Former President Donald Trump, a Republican, has won the U.S. presidential election, beating out the Democratic candidate, Vice President Kamala Harris. He’s headed back to the White House in January.
After four years of Democratic leadership under President Joe Biden, which included a historic expansion of borrower protections and roughly $175 billion in student loan forgiveness for nearly five million borrowers, Trump is poised to overhaul the federal student loan system and reign in relief options for struggling borrowers. Compared to Harris’s vision, Trump has a starkly different approach to student loan policy.
If you’re repaying federal student loans, here’s what you might face in the four years ahead — according to the Republican party’s official platform, Trump’s history in office and Project 2025, a playbook for the next Republican president overseen by a conservative think tank.
Broad student loan forgiveness is very unlikely
However, the incoming Trump administration still has power to sway the effort in their desired direction and to drive the appeals process — and he could instruct the Education Department to give up the proposal entirely. Trump would most likely not support the forgiveness plan, echoing the Republican party’s opposition to student loan forgiveness. Republican-led states filed lawsuits that took down Biden’s original student loan forgiveness plan of up to $20,000 per borrower in 2023, along with lawsuits currently circling the SAVE repayment plan and Biden’s forgiveness “plan B.”
SAVE and other affordable income-driven repayment plans could disappear
Instead of SAVE and other existing IDR plans, Project 2025 calls for a single IDR option that would generally increase monthly payments for borrowers relative to SAVE and other current options. It would also aim to remove the loan forgiveness option (under current IDR plans, borrowers can get forgiveness after 20 or 25 years of payments).
“While income-driven repayment (IDR) of student loans is a superior approach relative to fixed payment plans, the number of IDR plans has proliferated beyond reason,” the document says. “And recent IDR plans are so generous that they require no or only token repayment from many students.”
Public Service Loan Forgiveness is under threat
The future of the Public Service Loan Forgiveness (PSLF) program, which erases federal student loans for teachers, doctors, firefighters, government employees and other nonprofit workers after 10 years of public service, is uncertain.
As president and on the campaign trail, Trump has called for restricting loan forgiveness overall and making PSLF harder to access, experts say. At one point in 2019, while Trump was last in office, the Education Department rejected 99% of PSLF applications, according to a report from the Government Accountability Office.
Project 2025 goes even further, calling for the program first introduced by Republican President George W. Bush in 2007 to shutter: “The Public Service Loan Forgiveness program, which prioritizes government and public sector work over private sector employment, should be terminated.” Ending the PSLF program entirely would require Congress to pass new legislation.
College alternatives poised to expand
Trump has spoken in support of college alternatives, and his administration could increase investment in trade schools, career-training programs and community colleges. His platform says it “will support the creation of additional, drastically more affordable alternatives to a traditional four-year College degree.”
Borrower protections could decrease
Trump’s record indicates that he may be opposed to strengthening borrower defense to repayment, a longstanding program introduced in 1995 to discharge debt for borrowers who have been defrauded by their schools. For example, in 2020, then-President Trump vetoed a bipartisan resolution that would have overturned a 2019 borrower defense rule that made it tougher for students who say they were defrauded by colleges to get federal student loan discharge.
Project 2025 calls for Congress to end the Education Department’s broad ability to forgive loans through the borrower defense program. Instead, it says, the Department should only be allowed to discharge loans in limited situations in which “convincing evidence exists to demonstrate that an educational institution engaged in fraud toward a borrower in connection with his or her enrollment in the institution and the student’s educational program or activity at the institution.”
Pell Grant amount could stay flat
Thefederal Pell Grant program, which gives undergraduates from low-income backgrounds up to $7,395 per year to help pay for college, has been around since the 1970s. Biden increased the maximum Pell award by $900 during his term — the largest expansion in over a decade.
Though Trump is unlikely to strike down the Pell, further increases to the maximum award are uncertain while he’s in office. Project 2025 supports maintaining Pell grants in their current “voucher-like” form.
NerdWallet’s 2024 election deep dives
What would the Trump economy look like? Find out where former President Donald Trump stands on economic issues like battling inflation, medical debt, jobs, health care, housing, child care, small businesses and more.
How Trump and Harris Aim to Address Your Health Care When it comes to health care, the candidates have been light on the details. Harris has focused on things like lowering prescription drug prices; expanding Medicare care coverage; and restoring federal abortion rights. Trump says he supports IVF coverage, but wants to leave abortion to the states. He also said that he has only a “concept” of a plan to replace the Affordable Care Act.
Smart Money’s 2024 Presidential Election Series
Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn the pros, cons, and methods of rolling over retirement accounts to simplify your finances so you can avoid costly mistakes.
How can you budget smarter for the holidays? Does it make sense to combine retirement accounts from previous jobs into one? What are the benefits and drawbacks of different rollover options? Hosts Elizabeth Ayoola and Sara Rathner begin the episode with a discussion of holiday budgeting, offering tips and tricks on avoiding impulsive spending, setting clear financial priorities, and the importance of delayed gratification.
Then, hosts Sean Pyles and Sara Rathner discuss retirement account rollovers and key considerations to help you streamline your retirement savings and avoid penalties. They begin with a discussion of rollover basics, with tips on direct vs. indirect rollovers, how to avoid unexpected costs, and how to choose between an IRA and a Roth IRA. Credit Card Nerd Jae Bratton joins Sean and Sara to discuss her own experiences with retirement rollovers. They discuss the pros of consolidating accounts, the financial security it can offer, and how to choose the right investment options to suit your retirement goals.
Check out this episode on your favorite podcast platform, including:
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Elizabeth Ayoola:
Who hit fast forward on 2024? How are we in November already? Sara, am I alone in feeling like this year was on turbo speed?
Sara Rathner:
You’re not. I still think 1975 was 20 years ago.
Elizabeth Ayoola:
I like the end of the year for two reasons. Now one, I’m a self-reflective journaling chick, and I enjoy doing my year-in-review exercises. And for two, I’m a December baby. Shout out to all my Sagittariuses. But anyway, we’re going to be delving more into the former today. Welcome to NerdWallet Smart Money Podcast. I’m Elizabeth Ayoola.
Sara Rathner:
And I’m Sara Rathner, and for the record, I do not journal.
Elizabeth Ayoola:
We’ve got to talk about that more later.
Sara Rathner:
Elizabeth Ayoola:
Alright. This episode, we answer a listener’s question about combining retirement accounts from different jobs. But first, Sara and I are going to talk about the worst budgeting or financial mistake that we have made this year. Now, if we want to add a splash of festivity to the topic, we can focus on holiday spending mistakes. It’s your call, Sara. And yes, that means you’re going first.
Sara Rathner:
Yeah, no pressure. Well, we could apply this to holiday spending, but we could also apply it to spending year-round, and for me, it’s so easy—way too easy—to try to solve problems by buying stuff online. I can’t count the number of times I thought I had a problem to solve and threw money at some small thing, and I thought it would be the solution to my problem. Then the package arrived a few days later, and I’m like, “Why did I buy this?” It’s like death by a thousand Amazon purchases.
Elizabeth Ayoola:
I’m certain that so many people feel seen right now, Sara, because you shared that. And you know what? I hate to say that I can relate, but I must say that I’m proud of a new habit that I’ve developed. I have started returning things to Amazon that I do not need. Yes, before, I was too lazy to return them, so they would just sit around my house. Now, I think the option to drop items at Whole Foods—shout out to Amazon for that—has been a source of motivation. Nothing beats saving money by returning things I don’t need and picking up a few healthy food items in the process.
Sara Rathner:
And if you want to think about your overall environmental impact, it’s always better not to buy the item in the first place than to buy it and return it. But none of us are perfect, and returning it is also a great idea if it’s something you do not actually need. So, Elizabeth, I’ve shared my own personal shame, one of many shames, but we’re only picking one today, so we don’t have to list all of them. What has been your big budgeting fail of the year?
Elizabeth Ayoola:
Oh my gosh. Listeners, please just stick with me, okay? I am going to have a little vent now. I’m going to go with my general biggest budgeting mistake this year because it’s going to affect my holiday spending too. As some listeners may be aware, because I spoke about it earlier this year, I have moved to a different state, and it’s my first time moving states since I moved back to the U.S. from London. Now, while I did budget a lump sum that I needed to move, which included rent, damn that first security deposit, new furniture because my old furniture sucked, a $2,000 U-Haul, first-quarter private school fees for my son, and so much more. But anyways, what was the mistake? I should have set a harder limit for how much I would spend and prioritized in terms of what could wait. But in the spirit of wanting my house to feel like a home, I purchased things that honestly could have waited even until next year.
What I don’t regret is buying quality furniture this time around, and I’m hoping that it’s going to last for years to come. And yes, that includes the white sofa that I bought with a six-year-old boy in the house. I know, you guys are screaming. Overextending my budget means I’m now on a tight budget for the rest of the year, and most people will be getting hugs for Christmas. I’m currently avoiding large purchases, and I’m just focusing on what I need versus what I want. But I do have one highlight, though. All of that spending got me lots of air miles on my travel credit card.
Sara Rathner:
Well, maybe next holiday season you could go somewhere for free.
Elizabeth Ayoola:
Sara Rathner:
And I will say, as somebody with three pets and a toddler, I’m amazed anyone buys white sofas.
Elizabeth Ayoola:
I know, I know. But honestly, I am not an interior decor girl, but it really went with my walls because my walls are gray. And anyway, I’m enjoying living on the edge. So, for anyone planning on making a big move in 2025, please be as specific as you can about your budget. Moving can be extremely expensive, and settling into a new city or environment can be hard enough as it is, so you don’t want to add financial stress to the mix. And also, a lesson in delayed gratification here. Some things honestly can wait, and it can be worth the wait when you have financial peace as a result.
Sara Rathner:
Yeah, I think it’s really common to underestimate how much it costs to move. You’ve got the packing materials and the professional movers, and once you’re in your new space, you want to make it feel like home. And yes, I said professional movers, because when you’re 22, you could pay your friends and pizza to move your stuff. When you’re 32 and you have real furniture and your friends are busy, they don’t want to help you move your stuff for the cost of pizza. So, just hire some professionals and save your friendships.
Elizabeth Ayoola:
Say it again. And I did exactly that actually, Sara, I did exactly that.
Sara Rathner:
You hired professional movers…
Elizabeth Ayoola:
Sara Rathner:
…Or you paid your friends with pizza?
Elizabeth Ayoola:
No. What friends? Nobody was helping me move all that stuff out that you haul. I paid a professional, okay?
Sara Rathner:
Listen, if you have white couch money, you can hire a professional. That’s it. That’s my financial rule.
Elizabeth Ayoola:
Oh my gosh. And I have a little confession. My son has finally put a little stain on the white couch, so here goes the cost, right? Because now I’m going to pay for a professional cleaner to clean the sofa, and I was just thinking I didn’t think of the ongoing maintenance costs. But anyway. With that said, let’s give listeners a couple of budgeting tips for the last two months of the year. Now, I know it can be easy to ignore your budget because you’re busy having fun, spending time with loved ones, and also unwinding from what has been a long, chaotic year. All those happy hormones can also trick you into living in the moment and blowing up your budget. So, what’s one tip that you have for listeners, Sara, to hopefully avoid doing this?
Sara Rathner:
Well, this is the time of year where everyone’s going out and spending a lot of money in the spirit of festivity, but talk to your loved ones and suggest alternate plans if the plans they are recommending cost a lot of money and are going to blow your budget. Let’s say your friends want to go out for an expensive dinner or your family insists on buying everybody a mountain of presents. It’s okay to say, “Listen, that’s just not in my budget right now.” Like you mentioned, giving people hugs for the holidays is their gift because you just spent so much money on moving. Don’t just complain. Offer up an alternative. Maybe you skip the dinner with your friends, but you meet up with them later on for a cheaper outing. Or maybe you talk with your family about doing a gift exchange where everybody draws up one name out of a hat and you only buy one gift and you set a hard budget for that gift. Your loved ones aren’t going to know that you’re struggling unless you speak up, and honestly, oftentimes once you speak up, you realize that you’re not the only one in your circle who’s struggling. So, other people want an excuse to take a break too.
Elizabeth Ayoola:
I love that so much, and I think it takes a lot of vulnerability to be open and tell people that you just ain’t got it. And I do know that some people feel embarrassed to say that, but I think feeling embarrassed might be a little bit better than not having enough money, especially going into the new year.
Sara Rathner:
Yes, your embarrassment is not worth not being able to make your rent payment in January. Think of it that way. It could be that serious for you.
Elizabeth Ayoola:
Sara Rathner:
I would rather tell somebody who cares about me about what’s going on with me than have to talk with my landlord about the fact that I have to pay a late payment because I can’t afford rent on time.
Elizabeth Ayoola:
Absolutely. And this is a little bit off-topic, but I’ve been seeing things going around social media, like if you don’t show up to your friend’s birthday dinner… I’m sure there are a lot of December babies having some birthday things that you might have to pay for. Are you a bad friend? And putting that out there. If anybody gets upset with you because you can’t attend because it’s not in your budget, then you might want to reassess that relationship as well.
Sara Rathner:
Okay. Elizabeth, you’ve got more tips for us.
Elizabeth Ayoola:
My more formal tip now is to start thinking about what you want your finances to look like in 2025. Now, doing this can help you stay focused and it can also give you the discipline that you need to ensure you start 2025 off strong financially. For example, with interest rates trickling down, you may be hoping to finally buy a home next year. Housing market is another story, but it’s going to be hard to do that if you blow your savings or hurt your credit score by maxing out your credit cards during the holidays.
Sara Rathner:
I like that. I think it’s helpful to list a few things that you want to accomplish over the next few months so you’re not just thinking about the holidays now, but rather how the holidays might affect what you want to do next year.
Elizabeth Ayoola:
Exactly. And as someone who sometimes can fall prey to impulse spending, I know this task especially helps me. One of my goals for 2025 is to finally start my traveling on points journey or rather take it to the next level by getting more travel credit cards, and that requires me maintaining good credit and not overspending.
Sara Rathner:
Well, luckily you’re surrounded by coworkers who can help you with that. Including yours, truly.
Elizabeth Ayoola:
Oh, shout out to my coworkers. Love that.
Sara Rathner:
All right, listeners, we want to hear from you. What are your strategies for getting through the holiday season financially unscathed, and I don’t know, still speaking terms with your relatives? So, text us or leave a voicemail on the Nerd Hotline… I’m serious. At 901-730-6373. That’s 901-730-N-E-R-D. Or email us at [email protected].
Elizabeth Ayoola:
Oh my gosh. Just a sidebar. I think some people might end up in a group chat about how cheap they’re being this holiday because they say, “No,” but we don’t care. We’re saving money.
Sara Rathner:
I’m here for all of your group chats where you talk about how cheap you have to be. You can invite me to that group chat and I’ll just silently sit there and applaud you.
Elizabeth Ayoola:
Exactly. All right, now let’s turn to this episode’s money question segment, where we get deep into retirement benefits. That’s coming up in a moment. Stay with us.
Sean Pyles:
We’re back and answering your real-world money questions to help you make smarter financial decisions.
This episode’s question comes from a listener’s text message. They wrote, “Does it make sense to amalgamate all of my retirement accounts from different jobs into one place or does it not matter?”
Sara Rathner:
First of all, bonus points to this listener for typing the word amalgamate into a text message.
Sean Pyles:
Sara Rathner:
I don’t know what your bonus points are worth in real life, but you should know that you have them.
To answer this question on this episode of the podcast, we are joined by NerdWallet credit card writer Jae Bratton.
Welcome to Smart Money, Jae.
Jae Bratton:
Thanks for having me.
