Steve Sprovach: Tonight, why economists continue to blow their predictions about the economy plus how to fight off streamflation. You're listening to "Simply Money" presented by Allworth Financial. I'm Steve Sprovach along with Steve Hruby. You know, if you read the financial headlines every day like we do, there's experts all the time saying this will happen, that'll happen. And a lot of times it makes people do something because of their advice. But I'll tell you what, well, first of all, this is Monday, so we wanna talk about this with Allworth Chief Investment Officer Andy Stout. Andy, the economists had a big mess last week with retail sales, it almost makes weather forecasters look like they're batting a thousand. What's going on?

Andy: Well, economists aren't always perfect. And yes, the old saying is that, you know, economic forecasting exists to make astrology look credible. So when you think about it from that perspective, it's not too surprising. But there's been big misses this entire year. Before I get into that retail sales number, which is another segment, they've been missing GDP, which is our total economic output of the country, the entire year. So I went back and I looked at the average economist forecast leading up to the beginning of the first quarter, second quarter, and third quarter this year. In November of last year, they expected negative growth in the first quarter.

Steve Sprovach: Yeah, we're gonna have a recession right off the bat. Yep.

Andy: We grew 2% in the second quarter. So that starts on April 1st, they expected three days earlier on March 27th, - 0.4% growth. So just three days before the quarter started, the estimate was negative growth. What did we do? We grew 2.4%. Third quarter on June 22nd, so eight days before the third quarter actually began, the economists were forecasting a -0.5% growth. Well, we don't know where we're going to be out yet but they've now revised their tune higher to 1.5% points. And the data that's coming so far, including last week's retail sales, shows the economy is on pretty firm footing, at least as of the data right now. There's risks out there, there's no question about that.

Steve Sprovach: Should we turn to astrology for better insights, Andy?

Andy: You know, I don't think that would be a good idea, either. I think really just focusing on the long run is, you know, your best guess to go about things. But when we think about last week in the retail sales, Steve, like you were asking me, the miss was the expectation that economists were thinking we'd see a monthly growth of 0.4%, what ended up happening was we actually grew at 0.7%. And when you look under the hood, and I was looking at this industry by industry, you know, what we saw was online shopping soared 1.9%. That was driven a lot by Amazon's Prime Day, by the way, restaurant sales were up 1.4%. So it shows consumers are still willing to go out there. And that's kind of like a proxy for discretionary spending if you will. So they're still going out there.

And those two things alone, that was responsible for almost 70% of the total monthly gain. So that was a big increase from those two areas. I mean, obviously, there are things on, you know, the other side of the ledger if you will. Vehicle sales were down 0.3%. But, you know, auto loan rates where they're being at right now, that's not too surprising. But when we think about this going forward, I mean, there's some other things to watch because, you know, certainly there are risks. But yeah, the economists have been just...they've been missing a lot lately, that's for sure. A little bit more than usual seems like.

Steve Sprovach: Why do you think they're getting it wrong more than usual at this point in time?

Andy: So it's been an underestimation, right? And the economy is surprising the upside. I think what they're looking to a lot is just the fact that the Federal Reserve has raised interest rates by 5.25% points since March of last year. So one year, five months, we've had one of the most aggressive rate-hiking campaigns that makes borrowing more expensive. And that should, in theory, slow down spending, and it hasn't really happened too, too much yet. I think they're also looking at leading economic indicators. These are indicators that move further abroad economy move, so it's not too surprising for them to be pessimistic given that these leading economic indicators have been signaling a slowdown for quite a long time. And we even got an update too, the Conference Board's leading economic indicator next, that's what's followed probably by most people out there in the world of economics.

And it's declined on a month-over-month basis for 16 straight months now. The year-over-year change on these leading indicators is a -7.5% that, every other time we've seen anything remotely close to this we've already been in a recession. So it's not too surprising economists are coming in with lower forecasts, but what's really been the more surprising is that the economy continues to beat things. So when we put it all together, we see a strong job market, they're strong enough at least. And that's supporting the consumer that's supporting consumer spending. That's really been the wrinkle that's confused economists.

