I’m fascinated with the differences in how people around the world spend and save money. Having grown up around a lot of immigrants, I can tell you that their spending patterns are wildly different than people who were born and raised in America.

I was reminded of this a few days ago, when I got this email from an immigrant — let’s call him “Raj” — who’s been in the USA for 10 years.

“I live here in Fremont now and I have about $150K with me in my bank, most of it stored away like that for more than 1 year now because I needed it to buy a house. Now I have stopped thinking hard about the house, since I still dont know where I will settle down, especially after reading your book to avoid buying a house as an investment. I have started diverting most of the money to LifeCycle funds and I also opened an IRA.

In my case , as a Immigrant I still send a lot of money to India where somehow I have good contacts and usually earn much much more than 8% on my money. That is a strong reason I never bothered to learn about investing here. But now I am diversifying and investing both in the US and in India.”

This is extremely common, especially in the Bay Area: You get a single, highly skilled guy who moves from India to a well-paying job in the US. He works his ass off, lives in a small apartment, and sends some of his income back to his family in India. In a few years, he’s saved well into the 6 figures, at which point he either (1) goes back to India to find a bride and returns to continue working, or, less commonly, (2) moves back to India with a nice bit of cash.

This got me thinking. Why do immigrants save so much?

A few easy reasons come to mind:

• They’re more educated (see the Wikipedia entry on Indian Americans)
• They earn more (another Wikipedia link)
• Their culture encourages higher savings rates (see this Atlantic Monthly article). Culture is also why some immigrants are stereotyped as being poor tippers…which is often very true.

I’m especially interested in the cultural factors that affect financial habits. Here’s a fascinating one I didn’t know about from University of Michigan Retirement Research Center (PDF link).

Data from the EBRI Retirement Confidence Survey indicate that Hispanic-Americans who immigrate to the U.S. exhibit different savings behavior than other Americans.

They tend to save more for short-term goals such as education or a home purchase rather than retirement, and are extremely risk averse, placing greater importance on safety than rate of return on investments, relative to others (Kamasaki and Arce, 2000). In addition, they are more than twice as likely as natives to have provided financial assistance to family members (both in and out of the U.S.) and they are more likely to expect their retirement years to be financed by income of other family members (Kamasaki and Arce, 2000)…for many households these intergenerational transfers may be a major component of retirement saving and planning.

If you can’t understand those words, please go find an immigrant and ask him to translate for you.

I’m sure there are several other reasons that are far more complex. We’ve read the New York Times article on how obesity can be contagious, and I’ve long since argued that personal-finance behaviors are contagious, too — suggesting that maybe you should spend time around immigrants so their financial habits rub off.

In your experience, how do spending patterns differ between immigrants and (native) Americans?

Personally, I remember growing up and taking roadtrips to LA. With six of us, lunch at even a fast-food place would be expensive, so my mom packed lunch and we’d stop somewhere to eat it. We never had a summer home — the whole concept was foreign to us. We never had the most fashionable clothes, but my parents would spend a LOT of money on activities for my siblings and me, and didn’t bat an eye at an SAT prep course that cost thousands of dollars.

Like I said, immigrants have incredibly different spending patterns than most of us. What’s your best example of the difference in financial behavior between immigrants and (native) Americans?

When I wrote An Ode to Jim Blomo, I talked about my friend who’s honed his conscious spending and spends thousands on the things he loves:

Jim has told me over and over that he doesn’t care much about living in a fancy place, so he saves money on that. He cooks at home when he can instead of eating out every day. But he loves outdoor stuff–biking, camping, travel. And so he splurges on those things. He has a top-of-the-line bike. He just got back from a week-long trip to New York, just for fun.

Jim also cuts costs mercilessly on his housing, choosing to live in a place far smaller than he can afford. To him, it’s not important, and he’d rather spend his money elsewhere.

This decision — of what’s important as well as not important — is at the heart of the Conscious Spending Plan I describe in chapter 4 of my personal finance book.

Previously, I’ve written about friends who spend $21,000/year going out and $5,000 on shoes.

But we haven’t focused on what you choose not to spend on.

