6/2/25 The Money Reality Check: Consumer Costs, IRA Strategy, and Banking Myths Busted

The Moneywise Radio Show and Podcast Monday, June 2nd BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Manageme instagram: MoneywiseWealthManagement

• 0:00Speaker 00

  From the Garo Ellis padded radio room off Stockdale Highway, here is Money Wise. Call or text into the show 24/7 at 396-1000.

• 0:39Speaker 00

  Here is Money Wise.

• 0:40Speaker 01

  Money, money, money, money. Welcome to the Money Wise Show. We are live from the Garo Ellis padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call or text into the show 24 hours a day at 661-396-1000. Today, we're your hosts. I'm Sharad Wade and...

• 1:02Speaker 02

  Sammy Abiyawi.

• 1:03Speaker 01

  Sammy Abiyawi. Great seeing you, man.

• 1:06Speaker 02

  Yes, same here, man. I'm looking forward to the show.

• 1:09Speaker 01

  Yes, I am too, and I love getting questions, comments. We've got a few of them, and let's get going.

• 1:16Speaker 02

  That's right. The first one, "Hey, guys, I'm sure you would be talking tariffs, but how could tariff-related Fed policy changes affect Californian-Asia trade? Have a great afternoon."

• 1:27Speaker 01

  Gosh, what I love about this question is, right now, trade and tariffs are so much in the news, and it's so, I think it's really easy to simplify tariffs, or simplify, what's it, trade. It seems like, you know, for example, it'd be easy to say, "Well, we have a trade deficit, which means, you know, we import more than we export. That's bad." Or, "That's good." And really, it's very complex. It's very complicated. Well, it's good for whom, or it's bad for whom. So, it's good, it's like, it's all over, and much more complicated than I think.

• 2:10Speaker 01

  People realize and that's not what politicians want us to do. They want us to just take a side You know, put a stick in the ground and stand by it. That's just, I think it's important to know that is a little bit more nuanced and complicated than you may think. So, you know, generally speaking, you have to understand that the states don't have any power or control over tariffs. That's all done on the Fed level.

• 2:35Speaker 02

  That's correct.

• 2:35Speaker 01

  And that is based off of Section 8, Article 1, Section 8 of the US Constitution, which gives the power to lay and collect taxes, duties, imposts and excises all to Congress. And that's all Congress's job.

• 2:50Speaker 02

  Mandate or whatever.

• 2:51Speaker 01

  Yeah, that's what they do. So, you know, California, you know, you know, California doesn't have the ability to set or change, you know, any of that. And so, we are at the whims of what the Congress does. Now, the part of the question is asking about the Fed policy. Also important to note, the Feds don't have anything to do with the tariffs and/or trade policy.

• 3:20Speaker 02

  And that's one of the things I wanted to understand from the question because I think it has two things. Are they talking about the federal,

• 3:28Speaker 02

  like the central bank, Federal Reserve, and the rates in this case? And the impact of higher rates or how are they going to adjust if we have higher?

• 3:37Speaker 01

  Yeah.

• 3:37Speaker 02

  Is that the question?

• 3:38Speaker 01

  I think that's my guess. They're basically asking, we're speaking for the listener. If you're listening, feel free to send in another text and clarify. But, you know, basically, how will the policies of the Fed and the policies of Congress? So Congress is doing, or the President is doing the tariff and the trade stuff. And then the Fed is just responding

• 4:03Speaker 02

  Correct.

• 4:04Speaker 01

  To all economic, outside economic forces. And I think that's an important distinction to be able to answer the question.

• 4:11Speaker 02

  So if tariffs take a hold, resulting in a higher inflation, what would the Federal Reserve do at that point?

• 4:18Speaker 01

  Yeah, so there you have. Have a situation where the way that the Fed deals with inflation is it tightens its monetary policy.

• 4:26Speaker 02

  That's right.

• 4:26Speaker 01

  And it which is what we experience is that it will raise rates.

• 4:31Speaker 02

  Correct.

• 4:31Speaker 01

  Why does it raise rates? Well, because it's trying to shrink the money supply.

• 4:35Speaker 02

  That's right.

• 4:35Speaker 01

  Trying to slow down the economy so that it can catch up to the high cost of of things. And that the Fed has been very reserved in and they're very measured in taking these stances. And they have said Jerome Powell said in his last press conference. He was asked about, you know, well, we have these tariffs coming in or, you know, this is going to be inflationary. Is the Fed going to raise interest rates? And their answer is always something to the effect of we are monitoring this every single day. We're getting the data, we're following it. And if we see the need to increase rates, then we'll do it. If we see the need to lower rates, then we'll do it and we're going to take that as it comes in.

• 5:21Speaker 01

  And so that's what I see could happen is, you know, let's talk just specifically with California and Asia. Because I think this is a good, a good example.

• 5:28Speaker 02

  Yeah, yeah, we have, we have multiple ports in the, in the state of California where we import a lot of things from, from Asia, China, Japan, South Korea, Vietnam. And, and, and the high tariffs, if we have high tariffs and they take hold, then there will be a slowdown at these ports.

• 5:44Speaker 01

  That's right. Yeah.

• 5:45Speaker 02

  Right? And, and, and if we do have a slowdown and which results maybe in a higher inflation. What would the, the, the feds do? And especially if they would raise rates, right?

• 5:57Speaker 01

  That's, that's generally what they do. They'll tighten monetary policy. So they'll stop, they'll stop raising money, printing money.

• 6:04Speaker 02

  Correct.

• 6:04Speaker 01

  And they'll, or they'll potentially raise rates or they'll do both.

• 6:07Speaker 02

  Yes. So what, what you're trying to do here is weaken, weaken the consumer spending, right?

• 6:12Speaker 01

  Yeah.

• 6:13Speaker 02

  In order for us to slow down that.

• 6:15Speaker 01

  Bring the prices down.

• 6:16Speaker 02

  Correct. And, and, and finance, because financing becomes a lot cost, costlier than, than, than historically.

• 6:25Speaker 01

  Right.

• 6:27Speaker 02

  For businesses that are relying on, you know, credit cards, not credit card, credit lines and, and, and that could reduce or restrict their volume.

• 6:36Speaker 01

  Yes.

