America's Cheapest Family

Steve and Annette Economides (aka America's Cheapest Family) have written a number of books including Cut Your Grocery Bill In Half and America's Cheapest Family Gets You Right On The Money. Reading their books you can truly understand the nickname of America's cheapest family. We were lucky enough to interview them and get some valuable information.

So maybe for our readers who haven't heard about you, can you tell us about your background?
Annette: Well, we started out by getting married in 1982. I really wanted to stay home and figure out what it was like to make a home. Steve was earning $6.50 an hour and everybody thought we were absolutely crazy. But I promised him that if he let me stay home, I would make that time worth our while and I would stretch our pennies until they begged for mercy.

Steve: What is interesting Adam, is when we got married we had no debt. I had a four year college degree, and at that time, people with college degrees were earning around $30,000 a year. I was earning $13,000. My dad had told us I should work two jobs and Annette should work one job, and we should save every penny we earned to buy a house within three years.

Instead, we decided Annette would stay home and we would learn to budget and manage our money. I took up a little bit of freelance graphic design work, and within three years we had a 15% deposit for a house. We bought that house and paid if off within nine years. Our average income over the 12 years, from the first year we were married to when we paid the house off was about $33,000. So it was not a lot of money, but it was a matter of managing the money well so that we could accomplish the goals we had made. During this time we also added 5 kids to the household.

Annette: It was not easy, but after a while it became a really fun game to play. So upfront there were some sacrifices that had to be made. Also there were some tears. But as we held fast to our resolve, we have no regrets as we looked back.

Steve: There was a time where we had some couches that we bought from missionaries in the US who were leaving the country. I'm not sure if you know about missionaries, but they don't usually have the nicest stuff. We paid $25 for these orange and brown couches. One day, our neighbour had this Danish furniture truck drive up to his house and had a leather couch delivered. Annette just sat on our orange and brown couches and cried, because they were all we could afford. About two and half years later, I got a bonus at work and I called her up and said, "Let's go buy some couches".

The point is there are times when you are going to cry when you are working through this budgeting process and trying to live within your means. But the joy you have when you finally reach your goal is so worth it!

So do you think that when people get to the point where they really want the new couch or new TV they turn too quickly to credit cards and debt?
Steve: Absolutely! One of the rules of frugal living is patience and research. Right now we are researching knee braces. Our daughter tore her ACL and a new knee brace costs around $800. But because of the research we are doing, we are going to be able to find it for $200 or $300, and it may be brand new. We are not going to jump in right away as there is no urgency. So it is a research project, and the more patience and research we do, the more savings we will find.

What is your opinion on credit cards?
Annette: We don't use them, and we really believe they hurt people more than they help. I know there are some people, who are really into the point's thing, and they pay them off every month and they are super disciplined. In this respect we don't have a problem with them; the only problem is the majority of people don't do this.

Steve: We are making the credit card companies rich because we are being stupid. You know up until recently in the US, we were getting points on our debit card usage. We got airline tickets and all sorts of stuff. But they just changed the rules so we are not getting those anymore. The point is living within your means and having a budget is going to save more money than those points are ever going to earn you.

I'm assuming you have helped a lot of people with their budgeting problems. Is there one case which stands out?
Steve: They all stand out. Because 80% to 90% of the people we worked with had truly phenomenal recoveries. The coolest thing about each couple was once they finally got on track and realised that money is a tool and not a right. They were really being given a gift from God to be able to work and earn money. We saw money dumped on them. One couple had $10,000 given to them unexpectedly and another had $50,000.

Annette: The highest success rate out of all the people we coached were the single mums. Because a lot of times in a relationship, people have such different views on how to deal with money; they are just coming from different places with regard to money issues.

The biggest mistake most people make is they have emotional wounds and they spend money to feel better emotionally, and this never works.

Steve: We find the single women tend to recover more quickly because they don't have any body dragging them down or pulling them in different directions. Their success rate was much higher. Plus they were much more desperate in part because their situations were normally a lot worse.

The global financial crisis hit in 2008. Have you noticed a change in people's behaviour around money?
Annette: Yes, not only in the media, but the public in general. Everyone was much more open to frugal living; by buying from thrift stores, to stretching their dollars, buying used stuff and really talking about it, and you know what, it is going to continue.

You're talking to an Australian audience. But what is the biggest thing people in the USA don't understand about their budget?
Steve: People don't understand that debt is a dead end.

Annette: We always say that debt destroys and frugality frees. And I know we have already said this and it probably sound boring, but debt is probably the most destructive thing for the American family.

Steve: We get letters from people who are still paying off their school loans after twenty years. They say their kids are ready to go to college and they haven't even paid their loans off. What are we going to do? So debt really is dumb.

