From Wall $treet Week with FORTUNE:

Financial makeover: Ben Stein and Phil DeMuth
April 1, 2005

One of Ben Stein's books is called How to Ruin Your Financial Life, but he also knows how to save it. The economist and financial expert recently visited Michael and Jen Defensor, a Baltimore couple buried under a mountain of debt, and afterward Stein spoke with Phil DeMuth and Wall $treet Week with FORTUNE co-anchor Geoff Colvin about ways for the Defensors to remedy their situation. Some of that roundtable discussion will appear on our April 1, 2005 program. Here are some excerpts that won't be on the air:

GEOFF COLVIN: Phil, the stakes for this couple are extremely high, a house they love, twins on the way. Can they make it financially?

PHIL DeMUTH: Oh, they can definitely make it. Michael has a very nice salary. There is some surplus income there. If they choose to apply themselves to a conscientious program of debt recovery, they'll do fine. The key question, though, is will they make that decision?

COLVIN: Ben, you've spent some time with them. You were in their house with them for a while. Did you get the feeling -- I mean the money issues are huge for them as a couple -- did you get the feeling they can make it as a couple?

BEN STEIN: Well, I've seen people who have money compulsions before, and frankly I'm one of them. I am also a compulsive overspender. And I think they have made a very smart start by going to a 12-step program called Debtors Anonymous, which really does amazing things.

I am a compulsive overspender, but I have a very large income, so it's not as bad a problem for me. But I think they're going to have to do various things. They have to attack the spending side, the saving side and the earning side.

Something that we didn't discuss at all was, could Mr. Defensor and Mrs. Defensor add to their income? In times of economic stress, if you can add to your income, it's a very good thing, and I think they can add to their income. He comes home from work, he's a civil servant. He's got some energy. He's ridden the train back from Washington to Baltimore. He could rest on the train. I think he could work for a couple of hours at a bicycle shop, he could work at a community college, or he could work doing something or other, and even if he adds just another few hundred dollars a week to his income, that's a tremendous difference. People should not neglect the earnings side in their study of their spending and the saving habits.

DeMUTH: She mentioned that she took a pregnancy test. I think there's another test that she should take. It's called the Strong-Campbell Interest Inventory. It's a career test, and it would be a way of finding out what would be a good fit between her personality, which is a kind of a humanistic, touchy-feely approach, like psychologists have, and what's out there in the world of work so that she could find a new career for herself that she could cultivate while she's at home over the next few years raising the kids, so when she reenters the marketplace she could do so at a higher level where she's earning more money and has more ability for advancement.

STEIN: There is this incredible compulsion to spend on the part of Mr. Defensor, but he's also madly in love with Jen, so it may be that one compulsion will balance out the other compulsion, but it's not going to happen without Debtors Anonymous. But this is an interesting thing because on television you're not usually allowed to talk about God, but the 12-step programs ask God to help you not overspend, so he's going to literally have to get on his knees, or at least figuratively, and ask God to help him not overspend. Now you may think that that's a trivial matter, but people in Debtors Anonymous sincerely believe God does not want them to ruin their lives by overspending. And it may be that it's going to take the intervention of God to stop Mr. Defensor from overspending.

Michael has to learn that there is enormous pleasure in opening up your mail and finding a bank statement that shows you've got some real money in the bank or in your stock brokerage account. There's tremendous pleasure in bringing home a titanium bicycle frame, but there's even more pleasure in knowing that you have a bank account or a stock brokerage account so that if you have a crisis you have something to fall back on.

You know Scrooge McDuck had this big swimming pool full of money and he could dive into the money, but it's awfully nice for each human being in America, or anywhere else for that matter, to have a swimming pool full of money that he can dive into in case of emergency. I am scared to death for the Defensors if something happened. What if he gets sick or unable to work for a while, what if she gets sick or unable to work for a while? When she has her children, she's going to find that being a mother of twins is an extremely exhausting task. No one who is not a parent can imagine how exhausting it is.

They've got to have some savings. They've got to work on this on earning more money, they've got to work on it on saving more money. They've got to have a budget written up on their kitchen chalkboard which is their budget for the day, how much they can spend and no more. And as Phil knows very, very well because he's an investment advisor, they have to improve their retirement savings. Their retirement savings are very messed up.

COLVIN: Well, and there are all kinds of problems that you have just described that were exemplified in a particular episode in their life when Michael got a raise. He got a $10,000 raise and …

STEIN: This was a horrible story.