When I asked friends this, they were quick to answer what they valued — “organic food” or “travel” or “nice clothes” — but almost uniformly found it difficult to answer what they didn’t value. When I asked one friend, “What do you not care about? What would you be willing to buy a lower quality of (or not at all)?” he looked at me blankly. I considered violence.

It’s critically important to be explicit about what you don’t value as much as what you do. By writing it down — on a blog or a notepad or an Excel doc — you can prioritize your purchases and avoid being sucked into spending on things you really don’t care about. As Jeff Solomon writes:

“When I come to work tomorrow I’ve got to figure out what NOT to do first and focus on the single most important item first. No matter how hard it is, I’ve just got to get through it. It’s just too easy to get sucked into the unimportant. There are too many things on my lists that just don’t move the needle or don’t make a difference. At work and at home, some things have more impact than others. And when the lists get long, I’ve got to know what NOT to do before I can figure out what to do.”

What do you not care about spending money on? I’ll start. When it comes to spending, I don’t care about…

• A fancy sports car. I’d rather have a Honda Accord and drive it for 10+ years (more on how I bought a car)
• The type of cheese I eat — Kraft singles are just fine
• Shampoo, etc. They’re all the same to me
• Super-fancy restaurants. I’d rather eat out a lot with friends at a bowling alley than eat at the fanciest places. (Note: This specifically fits into my Conscious Spending Plan by letting me see more people at less-expensive restaurants. If I cared about expensive restaurants, I would eat fewer meals at higher-end places.)

As part of your conscious spending plan, what do you NOT care about spending money on?

I’m 30.

Just divorced. Not fun.

$30k in debt. Freaking me out.

I have an old 401k that I rolled over from a previous company into Sharebuilder. Value $8,500.

I’m very inclined to withdraw the cash with penalty and pay off a higher interest credit card (13%). I know that mentally and emotionally it will make me feel better to give a big “peace out” to a credit card that I cut up a while ago.

I’m torn and looking for advice. There’s no way I’m making 13% on the money within Sharebuilder.

My financial goals: pay off all debt as soon as possible, and live a simple, cash lifestyle with lots of savings / investment. Looking at all options: cutting back on $tupid crap, selling stuff, and maybe even freelancing to make more money (even though I make $80k+ at my full-time job). If you’re wondering, I have a Simple IRA that I contribute to every month with my current employer.

Any help is appreciated…

Before you answer…

• Remember, there’s often a difference between the best decision and the financially correct decision.

• You can also get huge advantages by pre-paying your debt.

What would you tell Jason? (And watch the comments to see how they differ from your own opinion…that’s the most interesting part.)

What are we doing on this site?

Yes, I read my own posts sometimes.

Anyway, for those of you who haven’t been around since the early days, I wrote that on the day I graduated college in 2005. Check it out.

And happy holidays.

Here’s the interview in streaming MP3 form, plus a transcript below.

George Hofheimer: Hello, this is George Hofheimer, Chief Research Officer at the Filene Research Institute and welcome to our podcast series entitled ‘Ideas Grow Here’. Today, we will be having a conversation with Ramit Sethi, Founder of the Personal advice site, iwillteachyoutoberich.com. He is also the author of an upcoming book by the same name. Ramit, a 26-year-old Stanford graduate will furnish a young adult’s perspective on what role credit unions can play for today’s stressed out consumers. We hope you enjoy today’s show.

Today, I want to welcome our guest. His name is Ramit Sethi and he is the founder of the website iwillteachyoutoberich.com, and Ramit, I was wondering if you could tell our audience, today, a little bit about yourself, your background, and a little bit about your business. It’s kind of unique.

Ramit Sethi: Sure, I am 26-years-old. I started, ‘I Will Teach You to Be Rich’ when I was a student at Stanford and I actually started it for reasons before that because when I was applying to colleges, I had to get a bunch of scholarships to be able to afford it. The first scholarship I got was $2,000. I turned around and invested that in the stock market and I lost half my money. So when I got to Stanford I decided that I probably should learn about money. I then started teaching it to my friends and, of course, they never attended my classes, they said it sounded great, but they never came.

