NerdWallet's Smart Money Podcast - Money News: How a Government Shutdown Could Impact Your Finances

Episode Date: September 20, 2023

Learn how a government shutdown would impact your finances. Plus: updates on inflation, retail sales and Delta SkyMiles. In this financial news roundup, hosts Sean Pyles and Anna Helhoski touch on key headlines such as what the latest Consumer Price Index tells us about inflation, the reason why retail sales are surging, and controversial changes to Delta Airlines' SkyMiles program. They then take a close look at the looming threat of a government shutdown in Congress, particularly in the House of Representatives. Learn about the complex backdrop of budget negotiations, the economic consequences of a government shutdown, its impact on federal employees, and precautions you could take in order to prepare for financial challenges during a shutdown. In their conversation, the Nerds discuss: personal finance news, inflation, retail sales, the Consumer Price Index (CPI), Delta SkyMiles changes, a potential government shutdown, the Fiscal Responsibility Act, budget negotiations, government funding, federal employees, essential bills, financial assistance, federal benefits, interest rates, used car prices, rental rates, airfares, Social Security, Medicare, Medicaid, SNAP benefits, government shutdown consequences, and bill prioritization. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail].

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Hilhoski. And this is our weekly personal finance news roundup, where we take a look at recent developments in the world of money, and then go in-depth on an issue that's important to your life and your bottom line. In a moment, we're going to take a deeper look at what's happening in the political world as Congress, specifically the House of Representatives, struggles to avoid a government shutdown in less than two weeks. We'll take a look at what it could mean for your finances. First, a few money headlines from the last few days. The latest consumer price index is out. The CPI measures inflation, and unfortunately, Anna, it rose by 0.6% in August,

up from July figures. A big part of the increase was gas prices, which you may have noticed at the pump last month. The fuel price hike accounted for more than half of the bump in inflation. That's according to the Bureau of Labor Statistics. Womp womp. Yeah, the core rate, which excludes food and energy, rose 0.3%, which isn't a lot, but prices overall were declining over the past few months, so any rise will make some folks nervous. Any specific findings out of that core rate? Yeah, rents were up, same with vehicle insurance rates, and airfares too, but prices for used cars and trucks declined, which is a different story from the one we were hearing a year ago at this time. And this is all fodder for the Federal Reserve's meeting this week, but we'll have a wrap on that in next week's show. And we got the latest retail sales numbers, and yes, we're spending lots of money.

Guess what we're spending it on? Mmm, gas? latest retail sales numbers. And yes, we're spending lots of money. Guess what we're spending it on? Gas? That's right, Sean. Not just gas, but that was also a reason for a spike in spending in August, according to figures from the Commerce Department. Retail sales rose 0.6%, slightly faster than in July. Takeout gas and sales were up just 0.2%. Okay, where else were we spending aside from at the pump? Well, we were hungry, spending rows at both restaurants and grocery stores. And of course, that old August standby back to school sales. And we mentioned the Fed, they're watching these figures closely as well. People are still forking out money for all kinds of things, despite the hike in interest rates. That's a trend that doesn't appear to be going away yet.

And our final headline, Anna, is a bunch of super not happy people who fly Delta Airlines. Oh no, I'm flying Delta next week. Sounds like less than friendly skies. Yeah, that's for sure. Recently, Delta announced some changes to its Sky Miles program, and to put it mildly, they were not well received. The biggest bugaboo is around how you can qualify for elite status with the airline. It's scrapping what it called Medallion Qualifying Miles, or MQMs, and Medallion Qualifying Segments, or MQSs, and will instead use Medallion Qualifying Dollars, or MQDs. That's an alphabet soup if I ever saw one. Yeah, a lot of M's and Q's, but starting in January 2024, MQDs, Medallion Qualifying Dollars, will be the only measurement for gaining SkyMiles status.

