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HerMoney Podcast Episode 191: The Negotiating Skills You Learn In A Brothel (And Other Wisdom From An Economist) 

Kathryn Tuggle  |  December 11, 2019

Every single customer is a new chance to negotiate and earn more. 

What do the legal sex trade, the surfing world, gambling, and horse trading all have in common? They’re some of the unlikely places economist Allison Schrager has spent years studying risk, and we were blown away by the insight she shares with us this week on risk management and negotiating.

Allison, who is also the co-founder of risk advisory firm LifeCycle Finance Partners, gained some of her more interesting takeaways when researching her book, “An Economist Walks Into A Brothel: And Other Unexpected Places To Understand Risk.” She says she was inspired to study the economics of personal finance because she wanted to help make some of life’s most necessary economic lessons more accessible. In many cases, all people need to succeed with their finances is education, she says — even something as simple as understanding the dangers of procrastination can help people make better choices.As part of her research for the book, Allison spent time with sex workers and managers at Nevada’s bunny ranch, a legal bordello. There, she learned about the risks these women take, and how we can apply some of their negotiating skills to our daily lives. Allison surveyed the sex workers on what they charge customers, and was impressed by some of the negotiating tactics they employ — rather than having set prices for their services, these women negotiate for each individual transaction.

Allison says that these conversations eventually ended up changing her own attitude towards risk. Perhaps hearing ‘no’ is not that big of a big deal — if you don’t hear ‘no’ regularly, then you’re not asking for enough, she advises. When it comes to negotiating in other career fields, Allison advises offering a “menu” of options to your boss so there’s no confrontation, and no single demand put in front of them. She also details why your peak earning years as a sex worker are your mid-40s, why we end up taking more risk when we feel safer, and how we can all take a more sophisticated attitude to risk.

Then, in mailbag, Jean tackles a quintessential money trade-off question, advises a woman who is underpaid in her field, and guides an Australian couple residing in the U.S. on some of the best investment strategies for expats.

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All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416


Jean Chatzky: (00:06)
HerMoney is supported by Fidelity Investments. We want you to demand more from your money. Start by knowing what you own and Oh, we’ll help you take the next step at fidelity.com/demand more. HerMoney comes to you through PRX.

Jean Chatzky: (00:22)
Hey everybody, it’s Jean Chatzky welcome to HerMoney. Thanks so much for joining me for today’s show where we are going to be talking about taking risks and not just financial risks. I’m talking about the kind of risks where you’re at the beach and you see a surfer hop on a 10 foot wave and you think, how could somebody do that? Or you see a professional poker player bet thousands of dollars on a single hand. Believe it or not, a lot of calculation, a lot of thought goes into every single one of those decisions and we’ve got a guest in studio, Dr. Allison Schrager who is going to break it all down. Allison is an economist, she’s a journalist at courts. She’s cofounder of Life Cycle Financial Partners, which is a risk advisory firm. And she’s also the author of a book with the best title that I have heard in a very long time. It’s called “An Economist Walks Into A Brothel and Other Unexpected Places to Understand Risk.” Allison, thanks so much for coming in.


Allison Schrager: (01:43)
Thanks so much for having me.

Jean Chatzky: (01:44)
I’m really excited to have this conversation. Your work for this book — it took you into a lot of unexpected places, not just the aforementioned brothel, but horse breeding, legal sex trade, many different places. Explain to me you kind of sound like you took Freakonomics and put it on steroids. So explain to me how you approach your work.

Allison Schrager: (02:13)
Well, my background is in, believe it or not, retirement economics. So actually the economics arm of personal finance. And I always felt like there are these basic principles that are so important to understand personal finance and retirement, but people just weren’t being trained or getting any exposure to them. So the initial thought was, you know, finance needs this Freakonomics treatment so people can understand these lessons are accessible and necessary. But when I looked into it, I discovered, you know, it’s a state of economics. That risk or financial economics is pretty siloed from the rest of economics. So we don’t really think about risk in a good way. So I was a journalist, so I figured I would maybe just report, like report on a financial theory, and sort of I guess that sort of unleashed, well now I can go anywhere and learn about anything that interests me.

Jean Chatzky: (03:03)
It’s so funny you explaining that reminds me of my years at Smart Money Magazine and then Money Magazine because we would sit in rooms for hours and talk about, we have to write a cover story on risk. How do we write a cover story on risk? What’s the best way to frame a story on the appropriate amount of risk that you should be taking? We all rely on these very age related, life stage related guidelines that I don’t know if they’re good or simply the best that we have.