• 6:37Speaker 02

  Now, if, if, if the feds. Decide to lower the rates to offset the tariff driven slowdown sometimes. Now that eventually results in a stimulus effect encourages the business to borrow more and trade.

• 6:54Speaker 02

  The trade expands.

• 6:57Speaker 01

  Yeah.

• 6:57Speaker 02

  Right? And the dollar, which is another important variable here, becomes weaker.

• 7:02Speaker 01

  Right.

• 7:03Speaker 02

  So it's easier for us to to to export.

• 7:07Speaker 01

  Right.

• 7:07Speaker 02

  A lot of other countries are now able to afford what we're producing here in the US.

• 7:11Speaker 01

  Mm hmm.

• 7:12Speaker 02

  So it's a multifaceted question. It's an intriguing question with the multiple. It's it's it's not a simple and easy question.

• 7:20Speaker 01

  Yeah.

• 7:20Speaker 02

  And good for the listener that's that's asking it.

• 7:23Speaker 01

  I can see there being some, you know, the the state can only do so much for this because they're certain. They're at the mercy of the feds or the the Congress.

• 7:32Speaker 02

  Mm hmm.

• 7:33Speaker 01

  And and the feds is what they can do, but Californians could do something like California businesses.

• 7:40Speaker 02

  Yeah.

• 7:40Speaker 01

  Now are going to be forced to either delay their investment, delay their investment into buying whatever they're buying from these other countries or shift their supply chain away from Asia.

• 7:50Speaker 02

  That's right.

• 7:51Speaker 01

  To somewhere else that doesn't have the tariff. And we saw this now, we're seeing this on like the federal level when President Trump announced these tariffs. It was it was very, there was very little time to prepare for it. But that time before the tariffs were enacted, we saw a big rush into people buying new cars. You know, rushing to get that car because they're, you know, they're anticipating a tariff. And so that could that can that could cause some problems with the supply chain. Now you're disrupting it. It's like the it's like the run on the on the grocery stores and the toilet paper during COVID.

• 8:26Speaker 02

  Man.

• 8:26Speaker 01

  You know, it's like.

• 8:27Speaker 02

  Man, those are some bad memories, man.

• 8:29Speaker 01

  So bad.

• 8:29Speaker 02

  People fighting at Costco for toilet paper. I will never forget that.

• 8:32Speaker 01

  No.

• 8:33Speaker 02

  Here in here in America.

• 8:34Speaker 01

  Yeah, who'd have thought?

• 8:36Speaker 02

  I mean, have you heard about bidet?

• 8:38Speaker 01

  About who?

• 8:39Speaker 02

  The bidet, you know, buy a bidet instead of toilet paper.

• 8:41Speaker 01

  I've heard about this. There's a, there's a toilet, a Japanese toilet company that has like 80% of the, of the bidet market in Japan, which I guess like 80% of the households have bidets in Japan.

• 8:53Speaker 02

  The rest of the world, not just Japan.

• 8:55Speaker 01

  They're, they're catching on.

• 8:56Speaker 02

  They're catching on.

• 8:57Speaker 01

  Well, this was in Japan, it's only been in the last 20 or 30 years that, that this company started promoting the bidet and it took off. And now they're like, oh yeah, this is the best.

• 9:06Speaker 02

  Yeah.

• 9:07Speaker 01

  And now it's starting to come to America a little bit.

• 9:10Speaker 02

  Yeah.

• 9:10Speaker 01

  Are you thinking it's about time? Are you a bidet fan?

• 9:14Speaker 02

  Been all my life. I grew up in Morocco, as you know, Europeans, they've, they've used bidet for, for years.

• 9:20Speaker 01

  Yeah, yeah.

• 9:21Speaker 02

  It's, to me, it's the, I mean, I didn't fight for toilet paper, frankly. I mean, it was ridiculous to see people fighting at Costco for toilet paper.

• 9:29Speaker 01

  Right. Oh, yeah.

• 9:30Speaker 02

  I'm like, come on, man. Have you heard about the bidet?

• 9:33Speaker 01

  There's the answer to our next supply chain problem, toilet paper problem.

• 9:37Speaker 00

  So what's that? What's a bidet?

• 9:39Speaker 01

  Oh.

• 9:40Speaker 02

  Oh.

• 9:40Speaker 01

  Oh.

• 9:41Speaker 02

  I gotta send, I gotta send you a picture. I don't know if this is.

• 9:43Speaker 00

  I'm looking at it, but I, I don't.

• 9:45Speaker 02

  It's, it's basically a little tool where you attach to your toilet and, and it helps you wash your behind without reliance on toilet, on toilet paper.

• 9:54Speaker 01

  It squirts water up in there.

• 9:56Speaker 00

  Okay, I've heard about these.

• 9:57Speaker 01

  You know about that now.

• 9:58Speaker 00

  I just didn't know the, the name is bidet.

• 10:01Speaker 02

  Le bidet is, it's a, it's a French word.

• 10:05Speaker 01

  Some of them.

• 10:07Speaker 01

  Oh, that's right. It is French, isn't it?

• 10:09Speaker 02

  It is.

• 10:10Speaker 01

  Some of them have, you know, they have this like this, like the public bidets, which would just be like you hit a button and just water squirts up there. But they have like the fancier ones where it's warm water.

• 10:19Speaker 02

  Oh, yeah. Japan, Japan is light years ahead. There's like a different planet, man. Some of the stuff they have. Some of my friends, well, our, our own Richard.

• 10:29Speaker 01

  Yeah.

• 10:29Speaker 02

  Oh, he's Japanese.

• 10:30Speaker 01

  Yeah.

• 10:31Speaker 02

  You know, the bidets in Japan are still advanced, man.

• 10:34Speaker 01

  Oh, yeah. I mean, that's that's I heard there's no going back. Once you, once you live the bidet life, there's, there's almost.

• 10:41Speaker 02

  We gotta get Steven on that.

• 10:43Speaker 01

  Yeah, he's shaking his head.

• 10:45Speaker 00

  I think I'll pass. I think I'm good.

• 10:48Speaker 01

  That's a great question, listener, by the way. Hopefully, we answered that. If you want any more clarification on it, you know, shoot another message our way, six, six, one, three, nine, six, one, thousand.

