July 11, 2023

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Good Tuesday to you. Remote work has been creeping into our lives since the dawn of the internet, ramping up to about 9 million individuals in 2019. Can you guess how many are working remotely now? a. 15M, b. 21M, c. 27M. Follow the wave 🌊 below for the answer.

The money topics for today are:

The Commercial Real Estate Problem
Money Biases to Avoid
The Quiet Way to Sidestep Rising Tuition Costs

ECONOMY

The Commercial Real Estate Problem

Opportunities for remote work grew substantially throughout the pandemic, with roughly 17.7% of the world's working population (557M people) working from home at the peak.

Although that may have changed in some areas as businesses returned to the office or shifted to a hybrid system, the overall trend remains the same — about 35% of U.S. employees work remotely all of the time.

While this has proven valuable for both the employee and employer, it creates another subtle gap in the economy that could have ripple effects throughout — commercial real estate.

What's looming

Lower usage: A recent global survey showed that 56% of firms worldwide had adopted a hybrid work arrangement. The results? 50% of key swipe volume seen by offices in 2020, overall office vacancies rising from 16.8% at the end of 2019 to 19% currently, and expectations are that usage rates will plunge even further, dropping by 7% to 8% more by 2025.
Plunging metrics: This doesn't happen without office values also taking a plunge. In the U.S. alone, the valuations of institutional quality offices have declined by 27% since March 2022, apartments have slumped 22%, and malls have suffered a roughly 18% drop.
Higher interest rates haven't exactly helped matters either. The commercial real estate industry is one that's largely predicated on debt, and the cost of that debt has increased rapidly in recent years.
Distressed debts: Combine these two realities, and you end up with debt that's under stress, and for commercial real estate, the number of assets that fit the "distressed" description climbed to $64B in Q1 of this year. Amongst the biggest culprits here are offices, which account for roughly $43B of potentially distressed debt.
Ticking time bomb: According to MSCI Real Assets, there are an additional $155B of commercial real estate and assets that are potentially troubled looming on the horizon. Roughly $1.3T worth of commercial real estate loans overall will be coming due by the end of 2025, and many of these borrowers will require refinancing.

MONEY TIP

Money Biases to Avoid

There are a lot of hiccups you could make with your money, like buying a new car on a whim. Some mistakes we make willingly, but it's often the ones we're unaware of that can hurt the wallet the most.

More often than not, unconscious mistakes occur largely due to an equally unconscious bias we've developed, making them exceptionally dangerous and hard to foresee. So, let's take the blinders off for a moment — what are the main money biases to avoid today?

Hidden in plain sight

Expectations: Whether we're aware of them are not, expectations and assumptions around money are instilled in us from childhood, and they often shape our idea of success. For example, if you grew up thinking $50,000 per year was a good salary, you'd likely be subconsciously influenced to aim for that amount in adulthood, potentially limiting your earning power.
Debt comfort: If you don't handle it soon enough, debt can become like a spider that we get comfortable living with. While at first you might find yourself comfortable with $1,000 of credit card debt, you might quickly find yourself slipping into deeper piles of debt, becoming okay with more and more every month.
401(k) matches: It's great to take advantage of an employer match, but this can also be a limiting anchor point for investors. Say a company decides to offer a generous match, extending up to 3% of an employee's salary. As a result, it's not uncommon for workers to believe that allocating 3% of their income toward a 401(k) would adequately secure their retirement funds. In actuality though, this approach often falls short of providing a substantial nest egg for their future needs.
First price bias: To no fault of our own, we tend to anchor our price expectations in accordance with the first one we see for an item. If a retailer marks down a shirt from $75 to $50, you might be tempted to view this as a good deal relative to the original, but is this objectively a good deal?
Starting small: We're often convinced to begin things under the notion of starting small — whether it's investing, saving, learning, or even starting a business, that valiant notion can often leave us short. For example, many investing apps out there will suggest users can get started with fractionalized shares for as little as $5, but is this a valid long-term strategy? Not exactly.

BUDGETING & SAVING

The Quiet Way to Sidestep Rising Tuition Costs

Over the last two decades alone, the average cost of tuition at private four-year universities has increased by about 124.2%, outpacing inflation by 172%. Tuition has an annual average inflation rate of 6.2% at these private institutions, so the average on-campus student will now pay about $223,360 for a bachelor's degree at their university.

For most families, this is unaffordable, to say the least. And while there are some hit-or-miss conventional ways to save money on tuition, there's also one lesser-known loophole for those attending private institutions.

Private College 529 Plan

What it is: It's the close cousin of traditional 529 plans, with the main difference being that it allows investors to lock in tuition rates at private universities long before classes even start.
How it works: Tuition costs rise quickly, and the private 529 plan allows you to lock in the rate you pay now by purchasing prepaid tuition credits at the current day's pricing. Contribution limits usually range from $200,000 to $400,000 depending on your state, and the states that do run these plans usually require them to be used at in-state universities.
The savings: Let's imagine some prudent parents of a rising freshman choose to prepay Stanford's 2022-23 annual tuition rate of $57,692 — this amount could cover the child's senior year tuition, no matter how much it goes up, which is already $61.731 for the 2023-24 school year.
The account comes with an array of investment options typical for a 529 college savings plan. Account holders can choose from the typical target-date compositions that correspond to the beneficiary's age, and some will even offer individual portfolios.

🌊 BY THE WAY

👨‍💻 Answer: 27M. Our most recent data from late 2022 shows a tripling of remote workers since 2019, and most estimates put the number reaching 36M by 2025 (Census.gov)
🚚 DoorDash drivers can now opt for an hourly rate (Axios)
📝 ICYMI. 2023s most pressing financial questions (Finny)
🏡 Rent or own? A few reasons in favor of renting (CNBC)
📊 Finny lesson of the day. Student loan repayment resumption is right around the corner, and a large swath of young Americans will start making payments again soon. Make sure to understand the fundamentals first:

Student Loan Fundamentals

Debt Management

7 mins

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