Allison Schrager: (03:43)
I’d say they’re the best we have, but I think we can do better. And you know, it’s a real struggle to communicate risk to people. And you know, there’s a lot of evidence that people can make very smart risk decisions and take a more sophisticated approach to risk. Certainly personal finance or any aspect of their life. But it takes a lot of training and better communication and we just don’t have a lot of tools to do that. It took me, you know, I wrote the book fairly fast a year, which is fast for a book.

Jean Chatzky: (04:10)
It’s very fast for a book.

Allison Schrager: (04:11)
But it took three years to figure out what it was going to be. It’s probably very similar, the conversations I had with myself to what you would have in these editorial meetings, which is how do you explain risks this way? How do you find stories that can illustrate this sort of very esoteric concept? And it took a lot of trial and error to even figure that out.

Jean Chatzky: (04:28)
So how did you approach these scenarios? I guess the easiest thing would be to ask you to take us through a couple of them and explain what you learned about risk and how we can apply it in our own lives along the way. And I’ll let you choose because you were at Nevada’s Bunny Ranch, you talked to surfers, magicians, gamblers, horse, breeders. What’s your favorite?

Allison Schrager: (04:54)
You know, when I was writing each chapter, I was convinced it was my favorite, I guess a journalism trick, which I knew is a good way to tell a stories to find an interesting person and tell their story because people like stories about people. So I would find these people and get really attached to them and really invested in them. And when I was writing their story, I became convinced they were my favorite. My favorite one to write or report on probably was the surfers largely ’cause I got to go to Hawaii.

Jean Chatzky: (05:20)
Well that explains it.

Allison Schrager: (05:21)
I mean, I’m a retirement economist, so they just were way cooler than anyone I’ve ever gotten to meet. So that might’ve been the most fun. But you know, I got to have all sorts of adventures learning this stuff. So, for example, so the way I structure the book and the way I decided, it took me a long time, but once I figured this out, it really wrote quite easily was that I thought long and hard about what do people really need to know about risk in their lives. And I used financial economics and sort of the science of personal finance as my guide and thought about, all right, this concept, people need to know. And I structured it as, all right, here’s a lesson. So for example, one of my chapters I was when I followed around the paparazzi in New York, which was really fun because I’ve always been a big fan of celebrity gossip magazines and it was always curious what went on behind the scenes. So, I went into that chapter sort of not knowing exactly, you know, what story I would get from people being open-minded and there would always just be something that jumped out. So for them, that was my chapter on knowing the difference between idiosyncratic and systematic risk. So when you’re an investor, these are really important distinctions to make. So idiosyncratic risk is the risk that an individual stock might go up and down. And that’s why you want to hold onto a mutual fund or an index fund. Because if you hold enough stock so you don’t have to deal with idiosyncratic risk. As opposed to systematic risk, which is the risk that the entire market will fall. So that’s another risk. Just because you’re in an index fund doesn’t mean you’re protected if there’s another financial crisis.

Jean Chatzky: (06:50)

Allison Schrager: (06:50)
So people in finance, you know, are always trying to, you know, they can get rid of idiosyncratic risk fairly easily, but you know, a systematic risk is this really hard risk to manage and you have to find these obscure assets that are really super expensive that will move differently from markets. So I found the same thing was true of the paparazzi. So they face, as you can imagine, a ton of idiosyncratic risk because it really just comes down to luck and timing, getting that great money shot of a celebrity, you know, in an affair or a celebrity baby pictures always a big winner. And so there’s a lot of randomness and luck to it. So they have a lot of idiosyncratic risk. So what they do is the, actually the same thing we do when we invest in a mutual fund, which is they diversify, so they do is they form alliances of other paparazzo and share tips. Sometimes royalties, depending on the arrangement, even give the alliances, like, official names, although they’re not legally enforced. And so what they’re doing is I said, I’ll call you if I have something good comes up. So what they’re doing is pooling their luck and that will get rid of a lot of their risks. Although they always cheat on these alliances, there’s no enforcement, which is a problem. But the industry is really changing a lot, which is more of a systematic risk, which they’re having a lot more trouble managing, which is the moving to online digital. And initially it was the recession that sparked this meant they just get paid a lot less for each photo. So a picture that used to be $15,000 what’s called a just like us photo, which is a celebrity doing something mundane.

Jean Chatzky: (08:18)
Right? US magazine runs these every single week. I mean I read my gossip magazines, too. Celebrities — they’re just like us.