So finally I started a blog and that blog iwillteachyoutoberich.com really took off; the blog posts about 180,000 readers per month and it’s been featured in the New York Times, The Wall Street Journal, on TV, etcetera. What I try to do with this site is talk about personal finance and personal entrepreneurship as if you and I are sitting around the table just chatting about money. So it’s not the same old browbeating about stopping your spending on lattes because frankly, that hasn’t worked. It’s more punchy points about things that we care about and how to try and achieve those goals, whether it’s negotiating with your bank, negotiating with your credit union, saving up for a vacation, or even getting a second job or doing some kind of entrepreneurial thing on the site.

George Hofheimer: So how can you teach me to be rich?

Ramit Sethi: Well I think the first thing is that rich is not just about money. A lot of people say, “Well, do you have a million dollars?” and the question is, “Well doesn’t it depend, if you have a million dollars, is that rich? What about if you live in Manhattan, or what about if you are 26 versus 65?” Rich is not just about money, so it’s really important to understand what rich means to you. And for many people it means being able to take an international trip once-a-year or being able to help your parents out with their retirement. The first thing you do is understand what it means to you.

The second thing to set some modest goals. And I think most people have pretty modest dreams that are actually very achievable. If you do want to go to China next June, no problem. I can help you plan for that and help you save up the money to do that. If you want to invest your money so that at a certain point in the future you are earning more from your investments than from your savings I can help you do that. The key is, it’s not about being the fanciest, smartest person in the room and knowing P/E Ratios. The hardest part is really just getting started.

George Hofheimer: Well that’s good news for me, because I am never the smartest person in the room, but, kind of, considering the advice that you are giving consumers and some of the ideas that you are throwing out there what could credit unions be doing more effectively?

Ramit Sethi: Well, I think it’s a great time to reach out to consumers. I read a report yesterday that said 8 out of 10 Americans are stressed out about their personal financing. I found that astonishing and I think there are a couple things that credit unions can be doing and I know this has been well debated among your organization. I have read your blog and some of your reports CUNA, CUES, etcetera; but I think first is reassurance.

Right now, as a typical consumer, I hear nothing but bad news and I think the financial companies like banks have really fallen short in reassuring customers. The second thing is guidance. How to save, how do you preserve your money. What should you be doing? They should be saying “Hey! Here’s what’s going on. Here’s why we’re going to be around.” Instead, they are just leaving a vacuum of information.

I think credit unions really do well at this on the community level because they have got such great and deep roots with the communities. They’re going out there and helping to not only educate their own base but also giving their base the tools to spread the word and I can talk about that a little bit later too.

(00:04:52)

George Hofheimer: So delving into that a little bit further, and I am a reader of your blog. A lot of the advice that you do give to consumers is really common sensical stuff. So why do you think people, number one, are so stressed out about it. Number two, why do they have such a hard time dealing with their finances?

Ramit Sethi: Well, why do you think people can’t lose weight? There are no secrets to losing weight just as there are no secrets to getting rich. If you want to lose weight, you eat less and exercise more. It’s very simple, but instead we get caught up in these ideas of, “Well I better eat carbs before I go to sleep, and then I should eat fiber right after I go running, and I should buy this pedometer.” You know what, if you do those two big things, exercise more and eat less, chances are you are going to lose weight, and the same is true with personal finance.

I think it’s very sensible, but there’s a lot of blame. We love to assign blame to everybody. There’s a lot of blame to go around as to why we are not succeeding as consumers at managing our money.

First of all, we are not trained. We didn’t learn this stuff in school. Most of my friends, even those who graduated and made great amounts of money, still don’t know how to manage their money.

We have bad examples. Our parents taught us about money. Chances are they didn’t know what they were doing. We see what’s on TV; you see these shows where people are changing their stock picks everyday, that’s crazy. Wall Street, they have a profit motive and our friends, they are not actually encouraging us to have a life of frugality; instead we try to see who can one up each other. Finally though, I think most importantly it comes back to us.

Personal finance is shrouded in a sense of mystery and I mentioned that 8 out of 10 people are stressed about their personal financing. How many of those people do you think have ever read one book on personal finance? There can be all the tools in the world, but if we are stepping up to learn them and the rest of it is disappointment.

George Hofheimer: So it’s kind of getting to the old-fashioned notion of thrift. Is that going to be hip again? Do you truly think we are entering a new era of how people consider their finances and know that the era we are leaving is one where asset prices go up? You can trade stocks on a daily basis and you will become rich easily. Is thrift an old-fashioned term that is going to be hip again?

