NerdWallet's Smart Money Podcast - Small Business Benefits, and Buying a Hybrid

Episode Date: May 2, 2022

Shopping at small businesses may offer more benefits than you know, including access to exclusive deals and insider information. To start this episode, Sean and Liz talk about the benefits of shopping at small businesses.  Then they answer a listener’s money question about whether switching to a hybrid vehicle is a smart financial move right now.  To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Timestamps: This Week in Your Money segment: 0:00 - 10:14  Money Question segment: 10:15 - 31:07  Also, we have a callout for parents who listen to Smart Money. We are working on a new series about the cost of child care, and we want to know: How are you paying for child care? Where does it fit in your budget? And have you had to make sacrifices to make these costs work?  Leave a voicemail on the Nerd hotline at 901-730-6373, or email a voice memo to [e-mail]. Tell us how you're making child care costs work for you and your family.

Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Liz Weston. And I'm Sean Piles. Let the nerds answer your money questions. You can call or text us at 901-730-6373. That's 901-730-NERD or email us at podcast at nerdwallet.com. Follow us wherever you get your podcasts to get new episodes delivered to your devices every Monday. If you like what you hear, please leave us a review and tell your friends. In this episode, we'll tackle a listener's question about whether switching to a hybrid

vehicle is a smart financial move. But first in our This Week in Your Money segment, it's National Small Business Week. It sure is. Over the past couple years, small businesses have really been through the ringer. I'm sure we all remember the calls to support local businesses and small businesses in general early on in the pandemic. And NerdWallet actually did a survey in 2021 that found that 51% of Americans made an extra effort to shop small in 2020, and around 40% were still doing so a year later. Oh, that's good to hear.

Actually, Sean, when you proposed this topic, I was like, why are we talking about this now? Normally, we talk about small business in November and December when people are buying holiday gifts. But we wanted to talk about it now because there are good reasons to shop local or shop small all year long for your community, but also for your wallet and for your shopping experience. Exactly. And I think it's great to talk about it now because it helps you build up the habit and the mindset around shopping local. And there are so many great benefits of it. One that I love is that you never know when you'll get a deal. If you're buying something like furniture,

for example, the store might potentially offer you free shipping. And anyone who's ever bought furniture online from one of those big stores knows that shipping can get quite expensive. Yes. Well, and both you and I are gardeners and going to a local nursery can be eye-opening. If you go to a big chain, you're likely to see the same kind of plants. You go to a smaller nursery and you'll see plants you don't see elsewhere. Also, the people know what they're talking about. You can ask them questions and get responses that make sense. Yeah, that's absolutely true. And in my experience, there's a place in Portland that we like to go to a lot. And if you buy a plant that they guarantee will do well that

year and it just doesn't for whatever reason, it totally dies, they will actually replace it for you for free. So that's great. It's a really good deal. Yeah. And there can be discounts and freebies if you are a regular customer. A lot of the small places now have loyalty programs just like the big chains. Yeah. And one thing that I think folks might not think about is that you can get benefits of shopping small, even with online vendors. Like I've mentioned in the past that I'm really big on buying vintage clothing from eBay. And there are a few vendors that I frequent. And at this point, I usually try to cut a deal with them because it's easier to do so online than in person in my experience. And I found that they tend to give me the better deals. And I've

even had one vendor say, Hey, I know you've shopped with us before. I'm going to cut you this deal, even though I typically wouldn't because you'll probably buy from me again. So that can make a big difference. Yeah, I wouldn't have expected that. I wouldn't think that you could negotiate online, but why not? Exactly. And one thing you kind of were touching on before is that you can get a more personalized customer service experience that can save you time and stress when you shop at small businesses. That's absolutely true. And something else to mention is that possibly that small business can offer you a workaround if there are supply chain issues. That's right. Knowing the owner of a local business can actually get you access to inside

information about when a product you're looking for might be available. And they know their industry so well, they'll be able to offer you alternatives. And Sean, you mentioned getting plants replaced, but a small business can also help you if something is broken or not functioning properly, right? Yeah, the business that sold it to you, say it's a local electronics store, and they sell you something, they can probably help you figure out what is broken on the machine and find a solution for you. I had had this experience with my typewriter, actually. I was given one as a gift when I graduated high school. This thing is many decades older than I am. And surprise, surprise, it doesn't work super well.