Delta is saying that the changes make the SkyMiles program simpler to navigate, but for consumers, the program really becomes all about how much you're spending instead of how much you're flying. And I assume that will count everything you spend through Delta. So it might be a flight, but it could also be booking a hotel through Delta or a rental car or vacation or using any of a number of Delta credit cards for everyday purposes, right? That is correct.

But it also got new benchmarks for achieving elite status, silver, gold, platinum, and diamond. And are the levels getting more difficult to achieve? That's what SkyMiles members are saying. There are also changes to million miler status, as well as access to SkyClub airport lounges. Suffice it to say, there's been the slightest bit of blowback on social media. Well, I'm curious to hear from our Delta Miles listeners what they think of all this, so get in touch and tell us. And we'll have more details on all these changes in the future show, so keep an ear out. All right, that's what we saw and heard about over the past week in Money News.

Let us know we missed and send us the headlines you've seen and want to hear more about. And now onto our in-depth look at how a government shutdown might affect you and your finances. It looks like the government is barreling toward a shutdown, which could cause all kinds of problems for federal employees and with federal programs like the National Parks Service. And there isn't a lot of time left for Congress to act. The government could shut down as soon as October 1st. So, Ana, tell us how we got here. Well, Sean, you actually have to rewind to earlier this year. This new concern comes just months after the federal government skirted what would have likely been an economic disaster. In case you forgot, here's a refresh. The U.S. hit its debt ceiling in January. Usually Congress just agrees to raise the debt ceiling, but House Republicans took it as an opportunity to negotiate. Those negotiations

led to months of will we or won't we default on our debt. In the end, the White House and House Speaker Kevin McCarthy brokered an agreement called the Fiscal Responsibility Act. It was signed in June and included a discretionary spending cap of $1.59 trillion for two years. I'm bothering to tell you all this because the Fiscal Responsibility Act is back in the limelight as Congress considers bills to fund federal agencies for the 2024 fiscal year. I want to get into the Fiscal Responsibility Act a little more, but I think we need to explain some basics on how this type of government funding works. So in order to spend money, federal agencies are legally required to get appropriations approved. That's a jargony word that just means the money an agency can use for specific purposes. Approval

for that comes from Congress. Right now, there are 12 standard appropriation bills that Congress must approve in order to fund 12 major federal agencies before the 2024 fiscal year begins on October 1st, hence the October 1st shutdown deadline. So that brings us back to the Fiscal Responsibility Act. Anna, can you tell us what it has to do with this impasse? As I mentioned before, the act includes a discretionary spending cap of $1.59 trillion for two years. The Senate has passed an appropriations bill that is in line with that agreement, but House Republicans are once again seizing on this moment to negotiate that spending level down to the 2022 budget. There are also some provisions House Republicans want that have to do with social issues like abortion that are just not going to pass the Democrat-led Senate.

To top it all off, the White House is also asking for additional emergency funding for things like FEMA, border security, and aid to Ukraine in its war with Russia. So all of that is what's slowing down the spending approval process and may lead to a government shutdown. What's interesting, Ana, is that government shutdowns had been getting pretty rare. Yep, there were 14 government shutdowns in the 70s and 80s, but only five of them since 1995. That's right, we had three during Trump's term alone. Most shutdowns last a week or less, but you might recall that the last shutdown was the longest one ever, 34 full days beginning in December 2018 and ending in January 2019. Shutdowns are also really expensive and can have some broader economic impact. That 2018-2019 partial shutdown cost $18 billion in federal

discretionary spending, and it also reduced the country's GDP by $8 billion, unadjusted for inflation. This shutdown could cost more, depending on how long it lasts. A partial shutdown only happens when Congress passes some, but not all, of the required appropriations. In this situation, a partial shutdown isn't looking likely because none of those bills have been adopted or seem like they will be adopted anytime soon. That's right. The more likely scenario is a full shutdown. When that happens, several federal agencies are forced to suspend non-essential services. How they do this tends to be up to the agencies themselves. They all have their own contingency plans, but they usually include employee furloughs and reduced services.