Allison Schrager: (08:25)
And in the Brittany Spears umbrella shaved-head heyday, that was like the golden era of celebrity photography. They’d get $15,000 for one of those shots. Now they’ll get $5.

Jean Chatzky: (08:35)

Allison Schrager: (08:35)

Jean Chatzky: (08:36)

Allison Schrager: (08:37)
For hours of work.

Jean Chatzky: (08:39)
Is that because everybody’s taking pictures on their phones?

Allison Schrager: (08:41)
No, you would think so. But you can only sell the pictures through these agencies and they have relationships and you know, there is some skill to it. You know, you have to get it just right. And it’s not that so much. It’s more that the move to digital and the fact that the agencies who sell the pictures all consolidated and sort of ended up squeezing the photogs because what happened is when they went to digital and the magazines needed a lot more photos, but they also had a tougher bottom line ’cause you know what’s happening in media. So they made a new arrangement with the agencies of a subscription model where I just pay you that amount. I can use all the photos I want rather than paying per photo. Because they consolidate it and had a lot more market power, they are able to squeeze the paparazzi and pay them less.

Jean Chatzky: (09:24)
Let’s get back to the theme of risk in general. What do you think investors truly need to understand about risk and what’s your best way to help us understand it?

Allison Schrager: (09:39)
Well, I think, you know, we all know it and we all hear it, but I don’t think we really internalize that risk-reward trade off. So if you take more risks, you have a chance for more. But I think we always forget that, you know, we’ll say to a financial planner, I’m not comfortable with risk, I can’t handle loss. They’ll put you in safe assets and then your neighbor’s portfolio goes way up and you’re like, why did this not happen? What are you doing wrong? And you’re like, well, you’ve decided you want to take on less risks, you get a lower return. And I think people also need to understand, you know, what the value is of risk management, which is again giving up some upside in exchange for reducing the risk of downside and understand that if you are seeking advice of any form, what you really shouldn’t be looking for is someone who’s going to beat the market cause beating the market usually entails taking more risk. Really what you should be looking for is help with managing risk, which is figuring out what your goals are and reducing the odds that you won’t meet them.

Jean Chatzky: (10:36)
So in the first instance, you’re really talking about people who are playing it too safe, right? When you’re telling your investment advisor to back off the amount of risk they’re taking or when you, we’ve seen example upon example, Fidelity, our sponsor did some research and found that many women have above and beyond their emergency cushions, thousands, tens of thousands of dollars sitting in savings, then that money would likely be better off invested, but it feels safer to keep that money in the bank. You talk a little bit about this safety factor in your study of airbags.

Allison Schrager: (11:16)
So that would be that when we feel safer, we sometimes end up taking outsize risks. So there’s a lot of evidence that things like seatbelts, airbags cause people to drive faster. So that was actually also the larger lesson from the surfers, which is they’ve developed all the safety technology to make surfing safer. And all that’s resulted in is them surfing bigger waves.

Jean Chatzky: (11:39)
What can we do as individuals to protect ourselves from this?

Allison Schrager: (11:45)
Well, I mean I think that’s a hard question because actually I went to a risk conference for big wave surfers and they actually have a very nerdy risk conference that reminded me a lot of attention conference. And this was the debate, like how do we keep ourselves, we have this technology, it’s so important, it makes it safer, but also encourage us to take bigger risks and sometimes those risks can pose harm to others. So I don’t think there’s good answers. I mean, honestly, economics conferences debate the same thing, which is how much is personal responsibility and how much do we need government regulation to step in? And I don’t think there’s an easy answer. I think it’s a combination of the two, certainly better regulation about products and to help people know, as I said, like I see a lot of annuities that maybe will promise you, you know, you’re not going to have this downside risk, but you have a lot of tail risks.

Jean Chatzky: (12:34)
Explain that for our listeners.

Allison Schrager: (12:36)
So tail risk is this outsize huge risks. So sort of like 2008 would be in like a tail risk, like your stocks normally won’t drop 40% that might happen a couple of times in your lifetime. We think we hope.

Jean Chatzky: (12:46)
We hope.

Allison Schrager: (12:47)
Yeah, no guarantees there. But we hope as opposed to the stock market dropping, say 5-10% is a more run of the mill stock market drop. So that would be a normal risk. 40% would be a tail risk. So you sometimes see annuities that say, well we’re gonna protect you against a five or 10% drop, but then you have to pay even more when there’s a 40% drop. So I think first of all, we need better education so people are aware of what risk they’re taking. So they don’t take huge risks unknowingly. That entails a lot of regulation, but I think also just more education because I think sometimes people take risks and don’t realize it. Like you know, you were saying that a lot of times people take too much or too little because they just don’t even realize the benefits and the trade offs, which is largely was the scope of the book to help people understand that there is always this inherent trade off and there’s really no getting around it.

