BiggerPockets Money Podcast - 512: Unemployment Inches Up, Inflation Returns, & Serious News for Student Loans

Episode Date: March 19, 2024

Has the job market finally flipped? Throughout most of the pandemic, it seemed that any and every worker was a hot commodity. Job-hopping was the new norm as businesses outbid each other to get the best talent. Now, thanks to rising interest rates, a slower economy, and a return to the office, it seems that employees don’t have the same negotiating power they did just a couple of years ago, and the new jobs numbers are showing this. Welcome to a new type of format on the BiggerPockets Money podcast—a headlines show! We’re taking some of the top news stories from the world of personal finance and the overall economy and giving you our takes so you can make better money decisions. First, a strong jobs report comes in, but unemployment still rises as Americans find it harder and harder to get the job they want. Are employers back in control after years of workers owning the market? Then, we’ll touch on the latest inflation numbers and why costs are rising even as work becomes less available. Student loan borrowers receive a huge win as getting their debt discharged during bankruptcy becomes even easier. This could cause significant ripple effects for which degrees become financeable in the future! Finally, a 529 plan update that now gives parents a HUGE reason to invest in their child’s future education. Click here to check the full show notes: https://www.biggerpockets.com/blog/money-512   Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Email us: [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, folks, you'll notice that Kyle is missing from about the second half of this episode or much of the second half of this episode. We ended up experiencing some technical difficulties, but this episode is so value-packed. We wanted to get it out to you right away. Welcome, everybody, to the Bigger Pockets Money podcast. Today, we're going to do a different kind of episode. We've rounded up some of the most interesting money headlines over the past few weeks, and we're going to be dissecting them and commenting on them one by one today. Yeah, that's right, Scott.

In this episode, we're going to hear about what's going on in the job market. inflation, how that impacts consumer spending, student loan discharges, and how 529 transfers could potentially benefit your retirement accounts. Hello and welcome to the Bigger Pockets Money podcast. I'm Kyle Mast and here today with me is my fully employed co-host, Scott Trench. Hey, Kyle, great to be here and I'm hoping that you're going to bring the fire as our unemployed co-host. That's the joke there today.

All right. We're here to make financial independence less scary, less just for somebody else, to you to every money story and every money headline because we truly believe financial freedom is attainable for everyone no matter when or where you're starting. Right, first article. Title of this one is February jobs report. U.S. hiring remains strong. It's from the New York Times and here are the points. We saw that there were 275,000 jobs created in February, making it the 38th month of consecutive growth. As expected, the massive gains initially recorded for January and December were revised down by a combined 167,000 jobs, and healthcare, government, and leisure, and hospitality industries

led the gains for February. We've also seen growth in construction, transportation, and warehousing, and even retail. The unemployment rate increased to a two-year high of 3.9% from 3.7% in January. And, Kyle, I'd love to get your sense of what you're seeing here. What does this mean for people who are looking for jobs or looking to change jobs in today's economy? Yeah, it's always fun reading these articles, you know, and trying to do your best not to drown in the numbers, you know, you got these percentages flopping in everywhere and you've got hundreds of thousands or is it millions, you know, it's hard to remember which numbers are the right size for which statistics it's coming out. But I would say, you know, the general gist of this article is a little bit more

of the same, you know, this soft landing that the Federal Reserve has been trying to accomplish. It seems like maybe that's where we're heading. You know, nobody knows. But it's kind of like we're not jumping off a cliff to a recession. We're not skyrocketing to the moon on inflation. So from my standpoint, I look at something like this where it's kind of boring in my mind in a good way that we're not seeing something that's just crazy out there. And as far as job seekers, it just gives a job seeker a little bit more time to really take action to solidify their financial situation. You know, if you're looking to change a job at some point, you've still got some opportunity there maybe, as opposed to if you're heading into a recession

pretty hard, you've kind of missed that opportunity and you want to maybe hold on. I would also, you know, look at being really indispensable to your current employer. If you're planning on staying where you're at, what can you do to really build up your position also, you know, from a personal financial standpoint, but also from the tasks and projects that you're doing from that employer that adds value to them, just use this boring time to make sure you're set up well. What do you think, Scott? You know, these, you're, you're in the middle of this. You're someone who hires people. Are you seeing a change here? Yeah, well, actually, I'll start by kind of thinking about just a little bit more macro and zoomed out on this. You know,