Sara Rathner:
Now, Jae typically writes about credit cards but has experience managing retirement account rollovers, so we’re going to talk with her about that. But, let’s start by talking about what our listener describes as “amalgamating” their retirement accounts, which is known conversationally as rolling retirement accounts over. Before we dive in, we just want to reiterate that we are not investment advisors. Sean, do you want to give us a quick explanation of what a retirement account rollover looks like?
Sean Pyles:
Sure. Rolling over a retirement account is when you take the retirement account from maybe an old employer and, you guessed it, roll it into the retirement account of your new employer or another retirement account you have, like an IRA.
There are two main ways that you can do a rollover. One is a direct rollover where your former retirement account administrator connects to your new administrator and transfers the funds from your old account to your new account. Or in the case of an IRA, the institution that manages your account transfers it to another IRA or retirement plan, like a 401k.
The second way to do a rollover is called an indirect rollover or a 60-day rollover, where you get a check with the entire balance of your retirement account, and then you move it into the new account yourself. This second option can give you a little more flexibility with how you manage the rollover, but it does have some drawbacks, too.
Sara Rathner:
Yeah, let’s talk about those drawbacks. A big one is the cost. When you do an indirect rollover, the IRS automatically withholds 10% or 20% of your account balance depending on the type of account you have. And here’s the thing: you have to contribute the entire amount of your original cash balance to the new account or you face penalties, and that could put people in a pretty serious cash crunch.
Sean Pyles:
And also, you are given a check with your retirement account balance, again, which can be a little scary to see and hold in your hand.
Sara Rathner:
Yeah, it’s your life savings.
Sean Pyles:
I want to give a quick example of what an indirect rollover looks like and this cash withholding from the IRS, because it can get a little confusing. For example, say I want to roll over a 401k balance of $10,000. The IRS withholds 20% or $2,000, so I only get a check for $8,000.
Then, I need to come up with an additional $2,000 so I can deposit that original balance of $10,000 to the new retirement account, and if I don’t do that, if I can’t find that $2,000, I will face penalties from the IRS, which is not ideal.
And we should say that you will get that withheld money back from the IRS, but not in time to replace it within the 60-day period.
Sara Rathner:
So, that sucks. No… There’s no other way I could say that. That’s really rough, and you’re taking something that is already really administratively complicated and then making it expensive, which is no fun. Jae, that being said, let’s get to your story. What was your rollover adventure like?
Jae Bratton:
The year was 2022. I had just been hired by NerdWallet, and I decided that it was time to get all of my retirement accounts from my former employers into one. I had two old ones from, like I said, two previous employers, and I wanted to move them into one financial institution, the one that was already holding my husband’s and my Roth IRAs. I used a service which facilitates the rollover process for free, and even though I didn’t need this particular feature, it also helps you find old 401ks that you may have forgotten about.
Sean Pyles:
That’s handy. So you were doing an indirect rollover, but you had a company helping you out as sort of an intermediary.
Jae Bratton:
Sean Pyles:
And you did two rollovers, so walk us through the first one.
Jae Bratton:
The first rollover I would say was a little bit more straightforward. I moved about $21,000 from a Roth 401k from a former employer into that Roth IRA that I said I had already had at that particular financial institution. I was able to roll that $21,000 in my old Roth 401k into my current Roth IRA because both investment accounts are after-tax, and that means I had already paid tax on the contributions, and the big benefit of that is I get to make withdrawals in retirement tax-free. Now, when you do rollovers, it is possible to roll over a traditional 401k into a Roth IRA, but you will have to pay taxes. Accounts have to be tax-compatible if you want to avoid paying penalties.
Sara Rathner:
One thing that’s nice about rolling into a Roth IRA like you did is that you could ignore the contribution limits on these types of accounts. For the 2024 tax year, Roth IRA contributions are limited to $7,000 a year, or $8,000 a year for those who are 50 or older, but rollovers don’t count toward those contribution limits. And Jae, that’s why you were able to roll $21,000 from that Roth 401k into the Roth IRA in one go. Right?
Jae Bratton:
Exactly. I was able to grow the balance in my Roth IRA while still playing by the rules that govern annual contribution limits, and the contribution limit for Roth IRAs is pretty low comparatively, especially when you compare it to a 401k. That was just a nice perk.
Sean Pyles:
That’s pretty handy. Let’s talk about your second rollover. What was the deal with that one?
Jae Bratton:
For the second rollover, again from another former employer, this time I was moving about $25,000 from a 403(b) into a traditional IRA.
Sean Pyles:
And for those wondering, a 403(b) is generally what employees of public schools and nonprofits get instead of a 401k, but they’re pretty similar. Jae, was rolling the 403(b) into your IRA as easy as rolling over the 401k?
Jae Bratton:
Yeah, actually. The process was just as simple. Again, that service that I used facilitated the rolling over process and made it pretty seamless. The only difference is that in this particular rollover, my 403(b) was traditional, not a Roth, meaning I hadn’t paid tax on those contributions yet. So, I rolled over the money from the 403(b) into a traditional IRA, not a Roth IRA, and whenever I go to withdraw those funds in retirement, I will have to pay taxes on that money then.
Sean Pyles:
Was the second rollover direct or indirect?
Jae Bratton:
It was direct, and that means that I did not have to pay any financial penalty on this particular rollover.
Sean Pyles:
Did you find that to be easier than the indirect or not?
Jae Bratton:
I don’t have experience doing an indirect rollover, so I can’t really compare, but I would just say overall the experience was fairly easy just because I had the assistance of this particular service to walk me through it.
Sean Pyles:
Why was it important to you to do these rollovers? To get to our listener’s question, why did it make financial or personal sense to you?
Jae Bratton:
As I mentioned earlier, I initiated this rollover process in 2022 right when I had been hired at NerdWallet. I knew that I was going to have a retirement account with NerdWallet, a 401k, and I knew I had these two other retirement accounts hanging out in the ether. I didn’t want three retirement accounts in separate financial institutions, so in 2022, I decided now is the time to streamline everything. Come our retirement, I didn’t want to be hunting down retirement accounts at X number of financial institutions. I want that time to be for leisure.
There is a financial component behind the motivation to roll over. I wanted to move that money from those old accounts and invest them into mutual funds of my choice.
Sean Pyles:
Sara, I know that you have done rollovers, or at least one in the past. Was your motivation similar?
Sara Rathner:
Yeah, I’ve done two rollovers in the past from former employers. I had traditional 401ks with both, and I rolled them into one traditional IRA at the same financial institution where I also have a Roth IRA and I also have a taxable brokerage account. So, really for me, it was about simplifying my finances and having more of my finances in one place. Even if there are several different accounts, they are still under one roof, too, and that to me is administratively easier. The more complicated your life gets financially, the more you want to simplify some stuff and have it be a little bit more under your control.
Sean Pyles:
And Sara, was your rollover process as easy as it seems Jae’s was?
Sara Rathner:
To be honest, I blacked out a lot of it because it was so annoying. Really—
Sean Pyles:
So that’s a no.
Sara Rathner:
Yeah. I think I started by calling customer service from both the financial institution that had my old account and then the financial institution I was going to transfer it into. I will say all of the banks and institutions I dealt with had incredible customer service, so if you have any questions, start by just calling them. They will walk you through the process. That was probably the best part, was just talking to people on the phone, which is usually not the best part. Usually, that’s the worst part, but really they were incredibly helpful. And then they directed me to forms I had to fill out and I had to get them notarized, send them in. It was a series of tasks that were just annoying. It wasn’t just fill out an online form and hit submit and then you get your money transferred. It’s not that simple.
Sean Pyles:
How long did the process take you, if you remember?
Sara Rathner:
It depends. I didn’t really realize this at the time, but I think one of the transfers was indirect, and so one day my doorbell rang and it was FedEx with an overnight envelope that contained a six-figure check from an employer I had been at for almost a decade. So you can imagine how much money I had set aside over the years, and they were just like, “There you go.”
Sean Pyles:
Sara Rathner:
Then I had to mail it to the next institution, so you’re terrified because your money is just floating out there into the ether at the behest of various shipping companies and yeah, I didn’t love that.
Sean Pyles:
Yeah, that’s scary. There’s got to be a better way.
Sara Rathner:
Yeah, one process was all electronic. I never saw a check with the money. The other one, for whatever reason, was not. You just don’t know what you’re going to get.
Sean Pyles:
Sara Rathner:
That’s what I don’t like about it.
Sean Pyles:
Let’s talk a little bit more broadly about some of the pros and cons of rollovers.
Our listener got to one pro with their question, and it seems like this relates to Jae and Sara, your experiences too. Having all your retirement funds in just one or two places makes it easier to manage.
Jae, can you speak to any other upsides that made this process appealing to you, even if it isn’t maybe the most straightforward sometimes?
Jae Bratton:
Definitely. But before I do that, I want to go back to something that Sara was saying. Sara was talking about how her process of rolling over some of her old retirement accounts was not as easy as maybe my experience, and I want to say that mine was maybe a little bit easier than hers and maybe other people listening, because I only was rolling over two accounts. I’ve mentioned this before, but I used a service to help walk me through that process. And also, like Sara, I had a baseline knowledge of retirement accounts.
So, I say all that to say, I don’t want to put out this impression that rolling over retirement accounts is easy. It’s not. It is a complicated process made easier by some services, so I don’t want the listeners to think this is something that I can do in 15 minutes, and it’s not. The task of rolling over retirement accounts… We don’t have to do it, but there are benefits which I will talk about. This is just another example of how the onus is on us to make sure that we are making all the right decisions to safeguard our future in retirement.
Sean Pyles:
It might sound counterintuitive, but weirdly, I’m okay with a retirement account rollover not being the easiest thing to do. It maybe shouldn’t be a 15-minute exchange to put all of your retirement savings from one account to the next. It’s a pretty significant amount of money oftentimes, and it’s a very serious allocation of funds for a very important goal, funding your retirement.
Sara Rathner:
Yeah, but that being said, I could move tens of thousands of dollars into a brokerage account in two business days.
Sean Pyles:
Maybe that also isn’t great. I don’t know.
Sara Rathner:
Yeah, but at the same time, you have to think about how democratized personal finance has become because of this technology, and you no longer have to be 100% knowledgeable, 100% connected, have… You have a guy behind a mahogany desk who can put in a phone call and he does stuff for you. You don’t have to live that life. You can be your average person who switched jobs a couple of times and just wants to keep their finances as organized as possible.
On the one hand, putting a little friction into some financial processes definitely prevents people from making mistakes or from spending money unnecessarily. At the same time, some processes… We could utilize technology to make things less onerous than they used to be.
Sean Pyles:
Totally agree. I think the certified mail route that you described having to go through is pretty outdated.
Sara Rathner:
Yeah, what if I wasn’t home to answer the door? Were you just going to leave that check in my mailbox?
Sean Pyles:
It’s scary, but we want to make sure that people understand the gravity of what they’re dealing with at the same time.
Jae, I want to go back to any other upsides around rollovers that did make this intimidating process appealing.
Jae Bratton:
The first one I’ve already mentioned before, but it’s worth repeating again because this is probably the main motivation for many people doing rollovers, and that is just simply simplicity. For people who have held multiple jobs like myself, that’s reason enough. Many of us are going to have many jobs in our lifetime before we get to retirement, and without rolling over those accounts, you’ll have to pull money in retirement from multiple pots, and I wanted mine in one big one.
The second draw for rolling over retirement accounts is financial security. Many of us have had multiple jobs, and the more jobs we have, we’re increasing the likelihood that we’ll forget about that 401k that we’ve had with an employer we had 20 years ago and definitely don’t want to forget about that money. And lastly, I would say that your 401k with an employer usually has limited investment options that are preselected by that employer. If you’re not satisfied with those investment options or the fees attached to those funds, one way to get around that is to roll over your retirement funds into an IRA where you have much more freedom to select the investments that you want.
Sara Rathner:
We should also note that funds in a 401k sometimes have lower expense ratios, which basically means they cost less to invest in, and if you like the funds you’re invested in but you’re considering consolidating your various retirement accounts, you may want to compare the expense ratios of the funds you’re invested in with your current retirement account and the funds you’d invest in through the IRA.
Sean Pyles:
I want to turn now to a couple cons. Sara and Jae, I think you described some just through your experiences, but really one that stands out to me is that doing a rollover requires you to take action and be really on top of your finances. If you are in your prime working years, you’re maybe a little bit lazy, but decently organized, and you don’t want to have to wrangle your old accounts. Jae, going through what you described or Sara, what you described, might not be appealing, and I think that’s totally fair.
As long as people are making sure that the money in these accounts is actually invested, maybe check on it a few times a year, then it can be fine to leave old accounts where they are. Again, just do not forget about them. Though, as we’ve been talking about, people might want to think about consolidating accounts as they get closer to retirement so they have fewer accounts to manage, because in general, as we get older, it can be a good idea to consolidate accounts, so your finances are just easier to account for.
Sara Rathner:
Yeah, and I’ll also say if you’re in your prime working years and you’re decently organized, it might not even be laziness. You’re just busy. You’re busy…
Sean Pyles:
Sara Rathner:
You’re tired, you’ve got so much other stuff to deal with, this is just another thing.
Sean Pyles:
That’s fair.
Sara Rathner:
It’s always something. All right, listeners, if you are interested in rolling over your own funds, we’ve got a handy resource for you. I recommend you check out NerdWallet’s roundups of the best IRA accounts and best Roth IRA accounts. Our investing writers broke down the best IRA accounts for hands-on or hands-off investors, and the best Roth IRA accounts categorized by online brokers or robo-advisors. And we’ll link to those roundups in today’s show notes. You can also just search for NerdWallet best IRA or Roth IRA accounts.
Sean Pyles:
Jae, any final thoughts about rollovers for our listeners who might be looking to amalgamate their accounts?
Jae Bratton:
I would just say if you’re considering a rollover, speak with your particular retirement plan custodian and ask them to help you roll over the money in a way that won’t incur any financial penalties.
Sean Pyles:
Yeah. Find some way to make this easier for you, whether you work with your custodian or you find a service like you used previously, Jae.
Jae Bratton:
That’s right.
Sean Pyles:
Well, Jae, thank you so much for coming on and sharing your story with us.
Jae Bratton:
Thank you for having me.
Sean Pyles:
And that’s all we have for this episode. Remember, listener, to send us your money questions. You can call or text us at 901-730-6373. That’s 901-730-N-E-R-D. You can also email us your questions or leave us a voice memo at [email protected].
Sara Rathner:
Also, visit nerdwallet.com/podcast for more info on this episode and remember to follow, rate, and review us wherever you’re getting this podcast. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Sean Pyles:
Here’s our brief disclaimer: We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sara Rathner:
And with that said, until next time, turn to the Nerds.
Consider this your election cheat sheet to find out what Vice President Kamala Harris and former President Donald Trump are promising to do as they vie for the nation’s highest office. Here’s where the candidates stand on top economic and personal finance issues.
Both presidential candidates want to lower prices and slow inflation, but whether a president can directly do so is less certain. Inflation, as measured by the consumer price index, has already slowed to 2.4%, well off its pandemic-fueled peak.
Trump:
Place tariffs on imports. Trump wants to place a 10% to 20% tariff on all foreign imports; up to 60% tariff on imports from China; and 100% to 200% imports on automobiles produced in Mexico. He says his tariffs would support U.S. manufacturing and raise revenue. But experts from all over the political spectrum say that his tariff plan is more likely to increase prices in the U.S.
Lower gas prices. Trump has pledged to increase oil and gas production on federal lands. The president’s ability to lower gas prices is limited as the price at the pump is more directly influenced by global market forces.
Weaken the power of the Federal Reserve. Trump says he wants to bring the Federal Reserve under the power of the president; experts say it could weaken the central bank’s credibility in making interest rate decisions.
Cap credit card interest rates at around 10%. The average credit card interest rate is 21.51%, according to Federal Reserve data from May 2024. It would require Congress to enact and would likely face legal pushback.