Steve Sprovach: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach, along with Steve Hruby, and if it's Monday, we're talking to Andy Stout. Andy is the Chief Investment Officer for Allworth Financial managing roughly $18 billion from right here in Cincinnati. Andy, that's the economy, and the economy and the stock market are...and a lot of people don't realize this, but they are two separate issues. They're related, but they're separate. We've had good economic news, but three brutal weeks in the stock market. Why have they been so bad over the past three weeks and do you see this as a continuing trend or just a blip on recovery to come?

Andy: I wouldn't be surprised if we do see some more weakness in the near term. If you think about it from what I call a seasonality perspective, so the time of the year, this is generally the weakest time of the year up until about mid-October. It doesn't mean it's negative returns, but just on average, it's lower returns with lower positive returns. And this also tends to be where you see the larger decline tend to coincide around October. I mean, you hear about Black Monday, Black Friday, Black... I mean, it's all in the same calendar vicinity. So just from that perspective, not too surprising because that does get into traders' minds, and they move things around because of that, and that just moves the overall market. But in terms of what we're looking at, what's causing it, still comes down to a lot of uncertainty around the Federal Reserve, what they're going to be doing especially in regards to inflation and how they're going to react to inflation. Inflation pressures have certainly been easing, there's no question about it, but they're still higher than where they want them to be. So the question becomes, what will the Fed actually do about it?

Steve Sprovach: So let's talk about China for a minute here, that the average person listening might not know what's happening there. Bring us up to speed on what's going on, and why it matters to our listeners.

Andy: Sure. So lots been happening in China over the past week or two. And just to give you a relatively brief overview, if we look at all the economic data that's come in for the month of October, they've all... I mean, I looked at every single report over the weekend every single one fell short of what economists were looking for. So definitely surprising on the downside. That includes our latest CPI, or consumer inflation report, that came in at -0.3%. So that's actually deflation. And you might be thinking, "Well, I'd love to see some deflation here." Well, you know, the last time we actually saw deflation? 2008.

Steve Sprovach: 2008. Yeah, not a good time.

Andy: You don't want deflation. Deflations are a very, very bad thing. And that's arguably more difficult to deal with than inflation. And also last week, on China's economic front, the youth unemployment, they said they're not gonna report that anymore. That's something they have been reporting.

Steve Sprovach: Not because the numbers are great, either.

Steve Hruby: "These numbers are too ugly so we're not gonna report them anymore." That's certainly an interesting approach.

Andy: Yeah, the last report was 21.3% youth unemployment. So this is too bad to show anymore. So yeah, we're just gonna stop there. Certainly, that raises, you know, a bit of red flags. So that's the economic data. But outside of that, you know, there are other issues as well. We had some issues from property developers come out last week where Evergrande filed for bankruptcy protection on Friday. Country Garden, also a property developer in China, missed their scheduled interest payments. And lastly, one of China's...what's called a shadow bank, Zhongrong, they missed some payments on some of their investment-related products, which actually resulted into some investors protesting outside of their buildings over the past couple of weeks. But anyways, what you can see is, you're seeing missed payments, you're seeing bankruptcy. Overall, this is not a great sign for the Chinese economy. And that can have a ripple effect on the U.S., make no mistake about it. They are our third largest trading partner behind Mexico and Canada.

Now, the reason this is going on in China, and China really hasn't done too much from a policy perspective to try to lift the economy, is that President Xi Jinping is wanting to shift away from the debt-fueled growth model that his predecessors have been using over the past couple of decades. And as a result, you're seeing some weakness here. They're wanting to focus more on, you know, generating internal demand, kind of like the U.S. does, not relying so much on the outside world. And you do see them having success in areas like, you know, clean energy, electric vehicles, they're seeing growth in a lot of areas. Where they're not seeing growth and it's pulling down the entire economy to a degree is the issues in the property sector.

Steve Hruby: Do you think that approach is gonna be positive for them in the long run, even if it is a little bit choppy in the meantime, to say the least?

Andy: It would be the question is, can they suffer through the volatility to get there?