one of the biggest thing, like there's three things that I think are really important in the context of thinking about unemployment rates and the job market today. The first is the retirement of baby boomers. One of the biggest generations. We got 10,000 boomers retiring almost every day, and that will continue for the next five to ten years. And so that puts upward pressure on wages for everybody who remains in the workforce. Gen Z is not going to replace the baby boomers from a population standpoint. So that is a long-term upward pressure on wage growth and inflation that's happening in here. The second thing that I observe is the explosion in the gig economy, which is not something discussed in the New York Times article, but is really impacting the job

market, right? Because if someone is losing their gig work or having to take on more hours to make the same income or whatever, that's not going to show up in your official unemployment statistic. And then the last key point, which was touched on in the article, is illegal immigration, where we have, you know, depending on your source, between 11 and 15 million illegal immigrants in this country who are also impacting the job market, but their attachment to jobs or loss of jobs do not show up on unemployment statistics. So it's really hard to parse out all of those. things into the official unemployment statistics. And I think it's going to make for a lot of noise on a long-term basis. I think that what most people would say they're feeling in the job market

is relief to have a job if they're still employed or haven't had to have challenges at their current job and trouble finding a new job to a large degree. I will actually add a fourth layer into this, which is the pandemic really shook things up because for the first time, maybe ever, all of these jobs could be done remotely. All these white collar jobs could be done remotely from anywhere in the country. And so now employers and employees had a chance to get much more efficient in finding the optimal balance between income and pay for a large number of jobs. And that disproportionately affected people that are at the elite end of the pay range in like Silicon Valley in San Francisco in the tech world that are making all these headlines. And they perhaps disproportionately

benefited people in Indianapolis, for example, who might have not had similarly competitive pay. So that efficiency gain is still taking place to some degree in the job market while you also have all these other factors that are going on. Now, we're at the tail end of that. Surely by this point, most people have done that, but there's probably a long tail that's left to flow into here. What we're seeing is when we post a job, we're getting hundreds of applicants immediately to the point where we have to literally shut down the job posting because it's just overwhelming to continue to get flooding with applicants. It's unclear if that flood of applicants is due to a true demand. We are getting lots of good qualified applicants. Or if there's

like these automation softwares that are reacting to our job postings and just flooding us with resumes as well. So it's really hard to tell, but I think that most people would say that it does seem a little bit more like an employer's market than an employee market at this. point in time. But it's just hard to tell. It's hard to make sense of the data and what I think people are observing on the ground. I'm sure everyone listening to this has a different perspective on it. Yeah, that's super interesting. As you, you know, being in the industry and getting that many applicants for a job, I would assume that that's just because bigger pockets is awesome and everyone wants to work there. We have a great CEO, right? Yes, a huge, best CEO ever, young, attractive

guy. Great jokes. Yeah, great jokes all the time. Yeah, I think you made a good point on the efficiency piece of it. You know, what the pandemic did with a lot of aspects of the economy is it just kind of thin things out to where everyone was super introspective from the business standpoint and seeing like, what do we need? How do we make things go as far as possible? And the fact, this is an encouraging thing to me, the fact that we are still not. hurting too bad from the incredible amount of rate raises shows that, and despite all that efficiency creation shows that we're in a pretty good spot going forward. Things are changing, of course, but they're not changing so fast that someone can't adjust. And I think that's a really good

thing to keep in mind for people that, again, if people are thinking of making a change, now is a good time to really be thinking about it because there's still, there's still some opportunity out there. But that could change down the road if things break a little bit. Yeah. And look, I think, I think folks are also struggling with the return to office environment. I'll just make this as one last point on this, where, you know, I think that employers and employees are struggling to figure out exactly what the right balance is there. I think when you work full-time remote in a high-pressure setting, the pain of not seeing your coworkers enough can, you know, compound throughout the months and years.

But at the same time, it's not necessary to go to the office every day to do a large, amount of, a large amount of different jobs there. And so I think you're going to see companies and employees struggling with that as some folks want, you know, some employees may say, or employers may say, yeah, we've got to come in to the office a couple of days a week. And in other cases, you're going to see employers who are struggling saying, come back to the office full time. And the reason they're doing that is to get away with not having to do an official layoff, right? Or at least that's part of the thinking there. They know they're going to lose a bunch of employees there. So I wonder if you're going to see that as a tool to avoid a layoff for RIF

reduction in force for some employers. And that is also compounding the challenges in the job market because somebody's not going to, I can work from home. My employer is there. So I think you're going to see a lot of games played and a lot of weird stuff going on in the job market as this kind of the next year or two unfolds because of all those data issues and the new games to be played with a work remote. environment that the pandemic created. Now that we've covered the robust job market, when we come back, we're going to discuss everyone's least favorite word, inflation.

