← HerMoney with Jean Chatzky
HerMoney with Jean Chatzky
Ep 522: Inflation, AI, Retirement, and Your Wallet: Planet Money Answers Your Biggest Money Questions
00:45:39
Planet Money meets HerMoney. Your wallet wins.
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A
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C
It is our larger honor.
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B
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C
The economy is the greatest invention in human history and we are all part of it. Like the economy is us. It is made of us as humans. All interacting, pursuing our interests and values, looking for trades, impacting people in a butterfly flaps its wing way, impacting people on the other side of the world. And I think sometimes economics can be seen and the economy can be seen as just money. It can be seen as impersonal. But I think the economy is something deeply human. It's all of us. And that's why it's so like endlessly fascinating and interesting.
- [01:41]
A
Hey everyone. Welcome to Her Money. I'm Jean Chatzky, and many of you know that I have spent a lot of my career, a lot of my life trying to make money a little bit less intimidating. If you've been listening to Her Money for a while, you know that's what we are all about. Not just the theory or the headlines. But what does this actually mean for me and for my family and for my future? Perhaps no one can answer those questions better than Alex Masi. Alex is a contributor to one of the most beloved podcasts in the world. I mean that without any exaggeration. Planet Money is an NPR podcast that launched in 2008, right in the thick of the financial cris. One very clear mission to explain the economy. And they have delivered on that promise for over 17 years. All because they figured out how to do the thing that so many people said could not be done. They managed to make Economic principles. Genuinely entertaining. And now Alex and the Planet Money team have written a book. It's called Planet Money, a guide to the economic forces that shape your life. I tore through it because at its core, it is about something that I have believed my entire career. That understanding how the world works economically doesn't just make you smarter, it actually can make you richer in every sense of the word. When you understand why the economy feels the way it does, why some costs keep climbing no matter what, and why staying the course with your investments is easier said than done, you are better equipped to make decisions that actually move the needle in your own life. Alex, welcome to Her Money. I've been looking forward to this one.
- [03:46]
C
Oh, thank you so much, Jeanna. That was such a generous introduction. I really, really appreciate the kind words.
- [03:52]
A
Oh, absolutely. Let me start by asking for your definition of the economy. Cause you open the book with a line that I keep coming back to. You write, on good days, the economy is the background to our lives. On bad days, the economy is like a cage. You can't escape with that as framing. What's the economy?
- [04:18]
C
Yeah, well, I have to start with my favorite definition of the field of economics, which is economics is what economists do, which points to this way that the field of economics can be a bit nebulous, which is why we have that kind of comical definition. But I think, you know, the economy is like the greatest invention in human history and we are all part of it. Like, the economy is us, it is made of us as humans, all interacting, pursuing our interests and values, looking for trades, impacting people in a butterfly flaps its wing way, impacting people on the other side of the world. And I think sometimes economics can be seen and the economy can be seen as just money, it can be seen as impersonal. But I think, you know, this book is full of interesting characters pursuing their goals. And I think the economy is something deeply human. It's all of us. And that's why it's so endlessly fascinating and interesting.
- [05:16]
A
And clearly you are a believer that having at least some understanding of the economy actually makes your life better. Did that take you a while to wrap your brain around or did you just know it from the start?
- [05:33]
C
You know, I have been reporting on business and economics, like for most of my career. So it is something that I've been steeped in a bit. But I do think, you know, I really fell in love with the feeling early on and still love experiencing it today. That feeling when you. You kind of learn some sort of economic concept and it just kind of unlocks a lot. So one example I can give there is this economic idea called Bommel's cost disease. So Bomal was an economist who was asked by the JFK administration, hey, could you look into why so many, like artists in theaters are struggling financially? And so him and a collaborator, another economist, you know, they go interview people, they look for data in, you know, filing cabinets in Broadway theaters. And what they come up with is this really elegant theory that there are kind of two parts of the economy. One part gets more and more efficient pretty much every year. You know, people used to like hand make their clothes, then factories manufactured them, and you know, then you replace more and more of the people with machines like that gets more and more efficient. That's true of all sorts of parts of the economy. There are other parts of the economies that are very labor intensive and they don't change that much. When you get a haircut, you still need about 20 minutes or however long with one person who's trained and could give you a good haircut. He has this amazing line that like, you can't really improve the efficiency of a quartet. You know, you still need four people to play the quartet. And so this really impacts theaters and artists, right? It's the, the product is the labor. It's the four people in the quartet, it's the actors on stage. And so as this other part of the economy gets more and more efficient, you know, you see higher wages, higher cost of living. And that puts pressure on these like, labor intensive places like haircuts, theaters, restaurants, where they're not really getting more efficient, but they do have to raise their wages to at least somewhat keep up with the other parts of the economy. And when you learn that, suddenly a lot of things become clear. And I think one of the big ones is, you know, like a lot of people experience, like, why is childcare so expensive? And you go, oh, Bowmel's cost disease. Like, that's very labor intensive. Like we don't yet have robot nannies that we all love and adore and want to hand our children over to. And so that's, you know, that, that, that's one of those moments where like learning something could give you this really empowering sense of understanding a lot of the economy based on like a simple but powerful economic concept.