Steve Sprovach: Well, they've got some serious problems. I mean, it made the front page of "The Wall Street Journal" today on deflation, and I think there's a question on, is this gonna be ongoing deflation or was it a one-month aberration? We'll see about that. Hey, I do wanna move on to the Federal Reserve though. They're meeting at Jackson Hole this week, which I found out why Jackson Hole. Well, that where Paul Volcker back in the '70s, when he was chairman of the Fed, loved to fly fish. So he said, "Let's get the Fed together at my favorite fishing hole." But they're meeting at Jackson Hole. It's a pretty big deal. And they're gonna set out policy for the next couple of months. What are you expecting when Powell makes his comments at the end of this week?

Andy: So Powell is speaking on Friday, I don't know his fly fishing schedule, but I'm sure he'll try to mix that in there. And thinking about what Powell is going to say, I think he'll probably reinforce what I'll call a hawkish hold. Meaning saying, we're going to keep rates elevated because we want to keep fighting inflation. Now, what he might do is try to balance that by emphasizing that at least the Fed has near the end of its rate hiking campaign. Now, when we look at what's expected from the Federal Reserve, in terms of, you know, what Wall Street expects, there's an 11% chance that the Fed will hike at its next meeting in September and about a 40% chance that they'll hike by November's meeting.

Steve Sprovach: Okay, but still odds are against it. So that would be kind of good news. Great perspective, as always, from Andy Stout, Chief Investment Officer at Allworth Financial. Here's the Allworth advice, don't worry about what you read, the team to pay attention to are you in your qualified financial pro. Coming up next, a perfect example of why you should be maxing out your 401(k) if you can, you're listening in "Simply Money" on 55KRC, the talk station.

You're listening to "Simply Money" presented by Allworth Financial, I'm Steve Sprovach along with Steve Hruby. Hey, if you can't listen to "Simply Money" every night, the very next day you can get it on our podcast, just go ahead and search for "Simply Money" on the iHeart app or wherever you get your podcasts. Straight ahead at 6:43 how you can set up your kids for success, even before they turn 18. All right, Hruby, so we've talked about the Supreme Court denied the Biden administration's attempt to forgive a certain amount of student loan debt. But did you know they're doing it again?

Steve Hruby: Yeah, so this is a little different. This time, it's...

Steve Sprovach: Not a lot different.

Steve Hruby: Well, these are people that have been paying for 20 to 25 years on an income repayment plan. Yeah. So 20 to 25 years, and they're still sitting on debt and they've been paying it just as they're supposed to, they haven't missed anything, they're being good. Borrowers are continuing to pay and the balance for some of them has even gone up because the interest rates are so high.

Steve Sprovach: Well, I think what the Biden administration, obviously, they weren't happy that they couldn't forgive the student loan debt forgiveness program, according to the Supreme Court. So they're just trying a different aspect of it. I think this will be batted around by the Supreme Court also. And if it was knocked down the first time, I'm not sure why they think it's gonna be held up and be allowable on this version. But you know, that's a guessing game. But these are people that borrowed a lot of money and applied for reduced repayment. Which, if you've got a job that pays $35,000, $40,000, and you've got $100,000 worth of debt, you're not gonna be able to make the steep payments. So they've been paying very little into it and they've been doing it for 20 years. And like, you said, it may never get paid off at this pace.

Steve Hruby: Yeah. So what they're looking at is canceling $39 billion worth of student debt for more than 800,000 borrowers. And again, these are people that have been paying for at least 20 to 25 years, depending on the repayment plan that they're in. But yeah, you're correct. I mean, I don't see where this is gonna go in the Supreme...

Steve Sprovach: I know.

Steve Hruby: ...if it reaches the Supreme Court. But you know, if you're in that category, 20 to 25 years of repayment, you'll be getting an email, I guess.

Steve Sprovach: If you still have the same email from 25 years ago.

Steve Hruby: Yeah, right. Yeah, if this applies to you.

Steve Sprovach: Now, if it was unconstitutional before I'm not sure why it's not gonna be unconstitutional this time.

Steve Hruby: And again, don't get it mixed up. This is different from the mass student debt cancellation that's been occupying headlines recently.

Steve Sprovach: All right, so the market has had a monster recovery this year, but you know, it's interesting, who made out the best. It wasn't the people jumping in and out and finding the right sectors to be in at the right time. The hundreds of thousands of people who have 401(k)s and didn't mess with them seem to be the winners according to Fidelity.

