Amy: Tonight, did you notice this? We've had a month-long market rally, and, yes, at the same time as recession. What the heck's going on here? You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. If you have been following the markets at all in the month of July, well, there's actually been probably more green numbers than red, yet the headlines don't suggest that at all. Allworth Chief Investment Officer, Andy Stout, is with us today, as he is every Monday, to make sense of what's going on. Andy, man, there's headline after headline, the sky is falling, you know, economic data kind of mixed, and yet markets are up in July.

Andy: Well, we certainly closed the month out on a high note. A lot of that was related to the Federal Reserve. But, yeah, the S&P 500, it rallied about what? 4.2% last week. That pushed the monthly gain to 9.2%. Amy, that's actually the best month for large-cap stocks since November of 2020. But bonds also did well, too. They gained about 2.4% last month. And, as we all know, bonds have struggled this year as the Fed has gotten more and more aggressive, but that appears to be maybe shifting a bit.

Steve: Well, Andy, and a lot of investors, they're not in tune with, it's not today's news, it's what does the economy look like in three months down the road, six months down the road. And so, there's a lot of data that's coming out that it seems to be pointing towards maybe the Federal Reserve can start easing at some point in the future. Do you buy into that? I mean, have we seen peak inflation?

Andy: Peak inflation, it's quite possible. I mean, we should see inflation numbers when we get the CPI data coming out on August 10th. We should see those come down a little bit from where we were that 9.1% year-over-year number. Now, you know, how it progresses will certainly depend on energy prices. But it's also what we're seeing is we're seeing still some broad-based inflation measures like shelter cost, rent, housing price, they're still moving up, especially on the rent side of things where things are just kind of getting out of control in a few different areas. But overall, I wouldn't be too shocked if we are past peak inflation, but it's still high inflation. The Fed's still going to be raising rates in the short term. And to your observation there, Steve, yeah, the market is pricing in rate cuts next year, 2023. So, with the economy possibly slowing down in the months ahead, that's where you would see the Feds start to cut rates, assuming, you know, they start to get inflation a little bit more under control, which is quite possible.

Amy: Andy, as we talk about inflation, we have been gushed so much over the past year, of course, the Federal Reserve hiking those interest rates to try to get inflation under control. Last week's we sort of hit the rule of thumb measure for a recession, meaning just kind of this two consecutive quarters of GDP, so our economy contracting. But new data is out every day. Anything new that suggests, "Hey, this is where we're headed or maybe it's not so bad?"

Andy: Well, I mean, the recession risk is high right now. If you just look at the data out there, a lot of leading economic indicators, they're not pointing to a slowdown quite yet. However, they're kind of trending in that direction, if you will. So, when we look at a lot of the data as a whole on balanced, it still points toward growth, but risk is elevated. There's no question about that. And we did see that rule of thumb recession like you were saying, Amy, with the economy shrink 1.6% in the first quarter, shrink 0.9% in the second quarter, that's two consecutive quarters of declining GDP. However, they kind of shrink for reasons that I'll call them non-core reasons, right? So, what that means is imports were the primary driver of the economy shrinking in the first quarter. And businesses inventories, so the stocking of the shelves, if you will, that was the primary driver of the drop in the economy in the second quarter. If we look at just like personal spending, we look at business spending, we look at our sales outside of the U.S., like our exports, we look at that aggregation of spending, that shows growth. So, we're still seeing aggregate demand out there, or the economy growing at a more of a core level. It's these one-off items that have pushed the economy down here in the first two quarters of the year.

Steve: Andy, one of the bright points in this economic data coming in has been consumer spending. And consumers, you know, they account for about three-quarters of the economy, yet even consumer spending is trending downward. Are you concerned that consumers may continue their slowdown in spending?