- [07:57]
A
Yeah, I know. It's been so true for me. So I took Econ 1Amy very first semester in college, did got the first C I had ever gotten in my entire life. And so didn't expect it. Didn't expect it. Totally devastated. I made the mistake of thinking I went to Penn undergrad. And it was a thing at that point to think that you were gonna transfer out of liberal arts and into Wharton. And so I sort of thought, all right, maybe I'll do that. Went down that path, decided, no, became an English major, but have learned economics in reporting on personal finance and business over the last 30 years. Don't think I would get a seat today, but also don't care because I think it's just, it's fascinating. Right. And as I've said before on this show, I think that the average American is much more interested in the economy now than they were even a few years ago. Have you noticed that at Planet Money? And why do you think that is?
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C
Yeah, I mean, I think over just the last few years, we had the pandemic and lockdown where we saw, you know, the explosion of remote work. Many Americans experienced high inflation for the first times in their life. That was the case for me. You know, these kind of supply chain shocks where, like, weird things were happening. Like a used car costs more than a new car. Like, what is going on? And then, of course, you know, tariffs in the trade war under the Trump administration. So I think the economy has not been a background hum recently. You know, it's been something that's really gripped headlines and that we've felt even just, oh, you know, like, I, I remember this is like the silliest inflation indicator ever, but this is my inflation indicator. I remember as inflation started really rising a few years ago, like, I went to order my favorite dish from a Thai restaurant, it had gone up in price $2. And I was like, ooh, yeah, inflation, yeah. And then a month later, it had gone up another dollar. Right. And like, there are parts of the world where, like, they live with that. But like in the United States, that was, you know, I never experienced anything like that. And so that's part of why we really wanted to do this book now is that I think people were looking for a lot of guidance and there are quite a bit of changes. And of course, AI and automation is another one of those where I think people are. There's a lot of uncertainty and a lot of things that we've taken as a given, like, you know, learn to code was a kind of like, throwaway line about, like, go learn a thing. That of course, you'll always make a good living if you learn to code. And now some software engineers are the people most, in some cases, most concerned about whether their livelihoods are at risk because of automation.
- [10:37]
A
Yeah, I gave that advice out way too many times and now I'm feeling very, very badly about it.
- [10:43]
C
And I will say, you know, no one knows for sure how AI will impact the world and the labor market. And I'm not going to claim that I know for sure. I definitely don't. But there's certainly examples you can look at from history where, you know, the one we use in the book is that like the automated teller machine. If you're a bank teller, you might think, oh no, it's me. But a machine, automated, it's literally meant to automate me out of exist. But in fact, you know, I spoke to a bank teller who was. She started her career just as ATMs were going on. She was not stressed, she was not worried. It did not replace her, it changed her work. She did different things as a result of ATMs being installed. But the number of bank tellers kept going up in the United States for years, even as ATMs were being installed. And it wasn't really until online banking took off that you saw the bank teller start to decline as an occupation. So I will say, like, I'm not going to tell software engineers and young coders, like, nothing to worry about. Like, put your head in the sand, you're fine. But I do think there are ways we can look back at, you know, history, precedent, and find useful learnings from those.
- [11:46]
A
There's so much economic news out there that people I know are trying to take the pulse of the economy on a daily basis, which is very, very difficult to do. But we recently had Stephanie Link on the show. She is a professional investor at Hightower on CNBC a lot. And she made a compelling case. When you look at the economy by the numbers, it's doing better than people think. GDP growing around 2 and a half percent. Inflation has come way down from its peak wage growth. Solid ish. And yet if you ask people, ask Americans how they feel about the economy right now, the answer is less than ish. Right. It's not great. Why do you think that perception gap exists?