Jean Chatzky: (13:35)
I want to come back to the government and the role of the government and the role of big brother, so to speak, but before we do that, let me remind everybody that HerMoney is brought to you by Fidelity Investments. You don’t have to know all the answers when it comes to your financial future, but an important question to ask yourself is what you want from your money. What are your financial goals? No matter where Fidelity is meeting you on your financial journey, the company’s here to help and help you reach those goals faster. It all starts with financial checkup and an understanding of what you own and what you owe. From there, we’ll work with you to evaluate your investment options and ways to grow your savings and you can discuss your goals, see where you stand and get help by taking the next steps at fidelity.com/demandmore. We’re talking with Allison Schrager, economist and risk management expert. The last decade, decade and a half has seen the rise of behavioral finance, behavioral economics, and this science I think has been so embraced because it protects us from ourselves. It, it gets in the way or it is all about getting in the way of the sometimes stupid decisions that human beings make with money simply because we are human. It’s just the way we’re wired. Where do you think the place for behavioral economics is as it relates to risk? How much should we be putting people into the appropriate amount of risk for them versus how much should we let them on their own?

Allison Schrager: (15:19)
Well, I think it gives us a lot of good insights into how to strike the right balance because I don’t think there’s one size fits all for everyone. People have different risk tolerances, even if they’re the same age, they have different life experiences, they different family needs, they have different income risks. So in a perfect world people would just be able to figure this all out for themselves and they will be able to stick with it. But I think behavioral economics is certainly shown, you know, we don’t, we have problems assigning meaning to different risks. There’s a lot of evidence that when you lose, it’s a lot more painful than gaining. So you know, we have this loss aversion, which can lead us to taking more gambles when we’re down and then taking fewer when they’re up, when it would be better if we were just consistent. But you know, there’s also a lot of evidence that the more we are exposed to risk taking and the more times we do it and the more education we have, the more consistent our behavior can be. So I think it gives us a path forward, which is going to be, again, like anything sort of the right balance between regulation. So for instance, from behavioral economics, we, you know, there was this big revolution in policy for retirement accounts that you would default people in ’cause people procrastinate. You would automatically invest people in low cost, well diversified index funds because then you don’t get people stock picking and looking at the things and tinkering with their portfolios, which improves behavior. And also, as I said, more education so people can make a good choice for themselves.

Jean Chatzky: (16:42)
I want to go back to the place that inspired the title of your book: a brothel. You ended up at the Bunny Ranch, a legal bordello in Nevada and you interviewed many of the employees there. What did you learn about the risks that they take and how can we apply those lessons in our own lives?

Allison Schrager: (17:02)
So it’s that central lesson, which is if you pay more you can get rid of risk. So you know, risk is like anything and that, I mean the whole point of finance is to put a price on it. So you can take on more of it if you want or get rid of it. And if you get rid of it, you have to pay a cost because, you know, risk can get you more. But it’s undesirable in a lot of ways. So what I found is I went to the Bunny Ranch and I did a fairly extensive survey of what they charge. So there’s less risk for both customers and sellers and that if you go to the Bunny Ranch as a customer, you know you’re not going to get arrested or publicly humiliated because it’s perfectly legal. But for that you have to pay a 300% markup.

Jean Chatzky: (17:41)
On what you would pay if you just went to a prostitute somewhere else in the country?

Allison Schrager: (17:46)
Yes. So a lot of sex workers in the illegal market advertise online and they’re everywhere. It’s really ubiquitous. Once you, once you’re aware of it, you’re shocked. It goes on. To the extent it does, but the prices are significantly cheaper. Even for an equivalent quality of service. What customers are doing there is paying a premium for safety.

Jean Chatzky: (18:04)
How did you gauge the quality of service?

Allison Schrager: (18:06)
Um, well, so this economist I know scrapes data from something called the Erotic Review, which is like Yelp for sex work. And what it was, was it turned out to be 1.2 million observations on illegal sex transactions going back to the late nineties and they were really detailed.

Jean Chatzky: (18:24)
So you didn’t have to secret shop?

Allison Schrager: (18:26)

Jean Chatzky: (18:27)
Okay, good.