Andy: Well, you know, if we do fall into recession, inflation does stay high, you are going to see people obviously, you know, pull back in certain areas. I mean, they're gonna have to. So, when you think about it from that perspective, it wouldn't surprise me too much. I mean, if you look at just the growth rate in consumer spending, it certainly has decreased. I mean, in the fourth quarter of last year, it was about two and a half percent. First quarter of this year was 1.8%, and the second quarter, it was 1%. So, you're seeing the growth rate slow, there's no question about it. So, you know, that is a factor. And, you know, if the trend does continue, I mean, you know, that's where you could see some economic weakness for sure.

Amy: You're listening to "Simply Money" here on 55KRC as we make sense of what's going on, right? Markets closed the month of July up despite the fact that many are calling for recession, headlines are scary. Andy Stout, our chief investment officer joining us, as he does every Monday, to make sense of what's going on. Andy, you mentioned that the markets last week really rallied in response to the Fed, you know, raising interest rates by half a point, but also what Fed's chair Jerome Powell was projecting, right? Kind of what he said about what he expects in the future. What do you think we'll see there? I mean, we've had a full rate point hike this year, we've had three-quarters point several times. Do you think those are maybe in the rearview mirror?

Andy: Well, so the biggest hikes we've had this year, we've had two back-to-back 0.75% point hikes are 1.5% in total over the last two meetings. It appears that based on current pricing by...and I'll explain that in a second, it appears that we probably won't be seeing any more hikes like that. What the market is pricing in right now, and we can observe that just by looking at how certain securities trade, and what we see is that what's priced in the market is a half-point hike at the Fed's next meeting in September, and then another half point worth of hikes are spread out over a couple of meetings. But when we look at where the market was trading up before the Fed met last week and then where it's trading at now, it's a much more, what we call dovish Fed or a Fed that's less concerned about inflation. Not saying they're not concerned about inflation, but relative to where they were at the beginning of the week.

Here's kind of the summary here. The market now expects the Fed to hike less this year than what it was prior to the meeting. It also expects the Fed to stop hiking sooner. So, the hikes should stop in December. Now, according to the market, prior was March expectation, and the market expects the Fed to cut more next year. There's now about two rate cuts priced in next year, and there was one before. When we look at this all together, that leaves where the Fed ends up putting rates by the end of 2023 compared to the same time last week, it's about half a percentage points lower. So, that shows you the shift. And that might sound small, but that's actually a very big shift from market pricing.

Steve: Hey, Andy, I wanna talk a little bit about bonds. You mentioned something that's pretty important. First quarter of this year bonds had their worst quarter since 1980. They dropped...if you look at 10-year treasuries, I think the number's over 10% or so, and yet they rallied a lot last month up 2.4%. Still a far cry from how much they dropped, though. I mean, I guess my first question is why are bonds rallying? And can bonds continue to go up in value?

Andy: So, the bond market is enjoying a nice little rally for the reasons we just talked about with the Fed. So, a less aggressive Fed. Even though the Fed hasn't done anything different yet, the market always looks ahead, and it looks ahead to the Fed not raising rates as much and actually starting to cut a little bit. So, on a relative comparison to where we were before, that's good for the bond market and the bond prices because prices and interest rates move opposite. So, if we have a lower expected Fed funds rate by the end of next year than where we were, that gets priced into the market right away. That's why we're starting to see that rally. And that's why, you know, we had such a bad start to the year because heading into the year the market was pricing in 0.75% points of hikes for the entirety of 2022. We did that in...

Steve: Not anymore.

Andy: ...just the last meeting, right? It's the changing of those expectations. And that's why you're seeing the bond market rally now, and that's why you saw decline in the first quarter, in the first four months of the year, really. Now, when we look ahead, the question is what's going to change relative to those expectations? I would think over the longer term, the bond investors will be able to enjoy a normal type of bond market, where, if stocks do well, or if stocks do poorly, bonds will do better and help offset any sort of volatility. In the near term, though, I wouldn't be too shocked if there's some more volatility in the markets and in the bond market as well, because when we look at, what I call financial conditions or how the economy is behaving in terms of like raising interest rates, things like that, financial conditions have actually eased a bit recently because of the stock rally and the bond market rally. And that's not great for the Fed because they want to actually tighten financial conditions to bring down inflation. So, they may have to come out, and I'm not...you know, no one knows for certain, but I wouldn't be surprised if the Fed came out and tried to talk down this recent easing of expectations because they want to try...I mean, their main goal right now is to get inflation under control. So, that could result in some volatility ahead. But trying to time the stock and bond market, that's all most impossible.

