NerdWallet's Smart Money Podcast - Money News: Save Money on Commuting Costs in a Changing Economy

Episode Date: October 25, 2023

Learn practical financial tips to save on rising commuting costs as workers increasingly return to the office. Before discussing the rising costs of commuting, hosts Sean Pyles and Anna Helhoski review noteworthy financial headlines, including the Federal Reserve's influence on interest rates, the latest Commerce Department report on retail sales, the Mercer CFA Institute’s Global Pension Index ranking of 47 different kinds of retirement systems from around the world, and the IRS's pilot program for free tax preparation software called Direct File. Then, Sean and Anna welcome NerdWallet’s Liz Renter to take a deep dive into the escalating costs of commuting to work. The Nerds explore the demographics of commuters, factors driving car ownership costs, the fluctuation in gas prices and the international events affecting fuel costs, and the used car market. They also discuss whether consumers can expect relief in the near future and share practical strategies for keeping costs down. In their conversation, the Nerds discuss: personal finance, money news, commuting, car ownership, money headlines, the Federal Reserve, interest rates, retirement systems, the IRS, tax preparation software, commuting costs, auto insurance, gas prices, used car prices, economic trends, carpooling, savings, consumer spending, government debt, wealth, retirement savings, and fuel costs. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

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. But before we get into this episode's headlines, I've got a call out for you, dear listener. Tell me about the absolute best thing that happened to you financially in 2023. Maybe you got serious about saving for retirement

or funded an international vacation on your credit card points. Whatever you did, I want to hear about it for a special end of year episode that we're putting together. Leave me a voicemail on the nerd hotline at 901-730-6373 or email a voice memo to podcast at nerdwallet.com. Yeah, you better do it because Sean won't stop asking for your stories until each and every one of you has shared yours.

That is the truth. I mean, I just love celebrating our listeners. So what can I say? Anyway, back to the news. Today, we're going to hit the road and talk about what's happening with commuting these days. More and more people are going back to the office, and that means getting back in the car. And that also means spending more money, because car ownership is getting more and more expensive. So we're going to have some tips for tamping down on those costs. But first, a few money headlines from the last few days. Ana, I feel like the Fed has become a guest that will never leave my home. Certainly a guest that you can't toss out the door because it has too much influence on your life.

Yeah, and I'm not saying I'm anti-Fed, but it does seem like every week we talk about how everybody's waiting to see what the Fed does because the stock market, housing market, credit card market, car market, and even supermarket feel the effects of its actions. That's what happens when you have interest rate power. Well, the Fed's Open Market Committee meets next week to decide whether it's going to raise rates again or keep them steady. Last week, Fed Chair Jerome Powell indicated that because treasury bond yields have spiked recently, that might do the job for the Fed. The yield on the 10-year T-note is just shy of 5%, and that means all kinds of debt that's tied to that number gets more expensive,

from government debt to mortgages and credit cards. They'll also be weighing current inflation figures as well as employment and spending. Speaking of spending, Americans are still shelling out like there's no tomorrow. The latest Commerce Department report on retail sales shows a 0.7% bump in September, and sales figures from July and August were revised upward, meaning we consumers were out in force throughout the third quarter. Ana, you buy anything fun over these past few months?

Not fun per se, but I did invest in a couple of new pretty rugged air purifiers after experiencing the joys of Canadian wildfire smoke that hit New York in June. What about you, Sean? Nothing as exciting as that. I mean, I did have a couple of trips during that time, and I certainly spent a lot of money on restaurants, hotels, and other miscellaneous vacation-related purchases. Well, all that spending complicates the job for the Fed, because the more we spend, the harder it is to keep inflation at bay. In some ways, all that spending isn't surprising, though, given that Fed data released last week showed that overall wealth in the U.S. jumped during the pandemic.

The survey of consumer finances showed that between 2019 and 2022, the median net worth in this country rose by 37 percent. 37 percent, Anna. I suppose it's not terribly surprising. I remember all the stories about how people saved so much during the pandemic because they weren't traveling and doing other things that would normally drain their bank accounts. A lot of people paid off credit cards and shoveled money into retirement and savings. Yeah, and some of that was because

of pandemic-related government largesse, as well as a tight job market that allowed folks to either get raises or move to jobs that paid them more money. Yeah, the median family income rose by 3% in that time period between 2019 and 2022. But if we hadn't been dealing with inflation, which erodes what our money is worth, that number would have risen to 20%.

Well, our wealth may be growing, but here's something we're not doing so well at, retirement. The Mercer CFA Institute recently released its Global Pension Index for 2023. It measures 47 different kinds of retirement systems around the world and ranks them based on factors like how much you get out of the system, how sustainable the system is, and how trustworthy it is. And here are the top three countries for each of those factors. How much you get. Number one is Portugal. Then the Netherlands.

Then Iceland. How sustainable the retirement system is. Iceland. Then Israel. Then Denmark. And how trustworthy. Finland. Then Belgium.