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Harris:
Ban price gouging. Harris wants to create rules that would prevent corporate grocers from raising prices arbitrarily. The ban would require approval by Congress. Critics say her plan is mainly an election promise rather than a sound economic policy.
Lower prescription drug costs. Harris plans to extend to all Americans a $35 cap on insulin and $2,000 cap on out-of-pocket expenses for seniors. She also wants to make it quicker and easier for Medicare and other federal programs to negotiate prescription drug prices. Experts say her plans could be effective in bringing down costs, but will face pushback from Big Pharma lobbyists.
Increase the minimum wage. Harris says she would push to raise the federal minimum wage to at least $15 per hour, up from the current minimum wage of $7.25. The federal minimum wage hasn’t been touched since 2009 and raising it would require approval in Congress.
The campaign proposals that would most directly impact consumers are tax cuts and credits.
Trump:
Extend tax cuts in his 2017 Tax Cuts and Jobs Act that are expiring at the end of next year. The TCJA includes estate tax cuts and individual income tax cuts.
Replace personal income taxeswith tariffs. His new plan would place a 10% across-the-board tariff on foreign imports with much more for China. More on that above.
Lower the corporate tax rate by one percentage point. Trump wants to cut the corporate tax rate from 21% to 20%.
Implement R&D tax credits for businesses. The tax credits would allow businesses to write off 100% of expenses in its first year, including machinery and equipment. It’s a reversal of his 2017 tax cuts that phased out write-offs for R&D expenses in a business’ first year.
Harris:
Increase taxes for the wealthy. Harris wants to raise the net investment income tax up to 5% on those with incomes above $400,000. She also wants to increase the highest tax rate on long-term capital gains to 28% on taxable income above $1 million.
Increase taxes for corporations.
Expand Child Tax Credit: Harris wants to increase the credit to $6,000 for children under the age of 1; $3,600 for children ages 2-5; and $3,000 for older children.
Permanently extend the expanded premium tax credits for those who purchase health insurance through the health insurance marketplace.
Increase tax incentives for small businesses. An increase in federal tax incentives from $5,000 to $50,000. The deduction would be available to new businesses until they turn a profit. The incentive feeds into her goal of creating 25 million new small businesses in the next four years.
No tax on tips: The candidates’ aims are vastly different, but there’s one proposal they both support: exempting workers from paying taxes on their tips. But experts say it’s just bad policy that doesn’t get to the fundamental needs of tipped workers.
Health care
When it comes to health care, the candidates have been light on the details, although both candidates promise to protect Medicare. Here’s where they differ.
Trump:
Revisit the Affordable Care Act. Trump tried to repeal and replace the Affordable Care Act in his first term, but was unsuccessful. During the presidential debate on Sept. 10, he was asked if he would try again. In response, Trump said he had only “concepts” of a new plan.
Push for vitro fertilization (IVF) coverage. Trump has said the government or insurance companies should cover IVF, though many in the GOP oppose the idea.
Leave abortion laws up to the states. He says he would veto any federal ban on abortion.
Harris:
Expand Medicare coverage to include long-term care including at-home care for seniors and those with disabilities. She also promises to provide vision and hearing benefits for seniors under Medicare.
Work with states to eliminate medical debt.
Lower prescription drug costs. See above.
Protect access to IVF.
Restore federal protections for abortion access under Roe v. Wade. Harris also promises to ensure there will never be a federal ban on abortion.
Harris wants to increase housing and make it more affordable while Trump has emphasized market-driven solutions. There are two areas that both candidates agree:
Open up federal lands for new housing developments. Neither has specified which lands that would include, but experts say much of the federally held land would not be ideal for creating new housing. There is precedence for using federal land to build housing; most available land is in the West.
Cut red tape. Reducing regulatory burden has bipartisan support, but most housing reform would need to be done at the local level to have an impact.
Harris:
Build 3 million new homes over four years. Experts say her proposals would likely spur additional new housing creation, but building 3 million new homes in that short of a period of time is unlikely.
Add tax incentives for home builders. Harris proposed a new Neighborhood Homes Tax Credit to create 400,000 new owner-occupied homes in lower income communities and a tax break for builders that construct affordable starter homes.
Create a$40 billion innovation fund to incentivize stakeholders — state and local governments, as well as private developers and homebuilders — to find new strategies to expand the housing supply.
Introduce$25,000 in down payment assistance for first-time home buyers. It would be even greater for first-generation home buyers, but has not elaborated how much. It’s unclear how it would be implemented and experts say that without a bigger housing stock, her plan won’t work.
Lower rent and prevent price-fixing among corporate landlords. Experts are skeptical that her plans would lower rent. However, if a significant stock of new housing is created, it could alleviate some price pressures on the rental market.
Trump:
Beyond deregulation and opening up federal lands for home building, Trump’s plans have been sparse when it comes to housing. However, experts say that his plans to deport millions of unauthorized immigrants could drive up housing prices since the construction industry is reliant on immigrant labor.
Student loans
As president, Harris would likely champion student loan relief and free community college. Trump would likely restrict or dismantle loan forgiveness and promote access to non-traditional degrees.
Trump:
Curb debt cancellation. Trump would likely not support broad student loan cancellation or strengthening other forgiveness plans that the Biden-Harris administration has championed. Trump has also said that access to existing loan forgiveness should be restricted, including the Public Service Loan Forgiveness (PSLF) program.
Dissolve SAVE. Trump is likely to strike down SAVE, an income-driven repayment program that is currently caught up in legal challenges.
Support vocational training. Trump’s platform says it would support creating “drastically more affordable alternatives to a traditional four-year college degree.”
Harris:
Support“Plan B” student loan forgiveness. Harris would likely support Biden’s “Plan B” that would reduce or eliminate accrued interest for 23 million borrowers who owe more than they originally borrowed. The plan is currently wrapped up in state legal battles.
SupportSAVE and other income-driven repayment plans. Harris would likely support the SAVE repayment plan through legal battles. She would also support the continuation of other income-driven repayment plans, including PSLF, as well as the borrower defense to repayment program that protects borrowers who are defrauded or misled by their colleges.
Champion free community college and trade school education. She also says she wants to subsidize tuition at Minority Serving Institutions, including Historically Black Colleges and Universities (HBCUs).
Expand the Pell Grant. She plans to expand grants to 7 million students and double the maximum award by 2029. Pell Grants are given to undergraduates from low-income backgrounds and are currently up to $7,395 per year.
Mass deportations
Trump’s plan to deport unauthorized immigrants, en masse, would have unintended, but significant economic consequences including:
Increasing costs economy-wide. Reduced labor supply that would increase costs for businesses and, ultimately, be passed down to the consumer. It would especially impact the hospitality and service industries that rely on immigrant workers.
Driving up food prices. Immigrants make up a large portion of the agricultural workforce. Without that labor, the food supply in the U.S. could tighten, which would drive up prices.
Slowing housing construction since immigrants play a huge part in the creation of housing in the U.S. This could further worsen the nation’s affordable housing shortage.
Listen: Smart Money’s 2024 Presidential Election Series
Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances.
Photo of former President Donald Trump by Anna Moneymaker/Getty Images News via Getty Images.
Photo of Vice President Kamala Harris by Brandon Bell/Getty Images News via Getty Images.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how women can excel at investing, overcome financial challenges, and build wealth with practical strategies.
What does it mean to invest like a girl? How can women start investing and overcome financial challenges? Hosts Sean Pyles and Kim Palmer discuss gender differences in investing and practical strategies for women to build wealth. Kim interviews Jessica Spangler, author of Invest Like a Girl: Jump into the Stock Market, Reach Your Money Goals and Build Wealth, about the ways women tend to excel at investing, including taking time to make investment decisions, avoiding rash choices during market downturns, and focusing on long-term goals. They discuss strategies for eliminating high-interest debt, creating a budget that works for your lifestyle, and choosing the right mix of stocks and bonds for personal goals.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Kim Palmer:
And I’m Kim Palmer.
Sean Pyles:
On Smart Money, we are all about answering your money questions, and today we’re tackling an intriguing one. What does it mean to invest like a girl? Investing might seem like a topic that needn’t be gendered, but it turns out there are some gender differences, and that’s part of what we’ll dive into today. Kim, in her role as the host of our regular book club series, is here to guide the conversation. So Kim, who are you talking with?
Kim Palmer:
I’ll be talking with Jessica Spangler. She’s the author of Invest Like a Girl: Jump into the Stock Market, Reach Your Money Goals and Build Wealth. Jess is also a popular money educator on Instagram and she has a lot of ideas to share on women, investing and personal finance.
Sean Pyles:
Sounds great. Well, we also want to remind listeners that you can enter for a chance to win our book giveaway at nerdwallet.com/bookclub for our next book club pick. And with that, Kim, I’ll let you take things from here.
Kim Palmer:
Great, thank you. Jess, welcome to our show.
Jessica Spangler:
I’m so happy to be here. Thanks for having me.
Kim Palmer:
Let’s start with what really feels like the most awkward question. Why do women need their own investing book? I mean, don’t we all have the same basic rules that apply to us all?
Jessica Spangler:
Absolutely. The title of this book is intentionally ironic, right? Invest Like a Girl. What does that mean? Well, it’s really twofold. First of all, when you walk into any big box store, you’re pretty much bound to find ballpoint pens for women or razors for women or even laxatives for women. Really, there’s nothing fundamentally different about these products. They function just the same for people of all genders. There are differences about investing when it comes to women, even though the fundamentals of investing are the same for everyone.
For example, women are more likely to be the primary caretakers in the home, whether that’s taking career breaks or stepping down to part-time to help raise children or even to take care of our aging parents. On top of that, we are more likely to live longer. And so we have longer periods of retirement and higher health care costs as we age. Those factors compound together to equate to lost savings over time. This investing gap needs to be made up so that we can fund these factors that really differentiate us in retirement.
One might think then, the second half of the irony of the title, Invest Like a Girl, there’s similar sayings, hit like a girl, punch like a girl. Well, the thing about investing actually is that women are very good at it. When you look at the data, Fidelity did an unbelievable, wonderful study called the Women in Investing Study that actually showed that women, while we often hesitate to start investing and while our numbers are growing, we hesitate to get started. But actually, when we do, we wind up earning higher returns on average than men.
Kim Palmer:
That is so fascinating to me and that really jumped out at me from your book. What explains that?
Jessica Spangler:
There are some differences that were noted in the study. In particular, women were more likely to take their time when making investing decisions. In fact, the stereotype that women are probably going to be more emotional investors and might be more likely to make rash decisions, well, in fact, it’s quite the opposite. We actually do more research. We are less likely to make split-second decisions. We’re less likely to sell in a market downturn that is likely just a temporary fluctuation. And we’re more likely to have long-term goals and plans that we see to and stick through even when times get tumultuous.
Kim Palmer:
Given the importance of investing for women for all the reasons you just laid out, how can women get started with investing and make it a little bit easier?
Jessica Spangler:
This book, Invest Like a Girl, it’s really designed to be a guideline that will walk you through step-by-step exactly how to get started investing, and it’s really divided into two parts. The first half is really laying the framework for all of the investing lingo, breaking down all of the background information that you need to know about stocks and bonds and index funds and really getting into the finer details about informed decision-making so that when you get to the second half of the book, you have a whole bunch of sample investment portfolios laid out for you so that you can find one that seems to align the most with your goals, and then you can sort of tweak and tinker with those portfolio samples so that they’re really customized to you using all of the information that you learned in the first half of the book.
Kim Palmer:
You’re also a big advocate of the idea that you don’t have to have a trust fund or a lot of money to get started. Do you have to have a certain amount? I mean, when should you get started?
Jessica Spangler:
There is no denying that people that grow up with money absolutely have a leg up. There’s no denying it. But those people are already going to be investing. They’re already going to be utilizing these age-old tools that they’ve known about for generations, whether we do it or not. No matter how much money you have or what background you come from, there is real power in getting some skin in the game.
And you don’t have to have any amount of money, really. Nowadays, you can start with as little as a dollar to purchase fractional shares of a stock. I think that’s a really common misconception about this barrier of entry. Of course, I want to acknowledge that there is very real wealth inequality and there are people who absolutely have a leg up, but it is possible to improve your financial footing no matter where your starting point is with any amount of money using the tools that are in this book.
Kim Palmer:
Do you think that it’s important, just to take a step back, at someone’s overall personal finances? If you also have a lot of high-interest credit card debt, for example, or you don’t yet have an emergency savings fund, should you focus on that first before you think about investing, or do you suggest kind of just doing everything all at once?
Jessica Spangler:
There’s a great section in the first half of this book called Out of Debt and Into the Game. One of the things that we talk about is differentiating between high-interest debt and low-interest debt. When we think about high-interest debt, these are essentially interest rates that are going to exceed the average returns that you can expect in the stock market. And so, when we have really high-interest debt like credit card debt that can be much higher than 7%, going all the way up into 20%, 30% interest rates, it’s going to be really hard to benefit from investing when that interest rate on the debt is going to be taking two steps back every time you take one step forward.
We do talk about the strategies to eliminating high-interest debt in this book, because that really is important before you get started with investing. And of course, like you said, having an emergency fund is absolutely essential so that you’re not digging into your savings when life throws curveballs at us, as it always does.
Important to say that I do think often we feel as if we need to have no debt at all in order to start investing. This idea of you can’t have any student loans whatsoever, you’ve got to pay off your mortgage, that’s just not the case. If we can optimize our debt so that we are eliminating high-interest debt and still maintaining things that hopefully have a lower interest rate, something like federal student loans, whereas we may pay off our private ones if those have higher interest rates, we can really optimize our personal finances so that we can still benefit from the great wonderful compound interest of investing.
Kim Palmer:
Let’s dive into some of your other specific strategies. I know there’s a lot to unpack, but a few things that jumped out at me that maybe you could give us an overview of. You talk about how important it is to figure out your net worth and think about your cash flow. Could you just help us understand what that means exactly?
Jessica Spangler:
The gist of it is that your net worth is really everything that you own minus everything that you owe. It’s really just a snapshot. It’s a picture in time of what your assets are looking like versus what your liabilities are looking like. It really says nothing about necessarily the future of your financial standing or how successful or not you may be at investing. It’s really just a snapshot of where you’re at right now, how much money do you have in assets that you own, and how much money are you spending on liabilities or debt. We just calculate net worth by subtracting your outstanding debt and the money that you owe from your assets and the money that you own.
Assets may be cash. That’s an easy one. It could also be the value of your home if you own a home. It could be valuables, jewelry, furniture, things that have value, things that you could sell for cash. Whereas liabilities, the money that you owe, often we’re talking about loans here, the value of your student loans, the value of the mortgage on your home. If you have the value of credit card debt, you would subtract that number from your assets to get your net worth, and that’ll give you just a snapshot in time of where you are in terms of what you owe versus what you own.
Kim Palmer:
Perfect. And then you can work on growing that.
Jessica Spangler:
Exactly. It’s important to know where you’re at so that you can figure out where you’re going.
Kim Palmer:
And with the cash flow idea, is that basically you’re trying to get a handle on your budget just to understand your money going in and out before you start making any investing decisions?
Jessica Spangler:
Exactly. I think budgets can be really boring and dry and bland kind of conversation for a lot of people, and it’s something that even I just naturally feel kind of averse to because oftentimes it feels so strict and so stringent that it’s just really hard to find something that fluctuates with daily life as it does. But having a good budget means taking a look at all of your money, where it’s coming in, where it’s going, so that you can make room for things that you value. I think that’s really what differentiates a good budget from just an Excel spreadsheet that isn’t really doing anything for you.
A good budget helps you see what is going on with your money so that you can prioritize spending it on things that you love, whether that’s vacations or time with your family or investing. It’s being able to have an idea of the full clear picture so that way you can set aside that extra money for investing.