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C
Yeah, I think it's a little frustrating. Right. Because it's not one thing. It's probably multiple things. But I think I've been thinking about this a lot as well. And I think some of the top reasons that come to mind, I've been playing with this idea of maybe our economy is a fixed cost economy. We talked about the parts of the economy that get more and more efficient over time. And so the cost of Goods go down. Rich jerks would brag about having like a big flat screen tv. And like, if you tried to brag about that in some, like, schmancy town like Aspen, like, they'd laugh at you. Now, like many, many people can afford a flat screen tv, but I think some of the things that have not gone down in price that often have, if anything gone up in price, they're like big fixed costs. Right? Like the cost of childcare, you know, higher education, college, housing. And so I think that's one thing we're, that can make people feel less secure even if their wages look pretty solid. Because if times do get tough, okay, I could cut back. I won't go out to dinner as often. I won't buy as many, like, fun toys that I keep in the garage. But those are things that are not that much of our income. Cutting back on those is not going to make a big difference. And the things, you know, like childcare, it's really hard to cut back on that. And that's a lot of your expenses. You know, same for if you're saving for, you know, a college fund. So I think that's part of that is that it just feels more precarious because we have these big fixed costs. I think that's one of them for sure, where there's this gap between the numbers looking pretty good, but people's feelings and perceptions not being there.
- [14:12]
A
Yeah, no question. And long term care, I would add to that list. I was chuckling when you talked about the television because my son Jake, who he works for a podcast called New Heights, so he's got a pretty decent social following. He was home for Thanksgiving. And I have a big television at one wall of my house, but in my kitchen I have a small flat screen television just so I can watch while I'm cooking. And somebody took a picture of him with that small television behind him and it got posted and he was made fun of to no end, like, dude, where's the tv? What are you doing with a television that size in 2025?
- [14:54]
C
Well, I don't know. TV screen inflation is maybe getting out of control maybe a little bit. I very much approve of your, your small, cute TV in your kitchen.
- [15:01]
A
Oh, thank you. I, I approve of it as well.
- [15:03]
C
Watch slash listen while you cook.
- [15:05]
A
You know, you can't miss Jeopardy. You just can't. You have an entire chapter devoted to why goods get cheaper and services don't. You talked a little bit about that. But are there things that we should be thinking about when it comes to the service economy that can shape our purchasing decisions a little bit, that we should be looking to when it comes to getting the most utility or happiness out of each dollar.
- [15:38]
C
Yeah, I mean, I'll first go a little bit more psychological. Economists very much, I think, approve of how many of people making their own decisions and how many disparate products there are. And people can use their money for the thing that they will enjoy. And so something I think about is that have you ever had the experience of maybe being in a museum when you're on vacation in a big city like New York or Paris, and you maybe see young fraternity guys walking around bored and just kind of taking photos in an art museum or someplace, and you're kind of like, what are you doing here? You clearly don't enjoy it. And I think partially what they're doing is we're all recreating this idea called the Grand Tour, where, like, you know, in Europe, however many centuries ago, young, wealthy people would have to go do the Grand Tour to go to certain cities in Europe to see certain sites, because that was what considered would make you cultured. And I love the general idea of, like, traveling to expand your horizons and learn. But I do think there's a way where people sometimes will just be like, oh, this is what I'm supposed to do when I travel. And I kind of feel like, you know, if you want to spend your vacations running ultra marathons in different parts of the world, like, go do that. Don't go to art museums. But if you just love art, like, do nothing but going to art museums or, you know, obviously some people like a balance. But I do think there will be ways where people can kind of follow a standard script, you know, And I've had moments sometimes where I've, like, spent quite a bit of money on like, a concert ticket. Cause a number of friends were doing that and like, yeah, that's what you do. And sometimes I love concerts, but this one, I was like, I didn't really. I wasn't that excited. Excited about it. A concert is quite expensive. In some ways. It's good that concerts are expensive because lots of people want to go see them. Those artists are popular. The people should spend that money on the ticket if you really love it. And then in that case, I could have gone and had a really great meal with my girlfriend for that money. And I love food, and I would have enjoyed that so much more. So I do think, yeah, there's a way. Part of being smart about your money is knowing thyself and making sure it's a wide world out there. There are all sorts of people who the economy we live in, everyone is just incentivized to find the things people love and try to deliver those experiences. The economy at its best is like trying to to bring joy to each person's individual preferences and and like take that seriously. There are people looking to find the product or service that you particularly will love.