• 10:57Speaker 02

  We, are we going to second question, Sher? Yeah. Hi, this is Eddie, and I'm looking forward to being neighbors when you move downtown. My question is, do you have to pay state tax on 401k contributions? Very good question.

• 11:10Speaker 01

  Great question, and no, you don't. You do not have to pay state or federal tax on all of the money that goes into your 401k. Well, clarify, because now 401ks have, some of them have two options. You have a traditional 401k, or your employer may offer as part of their 401k a Roth contribution. So if you are going into the traditional 401k, that means the money that goes into that account is not taxed until you withdraw it later down the road. Then you, then you pay income tax, ordinary income tax on it. If your money is going into the Roth contribution of your 401k,

• 11:50Speaker 01

  well, then, the part of that deal is you pay federal and state income tax on all of that money that goes into it. But then, once it goes into it, it can grow unlimited, and you don't pay any tax on any of the growth, and you don't pay any tax on the money that comes out. So that sounds like a great deal, which it is. For, for some people, it's a really, really good deal. I'll give you one example. This came up with my son, who works in Washington DC. And when he signed up for his employer, of course, they ask, you know, what do you want this to be? Part of, you know, your 401k, do you want it to be Roth or traditional? So I had this discussion with Jack, and I told him, okay, based on your income, you're essentially in a, in a very low tax bracket.

• 12:36Speaker 01

  You're going to benefit more now by going into the Roth. Because you don't really care about getting the tax break right now, but I trust me in 20, 30 years, you're going to be so happy that that money has grown tax-free and now you can withdraw it tax-free when you're making more money and where you now don't have to pay the tax on it. So you generally for, I mean, it's a general, very general rule of thumb, but if you're early in your career or you're younger and you're just starting out, and I'm assuming that you're sort of in that entry level pay range, generally speaking, you're, you may lean towards the Roth contribution because now you have that long-term tax-free growth and you can pull it out when

• 13:17Speaker 01

  you're in a higher tax bracket and you're earning more money. If you are, you know, in some cases, let's say you're a high earner right out of college, this happens for doctors, for example, right out of college, they're making, you know, two, three, $400,000. Boy, it's for, in my, in many cases, it's very hard to give up that immediate benefit of that tax deduction and under today's tax rates. The, the hard part about this calculation is you're trying to guess what are the tax rates going to be in the future of when I think I'm going to be pulling that money out. And that's, that's anybody's guess because for, for most of us, it's 20, 30 years down the road. So how many presidential elections there are during

• 14:01Speaker 01

  that time and, and then-

• 14:03Speaker 02

  You're rolling the dice, really.

• 14:04Speaker 01

  Yeah, you're really rolling the dice. So I, I always kind of, I tend to lean more towards the traditional 401k contributions because I'd rather, I don't care. Take, take the benefit that I can get now. If you're in a high income, if you're not in a high income, don't, don't do the traditional. Do a Roth 401k and, and you'll be, you'll be better off in most cases. What's interesting Sammy is that there are a couple of states- That do tax the contribution of your 401k, even if it's a traditional 401k.

• 14:36Speaker 02

  And then how about when you take it out?

• 14:38Speaker 01

  But then when you take it out, you don't pay that state tax income, income tax on it. You still have the federal, so you'll still pay federal income tax on the money that you withdraw, but you won't pay any of the state. Those two states, Pennsylvania and New Jersey. That's which was really fascinating, this, these two states for some reason felt like they wanted to do this. I get, it kind of benefits them. I can see the state liking that because they're like, oh cha-ching. We're getting, I don't care what, what money goes in, every money that goes into retirement, we're getting our cut right now.

• 15:11Speaker 02

  Well, yeah, I mean, to me, if I'm a state leader, that's what I want because I want the income now. That income is going to help me with infrastructure projects and other things, and maybe I can just invest it myself.

• 15:22Speaker 01

  Right. It's also going to help you if you're a politician because you're only going to be in for a certain amount of time. That's true. Which is a problem with that decision because long term, the state's probably better off leaving it as it is because now they're forfeiting all of the growth on that money and the future growth and taxes that they could receive from that.

• 15:41Speaker 02

  They're banking on themselves.

• 15:42Speaker 01

  They're, yeah, that's what they're doing. They're like.

• 15:45Speaker 02

  That's something new for me, a state that's doing that.

• 15:48Speaker 01

  Yeah, I'm, I'm only speculating why Pennsylvania, New Jersey would pass this law or would have this as part of their thing. But, you know, it would fill a, an immediate revenue need, you know, for, for them, but, uh, but it seems dangerous. You know, imagine like California, if California did that, right now California is getting a lot of income tax from the people's requirement of distributions or withdrawals that they take from their 401ks. Including in the state of California, if you withdraw from your 401k early, then there is an additional two and a half percent penalty on top of the 10% penalty that the feds charge.

• 16:33Speaker 01

  So there are some exceptions, but if you take a, a early distribution, which is before the age of 59 and a half, California is going to charge you two and a half percent on, on it.

• 16:45Speaker 02

  That early withdrawal.

• 16:46Speaker 01

  On that early withdrawal, and then you have to pay the 10% federal, and then you pay the income tax.

• 16:53Speaker 02

  On the top of that.

• 16:53Speaker 01

  On top of that, your state and federal income tax. So this is why Sammy, when we've had clients who have called and they say, hey, I want to withdraw, let's say a hundred thousand dollars from my 401K. Can I do that? The answer usually is, you can do that, but let me do some math for you. And let me explain how much this is going to cost you in taxes. Cause people don't realize, not only do you have that early withdrawal penalty, federal and state. So that's 12 and a half. Now you are paying ordinary income tax on all of that. So at a hundred thousand dollars, that's going to put you up in those really high income tax brackets.

• 17:37Speaker 02

  Yeah.

• 17:38Speaker 01

  On state and federal.

• 17:39Speaker 02

  And federal.

• 17:40Speaker 01

  So you know.

• 17:41Speaker 02

  I mean, you're lucky if you end up with 40 to 50% of the money you're asking for.

• 17:45Speaker 01

  Yeah.

• 17:45Speaker 02

  I mean, I'm just quick math in my head.