Amy: Andy, I think we can learn a lot about where our economy and maybe our 401(k)s are headed in the future based on how the big strong American companies are doing. We're in the middle of earning season right now. What are you seeing there?

Andy: Well, so far earnings have been pretty good. I mean, they're not as good as they've been in prior quarters, no question about that, but we're seeing similar themes. We're seeing about 75% of companies report better than expected profits, and that's relatively normal. I mean, we had been in the upper 70s and low 80s a few times over the past couple of years as far as number of companies surprising to the upside. So, still there in that range. So, that's good. When we look at earnings growth rate, we are coming in stronger than what was expected, which is also relatively normal. Heading into earnings season, Wall Street expected earnings to have grown 4.1% in the second quarter of this year compared to the second quarter of last year. Where we're seeing growth come in at is actually at 6.6%. So, you know, that's definitely a surprise on the upside. Now, when we look at the trend, though, you know, we did grow 9% in the first quarter, so, you know, it's not as strong as it was the last quarter on a year-over-year basis. So, we'll see how this plays out because, you know, ultimately, earnings are really the biggest driver of how stock prices perform in the future. And what has a big impact on earnings is whether or not we can avoid a recession or not, because when you have a recession, earnings go down. So, that's one reason we're watching all of this very closely.

Amy: Here's the "Simply Money" point, these market conditions may feel new, but they're not really new. And how your investments perform over time, well, nothing new there either, and that is a very good thing. Coming up, Social Security, are you worried about it providing full benefits when it comes time for you to retire? What does a new study suggest? That's next. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. If you can't listen to "Simply Money" every night, well, subscribe to our weekly podcast. It's the "Best of Simply Money," you'll find it on the iHeart App or wherever you get your podcast. Straight ahead at 6:43, the top excuses we hear for those who are not saving enough for retirement and what you can learn from them.

You know, Steve, it's interesting because it used to be you went to work because you had to go to work, and now companies are trying to get people to want to come back in the office because many people like working from home, they like hybrid work. And so, buildings that we work in are having to kind of change what they offer, trying to say like, "Hey, we've got some things that are better for you than maybe like sitting on your couch on your Pjs all day."

Steve: And, you know, is this really unexpected? I don't know about you, but I just figured, okay, as we reopen the economy, a lot of people are...you know, they like staying at home, they like not having to get dressed up at least above the waist to do their Zoom meetings and things like that.

Amy: Busted.

Steve: Yeah. No, I don't think so. But, you know, I really figured commercial real estate in this country was gonna just crater because companies are realizing or would realize that they don't need to send people all over the country for meetings, they can do it by Zoom. And, you know, it didn't turn out to be that extreme, but I think we are seeing some soft spots in commercial real estate. And some companies that own commercial buildings are saying, "You know what? this is a competitive environment, we've gotta do a little something to make them choose our building for their needs." And locally, Viking Partners, they own and they're headquartered in...I don't know if you've seen them, but those two big glass buildings at the corner of 71 in Montgomery. I mean, huge buildings. Well, they've gone ahead and they've added a fitness center that tenants and their employees can use free of charge. Just one more example of, "Okay, if everything is the same, and you've got a free fitness center, you know, maybe we'll go ahead and sign the lease for that place."

Amy: Yeah. Well, and not only that, I mean, this is not just like run-of-the-mill, you know, you walk in, you're the only one, and there's like three treadmills and maybe a bike. No, no, no. Like, this is offering pop-up classes, yoga, Pilates, massage therapy, there's dance workshops offered in the building.

Steve: I can bring my yoga pants to work.

Amy: Please do.

Steve: I can wear those.