And Norway. Anna, I didn't hear the U.S. in there anywhere. No, you didn't. That's because we ranked 22nd overall out of 47 countries, Sean. Ouch. Well, given how much anxiety a lot of people have over their retirement savings, the impact of the whims of the stock market on all of it, and constant questions about the health of the social security system,

I suppose it's not surprising that an objective measure finds us, well, lacking. And our final headline, Sean, involves everyone's favorite, the Internal Revenue Service. Uh-oh. No, this is good and potentially helpful news as we're only a couple months away from tax season. The IRS has launched a pilot program that will allow some taxpayers to use a new free tax preparation software called DirectFile to file their 2023 taxes. So the idea is that this would potentially replace those expensive online filing services. Yep. And is this available to all taxpayers?

Not yet. As I said, this is a pilot program and and it's going to be available to people in 13 states, and only to people with pretty simple returns. So there are limits on what type of income you have, not how much income, as well as how many credits and deductions you utilize. So you won't be eligible if you itemize. The IRS says it will be interview-based, so the system will walk you through a series of questions, and it'll work on desktop, laptop, and mobile. Hmm, okay. How do I know if I'm eligible? Well, first, it'll be eligible for people in states where there's no income tax, plus four other states that agree to allow their state tax systems to work with the IRS's, and that's Arizona, California, New York, and Massachusetts. And then you'll get an invitation. Oh, so if I'm interested in this

program, this is one time I would want to hear from the IRS. Correct. Speaking of spooky, one more item here, Anna. I don't know if you get trick-or-treaters there in New York, but if you do, you might be spending more for candy this year. The National Retail Federation says we're expected to spend $3.6 billion this year on Halloween candy. That's up from $3.1 billion last year. Sweet tooth unite! Sweet teeth? Teeths? I don't know. Anyway, trick or treat, and that's all we saw and heard about over the last week in Money News. Let us know what we missed and send us headlines you've seen and want to hear more about. And now on to our in-depth look at the rising costs of the commute to work.

We'll be joined by NerdWall data writer Liz Renter. Liz Renter, welcome back to Smart Money. Hey guys, thanks for having me. So all three of us are sitting here working from home, likely in our pajamas, but a good chunk of the population isn't doing that. They're still commuting back and forth to work. Liz, you've recently been looking at commuting data. So how many commuters are there out there on any given day?

Well, in 2022, which is the most recent data that just came out from the U.S. Census, 161 million Americans were driving or carpooling to and from work, Sean. But you asked on any given day, and really that varies. I think the variation here underscores the story, which is that we're a very diverse workforce. So some folks are working from home, like you said, us in our pajamas, but 77% are hitting the road. Many of them from eight to five, Monday through Friday, you know, the traditional drive time, but many others on weekends and evenings and schedules that vary from day to day. Can you tell us what the demographics are in terms of the type of workers that are commuting? We know that remote work tends to favor white-collar office workers because a lot of blue-collar work, plumbing, cleaning, electrical work, et cetera, can only be done in person. So

what's coming up in the commuter figures? That's right, Ana. So some sectors are just a more natural fit for telecommuting. People who work from home are largely in the tech and professional services sectors. The industries making up most of the commuter workforce, however, are the obvious things that can't be done from your house, like retail, food services, construction, manufacturing, healthcare, and the like. And while there is a lot of variation within these industries, these sectors tend to be lower paying than those with telecommuting capabilities. So even though remote work and hybrid work is remaining more common, commuters are still going to outnumber telecommuters for the foreseeable future? Oh, absolutely, Sean. I think we've lost a little perspective over the past few years because we've heard so much about people working from home, the increase in

telecommuters, and now so many getting, quote, called back to the office. But in 2022, 15% of workers worked from home, and that means 85% didn't. Even in 2021, you know, closer to the height of the COVID shutdowns, 82% of workers weren't working from home. So the overwhelming majority of people have and will continue to hit the roads, walk, bike, or otherwise leave the house for work. But when we're talking about commuting in this context, this data is mainly focused on people who commute via cars, right? Not public transportation. Great point, Ana. Actually both. So that 85% that didn't work from home in 2022, that includes people who walked or took a bus or other forms of public transportation. Now,

in the recent analysis that I published, I looked specifically at drivers and carpoolers because they make up 77% of workers. But in 2022, 2% of workers walked to work and 3% use public transport. Got it. That makes sense. The vast majority of the U.S. doesn't have mass transit systems, let alone mass transit that's reliable or extensive enough to be a viable option if you're a commuter. So if you're not in New York, San Francisco, Boston, DC, Chicago, Seattle, Philadelphia, did I forget any? In smaller cities like Portland and Baltimore, you pretty much need to use a car to get to work. Yeah, absolutely. Can confirm. I'm in the rural Midwest and there are zero options for public transportation here. But even when I lived in mid-sized cities, both in the Midwest and in

