My 3-minute video response: What you can do about today’s economy

September 18 82 Comments latest by Janice in Spain

Yesterday a bunch of you left comments and sent me emails about what’s going on in the economy. Here’s a quick video I did to answer some of them. Check it out and see my notes below.

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.

(100 votes, average: 4.54 out of 5)

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82 Comments latest by Janice in Spain

I saved $2,500 by buying 2 items abroad. Is that un-American?

August 3 84 Comments latest by Elizabeth

My post on why we’re all hypocrites about our weddings was one of my most popular.

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?

(25 votes, average: 4.56 out of 5)

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84 Comments latest by Elizabeth

The article everyone is talking about today

July 21 56 Comments latest by j

…is the phenomenal New York Times article written about how a woman named Diane McLeod got into thousands of dollars of debt. It’s remarkable because it includes a rich set of multimedia features that let you understand how many of us get into so much debt — and also allow you to compare yourself to others. They include:

• 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.

(10 votes, average: 4.7 out of 5)

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56 Comments latest by j

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