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So that's just an overview of this article. And I'd love to, Scott, just jump right in here and see what you think about this. You know, though CPI was only slightly higher than expected, what does this mean for, you know, someone's budget on the ground level? Yeah. So I think at the highest level, we're seeing stubbornly high inflation. I think it's impacting, again, how most people will feel about prices is that it's impacting every part of their lives, from energy to shelter.

to insurance, those prices are skyrocketing for many people around the country, to luxury and travel, those types of things. And I think that folks, you know, sometimes will feel like a lot of these numbers are going up much faster than what the official reports go. And when they see sticker shock, like their grocery bill or the rest of the bill at a restaurant, it's amazing how much breakfast cost me the other day. I think it was like $25 for a breakfast and coffee. It's like what is happening here?

And I think that's how most people are feeling about this. That said, at the highest level, it does not seem like Americans are stopping doing the stopping the key life. They're not changing their lifestyles at the highest level. And I think that's what ultimately is resulting in this stubbornly high inflation. And that's going to give some pause, I think, to the Fed in lowering rates or, you know, advancing past the timelines that they've posted the beginning of the year. And I think it's going to continue to be a headwind for.

Americans to save. Now, a lot of cash, a lot of currency was created, right? The money supply really grew leading up to 2021. And so I think people still have lots of assets or avenues or cash reserves to tap. And we're going to see that for some time to come, even with the steep rise in rates and the work that the Federal Reserve is doing to try to combat this inflation. What do you think, Kyle? Yeah, you know, I feel like we're still trying to adjust, everyone, of course, from being used to 10 or 15 years of really almost negligible inflation that is, you know, it was just so low. And I think even now from a year ago, you know, if we're looking at this like 3% increase kind of average across the board, you know, that's not too much historically. And it's not far from what the Fed is looking for. But I think we're still feeling the sticker shock of the 10, 15, 20% increases cumulative over the last two to three years.

And I don't think that's going to go away for a while. And the thing with inflation is the prices don't go back. You know, it just doesn't work that way. You know, if people are expecting prices to go back to where they're buying the same box of wheat thins for what they did, you know, three years ago, it just never does that. So it's just going to take a while for people to adjust expectations. But the interesting thing to me is, you know, we have so many of these low interest rate mortgages that people locked in for 30 years. And I think that's a huge piece of why people are able to continue to use that as a buffer against these inflation increases because the biggest expense in their life is not inflating as much. Now, we might see that change a little bit because property taxes are starting to go up decently because,

because inflation affects everything and, you know, like bonds for schools and fire stations, everything that goes into a property tax statement is getting pushed up. And also insurance, across the board, vehicle insurance, homeowners insurance. I mean, we have, we're talking about in this article 20% increases. I mean, it's real. And it's higher than that on the rental properties that I have. I have a couple rental properties in Florida. And those are more than 20% increases for sure. but even my primary residence in just like a boring area of Oregon, it has gone up significantly. So these are real costs that are starting to inflate on the biggest assets that people have their house.

And that will start to squeeze it a little bit more than what we've seen in the last couple years because people have been able to dodge that with their super low rate relative to current rates in the mortgage market if they had locked that in previous years. So that'll be really interesting to me. think that's something that we'll just have to keep an eye on and probably through this year we'll start to see the effect of that a little bit more of people tapping those savings like you said you know credit card spending going out there's all these headlines of credit card spending or balances is the highest it's ever been and i kind of take issue with that i mean that's something to

keep an eye on for sure but again inflation so i want to i want to know the percentage increase of things I don't want to know that credit card balances are the highest they've ever been when we've had 10, 15% inflation over the last two to three years. Well, duh. I mean, of course it's going to go up high, even for the people that are paying it off every month. So, you know, we got to keep some of those things in mind. But I think they are going to start tapping into their credit reserves and to their savings reserves as that big asset starts to feel a little bit more expensive. Yeah, I think that's right. And I think it's how people are feeling and what's showing up in the data.