Kim Palmer:
And then when you are ready to turn to investing, you talk about picking the right mix of stocks and bonds and other investing vehicles. And obviously the best choices are going to vary so much by person. Can you give us an overview of how someone makes those choices for themselves?
Jessica Spangler:
Like you said, it really is such a personal decision. There are a lot of factors that go into why someone may lean more stock-heavy in their portfolio versus bond-heavy in their portfolio. Generally, we’re thinking about a couple different things. First of all is your risk tolerance. This is how much you can deal with fluctuations in the market.
Stock market crashes are normal. It’s a normal part of the market cycle. Even just normal fluctuations in the market, it’s very normal. Some people are totally comfortable with those fluctuations, and they don’t mind seeing their portfolio drop by 30% one year and be up by 30% the next. That person would be more likely to choose a stock-heavy portfolio where equities can fluctuate more rapidly on a regular basis.
A person who wants less risk in their portfolio, that person may be more likely to purchase something like bonds, where the value is less likely to fluctuate, and as long as you purchase government bonds, you are going to get what you put in at the end plus interest. Those ratios in your portfolio can change accordingly.
The other part of the equation is time horizon. How long you have before you need to access the money can really greatly impact what kinds of decisions you decide to make. For example, if you’re relatively young, you have 30-plus years before retirement, you may be very comfortable investing more heavily into stocks and equities because you have 30 years between now and the time that you have to actually think about withdrawing some of that money in retirement. So whatever kind of roller coaster the stock market takes you on in between now and then is really inconsequential so long as 30 years from now you actually net positive. Whereas somebody who’s retiring in the next couple of years and has built up this really solid nest egg, they might be a lot more cautious when investing 80% or 90% of their money into stocks and equities because when their retirement party is 50-something weeks away, they’re going to want to make sure that their money isn’t fluctuating heavily right before they get to retire and sit on a beach somewhere and enjoy the fruits of their labor.
There’s lots of other things to think about, but those are two of the main factors when it comes to selecting your ratio of equities and bonds and all the other different types of securities that we talk about in the book.
Sean Pyles:
More of Kim’s conversation with Jessica Spangler is coming up in a moment. Stay with us.
Kim Palmer:
A lot of people are also concerned about the social and environmental impact of the companies they’re investing in. Is that a good thing to consider? And if you do want to think about that, what’s the best way to evaluate it?
Jessica Spangler:
That is definitely something that we talk about in the book. Environmentally sustainable investing is a topic of growing importance and growing conversation. And more and more data is really coming out about it. It’s often hard to know what a company is reporting in terms of their financials and how that actually holds up on the back end with what they’re doing to be sustainable. There are some markers that we can look for when it comes to more equitable and sustainable investing, whether or not the companies are really transparent in their reporting process, whether that’s emissions or how they are having their products tested and rated for environmental grading groups.
In the book, you’ll read about various certifications that companies can go through to do that. There’s also the topic of diversity and equity and inclusion in the actual upper ranks of the company and whether or not they’re following through in some of their mission statements to include various groups into the higher levels of the executive company. But that said, and we talk about this in the book as well, it’s important to also look out for greenwashing or this concept of appearing to be particularly sustainable or equitable by using terms that don’t really have a clear definition, terms that make a product perhaps seem as if it may be sustainable when in fact it’s not.
I always encourage investors who are interested in sustainable and equitable investing to look into some of the documents and the literature that each individual company will post as part of their annual report and their reporting documents to the SEC, and those are mentioned in more detail in the book, but it really does require a pretty substantial amount of research to really determine whether or not a company is following through on their promises.
Kim Palmer:
Can you share some of the lessons you’ve learned yourself as an investor? Have you personally changed your strategy at all or made mistakes along the way?
Jessica Spangler:
I think that one of the biggest things that I’ve learned is that more complex is not necessarily better. And what I mean by that is I think there’s this tendency, the more you learn about investing and the more you learn about personal finance, to feel like you have to do these increasingly complicated investing maneuvers like, “Okay, I’ve got to have 4% this and 6% this and 12% that, and I should probably incorporate a little bit of this,” when frankly, most of the data suggests that those of us who invest primarily in a well-diversified balanced index fund that represents either the total stock market or the S&P 500, so the top 500 companies in the United States, we typically statistically outperform some of these major professional hedge fund managers who spend all of their time and money manipulating all of these different ratios and portfolios to find the perfect investment. Really keeping it simple can actually be more profitable, and that’s definitely something that I’ve learned over the years.
Kim Palmer:
In the book, you also say a lot of choices around investing really circle back to what your goals are. What are some examples of a short-term goal and a long-term goal that maybe investing could help us achieve?
Jessica Spangler:
When we think about financial goals, I tend to separate them into three different categories: short-term goals, medium-term goals, and long-term goals. Now, when I think about a short-term goal, I’m talking about one to two years, generally. And for a very short-term goal, like maybe you’re saving for a down payment on a house and a high-yield savings account, that might not be something you actually even want to invest for at all. If a goal is so short that it’s right around the corner and you really want to have that money flexible and available to you, a high-yield savings account might be the perfect place to put that money so that you still have access to it in cash, but you’re getting a higher interest rate than you would in a standard run-of-the-mill savings account.
Now a medium-term goal, which now we’re thinking between three to seven or maybe even as far out as 10 years in the future, this might be something that you’re saving for in the long-term. Maybe you are investing to make a major payment on a loan that you already have. Maybe you are looking to invest in some other property. Maybe you’re looking to invest for retirement or for a really great wonderful vacation or a backpacking trip or something that’s still three to seven years down the road. Once we start to think in that kind of time horizon, that’s when we start to focus a little bit more on investing.
Of course, for longer time horizons—10, 15, 20, 30 years out—that is when investing really shines because the longer your money is able to stay in the market, the longer you are able to take advantage of compound interest and really watch your money grow. It’s a lot harder to say that you will certainly make money in the stock market in a one to two year span when fluctuations are almost certain than it is to say that you’ll make substantial profit three to seven to 10 to 30 years out in the future where you have plenty of time to accumulate that nest egg and really work towards more far-out financial goals.
Kim Palmer:
If you do have money invested, it can be so stressful if there’s a news day where suddenly the stock market is just plunging. Putting it in the context of the fact that some of these goals are long-term, do you recommend we pay attention to these daily swings?
Jessica Spangler:
Personally, absolutely not. I mean, that’s just so stressful. And for what? If your long-term goals are far enough out in the future that it’s really not something you need to pay attention to, the only thing that really matters is that 20 years from now, 30 years from now, whatever that longer-term time horizon is for you, the only thing that matters is that in the future you walk away with more money than you put in today and not less. What happens on the day-to-day is just noise, and there’s really no reason to get caught up in it. If you’ve got your long-term vision in mind and you’ve got your goal at the end, you don’t need to get caught up in all of the market mumbo jumbo.
Kim Palmer:
For anyone listening who’s wondering why it’s so important to learn how to invest and create financial security for yourself, you share a really powerful story at the beginning of the book about your family and what you experienced growing up, what really inspired you to take control of your finances. Do you mind sharing that story here?
Jessica Spangler:
Absolutely. I grew up in a middle-class family. My dad worked in construction as a carpenter and my mom was a stay-at-home mom. When I was seven years old, my dad passed away very suddenly from a heart attack, and nobody saw it coming. He was this tall, manual labor job, slender dude. It was totally out of left field, and it was a life-defining moment for me and for my mom. We lost my dad, which was obviously emotionally devastating on its own, but we also lost our only source of income. And neither of my parents went to college. My mom didn’t have a degree where she could just go out and pick up a good-paying job. She really had to figure it out for herself and for her kids. And as women do when they’re faced with any trying situation, she just got it together. She pulled through. She took some classes and started working in real estate, and went on to become this amazing award-winning realtor. She is my biggest inspiration.
But through this whole time, I really learned by osmosis. I went to listing appointments with her. I went to settlements. I walked through open houses. And as fate would have it, in 2008, the housing market wound up crashing. And once again, we really lost our sense of financial stability. It taught me at a really young age, I don’t want to rely on anyone for money. I want to have my own source of income. I want to be able to provide for myself financially and I want to have a sense of control and choice and power in my own financial life.
Neither of my parents went to college, so of course my first instinct in all of this was that of course, I should go to college. I should go all the way and get a doctorate, which is what I wound up doing. But it wasn’t until so many years later when I learned that my paycheck was enough to survive. It was enough to live. And for that, I’m grateful, so grateful because absolutely not everyone can say that. But it wasn’t really enough to retire. It wasn’t enough to really set away a nest egg and to make sure that I was comfortable forever.
What I really had to start thinking about was investing. How do I actually provide for myself so that I never need to rely on anyone, not now or not in the future? I taught myself to invest. I learned everything I could online about investing and got started doing it myself. And here we are all these years later, writing a book and trying to help in some way so that other women feel empowered and feel that they have agency in their own financial future so that they have the choice to leave a job that doesn’t fulfill them or leave a relationship that isn’t safe or just retire on a beach somewhere. Whatever it is that your goal is, it’s possible to have financial independence and it’s something that I spent my whole life looking to achieve, and here we are.
Kim Palmer:
Thank you so much for sharing that. It is definitely so inspiring. Do you have any closing thoughts to share with our listeners?
Jessica Spangler:
I am a huge proponent of women having the agency and the ability to make their own choices in any capacity. And being financially independent, being financially educated gives you that choice. It gives you access, it gives you agency, and it gives you real independence. I just want women to know that if there’s any doubt that they can’t, they absolutely can. There is an entire book of data and numbers and strategies and step-by-step guidance that will show you that you are more than capable. You are great at it.
Kim Palmer:
I love that. Jessica Spangler, thank you so much for joining us on Smart Money.
Jessica Spangler:
Thank you so much for having me.
Kim Palmer:
Yes, that is all we have for this episode. To share your thoughts on money, shoot us an email at [email protected]. This episode was produced by Sean Pyles and myself. Tess Vigeland helped with editing. Megan Maurer mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Sean Pyles:
Visit nerdwallet.com/podcast for more info on this episode. And remember to subscribe, rate and review us wherever you’re getting this podcast. You can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Kim Palmer:
And with that said, until next time, turn to the Nerds.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
It is better to leave a credit card with a zero balance open because removing the account could negatively impact several credit factors.
However, canceling a credit card can be a smart financial move in certain situations. For example, if you have a card with a high annual fee and rarely use it, canceling it might be a good idea to avoid unnecessary charges.
If you’ve successfully paid down a credit card, you may be wondering if it’s better to close it or leave it open with zero balance. While it’s recommended that you keep unused credit cards open instead of canceling, there are certain instances when canceling that credit card may be in your best interest financially.
Let’s examine the pros and cons of keeping and closing your zero-balance
Is it better to cancel zero-balance or keep them?
The general rule of thumb is that it’s best to keep your unused cards rather than cancel them. Open credit cards, even ones you aren’t actively using, help you build up your credit history and increase your available credit. That increase helps lower your credit utilization rate, which is the percentage of available credit you have used. These details are important because they relate to two factors that credit bureaus rely on when determining your credit score.
If you choose to keep a credit card open, try to use it occasionally to prevent the card issuer from decreasing your credit limit or closing your account due to inactivity.
On the flip side, sometimes the knowledge that you have a credit card available for purchases is too big of a temptation. If you’re having trouble controlling your credit card spending or if your credit card has a high annual fee, you may be better off canceling your card.
How does closing a credit card could impact your credit?
Canceling a credit card, particularly an older one, can lead to a credit score drop. The two primary potential causes of this drop are:
An increase in your credit utilization rate because you have less available credit
A decrease in the average age of your credit history
Let’s look more closely at how these two factors can directly impact your credit score. Understanding each one can help you determine whether or not you should close your zero-balance credit card account.
Your credit utilization rate could skyrocket
Even if you aren’t making purchases on a credit card, that available credit is helping to boost your credit utilization rate, which accounts for 30 percent of your credit score. The more available credit you’re using, the worse off your credit score will be.
To understand how your credit utilization ratio — and thus your credit score — could be affected by closing a credit card, here’s a helpful example. Let’s say you have two credit cards:
One has a $3,000 limit and a $3,000 balance (this is the money you owe).
The other has a $3,000 limit and $0 balance.
Your credit card utilization rate between both cards is 50 percent ($3,000 total balance divided by $6,000 total limit multiplied by 100 = 50 percent utilization).
However, if you close the credit card with the $0 balance, your credit utilization rate jumps to 100 percent ($3,000 total balance divided by $3,000 total limit multiplied by 100 = 100 percent utilization).
According to FICO®, the goal should be to keep your utilization ratio below 30 percent. There’s an easy formula you can use to calculate your credit utilization ratio:
Step 1. Divide the total amount of your overall credit debt by the total credit limit available across all of your credit cards.
Step 2. Multiply the result by 100 to produce your credit utilization ratio.
Pro tip: Before you close a credit card, take some time to determine what your credit utilization ratio would be. If that number will jump significantly, it may be a better idea to keep your zero-balance card open until you can pay down your total credit card balance.
The length of your credit history could decrease
The longer you’ve had a credit card open, the better. This helps to build your credit history, which accounts for 15 percent of your credit score. If you have a positive history associated with your credit card paired with years of having that card in your name, it’s a good idea to keep that card open and in use, as it improves the length of your credit history.
One easy way to keep a credit card in use without driving up your balance is to only use it for recurring payments for things like streaming services or other subscriptions. That way, you’ll know exactly how much is going on that card each month and can easily pay off the balance in full.
When should you close your zero-balance credit card?
Depending on your financial situation, there can be compelling reasons to cancel your unused credit card.
The card has a high annual fee
If you’re charged a high annual fee by your credit issuer, canceling may be a smart money move. However, it’s worth trying to have the fee waived before you decide to cancel, especially if you receive rewards through the card such as travel credits and perks. Call your credit card issuer to ask for the annual fee to be waived and mention that you’re considering closing your account. It never hurts to ask.
You’re a victim of fraud
If your credit card is lost or stolen, the issuer will usually close the account and send you a replacement. But, if a business continues to allow unauthorized charges even after you report the issue, closing the card might be the best financial move to protect yourself from further fraud.
You’re going through a divorce
If you’re separated or getting a divorce, it’s a good idea to close any accounts you share with your ex, as you could end up saddled with a credit card balance they’ve accrued on the account.
You’re out of debt
Everyone is different, and for some, the temptation to keep a credit card and not use it is too high. For those struggling to get out of debt or for those who recently climbed out of credit card debt, it might be a good idea to cancel your unused credit card and stick to using cash or your debit cards to avoid sinking back into revolving credit card debt.
How to cancel your credit card in 6 steps
If you do decide to close your credit card, there are several steps you should take to ensure you’ve properly closed your account.
Redeem rewards points: Refer to your credit card’s redemption rules to learn how to redeem your points prior to closing your account.
Pay off your balance to zero (if it isn’t already): Pay off any remaining balance on your card before attempting to cancel it.
Confirm your zero balance: Contact your credit card issuer online or via phone to make sure that your balance is zero.
Make it official with certified mail: Send a certified letter to the company that issued your card requesting they send you a written letter verifying the zero balance and the closed status of your account. Keeping a paper trail is a great way to maintain a record of when the account was closed in case you need to contest any information on your credit report down the line.
Monitor your credit reports: Check your credit report 30-45 days after your card is closed to make sure the card is officially reported as “closed.”
Dispute any errors: Once you’ve reviewed your updated credit report, be sure to dispute any incorrect information you may find.
Bottom line: It depends on your financial situation
Deciding if it’s better to close a zero-balance credit card or leave it open is a personal decision — the answer will depend on your unique financial circumstances. No matter your situation, it’s important to cancel any unused cards in a way that keeps your financial health intact and minimally impacts your credit score.