- [18:01]
A
I like that idea that economists are very much into this you do you kind of frame of mind. I'm gonna take a very quick break. When we come back, we're gonna talk about why we are so unbelievably unprepared for retirement in America and what economics can teach us about how to catch up. If you've ever felt like you're doing everything right, eating better, moving more, and the scale still won't budge, I hear you. That frustration is real and it's exactly why I wanna tell you about Weight Loss by hers. Hers now offer an affordable range of FDA approved GLP1 medications including the Wegovy pill and the Wegovy pen. It's weight loss design to actually work with your life. Ready to reach your goals? Visit forhers.comhermoney to get personalized affordable care that gets you that's F O R h e r s.com hermoney forhers.com hermoney Weight loss by hers is not available in all 50 states. Wegovy is the registered trademark of Novo Nordisk as to get started and learn more including important safety information, visit forhers.com hermoney I've been doing a little spring reset with my closet lately. Less about adding more, more about adding better. Fewer pieces, better materials. The kinds of things you reach for every single day. And that's why I keep coming back to to Quince. I recently picked up the Mongolian cashmere T shirt in black and it's so soft, so classic. The kind of piece that works just as well at dinner as it does running errands on one of those in between spring days when you have no idea what to wear. And let's just talk about their running tights. Such amazing quality at a fraction of the price. I use Quince on the regular and I think you should too. Refresh your spring wardrobe@quint.com hermoney for free shipping and 365 day returns. Now available in Canada too. That's quince.com hermoney Q U I N C E.com hermoney we are back with the author of the New book, Planet Money. Alex Masi we talk a lot about retirement on this show. Probably because I'm getting closer to it every single day, although I'm not there yet.
- [20:40]
C
We all are.
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A
We all are. The numbers, though, around retirement in this country are genuinely alarming. Right now there is close to $46 trillion invested in retirement accounts across the country. That's good news. It's nearly double what it was a decade ago. And yet the median retirement savings for workers in that 55 to 65 year old age group is just $185,000. So there are a lot of people with a lot of money who skew the numbers. 15% of older Americans are living in poverty. That's the only age group where the number is going up. What does economics teach us and tell us about why we are collectively unprepared for something that we have known is coming for a really long time?
- [21:34]
C
I mean, I think part of it is uncertainty, right, that there are a lot of unknowns. You know, I've talked with friends about the example where they're like, I can sit down and think about my finances, but if I don't know whether I'm gonna have one kid or two or zero kids or one, suddenly that kind of makes a mockery of the entire process because that changes the numbers so much. Or, you know, for someone who's single, they're like, well, I could end up with a partner who makes a really good income or someone who doesn't. And that wildly changes things. So of course there are a lot of unkn.
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A
Do you think it's behavior? Do you think it's policy? Do you think it's something more fundamental about the way that we're wired to think about the future? As you sort of parse it out, I mean, and I know that there's behavioral economics, right? There's policy economics, there's technical, right? So there's a lot of different ways economists might approach it.
- [22:31]
C
Yeah, I think, you know, some of the, like, psychology that comes into behavioral economics, there's certainly an element of something that's like unpleasant or you don't understand or you're worried about it could be nicer to avoid it. There's also just behavioral. Economists have talked a lot about what's the default option. And for many Americans in the past, your company probably provided a pension or retirement plan for you that was just part of it. And more and more Americans, that's not the case. It's just on them to save for retirement. So that is a big Switching of the default from your money will automatically be invested in the form that, like you're going to receive a pension from your company or you have that retirement plan too. It's just on you. So the default is nothing unless you take action. So I think that's a big part of it. I think it's also notable that, you know, people talk a lot about, like, will I ever receive Social Security? Will Social Security be solvent in the future? And as much as that's talked about, I think it is somewhat underappreciated that, you know, there are in other countries where they said, hey, we want to help people be secure in retirement. So we will tax people when they are working and we'll invest that money and then they'll get that money when they retire. Basically just, you know, like we said, setting the default to saving for retirement in the United States, we are kind of doing that with Social Security. Except the way the system was set up in the Great Depression, there wasn't this just like, okay, and the benefits will start coming, you know, years down the line when the first workers retire, retirees start getting money immediately. So it was this kind of like pay as you go system. And one thing that maybe goes underappreciated is that with our Social Security system, there is a big pool of money. It is not currently bankrupt. That's good to know. That's nice. But, you know, the Social Security program is not taking the money. We pay taxes and investing it in the way that we're all told to, you know, put it in the stock market, put it in index funds. It is largely in US Government Treasuries, which are an incredibly safe investment. And as a result, you don't get much money. Like no one would tell you at age 20, 25 to start saving for retirement by putting all your money in treasury funds. That's basically funding the US Government. It's such a safe investment that there's no real gain. So that's just like not a great system. If you're thinking about the government kind of saying on everyone's behalf, well, just like default, input everyone into saving money when they work that they get back when they retire. Because it's like the worst investment portfolio imaginable. It's just like put all the money in this one type of investment that doesn't pay out very well. Like, that's not what any financial planner advisor would recommend to a young person saving for retirement.