Ramit Sethi: I think in some ways, yes. When I add things on my blog I write things like how to negotiate like an Indian. I have taught people how to call up their banks, their credit card companies, or any financial institution or and negotiate fees. I literally write the script of words they can use to negotiate specifically and people love that. So that is something that is really, really effective. I don’t think savings are sexy yet. It’s not quite so attractive to say, “How do you get that amazing quote.”

“I calmly put aside $25-a-week in an automatic withdrawal and after six months, I was able to afford it.” That doesn’t sound great, but when people asked, “How did you buy that new car?” I said, “I used the service called Fighting Chance and I was able to get about $5,000 off the asking price of the car, $2,000 under invoice because I had some information that other people didn’t, people’s ears will perk up.

So I think the take-away there is that thrift can be hip, it can be cool, if the vision is big enough. Saving $5 here and there is not a big vision, but being able to say, “Hey, I saved $50,000 on my mortgage because I knew something that you didn’t,” that is really, really alluring.

George Hofheimer: Yes, absolutely. Now, we operate in the credit union space and anytime people from the same industry get together, there is a lot of navel-gazing and conventional wisdom. And the conventional wisdom in credit unions, one of them is that we offer a better deal for the consumer and we are the best-kept secret. As I have become accustomed to your website, I notice that you talk about the types of accounts that you have and I notice that you don’t have a credit union account, I’m curious as to why?

Ramit Sethi: Yes. George, I am on thin ice because I spoke at CUES, the Credit Union Executive Society last year in Hawaii and I got in big trouble because I didn’t have a Credit Union Account. So, I am going to go into this knowing full well that I am treading water here. This is what I would say. You are right, I don’t have a Credit Union Account. I think credit unions are fundamentally about change and I think it’s very similar to a political issue we have got going on right now.

Because most Americans have bank accounts, not credit union accounts, credit unions require consumers to make a change. And to be frank, I am lazy and so are most people. We are cognitive misers; we have enough going on in our life and we don’t want to worry or even pay attention to our financing. Even me, and I have read about personal finances every day.

(00:09:52)

To be a little less glib, I have evaluated a lot of credit union accounts and bank accounts and I guess the question is, is there enough activation energy for me to change to a credit union or even for me to go to a website and open up an account. I think, “Why would I?” And, I think, fundamentally, it’s certainly not because credit unions are member-owned. To be completely honest, none of my friends care about that or even know about that. “Do I get extra services?” I paid, I think, $50 for a Costco account because I could clearly measure my ROI. I am not so sure that it’s easy to do that with a credit union. Even though I love the services and when I go to buy a house, I will absolutely go and see if there are competitive rates there. I have heard about credit unions from a trusted source.

I want to give you an example. You read my blog and know that I talk about my ING Savings Account a great deal. I love it and the reason is two-part. One is that they have a really beautiful simple service that pays me a decent rate and they do not send me a bunch of stuff in the mail. They just leave me alone and I can do what I need to do. The second thing and this is the key, they have given me the tools to spread the word to other people and I have referred thousands of customers to ING.

I think that goes back to a huge part of the community outreach that credit unions do but can do better. It is like you have members that are passionate about credit unions. In fact, I would take a guess that the average credit union member is much more of an evangelist than say a Wells Fargo Bank Account holder. But, as a credit union member, are you giving your members the tools to spread the word?

I would argue, George, that referral should be a strategic metric that’s held up at the executive level every month. How many referrals did we get and programs should be put into place to help members refer other people. I think that is the way that young people hear about financial services. And when I am having conversations with friends about different tools, credit unions just aren’t in those conversations.

George Hofheimer: Interesting. And actually those thoughts that you just had were confirmed by a study that we did. We went into credit union member’s homes several years ago and asked them why they chose the credit union. One of the questions we asked them is “what are you a member of?”, and remember that they knew that they were part of a study examining why they joined a credit union, and the majority of folks did not mention that they were members of credit unions. So it’s the whole notion of having a tangible benefit and something to talk about, I think is a pretty compelling argument as well?

Ramit Sethi: That’s very interesting.