Allison Schrager: (18:28)
No God no. And you know, you can also look online and get a sense, but you know, as an economist he tried to be like, you know, we’re just passionate. So I was able to screen for certain expressions. Like I tried to focus on something called the girlfriend experience, which is sort of the gold plate experience. So that’s how I roughly could get an equivalent service. And then when I went to the Bunny Ranch, I did a survey, all the sex workers who would talk to me of, you know, what service did you provide and what did you charge?

Jean Chatzky: (18:54)
Can you just, for our listeners who aren’t familiar, explain the girlfriend experience.

Allison Schrager: (19:00)
Yes. So this is also something that was really surprising, which is, you know, the most expensive service is something called the girlfriend experience, which is effectively intimacy. So it’s not really about sex. It’s listening to this guy’s problems and making him feel special and valued. And I think this is one of the more surprising things is that this is a big reason why your peak earning years as a sex worker or actually your mid forties because women who are a little older were a lot better at being more present and aware and attending to their needs.

Jean Chatzky: (19:33)
What was the most surprising thing that you learned and how did it change your own attitude to risk?

Allison Schrager: (19:41)
I actually, it was when I first went there to do a story on negotiation skills. So this is the Bunny Ranch doesn’t normally just let journalists in to reveal their prices. I had a relationship with them before cause I spent on and off like two weeks there going through their negotiation training program cause they don’t have set prices. So the women have to negotiate each and every transaction. So they train them in negotiation skills.

Jean Chatzky: (20:06)

Allison Schrager: (20:07)
I was never a great negotiator, but I turned out to really like learn something life altering when I was there, figuring out why I’m a bad negotiator, which is I have this paralyzing fear of asking for something and hearing no. All the reasons people think they can’t negotiate. That wasn’t my issue. I just really worry if I start a relationship with no, it would be a bad relationship. The brothel owner, Dennis Hoff, turned out to be like a great life coach and he said something to me that really changed me and gave me the courage to write the book, which is he said, I was like telling him, you know how, how do you handle the no? And he’s like, no, it’s not that big deal. In fact, if you don’t hear no regularly, you’re not asking for enough.

Jean Chatzky: (20:45)
And that turned out to be the life changing.

Allison Schrager: (20:47)
It was cause I was like, I should be hearing no more than yes.

Jean Chatzky: (20:51)
When you dug into the advice that he was giving the sex workers at the Bunny Ranch about negotiating, what other things did he tell them that could help the rest of us in negotiating for salaries, negotiating for deals, negotiating for whatever it is we’re negotiating for?

Allison Schrager: (21:10)
Well, I mean honestly it applies to everything. Before he owned the Bunny Ranch, you worked in timeshares.

Jean Chatzky: (21:16)
Go figure.

Allison Schrager: (21:19)
So it’s a risk, right? When you put something out there. And for me, the downside, the worst thing could happen was to hear no, but like anything, there’s risk management in a negotiation. So one of their big strategies there is you offer a menu of options, therefore it’s not as confrontational. So there’s not a no, that’s ridiculous. I’m storming out of this negotiation. You offer a menu of options. So there’s no confrontations you can pick and choose. I mean, to some degree it’s a hedge because you know you’re giving up some, maybe leaving some money on the table by offering something cheaper, but you also increase the odds in negotiation workout and not be contentious. So for sex work, that’s pretty obvious. It’s like different services say, but if it’s a more conventional job, you could say, all right, I want this much money, but if that’s not realistic or in your budget, maybe I’d take slightly less money but more vacation days or take on this role or that role. So you can offer this menu of different options when you negotiate. Therefore it’s not like pay me this, this is my number and if not, you know, where do we go from here?

Jean Chatzky: (22:18)
Amazing advice from a place I would never think that we would get at. Allison Schrager the book is “An Economist Walks Into a Brothel. Thank you so much for doing this today.

Allison Schrager: (22:28)
Thanks for having me.

Jean Chatzky: (22:29)
Absolutely and we will be right back with Kathryn and your mailbag.

Jean Chatzky: (22:36)
HerMoney.com’s Kathryn Tuggle is in the studio with me now. That was fun.

Kathryn Tuggle: (22:42)
Loved it.

Jean Chatzky: (22:44)
I really admire when somebody takes what could be a regular profession and does something just off the wall with it. You know, I like when Lisa Sanders, the doctor, goes all house and tries to figure out all those wacky diagnoses and I, I appreciate that she said, nobody understands this. How can we explain it? And went in search of all of these out of the ordinary ways to explain risk, which is something that we all need to understand.