I went to a local typewriter repair place in Portland and they knew exactly what the issue was and repaired it right then and there, even though I didn't buy it from them originally. Oh, that's very cool. And one of the best benefits from shopping at a small business or a local business, in my experience, is that you can tap a deep well of expertise around wherever you're shopping. A lot of people who work at specialty retail stores tend to know a lot about their products.

One of my best friends in Portland works at a local pet supply store where they have all sorts of specialty goods. And I have two very picky animals in my house that decide every three months or so that they just don't want the food that they've been eating for the past few months. And so it's up to me to figure out what will pique their interest and get them to actually consume food again. So she is hugely beneficial in helping me sift through all of these very confusing, organic, complicated types of food to find what my pets might like. The other thing I like is when you call a local business, you're much less likely to wind up in voicemail hell where you just keep punching numbers trying to find a real person. A lot of times they

just answer the phone and you can talk with them. And in my experience, you may have to wait a little bit longer on hold. But that makes up for the frustration of being put through all of these automated systems. And the other thing I like about the smaller businesses and smaller stores is it feels more curated. You're not just confronted with massive aisles full of stuff and wandering around trying to find what you're looking for. And I like that anywhere, whether it's a small boutique or a small hardware store. The stuff I need is going to be there for me to find most of the time. And that can also help minimize temptation because you know that you're there for a few specific things and you're less likely to get totally sidetracked or as I call it targeted.

Like when you go into target and you end up getting all this stuff that you don't need. And when you go to a specialty store, that's just less likely to happen. And another great benefit is that you keep your money in your community when you shop at a local business. According to the U.S. Small Business Administration, when you spend $100 at a small business, $48 stay in your community. Whereas if you spent the same $100 at a big box store or national retailer, only $14 would stay in your community. Whoa, that's huge. That's a big difference. It really is. So Sean, how do you remind yourself to shop small?

What kind of changes have you made in the past couple of years? For me, I really focus on getting specialty items at local stores. And as I mentioned before, I go to a local pet supply place for my cat and my dog. But I also have a gecko that needs crickets. And one hugely underreported story about the pandemic is that there was a big cricket shortage for a long time. And I had a hard time pinning down where I was getting Aussie crickets weekly. And I found that the local place that I went to in Portland tended to have crickets more regularly. And when I got them from

there, as opposed to the big national store in my neighborhood, the crickets tended to be less loud, like crickets, as you know, chirp, but not all of them do. And for whatever reason, the one from the local place didn't chirp. So they were more reliable and they were less annoying to me, which is hugely important. And so I made a big habit of going there and I still go there pretty much every week to get my geckos and crickets. So that's a big one. Another one is running supplies. I got into running in the past year. And when I first started out, I bought shoes online from a retailer that I thought looked really cool. And I got them ran a few miles. They were totally wrong for me. So I did it again. I bought another pair of shoes from another retailer online, and they didn't work out for me. So I figured, let me just go into a local place. They'll figure out what shoes are right for me. And I bought them. They're great. I've been using them for quite a while now. And I kind of made the decision in that moment that, you know, running supplies aren't something I'm buying every single week. When it's time for me to get new socks or a new pair of shoes, why not just go to this place? Because I know that they can help me find what's right for me. Yes. And with running, it's really important to get the right shoe. Yeah. You can injure yourself if you're not wearing the right shoes or you'll just be bogged down. I was running in these shoes for a while that were technically hiking shoes, but they looked super cool. And when I went into the running store, yeah, exactly. When I went into

the running store and I said, Hey, I've been running in these, they're wearing down in this kind of strange way. The guy looked at me like you've been running in these. And I was like, yes, I know. I understand that I'm a little bit of a fool, but please help me make some smart decisions. So anyway, those are the areas that I focus on. And as we mentioned before, gardening supplies are huge for me. And there's a place right down the street that we love to go to. So that's what I like to do. I like to focus on what is distinct and special and not just like everyday items like groceries. I end up going to a national chain for that, but it helps me stay focused and know where I can get items from a local small business. So what about you, Liz? Where do you shop? Well, Farmer's Markets is one place where

obviously you're connecting with small businesses, but the other one is hardware stores or neighborhood hardware store is small, but it's mighty. I very rarely go in there and don't get what I need. And half the time I have a question that one of the guys behind the counter can answer. It's just a huge improvement to me over the big box chain. If I do have to go to a larger store, I'd go to a local chain called Anna Walt Lumber, and they typically have everything I need. So I can stay out of the big box stores, I can get what I need, and then get on with whatever project is consuming my time, attention, blood, sweat, and tears, all that stuff. And money. Yeah. Very cool.