George Hofheimer: And so not to be tone-deaf to what’s going on outside the four walls of everyone’s lives and that’s the economy. The general consensus is that we are entering a pretty deep recession and it’s going to impact consumers tremendously. What can credit unions do, in your opinion, to help consumers through this recessionary time?

Ramit Sethi: That’s a good question. That’s a tough one. I am sure there are much smarter people in the credit union field that are thinking about this, but I will give it a shot as a consumer. I think the first thing is reach out to consumers. We are looking for leaders and we are looking for leadership to be honest with us. Just last night, after watching a presidential debate, I was furious and I wrote up a post on my blog saying, “Here is what Obama and McCain didn’t tell you about your money. They didn’t tell you x, y, z because it’s political suicide to do so.”

We are looking for leadership and it’s not coming from Washington as to what’s going on with the economy. Are we really expecting things to get better by the end of the year? I don’t think so, but nobody is going to tell you that. You can take a top-down and bottom-up approach. Top-down, you have got CUNA, you have got CUES, you have got other national organizations evangelizing credit union as a whole. Then from the bottom-up, at the community level you reach out to the local community and evangelize credit union, again, as change. It’s different than the same old banks you have had.

Locally, credit unions have resources that banks can’t beat. I have seen credit unions come and speak at high schools and universities that banks are too busy minting money to go to. This is a tactical piece of advice. When you go out to the community I would strongly recommend you attend events where people are forced to attend. That sounds somewhat counterintuitive. We always like to think if people care they will come. But I bet anybody listening to this knows that if you are hosting an event where you talk about credit unions or financial planning, your attendance rate is going to dismal.

(00:14:49)

So I prefer to go to places where people are forced to attend. If you are going to go speak at a classroom, make sure the professor require students to attend. If you are going to speak at a company, make sure the manager forces his or her direct reports to attend. And when you are there speaking to people, give them tools right there on the spot to sign up. Coming back to what credit unions can do in this economy, I think it’s time to think of revolution, and not evolution.

I have spoken to a lot of credit unions over the last couple of years and I still hear conversations about which paperweight should we offer to get people to sign up for our service or should we increase our yield rate 1%. You know that doesn’t fly anymore, increasing it 1% doesn’t make me pay attention to the computer screen and go sign up for an account.

We are talking about huge different ways of getting people to change. Offer us a system that will take us through our 20s and 30s. Don’t just say, “The services are available if you want it;” say, “We are going to make you a deal. We will give you better rates. We are going to work with you in a detailed basis and build a system for finances that will come through in your 20s and 30s.”

And finally, finally, finally and most importantly use your existing base of members to spread the word. If you don’t do that you just can’t compete with the deep pockets of banks but I will tell you this, having 10 people come to me and say, “Ramit, I got this amazing deal at this credit union, you should check it out,” that is more influential than any amount of advertising I could see on TV.

George Hofheimer: Well that’s great, Ramit. I think all of these are great points and coming from a generation where credit unions are struggling to effectively serve in the young adult market. I think the advice is sages and hopefully folks will take action in these tough times to help consumers out.

So once again, Ramit Sethi from iwillteachyoutoberich.com. If you haven’t checked out that website, I think it’s a great resource and a very keen consumer perspective on financial services and what you can do to help better serve today’s consumers. So Ramit, really, I appreciate your help today and your thoughts. So have a great day.

Ramit Sethi: Thank you.

Total Duration: 17 Minutes.

Things will get a lot harder before they get better.
All the predictions about the recovery taking until “at least the end of the year” are horseshit. In truth, nobody knows, but it would be political suicide to admit that a recovery — whatever that means — will take a few more years. The truth is, nobody knows how long it will take. But if there’s one thing Americans love, it’s a leader pretending to know everything. And if there’s another, it’s that Americans love a quick fix…only to later complain about it not being done right.

Your questions about how “quickly” we can get out of this crisis are misguided.
Sometimes a forest needs to be cleaned out with fire before it can grow again. Again, an unpopular position. Since the government has virtually unlimited resources, it can certainly alleviate the pocketbook pain we’re feeling…but it will come back to bite us in the ass later.