Kathryn Tuggle: (23:21)
Right. And when you do dig into untapped territory, that’s when you get the best lessons. I feel like, I think learning negotiation skills at the Bunny Ranch, I want to go do that.

Jean Chatzky: (23:32)
For that two week program. Right. I mean I want to go do it as well. Maybe we’ll send you, I mean you don’t have to go undercover or anything like that, but but yeah, I think, I think somebody should take a and go to the Bunny Ranch and talk to this guy about what, I mean, if they’re teaching the sex workers for two weeks, they probably have a lot of lessons.

Kathryn Tuggle: (23:54)
Right. I loved what she said about the fear of hearing no. It made me think of what you said actually last night at a HerMoney happy hour that we went to where you said, if you ask your boss for more money, they might say no, but they’re not going to fire you for asking for more money. But I do think for some reason we worry that no means not only no, but I hate you.

Jean Chatzky: (24:19)
Right? It means I don’t like you get out of my face. I don’t have time for you anymore. And, and that’s not the case. I have tried to get myself to just ask the question, just step in and say, can I have a better deal? And sometimes the answer is no. And that’s okay. Right, right. I mean you, you, there’s somebody else on the other side of the table. I’ve been asked for raises and I’ve said no. As an employer, I’ve said, Hey, it’s only been six months since you got the last one. So no, and we’re gonna I didn’t say it with that kind of attitude, but I did say, you know, I have said no and we’re going, we’ll reevaluate in another six months. But if you can’t get yourself to ask, then there’s no potential upside. You’ve already shut the door in your own face.

Kathryn Tuggle: (25:07)

Jean Chatzky: (25:08)
And I did like what she said about the menu. It reminded me of something that I heard Dan Arielli say, Dan Arielli we’ve had on the show before, he’s a famous behavioral economist and he says that there is a lot of art in form designing that if he was raising a child now he would say grow up to be somebody who creates forms. And what he means is questionnaires that people fill out that give them options. And he said, you know, the art is you give people three options. They always take the middle one. So make them three high options. You want to offer three prices for something, make that lowest price something that is even higher than you think you might want to accept because people are always going to gravitate to the middle one if you give them three.

Kathryn Tuggle: (26:01)
That’s interesting.

Jean Chatzky: (26:02)
Yeah. So for whatever that’s worth, we have questions this week.

Kathryn Tuggle: (26:06)
We do. We have some good ones. Our first one comes to us from anonymous in California. She writes hygiene. I adore your podcast and put all my friends onto it, so thank you for what you do.

Jean Chatzky: (26:18)
Thank you.

Kathryn Tuggle: (26:19)
I am a 31 year old ex-pat from Australia living in California. I have no idea what country my partner and I will be living in in 10 years, let alone at the age of 65 we haven’t been contributing to our 401(k) is for this reason we have no debt, $15,000 in an emergency fund and $50,000 in betterment as a backup retirement fund, but we have no savings such as a 401k Roth IRA or SEP-IRA. What advice do you have for building wealth when you also want to maintain flexibility and mobility? In the event that one of our parents fell ill or we lost our visas, we need to hustle back to our home country with very little notice.

Jean Chatzky: (26:56)
So first of all, thanks for writing. This is a good question, but it’s also a really complicated question. The short answer is that the longer you expect to actually be in the United States and the more time you have to enjoy that tax advantage growth that you get in all of these retirement vehicles because your money compounds without any additional taxes being owed, the better off you are contributing to a US-based retirement plan. Even if you think that you may someday go back to Australia or whatever your home country happens to be. If you think you’re only here for a short time, then it really makes sense to just put your money in a plain old brokerage firm where you can get the gains from investing in the market, but you’re not necessarily going to get the tax advantages. The other thing that can swing the scales in the favor of a 401(k), are matching contributions, so we’ve talked a lot on this show about how matching contributions are free money. If you or your partner has an employer that is willing to match those contributions, then go ahead and make sure you’re capturing those as well. The other thing that I would do because I am not familiar with the system in Australia, is talk to an accountant from Australia who has specialized in ex-pats who’ve been through this and ask what their experience has been. It is very possible that there’s something in the Australian system that I don’t know about, so I would want to make sure that you understand that this answer is really a general one for people who are living in this country, having come from somewhere else and have that opportunity to get money in a 401(k) or other retirement plan, but getting the specifics you should really do from your own pro.