All right. Well, before we move on to this episode's money question segment, we have a call out for all the parents that listen to Smart Money. We're working on a new series about the cost of child care, and we want to know how are you paying for child care? Where does it fit into your budget? And have you had to make other sacrifices to make these costs work? at 901-730-6373 and leave a voicemail or email a voice memo to podcast at nerdwallet.com and tell us how you're making childcare costs work for you and your family. Okay, well, let's get to this episode's money question. This episode's money question comes from Brian who sent us an email. They wrote, Hi, nerds. I love listening to your advice during my commute. Speaking of commuting,

I have a question regarding cars and the current crazy car and gas price market. Should I trade in my SUV for a new hybrid so that you have a bit of background? I am able to work remotely most of the time having to go into the office only one or two times per week. However, because I am able to work remotely, I decided to buy a house in Bakersfield, California, with the money I would have been paying for an apartment's rent in Los Angeles, California. Therefore, my commute is about two hours when I have to go into the office. With gas prices rising, I am wondering if right now would be a good time to trade in my SUV, which gives me about 31 miles per gallon. For a hybrid, that would give me over 45 miles per gallon. In a normal market, I would probably trade in my SUV for another used hybrid. However,

since used cars cost almost as much as new cars, should I get a new hybrid? In summary, is now the best time to trade in my SUV, since its value seems to be at its highest, for a new hybrid car that'd give me better gas mileage, potentially overpaying for it, or should I just wait? Thanks and keep up the great work, Brian. I think a lot of people are trying to do this calculus right now. So to help us answer Brian's question on this episode of the podcast, we're joined by our go-to autos nerd, Phil Reed. Welcome back to the podcast, Bill. Good to be with you guys. Thanks. Phil, what do you think about our listener situation? It's one that I found myself in recently. I was considering selling my car, which takes premium for an electric vehicle.

And it's a pretty complicated equation to balance whether or not you're going to come out ahead. This is the kind of question that you get when gas prices go really high. I've seen this before. In my previous job working for Edmunds.com, we actually created what we call the gas guzzler trade-in calculator. No kidding. And I took Brian's information and I ran it through there. But before we get to the numbers here, I think it's always good to say when people are thinking of trading or switching cars, they may have one specific thing like I want to save money on gas. But there's probably three or four things that are in Brian's wish list, perhaps. And one of

the things I sense is he wants to save fuel. And it would be a good thing because it would also reduce the carbon emissions. So sometimes you can look at the actual data and say, no, it doesn't make sense. But then you look at the bigger picture and you say, it feels like the right thing to do and I want to do it. So I just kind of wanted to throw that out as a caveat up front. That the dollars aren't everything. It's also about the broader impact sometimes. It is. And the thing that makes cars interesting is that there's the dollars and cents, there's ecological issues. There's also image. You know, some people really want to be in a certain type of car, particularly in California.

So, yeah, there's a whole thing, a bunch of things wrapped up in this question. Very interesting question. So since we're nerds, I guess we should look at the numbers first. Let's do it. And what are they telling us? So I ran it through the calculator, which is, if anybody wants to look it up, it's called car cost versus gas mileage calculator. So you put in the car that you want to get.

