Transcript
Keith Mader (00:00):
Hello everyone. My name is Keith Mader. I’m joined today by Reid Frederick WECU’s Director of Community Impact. Reid is WECU’s personal finance expert. He has helped thousands of individuals learn how to plan and save and manage their money. Reid, we’re so thrilled to have you.
Reid Frederick (00:14):
Thanks for having me, Keith.
Keith Mader (00:16):
Alright, Reid, let’s dive right in. I know that many of our members are eager to learn more about money and how to better manage it, and I know one of the pressing issues right now that we’re hearing a lot about is credit card debt. It recently came out that the average American carries $6,000 in credit card debt. So a question for you is, what are some of the main factors that might be contributing to this rise, and what’s your advice for dealing with that if you’re finding yourself in that situation?
Reid Frederick (00:46):
Yeah, I mean, I think what’s causing the credit card debt is what everybody’s perception is. Raising prices, groceries are one big one, rents another one. Groceries- I looked up some data; margarine’s up 56%, eggs somewhere around 30%. grocery prices overall around 20%. That’s going to impact your budget. I don’t buy our groceries, but I go to the store sometimes and name-brand cereals are like 10 bucks a box. Deodorant- I saw a stick of deodorant for $14, and so that was not the case five years ago. And so that’s really affecting our budgets. The other side rent is up about 30% since before the pandemic and rent’s such a big portion of your budget that if it goes up 32%, that’s really going to cause shifting in your budget. Now, you probably don’t put that on credit card debt, but you’re spending more cash in that and then therefore, therefore other stuff might go on credit cards. So I think that those two items in particular are really causing a lot of stress and people are supplementing it with credit cards. What can you do about it? That’s really dependent. I mean one, hopefully credit card inflation goes down. I just read that for this year, up to June, grocery prices have only gone up 1%, so that’s good news. They’re not going down and our wages probably haven’t met the inflation that we saw. But that’s good news.
(02:31):
And to adjust, I mean for most people it’s adjusting spending, it’s finding ways to spend less, it’s finding ways to either cut items or find cheaper alternatives. Sometimes people with credit card debt, so if you’re in the situation where there is credit card debt and you want to do something about it, sometimes putting it on a different loan. So in a sense, taking that credit card debt and either taking the balance to a personal loan, taking a balance to a different credit card, maybe you leverage an asset like a car, your equity in your car, your equity in your house to get a lower rate. Those are typically all options. If your credit card rate is pretty high, maybe there’s an opportunity to get a different loan. I’d encourage anybody looking at a loan to solve a loan. Right. In essence of what you’re doing there is couple it with a plan.
(03:30):
It can be kicking the can down the road if you’re just going to move it to a different loan and doesn’t really solve the problem. So a little bit of maybe you do get a better loan for your debt, but then you couple it with some planning and some adjusting to your spending. One other item that I always like to point out because I think it’s overlooked is debt management plans. They’ve been around for a really, really long time. They’re kind of a tried and true way to deal with credit card debt in particular. Debt management plans are a product service that are provided by this industry called consumer credit counseling services. And a lot of financial institutions partner with them. WECU partners with a company called Money Management International, and it’s at no cost to the member and they will help negotiate on rates. They’ll help you accept a spending plan and try to get that credit card paid off within a couple of years.
(04:28):
The other side of the budget equation, so we talked about the expense side or dealing with another loan, is to make more money. And so some people might not want to get another job, but maybe there’s a short term solution for the next six months, I’m going to mow lawns or walk dogs or whatever just for a short period of time to get that debt down. Or maybe you’re in the position to ask for a raise. If you haven’t asked for a raise in years, maybe it’s time to make the ask. So yeah, that’s hope that inflation stays cool. And then eventually over time our wages react in a positive way, but it’s going to take a while.
Keith Mader (05:15):
Yeah. Yeah, I think that’s super good, really good advice. I mean, that’s exactly what we’re looking for. As far as advice for people listening to this. You hit on the grocery stores, you hit on some of the things that have increased a lot. Do you have any specific tips if you’re trying to save money at the grocery store, things that you might be able to do?
Reid Frederick (05:36):
I mean, I don’t know if there’s anything terribly novel besides generic, bulk.
Keith Mader (05:44):
So I think to kind of echo some of your points as far as the groceries go, your credit card debt rising is an indicator that maybe something in your budget is not on point that’s rising because you’re not balanced out.
(05:58):
So it’s an opportunity for you to say, okay, how do I adjust things? And maybe one of those things is shopping at a different store or buying a different brand name.
Reid Frederick (06:09):
Yeah, exactly. And stress. Like you talk about credit card debt as a barometer, stress is a barometer too, and it can kind of signal that something’s not right. So if you’re stressed about your credit card, we tend to think of stress as in a negative light, but it’s a way of signaling to your mind and your body that
Keith Mader (06:26):
Something needs to change.
Reid Frederick (06:27):
Do something right. And luckily there’s a lot of solutions and a lot of people that are able to help you get on the right track.
Keith Mader (06:36):
That’s great. That’s great. Kind of along the same lines of credit card debt, is there’s a new thing that’s come about in recent years. It’s called buy now, pay later, and it might be something that people see on Amazon or when they’re at a store and it’s right there at the checkout. Do you want to split this up? Can you talk about what that is and how these services impact consumer spending habits? And then just any advice that you have about that?