And one more point I'll just make is Dave Meyer did a really good, Dave Meyer, the host of the on the market podcast here at Bigger Pockets and a regular on the Bigger Pockets real estate podcast did a great analysis on his Instagram the other day talking about how more the cost, the average monthly payment that is going out for a homeowner has steadily increased. There's up like 7 or 8% year over year. The house prices aren't up that much. And rents are not. not growing that much. But if you want to buy a house, you're going to see that sticker shock. If you have a locked-in mortgage and have it lived in your place for a long time, you're probably not going to see that as much, although you will see the property taxes and insurance creeping up to your point here. And if you're a renter, you're actually also not seeing that. But if you're trying to buy a new property right now, the cost of that is just continuing to grow much faster than what is being reported on the official inflation statistics here. And so it's really just dependent on how people feel about it again, I think is not going to be very.

positive. All right, we're going to take one more quick break, but stick around. You won't want to miss this last headline about how 529 plans can be used to fund not only your children's college education, but can also potentially be used to fund your retirement. Stick around. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going, and more importantly, where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress.

Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place.

So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at Monarch.com code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need.

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Anyone can call or text for free confidential support from a train responder anytime. 988, suicide crisis helpline is a caroline funded by the government in Canada. All right. Let's go through our next headline here. Student loans are now easier to discharge in bankruptcy, CNBC reports. So a couple key points from this article. In fall 2022, the Department of Education and Department of Justice released new bankruptcy guidelines, making the process easier for student loan borrowers. Basically, previously it was impossible, or basically impossible, to discharge student loan debt in bankruptcy. And now it's treated more like

other types of debt. Student loan borrowers can fill out a 15-page form, detailing their financial struggles, and making their case for a mulligan. There's an estimated more than $1 trillion in student loan debt out there, which is more than credit card debt, and young people with student debt are likely not contributing to the economy in ways like buying houses or buying cars or otherwise stimulating the economy. And depending on the type of bankruptcy, the article reports, this can stay on your credit report for up to 10 years, though, instead of the seven that is more consistent with other types of debt. Great. Kyle, so what do you think? What's your reaction to this headline and the fact that it's now easier to discharge student loan debt in bankruptcy? You know, people are going to have

different opinions on something like this. It's just the nature of things like this that come out. Everyone has different opinions on policy. I think, I think anytime something comes out like this, my reaction is not to like have a big opinion on it right away. My reaction is to look long term. So something like this happens, there's ripple effects through the economy. There's ripple effects through the cost of tuition. There's ripple effects for people being able to get out of debt that they maybe didn't understand that they were getting into and able to move on with their lives as a, in getting a house or getting a car, things like that.

So I don't, you know, I don't have a like big reaction to it either way. I always try to, and this is something that I'm just like super passionate about teaching my kids to think critically when things like this come out. New sources will try to kind of lean you one way or the other a lot of times. And, you know, this, that critical thinking of what is good for your personal situation really makes a big difference. So I would say, you know, overall, we need to keep an eye on it. It's something that is going to have some major effect because that the rule of not being able to bankrupt student loans has been around a long time. And that has been a big influencer in people's financial behavior. And it is going to change people's financial

behavior when this is built into it. In general, I am a fan of the bankruptcy laws. I think it is very helpful to be able to give someone a second start. I'm also a huge fan of paying your obligations. There's different circumstances for different things. So, you know, I, yeah, that's like my very diplomatic answer. I don't know if I came across as diplomatic, but that's, that's what I will be keeping an eye on on this. What do you think, Scott? And just in reacting to this entire situation, I think we do need to reflect on the policy and why things are in place and then what the ramifications of this change could be in the long term, right? We've got a trillion dollars in student loan debt in this country that are federally guaranteed. Part of the deal for having low interest federally

guaranteed student loan debt is that borrowers have had a lifetime obligation for that and they cannot bankrupt it. If folks can now bankrupt that debt, that changes the risk profile of that debt. And taxpayers, by and large, may not be okay with that risk profile on debt in lieu of these types of policy changes. So, you know, we had a great discussion about the ROI of college, which is directly related to this topic, on episode 251 of the Bigger Pockets Money podcast with Preston Cooper. He analyzed 30,000 degrees and the ROI of them using a very sophisticated analysis. And his conclusions were that about 37% of degrees are ROI negative. And so while it won't reflect perfectly with his study with this, what I think is going to happen is that there's going to be really hard,