Not all homeowners deserve to stay in their houses.
Renting is a perfectly reasonable alternative, but the idea of Americans “losing their houses” is politically untenable. Why? Because America perpetuates a mistaken culture of homeownership. Owning your own home is the kind of BS sacred cow that got us into this mess: Our parents tell us to buy a house. Our friends are impressed if we own a house in our twenties. The government literally encourages us to own a house by offering tax deductions. Homeownership is the American Dream!

The truth is, if you’re making the largest purchase of your life, you need more than a slogan — you need to take the responsibility to do some research. (And note that you can’t advocate for increased homeownership and also argue for Americans to keep their houses. By not reducing the prices, younger people cannot buy houses at these inflated prices.)

Yes, there was an exceptional amount of predatory lending.
For every blogger who argues loudly about personal responsibility, an angel dies and an Ogilvy executive lights a marshmallow in hell and eats a delicious snack. Wall Street and realtors are also to blame for this. But so are average Americans. It’s difficult to have a nuanced discussion about real estate on the campaign trail, so we resort to cartoonishly simplistic caricatures of things like Wall Street’s corruption. True — but also take a look in the mirror.

Homeowners are delusional about how much their houses are actually worth (see this, too).
As a wise commenter said, “I love the fact that it’s “acceptable/normal” for a home to increase its value by 100% during a five-year time frame, but it’s “unreasonable/impossible” for a home to decrease it’s value by 30-40% during a similar time frame.”

Taxes: Pandering to ordinary Americans instead of telling them to stop spending on stupid stuff
The reason Obama and McCain spent so much time talking about taxes is that most Americans are historically horrible at managing their spending. Since they make a fixed amount of money (revenue) and can control only one thing (costs), both politicans use tax breaks to pander to voters. Most people have never seriously thought about how to make more money. Fine. But what’s even more outrageous is Obama and McCain’s complete lack of honesty about what people really need to do to weather the economic crisis. Did you hear either one plainly say, “You’re going to need to buckle down and save more?” Of course not. You might as well walk into a Dave Ramsey seminar and argue that credit cards are a useful tool. It’s a suicidal suggestion. But it’s true.

Shut up about your money worries unless you’ve taken the time to read a book about how money really works
You need to read a couple of good books about money. Not read the screaming headlines of CNN.com. But a real book that explains how money works. If you don’t, do you really have the right to complain about how scared and nervous and worried you are about your money? (Note: If you want to get my favorite book recommendations, sign up for my free newsletter by Friday, 10/10/08. In fact, I’m giving away free personal-finance books in the upcoming weeks.)

Americans don’t know how to be frugal — yet
Things will get more expensive. Taxes will eventually go up. They have to. Costs of ordinary goods will go up. They always do. If you’re expecting it to get easier, you’re wrong. The key is to make more money and cut your costs. Sadly, Americans are poorly versed in being frugal. You think it makes sense to buy a new car every few years? You think it’s normal to eat out 5 times per week (lunch and dinner)? You feel good about yourself for ordering water when you go to a restaurant, but you blew $50,000 because you didn’t take the time to understand your mortgage? You’re not frugal. But a few more years of an economy like this and things just might change.

Sensible investors don’t change strategies very much — even in a market like today’s
With the market cratering hundreds of points every day — then climbing a similar amount the very next day — billions have been pulled out of the market. Yet long-term investors have the discipline to stay steady. Panicked spouses and overconfident investors think they know better by trying to time the market, but they’re wrong. In fact, here’s an excerpt from my upcoming book:

Recently, a group called Dimensional Funds studied the performance of the S&P 500 from January 1970 to December 2006, during which time the annualized return of the market was 11.1%. They also noted something amazing: Of those 36 years from 1970 to 1986, if you missed the 25 days when the stock market performed the best, your return would have dropped from 11.1% to 7.6%, a crippling difference.

Now, if only we could know the best investing days ahead of time.

Of course, we can’t. That’s why I continue to dollar-cost-average money into the market, slowly. Will it go down in the short-term? Almost certainly. But as my funds get cheaper and cheaper, I’ll pick up more and more shares. And eventually — over a 10, 20, or even 50-year time horizon, I’ll make a significant amount.

But encouraging people to continue investing during times like this wouldn’t be received well. More often than not, politicians need to seem to be doing something — ANYTHING!! — in order to keep you happy. Frankly, with a balanced portfolio, there’s really not much to change. But that’s not sexy enough to tell most people. (Plus, they have no idea what a balanced portfolio is.)