COLVIN: The minute they found out about it, they went out and spent $20,000 I think on a car and that expensive bed that you mentioned. I think Jen describes this. Wish purchases that added up to twice as much as his raise.

STEIN: You know, the real wish that young people would be happy having come true is to have money saved. It is an incredible feeling to have money in the bank and know that if some emergency comes up you are not going to be strapped, stranded, forced to go to a loan shark. It is an amazing thing to have savings. This is a blessing beyond words.

And Jen says she can't sleep at night. If she had a more rational savings situation, she would be able to sleep at night. But she's also got to make plans for when she has the babies. I mean when she has the babies…

DeMUTH: It shows that the mattress is not the cure for the sleeping. It's the financial solvency is.

There does seem to be something like a transgenerational financial family curse operating here, and it's very tough to break out of this kind of a cycle. Typically you have one person who becomes like the scolding parent, saying "No, no, no, don't do that," and the other person becomes the naughty little child who says "Yeah? Try and stop me." That's a terrible dynamic.

COLVIN: Let's talk about solutions, because the problems are clearer by the second here, but let's talk about solutions, and let's start with that house, because it is their biggest asset. It is also their biggest debt.

The data as we have it shows that they paid $136,000 for it. They've put about $90,000 into it. It was a big renovation job. Current value $280,000, but apparently they have maxed out on the mortgage. What can they do with regard to that house first?

STEIN: They can't do a damn thing with regard to the house. They are fully maxed out. They not only have a first mortgage. They have a line of credit that has exhausted all their ability to borrow on the house. They can't do a thing about that.

I think the house will continue to go up. It's in a great neighborhood. It's an up and coming neighborhood in Baltimore. Baltimore itself is going through the roof in terms of real estate valuations. They can't do much about that. That's pretty much a done deal.

COLVIN: Phil, when you look at the big picture…

DeMUTH: Keep the house, make the mortgage payments. That's what they can do about it.

STEIN: Their after-tax income is like $6,000 a month, and they are going to be able to live on that, but they're going to have to live very, very frugally.

You know, Americans watch TV. They watch TV shows with people having unlimited amounts of nice things. They watch The Bachelor or The Bachelorette. They watch Donald Trump. They think they're allowed to have the things those people have. They're not. They're only allowed to have what they can afford to have.

They have to make a list of what they can afford to spend every day. They're going to have, by my calculation, about $80 a day to spend after they have made all their debt payments. That's not a lot. They're going to have to figure out what are we going to spend for lunch, what are we going to spend for dinner, what are we going to spend for the movies, what are we going to spend for vacation? They've got to make a list of this. They should put it up on their kitchen chalkboard and they should follow it every single day.

Now bear in mind, I don't do that, but I have a very large income so I don't have to do it. But when I was young, when I was their age, I did have to do it. When I was their age, I used to eat Hamburger Helper with little bits of ground chuck mixed in. They're going to have to do something like that until they manage to work themselves out of their hole.

He will get raises. He's obviously a capable, intelligent guy. She's going to have these babies while she's at home working taking care of the babies as a full time mother. She can also study and learn to be something like a paralegal which will greatly raise her wage when the babies are old enough so that they can go to daycare.

Their situation is far from hopeless. It is only hopeless if they allow their compulsions to overcome arithmetic. Their compulsions will not defeat arithmetic. Arithmetic is unchangeable and ineluctable. It will bring them down to earth. If they work with arithmetic, if they work with what is real, they will triumph. If they try to defy what is real, reality will bring them to the ground.

COLVIN: Phil?

DeMUTH: There is a great pleasure to be had from buying a $1,000 titanium bike frame or a $3,000 mattress. But there's also a kind of pleasure to be had from just leading the normal, middle class, American life that is like paradise on earth. And it's a question: Can you give up the short-term high of buying the $3,000 mattress for the more mature, long-term high of leading this beautiful life in a gorgeous suburb in Baltimore and raising a family?

STEIN: And this guy has an incredibly, unbelievably good-looking wife and she's as sweet as sweet can be and is just as charming a human being as I've ever met. Why can't they just spend the evenings getting books out of the library or getting videotapes out of the library and sorry, reading the books or watching the videotapes?

They do not have to spend money. There's a lot of pleasure at the end of the day in thinking I have kept within my budget. I have not overspent today. That is pleasure in and of itself.

COLVIN: Phil, you have talked about what you call the Couch Potato Portfolio. What is it, and do you recommend it for them?