Amy: I actually would pay to take a yoga class with you.

Steve: I think people would pay me not to wear yoga pants. Just wear...

Amy: No, no, no, I'd actually...

Steve: "Put your suit back on, Steve."

Amy: I'd really like to see it. But truly things like personal training, healthier menus, and little cafes in these buildings, things like that. And this company is even offering weekly onsite seasonal farmer's market. Just all kinds of creative things to try to say, "Hey, there's reasons for you to leave home and get back in the office." I think we're gonna see more and more of this as we move forward.

You know, Steve, so many questions out there about Social Security, right? I mean, it is the government policy, the government system that everyone sort of counts on when they get toward retirement. Lots of questions out there. But there's a survey that's been done for several years as to whether you expect, right? Whether you expect that when you get to retirement, you are going to get your full benefit. And the interesting thing is, the closer we get to the point where we likely couldn't see as much, the more confident we get that we will see it.

Steve: Is this weird?

Amy: Yes.

Steve: And this is a legitimate survey. This is done by the Employee Benefit Research Institute, Greenwald Research. I mean, this is a real study. And they found 52% of workers are either somewhat or very confident that Social Security will continue to provide benefits of at least equal value to the benefits retirees receive today. This blows me away because, I mean, if you go back to, you know, 1983, that's when Reagan and Tip O'Neill, who weren't exactly on the same page politically...

Amy: Can you imagine...

Steve: ...but no...

Amy: ...across the aisle negotiations?

Steve: ...could this happen today? They actually opposite ends of the political spectrum, they got together and fixed what really is the third rail of politics. I mean, decreasing Social Security benefits is not exactly something that, you know, the average voter wants changed for the worst, you know? But they had to do something, it was running outta money. And what's interesting, Amy, is in 1983 when they fixed it, and they were only three months from going bankrupt, and that's when we worked together. And, you know, they fixed it then and they already knew, "Okay, this will take care of it now, but sometime around 2035 we're gonna have to address it again." They nailed it because it's 2035 that Social Security's expected to run outta money.

Amy: There are a lot of smart muckety-mucks that are always doing these number projections. So, the fact that we are 13 years away from the Social Security Trust Fund running out of money doesn't mean you're not gonna get any benefit. There's still gonna be workers paying into the system, but at that point, the system, there'll be more people kind of taking money out than putting it in. And they're saying, "Yeah, you can expect 75% of your promise benefit." I think it's just really interesting that this research shows that the closer we get to that, sort of, deadline, the more confidence we have as Americans that Congress is going to take care of this.

Steve: Where does this come from? I mean, in 1990...

Amy: I don't know, maybe I'm just a negative person. I'm usually like a glass-half-full kind of person, but it's half empty to me on Social Security these days.

Steve: Yeah. And in 1994, 22% of the people said, "I'm not worried about Social Security, it'll be fine." 2014, 28%, now it's over 50% think it's gonna be fine. So, in other words, the average person is more and more confident every year that goes by that the system that every year is running outta money more, and more, and more is gonna be okay. That shocks me, especially in today's political environment, where I'm not sure you can get both sides of the aisle together to agree over, you know, is the sky blue? You know, never mind fixing Social Security.

Amy: Right. Yeah. If we thought they were cutting it close to 1983 with that three months left, you know, we would be lucky with three hours left. Here's the "Simply Money" point, you know, for half of you, you feel like Social Security will be there, the other half, maybe doesn't, but one thing we can all agree on, Congress will probably wait until the last minute to let us know and make that decision. Coming up, are you tipping less maybe than you did during the pandemic? What data suggest next? You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. To tip or not to tip, and then how much? Seems like it should be an easy subject, but it's getting super complicated. Joining us tonight to weigh in with some recent research is CreditCards.com Senior Industry Analyst, Ted Rossman. Ted, I honestly never had an issue with tipping pre-pandemic, right? Twenty percent tipper when I would go into restaurants and things like that. But there's all this kind of gray area now. I recently aborted our dog for a long weekend through an app, and all of a sudden after I picked him up, paid the price of boarding him, got home, and it said, "Do you wanna tip the person?" My gosh, it's a lot for us to waive through these days.