Sorry if I was too harsh. I’m usually not political, but I’m tired of the bullshit around our money. Every single one of us knows co-workers, family, or friends who are worried about their money. It’s time to get honest about what’s going on. (Want to read more? Check out my popular articles, personal-finance links, and my forum.)

More to come in future posts.

I’m trying something new: If you liked this, please digg this article.

0:01 — Intro: We’re going to talk about what’s happening with the economy, asking the right questions, what you can do with your money. PS–It’s my first time doing video for this site, so please cut me some slack!

0:12 — Lots of questions: “What’s happening?” “Who can I blame?” “Why is the government bailing companies out?”

0:45 — Most of the questions are totally irrelevant!.

What do we know?
1:11 — Your money is generally safe: Money in savings accounts is insured up to $100,000 per account, and money in brokerage accounts is insured up to $500,000 (with some nuances). However, this doesn’t mean money in your portfolio is insured against losses in the stock market — if your portfolio is down 20%, it’s really down 20%. That’s why investing is “investing,” not “picking a sure thing and profiting a lot.” SIPC insurance means it’s insured against the brokerage firm going belly-up. Learn more by reading this article.

If you’re looking for a broad-based understanding of what’s going on, The New York Times has been providing excellent coverage, especially this page.

Worry about the things you can control
1:47 — We misjudge risk and worry about stuff in the news — as opposed to the real risk. Let’s say you’re worried about not having enough money. Which is more likely?

1. You’ll run out of money because you lost it all in a tumultuous stock market
2. You’ll run out of money because you didn’t save enough, spent money on stupid stuff (vs. spending consciously), and didn’t properly diversify your assets

OF COURSE it’s the second, but because of the availability heuristic, we tend to overweight what’s easily accessible in our brains (i.e., we’re all worried about what we read in the papers right now).

Remember, we are cognitive misers and can only pay attention to a few things, so take advantage of that. I’d rather focus on the very real risks that have caused millions of people before me to not have enough money to sustain their lifestyle — that is, not saving enough — rather than worry about a macro-economic topic that’s in newspapers. Sure, it’s important, but I can’t control anything at the macro level. At the micro level, I can control everything. (Note: Here’s a good book on judging risk.)

What you should focus on
2:12 — Save more — single-best thing you can do to mitigate risk

(No time stamp.) I forgot to mention this in the video, but please don’t fall prey to the myth of financial expertise: Nobody has The Answer about how bad this will get and how long it will go. Experts have been trying to predict this for years — remember in 2007 when they said it would “probably be fine by the end of the year?” — and they’re still trying. And failingDon’t try to time the market. You’ll fail too. Just pick a regular, consistent investing strategy and optimize for the long term.

2:23 — Tweak your asset allocation

2:42 — Stop asking stupid questions!

2:52 — Best things you can do: Forget about macro-stuff and focus on your own finances. Save more, do a kick-ass job at work and get a raise, or even start a side business.

Hey, what did you guys think of the video? Should I do more? Let me know if you have any suggestions or questions for other stuff you want me to talk about.

So since one of my friends just got engaged, I thought you’d find this interesting. When I had dinner with him last night, I asked him how the wedding planning was going. He told me that to save money, he’s flying in a wedding photographer from the Philippines. Even with the flight and accommodations, he’ll save $4,000.

This mirrors my own experiences:

• In New Delhi, I had a custom suit made for $200. Money saved: About $2,000
• In Mumbai a few months ago, I bought lenses/frames for $45. Amount saved: $500
• A friend had crowns and other dental work done in India for $400. Amount saved: About $3,500. (More about medical tourism.)

And that’s just India. There’s Vietnam, China, countries in Africa, and many other countries where I’ve heard friends get amazing prices. It’s getting to the point where, if you want anything expensive, it can be cheaper to fly to another country and buy it there.

This is particularly true for health care. There are serious questions about risk and liability, but the difference in price is impossible to ignore. From this Washington Post article:

…heart bypass in the United States costs $130,000, but just $10,000 in India and $11,000 in Thailand. A hip replacement in the United States would cost $43,000 but just $12,000 in Thailand or Singapore. Hysterectomy costs are about $20,000 here but $3,000 in India.