• 17:47Speaker 01

  Yeah, right. Cause you already have 12 and a half percent for just early withdrawal penalties. And then you have this, the state tax, which caps at around 12 or 12 and a half percent. And then you have the federal.

• 17:59Speaker 02

  It's probably at least 22.

• 18:01Speaker 01

  Right.

• 18:01Speaker 02

  In this case.

• 18:02Speaker 01

  Right. So, I mean, yeah, you're, it's over, over half of it.

• 18:05Speaker 02

  Yes.

• 18:06Speaker 01

  And so I've even said, this is kind of rude, but I've said, listen, if you really need this money, you're better off in a payday loan, you know, or a credit card or a, you know.

• 18:18Speaker 02

  Or hopefully you've done enough where you have equity on your house and just go and do a HELOC.

• 18:23Speaker 01

  Yeah, that would be usually cheaper.

• 18:26Speaker 02

  A lot cheaper. And we're talking about, even in this today's rate, you're talking about nine and a half percent.

• 18:32Speaker 01

  Right.

• 18:32Speaker 02

  10%.

• 18:33Speaker 01

  Right, versus 50%.

• 18:34Speaker 02

  And you're going to some programs, you might even be able to fix the rate.

• 18:37Speaker 01

  Yeah.

• 18:37Speaker 02

  On your HELOC.

• 18:38Speaker 01

  Yeah, that's right. Why don't we take a break before we go to our next, oh no, we'll skip our break.

• 18:44Speaker 02

  Yeah.

• 18:45Speaker 00

  What's a break?

• 18:45Speaker 01

  Yeah, good, perfect. We don't need any breaks.

• 18:48Speaker 02

  That's the one you use to be day four.

• 18:52Speaker 01

  One of these days, I'm just going to roll through all the breaks and see what happens.

• 18:56Speaker 02

  Yeah, we have another question, Jared.

• 18:58Speaker 01

  Yeah, let's go.

• 18:58Speaker 02

  I think from the same listener about the 401K. Also, can you break down? What the H E L L is the Inflation Reduction Act?

• 19:09Speaker 01

  Can we say hell on the air?

• 19:10Speaker 02

  Yeah.

• 19:11Speaker 01

  I think we can say hell.

• 19:12Speaker 02

  All right. What the hell is the Inflation Reduction Act?

• 19:15Speaker 00

  There you go.

• 19:17Speaker 01

  You know, I'm curious, I'm always like, you're wondering, why is this question coming up? The Inflation Reduction Act was a bill that was passed in 2022 under the Biden administration. This was, I guess you considered one of his landmark, you know, legislation pieces.

• 19:35Speaker 02

  It was his beautiful bill.

• 19:36Speaker 01

  His, that's right. That's right. I remember he took a lot of flak at the time because we were dealing with high inflation at the time and everybody was saying, Inflation Reduction Act? Like, this isn't, this isn't inflationary reducing. This seems like we're adding to it. Causing, right? Why? Because it was a massive bill. It was, I mean, we've gotten used to, you know, hundreds of millions. We've gotten used to even hundreds of billions, but I'm shocked that we're now used to trillions because this was just over a trillion dollar. And some sources say it's closer to two trillion and some say it's a little bit less than a trillion.

• 20:16Speaker 01

  It's kind of hard to calculate the exact impact on the budget, on the federal budget, whether it's a, is going to cause add to the deficit or it's going to reduce the deficit. And then inflation is just a whole other beast.

• 20:31Speaker 02

  Yeah.

• 20:31Speaker 01

  You know, like this, it turns out, has not caused inflation. Inflation has nothing but come down since 2022 and this, this act was not something that did add to the inflation. And so, you know, I think we can discount that. I think the real interesting question is, is this adding to our deficit? Is this adding more to our federal debt or is it, or is it creating more? And this is something that I'm a big proponent of in terms of our legislators. And that is if we are going to spend money and if, it doesn't always have to have a return on your investment, but there are a lot of investments that the government can make where there's a true return on the dollar.

• 21:14Speaker 01

  It's like, it's like you and I, Sammy, opening up a bank account and choosing from, you know, high yield interest or a, or a CD. It's like a real return. You're getting real dollars back. Infrastructure, for example, has shown, study after study has shown, investment into, into infrastructure is a true return back to the, back to the taxpayer. It doesn't come to you individually necessarily because that new freeway comes in, but it, the, the economy as a whole gets a return on that investment. It's not like money that's just spent and it goes away and there's nothing that comes from it.

• 21:51Speaker 02

  And you can, yes, I agree with you, especially infrastructure spending because it, you might not see it in dollars for you, but you're going to see it in ease of transport, in, in, in maybe your family members in your, in the tax income of your county, the city, that, that's just trickling down from the federal level all the way to the, the household level.

• 22:13Speaker 01

  Yes. Sometimes it happens in the form of, I like the freeway example or the bridge. You know, you, we gotta, we gotta put a bridge that's going to go across this river and, and by doing that, people are going to drive 20 miles less and people's goods and services are going to be delivered an hour quicker. That's a real dollar. Those are real money.

• 22:36Speaker 02

  And the job creation of the bridge.

• 22:38Speaker 01

  And, and plus you have the jobs.

• 22:39Speaker 02

  The job creation of the bridge. Now, I would, I would say whenever we have public spending, especially in the state of California, we have prevailing wages.

• 22:49Speaker 01

  Yeah.

• 22:50Speaker 02

  Which, you know, to me, I want to pay people fairly, but at times we are becoming, it's becoming a lot more difficult for us to spend on infrastructure because of that.

• 23:00Speaker 01

  Because it's just so expensive.

• 23:02Speaker 02

  It's just so expensive.

• 23:03Speaker 01

  Well, you have, let's talk about this Inflation Reduction Act or IRA. Again, it came out in 2022. That, that, some of the criticism came from the fact that so much money was allocated towards climate change.

• 23:17Speaker 02

  That's right.

• 23:17Speaker 01

  And about $370 billion was invested to address climate change. It's the largest investment in US history towards those initiatives.

• 23:32Speaker 01

  The, it also has a healthcare reform that was built into it. So Medicare had negotiations with Medicare and empowers them to negotiate some of their prices on prescription drugs and which lowers the cost for beneficiaries. Again, some of that real dollars that came back to people. It's basically like a tax cut that came to people in the form of Medicare now being able to negotiate better on some of their drugs, insulin cost cap, for example. And then there were also some tax reforms and revenue measures that took place. There were corporate minimum tax, which imposed a 15% minimum tax on corporations earning over a billion dollars annually.