Ted: There has been a lot of tip creep, for sure. I think one of the best examples...

Amy: Tip creep, yes.

Ted: ...is this idea that maybe you're at a coffee shop or a food truck, and you buy something, and then the cashier flips around that payment terminal and you're presented with these options, and you're thinking, "Well, I don't know. I maybe wasn't gonna tip at all." It was a pretty simple counter-service order. A lot of this is happening, and I think technology is aiding it. To my great surprise, 26% said they tip more, only 12% said they tip less when one of these things happens. And everybody else is more or less unchanged. Anecdotally, I hear a lot of people kind of miffed by this, but the data actually shows that it does lead to more tips. I guess that's why they do it. I just thought it was kind of annoying for a lot of people.

Amy: It's such a whole new ballgame because I think it's like I go to pick up donuts and now I'm tipping and in all these places where I wasn't tipping before. And the whole subject of tipping really kind of came to the headlines during the pandemic because there were so many people in the service industry that were hurting. And collectively, we were all talking about the fact that we wanna help these people. And I would pick up pizzas, and I know other people pick up pizzas, and they would tip the price of the entire pizza all over just to help people. And there was, sort of, this kind of collective pledge that we are going to tip more, but your research actually shows maybe we're not actually doing that.

Ted: We have not followed through. Yeah. We found that the past couple of years, a third of Americans said they're gonna tip more. And the actual data is now showing us that in six of the seven categories we asked about, actually fewer people are always tipping now versus pre-pandemic. I think that a few things are happening. I think some of it is old habits die hard and we've maybe moved on in some respects. Inflation is high, that's cutting into people's purchasing power.

Amy: Absolutely.

Ted: I would offer another theory, which is the service industry shortages are perhaps leading to worse service. And diners and other customers may be taking that out on, you know, "Service wasn't quite right. I waited too long. I didn't get what I wanted. I'm gonna tip less." I think some of that's happening.

Amy: Let's start with sit-down restaurants because I think for most of us, we're used to this concept of going down, we order, someone brings us our meal and we tip them. Where does your research show we're falling when it comes to tipping at sit-down restaurants?

Ted: Seventy-three percent of diners always tip. I would like to see that go higher. I think that should be more like 100%. Now, when people tip the average is 21%, the median is 20%. I think that's all right on, but there's too many zeros there. Young adults really stand out. About half of Gen Zers and about 4 in 10 millennials are failing to tip at least some of the time.

Amy: Let's look at the other services that we tip for. Because to the point I made earlier, Ted, I think there's a lot more services out there that are expecting tips, or, at least, that when you're paying, take you through that screen about tipping that maybe you hadn't thought about before. But how do all these things break down?

Ted: Hairstylists and barbers get tips two-thirds of the time from their customers. Two-thirds say they always tip. That's another one I feel like that should be closer to a 100. Fifty-seven percent always tips for food delivery. I think there's room for improvement there. Same thing, taxi and rideshare drivers, only 43% always tip them. And then it's only about one in four always tip the hotel housekeeper or the coffee shop barista. I'm okay about the coffee shop one, I don't think you need to tip every time. The housekeeper, though, that one's too bad. I mean, that's a hardworking individual who's doing a tough, dirty job, you know? Often outta sight, outta mind, I'd like to see them get tipped more.

Amy: How do we navigate this? Because I think there are just more options out there for tipping nowadays. Like you mentioned rideshare, right? When Uber first came on the scene, the price was the price, right? And then all of a sudden it became about the tipping. And if you didn't tip well, then you were scored based on that. It almost seems like we're going through this fundamental shift in how we tip and who we tip. And I think for a lot of people, there's just so many unknowns that no one feels kind of confident knowing what's expected.