the Southeast, the options were pretty mediocre. Right. And even in cities with mass transit systems, the ridership isn't what it was pre-pandemic. So I'm assuming there are probably more remote workers, but is it also safe to say there are likely more cars on the road as well? Excellent point. And yes, so those workers driving and carpooling used 116 million vehicles in 2022. Now that's up from 110 million the year before. But interestingly enough, some of those vehicles are being shared and carpoolers have almost reached pre-pandemic rates, whereas people who drive alone haven't yet. Liz, in terms of ownership costs, can you give us a sense of how things have changed

since the start of the pandemic from say 2019 to now? What does that graph look like? Well, I recently dug into those numbers looking at pricing changes or what we're referring to as ownership inflation. So all of the costs that go into keeping up your vehicle. And since 2019, those costs have risen 35%. The most recent data, which is for September, showed that these prices are continuing to grow at a pace of 11% year over year. So it's significantly higher than the

economy's overall inflation rate. So what's driving the cost of car ownership the most right now? Well, right now it's largely insurance. We've seen double digit percentage growth for about a year in auto insurance prices, according to the Consumer Price Index. However, over the past few years, it's been a combination of things. So that ownership index I developed considers gas, maintenance and repair, both the services and the parts, parking, insurance, and registration fees. And collectively, these costs grew at a double-digit rate from April 2021 to November 2022. And we're still feeling that impact. I don't want to pass over gas because I know that is a big contributing factor. But gas isn't as high as it was last year, though, right? Prices have dropped since their

peak in June 2022, roughly a 29% decline, according to the data from the U.S. Energy Information Administration, or EIA. But then we also saw a spike again this summer due to OPEC's oil output cuts, which should last at least to the end of the year. As a refresher for our listeners, OPEC is an organization of the leading oil producing countries that collectively influences the global oil market. OPEC and its allies, also known as OPEC Plus, includes Russia. It began limiting oil production supplies in 2022 in order to bolster the market. Yeah, that's right. OPEC Plus includes Russia. It began limiting oil production supplies in 2022 in order to bolster the market. Yeah, that's right. OPEC cut supply to keep prices high. However, most recently, U.S. demand has come down and that's allowed prices to fall. Part of this is seasonal. Demand

for gasoline typically falls in the autumn as people cut back on summer travel and drive less overall. But gas demand could also be lower than usual because of the sustained rise in telecommuters, right? Back to those guys. Though people working from home are a minority, there are more of us than before the pandemic, for sure. That 116 million commuter cars on the road that I mentioned in 2022, it's still 9 million fewer cars than in 2019.

So back to non-fuel related car costs, I saw recently that the cost of used cars is finally starting to decline. When you look at year over year wholesale price changes, the current prices are the lowest since March 2021, according to the Mannheim Used Vehicle Value Index. It tracks the price dealers pay for used cars at auction. Liz, does that mean consumers can expect lower retail used car prices coming soon? Well, that's right, Ana. The annual growth rate did come down slightly recently, but we're actually on the suspected tail end of a decline. So those relatively lower prices are likely already on the lots. Keep in mind, though, that used vehicle prices climbed so

significantly during 2020 and 2021 that what's lower now, say relative to six months ago, is still very high historically. So it won't look like savings if you're out on the car lot shopping. Also, now buyers have to think about the interest rates, right? If you're financing a used or a new vehicle, any price decreases could very well be undone by those higher rates. All right, well, let's try to give our listeners some help here on maybe defraying some of these costs in various ways. Liz, how can they make sure they're not paying more than they need to? Well, if you're hoping to save on ownership costs, I think the first place that I would look is your insurance. We know that just about one quarter of Americans regularly shop for auto insurance. And with your policy likely renewing every single year, it could be a major missed opportunity. So we recommend that you take a little time each year to compare rates, call your insurer and ask about discounts,

and really ensure your policy is still the right size for your vehicle and your driving habits. So someone with an older car that's paid off doesn't need the same coverage as someone making payments on a newer vehicle. Someone commuting to and from work every single day of the week might need more coverage than someone like me who might leave the house twice a week. Second thing I'd recommend is don't underestimate gas discount programs like those offered at grocery stores and gas station chains. They don't seem like much when you're reading the sign above the pump. It might say something like earn 100 points to get a dime off a gallon of gas. But when you stack those savings, they can really add up. And that's especially true if they're places that you're already spending money. And then finally,

the last tip and maybe the toughest sell is consider the carpool. 9% of workers carpooled in 2022. If you're the type that needs your morning drive to get your head in the game or sing, it can be a tough adjustment. But even if you're not a big fan of early morning company, carpooling can really help recoup some of what you're spending. And immediately, you know, you can get cash from your coworker every Friday for the gas money you're spending. And the solution doesn't have to be a permanent one. All right. Well, Liz, thank you for talking with us today. Yeah, thanks.

Yeah, absolutely. Thanks for having me back. And we do have to say that one more way to make that commute easier is to download and listen to NerdWallet's Smart Money Podcast. Okay, that's it for this week's money news. We always welcome your money questions and comments. Turn to the nerds and call or text your questions to 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. Also, remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Vigeland and edited by Rick Vanderkenyte.

Kevin Tidmarsh mixed our audio. And here's our brief disclaimer. time, turn to the nerds. Thank you.