Steve Hruby: Yeah, isn't that...that's the key there, that didn't mess with it.

Steve Sprovach: Amazing.

Steve Hruby: Didn't try to the market.

Steve Sprovach: What we say actually works sometimes.

Steve Hruby: Yes, didn't make emotional knee-jerk reactions and sell to cash when things get spooky. So this comes from a Fidelity announcement that the number of people with at least $1 million dollars in their 401(k)s has grown about 25% this year.

Steve Sprovach: That's massive. I mean, that's crazy, 25% more 401(k) millionaires. What I wonder is did they have $1 million before the downturn of '22? It dropped to $900,000 and now they're back up over $1 million and they're considered new 401(k) millionaires. I don't know. But you know, $1 million isn't what it was 20 or 30 years ago, it's almost to me, you really should target a minimum $1 million in your 401(k) because that's starting to generate, when you do retire, you know, at 4% distribution. That's $40,000 a year you can pull out per year, every year if you've got $1 million.

Steve Hruby: Yeah. And one of the reasons why we invest isn't just to create...to chase gains in our portfolios in our accounts, it's to keep up with inflation. Because about every 20 to...22 to 23 years is what it is the value of the dollar gets chopped in half. That's a scary number. So having that money in your 401(k) is that much more important, and this year has increased the retirement account millionaires. Obviously, that's gonna coincide with the S&P 500's about a 17% surge since January 1.

Steve Sprovach: Yeah. Say that, again, 17% surge in the Standard and Poor's. I don't think a lot of people realize how much that is. I mean, that's a phenomenal year. And here we are just in August, and we're already seeing those kinds of returns. Okay, so if you wanna target whether it's $0.5 million, $1 million, maybe $2 million, but if you're trying to grow that much in your 401(k), how do you do it?

Steve Hruby: So this is the slow and steady long game is really the answer.

Steve Sprovach: Yeah, it's no secret. Yeah.

Steve Hruby: It's not trying to time the market. It's picking an asset allocation that you're comfortable with to the point where you're not gonna sell when the markets come down.

Steve Sprovach: Yeah. Get started and get started young.

Steve Hruby: Yeah. So according to Fidelity, among the characteristics that distinguish 401(k) millionaires, it's really a high saving rate. So on average, the average savings is 17%.

Steve Sprovach: Yeah, and that's your money plus the employers.

Steve Hruby: No, no employer contributions on top of that are another 9%.

Steve Sprovach: Nice.

Steve Hruby: Yeah. So what Fidelity is sharing with this study is that the total savings rate is about 26%.

Steve Sprovach: Well, and most people aren't putting that much away in all fairness.

Steve Hruby: That's true.

Steve Sprovach: I'll tell you what when I sit down with either the kids of someone I work with or in my case, my own kids when they first got out of college. You know, I said, "Hey, you wanna get ahead in life? Get started, get started young. And start by putting 10% of your pay on your first real job into your 401(k) plus whatever the company matches." And I'll tell you, they both did it. And if you can do that, when you're in your early 20s It's mind-boggling how quick this money grows almost regardless of how that money is invested.

Steve Hruby: Yeah. And honestly, in this day and age, I would probably edit those recommendations and say, 15%.

Steve Sprovach: Yeah, yeah. You're gonna be much farther ahead.

Steve Hruby: Yeah. I mean, pensions they're a thing of the past so few people actually get them. So making sure that you're actually saving a lot for yourself is the key here and then not trying to time the market. Now keep in mind, the average age of the 401(k) millionaire is 59 years old.

Steve Sprovach: Yeah. So it takes a while.

Steve Hruby: Yeah. So this is from the span of your entire career, rushing a lot of money into your 401(k), making sure that you're not letting yourself experience lifestyle creep, meaning when you get a raise, increase your contributions.

Steve Sprovach: Oh, that's the way to get there. I mean, if you're only putting 8% or 9%, you get a 2% raise, put it in there and your take home is the same but now you've got more money working for you in your 401(k). You might not like it right now, but you're gonna really appreciate it down the road and usually you forget about it once you sign the paperwork to increase the contribution.

Steve Hruby: Exactly.