For some, having unused credit cards may be no temptation whatsoever, but for others, the knowledge of having a card available to use could be difficult to ignore. Canceling a credit card won’t necessarily change your spending habits in the long run, so it’s important to develop a healthy approach to your personal finances by creating a realistic budget and sticking to it.
Tame your credit card debt with Lexington Law Firm
When you have a credit card with a zero balance, the decision whether to keep it open or not depends on your credit score goals. If inaccurate information on your credit reports is dragging your score down, credit repair services can help you challenge these errors and potentially boost your score.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Could logging in to your computer from a deluxe treehouse off the coast of Belize be the future of work? Maybe. For many, “freelance” means flexibility, meaningful tasks, and better work-life balance.
Who doesn’t want to create their own hours, love what they do, and work from wherever they want? Freelancing can provide all of that—but that freedom can quickly vanish if you don’t know how to manage finances as a freelancer.
“A lot of the time, you don’t know about these expenses until you are in the trenches,” says Alyssa Goulet, a freelance copywriter. “And that can wreak havoc on your financial situation.”
Some workers may choose to work in a freelance capacity hoping to increase their savings and their feelings of self-sufficiency. But for all its virtues, the cost of going freelance can carry some serious sticker shock.
Most people who freelance for the first time don’t realize that everything—from taxes to business software to retirement planning—is on them. Learning how to manage your finances as a freelancer early on will help set you up for success.
The key to budgeting as a freelancer is to plan for five expenses: taxes, business expenses such as your workspace and tools, health insurance, retirement savings, and general business costs.
1. Taxes for freelancers and the self-employed
First things first: Don’t try to be a hero. When determining how to budget and manage your taxes as a freelancer, you’ll want to consult a financial advisor or tax professional for guidance. A tax expert can help you determine what makes sense for your personal and professional situation and provide financial advice to help you build your freelance business.
For instance, just like regular employees, freelancers owe federal income taxes, as well as Social Security and Medicare taxes. When you’re employed by an organization, you and your employer each pay half of these taxes on your income, according to the IRS. But when you’re self-employed (earning more than $400 a year in net income), you’re expected to file and pay these taxes yourself, the IRS says. And if you think you’ll owe more than $1,000 in taxes for a given year, you may need to pay quarterly taxes.
That can feel like a heavy hit when you’re not used to planning for these costs. “If you’ve been on a salary, you don’t think about taxes really,” says Susan Lee, CFP®, a tax preparer and founder of a website that provides tax information for freelancers. “You think about the take-home pay. With freelance, everything is take-home pay.”
Estimating what you’ll owe
Once you determine how often you’ll need to file taxes, Lee recommends doing a “dummy return,” which is an estimation of your annual self-employment income and expenses. You can come up with this number by looking at past assignments, industry standards, and future projections for your work—which Goulet also finds valuable.
Then, use that number to refine your estimate. “I determine the tax bracket I’m most likely to fall into by taking my projected monthly income and multiplying it by 12,” Goulet says. “If I experience a big income jump because of a new contract, I redo that calculation.”
Budgeting for what you’ll owe
After you estimate your income, you can determine how much money to set aside for your tax payments. Lee recommends saving around 25% of your income to pay your income tax and a self-employment tax (which funds your Medicare and Social Security). Once you subtract your business expenses from your freelance income, however, you may not need to pay that entire amount, according to Lee.
Adjust your estimates often—and always round up. “Let’s say, in one month, a freelancer determines she would owe $1,400 in tax. I’d put away $1,500,” Goulet says.
2. Business expenses for freelancers: Get a handle on two big deductions
For freelancers, tax deductions can yield big savings—if you know where to look for them. From the mileage you log between appointments to supplies for your home office to fees for coworking spaces, many freelance business expenses may be deductible, according to Lee.
The costs of freelancing vary from person to person. Some freelancers are happy to work from their kitchen tables, while others require a sophisticated (read: expensive) setup. Your freelance expenses will also change as you add new tools to your business arsenal.
Here are two budget categories you’ll need to account for as a freelancer:
Renting or furnishing your workspace
Joining a coworking space can help you establish the camaraderie you might miss when working at home alone. Yet these workspaces may charge membership dues, ranging from $20 for a day pass to hundreds of dollars per month for a dedicated desk or private office—something to consider when you’re calculating the cost of freelancing.
Coworking spaces may be all the rage, but you can still rent a traditional office space for several hundred dollars a month or more. However, this fee usually doesn’t include networking events or other membership perks like food and drink.
If you want to avoid office rent or dues but don’t want the kitchen table to pull double duty as your workspace, you might convert another room in your home into an office. When planning a home office on a budget, all it takes is a little creativity and know-how to create a functional, productive workspace.
Amy Hardison, a freelance copywriter and content strategist, retrofitted part of her house into a simple office. “I got a standing desk, a keyboard, one of those adjustable stands for my computer, and a squishy mat to stand on so my feet don’t hurt,” Hardison says.
Start with the absolute necessities. When Hardison launched her freelance career, she purchased a laptop for $299 and worked out of a coworking space—using its office supplies before creating her own workspace at home.
Going digital: freelancing business tools
There are a range of digital tools, including business and accounting software, that can assist with the majority of your business functions. These digital tools for freelancers can save you valuable time, which you can then invest back into growing and marketing your business.
The right business software can also help you avoid financial lapses as you grapple with how to manage finances as a freelancer. Hardison’s freelance business had ramped up to a point where a manual process was costing her money, so using invoicing software became a no-brainer.
“I was sending people attached document invoices for a while and keeping track of them in a spreadsheet,” Hardison says. “And then I lost a few of them, and I just thought, ‘Oh, my God, I can’t be losing things. This is my income!’”
You might use digital business and software tools to help manage scheduling, web hosting, accounting, audio/video conferences, and other business operations. When you’re determining how to budget as a freelancer, remember that the costs for these services depend largely on your needs.
For instance, several invoicing platforms offer options for as low as $9 per month, though the cost increases the more clients you add to your account. Accounting services also scale up based on the features you want and how many clients you’re tracking, though you can find reputable platforms that cost as little as $5 per month.
If you sign up for a business or accounting software platform, start with the “freemium” version, where the first tier of service is always free, Hardison says. Once you have enough clients to warrant the expense, upgrade to the paid level with the lowest cost. Gradually adding services will keep your expenses proportionate to your income.
3. Health insurance for freelancers: Harness an inevitable cost
Saving for healthcare costs can be one of the biggest hurdles to self-employment and successfully learning how to manage finances as a freelancer. In 2024, the average monthly premium under the Affordable Care Act (ACA)—for those who do not receive discounts due to qualifying income—was $469 for a 40-year-old individual and $1,491 for families of four, according to Forbes.
“Buying insurance is really protecting against that catastrophic event that is not likely to happen. But if it does, it could throw everything else in your plan into a complete tailspin,” says Stephen Gunter, CFP®, a financial advisor at a wealth management firm.
Speak with an insurance advisor who can help you determine which plans are best for your health needs—and your budget. An advisor may be willing to offer a free consultation so you can gather important information before making a financial commitment.
4. Retirement savings for the self-employed: Learn to “set it and forget it”
Part of learning how to budget as a freelancer is thinking long-term, which includes estimating retirement expenses. That may seem daunting when you’re navigating new business expenses, but saving for retirement is a big part of budgeting when you’re self-employed, Gunter says.
“It’s kind of the miracle of compound interest,” Gunter says. “The sooner we can get it invested, the sooner we can get it saving.”
His freelance money management tip? Set aside whatever you would have contributed to an employer’s 401(k) plan and put it on autopilot. One way to do this might be to set up an automatic transfer from your primary checking account to your savings or retirement account.
“So, if you would have put in 3% [of your income] each month, commit to saving that 3% on your own,” Gunter says. The Discover® IRA Certificate of Deposit (IRA CD) could be a good fit for helping you enjoy guaranteed returns in retirement by contributing after-tax (Roth IRA CD) or pre-tax (Traditional IRA CD) dollars from your income now.
Prioritize retirement savings every month, not just when you feel flush. “Saying, ‘I’ll save whatever is left over’ isn’t a savings plan because whatever is left over at the end of the month is usually zero,” Gunter says.
5. General business expenses: Update your rates to cover them
With time, you’ll likely find that one of the best financial tips for freelancers is to build your costs into what you charge. “As I’ve discovered more business expenses, I definitely take those into account as I’m determining what my rates are,” Goulet says.
She notes that freelancers sometimes feel guilty for building business costs into their rates, especially when they’re worried about the fees they charge to begin with. But working these costs into your rates is essential to sustainable money management—and building a thriving freelance career.
Your expenses will change over time, so reevaluate the rates you charge annually. It’s also wise to do quarterly and yearly check-ins to assess your income and costs and see if there are any processes you can automate to save time and money.
Knowing how to manage finances as a freelancer is the key to a successful career
When you understand how to manage finances as a freelancer—effectively accounting for the costs of being self-employed—you can build the foundation of a long (and, with luck, lucrative) freelance career. From planning for taxes to saving for retirement, smart money management can provide you with much-needed financial stability and peace of mind if and when you decide to strike out on your own.
“There are many hats you have to wear and expenses you have to take on,” Goulet says. “But for that, you’re gaining a lot of opportunity and flexibility in your life.”
Working as a freelancer has its benefits, but it also means your pay can fluctuate from month to month. If you want to be even more prepared for freelance money management, then find out how to make a budget when you have an irregular income.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice. Please consult your tax advisor with respect to information contained in this article and how it relates to you.
Vice President Kamala Harris is pledging to increase the housing supply and make it more affordable, especially for first-time home buyers.
She’s preaching to the choir of voters who rank housing affordability as a top-three issue in the election — about 25%, according to the results of a survey by Ipsos and Redfin, released on Oct. 15. Unsurprisingly, more renters (31.6%) rank housing affordability as a priority issue compared to already existing homeowners (17.1%).
The current housing affordability crisis is the result of the construction industry’s sluggish return to form following the 2007-2008 housing collapse and the basic laws of supply and demand. As is, there isn’t enough housing available for the number of buyers: The housing deficit grew to 4.5 million in 2022 up from 4.3 million in 2021, according to Zillow, a real estate website.
Housing shortages push up prices and keep them high. When a lack of available housing is combined with years of persistently elevated mortgage rates, it becomes even harder for would-be first-time homebuyers to break into the market.
Then, as fewer people trade renting for home ownership, it puts pressure on the rental market, keeping those prices high, too. As a result, shelter, which includes both home buying and renting, has remained the greatest factor in core inflation growth for years.
The only way to effectively combat a lack of affordable homes is by building more housing. Harris’ housing plans are ambitious — and possibly unrealistic, experts say.
Build new housing
Harris has outlined policies aimed at creating 3 million new housing units over the next four years — a 50% increase over the current rate of home building, according to the nonprofit Urban Institute.
In an Aug. 21 Washington Post editorial, Mark Zandi, chief economist of Moody’s Analytics, and Jim Parrott, a housing expert at the Urban Institute, called her plans “the most aggressive supply-side push since the national investment in housing that followed World War II.”
To achieve her end goal, Harris wants to provide several tax incentives to kickstart construction:
A new Neighborhood Homes Tax Credit to construct or rehabilitate 400,000 homes in lower income communities. The homes must be owner-occupied. The incentive would operate similarly to the Low Income Housing Tax Credit (LIHTC) in that states would receive an allocation of credits for specific projects based on local need.
A tax cut for builders that construct affordable starter homes.
A $40 billion innovation fund to incentivize state and local governments, as well as private developers and homebuilders, to find new strategies to expand the housing supply, primarily through regulatory reform and cutting red tape.
Open up certain federal lands for new housing developments. Her campaign has not specified which federal lands.
An analysis of Harris’ proposal by the Urban Institute says Harris’ plans to increase new housing are not out of line with historic standards. But 50% growth is still a daunting task, and would rely on a number of factors outside a president’s direct control. “What she’s proposed will probably only go sort of halfway or part of the way in achieving that, because achieving a 50% increase in housing production is gigantic,” says Yonah Freemark, a principal research associate in the Metropolitan Housing and Communities Policy Center at the Urban Institute and the research director of the Land Use Lab at Urban.
Other observers see the 50% target as unrealistic. “For anyone who has any knowledge of commercial real estate and the housing industry, that seems like an unachievable number,” says Brian Connolly, assistant professor of business law at the University of Michigan. “But good for her for trying to get there.”
“What she’s proposed will probably only go sort of halfway or part of the way in achieving that, because achieving a 50% increase in housing production is gigantic.”
Yonah Freemark, research associate, Urban Institute
However, her proposals could help spur more construction even if they don’t reach the target, says Connolly. He adds that if the government supports homebuilding through new tax incentives that make it more profitable to build new housing and attract skilled labor, then it could make a meaningful impact on the housing supply.
Harris would need Congress to enact much of what she pledges to do. Of the innovation fund, for example, Connolly says, “She couldn’t just sort of pluck $40 billion out of thin air to deliver to the local government; that would be something that would presumably require congressional authorization.”
What there is bipartisan appetite in Congress for, says Freemark, is reducing regulatory restraints on construction. He says there may also be support for expanding the Low Income Housing Tax Credit, which goes toward acquiring, rehabilitating or constructing rental housing for lower-income households. The Democratic National Committee includes expanding LIHTC in its platform.
Make home buying more affordable
A cornerstone of Harris’ housing plans aims to make home ownership — the most traditional vehicle for wealth-building in America — more accessible to first-time buyers. She pledges to provide up to $25,000 in down payment assistance for first-time home buyers and an unspecified, greater amount of assistance for first-generation homebuyers.
Starter-home buyers could use the help since those homes are much more expensive than they were before the pandemic — 51.1% higher than August 2019, according to a Redfin report released on Sept. 30. But there is one recent positive sign for buyers: Starter homes are less expensive now than a year ago for the first time since August 2020. Homebuyers currently need to earn $76,995 annually to afford a home at the median price of $250,000.
There are already places in the U.S. that provide down payment assistance, so Harris’ proposal isn’t new per se, but its size and scope is, says Freemark. “I think that it has the potential to be quite impactful in terms of expanding access to home-purchasing for a large segment of the population that currently, simply, doesn’t have the ability to assemble enough funds,” he adds.
But when it comes to how assistance is delivered, the devil is in the details. “It will take a lot of thought and, potentially, some experimentation on the part of agencies and others that would be implementing this strategy,” Freemark adds. “Also, this is a potentially very expensive program, so I’m not sure I’ve heard broad enough support in Congress.”
It’s much easier to increase demand than it is to increase supply, says Ed Pinto, a senior fellow and co-director of the AEI Housing Center at the American Enterprise Institute, a conservative think tank, and Harris’ down payment assistance plan would serve to add buyers to what is now a strong seller’s market. “Unless that were to change, any efforts along the lines of demand increases would lead to substantial increases in prices,” says Pinto.
Connolly agrees. “If we’re not building those housing units and we’re providing people with $25,000 in credits to go out and buy within a stock of housing that is not sufficient, that’s going to result in bidding up housing prices,” he says.
Still, providing credits to first-time homebuyers could be something that both sides of the aisle support, says Connolly. “I tend to be a little more of an optimist about the bipartisan nature of this problem,” he says.
Make rent more affordable
About two-thirds of all homes are owned by the people who live in them, according to the U.S. Census Bureau. The other third are occupied by renters and Harris has plans to make their lives less expensive, too. The natural outcome to her plan to make home ownership more accessible would be freed-up rental housing. But she also wants to target corporate landlords in two ways:
End rental price-fixing practices by landlords of large multi-family units that raise rents based on algorithms. She is calling on Congress to pass the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act.
Remove tax benefits for large corporate landlords that own single-family rental homes. She is calling on Congress to pass the Stop Predatory Investing Act.