Kathryn Tuggle: (29:04)
Great advice and as a general rule, a foreigner who comes here and saves money, it’s theirs to take with them when they leave, right?

Jean Chatzky: (29:12)
Yes. But if you tie it up in a retirement plan where there are taxes owed on the earnings, when you pull the money out and you’re no longer living there, it just gets into this murky area of having to file tax returns in multiple countries. So it does get complicated, but if you’ve got a lot of years of matching contributions and a lot of years of tax advantage growth on your side, you may very well decide those complications are worth paying for.

Kathryn Tuggle: (29:47)
Great advice.

Jean Chatzky: (29:49)
Thank you.

Kathryn Tuggle: (29:50)
Our next letter comes to us from Heather who writes, I am a HerMoney devotee and I’m so thankful for the infusion of money confidence you provide. I have a question, a version of which you’ve received a million times over. Where do I put my money? I’m 39 years old. I make $120,000 and I have no dependents. I contribute approximately 2,500 per month to my employer sponsored 403(b) and a tax deferred annuity. The only debt I have is mortgage debt, both on a primary residence and they profitable investment property and my emergency fund is solid. So with my extra money, should I number one, try to pay off my mortgage quicker for my primary home and or my investment property. Number two, contribute that money to one of my retirement plans. Or number three, do something else. One day in the future I may have to support my mom who’s now 67 she reassures me that’s not the case, but I’d rather be prepared with gratitude, Heather.

Jean Chatzky: (30:49)
Thank you so much Heather. I love how she laid out the options. One, two or something else. I go for number two and I think the reason that I’m going to nudge you in this direction is because when we look at these trade off choices and all of these, what should I do with my next dollar questions, are trade off choices. We need to look at where we’re getting the biggest return on our money or the biggest potential return on our money. Mortgage money right now, even mortgage money on your investment property I’d suspect is cheap. There is a tax deduction on the table. I’m not sure if you’re itemizing or you’re not itemizing for the loan on your primary residence, which makes it even cheaper and the chances that after getting an employer match and market sized gains, you’ll be ahead of the game by putting money into your retirement account where you can enjoy that tax free growth I think are pretty great and so that’s why I would max those things out. Then I would look at potentially investing outside that retirement account and finally I would look at paying off the mortgages faster. If you go to pay off the mortgages, you want to pay down the one with the higher interest rate first. So that’s probably the investment property and not the primary residence. And the last thing about your mom, it’s really nice that she is reassuring you that you’re not going to have to support her, but I would encourage you to sit down with your mom and look at her numbers and see what her numbers really are because it may be that she will need your support even if she doesn’t think that she will. If she lives ’til 90 if she lives ’til 95 and one of the things that you may want to consider helping her with is a longterm care insurance policy if it looks like she needs it or wants it.

Kathryn Tuggle: (33:01)
Right. Always better to gather ahead of those things, right?

Jean Chatzky: (33:03)
I think so. I think sometimes our parents don’t want to worry us and so they say, Oh, don’t worry, I’m fine. We need to understand the definition of fine.

Kathryn Tuggle: (33:13)
Right. Well, 67 is really young, so there may be something you can do now to prevent her needing your help.

Jean Chatzky: (33:19)
Exactly. And she may be in need of just investing her money differently to make it last for the longterm or she may be fine. She really may be fine, but dig into it so you know for sure.

Kathryn Tuggle: (33:30)
Great. Our last letter comes to us from Alison who says, I hope you are flattered to be part of my cleaning and laundry routine on weekends, which is when I always listen to your podcast.

Jean Chatzky: (33:41)
I’m happy to be part of cleaning and especially part of laundry. I like laundry.

Kathryn Tuggle: (33:46)
Same. I have 25 years of experience in the communications industry and last year took a job at a utility company as a communications specialist that includes a pension, a 401(k), an excellent health care. I knew when I accepted the offer that the salary could be higher, but I took it knowing there was strong growth potential. Several months into the role I discovered that my specialist title is more reflective of someone with more like five years of experience. I presented my case at my six-month review and detailed how my job description and responsibilities are more closely aligned with someone at the director level. Despite an excellent review, my boss that I was only eligible for a 3% raise and that I would not be eligible for another until my one year review in November, but because our company has been undergoing a reorganization, I had the opportunity recently to chat with our HR director and CEO and express my concerns. I’m still waiting to hear back from them, but my goal is that my salary and title are both adjusted to a managerial level in the short term. As a single mom overcoming a costly divorce. My salary is especially critical to me right now. Do you have any advice on how I can take this to the next level and ensure that my career gets on a stronger trajectory for the longterm with gratitude for any guidance? Alison.