Steve Sprovach: Here's the Allworth advice. If you put as much as you can into your 401(k) and just don't mess around with it, you too could become a 401(k) millionaire. Coming up next, why a review of your password habits is absolutely essential right now? You're listening to "Simply Money" on 55KRC, the talk station.

You know, we're told time and time again we should have very unique passwords. They should all be different for different accounts. But be honest, are you really doing this? Well, our cybersecurity and tech expert Dave Hatter joins us to talk about password habits both good and bad. Dave's a cybersecurity consultant at Intrust IT, he's had teams that have designed, developed, and deployed over 200 custom software solutions over all kinds of organizations. Dave is always welcome to "Simply Money." Tell me people are getting past the password of 1234, please?

Dave: Well, first off, thanks for having me, guys. And sadly, Steve, no, people are still doing that sort of thing. Every year, you'll see the lists that come out of the 25 worst passwords or the 100 worst passwords or whatever. And, you know, they continuously share that people still follow these bad password practices.

Steve Sprovach: So, password of "password" is still a password with something.

Dave: Yeah, or password with, you know, @ sign instead of A in it, you know, zero instead of O, or something like that. And, you know, first off, the bad guys know this because, of course, every year these articles come out and this is based off data. It's been picked up from breaches and so forth. So this isn't some nerd like me speculating. They're ingesting all of this data from breaches, the dark web, etc., and looking at people's passwords and saying, "Yeah, people, unfortunately, continue to underestimate the potential consequences of this." And as our entire society becomes digital, I mean, what can you not do online now? And increasingly, what are you forced to do online?

So until we have a better mechanism than passwords and things like biometrics and all of that...I mean, it's out there, it's a real thing, but you know, it's all still somewhat in its infancy and has its own set of problems at this point. You know, we're still relying on passwords. And if you're using an easy-to-guess, password, whether it's, I guess it because I can look up information and match you on social media and guessing, or it's easy to guess, because it's on a list of bad things, or it's easily crackable because it's just not very complex, you're setting yourself up for disaster, especially, if you don't couple whatever password and credentials you're using for an account with multi-factor authentication. You're making it easy for the bad guys to steal your information and probably eventually steal your money.

Steve Hruby: So you're talking about technology and passwords. And oftentimes, when I'm creating a password the website will tell me whether or not what I'm typing is a strong or weak password. Should we trust in what that's telling us?

Dave: You know, assuming it's a reputable website, I would say yes. For example, you know, if you're on Microsoft's website trying to create an account and they're telling you whether the password is strong or weak, yeah, you should trust that. But probably the bigger thing is, you know, I know when I have these conversations with people it's frustrating, you've got a never-ending stream of new passwords you need to create.

Steve Sprovach: Oh, yeah, constant.

Dave: It's hard to hard to remember these things. It's frustrating. And also the bad guys know that if people do come up with a "Strong" password in today's best thinking that's like, at least 12 characters and a mixture of numbers and symbols, something ideally random. And I'm gonna come back with some tips in a minute. But, you know, okay, if you come up with something, and then you change it by one character for this site, and one character by that site, the bad guys know this, right? They know people knew these things.

Steve Sprovach: There goes my strategy.

Steve Hruby: Yeah, right. You probably still write yours down in a Post-it Steve.

Steve Sprovach: Yeah.

Dave: Studies consistently show this. So this is kind of ironic, LastPass, who was one of them were well-known Password Managers and until last year, I would have recommended and used, you know, they were breached and it's a big debacle, actually. So if you're using LastPassword, I strongly recommend you find a new one, Bitwarden or 1Password, but a Password Manager can simplify this. And LastPass did a study and they put out a bunch of statistics and, you know, here's some stats from their study, 62% of people use the same password with a variation. Fifty percent don't even change their password after some sort of breach. Now, here's one good stat, 51% of people are not trying to remember their passwords versus 44% previously, and again, this is just one study so you take these for what they're worth. But the bottom line is I know it's frustrating to get this advice. I know this is hard to do.

And it's important though because, again, if I can get your...if you're using the same password on multiple accounts, like a work account and a personal account. If I can guess your personal account password, hack it, break it whatever. I can get into your work account and now I can really create some havoc you know, might get you fired might put you out of business. I know this is a pain, but it's serious stuff.