Ted: It's gotten more confusing, yeah, because of the pandemic, because of technology, we're carrying less cash. You think about something like a valet or somebody who helps you with your bags at the hotel, that's a cash-centric activity, and not as many people are carrying cash. We see some other places, though, that are probably net winners of the shift to technology like those payment tablets we mentioned at the food truck, or the coffee shop, or... You know, the fact that inflation in a way is actually juicing tipping because if you think about like getting a percentage of a higher bill, and if you can just put it on a credit or debit card, and sometimes that's less painful than parting with cash. I've actually heard of some hairstylists putting their Venmo ID or their $Cashtag, like, next to their chair, and if you wanna tip them digitally that way, you can do that. There's a lot of interesting shifts. Young adults don't love the whole tipping thing, and they actually tell us, "Why don't we just do away with tipping?" Some restaurants have tried that, though, and it hasn't really worked out. But there's a lot of different perspectives on this.

Amy: I ordered dinner for our family last week. My husband was going to pick it up, right? Walk into the restaurant and get it from the counter, and the suggested tipping online when I ordered it, was starting at 20%. And I was like, "Oh my goodness." But, you know, I also don't wanna be unfair. So I'm wondering if there's any kind of standard rules for etiquette on like what we need to keep in mind when it comes to tipping.

Ted: I think some of those apps are pretty gimmicky because it's human nature. Like, if people ask you that blatantly, you might feel compelled to say, yes, or human nature is also to pick the middle option. So, it matters if it's 10, 15, 20 versus 15, 20, 25. I think sometimes these businesses are pushing it too far. You know, I don't really think that you need to tip for takeout food. I think at a restaurant, 20% is the standard. I think, increasingly, 20% should be the standard for things like getting your haircut, or getting food delivery, or taking a taxi, or rideshare. I'm on board with all that. But I think that some of the things that are creeping up maybe too much are things like coffee and takeout. I wouldn't feel compelled to tip every time. Now, maybe once in a while, or if you're regular, or if you have a really complicated order, or if somebody's really gone out of their way to help you, but I think sometimes this goes a little too far.

Amy: Tip creep, I love that, and I think it's a great concept because we're all seeing it. Figure out how you feel about tipping, right? What's the etiquette that works for you? Stick with it. Of course, never stiff for bad service, and carry cash, right? That helps a lot of times in these situations. Great advice from Ted Rossman, senior industry analyst from CreditCards.com. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. Straight ahead, a way for parents to save at least a little on school supplies this weekend. You know, Steve, I think for many people, if you were to ask, and maybe they couldn't put it into these words, but most of us, the goal about retirement is at least when we get maybe in our 60s to make work an option, not an obligation, right? If you love it and you wanna keep working, great. But if you don't, if you wanna tell the boss to take that job and shove it, you can too. The problem is, and this is new research, a third of Americans aren't currently setting aside any money for their future, for any kind of retirement. And not only do we know that, but we know their excuses for not saving any.

Steve: Well, we do. And it is such a key to get started early. It doesn't matter how much you put away, just get in the habit of saving early. Because I usually see it on the back end, Amy. You know, it's somebody that comes in, "Hey, am I okay for retirement? I'm in my 50s, I'm starting to get serious about this." And I've seen some excellent cases where savers got started early, and I've seen some not so excellent cases, where, you know, I'm thinking of one person, in particular, late 50s, nothing saved up, just getting ready to start saving up money. And I said basically, you know, "You can't do too much between now and retirement. How can we fix this?" And he said, "Well, I'll just keep working until I can." And that's not a good option.

Amy: Yeah. Right. Anything could go wrong at that point. So, one of the reasons why we hear from a lot of people, like, "The reason why I'm not saving is I'm just not making enough." And often, that'll be followed by, "But the next bonus, the next time I get a raise, that's when I'm going to start saving." There's always a reason. And, you know, "I'm in my mid-40s." And I know lots of other parents will say, "Oh, but my kids are on these travel teams and it's so expensive. So, once we get them through this..." Or, "This year of school, we have to buy that car for one of the kids turning 16." Whatever it is, there's always gonna be a reason, right? There's never gonna be enough money. But prioritizing this, and unless you can start small and work bigger, but I think the key here is just starting.