Reid Frederick (07:05):
Yeah, buy now, pay later was something newer to me. I had heard the term, but I’ve done some research on it and it’s really interesting product. One of the benefits of it is there’s no interest, right? So it’s like a loan that has no interest, but whenever something is free, you got to be a little curious about why it’s free. And so in looking into it, how it might affect your behavior is very similar to how a credit card might affect your behavior. It allows you to get something in a day and pay for it later. And that kind of takes away a little bit of the pain of purchasing today. It seems to have some kind of psychological effect on people’s willingness to spend money. The negative effects are similar to the negative effects of any type of debt. I mean, one, it can affect your credit if you don’t make a payment. There are fees if you don’t make a payment. And I’m a pretty, so this is more and more of a personal statement, but debt to me is complexity. And so I would much rather rip off the bandaid, know that it’s paid for rather than add an additional debt payment on top of my other debt payments that I have to keep track of. And then adds complexity to the decision of, can I really afford these shoes?
(08:32):
And to me, debts always adds to the complexity of affordability or it sure can. So yeah, it’s an interesting product. There’s probably people that manage it really well. There’s other folks that probably would do better living more on a cash basis. I include myself in that. And yeah, it is pretty interesting.
Keith Mader (08:52):
Thanks, Reid. I think that’s super interesting. I think a couple things stand out to me in what you said. So first of all, the pain. I think maybe if you’re buying food for your children, maybe there shouldn’t be pain there, but if you’re buying something discretionary, having a little bit of pain, it’s not bad. It’s not bad. It shows you that you are recognizing that money is finite and that you are giving up something else in order to,
Reid Frederick (09:17):
It acknowledges the sacrifice.
Keith Mader (09:18):
Yeah. Yes.
Reid Frederick (09:19):
Yes.
Keith Mader (09:20):
And I think the other thing too is you get to the counter, you’re ready to pay, and they’re saying, do you want to pay less today? I mean, most people are just like, yeah. As opposed to coming at that with a very informed kind of perspective.
Reid Frederick (09:33):
It’s not just how you feel today, it’s how you feel next month and the month after that and the month after that, having to worry about a payment coming out or did it not come out? Can I really afford it? How’s this going? You got to think. Play the tape through, as they say. And me personally, I choose not to do that. I think there’s other people who have different temperaments that seem to do okay with it, but that’s me.
Keith Mader (09:55):
Yeah, fair enough. That’s super interesting. So speaking of financial stability, going back to the credit card thing earlier, one thing that we hear about sometimes these days is with inflation what it takes to be middle class in America and in Washington has changed because it takes more money than it did before. So can you talk about how that’s shifted?
Reid Frederick (10:19):
Yeah. I mean, one, I think I wanted to start with and thinking about this question about the significance of middle class. Politicians use middle class all the time. Everybody wants to think they’re in the middle class, right? Because to me, it’s kind of this place where you don’t have too much, but you’re also, you have stable. You have stable and a level of optimism for you and a future generation, maybe building generational wealth. So I think that everybody ideally wants to be there. It’s a nice place to be, but it has changed. I think everybody’s perception of that seems to bear out in the data. And Washington state is expensive. I looked to try to give methodical about, so I gave a sentimental idea of what the middle class is. But in terms of a numeric, I don’t recall what the source was, but they suggested the middle class was two thirds of median income up to double median income. So median income is the point where half the salaries or the income are above you, half are below you. So if you have two thirds of that, your middle class, if you have double that, your middle class, anything below lower class, anything above upper class. And then in Washington state, it requires a lot to be in the middle class. We are the sixth most expensive or most, you have to have the six highest income range to qualify as middle class. I think we’re right below New Hampshire and right above Connecticut.
(11:57):
So yeah, it takes quite a bit. I did a little more research and in terms of how it’s changed- about 10 years ago, you could make in the figure is, so middle class is about $60,000. So your middle class on the lower floor is $60,000 in Washington state. The upper floor, upper ceiling, $180,000.
Keith Mader (12:25):
Wow.
Reid Frederick (12:26):
So yeah.
Keith Mader (12:29):
That’s probably dependent based on the city that you live in.
Reid Frederick (12:32):
Yeah, I think there’s a lot of vari. I mean, this is Washington state, right? But I do think there’s a lot of variability. There’s a fair amount of variability, I think just even within the state. And there’s even variability within what that income might represent. Because what income doesn’t take into consideration are expenses, and it doesn’t take into consideration wealth. And so a person that’s making $80,000 but has kids in childcare, they’re going to feel totally different than a person, they might not feel like they’re in the middle class, where a person that’s single and makes $80,000 feels like they’re squarely in the middle class. Or a person that makes $80,000 and has generational wealth and maybe their parents paid for their student loans or their education, they don’t have student loans or their parents gifted them a house or helped with a down payment, that’s going to change the economic reality in that household in ways that just income does not take into account. And so there’s that to take into consideration as well. So yeah, so historically you’ve got to make about $20,000 more a year now to be in the middle class than you did 10 years ago.
Keith Mader (13:49):
Wow.
Reid Frederick (13:50):
For Washington State. And I did a little bit of research. Pew had a study that showed that since about in the last 50 years, there’s less people dwelling in this middle class classification. And it’s gone from about in the seventies, 60 or so percent were middle class using a very similar methodology, and now it’s about 50%.
Speaker 3 (14:21):
Oh, wow.
Reid Frederick (14:22):
So more people are either on the upper end or the lower end and less in the middle.
Keith Mader (14:28):
So obviously this has changed dramatically because of inflation. And that’s been a massive change in a short period of time. So I think it’s good. And going back to your point earlier where inflation has kind of caused us all to say, okay, are we doing well financially? Is there anything that needs to change? Should I be asking for a raise? In which case to keep up with that standard of living? Yeah. Yeah. Super good. Well, Reid, thank you so much for your insights and your time today. Much appreciated.
Reid Frederick (14:58):
Yeah, happy to be here, Keith. Thank you.