• 24:14Speaker 01

  That's, that was, you know, can be considered controversial, although it doesn't affect a ton of people, you know, a billion dollars in revenue. Is a, is a, is a small handful of companies there. It introduced a few other tax incentive, tax, I guess you'd call them tax increases. There are new taxes. This is why, at the end of the day, this, this bill is considered to reduce the deficit. This reduces the federal deficit because it increased taxes in some areas and then it spent billions of dollars in, in infrastructure and areas that have a return on their, on the dollar.

• 24:57Speaker 01

  This was also the bill that allocated $80 billion to the IRS to have more hiring and more enforcement.

• 25:04Speaker 02

  Yeah, I don't know what happened to that. Is that, did the current administration put a moratorium on that or?

• 25:10Speaker 01

  Yes, President Trump has, and Congress, has started to talk about pulling back some of these investments, including, we had John Cox from the Bakersfield Californian on this show. There were hundreds of millions of dollars for projects, two or three very large projects in Kern County, like the carbon sequestration project, the, the cement plant or the, or steel plant. There was a couple of other energy, large energy projects that were in the hundreds of millions of dollars that were all being funded by this IRA.

• 25:50Speaker 01

  And now there has been some talk, and right now it just seems to be so far, a lot of talk about some of those being clawed back, including the IRS, you know, cutting back some of that funding that goes to the IRS. Obviously, we've gone through DOGE, or we're going through DOGE where they're cutting off, they're laying people off and that kind of stuff. So, yeah, President Trump has definitely taken steps to limit or reverse a lot of the IRA's provision. In fact, on his first day back in office, he signed an executive order titled Unleashing American Energy, which paused a lot of the disbursements of those funds from the Investment

• 26:31Speaker 01

  Inflation Reduction Act and ordered a review of the clean energy programs. So I think there's, some of those are still in limbo and, and, and being worked through. But this was a very, very big deal. And it, you know, it mostly is going to impact, depending on how the funding continues on, some of these big projects, like infrastructure projects or clean energy projects. That's, that's, that's where I can see a lot of impact happening.

• 27:01Speaker 02

  Very good question.

• 27:03Speaker 01

  Really good stuff. Keep them coming our way. We appreciate the comments and questions. Now, we're going to take a quick break. We come back, we got a lot more to cover. Don't go anywhere.

• 27:12Speaker 00

  Need to get your financial fix on the go? If so, subscribe to the Money Wise Podcast and catch up on all past shows whenever.

• 27:26Speaker 01

  Welcome back to Money Wise. We're your hosts today. I'm Sharad Waite here with Sammy Abiyawi. Debunking some myths, Sammy.

• 27:36Speaker 02

  About what?

• 27:37Speaker 01

  About, let's debunk some banking myths, since we got our resident banking expert here.

• 27:43Speaker 02

  Sure.

• 27:44Speaker 01

  NerdWallet recently did a survey of about 2,000 US adults. They conducted an online survey by the Harris Poll, and they found that there were some interesting misconceptions by Americans. I don't think too many of these surprised me, but I thought, oh, this is good, this is good radio here. We should talk about this, because when it comes down to it, your banking, most people, let's be honest, most people's financial transactions happening at the bank level. Because your 401K, yeah, that's your nest egg, like, that's what you're going to retire on, but most people don't even think about it. They set it up when they get a job, it automatically comes out of their paycheck, they maybe look at their statement once or twice a year. Other than that, it's like, you're not doing

• 28:26Speaker 01

  things. But with your bank, okay, now you're buying a house, or you're buying a car, or you're just, you know, you're paying bills.

• 28:33Speaker 02

  Your debit card, or credit card.

• 28:35Speaker 01

  Yeah. And it seems like, on a real level, on a real, like, practical level, it's at the, it's at the bank where, you know, a lot of people are dealing with, you know, financial decisions. So this really caught my eye, and I thought, this is worth, this is worth us discussing. Thank you Detroit News for publishing this. So myth number one, Sammy, online banks aren't safe. You probably heard this. When you, when you started in the banking world, internet was just kind of barely kind of coming out.

• 29:07Speaker 02

  Twenty-five years ago, you know, there was no...

• 29:10Speaker 01

  There was no online bank. If there were banks, I mean, there were banks that maybe had a website, right? But there weren't like, banks that were just purely online.

• 29:20Speaker 02

  Yeah, so up until 2003, I worked for a small bank called Taft National Bank, and we did not, that bank didn't have a website. And we had to fax the statements on a daily basis for our McDonald's operators. On a daily basis, and we had like twenty or twenty-five of them.

• 29:37Speaker 01

  Oh my gosh.

• 29:38Speaker 02

  Yeah, so, so having online banks today, it's a strategy that, that some banks, as soon as they get the charter, they decide, we're not going to open brick and mortar, because we want to save on lease, we want to save on tenants improvement, we want to save on a bunch of other things that traditional banks are doing. With that being said, we're going to offer every service a bank, a bank has. Remote deposit, withdrawals, ATM card, credit card, Venmo. All the bells and whistles that traditional banks do have. Now, we're talking about just retail banks in, in, in this case.

• 30:17Speaker 02

  Now, there's some online business banks as well, but for the most part, I think this article is talking about retail banks or consumer banking.

• 30:25Speaker 01

  Yes, I, I, I think that's what, what they're talking about mostly, but I think a lot of people are starting to be more comfortable with just purely online banks, like especially when it comes to their mortgages or their car loans. You know, it seems like there's a little bit more acceptance of that.

• 30:41Speaker 02

  So, so like anything else on, of, on the internet, you want to do your research, right? You cannot just go and just open an account anywhere. Now, you got to do your research. These online banks are FDIC insured for the most part. Okay, so your money is secure to a certain extent, up into a certain amount, following the FDIC rules and requirements. That's the concern number one for a lot of people. It's like, hey, if I put money in this bank, well, you know, i- is it safe? Or am I, they're just going to close and just, you know, run to the Bahamas tomorrow? No, these banks are legitimate banks. They're offered an array like your traditional bank would, with the exception of they saving a lot of money. Not having a brick and mortar facilities or locations,

• 31:26Speaker 02

  which should translate into lower fees and hopefully higher interest rates for you if you have savings accounts, money market accounts, CDs.