Freemark says that generally, there hasn’t been much support from Republicans in Congress to fund housing affordability policies for renters. If Democrats gained control in both houses, then there is some potential to expand funding for those purposes, he says.
But there has been some bipartisan interest in stopping large private investors from purchasing a large share of homes in communities throughout the country, says Freemark. “Getting that policy right is not obvious,” he says. “Just because you don’t like private investors doesn’t mean they’re not playing an important role in the overall housing market. And, you know, you’re playing with a very large industry when you start talking about sort of critiquing the ownership of large corporations. So I don’t know. I’m a little skeptical”
Meanwhile, Connolly isn’t so sure that focusing on price-fixing will be impactful in alleviating high rent prices. “I’m a bit skeptical that, you know, going after representing algorithms is really going to result in decreases in rent or slowed appreciation of rent,” he says. “But to the extent that there’s any impact on the rental market at the margins, that might be possible.”
Cut red tape
Experts agree that reducing regulatory burdens to building new housing is necessary and has bipartisan support. Both candidates have, at least, nodded to that need — Republicans in their party platform and Harris with her $40 billion innovation fund.
“Republicans tend to be more pro-business; they tend to provide tax breaks to businesses,” says Connolly. “And Democrats want to see more housing supply and housing affordability. So that looks like a good way to kind of, you know, marry those two sides of the aisle.”
Still, authority over housing regulations is concentrated at the local level, so there may be limits to what Congress can achieve on the issue.
Open up federal lands for housing
In the past former President Donald Trump has floated a vision of 10 “freedom cities” on undeveloped federal lands (his utopian vision for these cities also includes flying cars). Harris has also said she supports opening up federal lands to build housing, but hasn’t provided details.
The Federal Government is the largest landholder in the country (the Bureau of Land Management, or BLM, manages one in every 10 acres in the U.S.) so there’s an inventory of possible land available for development. But there’s a key difficulty with the proposal, says Freemark: “A lot of federal land is not land you would want to build housing on.”
Connolly agrees: “When you look at the map of U.S. federal lands, a lot of them are in very lightly populated areas across the western U.S. where there’s not going to be any demand for housing. There may be federal properties that are underutilized in larger cities that would be appropriate places to build housing … but at this point, I think that proposal, you know, from both sides of the aisle is really unclear in terms of its scope and where that would occur.”
The majority of government-owned land is in the West, and there is precedent for opening it to home building. In July, the Bureau of Land Management announced actions that it said would create thousands of affordable housing units on federal land in Nevada.
Pinto is optimistic about the possibilities. “In areas where there’s plenty of land, you could build an entirely new city,” he says. “Let’s take Utah … the federal government owns [the majority] of land in Utah. Half of that land we’ll call ‘Smokey the Bear’ — national parks, national forests, national monuments, things like that. The other half is just owned by the Bureau of Land Management.”
Trump’s deportation plans could stymie construction
Housing hasn’t been the focus of Trump’s campaign, but the cornerstone promise of his campaign — deportation of millions of undocumented immigrants — could have a direct impact on the housing market.
Trump has claimed that his deportation plans would free up housing, but experts say it would actually worsen the housing crisis since the construction workforce is largely reliant on immigrant labor.
Immigration has not been at the root of the U.S. housing crisis, says Connolly. “To the extent that you have migrants who are, generally speaking, low income or very low income people entering into the market … they’re facing much more dire circumstances than people who are trying to buy their first home or something like that,” he says.
But what Trump’s deportation plans could do is exacerbate a shortage of construction workers.
“I would suspect it is causing some concern for home builders and people in the building industry, because immigrant labor has long been a source of labor for the building industry and not just immigrants from Central and South America, but going back across really our entire history,” says Connolly. “Think of Italian bricklayers, Irish laborers in the 1800s and early 1900s. We have always relied on immigrant labor for work in our building industry. And yeah, the idea that we’re going to go deport a bunch of immigrants, you know, particularly in a time period when we need to be building housing is particularly bad policy.”
Freemark says, “Trump deporting millions of people would be horribly destructive for the housing market. It would make it very difficult to build homes throughout much of the country and it would increase the cost of homes.”
NerdWallet’s 2024 election deep dives
What would the Trump economy look like? Find out where former President Donald Trump stands on economic issues like battling inflation, medical debt, jobs, health care, housing, child care, small businesses and more.
How Trump and Harris aim to address your health care When it comes to health care, the candidates have been light on the details. Harris has focused on things like lowering prescription drug prices; expanding Medicare care coverage; and restoring federal abortion rights. Trump says he supports IVF coverage, but wants to leave abortion to the states. He also said that he has only a “concept” of a plan to replace the Affordable Care Act.
Smart Money’s 2024 Presidential Election Series
Hosts Sean Pyles and Anna Helhoski discuss the grand economic promises made by presidential candidates and the intricate realities of presidential influence on the economy to help you understand the real effects on your daily finances.
(Photo by Bruce Bennett/Getty Images News via Getty Images)
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore how the 2024 presidential candidates’ tax plans could impact your finances and what to know before voting.
What tax proposals are the 2024 presidential candidates making, and how might these policies affect your finances? What should you know before voting on tax issues? Hosts Sean Pyles and Anna Helhoski discuss the key differences in the candidates’ tax plans and how to make informed decisions to protect your financial future. They begin with a discussion of the importance of tax policy, with tips and tricks on understanding credits and deductions, how taxes fund government services, and the long-term effects of tax laws on your paycheck.
Then, Anna talks to Amy Hanaeur, the executive director of the left-leaning Institute on Taxation and Economic Policy, to discuss the candidates’ specific tax proposals. They discuss proposals to cut corporate taxes, extend expiring tax cuts, provide child tax credits, and eliminate taxes on Social Security benefits.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Taxes. Nobody likes them, but it’s how we pay for government, from local police and fire departments to the folks at the national level who make our currency and on and on. So what’s a fair and effective tax structure? That’s an argument democracies have been having since the Greeks came up with the system of government, and it’s an argument that we’re still having in earnest in the 2024 presidential campaign.
Amy Hanaeur:
Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans. So to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that would cost more than $280 billion.
Sean Pyles:
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Anna Helhoski:
And I’m Anna Helhoski.
Sean Pyles:
This is episode three of our Nerdy deep dive into presidential policy and personal finance. And today, Anna, it’s so exciting. We’re going to talk tax policy.
Anna Helhoski:
Wait, wait, don’t everybody leave yet. This is really important stuff. It has a huge effect on your bottom line, so you should know what the two presidential candidates are proposing to do with your tax dollars and then vote accordingly.
Sean Pyles:
Sometimes it’s hard to figure out exactly what this or that tax policy will do to your paycheck. There are proposals for credits and deductions and write-offs, and it can pretty quickly induce your brain to go on zombie status. But even just the broad strokes are important to understand, so we’re going to go through some of that today.
Anna Helhoski:
And remember, Sean alluded to this at the top of the show. Taxes pay for just about every government service you use. Every time you drive on a highway, every time you call 911. Every time you jangle cash in your pocket. Every time you pay for college with a federal student loan.
Sean Pyles:
Every time you get a letter delivered by the USPS. Every time you go to a national park. Every time your grandparents get a Social Security check. Every time you find yourself in a court of law. And every time you realize that national security is pretty important. All of that is the government at work and it’s funded by the money that comes out of your paycheck.
Anna Helhoski:
Is some government spending ridiculous? Yup. Some of my own spending is ridiculous, by the way, but I digress. You can argue over the size of government. A famous Republican anti-tax lobbyist named Grover Norquist once said his goal was to “reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” But it’s hard to imagine how anything would get paid for if there weren’t taxes, including all those other campaign promises that candidates are making.
Sean Pyles:
Right. How would anything get done if it weren’t for, you know… government? But as we’ve been saying throughout this series, the most important part of all of this is that you are an educated voter. That you understand how the presidential candidates’ tax policies could affect you.
Anna Helhoski:
And then take that knowledge to the ballot box and vote your conscience. Or for a lot of us, take that knowledge to the mailbox after you’ve filled in your ballot at home.
Sean Pyles:
I’ve got to say I really love voting from the comfort of my couch, usually in my pajamas. As we’ve noted previously, we want to say at the outset that we are not here to take sides or fan the flames of an already contentious political season. Our goal here is the same goal that we always have at NerdWallet: to help you, our listeners, make smart informed decisions about the stuff that impacts your finances. Sometimes that means choosing the right credit card for your needs. Other times, that means voting for the candidate who you believe will help you achieve your life and financial goals. All right. Well, we want to hear what you think too, listeners. To share your thoughts around the election and your personal finances, leave us a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-N-E-R-D, or email a voice memo to [email protected]. So, Anna, who is helping us sort through tax policy today?
Anna Helhoski:
Today, we’re speaking with Amy Hanaeur. She’s the executive director of the left-leaning Institute on Taxation and Economic Policy. Amy Hanaeur, thank you so much for joining us.
Amy Hanaeur:
Thanks for having me.
Anna Helhoski:
Unsurprisingly, Kamala Harris and Donald Trump have introduced some pretty different tax plans. So to kick off our discussion, I’m hoping you can give an overview of what stands out most to you in these plans.
Amy Hanaeur:
I would say there’s a pretty dramatic difference between Vice President Harris’s tax proposals and former President Trump’s tax proposals. It’s one of the biggest policy differences between these candidates.
Vice President Harris has plans to raise revenue from wealthy people and corporations. She’s also a little more concrete about her plans for the child tax credit, which helps middle-class families with children and other families with children. Trump has kind of a history of slashing taxes in ways that largely redound to wealthy people and corporations. He has also put forth some middle-class tax cuts. Those also will go to the wealthiest as well as to middle-class families. So I think his proposals all in all are more expensive and can make it a little harder to pay for the things that are spending priorities for either party.
Anna Helhoski:
Harris has come out with a number of tax breaks, including up to $50,000 for new small businesses, a $25,000 housing tax credit for first-time home buyers, and an increased child tax credit that includes $6,000 for new parents. Would these be effective policies and walk us through their feasibility?
Amy Hanaeur:
I would say that the $6,000 newborn child tax credit along with her proposal to restore the expanded child tax credits for older children that took place during the pandemic are very proven, very effective policies. And we know that the expanded child tax credit cut poverty almost in half. We know that it helped lots and lots of middle-class families. And we know that even at a time when unemployment was sky high, those child tax credits kept the economy moving and kept a lot of families solvent. And the new expanded $6,000 that she’s proposing for newborns is really important because that first year is so important developmentally for children, and so for families to have a little bit more resources in that first year, I think, makes a lot of sense.
The other two things that you asked about I think are a little more marginal in their effect and maybe not the very best approaches. The tax break, the $50,000 for new businesses is a little complicated because a lot of new businesses don’t actually earn enough to pay taxes. And so they would probably stretch that until when they are profitable, and then they would reduce their taxes once they are profitable further down the road. We just don’t think that that makes as much sense as some other approaches. The tax credit for new home buyers is an interesting idea. I think the Vice President is pairing that with some activities on the supply side to make sure that there’s more housing. But I think that those supply-side activities are a crucial part of that because if you just give a tax credit to new home buyers, it could end up driving up the cost of housing. I don’t think it’s the most important or the strongest part of her tax proposals.
Anna Helhoski:
And we need to have more housing supply in order to have more first-time home buyers.
Amy Hanaeur:
Anna Helhoski:
I want to shift over to Trump. He certainly wants to extend the 2017 tax cuts made under his administration, and he said he plans to lower the corporate tax rate even further. Can you remind us what was in the 2017 Tax Cuts and Jobs Act and what is set to expire next year? I know it was a complex law, but if you could give us the highlights.
Amy Hanaeur:
The 2017 tax law really cut the corporate rate from 35% to 21%, and the result of that was that corporate tax payments plummeted, and a lot of huge profitable corporations continued to pay far below the statutory rate. So the rate was 21%, but actually, lots and lots of corporations pay much, much less than that. Our research shows, and the research of a lot of other scholars shows that these kinds of cuts increase income and racial inequality. They also… This is kind of important. They send a massive windfall like 40 cents of every dollar to foreign investors because foreign investors own 40% of corporate stocks. That is just not a very well-targeted proposal, and it would really cost us a lot in revenue, which could reduce the ability of either party to execute on their spending priorities.
Anna Helhoski:
Has the former president said he wants all of those tax cuts renewed? Are there any proposed changes or is it just an extension?
Amy Hanaeur:
The corporate tax rate that I was just talking about is actually permanent, the cut that they already made. But as you said, he’s proposing further cuts to that corporate rate. So that’s a new proposal. That’s not an extension. The part that they made temporary were the individual components of the 2017 tax law, and they did that because it cost too much and it wasn’t possible to pass it with the policy mechanism that they were trying to use at the time because they were trying to do it with only one party’s support. In order to get it below the overall cost limit that is imposed on Congress, they made the individual tax cuts temporary. Former President Trump has said that he wants to extend all of the individual tax cuts that were in that 2017 law.
Anna Helhoski:
What has Harris said about that tax legislation?
Amy Hanaeur:
Well, she has said that with all of her tax cuts, there would not be a situation in which somebody earning less than $400,000 pays more. She has said that for the individual tax cuts, she wants to extend them for those earning less than $400,000 but phase them out over $400,000. I can say a little more about what the 2017 law did distributionally.
Anna Helhoski:
Amy Hanaeur:
If that’s helpful.
Anna Helhoski:
Absolutely.
Amy Hanaeur:
That law as a whole did deliver really large tax cuts to those in the top 1%, and that’s kind of a narrow sliver. I’m talking there about people with income over $800,000 a year. These cuts are the part that expire in 2025, but the Trump campaign wants to make them permanent. Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans, so to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that will cost more than $280 billion. It really does start to cut into revenue.
Anna Helhoski:
Have you seen any shifts in where Trump’s tax policy proposals are now versus when he was president?
Amy Hanaeur:
I would say that he’s kind of looking to just intensify his previous approach. Now, he’s floated some other things and his vice-presidential candidate has floated some other things, but in terms of concrete things on paper, it’s a little bit more of the same. He talked about, for example, repealing the tax on Social Security benefits. It would lower taxes for US households, I think, by an average of about $550 per household. But it would come with a big price because it would reduce Social Security and Medicare revenues by about $1.5 trillion over the next decade.
Anna Helhoski:
I want to talk specifically about Trump’s tariff proposal. He wants to do a 10% to 20% across-the-board tariff on all imports and up to 60% for goods from China. He has also suggested replacing personal income taxes with these new tariffs. Amy, how do tariffs on foreign countries and taxes for Americans intertwine?
Amy Hanaeur:
This is a sort of surprising proposal because it’s a real departure from the traditional way that Republicans have approached this issue. And frankly, a departure from how Democrats have approached this issue in recent years as well. Most economists absolutely agree that tariffs fall on consumers, but there can be reasons why advocates for particular industries, sometimes the owners, sometimes the workers, may want them at different times for particular economic development reasons or retaliatory reasons if they think that another country has appropriated a technology or industry that we had previously dominated in. I think what’s really challenging about the Trump proposal is that it is so across-the-board, and also that he hasn’t been very clear about exactly what he would do. So at some times, he has talked about 10% across-the-board tariffs. At other times, he has talked about 20% across-the-board tariffs. That’s a pretty big difference. And then he’s talked about, as you said, the additional 60% on China. An economist named Kim Clausing estimated 20% across-the-board tariffs would cost the typical household $2,600 a year. It’s a substantial hit to families and it manifests itself much in the way that inflation does. It would just be basically every product that every household buys would end up costing more.
Anna Helhoski:
Now, the Biden administration has largely kept the tariffs that Trump imposed during his previous term. What has Harris said about that and her view in general on tariffs?