So for instance, if you wanted to go to a national park, that's not happening during a shutdown. If you're trying to reach the IRS's customer service line or federal student aid assistance, you won't be able to do that either. Right, but it doesn't affect all services. Correct. Only about a quarter would see an impact. Any programs that receive mandatory funding will keep going. That's things like air traffic control, border protection, law enforcement, and power grid maintenance. Some other programs have mandatory funding, but you may see service reduced. Social Security, Medicare and Medicaid, SNAP. Yes. So for example, if you receive Social Security benefits, you'll still receive a check, but benefits verifications might be suspended. If you

receive SNAP benefits to pay for food, those benefits are only paid out for 30 days during a shutdown. Right. During the last shutdown, which did last longer than 30 days, the USDA had to get special authority to keep issuing SNAP benefits. All around, a shutdown has some negative effects that will affect not just how the government operates, but on regular people too. If you have a business with a federal contract, a shutdown could make it more difficult to get funding. If you're buying a home, a shutdown could delay loan approvals for a government-backed loan or change your closing date. But in reality, federal employees are going to be the ones to bear the brunt since they're the ones who are furloughed and won't be earning any money. Right. And that's a real hardship for those workers. Okay, so back to this potential shutdown.

Both houses of Congress need to come to an agreement on a spending bill before it can be sent to the president to sign. Yes, but with a divided Congress, that's easier said than done. If a deal isn't reached before the deadline, what Congress could do is pass a stopgap, known as a continuing resolution, to temporarily keep the government functioning. So has there been any progress to avert a shutdown or pass a short-term spending bill? It depends on what you consider progress. So on Sunday night, House Republicans proposed a stopgap that would fund the government through October 31st to avoid an October 1st shutdown. That proposal includes a roughly 8% cut to domestic spending. But even if it passes the House, it's highly likely it would be dead

on arrival in the Senate. That's the latest as of Tuesday afternoon when we're recording this. Congress remains heavily divided, which increases the probability that we will see a shutdown come October 1st. Whenever we do see a resolution to this impasse, it's likely that appropriations will be bundled into a single omnibus bill. So it's looking pretty grim right now. Especially for federal workers who get furloughed. So as I said before, they're the ones that are going to be bearing the biggest brunt. What kind of advice do you have for them, Sean? The goal is to keep your head above water. So making payments on non-negotiable essential bills is a priority, even if it's just the minimum. If you miss your credit card payment,

it won't be reported as delinquent as long as you make a minimum payment within 30 days. For payments on a personal loan, auto loan, or mortgage, contact your lender as soon as you can. You might be able to postpone payments. An auto lender might also extend your loan term to lower your payment amount, and a mortgage lender might offer a short-term loan. If you're buying a home and have a government-backed loan, talk with your real estate agent or landlord about flexibility with moving dates. Federal student loan payments restart in October. No late payments will be reported, so you may have some time. Depending on how long a shutdown lasts, you might want to ask for a temporary forbearance or apply for income-driven repayment with your servicer. During that time, your loan would be in forbearance,

although interest will continue to accrue in both situations. Now, if you're a small business owner and the shutdown delays your U.S. Small Business Administration loan approval, you might want to stick it out or look for alternatives like a private loan. But with those, rates are likely to be higher. Also, Sean, during previous shutdowns, some credit unions and banks also offered no interest or low interest loans to furloughed federal workers. So you might want to check with them too. During the last shutdown, it was also common for furloughed workers

to turn to gig work to get through it. So a government shutdown could be a real financial challenge for federal workers, but for other consumers, it's likely to be more of an inconvenience, particularly if you have a trip to a national park scheduled for early October, or if you closely follow the news, because we will be hearing a lot about this. That's right. Hopefully a shutdown, if it does happen, won't last for very long, but it'll be a real watch and wait scenario. That's it for this week's money news. We always welcome your money questions and comments. So turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember

to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Bigland and edited by Rick Vanderkneife. Kevin Tidmarsh makes our audio. And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.