% of the blame on her, of course not. But let’s look at a few things that, in hindsight, probably weren’t wise decisions:

  • Trusting a husband who betrayed you. As noted you can’t control this. Marriage is built on trust, and it was broken. Even if she had diligently saved thousands in the bank, all it takes is the husband to walk into the bank and take all the cash out to lead to ruin.
  • Being married to someone without income that lands on a tax return. So your husband gets paid under the table, and you don’t find that suspicious? He’s intentionally avoiding paying taxes. Even if he stays with you, he’s not paying into unemployment due to not paying unemployment tax, so the family would get no benefits. Being married to someone with no taxable income is a major red flag.
  • Not being involved in the family financial plan. You don’t know if the family had a financial plan or not, but some of you might say “Maybe she didn’t know he wasn’t paying taxes!” If that’s the case, then she wasn’t involved enough in the finances. That’s a harsh reality, but if you don’t know how your spouse is getting paid, you are too detached from the financial situation in your life. Does he work as an independent contractor on 1099 and pay self-employment tax? Or does he sell drugs on the corner? You kind of need to know.
  • Devaluing your worth in the market due to staying home. Let me state first — as I did in the comments on the Dave Ramsey post — that I have nothing but the utmost respect for mothers who stay home with their children. I would one day love to be able to provide for my family a high enough income that my wife would be able to do the same. But this is a complicated issue. If your husband is ethical (and doesn’t leave you), pays taxes (or garnishments), and involves you in the financial plan… then staying home isn’t as devastating even if he divorces you. But doing all of the above things leaves you extraordinarily vulnerable to the risk of having to provide for yourself, and if you have stayed home for a long period of time then your skills are probably devalued in the marketplace. (Just ask anyone who has been unemployed for the 99 weeks Congress allows.)
  • Having 4 kids if you can’t afford them. Again, let me state that I think kids are a blessing… if you can afford them. We don’t know the circumstances here, maybe they had 1 child and then triplets. But if they had 4 in a row… it is a compounding issue on top of the ones above. Having devalued skills and a high risk of having to provide for yourself is enough of a problem. When you add in 4 additional mouths to feed it becomes impossible.

Again, I’m not saying this woman is 100% responsible for her situation. A good chunk of the responsibility falls to her unethical husband who left her high and dry.

But I do agree with Dave that a majority of the time, people are not wealthy due to their own choices. It is not a lack income, but a lack of control of that income.

What do you think?


Marguerite September 22, 2011 at 8:15 am

I agree with this to a point – whether you’re losing your house to foreclosure but still have cable tv, or have 4 kids and no life insurance on a husband who dies, or trust someone that shouldn’t have been trusted – you have to be responsible for the choices you made… and not to say that sometimes what turns out to be a bad decision looked like the best decision at the time. Situations can change and choices can blow up in your face. But you still have to accept that you chose to do things that put you in whatever situation you’re in. And if that’s a bad situation, it’s also up to you to make better choices and get out of the situation, no matter how hard it may be. I do think Dave’s audience leans more towards the middle-class that has made less-than-stellar choices, but even someone in a horrible situation can take some part of his advice and use it to better their financial life.

Danna September 22, 2011 at 12:08 pm

Hindsight is 20/20, & you are acting like this woman should have had it. We can look at anyone else’s life & produce a conclusion that is obvious to us & simultaneously causes self-righteousness in our own hearts. Which, yes, is what I feel your conclusion is. It is painfully obvious to me that you have yet to walk a road of enough pain to strip you of all but love.

Danna September 22, 2011 at 1:06 pm

After more thought, I wanted also to add that the spirit of condemnation towards a person suffering such a trial is one that sorely misses the opportunity to view correctly what is happening, which is much more likely to be God seeking her heart to trust Him fully.

jaime September 23, 2011 at 1:23 pm

i found what you wrote really interesting. Keep writing stuff that makes us think!!

Golfing Girl September 23, 2011 at 8:02 pm

I agree with most of your points. We all must take some of the blame when things go wrong financially. That’s why Dave harps on the emergency fund. Yes, illness, job loss and other emergencies WILL happen. But if you’ve been frugal (or honest in this sad story with under the table money) you will have somewhat of a cushion. As for children, I have a 3rd on the way, but there is no way I’d be having another child if my husband and I weren’t fully insured with adequate health and life insurance and have a 6 month emergency fund as well. I would consider that irresponsible to keep having them if I didn’t have a plan to take care of them.

Kevin September 26, 2011 at 7:34 pm

@Marguerite: Great points. Sometimes what seems like the best choice isn’t because either we have faulty/incomplete information or because the situation goes sour. But we have to be objective enough to see the bigger picture and find our way out of it.

@Danna: Sorry, I disagree. If you go back to the original comment thread what I told the commentor was that what some see as micro-engineering life I see as avoiding risk. Does it really require hindsight to see that having a husband who dishonestly avoids paying taxes is bad? With his income being the one your family is solely dependent on? That is a big risk out in the open.

@jaime: Thanks for your continued readership.

@Golfing Girl: Exactly! If you aren’t prepared for emergencies it isn’t anyone’s fault but your own! Life happens — get used to it!

Starr shine September 30, 2012 at 11:29 pm

You can not honestly think that what you say of because he works under the table and no taxes that she should of know better and Do What…? What there are many of people out there that if the choice was that easy they would of taking it in a heart beat…but those that see it,, realize it,, live it everyday knowing the outcome and can not leave cause they won’t live to see there children or that they’ll never see there children again,,, or those that know in their heart s…souls that they just needed to stay

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