Risk, Freedom, Security, and the Majority

Over at All Financial Matters, JLP has made a couple of heavily-commented posts about paying off a mortgage early vs. letting it run for its full term. (If you haven't read these posts along with all the comments, please do so! A lot of what I'm going to say relies on the context from those comments.) This is another thing that Dave Ramsey harps upon, and his followers also feel strongly about it.

I have been reading a book by Robert Kiyosaki (hear me out here) called Rich Dad's Prophecy. I borrowed it from the library, and I am not yet done with it (actually I'm only about a quarter of the way through it). I guess I will get more into Kiyosaki on a later entry, although I'll note now that I generally "drink the Kiyosaki Kool-Aid." I can't yet comment too much on this particular book, as I'm not too far into it and he seems to be making more claims than he generally does.

At the point in the book where I stopped last night, RK spends a lot of time talking about freedom vs. security. A lot of time. He can be very repetitive, although I can't really begrudge him that. Some ideas just need to be hammered away. Anyway, most of the discussion is couched in terms of retirement accounts and how most people are counting on their retirement to be secure (like the old-style defined-benefit pension plans) while they are actually nowadays more free and hence less secure (401(k)s etc. are usually invested in the stock market, leaving more choice to the individual holder, but the stock market has its inherent risks). If the supposed Social Security Reform ever goes through, this trend will just continue.

It is very clear that the majority of people will opt for security over freedom, both in the political arena and in the realm of finances. Most people are not risk-takers. They want their money invested safely. That is why they want to do things like pay off their mortgages early. And this is where I am slowly coming around to Dave Ramsey's point of view on certain things. The majority of people cannot be trusted (and cannot trust themselves) with absolute freedom. It is all too easy to ruin your life and run your finances into the ground. So many people do it all the time. So I can see why DR needs to be dogmatic about it and basically force people into having security by locking themselves into a 15-year mortgage, even though they lose the flexibility to do something else with that money.

But, there are people who have self-restraint, live well below their means, and save a lot of money without being forced to do so. I believe myself to be one of them... we'll see in 10 years where it's gotten me.