• 31:34Speaker 01

  Yeah, and I know a lot of these banks offer incentives to compensate for not having a brick and mortar, like a physical location. And many of them have deals with ATM providers, like you can basically use almost any ATM.

• 31:50Speaker 02

  So there's a system where you can use any ATM in the United States for free. Like 100,000 of ATMs.

• 31:58Speaker 01

  Yeah.

• 31:59Speaker 02

  Giving you access to make your deposits, your withdrawals, even check deposits. And eventually, they get to where they need to get. It's just not, you know, like your traditional Wells Fargo, Bank of America, Chase, or Citi.

• 32:14Speaker 01

  The key part here is what you said, Sammy, is that the banks, the banks are all FDIC insured. Then you are protected under those same guidelines, which means you'd have the same protections as an account holder at a purely online bank than you would have, you know, name your national bank. You have the same protections.

• 32:39Speaker 02

  Yes, definitely. And a lot of the time, frankly, technology-wise, they are a little more advanced and a little nimble, too. They're making changes to their technology than other traditional banks.

• 32:49Speaker 01

  The FDIC coverage, just for reminder, is $250,000 per depositor, per bank, and per account. So you, you know, that's, that's pretty good. We've never seen a depositor, at least all the research I've done, I've never seen a depositor in the last 50 years in the United States lose money because a bank went under. It doesn't happen.

• 33:14Speaker 02

  No, the FDIC is not going to let that happen for the same, for the sake of keeping deposits where they are. If you have a deposit run. You know, if the FDIC for some reason says, no, we're not going to honor these, you'll have what we call a deposit run, which will take liquidity out of the banks, which will affect the loan operation, which will affect a bunch of other things in the economy. The FDIC is just not going to let that happen.

• 33:37Speaker 01

  Right, and nor will Congress because that the banking stability in our country is incredibly important.

• 33:44Speaker 02

  Yeah, we saw what happened in 1929.

• 33:46Speaker 01

  That's right.

• 33:47Speaker 02

  If we did not have that, yes.

• 33:48Speaker 01

  Yeah, that's right. So that hopefully that helps dispel myth number one in terms of online banks. And they're, you know, I'm trying to think, this is kind of like the, the, I get used to, you know, how I bank. And so I'm always a little like, well, I don't want to just have an online bank. When, you know, the reality is most of us don't really need the brick and mortar. There's so much of that brick and mortar you just don't need.

• 34:15Speaker 02

  Well, a lot of, look, a lot of the banks, Bank of America, if you walk into a branch that's 50 years old today, you'll see the marble floors, the five to 10,000 square foot branch, you know, marble countertops. That's just not cost effective anymore. A lot of the banks now are going into a smaller footprint, you know, maybe 1,500 to 2,000 square foot with what we call universal bankers. You walk in and the banker does everything you need.

• 34:44Speaker 01

  Yeah.

• 34:45Speaker 02

  That that just controls their costs from a labor standpoint. You have a much higher, an advanced skilled individual you're dealing with. Plus it hopefully minimizes the cost of running a branch.

• 34:57Speaker 01

  Yeah. All right, myth number two, Sammy. Money for midterm financial goals should be invested. So this is again, according to this nerd wallet poll, said more than two in five Americans for about 43% think money for savings goals more than one year away should be invested in the stock market, according to the survey. Of course, if you've listened to Money Wise, you would know that is be cautious. The, the stock market is volatile. The stock market is not designed for you to park money that you're going to be using short term. Now, I consider short term. Something less than five years, you know, three to five years. You don't, that you're gonna need to go and access it.

• 35:38Speaker 01

  And when we say the stock market, we're talking about investing into equities, investing into, into companies. Or, or it could be mutual funds, or it could be ETFs. But you're investing in, in equity in the stock market. Which equity has an inherent level of risk beyond, say, bonds. Because if a company goes out and goes under, goes bankrupt. The, the stockholder is down on the list of, of people who get their money back.

• 36:06Speaker 02

  That's correct.

• 36:07Speaker 01

  They're first gonna pay their bondholders.

• 36:08Speaker 02

  Yes.

• 36:09Speaker 01

  And their debt holders. Then you're gonna get down to the, the bottom, you're gonna get to the, to the shareholder.

• 36:14Speaker 02

  Or you need tax liens, if they have any tax liens.

• 36:16Speaker 01

  Right, yeah, exactly. So essentially. Generally, when a company goes bankrupt and it's a publicly traded company, very rarely do you see the shareholder walk away with anything.

• 36:27Speaker 02

  That's right.

• 36:28Speaker 01

  You have too many, too much money that they owe to bondholders or to debt, taxes or whatever.

• 36:33Speaker 02

  That's correct, but to your point, I mean, there's, there's bonds. There's municipal bonds, there's other things. However, short term for me, shared is 12 months or less. Okay, so I would agree with you. I would say if, if you, if you need liquidity.

• 36:51Speaker 02

  To, to satisfy your lifestyle, financial needs you're gonna have. You're gonna have the two buckets.

• 36:56Speaker 01

  Yeah.

• 36:57Speaker 02

  This is not where you put. The bank cash is for your lifestyle.

• 37:01Speaker 01

  Yes, that's right.

• 37:03Speaker 02

  Now, you can have a CD for maybe three months, six month CD, so you can, you can liquidate that if it needs be. We can have a money market account, money market account, the last couple of years have been paying good interest rate. And they are liquid, so you can take the money anytime you want, following certain rules and things about money markets. But then you have the second bucket, which is your, your, your investments, whatever those are. Equity, bonds, um, real estate, whatever.

• 37:32Speaker 01

  Yeah.

• 37:32Speaker 02

  That's myth number two.

• 37:33Speaker 01

  Yeah, so don't, don't, if, if you're saving to buy a house in the next year or two, don't put that in the stock market. You're rolling the dice.

• 37:41Speaker 02

  That's right.

• 37:41Speaker 01

  That, that is where a bank can come into play because banks will offer those products that you were just talking about, CDs.