- [25:13]
A
Yeah, no, it's true. And if you, I'm sure you read Larry Fink's letter, his annual letter, where he suggested not privatizing it and allowing individuals to invest their own Social Security for the future, but that maybe we should treat it more like a pension fund where some of it does go in stocks. Feels like a little bit late to the party, but maybe better late than never. Let's stay on investing for a sec. You've got a chapter on how hard it is to beat the market and why it's so hard to beat the market, which is, I think, why some people have said, well, we don't want to do that with our Social Security. And you use this graph that is based on a quote from John Maynard Keynes where you compare the stock market to a beauty contest where everyone is trying to guess which stocks everyone else will think are valuable. You called it Keensian Cute animal content. And you actually asked people to rate which animal they thought was the cutest and then which animal they thought other people would pick. What did that experiment reveal about human nature? And why is it such a great illustration of how the market actually works?
- [26:27]
C
Yeah, I think a lot of your listeners will be familiar with the idea that markets are efficient and all available information is kind of already priced into the price of stocks. But the point that our cute animal contest is making and that the original beauty contest formulation is making is that if people are trying to make money in the stock market, often what they're doing is thinking about, like, well, what is everyone else doing? And you know that everyone else is not rational. You're probably not rational, too, but maybe you think you are. You know, when you're trying to think about what everyone else is thinking, you get these kind of odd feedback loops. And you do actually see, like, in our cute animal contests, that when people ask, like, which animal do you think is the most cute? Maybe it was the adorable lemur or something that won because of, you know, just like, the three photos we chose. But then you said, okay, like, well, what do you think everyone else chose? And then maybe it was more like a puppy, because that seemed maybe more like, oh, I know people love puppies. So probably everyone else chose the puppy. And so you can kind of imagine that where there are people out there, right, where they're like, I don't think Tesla, I don't think it's a great product. I don't think their financials are in a good place. But there are all these other people who love Tesla. And so I think I'm just going to ride the wave and I'm going to put my money into Tesla. And I mean, if you did that at the right time, you made a lot of money. But obviously it could go the other way or suddenly stop. And you can obviously see how the stock, you know, if you're trying to guess what other people will do, it can start kind of divulging from this more. Just like, you know, channel the capital to the companies that will use it productively because they're well run and they have good ideas.
- [28:00]
A
Right. So if we were having the contest today, Punch the monkey definitely wins. Right. But beyond that, what is the better approach? Is it fundamental investing? I mean, when we have an investing club for women that we run and we look at companies on the fundamentals and often find ourselves looking at things that we think maybe we're a little early on or that are out of favor, but might come back, or where they just put in a new CEO that we think has promise. How do you look for things that you believe are undervalued?
- [28:33]
C
Yeah, I'll maybe say two things, I think. One is that I personally am pretty happy to put my money in index funds and then not have to pay attention to it because it is when you are trying to make money like you are competing against so, so, so many people with the same goal. Like, as you know, it is extremely hard to come out ahead. And most of the people coming out ahead, it's often random chance. And the Warren Buffets of the world are few and far between. I will say though, like Planet Money as a podcast, we have what I hope can be called a proud history of doing different, like stunts or participation journalism where we will do things like, you know, print a T shirt and we will follow it from like the farm where the cloth came from through, you know, each stage until it's delivered. Or some of my colleagues, like went in search of a superhero. Like, we wanted to make our own superhero franchise, you know, those things were just printing money. So we created our own tiny, adorable superhero franchise. About Micro Face has a normal sized face, but he has a microphone mask which seemed perfect for a podcast. A kind of like old forgotten superhero that was, I think, more or less in the public domain as a result. So I do think that while obviously I would join the many voices saying, don't think you're going to go in the stock market and spend a couple hours a week and outsmart everyone else and become rich, I do think that thinking about the stock market and where does the stock price come from, how would I go about investing based on certain goals? I think that is Extremely valuable as a learning exercise. And to better understand financial markets and the economy.