Steve: It's just starting. And, you know, it's so strange for somebody like me when I take a look at, you know, when I was growing up, what were my buddies' parents and my parents doing? I mean, did people pay for TV back then? No. When cable first came out, "Are you crazy? You're gonna actually pay for something you can get for free?" Yet people are not putting money into their 401(k)s for retirement. I mean, to live on, to support themselves when they quit working, yet they won't give up a cell phone, they're not gonna quit going out, they're not gonna give up their Netflix, they're not gonna... You know, they wanna do all of these things, which today are more important to them. But you know what? In retirement, it's gonna be a lot more important to have some money set aside.

Amy: Yeah. Another thing we hear from people, and I think this is, you know, "I'm too young." One in five workers, 20% of people said, "I'm just really too young to start saving for retirement." Here's the thing, nobody's ever too young. The younger, the better. We've got a 16 and a 17-year-old in our house right now, we told them, they've got jobs, "Hey, if you can set aside any money for saving, we will match that opening a Custodial IRA." And my daughter's like, "Great, when can I touch that money?" "Not until retirement." She's like, "I'm sick." I'm like, "You will thank yourself someday, right? Your future self..."

Steve: For her, that's almost 50 years down the road.

Amy: Well, she can't even begin to fathom, right? Sixty-five-year-old Grace, yet, someday, hopefully, there will be a 65-year-old Grace, and, you know, saving for this. So, every little bit. And you've actually always had the great advice of, "Hey, when you get outta college, that first job, if you can start saving...

Steve: Ten percent.

Amy: ....10% immediately, wow." And we would say, you know, "When you get in your 30s and 40s, the goal is probably 20%, maybe more if you're really trying to catch up." But the younger you start, the less pressure there is on you later in life.

Steve: Let's run some numbers around here a little bit. I mean, you know, we used to see this TV commercial, what's your number? What number do you need to see to be able to retire? Let's just use a million dollars as an example. So, if you wanna have a million dollars when you're 65 years old, and if you can get 7% on average, which means you're gonna have to be pretty heavy stocks to get anything close to that, even if you're risk averse, okay? But let's say you wanna save up a million dollars, if you get started by age 25, you only have to set aside $400 a month. And you may be saying, "Wait, $400? I barely get paid $400 a month when I'm 25." Yeah. But that's what you have to set aside, $400 a month with no increases, which you might do in real life, and you will have a million dollars by the time you're age 65. If you don't and wait until you're 35, maybe after you got your first house and got married or, you know, whatever things in life got in the way, if you wait just 10 years to save up a million dollars and start at age 35, now you gotta set aside $850 a month. You thought $400 a month was tough, how about $850?

Amy: Yeah. You've more than doubled what you have to set aside just by waiting 10 years. And I think it frustrates me, and, again, I was there, too, I got serious in my 30s, but not in my 20s. I had heard it, right? It just never got through, and I kept thinking, "I'm not making enough. I'm not making enough." Gosh, I wish I would've prioritized it then. And speaking of priorities, a lot of people prioritize other investments. And I think by other investments, and we don't know what exactly they are in this survey, but I'm gonna guess, Steve, that for a lot of people, it's buying a house, things like that, maybe helping kids pay for college, you know. Kids can get scholarships for college, there are no scholarships for retirement, right? So, prioritizing this regardless of how old you are, you're always gonna come out on top. Here's the "Simply Money" point, the longer you wait to save for retirement, the longer it's gonna take you to have control over the kind of life you want to live later on. If making work an option is your goal, not an obligation, well, that takes a lot of planning.