And so the go-to hybrid for everyone is a Toyota Prius. I chose a 2021, even though there might be 2022s around. It's giving me a price, which is probably about $27,000. And it says it gets 52 miles per gallon. His SUV gets 31 miles per gallon. So if you put all of that in, and you say that he drives 1000 miles a month, with gas prices, I just took a guess at 625 a gallon, he would save $69 a month. $69 a month probably feels like a really nice savings. You know, that's really almost the cost of a tank of gas. But the problem is, is that the break-even point, which means how much do you have to save in gas to pay for the transition

from one car to another car? So you're paying more for the car. You're also paying sales tax, which is very substantial. I mean, well, it comes out to between 10 and 11%. And then registration costs and registration costs on a brand new car is more expensive than a used car. So according to the calculator, it would take 104 months to pay back that transition from one car to the other. So I guess the answer is no, it doesn't really make financial sense for him to do this. But it's good to know and start with the idea of, well, you know, I did the numbers that I'm looking at, but I still want to do it for these other reasons. Well, and Phil, as the owner of a plug-in hybrid, I own a Chevy Volt.

I know that one of the great benefits of having this car is the fact I can use the carpool lane. And I'm not sure that all hybrids can still get the sticker that allow you to use the carpool lane in California. But if our listener really is facing a two-hour commute, and I would suggest it's going to be a heck of a lot longer most of the time to get from Bakersfield into L.A. Maybe that sticker would alone be enough. Right. With a hybrid, you don't get the carpool lanes. But with a plug-in hybrid, which is what you have, you do get the carpool lanes.

Interesting. And then all electric cars and also hydrogen cars do get the carpool lanes still. And I'm driving an electric car now. And it's been interesting to see gas prices rise. But then I also do get access to the carpool lane. And on a busy day, you're tired. It can save you 15, 20 minutes on an hour commute. That's pretty significant. Yeah. So that's a good reason to do it. So this is an example of a number of connected pieces to making a decision about what kind of car to drive or whether to make a transition. I do wonder about what our listeners' current car payment is because I went through this exact situation about a month ago, right when gas prices began to skyrocket because I have a car that requires premium gas.

And in Washington, the gas is not as expensive as in California, that's for sure. But it's not cheap by any means. So I began to look into what would it be like if I was to trade in my car for a hybrid or an electric vehicle. Unfortunately, my car payment is pretty affordable. It's like $330 a month, which is not bad. But all of the electric cars I was looking at would have had my car payment be around $500 a month, which is a huge jump and very clearly made it not worth it for me. Right, right. Well, almost everybody knows the prices of all cars have gone up, but the prices for hybrid and electric cars have gone way up. So again, you know, you're making a transition,

you're getting more for your trade in, but you're paying way more for the new car that you want to get. Right? Because I was looking at most electric vehicles, and they were like $45,000, somewhere even $50,000. And yes, there are more affordable ones. But I was shocked at how expensive they were. Right. Trying to price out an electric car is complicated because you have the sticker price. You might have a premium that dealers are charging now. But then to offset that, you have quite a few incentives. Probably the biggest one is a federal tax credit. Phil, can you talk a little bit about the tax advantages of buying an electric or a hybrid car?

Well, if you purchase an electric car and a plug-in hybrid, you get a federal tax credit of up to $7,500. That might vary slightly on different models. But this is a substantial reduction of the rather high purchase price. But you have to keep in mind that not everybody can use that credit. And you have to wait to the end of the year to be able to use it. So it's very powerful for some people, but not for everyone. Okay. And for context, a tax credit offsets the tax bill that you owe. So if you don't have a big tax bill, you might not be able to use all of the credit. This is such a turbulent time, you know, with microchip shortages driving up the price of all

cars, but electric cars in particular. But interesting things are happening in the electric car field. The biggest one probably that would affect consumers choices is that the ranges now have moved into the 200 miles, the car I have is 258 miles. And then to further improve the situation, almost all new electric cars have fast chargers. I just drove mine to Las Vegas, and I stopped in Baker, and they had plenty of chargers there. And in the time it took for me to eat a sandwich and visit the restroom, I'd gotten 125 additional miles. I chose a Volt because it has the gas backup engine that I never have to worry about running out of power. I can always pull up to a gas station, get some gas that charges the battery and off I go. But if you could get a

charge that basically tanks you up for another couple of hours in the time it takes you to eat a sandwich, that's a pretty good deal. Yeah. And yeah the plug-in hybrid like the one that you have is a really good transition what people are finding is that they rarely go and use the gas engine i think the volt has a setup where if you don't use the gas engine for like a number of months it will actually run the engine just to circulate the gas make sure it it's working. Yes. It's always a little alarming when that happens, but that means that I've been like not using gas for weeks and weeks, which is kind of cool. I do want to dig into hybrid vehicles in particular, because I have heard that they are the best of both worlds on one hand, and also the worst on the other hand.