- [30:13]
A
I want to end this conversation where I think every good conversation about economics should end. And that's with hope. You close the book by writing that the story of the economy over the past two centuries is one of increasing prosperity and abundance. Love that. So of all, all of the principles, the economic principles that you lay out in the book, and there are a lot, which one have you personally found the most useful?
- [30:48]
C
Ooh, that's a good question. I do think, even though people talk about it a lot, the power of compounding interest, it just like somehow we always undervalue it. It just breaks my brain to think about. And so this is the idea that say if you save some money for retirement by playing in the stock market, and if the stock market goes up 5% every year, or 10% every year, your money will increase in value by 10%. And that's not just that your original money increases by another 10%, it's that the gains also increase by 10%. And this snowballs more. That seems possible. And I think one of these examples of this is that if you took the US's GDP growth, you know, the growth of the US economy over the last, say hundred years and you increased it by half a percent or decreased it by half a percent, like the difference in our living standards would be huge. It's like the difference between, you know, the United States today and like a medium income country, maybe in like Eastern Europe, or if it's 1%, maybe, you know, a relatively poor country, like that's compounding interest. The difference between if the growth rate is 1.5% or 1% or 1.5% or 2%. And so I think that's both just powerful for like, yes, people probably have heard, start saving for retirement now, start saving for retirement early. It's not that much helpful because you're like, okay, yeah, but I need money. But it is just so powerful, it's so helpful. But then I also think it's really helpful to think about other parts of your life where you can kind of have progress snowball and compound in the same way. Maybe that's the growth of your professional network. That if you kind of, if you grow your professional network by meeting someone you respect, who you could both kind of benefit from a career connection, you know, one person a week, the size of your network, if you think about the other people those people know, suddenly like your network almost grows like exponentially. If you have, you know, clients, if you have followers on social media. Those are things that also they can kind of, you can see compound growth where it can start small and gradual but then just really shoot up. So I think there are different ways where like yes, start, start saving for retirement early, but also look for like things that scale and compounding growth in other parts of your life and career. Because that can just be like we always underestimate how powerful that growth is and can be.
- [33:06]
A
Back in a sec. You know what's funny about tax season? It's one of the only times a year most of us actually sit down and look at our full financial picture. What came in, what went out and where on earth the rest went. And every year a lot of us think, I wish I had been paying closer attention to this all along. That is exactly why I love Monarch. Simplify your finances with Monarch. It's the all in one personal finance tool designed to make your life easier. Bringing your entire financial life together in one dashboard. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with Code Hermoney. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use code hermoney@monimal.com for half off your first year. That's 50% off@monimal.com code hermoney. You know that feeling. It's 7pm you are exhausted. You know you should eat something healthy. But the idea of planning, shopping, actually cooking, not happening. Eating well is not a willpower problem. It's a time and effort problem. That's why I love Factor. I've been working my way through their menu lately. The ginger teriyaki salmon one night, a Thai green curry packed with roasted vegetables the next. I even tried their new miso edamame tofu salad. It did not disappoint. All fully prepared dietitian designed, chef crafted meals delivered right to your door and ready in just two minutes. I use Factor and I think you should too. It's the setup that makes healthy eating actually happen. Without the planning, the grocery runs or the cooking. Head to FactorMeals.com HerMoney50OFF and use code HERMONEY50OFF to get 50% off and free daily greens per box with a new subscription while supplies last until September 27, 2026. See website for more details. Alex, are you ready to answer some questions?
- [35:24]
C
Oh yeah, absolutely.
- [35:26]
A
All right. This one is from Julie. She says I've been hearing a lot about tariffs lately. I know they're supposed to protect American jobs, but every time I go to the grocery store or try to buy something online, I feel like I'm paying more. Can you explain in plain English what tariffs actually are, who they're really designed to help, and why? I feel like I'm the one footing the bill.