DeMUTH: The Couch Potato Portfolio is fabulous. It was invented by or named by a financial columnist named Scott Burns. And that means you take half of your money and put it in the U.S. total bond market, which you can do at Fidelity or Vanguard or iShares. Take the other half of your money and put it in the total U.S. stock market.

STEIN: I don't think there are iShares in bonds are there?

DeMUTH: Yes, there are. AGG is the ticker for the Lehman Brothers aggregate bond index.

STEIN: Well, I beg your pardon then.

DeMUTH: And then there's the Vanguard or iShares or Fidelity total stock market index.

STEIN: Before you do that, Phil, do you really think at their age they should have 50 percent in bonds? I mean 50 percent in bonds is more like something for someone my age than for someone in their 20s and 30s.

DeMUTH: I think it's not a bad idea. I'm comfortable with them having 75 percent in stocks, too, but 50 percent in bonds is not too bad. Remember that looking backwards, you know, stocks have radically outperformed bonds, but that's not necessarily going to be the case going forward for the next 20 years.

STEIN: But bond yields are at extraordinary low yield, extraordinary lows, so the next movement in bond prices is likely to be down rather than up.

DeMUTH: That's right. But a lot of people would say the same thing about the stock market.

STEIN: Well, so then why should they load up on bonds if the next movement is …

DeMUTH: But a lot of people say the same thing about the stock market. We don't necessarily …

STEIN: I know that, but historically, I mean even in any long period you can mention stocks are outperforming bonds, and for these people who are so incredibly …

DeMUTH: But that's not true.

STEIN: For any long …

DeMUTH: It was true in the 20th century. That was true in the 20th century, but if you go to other countries or other time periods, you find the returns of stocks and bonds are actually much closer. Stocks haven't …

STEIN: Okay, well if you want to compare the returns of other centuries, go right ahead. But with all due respect, it seems to me that bonds are a much more of a historically anomalous point than stocks, and the interest (rates) have got to go up, and that's going to put bond prices down, whereas stock prices still have some room to go up. But obviously having some bonds leavens and evens out the ride, but it seems to me they should be a majority, a substantial majority in stocks. My gosh they're only -- how old is she? She's what, 28, 29? He's in his early…

DeMUTH: He's 36.

STEIN: I mean they have 30 years to go. Do you really think they're going to be better off in bonds than in stocks over 30 years?

DeMUTH: I think a 60 percent stock, 40 percent bond portfolio is perfectly fine.

STEIN: Okay, I would put more in stocks, but I will respectfully disagree with you about that.

COLVIN: Phil, bottom line, it sounds like you firmly believe that the couple can make it. What would be your number one most immediate piece of advice for them right now?

DeMUTH: To recognize that their ability to sabotage the best-laid plan, (even) a plan put together by Suze Orman and Milton Friedman, trumps the ability of the plan to save them. They have to make a decision that this is what they're going to do.

They have to recognize that they're not just two kids anymore, dating, married (and) if things don't work out, they can each go their own separate ways. Now there are four people involved. There are two unborn children. Their focus needs to be on their children. And if they focus on that, they'll figure it out.

COLVIN: Ben, I got the feeling that you liked this couple, that you even identified with them in some respect, and that you really want them to make it. Do you think that they will, and what's your number one most immediate piece of advice for them?

STEIN: My number one most immediate piece of advice is continue going to Debtors Anonymous. Don't think it's for somebody else. It's for you, Mr. Michael Defensor. You need it. Surrender yourself to that program and realize that real joy is going to come from financial security and making your wife happy and not from buying titanium bicycle frames. That's a very fleeting pleasure and in the long run it sabotages yourself as much as excess drinking or drugging.

COLVIN: Phil, the Defensors are clearly in an extreme amount of debt, a really troubling amount of debt. You counsel a lot of people. How common is a situation like theirs?

DeMUTH: Well, it's extremely common, especially if you look across the economy today. Spending money in capitalism is highly reinforced, because when you spend money, you get something. You get your $200 coffeemaker or your titanium bike frame. It's highly reinforce, and we tend to engage in behaviors that are reinforced. Credit is readily available. It's very easy to get yourself into trouble almost overnight.

STEIN: Yeah, I mean imagine if the drug dealers could sell you drugs with magazine ads and TV ads. Well, they're not allowed to, I mean the makers of illegal drugs, but people who sell credit or anything you can buy on credit are allowed to sell them. That's fine for the great majority of people. They should be advertised and they should be preached to and encouraged to buy things. But there are some people who simply can't handle it, and they need to have 12-step programs to bring themselves under control.