Like it's great that you can be able to switch through being powered by electric or gas if you need to if you do run low on your battery by some chance you have that gas just to back you up and get you to where you need to go but i was talking with my mechanic and she was telling me that hybrids are the worst of both worlds when it comes to repairs because they can have issues with electrical problems and the general combustion engine problems that cars tend to have. What do you think about that, Phil? Well, the problem with a hybrid is that you have two power trains. So, I mean, a plug-in hybrid.

You know, you have the electric, and like Liz's car will run all electric most of the time, but then on gas. So, you're kind of looking around two engines. That's one way to look at it. So to me, that strikes me as being a little bit wasteful. You're paying for two separate powertrains. But I understand too, that it's a smaller gas engine rarely comes on. So there won't be a lot of wear and tear on that engine as long as you maintain it correctly. But going back to what you said, Sean, there's a lot of misinformation and a lot of sort of anecdotal information about hybrids. I just sort of sense that people are trying to find a

reason why they can't be as good as they seem to be. Maybe it's in human nature, but it's often the case with new things. It's like, well, yeah, they sound good, but, and then there's something. What's the catch? Yeah. I remember that when the Prius first came out, everybody was moaning and groaning about the battery causing all these problems, and they didn't. People were very happy with it. Right.

Well, the thing I hear the most often is like, oh, well, it's all well and good, But if you need to replace your battery, it's fill in the blank, you know, whatever high number makes you sort of feel like, well, I'll stick with my gas engine. There was a long article in the LA Times about getting an electric car, you can get an electric car through a subscription service. Now, part of the problem is you can't find electric cars right now, or it's more difficult. But this is a subscription service that allows you to subscribe and you pay $490 a month for a Tesla, which is really good. It's not nothing, but it's cheaper than probably a standard payment would be. Yeah. And what jumped out at me was they interviewed a guy and he had been a longtime pickup truck driver. And he said, the last time I went to fill up, I spent $137 to fill up. And I just said, enough, I'm going to buy an electric car.

Going from one end of the spectrum to the other, pickup truck, electric car, you know, and he said, I just have to have one. So funny little observation that I've had, which is Americans think gasoline prices should be within a certain range. And when they're out of that, they kind of lose their minds. It's true. Like I remember my mother came through World War II, said the price of a hamburger should be whatever it was when she was 25 years old. Yes. People have that reaction to gas. I mean, our gas is a lot cheaper than in Europe, obviously. And we have enormous freedom to go wherever you want. Gas stations seem to be everywhere. But you raise the price into the $6 range, at least here in California, and suddenly people are rethinking all of it.

Yes. I want to talk a little bit about buying versus leasing a hybrid. Because in the past, you've said that with electric cars in particular, because the technology is evolving so rapidly, it typically makes sense to lease the vehicle rather than buy it. Because by the time your lease is up, you can just trade it in for the newer model that has better technology. Is your thinking the same for a hybrid? Hybrids are a little different. I mean, like if you look at a Toyota Prius, we have lots of information about these cars lasting easily 200,000 miles. And in some cases, the batteries are not degrading. I mean, the problem is, is that they just don't take as much of a charge over time. But it hasn't been the drop off that they predicted. So if you wanted to buy a Toyota Prius, buy it, finance it, keep it. You could be in that car easily 10 years without any problem. But I would say electric cars, because the whole electric car field is just evolving so rapidly. We are just getting so many more options. And there's a lot of things in the

pipeline now. Some of them are pretty affordable. They're also building out the charging network so that you can begin to take road trips in these vehicles. In the trip that I just was mentioning, I stopped in Baker and there was a whole bunch of chargers. And I've been through there a number of times. Nobody's using them. When I was there on a Sunday afternoon, nearly all of the Tesla chargers were taken and there were like 40 of them. Oh my, wow. The other EV section had four people charging. There were about a dozen chargers available. So I feel like it's happening and I like to stop and talk to people. Why did you buy an electric car? How do you like it? What are the problems? So it's something that I think that the choice has been made. They kicked around all these ideas like natural gas cars, hydrogen cars, but I think it's going to be electric cars in the future.