- [35:51]
C
Yeah, absolutely. So a tariff, very simply is a tax on trade. So if a company in the United States wants to bring goods across the border, they will pay a tax on it. You know, if that, that good costs $100 and the tariff is 5%, then, you know, they have to pay $5 in taxes to bring that good in. What is tricky about tariffs is that it's actually a little bit hard to say who pays it, who pays the tariff. And I think there's a way where dueling political parties could say, you know, it's American consumers who pay the tariffs, or, no, it's foreign companies who pay the tariffs. And they're kind of both. Right. And so let me explain. You can imagine, let's say you have an American company and it's importing TVs from a factory in another country like China. The American company might be able to say to that Chinese factory, hey, because of these tariffs, like, we're going to pay you $5 less for TVs because of the cost of the tariff. And the Chinese factory might really need to sell those TVs to this American customer. And they'll be like, ah, okay. And so in a way, the Chinese company is paying the tariff because they're getting less money in exchange for the tv. But you could imagine that the American company says, hey, we're going to pay you less for these TVs because of the tariffs. And the Chinese factory will say, nah, we don't like that. If you're not going to pay us as much money, we'll just go sell the TV somewhere else. Right? And so then the American company would be like, oh, okay, okay, never mind, never mind. And they just pay the tariff, you know, and that money just goes to the U.S. treasury, to the U.S. government. And then there's one more step where the company might say, okay, this is just an extra cost for us and they have less profit. Or they might increase the cost of the TV in stores by the $5 or however much amount. And then customers, you know, American customers are paying it. But that, again, kind of depends on this, like, power balance between the customers and the company. Whether they think customers will pay that extra $5 or whether they won't. That will impact whether the company decides to eat the price of the tariff and pay it themselves. So it is a little tricky to say who pays. But I think overall a tariff is a tax on trade. So we are in such a global economy where even products that are made in the United States, they're often importing steel, plastic, whatever raw materials they need to something in American factory. So, you know, tariffs are going to increase prices writ large. Even if it's a little bit complicated, case to case to case, to say who's paying the tariff in each specific circumstance.
- [38:21]
A
Well, and just hearing you explain it makes it abundantly clear why after the Supreme Court decision, when there was talk about rebates for some tariffs that had already been paid, it was gonna be next to impossible to figure out who actually would be getting those rebates.
- [38:41]
C
Yeah, yeah. Who is really owed the. Yeah, exactly.
- [38:44]
A
All right. Another one, different topic. This is from Amanda. She says, I keep hearing the term tax loss harvesting thrown around. I feel like I'm supposed to know what it means, but honestly, I have no idea where to start. Can you explain what it actually is and why anyone would want to intentionally harvest a loss? It sounds like the opposite of what I'm trying to do with my money. And does it only work if you're selling long term investments or does it work for short term ones too? And which accounts does this even make sense in? My 401k, my brokerage account, my IRA.
- [39:21]
C
So, you know, I, I will certainly preface this with, like, I'm not a professional investment advisor, but certainly I think tax loss harvesting is like an interesting idea and kind of shows how much the tax code can, I mean, influences all different parts of our lives and is very important in investing and saving for retirement. So I think like tax loss harvesting comes from this very, like, understandable idea that the government thinks if you lost a bunch of money, we don't just want to like tax you on the things that went well. So that's, that's the general idea that you could kind of, if you have, say, an underperforming stock and you sell it, you could then report that loss. You know, I bought the stock, it went down in value, and that decreases the amount of taxes that you would owe because you have less profit. So tax law is often a breeding ground of unintended consequences. And so this is a case, right, where savvy people in the investing world realize, okay, if I have a stock that went down, I could probably sell it, report my loss, so that decreases how much I owe in taxes, but then just go buy a very similar stock. So I'm not really changing my portfolio at all. It's just that there are lots of similar companies out there in the world that make up my portfolio and switching from one to the other isn't really a big deal. But I might get a tax benefit from switching from one to the other. So that's tax loss harvesting. I think we spoke earlier about my affinity for index funds. I do think there are kind of some of the services out there that help people save for retirement very easily that kind of automate parts of the process. You can check and see whether tax loss harvesting is something that they will do for you. That is something that some of them offer since it is something that you know there are ways you can run afoul of the rules. There are rules around what you are able to report as a loss. And I think we don't only want other people to be able to take advantage of these kind of like tax savings but want to be careful to not run afoul of tax law. For sure.
