Speaker 1: Daniel is with us in New York. Hi, Daniel. Welcome to the Dave Ramsey Show.

Speaker 2: How's it going, Dave? Thank you for taking the call. Sure. What's up? So, I have a question. I currently, I just graduated from university this past May, and I'm carrying about $20K in student loan debt from the federal government, and I wanted to get your take on whether I should be investing some of my savings or whether I should be, you know, focusing on paying down the debt as much as I can.

Speaker 1: Okay. What's your degree in?

Speaker 2: My degree's in finance.

Speaker 1: Oh, good for you. Okay. Well, what we'll find is this. There's a couple things. I got a degree in finance as well, and several other letters and licenses after my name. Some of it that they taught me was really good stuff, and some of it was hogwash. But one of the things you and I were taught to do was to mathematically assess things. And for instance, a normal person in your seat might say something like, I'm going to compare my investment returns to the interest cost on my student loan, which is less, and it appears I'm making a spread. It appears I'm making money on that.

Speaker 2: Yeah, which is the way that I'm doing the math on that right now.

Speaker 1: That's how you and I were taught. The problem with that formula is it's incomplete because do you remember in investment class, a different class that I'm talking about earlier? They even taught this back when dinosaurs roamed the earth when I was there. When we're comparing a risky investment with a non-risk investment that we don't compare them apples to apples and adjust them using a mathematical measure of risk called a beta.

Speaker 2: Beta and then how it factors into your risk premium.

Speaker 1: Exactly. How come that's left out of the formula that we just did? Let me help you with that. Debt, having debt, is risky. Not having debt is less risk. Agreed? Yes. But there's no beta application, no application of the beta to carrying debt when we were taught to do leverage the way that you and I were taught. And that's why it's wrong. Okay. Your formula's incomplete. If you were to say I'm going to adjust my personal finances for risk then the perceived spread between the student loan interest rate and the investment interest rate would disappear when adjusted for risk. Again, it's like comparing a very risky investment with a non-risk investment. It looks like the high-risk investment that's making a high rate of return is the way to go until you adjust it for risk and it looks a lot like the medium-risk or low-risk investment then, right? Gotcha.

Speaker 2: So based on that logic would you say that I would pay off the student loans. So, for example, I've got more than the 20K that I'd need to pay it off sitting in a brokerage account.

Speaker 1: Right. I would write the check today then. I would be debt-free. The second reason I would do that is not only the logic that we just worked through but I've been doing this about 30 years now and we just finished, our company did along with Chris Hogan, a study, the largest study of millionaires ever done in North America. We studied over 10,000 of them which is like probably 10X of statistical significance and the research was airtight and what we found among them was 79% of them had received zero inheritance. Did you receive a big inheritance? No. Then you're in line. Okay, so to be a millionaire then you would do what those 79% did and if you followed their steps that we found in the research, the things that they did, then you would have a higher probability of becoming wealthy and what they did was any debt that they had other than mortgage debt they got rid of it as quickly as possible and they never borrowed to make money. They never attempted to make a spread. They stayed debt free on cars, student loans, credit cards.

Speaker 2: Don't pay everything off in cash.

Speaker 1: They pay everything in cash and they use that increased cash flow to invest in brokerage accounts and 401Ks and Roth IRAs, all in good mutual funds.

Speaker 2: So I'm all maxed out on my Roth and my 401K and I'm saving all the other stuff because I'm currently living at home.

Speaker 1: You're killing it. You got a really good start but I kind of thought you were already on that track but I thought it would be a good idea with you. We got 15 million people listening to our conversation so it's good for them to hear you and I discuss this but also because of where you just came from and with your field of study I knew you could grasp very quickly both of those reasonings, the beta issue as well as the research. It's the fastest and shortest point between where you are and building wealth is to become debt free and stay debt free. Your most powerful wealth building tool is your income. Hold on, I'm going to send you a copy of Chris Hogan's book. It's not got all of the study in it. It's only got 140 of the statistics in it but it's called Everyday Millionaires and I think you'll really enjoy it. It's not a white paper, okay? It's not a research paper but it's all about stories and it's got 140 of the statistics in it though. It's very, very interesting stuff. Everyday Millionaires, number one bestseller. I'll send you a copy as a graduation gift. Honored to talk to you, Daniel.