I want to turn now to the question of timing, because our listener is wondering whether they should wait until the market potentially improves. And I know we've talked with you about this a few times, but what is your crystal ball forecast as to whether the car market will improve anytime soon? And if so, whether it would be better for Brian or other folks looking to shop around for a car to wait? Or should they just dive in because it's going to be bad for a while? The predictions are that it's going to be more or less like it is now, at least through the summer. There are actually cars waiting at the port, and they need microchips. So they're just waiting there. And then they'll install the microchips and then deliver them to the dealerships. And that doesn't seem to be improving quickly. So this is

really not a good time to make a change. I mean, you'll get more for your trade-in, but then you'll pay more for the car. But that said, this is a vast country with many, many choices, and there can be outliers. And using the internet, you can search all over the place. You can find a car on a dealer slot that's priced well. So if you're willing to do the research and you really want to make a switch, it's not impossible. But bear in mind, it's a tough market and it would probably help to wait. But that wait could be a year. Wow. Which is a long time to pay expensive gas prices if you're ready to make a switch. But the thing is, when you really do the numbers like we have been doing here, you see that it's not, people are going to kill me for saying

this, but it's not as bad as it seems. You stand next to a gas pump and you just watch those numbers just whirling and you're going, oh my gosh, how much am I paying? But then when you look at the possibility of making switch to a more fuel efficient car is so expensive, but those costs are hidden in a sense. You're not standing next to a giant meter that's showing you this thing. So, you know, so much about it seems to be trying to make yourself feel better. Yeah. And often it's like feel better in the short term, but worse in the long term.

Oh yes. And we are so prone to that as human beings. We'll grab the short-term solution and not think about the consequences. And particularly in economic issues, it's like you want to grasp at that thing. So if you were to switch to a hybrid and you go and you fill up and instead of paying $60 or $70, now all of a sudden you're paying $40. You go, oh, yes, this is so much better. Meanwhile, you spent $5,000 on a down payment, plus registration, plus taxes, and you're out a lot of money. Yes. So a very interesting question. Do you have any final thoughts for our listener or anyone else considering making the jump like I was recently?

There's a couple of things. First of all, do the numbers like we've done here. Take advantage of online calculators that make it a lot easier. I would also encourage people, there's a really excellent website. It's called fueleconomy.gov. It has all the cars listed. It has all of the fuel economy. And also, pay attention to how much it costs to run the car for a year for 12,000 miles. That's sort of the biggest factor there. The higher the gas prices go, the quicker you pay off the break-even point. So those are some things to keep your eye on. But don't panic. There are other things you can do. I just recently wrote an article about ways to drive more economically. You can also purchase gas smarter, use GasBuddy and apps like

that. Those are things you can do immediately without any upfront investment. What you really want to do is look for things that have a measurable improvement on your situation. And I really think that if people kind of combine gas buying strategies with driving and sensible driving strategies, you can probably reduce your fuel costs by about 20% right away. Yeah. Well, Brian may have been going a hundred miles an hour from Bakersfield to LA in

just a couple hours. So maybe he needs to slow down a little bit. Sure. Well, you know, there's advantages to driving the speed limit. That's true. I don't know. I don't know about that, Bill. It's sure fun to go fast.

Yes. Well, thank you so much for joining us. Well, good to talk to you guys. Thanks for having me. Sure thing. With that, let's get on to our takeaway tips. First up, understand total costs. Transitioning from one vehicle to another is always more costly than you imagine because of registration fees and sales tax.

Next, put expenses in context. While climbing gas prices are a shock, dig into your budget so you understand the real impact on your finances. Finally, know your break-even point. If your intention is to save money, it could take a while for the gas savings to pay for the transition to a new vehicle. And that is all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdwallet.com and visit nerdwallet.com

slash podcast for more info on this episode. Also, be sure to subscribe, rate and review us wherever you're getting this podcast. Here's our brief disclaimer thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but 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. Until next time, turn to the nerds.