Jean Chatzky: (35:00)
Thank you Alison. Thanks so much for the letter. Boy, this one is a tough one because you’ve already gone in, you’ve asked for a raise, you were told what they could give you and they’re telling you that they’ll reevaluate in six months from now. I would spend the next six months doing two things. I would be making the case for the value that you’re adding to this company and to the bottom line specifically. It’s great to say that your experience is aligned with a title that you haven’t gotten yet, but if you can show employer in actual dollar terms what you’re adding to the bottom line and what you’re bringing to the organization, even in terms not just of money made but of money saved. I think that goes an awfully long way. The other thing I would do if you can, is look for another offer. I suspect that this is one of those scenarios where they know they got a good deal. They are perfectly aware that they hired you at a salary that is below your level and if you can go out and get somebody else to offer you a significantly higher salary, they’re going to have absolutely no choice but to match it and they may choose not to match it. The flip side to getting an offer is that you always have to be willing to take that offer, so tread carefully, but it sounds like there is such a big gap between what you are earning and what you should be earning. You may need somebody else to prove your case for you.

Kathryn Tuggle: (36:46)
Right. To what extent should she weigh the pension, the 401(k) and excellent health care? Because that is a trifecta. I rarely see.

Jean Chatzky: (36:54)
I would weigh it incredibly heavily. I think you’re absolutely right and she should factor that into any competing offer that she gets, but that’s not compensation. I mean it is compensation and HR professional will tell you that is part of total comp. It’s not her salary and it’s not what she is valuing right now. Although the pension, the pension in and of itself is so rare and so unusual that I would be pretty wary of letting that go.

Kathryn Tuggle: (37:30)
So the other offer needs to be…

Jean Chatzky: (37:32)
The other offer needs to be spectacular but just getting another offer can signal to this company, Hey I’m serious about this and you should be paying me more. It’s also I think a lesson to all of us that we need to when we’re going out and interviewing for jobs, get as much information on the structure of that particular company and how titles are given out as we can. We all know that there are a lot of companies where there are 300 vice presidents and 500 senior vice presidents and the more people there are at all of these levels and the sooner those titles are given out age wise, experience wise, the less they tend to mean. But it’s really next to impossible for an outsider to understand that if they haven’t gone through the process of looking at the structure. The nice thing is on sites like Glassdoor and a lot of other chat, boards this information’s out there.

Kathryn Tuggle: (38:38)
Great advice.

Jean Chatzky: (38:39)
Thank you Kathryn. Thank you all for your letters. Thanks for your emails. Please keep them coming. You can send them to us mailbag@hermoney.com is that right?

Kathryn Tuggle: (38:50)
That is correct.

Jean Chatzky: (38:51)
There we go. In today’s Thrive, approximately 10,000 boomers are turning 70 every single day and one in five people between the ages of 55 and 64 are now spending time caring for older relatives. 20% of those caregivers also have children at home and many of our listeners know this story all too well and are living it on a daily basis. Sandwiched right between our obligations to the people that we love most. Those we brought into this world and those who in their day threatened to take us out of at a time or two. If you’re in this boat, you’ve probably found yourself thinking some combination of how did I get here so quickly? And is my doing the caregiving really the best option? Not surprisingly, women are bearing the brunt of the responsibilities according to the New York Times, which asserts that caregiving is taking too many women out of the workforce during their prime earning years and as a result is now weighing down the American economy. In 2000 the U.S. Ranked 17th out of 36 countries for participation of women in the workforce during their prime earning years. But by the year 2017 we’d slid down to 30th place leading to an outcry over the absence of virtually any kind of support for elder care. Although it’s too early to say that real change is happening. Conversations around increased benefits for childcare and elder care have heated up, particularly in this election cycle. If you are passionate about seeing real change, write to your elected representatives, tell them this is a priority for you, and if you need more time off from your employer than you’re getting you can and should always approach HR or your supervisor about making some changes that could benefit everyone. Thank you so much for listening to me today. Thank you you to Allison Schrager for a terrific conversation. If you like what you hear, we hope you’ll subscribe to our show at Apple Podcasts. Leave us a review. We love hearing what you think and other people do read them. We also want to thank our sponsor Fidelity. We record this podcast out of CDM Sound Studios. Our music is provided by Track Tribe. Our show comes to you through PRX. Join us next week. We’ll be back with another great HerMoney guest and we will talk soon.

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