• 37:47Speaker 02

  Yes.

• 37:47Speaker 01

  Money market, and fortunately, right now, they're paying decent. So you can get, you know, you can get a CD for 4% roughly, 4.5%. Great. You don't, you know, you don't need to knock it out of the park. This is money that you're going to have to count on in the next year or two. Don't roll the dice in the stock market. You can put it in something that's more safe. Or if you're working with a financial advisor, there are other safe, you know, bond type products that can give you a little bit higher return than maybe what the bank is offering. It's not the bank's job to pay out interest.

• 38:17Speaker 02

  No.

• 38:17Speaker 01

  The bank's job is to collect interest.

• 38:19Speaker 02

  That's correct.

• 38:20Speaker 01

  That's what's paying the bills.

• 38:21Speaker 02

  Yes, yes. The net, net interest income is definitely what pays the bills, the salaries and everything else for a bank.

• 38:28Speaker 01

  Yeah. Good stuff. We're going to cover the next two myths when we come back after this break. Don't go anywhere with Money Wise.

• 38:33Speaker 00

  If you're a business owner who provides a retirement plan for your employees, contact Money Wise Wealth Management to see if you're maximizing your options and minimizing your liabilities. Money Wise 401K plans are customized to you and your company's needs. 661-847-1000. That's 661-847-1000.

• 38:59Speaker 01

  Welcome back to Money Wise. That's Dan and Sammy. I'm Sharad Waite. Thanks for tuning in. We're covering a couple of, uh, bank myths right now and, uh, answering your questions. Let's get, uh, let's get to the next myth, Sammy.

• 39:14Speaker 02

  Number three, bank, bank rates move in sync with Fed rate changes.

• 39:18Speaker 01

  Yeah, this is great. I can see this myth because I, I too am not, I, I, it's hard to understand what, what effect the Fed has. Many people say, or they, they hear in the news, oh, the Fed is lowering rates and they immediately think, oh, great, my mortgage rate's going to go down. Or now I can buy that house because, because it's going to be cheaper. And that's not how the interest rates work.

• 39:41Speaker 02

  No, no. So, so here's the thing about banks, okay? So banks are in the business of what?

• 39:46Speaker 01

  Making money.

• 39:47Speaker 02

  Through interest.

• 39:48Speaker 01

  Yeah. Lending money out.

• 39:50Speaker 02

  So if Federal Reserve goes and reduces the rate or adjusts the rates downwards, what do banks do? Okay, they go to their deposit accounts, CDs, CD rates, money markets, checking accounts, and they reduce the rates right away.

• 40:05Speaker 01

  Yeah.

• 40:06Speaker 02

  Right?

• 40:06Speaker 01

  Right.

• 40:07Speaker 02

  The loans, however, might take a little bit of time.

• 40:09Speaker 01

  Yeah.

• 40:10Speaker 02

  To get there, and a lot of the time, banks have floors on their bonds, even if it's a variable rate. So even if the rates go down, the banks to maintain a certain level of profitability, so they can maintain their operation profitably, they're gonna have a floor even on variable interest rates. So the myth here is when interest rates move by the feds, the banks adjust right away? No, they adjust certain things like deposits, but on the loan side, it might take them a little bit longer to adjust.

• 40:39Speaker 01

  Yeah.

• 40:40Speaker 02

  As an ex-banker, we did that, a lot of it has to do with, look, if interest rates go down, I have to take time to reduce the loan because my fixed fees or my fixed expenses are still the same. I'm not gonna fire and hire every time the rates move, right? So I have to maintain a certain level of interest rate, interest income, or other income, so I can maintain the good operation of the bank, so we're safe and sound. Now, we are highly regulated, well, the banks are highly regulated by the FDIC and the government. So that profitability and the moves you make are gonna dictate how your audit is gonna be, or how it's gonna look.

• 41:23Speaker 02

  So you gotta be careful with any move you make as a banker.

• 41:26Speaker 01

  So there's a couple of terms, I think, that are helpful to understand how banks charge interest rates. You have the rates that are set by the Fed, by the Federal Open Market Committee, is the interest rates that we all see in the headlines, that, you know, they're talking about right now, it's, let's say, four, roughly four percent, four and a quarter percent. So that is the money that is charged to borrow or loan money overnight, either between the Fed or between Fed banks.

• 41:55Speaker 02

  That's correct.

• 41:56Speaker 01

  That's the money that they charge for that. So that's the kind of their baseline.

• 42:01Speaker 02

  That's right.

• 42:01Speaker 01

  But then the banks themselves set another benchmark.

• 42:06Speaker 01

  Which generally what I've my experience has been prime. Is that the most accepted?

• 42:12Speaker 02

  So prime is used for variable.

• 42:16Speaker 02

  Transaction lines of credit. If you have a line of credit that's for inventory of whatever you can tie it to prime.

• 42:21Speaker 01

  It's it's essentially I I view it as something that the banks charge their most credit worthy customers. Right? It's that it's like that that benchmark. That all other lending that they do, including credit cards or home equity lines. That they or business loans, it's like it's not going to go below prime.

• 42:39Speaker 02

  Correct. And the reason the banks use. Prime or variable rate. Why? They want to avoid interest rate risk.

• 42:47Speaker 01

  Right.

• 42:47Speaker 02

  So if you fix the rate. You're fixing it on your balance sheet as a bank. Right? So if you fix it at 5%, then the rates go up to 7%. Or down to to 3%. You have that interest rate risk. And sometimes as a mortgage holder. You're married to this borrower for the next 15 to 30 years.

• 43:07Speaker 01

  Right? Right.

• 43:09Speaker 02

  So you want to make good decision and the variable interest rate helps the bank manage that interest rate risk.

• 43:14Speaker 01

  Yeah, prime right now, by the way, seven and a half about seven and a half percent.

• 43:19Speaker 02

  Yeah, then a spread the bank adds a spread on the top of that.

• 43:21Speaker 01

  Yeah, then they got their spread.

• 43:23Speaker 02

  Correct.

• 43:23Speaker 01

  And so, you know, that's why you're that's why you're looking at things being a little more expensive right now. That's right. It kind of all does move. I mean, the the first, I guess, the the mother in the interest rate is what the Fed sets, right? Because that's that's the the minimum amount that banks are going to be charged just to be able to do business and. You know, access the Fed funds and all of that. But then from there, they're just going to be tacking on all these other. Spreads, as you call them.