Steve Sprovach: You're listening to "Simply Money" on 55KRC. I'm Steve Sprovach along with Steve Hruby and we're talking with tech expert Dave Hatter. Dave, you brought up something that I've always questioned, these online services to help you consolidate and see all of the passwords you've got to have at work and at home. I mean, to me if, okay, I'm having trouble remembering what my current password is on, you know, the dozen or so different platforms, I'm gonna use it at any given time. It seems to me that if I go online and give all those passwords to one company, I don't see how that's reducing my risk. It feels like I'm increasing my risk. Am I wrong?

Dave: Fortunately, yes, you are, but only in some cases. So let me explain. You know, one way to get around the idea of using a Password Manager, which despite a bunch of breaches in the recent news, most experts still recommend. And I would agree, you're better off with a Password Manager with a couple of exceptions. The first thing is if you don't wanna use a Password Manager use a passphrase, right? Now, you still would need a unique passphrase for every site, but come up with a phrase, ideally, more than 12 characters, but something that's easy to remember and easy to type. As long as only you know it, it's easier than some random string of mumbo jumbo, right?

Steve Sprovach: Yeah, yeah.

Dave: But with a Password Manager...you know, and you can do research. There are organizations like CNET, ZDNet, PC Magazine, Tom's Guide, where their editors and experts about these things every year, so you don't have to just take old doomsday Dave's word for it. There are experts out there who can guide you to the right tool. Right now, I would say probably in my opinion, 1Password is the best Password Manager out there. But with a Password Manager, right? If it's constructed correctly, you only need to know a Master Password. So you come up with a long phrase that only you would know. And the way these things work is it encrypts your passwords before they ever get sent to their servers. So even if they break in and steal the encrypted data from the server, and assuming the password company is doing the right thing, they can't crack your pass... I mean, I can't say can't...very, very difficult, like the sun may burn out.

Steve Sprovach: Make it way more difficult.

Dave: Yes, the sun will burn up before they'll crack that, right? Assuming you have a strong Master Password. But if you have a strong Master Password and you turn on multi-factor authentication for your Password Manager. And if you're using a Password Manager, that's a must, right? Because you made a point if I get your...if I can break into your Password Manager I got the keys to the kingdom. But, assuming the Password Manager is using the right technology to encrypt everything before they get it, assuming you have a strong Master Password and MFA, you're gonna be much more secure than the old password, password we just talked about before, or any of the common stuff people do.

Steve Hruby: That's great advice. Now, you know, to kind of tie it all together for our listeners, I'm curious to hear from your perspective, what are some of the worst things you can do for a password and some of the best things you can do for a password?

Dave: Well, anything that I could guess about you. Or remember bad guys, especially, in third-world countries where they don't have jobs and money but have internet access and time on their hands have unlimited time and any money they can steal from you is a win, right?

Steve Sprovach: Yeah.

Dave: So you know, they know people will use things like a password with the A replace with an @ sign. They know people will use their wife's name, their dog's name, their kid's name. If I can go to your Facebook page, figure out where you went to high school, you know, what's the mascot of your high school team? What's your favorite sports team, etc., right? In many cases, that information is publicly available about people because they post it out there. And then you're using anything like that or a variation of it for a password, bad guys know this, right?

Steve Hruby: So maybe don't answer some of those questionnaires online and on Facebook.

Dave: Don't answer those questionnaires online or, conversely, don't use any form of that as any password for any account, especially if it's a sensitive account, like your bank account. You know, the hardest passwords to crack are something that's completely random. And one of the benefits of a Password Manager is let's say I wanted to set up a new account with Allworth, right? I got my financial account with something like 1Password. When I go to create my account and it wants a new password, I can have it generate a password literally, up to 256 characters of random mumbo jumbo. That is unbreakable. Totally unbreakable. But I don't have to remember it because the Password Manager remembers it for me. I just need to know my Master Password and have my MFA turned on.

Steve Sprovach: Okay, so...

Dave: It makes sense.

Steve Sprovach: Yeah, it makes a ton of sense. So your best tip, use a Password Manager is that...?

Dave: Yes.

Steve Hruby: With multi-factor authentication.