For less-risky items, like buying a custom suit, rugs, or pieces of furniture, the savings can be significant enough to make the trip without worrying about quality. After all, if it breaks, just get it repaired — or, a la Wal Mart, it may be so cheap that it’s simply disposable.

This is a political firestorm. What about labor practices and environmental impact? In fact, in last week’s Friday Entrepreneur post about Shannon from Payloadz, there’s a raging discussion in a post last week about using offshore workers: One commenter accuses others of using “CFL (Cheap Foreign Labor),” and others jump on him for ignoring globalization.

What do you think? Have you traveled abroad specifically to buy something cheaper? Have you ever had surgery abroad? Is that un-American?

• An overview article: Given a Shovel, Americans Dig Deeper Into Debt
• A timeline of debt from the 1920s until now
• A haunting video of Diane McLeod. Just watch her attitude and how her debt affects her.
• 700+ comments from people (I suggest sorting by Readers’ Recommendations). The condemnation is both enlightening and saddening. We seem to take pleasure in seeing other people’s pain (”She could have made better choices…Idon’t buy all that crap”) and yet, some of it is very true. I agree with most of the comments about the evilness of credit-card companies, and yet, we do have choices.
• A tool that lets you compare how much debt you have with others like you

Want to watch it all? Click here to start.

Here’s my take: On one hand, we all know people like Diane, who make poor financial decisions, never take the time to get educated about money, and sink into a hole of financial quicksand. These people are easy to judge because they have all the visible signs of financial stupidity: New cars every two years, expensive high-definition TVs, vacations, houses they can’t afford. And yet, on the other hand, financial institutions, advertising, and social influence have all coordinated an attack on us to spend more. In fact, we’ve been told for decades that owning a house is the single-best financial decision we can make. It’s not.

Is education the answer? Maybe, but it’s not a panacea.

Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do. I’m hopeful that the current environment calls for a restructuring of our priorities. I hope that we get conscious about our spending and start prioritizing saving over spending. With extended hardship, this will become more likely. We all need to be conscious of our finances, but we’re playing in a world with the deck stacked against us.

I’m tired of demonizing people for making poor spending decisions. It might make you feel good about yourself, but it doesn’t actually change behavior.

And fundamentally, that’s what this site is about. It’s not about making people feel better about themselves by looking down at other people. It’s about getting behavioral change. In that vein, the 557 examples of changes people have made as a result of reading this site are probably my biggest success.

I fully expect lots of commenters to brag about how you got out of debt by making hard choices (just as they annoyingly bragged about their inexpensive weddings in the comments of this post). That’s great. But I’m sick of those comments that tell people to “just spend less.” Not everyone can stop spending 30% of their money on going out, because a lot of people don’t have that extra money.

There’s nuance to these arguments that’s missed by idiots who blather about how we should all “make better choices” and “start being responsible.” Of course we should, and if you’re reading this blog, you’re already doing this. But there are details that are missed by such superficial statements.

Here’s what I suggest: Read the New York Times article. Then, read the 152 comments from other iwillteachyoutoberich readers about how they got into debt. That’s 67 pages of startlingly honest stories, most of them having to do with educational loans. Then, I would encourage you to carve out some time for two resources to understand some of the nuances of why many people — especially poor people — can’t get ahead. Here are two resources I fully recommend:

Also, check out 30 Days of Working Minimum Wage, a video in which Morgan Spurlock (who brought you Super Size Me) and his girlfriend work minimum wage. Sure, it’s gimmicky, but it’s a truly eye-opening movie that provides insights on why it’s nearly impossible to get ahead if you’re earning a certain income.

I’d love to hear your comments.

I’m featured in US News & World Report’s Alpha Consumer blog today. (New US News readers, please click here for an easy-to-use introduction to this blog.) Kimberly Palmer, a US News reporter, asked me these questions (and a few more):

• “There are so many books out there on young people and money…what’s different about your advice?”
• “What kind of stories do you hear from your readers who are frustrated with their financial experiences?”
• “Name three things young people can do to improve their financial situation.”

In my responses, I discuss why personal-finance advice is usually boring, give some quick tips for getting started, and threaten to commit suicide if I read another column about not spending money on lattes.

Click to see my answers.