• 43:49Speaker 02

  That's right.

• 43:49Speaker 01

  What ultimately we end up paying.

• 43:51Speaker 02

  That's correct.

• 43:52Speaker 01

  So, yeah, good stuff. How about the last myth Sammy?

• 43:55Speaker 02

  Bank or banking always comes with fees. No, it doesn't.

• 43:59Speaker 01

  Eh, it doesn't, doesn't.

• 44:00Speaker 02

  Doesn't have to.

• 44:01Speaker 01

  It's very competitive. It's a very competitive market because they've they've created their own monster. They've created a scenario where people are shopping for the cheapest rate.

• 44:10Speaker 02

  And that's the way it should be. That's the way it should be. We do not have. We do not want monopoly in the banking industry.

• 44:17Speaker 01

  Right.

• 44:18Speaker 02

  Right? So we have. Just in in. Just eight years ago, 10 years ago, we had more than 8,000 banks. Right now roughly we have about maybe. High, high four thousands or mid four thousands, a lot of consolidation and, and what have you. And I like that. I like the fact that we have competition in that industry.

• 44:38Speaker 01

  Yeah.

• 44:38Speaker 02

  Right now, you can avoid fees by doing multiple things. So if you're, if you're a senior above sixty five, you typically get a free checking account with any type of bank, retail bank you go to.

• 44:49Speaker 01

  Mm hmm.

• 44:49Speaker 02

  Okay. Now you can also avoid the fees by having a direct deposit from your employer going to the, to your, to your account.

• 44:57Speaker 01

  Yep.

• 44:57Speaker 02

  That's one way to avoid the fees.

• 44:59Speaker 01

  Yeah.

• 44:59Speaker 02

  Okay. Now you can maintain a minimum in your account. If you're not able to maintain the minimum, typically it's about five, eight thousand, sometimes ten thousand dollars depending on the bank, then what do you do? Opt off the overdraft. So if you're checking, if you, if you run your debit card by mistake and you don't have funds in the account, you're not going to get overdrawn. That means no fees, no extra fees for you.

• 45:23Speaker 01

  Yeah.

• 45:24Speaker 02

  Things like this are what a lot of the times consumers don't pay attention to, then they end up paying a lot of fees to the bank. And that's what banks typically like, you know, in addition to interest income, guess what the second driver of revenue is? Fee income.

• 45:39Speaker 01

  Yeah. Like overdraft fees.

• 45:42Speaker 02

  Overdraft fees, um, wire fees.

• 45:45Speaker 01

  Yeah.

• 45:46Speaker 02

  Uh, incoming wire fees.

• 45:47Speaker 01

  Yeah.

• 45:48Speaker 02

  Uh, ACH fees, all sort of fees that the banks come up with. I, I, when I was going to banking school, I, I went to with this guy, this bank from the Midwest, sixty two percent of their revenue was coming from fee income.

• 46:02Speaker 01

  Jeez.

• 46:03Speaker 02

  They actually really didn't care about interest income. They were super competitive because most of the income was coming from fees.

• 46:09Speaker 01

  Yeah.

• 46:09Speaker 02

  They were super competitive on the interest rate.

• 46:11Speaker 01

  Yeah. Yeah, that makes sense. Which is interesting.

• 46:14Speaker 02

  Yes.

• 46:14Speaker 01

  Every, every bank's going to have their own model.

• 46:16Speaker 02

  That's right.

• 46:17Speaker 01

  Their own.

• 46:17Speaker 02

  That's right.

• 46:18Speaker 01

  Their own way of doing it.

• 46:19Speaker 02

  So, so look at your checking account, look at whatever the bank is offering as ways to avoid that and, and, and, and apply that to yourself.

• 46:27Speaker 01

  Yeah. Well, good stuff, Sammy. You've got a last message here from a listener. I'll read it. It says, "The bidet toilets are nice, but I don't think Americans are ready for these. LOL. Thank you for covering my question and I have employees saying there is new COVID going around in Japan and I hear that word and just think of toilet paper."

• 46:46Speaker 01

  That's great. You know, I was, I did during the break, I was like, oh, how many Americans do use a bidet? Six percent right now, based on the latest surveys.

• 46:55Speaker 02

  Only six percent?

• 46:55Speaker 01

  Six percent are currently have a bidet in their home, but it's gone up a lot since COVID. It's been like a 30% increase in the adoption of bidets, but we have a long ways to go because in Europe and Asia, it's like 80%, about 80% of the households have a

• 47:14Speaker 02

  I would, I would, I would have thought it's higher than 6% just because of the amount of immigrants we have in this country.

• 47:20Speaker 01

  Yeah.

• 47:20Speaker 02

  That's more than 6% of the population.

• 47:22Speaker 01

  Right. But then you have, you have to like, you have to install it. You have to get it installed. Like it's a different thing. I guess there's, there are, um, they're just like attachments.

• 47:32Speaker 02

  Attachments to your existing toilet right now. Yeah. Yeah. If you need help, you know, we've got Stephen here.

• 47:37Speaker 01

  You know, somebody.

• 47:38Speaker 02

  He knows, he knows how to install those.

• 47:40Speaker 01

  I want to remind our listeners that coming up tomorrow, myself and Debbie are going to sit down with Jerem, oh, Jenny Halterman. That's great. She's a president of the Kern County Farm Bureau, executive director at the Water Association of Kern County and an almond farmer entrepreneur. We're going to talk ag, economic impacts and, uh, and all of this that she's involved in. There's so much to talk with in terms of ag. So you do not miss tomorrow's show with myself and Debbie. Also, remind you, if you've missed any of this or previous shows, you can find us wherever you stream your podcasts and whatever format that is, whether it's, uh, Spotify, Apple, you name it, we're there.

• 48:23Speaker 01

  Now remember these three things as we go. Be smart, be safe, and always be money wise.

• 48:28Speaker 03

  Securities offered through LPL Financial, member FINRA, SIPC. Investment advisory services offered through LPL Financial. LPL Financial and Money Wise Wealth Management are independently owned and operated.