Dave: Yes, with multi-factor authentication, because then I can create a ridiculously strong unique password for every account. I don't have to remember them. They're good Password Managers. It's all encrypted. I can use it on my phone, my tablet, my PC, so the passwords are with me wherever I need them whenever I need them and all I need is one strong unique Master Password and MFA.

Steve Sprovach: Great advice. Great advice as always from Dave Hatter, IT consultant cybersecurity consultant at Intrust IT. You're listening to "Simply Money" on 55KRC, the talk station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Steve Sprovach, along with Steve Hruby. Hey, if you've got a financial question you'd like for us to answer just hit that red button while you're listening to the show on the iHeart app. Record your question, it comes straight to us.

Okay, Hruby. So there's inflation, shrinkflation, greedflation, I just heard a new one, it's called streamflation. And that's what we're gonna talk about straight ahead. All right, so how would you like to set up your kids to succeed so that they don't have to go through what maybe you went through earlier in life, and you can help them succeed? We're talking about Roth IRAs for kids.

Steve Hruby: Yeah, this is a beautiful thing. I'm a huge fan of Roth assets because it gives you opportunity...it gives them money and opportunity to grow tax-free.

Steve Sprovach: Yeah. But everybody thinks about Roth IRAs as something, "Yeah, I think it's after-tax or something like that. I'm not sure why it's a great deal, everybody says it is. Maybe I'll do that when I'm 40 or 50 years old." There's no age limit on these things.

Steve Hruby: No, it's but there's some caveats here. So the custodial Roth IRA, there is no age restriction on it. So families can use them to help kids can get started.

Steve Sprovach: So you can set it up for your kid even if he's one or two years old?

Steve Hruby: Well, that's the key, they have to have earned income. That's the key here. That's the caveat I'm talking about. So I don't know many one or two-year-olds with earned income, maybe babies in commercials.

Steve Sprovach: Slackers. Slackers.

Steve Hruby: I know, right? Get a job already. So you know, this is more in line for, you know, a 14 or a 15-year-old, 16-year-old kid that has a little high school job or a summer job, and they're pulling in some earned income. The head start we're talking about here is a big one because they're not in a high tax bracket right now. So they don't need a deduction that they get when they make a [crosstalk 00:31:58].

Steve Sprovach: Probably not paying anything in taxes. Yeah.

Steve Hruby: So you don't need to contribute to a traditional IRA, you contribute to a Roth IRA. That is a long runway for tax rebates.

Steve Sprovach: I know what I was like at 16, and the last thing in the world I was thinking about what was putting money away for retirement. But you know, here's the neat part of it, if you set up your Roth IRA, for your kid who's under 18, okay, they've got some earned income, but they don't wanna spend the money. There's nothing that says you as a parent can't write the check to do the contribution into their Roth IRA.

Steve Hruby: That is 100% correct. And that's the great thing about it. If you want to give your kids a head start and they have earned income, then you can open the Roth IRA for minors, you serve as the custodian you make the contribution. Now, the key here is to make sure that you don't over-contribute because the limit is still $6,500 for your child. That's the max Roth IRA contribution, but it's also capped at earned income. So you can't go above how much they earn.

Steve Sprovach: And I think that's the key. I mean, when I was a kid, you know, first I had my paper route then I had my really good grass-cutting route. Then Mike Subs which went on to become Jersey Mike's, and, you know, I made a little bit of money I waited tables in college and whatnot. Nobody was out there...Roth IRAs didn't exist back then. But in theory, my parents could have written a check equal to what I showed as earned income. But you know, if you don't declare your newspaper route money, or your grass-cutting money, that's not earned income. You have to pay tax or you have to file a tax form to come up with an amount so that then you're eligible for a Roth.

Steve Hruby: Yes. So that is the key here. It has to be earned income. Now, keep in mind when you get started this early, there's a snowball effect of compounding interest that goes into these accounts. And a snowball effect on tax-free gains is wonderful. I'm all about finding ways to poke Uncle Sam in the eye with a stick, and this is wonderful.

