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This traditional Thai greeting translates literally as “good greeting,” but the intended meaning is even warmer. Some Thai’s have described it as meaning from my heart to yours (the cupped palms over your heart conveying the heart). The addition of “kah” following sawadee (sa-wat-dee-kah) from a female, or “krub” (sa-wat-dee-krub) from a male denotes politeness. Don’t leave out kah or krub unless it is with a close acquaintance. It is also used to say farewell. The warmth of this greeting is genuine and reflective of the polite, respectful Thai culture. 
You will see the term Sawadee written as Sawatdee or Sawadee. These different spellings are neither right nor wrong as they are simply attempts to replicate the sound of the Thai word, versus a literal letter-to-letter translation between Thai and English.
The polite response is to respond in kind, with the cupped palms and phrase to the greeter, or nodding with a smile to children. The Thai’s appreciate polite behavior. If you’d really like to make a good impression, say: “Sawasdee Kah/Krub” in response to this same greeting to you.
The gesture (cupped palms) is also referred to as a “wai.” Used alone, it can be used to indicate a greeting, respect, a thank you, or even an apology. The “wai” (as in Ha-wai-i), looks similar to the Indian gesture of “namaste” and likely shares the same origins. There are many different variations of wai used for various occasions or to indicate the status of a person. For example, a child will wai an adult with palms close to the nose but an adult will return the gesture with palms over the heart. The higher position of the hands (closer to the face), accompanied by a slight bow conveys a greater level of respect, as does repeated "wais." For example, it is customary to pay homage to a Buddha’s image with three wais. For normal greetings, palms at heart level are a good starting point.
In this same vein, the polite way to greet a Thai person in communication is by preceding their name with the word “Khun.” It is an equivalent of Mr., Mrs., Miss, and Ms. rolled into one. For example, “Hi, Nat” in Thai would be: “Sawadee Kah/Krub, Khun Nat” with cupped palms and a slight nod.
The most important thing to remember is the sincerity of the gesture. It truly means from the heart. So make sure that your heart is involved when you initiate or respond to this greeting!
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