Amy Hanaeur:
I’m not sure that she has said that much. I think that this is a part of the Biden administration policy that they are perhaps somewhat quiet about. I think it’s challenging to repeal those tariffs for political reasons. But I think from a policy perspective, it’s just important to note that they do fall on households. They’re not as large as those 20% across the board and 60% on China tariffs that the former president is putting forth. So they don’t have the same kind of impact, but it is kind of universally accepted that those kinds of tariffs do fall on consumers in terms of increasing prices.
Anna Helhoski:
More of our interview in a moment. Stay with us. Amy, real quick, I just want to turn back to Social Security for a second. Trump had said that he wants to get rid of the tax on Social Security. What would be the impact of that on the average American? What would that mean for their paychecks right now and for the prospect of them having Social Security when they reach retirement age?
Amy Hanaeur:
The Tax Policy Center did an analysis of this proposal and found that it would lower taxes for US households by an average of $550 a year. But at a big, big cost because it would end up reducing revenues in Social Security and Medicare by about $1.5 trillion with a T over the next decade. This would end up driving both programs into insolvency much faster, and so it would end up resulting in sharply reduced benefits for tens of millions of recipients. And the Tax Policy Center has not yet estimated, I don’t believe, the exact nature of those benefit reductions, but we know that Social Security is just one of our most important social programs, pulls a huge number of people out of poverty. The elderly used to be the poorest population age group in the United States, and after Social Security was put in place, they became the least likely to be poor among American households. So it’s really a huge part of our social safety net and just a huge part of our society.
Anna Helhoski:
Now, Trump and Harris don’t agree on very much, but one place where there is overlap is that both candidates have proposed to lift the tax on tips. Can you explain that for us and what it would mean for the average American, both those who receive tips and those who pay them?
Amy Hanaeur:
Getting rid of taxes on tips is probably more about politics than about creating a great public policy. First of all, a very small share of the workforce receives all of its income from tips. And so it would be kind of flawed because do we really think that a waitress who earns a very modest salary and a teacher’s aide or a teacher or a nurse’s aide who earns a really modest salary, do we really think that the waitress should pay a lower tax rate than a teacher or teacher’s aide or nurse’s aide who earns the same amount? And that would be the effect of this policy. It would also really encourage shifting some compensation to tips. So high-paid professionals could ask that their fees instead be structured as tips.
Now, Vice President Harris does have a check in place for her proposal that kind of gets at that because she has suggested ways that it could be targeted toward those earning under $75,000 a year. That certainly makes a big difference in terms of the possibility for gamesmanship by very wealthy earners. But fundamentally, we just think there are better ways at getting at helping low-wage workers who receive tips. Namely, we could get rid of the tipped wage. We could say that every worker deserves a minimum wage. The sub-wage for tipped workers is $2.13 an hour at the federal level. So we’re talking about a ridiculously low wage in 2024.
Anna Helhoski:
It seems like either candidate will struggle to bring forth most of these proposals if there’s not enough support in Congress. Either Harris’s or Trump’s proposals, what do you see there being congressional support for? And is there anything that Harris or Trump could do unilaterally?
Amy Hanaeur:
Obviously, a lot depends on the composition of Congress. So if either side gets a trifecta, if we have Republicans taking both Houses and the presidency, I would expect that former President Trump would be able to again cut taxes on billionaires and again cut taxes on corporations. I don’t think his Social Security proposals would go through under any party because Social Security is sort of famously the third rail of American politics, and it really does disrupt our social structures to think about reducing the funding available to pay for Social Security.
For Vice President Harris, if she were to get a trifecta, I think she would probably succeed in getting some of those revenue raisers. I could see her getting through the extensions of the individual tax cuts for those earning less than $400,000 but getting rid of them for those earning more. And in the perhaps most likely situation where we have divided government, I think a lot of this would be up for debate, and I think we’d end up seeing some mishmash of these two approaches.
Anna Helhoski:
Amy, what have we not seen Kamala Harris or Donald Trump weigh in on that you think is an oversight?
Amy Hanaeur:
There are pieces that are in Kamala Harris’s written proposals that don’t get a lot of attention. And one of the big ones is something very obscure called stepped-up basis. Sometimes people call it buy, borrow, and die. That basically says that for very wealthy people, if they acquire stocks or other assets that really grow in value over the time that they own those assets, that if they pass those on to heirs without selling them first, nobody ever pays taxes on the difference in value. So that’s always something that I think should get more attention. But it’s complicated to explain. As you can see with my efforts to explain it, it’s just complicated. And it’s easier to say, “We’re going to raise the corporate tax rate or we’re going to lower the corporate tax rate.” I think that’s something that could get more attention.
Anna Helhoski:
Is there anything else you want to call out about Harris or Trump’s tax plans?
Amy Hanaeur:
I would just say the big picture is: The Harris approach raises more revenue. It raises it primarily from the wealthiest and corporations. The Trump approach puts us deeper in debt and gives a lot more away to wealthy people and corporations. And both of them, I think, have some proposals that would help middle-class families on the tax side.
Anna Helhoski:
All right. Amy Hanaeur, thank you again for talking with me today.
Amy Hanaeur:
Yeah, thank you so much.
Anna Helhoski:
Sean, I want to emphasize one thing before we wrap up, and that’s how much authority the Executive Branch has to change taxes. The president does technically have the power to tax, but they generally don’t exercise that. What they do is press Congress to pass policies that they want. What we don’t know right now is what campaign promises will have bipartisan appeal once we have both a new administration and a new congressional makeup.
Sean Pyles:
You know, Anna, tax is a funny thing, where you make one change in one area and it can have drastic, sometimes unintended ripple effects in other areas. Two examples that come to mind are how Harris providing a tax credit for first-time home buyers could drive up home prices, and how Trump’s tax cuts exacerbated racial and wealth inequality. And these examples underscore how complicated and confusing tax policy can be. But it’s really, really important for all of us to engage with this since a number of components of the Tax Cuts and Jobs Act of 2017 will sunset in 2025. So we have a unique opportunity right now to reshape taxes and our votes will have a hand in that.
Anna Helhoski:
And one thing that Amy Hanaeur didn’t delve too deeply into is the no tax on tips policy that both Trump and Harris are endorsing. But fortunately, listeners, we did go into no tax on tips in a previous episode. So have a listen to our August 21st episode on that topic, which we’ll also link to in today’s show notes.
Sean Pyles:
Anna, tell us what’s coming up in the fourth and final episode of the series.
Anna Helhoski:
Sean, we’re going to talk about two specific areas of policy that affect a large swath of voters: student loans and healthcare.
Eliza Haverstock:
The fate of the repayment plan is now largely in the hands of the courts. However, the president can influence the situation by directing the Justice Department how to proceed with appeals. Harris would likely continue to vigorously defend the SAVE plan in court. Meanwhile, Trump is not likely to defend SAVE.
Anna Helhoski:
For now, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-N-E-R-D. You can also email us at [email protected]. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Sean Pyles:
This episode was produced by Tess Vigeland and Anna. I helped with editing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Maurer mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Anna Helhoski:
And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Security cameras are legal to purchase and use to protect your home or business, with some exceptions. U.S. states have specific laws about security cameras with slightly different standards for consent to recording and hidden cameras in private or public settings.
In general, don’t place a camera anywhere someone would have a “reasonable expectation of privacy,” including bedrooms, bathrooms and guest rooms — even cameras pointing into a neighbor’s private spaces
.
If your cameras have audio capabilities and can pick up a conversation, remember that some states have “all-party consent” laws that require everyone talking to consent to the conversation being recorded.
Camera laws to know about
Expectation of privacy
The concept of reasonable expectation of privacy is a part of the Fourth Amendment of the U.S. Constitution
. It originally referred to government intrusion into private spaces but is also used to assess home security scenarios. For example, an overnight guest has a reasonable expectation of privacy in a home.
As security technology evolves, there may be new interpretations of this right on a case-by-case basis, but in general, it’s best to keep cameras out of places where people can reasonably expect not to be recorded. For example, a landlord might be able to place a security camera in a common area, such as a lobby, but might not be able to place a security camera inside a rented apartment.
One-party consent
Some federal consent laws for recording primarily concern audio, not video. For example, 18 U.S. Code §2511 pertains to the recording of conversations — over the phone or in person through a security camera — if at least one person involved has consented
. Some states require everyone involved in a conversation to consent to being recorded.
Camera laws by state
State laws concerning video and audio recording can have slightly different wording, but in general they maintain the same principle as federal laws: keep cameras out of places where people have a reasonable expectation of privacy. Here are some examples.
Recording
With consent. Arkansas and Hawaii, for example, require consent to record anyone in a private space
. In Georgia, you’ll need consent unless you’re recording on your own property for security purposes, as long as you don’t invade anyone’s reasonable expectation of privacy.
No confidential information. In California, it’s illegal to record “confidential” communications
.
No trespassing. In Minnesota, it’s illegal to enter someone’s private property to install a camera or to record through the window of someone else’s home
.
Hidden cameras
In many states, such as Alabama, Arkansas, Delaware, Kansas, Maine, Michigan, New Hampshire, South Dakota, Tennessee and Utah, you need someone’s consent to record them with a hidden camera (in some states, it’s worded as using hidden cameras in places with a reasonable expectation of privacy).
What happens if I record someone without their consent?
Invasion of privacy can be a misdemeanor or a felony, depending on the state laws and what was recorded. If someone is recorded without their consent, they may be able to sue the party responsible
.
How do I prevent my security cameras from violating privacy laws?
Keep security cameras out of private spaces, such as bedrooms and bathrooms. If a camera can see into a neighbor’s property, change the angle or take advantage of privacy features from home security providers, many of which allow you to tailor a “privacy zone” that blocks out part of a camera’s view field.
Most security cameras we’ve tested have a “privacy shutter” that keeps the view field blocked most of the time, only opening when motion is detected and the system is armed.
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Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Learn how presidential policies on tariffs, immigration, and prices can impact your everyday expenses like groceries and gas.
What can a president actually do to lower prices and fight inflation? Can campaign promises really impact your wallet, or are they just political hot air? Hosts Sean Pyles and Anna Helhoski discuss presidential policies and how they affect everything from the cost of gas to your grocery bill to help you understand the real impact of political decisions on your finances. They begin with a discussion of inflation, with tips and tricks on understanding how inflation is measured, what drives price hikes, and what role the president plays in influencing it.
Then, Anna talks to Derek Stimel, an associate professor of teaching economics at UC Davis, about the economic implications of tariffs and immigration policies. They discuss how tariffs raise the price of imported goods, how immigration impacts labor costs and wages, and what these political policies mean for your everyday purchases.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
What’s the first thing you do when you go to the grocery store? Do you run to the produce aisle and look for the freshest broccoli, maybe? Or conversely, are you heading for the candy section? I don’t judge. But pretty soon after that, you’re probably starting to look at prices, right? The price of, well, everything is a daily question in our lives. So it’s not surprising that prices are playing a part in this year’s presidential election.
Derek Stimel:
I just find it interesting that both presidential candidates have focused on these highly volatile markets, which we often think they really can’t do that much about, and that are often driven by these global forces basically. But both of them have focused on those as their avenues to bringing inflation down.
Sean Pyles:
Welcome to NerdWallet’s Smart Money Podcast. I’m Sean Pyles.
Anna Helhoski:
And I’m Anna Helhoski.
Sean Pyles:
And this is episode two of our Nerdy deep dive into presidential policy and personal finances. Hey Anna, I don’t know if you’ve noticed, but we’ve got a presidential campaign underway.
Anna Helhoski:
Hard to miss it. Talk about drama. And every great drama has a storyline. One big part of this year’s storyline in the campaign has been prices, specifically inflation and what it’s done to our bottom lines.
Sean Pyles:
Yeah. Inflation hit a high of 9.1% back in 2022, and we’ve been paying a whole lot more for a lot of things over the last few years. And it’s not subtle, it’s very noticeable. Anna, is there anything specific that has popped up on your radar as more expensive than just a couple of years ago? Something where you said whoa, that is way more than I used to pay.
Anna Helhoski:
Yeah. So I have a bread place near me and a few years ago the prices were pretty reasonable for a big loaf of fresh bread, like $6 a loaf.
Sean Pyles:
Yeah, that’s like New York reasonable, I’ll say.
Anna Helhoski:
Yeah, exactly. No, that’s how I gauge everything. But then flour prices spiked and suddenly the price went up to nearly $10, which is way more than I’m willing to pay. What about you, Sean? Did gecko food get more expensive along with anything else?
Sean Pyles:
Since you mentioned it, crickets for my gecko Ozzy did go up about 12%. I now spend a whopping $2.25 a week for those creepy bugs for the old guy. Of course, it’s not just these one-off items, these are just the things that the two of us noticed in spades. Houses are more expensive, cars are more expensive, credit cards are more expensive. It just takes more out of your budget to buy stuff.
Anna Helhoski:
So what can a president do about it? As we heard in last week’s episode, the answer is not a lot by themselves. They often need Congress or the Fed or both, and sometimes a lot of luck to have an impact on the economy and specifically on prices. But that doesn’t stop them from making all kinds of promises about the changes they’d make if we sent them to or back to the White House. Let’s talk about what they can do in reality.
Sean Pyles:
And as we noted in the last episode, we’re not here to take sides or fan the flames of an already contentious political season. Our goal here is the same one we always have at NerdWallet, to help you, our listeners, make smart informed decisions about the stuff that impacts your finances. Sometimes that means choosing a new high-yield savings account. Other times that means voting for the candidate who you believe will help you achieve your life and financial goals.
All right, well, we want to hear what you think too, listeners. To share your thoughts around the election and your personal finances, leave us a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-N-E-R-D. Or email a voice memo to [email protected]. So Anna, who are we hearing from today?
Anna Helhoski:
We’re talking with Derek Stimel. He’s an associate professor of teaching economics at the University of California, Davis. So not only is he an expert in macroeconomics, but he’s an expert in teaching it. He’ll help us parse what presidents can and can’t do to affect the price of all sorts of goods that we all buy. Derek Stimel, welcome to the show.
Derek Stimel:
Thanks for having me.
Anna Helhoski:
Presidential administrations tend to take the credit or get the blame for things that happen, at least when it comes to public perception. That means that the Biden-Harris administration has taken a lot of flak from the Republican Party and from many Americans for elevated prices that we’re seeing in the wake of the pandemic. And since we are just a few months away from a new administration, can you talk a little bit about how much influence presidents actually have on inflation and prices?
Derek Stimel:
Normally we don’t think of them as the major driver of inflation in the economy. Usually, it’s things like monetary policy, so interest rates, and the supply of money. Sometimes it can also be things outside of the economy, shocks as we sometimes say in economics. So things that happen globally, for example. Having said that, it’s not to say that there can’t be some causes that are driven by policy of the government. For example, in the current situation, some people do point to some government spending that took place in the aftermath of COVID and the policies surrounding that. That might’ve been some fuel for inflation. But it’s not usually the first thing we think of. In this particular situation of our recent inflation, I suspect it’s not the first number one thing causing the inflation.
Anna Helhoski:
Let’s get into some of the campaign promises that each candidate has made. Some of the promises might just be politicking, but some of it could become a reality. Start off with former President Donald Trump’s proposals. Thus far, there have been multiple reports and assessments from economists who say that his proposals, if enacted, would be inflationary. And one of the main drivers of that projected inflation is Trump’s promise to levy 10% across-the-board tariffs on all foreign goods. Can you explain how tariffs and prices interact?
Derek Stimel:
Tariffs are basically a tax on imported goods. For any tax, it’s going to have the following effects on the market, which is, the tax gets levied, let’s just say it’s the 10% just to have a number. And then the businesses basically have to, in a sense, make a decision about do we absorb this tax ourselves, do we pass it on to the customers, and if so, in what proportion? They may not pass on the full 10%, it’s unlikely they’re going to absorb the full 10% themselves. So there’s going to be a split. So in some loose setting, maybe they raise prices by 5% and they absorb 5% of it to get up to the 10, or maybe it’s 8 and 2, or 3 and 7, or what may be. But the point is that basically, it’s going to lead to higher prices on those products.