- [41:15]
A
Yeah, absolutely too everything that Alex said. A lot of robo advisors these days include a tax loss harvesting mechanism. And just to just to focus in on a couple of your nuances in the question. When you harvest a loss, you're harvesting a loss to write it off against a gain. Short term gains against short term losses, long term gains against long term losses. You either have to stay out of that investment for 30 days before you rebuy it or buy something else that's similar and stay away from the first investment to begin with. And you can use a tax loss against $3,000 of ordinary income each year as well. Finally on those accounts, this is not something you do inside of a tax advantaged retirement account. You don't do it in a 401k or an IRA. You do it in a taxable brokerage account. But yeah, it's tricky. You definitely don't want to get out over your skis where these things are concerned. We're going to take a very quick break. Stick around. Our last question is one I think think every single person listening has felt at one time or another in their life. Why does everything look beautiful but feel cheap? Back in a sec. We are back with Alex Maasse from Planet Money. He's got a brand new book out called Planet Money. A guide to the economic forces that shape your life. We've got one last question. This one comes from Samantha. She says hear me out because I feel like I'm losing my mind. I bought a dress recently for a wedding and spent more than I normally would because I thought I was getting quality. And when it arrived, it looked nothing like what I ordered and felt like something I could have gotten for a fraction of the price. And I keep noticing this everywhere. My furniture feels flimsier. My favorite brands don't feel the same. Is this just me getting older and more cynical, or is something actually happening economically that explains why the quality of everything I buy seems to be getting worse? Where do I go to find real high quality goods these days? Great question. What do you think?
- [43:41]
C
Yeah, this is something me and my girlfriend talk a lot about when she has her complaints about the materials used to make clothes. Lots of synthetics. It's very hard to find natural fibers. And I think a big force at play here is private equity. And the delightful term that our listeners perhaps familiar with inside ification. Right. And so one of the ideas here is that you'll have private equity firms, you know, financial firms that have a big pool of capital and they're looking to buy businesses where they see an opportunity to wring more profit out of that company. And so there are cases where maybe a company says, oh, it's just this company isn't managed that well. We could manage it better. Private equity likes to talk about those types of cases. But it's also the case that private equity could see, say, a clothing company that uses really nice materials, cotton and wool and not synthetics, and has a great brand. They've got consumer trust. And they say, hey, if we bought them and we started using synthetics and we did X, Y and Z things to cut costs, but we kept prices exactly the same, we could make more money. And I think there are a lot of different industries where the premise of our modern economy is competition. Companies have to compete, and ones that don't do a good job will stop shopping there, and they'll be punished. And we'll reward the ones that do great quality at low prices. Right. But in practice, there's friction, there's lags. You come to associate a certain clothing company with quality, and you're not checking every little bit of the fine print you buy. I think this is the same shirt I bought last time, and I liked it. And there's really a lag and a delay, I think, before companies start facing the repercussions for lower quality, lower cost. And so I think private equity is just a huge force. It's been on the rise for years and years. We'll see if anything, maybe they're starting to struggle a bit now, but, like, they've deployed an incredible amount of money control, like in vast swaths from clothing companies to hospitals and even companies that aren't owned by private equity. They are often aware of the fact that private equity could come in and buy them if they think there's an opportunity to make more money, bring more profit out of the company. So I think it's been a huge influence on how companies operate and this kind of inshidification process of companies offering a great product, people become attached and then you know, whether it's because of private equity or that company itself then making the product inferior to squeeze out more profits. That's a powerful dynamic at play. And why we often have this feeling of like man, why are all these things cheap and not as good as I expect for the price point or the reputation?
- [46:16]
A
Thank you for a very enlightening answer. Samantha. I would just say quints for basics and the real real for things that you want to wear to a wedding. Yes, they're secondhand, but filter so that you make sure that you get ones they're at least very good quality, very tough to go wrong. So those are my favorite sources. Alex Mayasi, thank you so much for being with us twice this week. We appreciate it.
- [46:43]
C
Oh, it's been wonderful talking. Thanks so much for having me.
- [46:45]
A
Absolutely. And before we go, if you love today's episode, please take a moment to leave us a five star review on Apple Podcast. Your feedback means the world to me, but it also helps other women find the show. And if you're ready to grow your investing skills and make smarter decisions with your money, come join Investors Investing Fix, our twice monthly Women Only Investing Club. Expert stock pickers bring ideas to the table and together we help build a portfolio. Since launching four years ago, we've built a strong track record and more importantly, a community of women who are learning and winning together. Tap the link in the show notes to check out Investing Fix today. Your first two classes are always free. Hermoney is produced by Hayley Pascalides and our music is provided by Video Helper. Thanks for listening and we'll talk soon.
- [47:42]
D
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