Annette: Our society says debt is perfectly acceptable. In fact, they say if you are using debt to improve yourself this is a perfectly good reason to have it.

Steve: Debt is how we ended up in the housing crisis here. We have mortgage lenders who would lend money to anybody. They didn't check to see if they could really afford it; they just wanted another sale. As housing prices were going up so quickly, the general public thought they were going to miss out on making money. They went out and bought two or three houses. It was just a combination of greed and ignorance.

Do you believe parents should teach their kids how to budget?
Steve: 100% yes. Parents who don't teach their kids to manage money when they are small are creating a dependency for life. As kids hit their college years they are still sucking money from their parents. Then they go out and get a job and they are still sucking money from their parents.

We know a guy who is in his 50s; his dad is in his 90s and the dad paid to put a new roof on the son's house because his son could not afford it. He is also paying for his grandson's education. He is sucking money from his dad because he never learnt how to deal with money.

The worst thing is it is happening more often. Because of the housing crisis, people are moving in with their parents because they are losing their houses. Unfortunately, the parents who lived through the Depression and had to sacrifice to put their kids through school are now having to take the same kids back in under their roof. It's very sad!

Annette: It's pretty bleak and it's going to get bleaker.

If you had a magic wand and you could teach everybody just one tip about budgeting; what would that be?
Steve: With my magic wand, I would make every credit card and home equity loan go away. Why? Because it would force people to say, "Wait a second, I have no choice but to live on what I earn. If I don't have the extra money and I really want something I'm going to have to find another way to get it". But by these people now having to delay their purchases, they will unlock the source of unlimited potential in their lives, which is learning to be creative, when things are not easy.

We have many baby boomers in Australia who have saved nothing for retirement. They believe the government pension will provide for them in retirement. Do you have the same in the USA, and what are your thoughts and feelings on this?

Steve: We do have the same here. The average 50 to 60 year old has $25,000 in the bank. But that's average, which means half of them don't.

Annette: My advice is to come up with some way to earn income, because even if you collect social security, you can still earn $13,000 a year without being penalised. People have to be setting aside money and they have got to be debt free. If your house is paid off and all you have to do is come up with money for utilities and taxes, you can normally live a pretty good lifestyle.

Steve: The problem is we have been labelled consumers and we think we are meant to consume with everything we earn. But we are meant to set some aside for the future. It's like farmers, if they ate all the corn they harvested, they would have nothing to plant next year. People need to start saving 30% of what they earn. So we can live on this in the future. Or have these resources to help other people who are in trouble. It's just common sense stuff.

If you had to recommend other budgeting book besides your own which ones would you suggest?
Annette: We like Dave Ramsey, his Total Money Makeover book. But the book that got us started is a book by Larry Burkett and it was called Your Finances and Changing Times. Larry has since died, but even though the numbers are outdated, the principles are very sound. He also had a great book called Debt Free Living. The other book is called The Millionaire Next Door. This is an extremely eye-opening book about how true millionaires don't drive fancy cars, have expensive houses and don't have a 20 year old on their arm every 20 years. They stay married to the same partner all of their life, live in a modest home and drive a modest car. Also there is The Tightwad Gazette Volumes one two and three.

Do you have any savings tips you can share with the readers?
Steve: Start a gift closet. Annette is always on the look out for cheap gifts we can give as birthday or wedding presents. We don't buy them for any person in particular, but whenever she buys them she puts them aside. Then when the need arises, Annette raids the closet and gives a gift which may have only cost $10 but is worth $60 to $70.

If a couple came to you really drowning in debt, what would your first bit of advice be?
Steve: The first thing we would do is set up a guideline budget. We would work out what they have spent in the last three months. Literally write everything down. While we are doing this we would tell them to stop all spending. We would gather as much cash as possible. Then we would look at everything they have that they could sell. Look at any money owed to them that they could collect. Then we line up all their debts from largest to smallest and we start paying off the smallest one first.

It's a bit like taking someone to the emergency room; you need to stop the bleeding. The doctor does not worry about setting the bone, they stop the bleeding. Then the doctor checks the vital signs. The question needs to be asked, "Where has your money been going?"

Any last words?
Steve: Budgeting is important. But learning to live on what you make is even more important. You need to manage what you have but you also need to learn how to stretch it. We really believe that frugality is a fun way to live. It is a challenge and different and the rewards are so cool. I have never heard anybody brag about paying retail. I have never heard it. But I have always heard people brag about getting deals and I love it.

Annette: Today I went to one of the craft stores in town. I was looking for their fall clearance. I found some salt and pepper shakers which were 70% off. But I also had a coupon which was only good today because it is Veterans' day, and it was a further 25% off your whole order, for your sale price or regular item. So I spent $2.25 for these two sets of salt and pepper shakers. This is probably the same or better than second hand ones at thrift stores.