Coming up next, the price parents say you are willing to pay this year for your children's education and some back-to-school deals to maybe take advantage of this weekend. We'll tell you what they are. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money." I'm Amy Wagner along with Steve Sprovach. You know, inflation, man, it's hitting you everywhere you turn these days. The gas pumps, the grocery stores, and, yes, we're going back to school parents, that means back to school shopping. And, Steve, it's interesting what parents are expecting to spend this year on average. I've seen numbers anywhere in the range of 600 upwards of 800 bucks to get the kids back to school. There's probably a lot of parents who would say, "I'd pay three times that to get them out of the house after the summer."

Steve: I am so glad I am past this point because that's serious money, and, you know...

Amy: It is.

Steve: And this is with kids going back into the classroom. So, you know, you might not have to buy an iPad or something like that, the average is over $600. Well, if you live in Ohio or shop in Ohio, it is, I guess, really...the key this weekend is the sales tax holiday. It's specifically for back-to-school items in the state of Ohio for Friday, Saturday, and Sunday, August 5th through 7th. It applies to up to 75 bucks worth of clothing, 20 bucks for school supply, 20 bucks for school instruction materials, no sales tax.

Amy: Exactly. And so, I think there's...you know, this is something we talk about every year because it sounds great, right? No sales tax. Who wouldn't want that? Well, keep in mind, it is very limited on what you're going to be able to get for that. But Steve, you know, I live in northern Kentucky and there have been times in the past where I thought, "Oh, maybe I'll drive just to a Target over in Cincinnati this year." And when you really think about the numbers, it's probably not worth the extra gas you're paying.

Steve: I know.

Amy: You're not gonna come out ahead here.

Steve: It sounds so great. But, you know, Ohio sales tax is 5.75%, but if you live in Hamilton County like I do, you take on riverfront sales tax, general operating, the regional transit tax. I mean, these things all add up to the point where...no, it's actually nine and a quarter percent, it's not five and three-quarters percent. So, yeah, let's save nine and a quarter percent. Well, when you crunch the numbers, Amy, even if you max out on everything that you can buy with clothing and everything else, you're talking 10 bucks of savings, 10 bucks of sales tax. So, if you wanna drive up from northern Kentucky, good for you. You probably, with that big old tank that you drive, you'd probably spend that by the time you're halfway across the bridge.

Amy: Yeah. I'm losing money every mile that I go. So, yeah, just keep that in mind. And also, you know, if your kids have fall sports that they're going into, you know, this doesn't include any of the sports equipment, clothing accessories, so just keep in mind, super limited on what you can get. You know, I think one thing that a lot of people are looking at these days, too, Steve, is credit card benefits. You know, for mine, like, we used to always prioritize travel benefits. I think for a lot of people, it's cash back. You know, what makes the most sense getting those gas perks, and things like that right now? So, maybe taking a look at your credit cards, how can you use some of those rewards to help cover back-to-school expenses?

Steve: Well, yeah, I mean, if you're spending like the average person does, at least 600 bucks on back to school, this sales tax holiday, all right, it saves you 10 bucks, but, you know, that's 2%. So, if you've got a 2% credit card cash back, well, you're equaling that with every dollar that you spend, no matter if this is a sales tax holiday or not. And there are some, you know, especially the in-store credit card offers, we're not big proponents of just getting a credit card to get a 20% or 10% discount, but if you're gonna spend, you know, 1,000 bucks, 1,500 bucks on a few different kids for going back to school, you know, you're saving some money.

Amy: Something else that came out of this study that doesn't have to do with how much you're spending on necessarily school supplies, but 7 out of 10 parents, 70% said that your child's education is worth going into debt for. On one hand, I completely get that, right? These are your babies, you wanna give them every opportunity in life to get ahead, yet that statistic actually worries me, Steve, because I've seen far too many people who prioritize college education and things like that over their own retirement and put themselves in really difficult situations.

Steve: Well over 80% parents think financial literacy is important. Maybe they should take a financial literacy course if they wanna go...

Amy: That's a good point.

Steve: ...in debt for their kids.

Amy: Yes. Yes. Parents, yes, your kid's education is incredibly important, so is your retirement. We can do both. You've been listening to "Simply Money" here on 55KRC, THE Talk Station.