So in this particular situation, we’re talking about higher prices for imported goods. And I think as we’re all generally aware from our day-to-day shopping and if we ever look at the label of anything, we buy a lot of imported goods in the United States. So it’s not unreasonable to think that raising taxes essentially on imported goods would ultimately boost the prices of those imported goods and then on average raise our cost of living at least somewhat.
Anna Helhoski:
Now, Trump claims that his tariffs would spur American manufacturing and domestic competition for production. Is that something that does happen or would likely happen as a result of tariffs?
Derek Stimel:
So it definitely can happen that there could be some… you know, businesses have to make the best decisions based on the rules of the game as they are. Raising tariffs would definitely change the rules and businesses would likely respond to that. And so to the extent that they could and that the U.S. was a major market to them, at least some businesses would try to reallocate or relocate back into the U.S. in order to avoid this tariff, basically. But I think the question is: Would that be enough to counterbalance the effect of this higher tax across the board? I don’t have hard data on it, but the likely answer is it wouldn’t be enough. So we would still see higher prices as a result, and so we would have to deal with the consequences. But there could be some reallocation or relocation of businesses for sure.
Anna Helhoski:
Another promise Trump has made is to lower gas prices. Under his first administration, he increased oil production and then Biden went further still. So how much can a president impact gas prices?
Derek Stimel:
The gas market or the market for energy more broadly defined is very much a global market, but the U.S. is in a way in a unique position of being the center of that global market. You hear a lot about that the U.S. dollar is this global reserve currency. Oil for example is usually traded in dollars and that sort of thing. So we do have a little bit more power than some other countries. The answer would be maybe a bit different if it was us talking about Canada doing something or whatever. It is also probably true that gas prices or prices of energy in general are really often driven by these global shocks. So in this particular case, the disruptions that took place due to Russia’s invasion of Ukraine are really the prime mover probably of energy prices in the recent years. And it’s not clear that any president would be able to have done something about that directly. Obviously, it’s more of a geopolitical thing than an economic policy thing.
Anna Helhoski:
Switching gears again, I’m hoping you can talk a little about the connection between immigration and the prices that consumers pay for certain everyday goods and services. And note for listeners, as you may know, Trump has promised to use law enforcement and the National Guard to deport many millions of undocumented immigrants. Beyond the humanitarian implications and the logistical questions raised by this proposal, what are some of the economic implications?
Derek Stimel:
Kind of a classic way of thinking about it economically, especially when we’re talking about things like inflation, is that we think that business costs basically would drive a lot of inflation, or at least it could be a prime driver of inflation. And inside those business costs, labor costs are often a large portion of those costs. And of course, that has to do a lot with the supply of labor that’s available relative to the demand for that labor. And so we live in an aging society, the baby boomers are basically retiring. And of course, this is reducing our labor supply or at least likely to reduce our labor supply in the coming years. So what that would mean economically is that would tend to push up wages all else the same, which of course then could also push up prices. Businesses, when they face these increased labor costs, have to make a choice about how much to pass on to customers in terms of higher prices.
So with that all in mind, if you also cut off the amount of immigration into the economy, you would think that that’s likely to put further pressure on wages in the economy. It’s going to further, in a sense, reduce or at least not provide any extra slack for the supply of labor, and so that’s going to further push up wages and further push up prices overall. That’s not to say we shouldn’t think about reforming immigration in some way, shape, or form, but that’s just to say economically that if you reduce the supply of labor, the price of that labor, the wages, and all the other forms of compensation that come with it is going to go up and businesses are going to pass at least some of that on to customers in the form of higher prices.
Anna Helhoski:
And are there any specific areas of the economy that could be altered if you deport millions of people who were already in the workforce?
Derek Stimel:
There’s the initial disruption, uncertainty that would surround it, which could shake out in all sorts of ways, many of which are probably not positive. Imagine the local restaurant down the street suddenly loses half its staff. And what are they going to do? So we would expect a lot of service sector jobs to maybe be impacted by these sorts of things, a lot of things that we interact with daily. And then there’s also this issue about if you create shortages in one area, let’s say you create a shortage in one service sector, it could spill over to other unrelated service sectors as well. Maybe now the one sector has to basically go poach employees from the other one. And so maybe it starts to spill over into other areas where you wouldn’t think of, say, quote, unquote, “illegal immigrants” basically playing a role, but it actually could have this cascade to other markets.
Anna Helhoski:
More of our interview in a moment. Stay with us. I want to talk about Donald Trump’s proposal to weaken the power of the Federal Reserve by bringing the central bank under more direct control of the president. And listeners, we’ve said it before, but the Federal Reserve is nonpartisan and operates independently. That means that the president doesn’t tell the Fed what to do and the Fed doesn’t make its decisions based on politics. Derek, it seems like the separation is pretty crucial to ensuring public trust in the central bank’s ability to make decisions. But if Trump was successful in his plans to more directly influence the Fed’s activities, what are some of those economic implications?
Derek Stimel:
Stepping back for a second, we generally think that the Fed’s main role is to keep inflation, especially over the longer term, relatively low and stable. And one element that tends to be critical to that is their basically credibility to commit to that policy of keeping inflation low and doing what it takes. None of us liked in the recent years the interest rates going up, but it’s seen as this necessary thing to do to bring inflation back down to that longer-term goal. And so the concern basically is that a lot of that comes from the fact that the Fed is independent to some degree from the rest of the government. It’s important to understand that they’re not completely independent. The president plays a role in nominating people to serve in the Fed. Congress obviously has to approve these things. But this general separation of like, oh, you can’t tell us when to change interest rates or you can’t tell us we can’t do this policy and we have to do some other policy or whatever, that tends to be important as this inflation fighter credibility that the Fed has.
If that gets eroded, I think the concern would be basically that people in the economy start to not believe in the Fed as much as an inflation fighter. That lack of credibility starts to make people think, “Well, they say they want 2% inflation, but given that they’re tied to the rest of the government, I think it’s maybe going to be more like two and a half, 3%.” So expectations start to tick up on inflation. And one thing about inflation is that expectations really play an important role and they tend to be self-fulfilling. We all expect five, we’ll get five. And so basically the Fed’s independence is one of… There’s some others of course, but it’s one of the main things that’s tying down those expectations because it’s helping the Fed maintain its credibility to be there when we need them to fight inflation.
Anna Helhoski:
Well, those are the main things I want to talk about in terms of Donald Trump, but I want to switch gears and talk about Vice President Kamala Harris’s plans to battle inflation. She recently unveiled a plan to ban price gouging. So first off, what is price gouging and how have we seen it happen?
Derek Stimel:
So in economics, price gouging doesn’t really have a specific definition, to be honest with you, but the loose idea is that it’s taking, quote, unquote, for lack of a better term, “unfair advantage of a situation in order to raise prices.” Sometimes these situations are obvious, which are… There’s an earthquake that happens, let’s say, so suddenly the price of gas and water in the surrounding area is going to skyrocket. That kind of idea of taking advantage of other people’s misery and something that was really out of their control, a natural disaster, that’s really what we see as price gouging. So in this particular context, what we’re talking about with Vice President Harris is this view where, say, for example, grocery stores taking advantage of the circumstances to basically raise prices on their products in an unfair way. But it’s a bit nebulous once you start to get away from things that I think we all would agree are clearly things out of our control, like natural disasters.
Anna Helhoski:
And is there anything already in place to prevent price gouging?
Derek Stimel:
So states generally have laws that prevent price gouging in the situations we’re talking about like natural disasters, so hurricanes and floods and earthquakes, and so forth. What Vice President Harris is really talking about is basically a federal ban across the board on all forms of price gouging. At least that’s what I understand it to be. And we don’t have that. It’s not really clear what the criteria would be for that as well. So for example, if a company raises prices on its products by 5%, how do we decide if that’s just normal market forces or is it price gouging in some ways? In other words, how do we decide the fairness of it all? Generally speaking, in our economy, we let the markets work that out, and then everybody individually makes a decision about, nope, that’s too expensive, I’m not going to buy it, or I guess I’m willing to pay that price, that kind of thing.
Anna Helhoski:
So some critics of Harris’s proposal, including Donald Trump have said that this is a price control. So what is a price control? Why don’t economists like price controls and would Harris’s proposal to ban price gouging actually be a price control?
Derek Stimel:
Basically, a price control is essentially the government setting a maximum price in a marketplace. So sort of saying, “Hey, you can charge no more than X for this product.” And of course, we have price controls in the economy. The ones that people typically talk about classically are certain cities that have rent control. What people are basically saying is that this price gouging idea would in a way limit how much businesses can raise prices. And that would in a way be similar to what happens in a price control situation where the government often does cap how much a business can raise prices.
The good and bad of economics a lot of times is that there’s tradeoffs for everything. Concern would be basically that maybe grocery stores, because that’s the one that’s been central to all this argument, has really been the price of food, is that basically, maybe you wouldn’t see as many new grocery stores opening up, or at least in a lower frequency. Maybe you would start to see the quality of what’s on the shelves in the grocery stores start to decline a little bit. So on the one hand, you get the prices of the things you buy don’t go up as much maybe, but on the other hand, there’s less of them available and at least for some of them, maybe the quality of those products might go down a little bit.
Anna Helhoski:
So beyond preventing price gouging, Harris has also vowed to lower prescription drug prices and she wants to do this with price caps by allowing Medicare to negotiate prices, speeding up delivery of generic drugs, and cracking down on big pharma. So how impactful could some of these efforts be in terms of making prescription drug prices more affordable?
Derek Stimel:
Oh, it could. Not surprisingly, the federal government via Medicare is a huge consumer in this marketplace, which basically means they have a lot of power, market power we would call. In this particular case, the technical term is monopsony power. But basically, yeah, they would have a lot of power potentially to negotiate and there would be spillover effects for people who don’t have Medicare. In terms of being able to lower, say, prescription drug prices by allowing Medicare to do this giant negotiation basically with the big pharma companies, that honestly could have a big impact on those prices for sure, because Medicare is so huge.
Anna Helhoski:
Right. And you touched on housing earlier, but let’s talk a little bit about Harris’s big proposals with her plans to make housing more affordable. One that really stuck out to me is a plan to prevent corporate landlords from using price-fixing algorithms.
Derek Stimel:
This is a brave new world that we’re in, and there’s a lot of times where regulation is behind the technology, where basically a lot of these businesses… And it’s of course not just in real estate, it’s in a lot of other areas as well, in finance in particular, where they basically use these computerized algorithms to essentially search for the deals that they want to transact. Is it price-fixing or is it the fact that all of these algorithms basically tend to point in the same direction because they often use the same data in order to churn through all their calculations? It’s not clear to me, I guess, how that might be enacted and then also what the implications would be.
Anna Helhoski:
And Harris said she would support construction of 3 million new housing units in the next four years, among other plans. And fundamentally, in order to lower housing prices or rent or the supply of homes for purchase, we just need more housing. So could Harris’s proposals spur more construction? And also what can a president do to facilitate housing growth?
Derek Stimel:
So much of this is local. I mean, so much of this is red tape based on local housing boards and all these other types of things, the “not in my backyard” kind of stuff. And so it’s not really clear what anybody at a national level could really do about that kind of stuff because so much of it is all of the local political machines and so forth that basically drive all these policies. As a general idea, I think the basic point that, yes, the way you have to basically lower housing prices or at least keep them from going up as much is to supply more housing, is definitely the answer. Because the housing market in a sense is unique compared to other markets, in that the supply is basically fixed by the number of units and very, what we would say in economics, inelastic. You’re not going to really get around that unless you just simply build more.
Anna Helhoski:
Derek, are there any other proposals from either of the candidates that we’re overlooking that could contribute to lowering prices or to increasing inflation?
Derek Stimel:
I think the last thing I would mention, I guess. I know President Trump wants to increase the domestic production of natural gas and coal and all that sort of thing. And I do find it interesting that both Vice President Harris and President Trump have focused on these areas of inflation. In the case of former President Trump, it’s energy costs, and in the case of Vice President Harris, it’s basically food costs. And these are the things that are specifically excluded by the Fed when they’re looking at the longer-term measures of inflation. So I just find it interesting that both presidential candidates have focused on these highly volatile markets, which we often think they really can’t do that much about, and that are often driven by these global forces, basically. But both of them have focused on those as their avenues to bringing inflation down.
I think the very last thing I might add in, which is probably too big to really get into, is the extent that the deficit and the national debt might play in terms of inflation in other parts of the economy, especially going forward as it’s ballooned a lot. There are some theories out there, for example, that it does play a role in inflation and to the extent that the policies of the two candidates might add to the deficit, and of course, then by extension add to the debt. That could be in a way a hidden inflation factor that we tend to not focus so much on.
Anna Helhoski:
And one we’ll probably pay for in the future.
Derek Stimel:
Yeah, somebody will eventually.
Anna Helhoski:
Derek Stimel, thank you so much for joining us today.
Derek Stimel:
Yeah, absolutely. Thank you so much for having me.
Anna Helhoski:
Sean, there’s something else I want to point out that I didn’t get to in my conversation with Derek, but came from researching an article on this topic, and that’s price tolerance. Right now, people are still pretty price intolerant because so much is elevated from where we remember it being. But if prices actually did drop across the board, it would be a big problem. Economy-wide price drops really only happen when there’s a big recession. And I think Trump and Harris’s campaigns both know this. They can’t bring back pre-pandemic prices, so what they can do strategically is make promises that are most relevant to people.
Sean Pyles:
Right. And last week we talked about how one individual president can’t really transform the economy on their own. But your conversation with Derek Stimel illustrates how a president’s priorities can make a bigger impact on an issue-by-issue basis. Former President Trump is focused on lowering the price of gas. Vice President Harris wants to make housing more affordable. And we saw how President Biden was able to push for lower prices on certain drugs like insulin. Although we should note, of course, that Biden wasn’t able to do that without the help of Congress.
Anna Helhoski:
So Sean, one other thing. Maybe it’s obvious but it’s worth saying, is that while we have pointed to a lot of ways in which a president cannot really control things like pricing, the president is also the leader of his or her respective political party, and that often means that the party and its political leaders will coalesce around these policies, making them more viable.
Sean Pyles:
Yep. We’ve mentioned that the president often has to work with Congress to get bills passed that can fulfill their promises. And members of their party, while they don’t necessarily march in lockstep, they will frequently work with that president to pursue his or her economic agenda. So no, the president can’t wave a magic wand, but if their party also has control in Congress, that makes a world of difference in the ability to make those goals happen.
Anna Helhoski:
And that’s a case for making sure you’re paying attention to what candidates are saying up and down the ballot. The presidential candidates aren’t the only ones to make a difference. Do some research on your congressional candidates, and for that matter, city council and school district, because they all touch public money and that’s your money. It always helps to educate yourself on how they plan to spend it. You can find the latest money news updates in NerdWallet’s financial news hub, which we’ll link to in the show notes, or just search online for NerdWallet financial news.
Sean Pyles:
So Anna, tell us what’s coming up in episode three of the series.
Anna Helhoski:
Well, Sean, next time we’re using a word nobody likes but matters a lot to your finances: taxes. We’ll hear what the current candidates for the highest office in the land want to do with the money that comes out of your paycheck.
Amy Hanauer:
Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans. So to the richest 20% of Americans. So just for a sense of what that will cost, in 2026 alone, that will cost more than $280 billion.
Anna Helhoski:
For now, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-N-E-R-D. You can also email us at [email protected]. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Sean Pyles:
This episode was produced by Tess Vigeland and Anna. I helped with editing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Maurer mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Anna Helhoski:
And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.