a lot of political pressure going forward to not fund or not finance with student loan debt ROI negative degrees for the student and for society as a whole, one way or the other. And that's going to be a consequence of, I think that this policy, enabling bankruptcy and making it a little bit easier for certain types of student loan debt is the first step down a chain that is going to impact how we finance college in this country. And I have long predicted that college education is going to look very different by the time my little one, who's one years old, is ready to go to college. I think that the, and I think it starts with the financing piece of this. We are not, I believe, as a society going to be funding ROI negative degrees in 20 years, especially because of the harm

it does to the people and society as a whole, as we're witnessing with this first step in discharging student loan bankruptcy. And by the way, I do want to call out another thing here, personal opinion. I feel that bankruptcy law is a wonderful feature of America. In America, you shouldn't have to go a lifetime in debt, and you should be able to discharge bankruptcy. And the lenders should be able to factor in the fact that debt can be discharged in bankruptcy into their upfront terms deciding not to lend to people, for example, or to charge them higher rates or different terms if that debt is at risk of being discharged in bankruptcy. I think that's a really important feature of our society.

You can't take away someone's potential for their entirety of rest of their life because the decision they make at 17 or 18. I think that the when and where to use the tool of bankruptcy is when it's hopeless, when it is truly going to be a decades-long slog to pay off the debt. And that matters less about than the amount, but the ratio of the amount to one's current or future income potential. So, for example, a doctor who is likely going to generate $400,000 or $500,000 or $500,000, would be silly to attempt to discharge even $200 or $400,000 or $400,000 in student loan debt in bankruptcy because that's going to impact their lives dramatically over the next seven to

10 years from a bankrupted credit, and they'll be able to pay it off. And I think that's part of the transaction that a doctor goes in with eyes wide open, knowing is the deal there. So I think there's an ethical and other consideration there that needs to be taken into place. I think that in other cases, let's say we've got someone with an anthropology degree who is making $30,000 a year and does not have significant income potential, but as $100,000, $200,000 in student loan debt, that person, you know, that's what this tool is designed for. And those are the types of people who are likely to use it. And in some cases, maybe should use it. I'm sure many people will disagree that no one should be using the bankruptcy tool to discharge student loan debt. But I think that's when and where the

tool will be applied and maybe in some cases reasonably. I also want to bring a tie in another headline from the last couple of weeks from the New York Times, this one's also from the New York times about how money in college savings accounts can now go towards retirement. And the article discusses how 529s can now be converted into Roth individual retirement accounts, Roth IRAs, with certain conditions where the account has to been open for at least 15 years. No contributions or earnings from the past five years can be transferred into a Roth. And transfers are limited to the maximum annual Roth contribution, which in 2024 is going to be $7,000, people younger than 50. So the new rules are designed to incent parents who are reluctant to put

money into a 529 and have their kid not need it and then have to pay taxes and penalty when they withdraw the money. And so this is actually really interesting to me personally because I just discussed how I feel about the potential future of college education. I think, you know, if not in nominal dollars, right, you know, adjusted for inflation, in real dollars, my big bet is that college education costs are going to come down because the funding is going to change. And what the headline we just discussed is going to be one of the steps along that journey to seeing those things change. So I prefer to save for college education in a much more flexible way than the 529 plan. I do contribute a little bit to a 529 plan, but I do not want to overinvest in a

529 plan. I'm worried about that. And I think that's what a lot of other parents are worried about as well, which is why this rule change is coming into place. And so, you know, I think that this is a really interesting thing that I'm going to noodle on and do more research into. And I think that I probably will put in up to that $35,000 limit in the next year or two for each of my children's future college education costs and potentially be able to convert those into a Roth. If I can do that for both me and my wife, for example, I'll probably do that for both of them up to that amount and use that as part of the way to fund college education. But it doesn't change the fact that my overall plan to finance my children's future college education is by growing my own personal net worth

to a point where I can fund that college education from a variety of sources, like a cash out refinanced rental property or just the passive cash flow from my portfolio in 10 to 15 years. Well, Kyle, thanks so much for joining me today on the Bigger Pockets Money Show. Really fun to react to a lot of these headlines with you. Lots of things going on in the world that just kind of make tweaks or subtle changes to the overall strategy that we pursue and trying to optimize this path toward financial independence and long-term wealth. All right. That wraps up this episode of the Bigger Pockets Money podcast. He is Kyle Mast, and I am Scott Trench saying, it's been real, baby seal. If you enjoyed today's episode,

please give us a five-star review on Spotify or Apple. And if you're looking for even more money content, feel free to visit our YouTube channel at YouTube.com slash bigger pockets money. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kaylin Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.