Steve Sprovach: Well, Fidelity ran their accounts and they said, "Yeah, we've got a few of these Roth IRAs." And I've experienced this, I've got people that I work with that have set these up for their kids. And the average custodial Roth IRA, in other words, for someone under 18 years of age, they're 14 years old and the average balance is $2,700. And that might not seem like a lot of money. But man if you've got $2,700 at 14, that money if you use a Rule of 72, and it doubles...you know, you get 7% on that money, which means that doubles every 10 years, that 2,700 becomes 5,400, which becomes 10,800. I mean it compounds and snowballs quickly because you got started early. Not so much how much money you put away, but because you put something away or your parents put some money away when you were young.

Steve Hruby: Yeah, absolutely. And remember that your child doesn't actually control these accounts, the custodian...

Steve Sprovach: That's over 18. Yeah.

Steve Hruby: Yeah, in this situation, you maintain the assets you make the investment decisions. Once they reach the age of majority in their state, which is usually 18 to 21, that's when the account moves into their name and then they can do whatever they want with it. So that's something you got to be mindful of, too.

Steve Sprovach: Here's the Allworth advice. Opening a Roth IRA for your kids can get them started early on their road to financial independence. Coming up next, how to fight against streamflation. Yep, streamflation. You're listening to 55KRC, the talk station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Steve Sprovach along with Steve Hruby. Okay, first there was shrinkflation, then there was greedflation, now streamflation. Explain what that is.

Steve Hruby: Average cost of watching a major ad-free, that's the key, ad-free streaming service has gone up nearly 25% in about a year.

Steve Sprovach: Yeah, they're raising rates massively.

Steve Hruby: I hate it. Oh, I hate it.

Steve Sprovach: Netflix just raised their rates of launch. And they're trying to find where the breaking point is. I'm kind of there already, you don't even know how many you have out there.

Steve Hruby: We were just talking about that. So these numbers, they came out from a "Wall Street Journal" analysis. And at this point, customers are either gonna have to pay up or switch to a cheaper and more lucrative ad-supported service. So if you wanna keep these streaming services with no commercials, you got to pay more. And what we were just talking about, I have an eight-year-old daughter at home and, you know, there's something that she might wanna watch and doesn't have access to. And before I know it, now we have a new streaming subscription that my wife has started so that my daughter could watch something.

Steve Sprovach: Do you want a screaming kid? Or are you willing to pay five bucks a month? I mean, that's what it boils down to.

Steve Hruby: Yeah. And that's the reality of the situation here. And honestly, I don't even know how many of them I have because of that. I know the ones I have, but there's some that just kind of show up and now they're...

Steve Sprovach: Well, you said something that's kind of interesting because what you said was, "Okay, they're raising prices for ad-free streaming." But it's a win-win for the streaming services because if you say, "No, I'm not gonna pay that, I'll take a few commercials." The streaming service actually makes more money on the commercial package than if you pay more for not no commercial.

Steve Hruby: I hate that too.

Steve Sprovach: I know.

Steve Hruby: Because we have to give them, you know, they're getting more money and we're the ones suffering through the commercials even though we get to pay a little bit less.

Steve Sprovach: Yes, I don't know how we got there. I mean, well, a little bit over time, but I know when I was growing up mortgage payment car payment, and the only other payment every month was your telephone. And that was literally a buck or two a month, now we've got very expensive cell phone packages and TV that used to be free until cable came along. Now it's gotten expensive with cable, and on top of that streaming services on whatever cable package you've got. This is serious money.

Steve Hruby: Yeah, so how to spend less. So subscription options with commercials we brought up, they are a better deal, but there's also, you know, some credit card cashback offers American Express card.

Steve Sprovach: Yeah, I gotta pay more attention to those offers.

Steve Hruby: Yeah, you can take advantage of several of these offers, for example, it's $4.99 for Peacock's subscription and you know [crosstalk 00:38:12].

Steve Sprovach: They'll credit it right back on American Express if you take them up on their deal.

Steve Hruby: Exactly. Yeah. One of them, Verizon recently started offering mobile phone customers a discount combined with subscriptions for Netflix, Paramount Plus, and Showtime at 26 bucks a month. If you did that separately, that's about $32. So there's ways to kind of nickel and dime and save a little bit there.

Steve Sprovach: Good call. Hey, thanks for listening. Tune in tomorrow, we're gonna talk about why you should be compelled to review your insurance policies. You've been listening to "Simply Money" presented by Allworth Financial on 55KRC, the talk station.