How Much Should We *Really* Be Tipping?

Katie: Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly question of The Money with Katie Show. I'm your host, Katie Gatti Tassin, and every Friday my executive producer, Henah, and I are gonna dig into an interesting, relevant conversation based on a listener question. This way you'll be able to search them more easily, and then judge from the titles every week whether it's a financial topic that you want to hear about. 

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So Henah, how are we doing this week? 

Henah: I'm good. I'm excited to get into it. This is a spicy question that we're talking about. 

Katie: Yes, it is. Okay. So this week's question is from Jessica. She says, “What the heck is up with the pressure to tip literally everywhere in the US? I went to get fast food last week and had a tip prompt. Buying a pair of socks for my small business? Tip prompt.” 

And Henah, I feel like you probably have a hot take about this, because your opinions on these types of things always surprise me, so I would love for you to kick us off.

Henah: Oh boy. No pressure. So I do have a really hot take, which is because I'm an over-tipper, okay? I will…

Katie: She's like, let me just qualify up front… 

Henah: I mean, it's just in my nature because I feel like that is the right thing to do. 

Katie: Okay. 

Henah: To the extent that I think it's appropriate. So the person asking this question, I think, brings up a really good point of, why is it literally everywhere, and is it appropriate at every turn? And that's where I'm like, okay, I think I gotta draw a little bit of a line in the sand here. The reason that tipping has become what it is in the US today—I know it has a crazy history and we could talk about that. But also at this point today, like this is a way for employers to cut costs and not pay employees… 

Katie: Da da da da! 

Henah: …fair wages. And so in one aspect, I think of tipping as like a really great option for community care. A really great way to be like, I have the opportunity to give back and I have the interest in doing it, and I wanna support the people in my local community who are wage workers or service workers. But I don't think the onus should be on just everyday customers to make sure that this employee has enough wages to pay their rent, to feed their families, to do X, Y, Z. So that's my hot take so far. But I'm curious what you think, Katie. 

Katie: Okay, well, I actually completely agree. Here's my thing. Whose responsibility should it be to make sure that your employee is paid fairly? Should it be you, the employer, or should it be your customer's responsibility? And to me the obvious answer is, it should be on the employer, because the sub-minimum tipped wage in the US, it's like $2 and change, and you are effectively eligible to be paid this way if you earn up to, I think, $30 a month in tips. 

Henah: Wait, do you mean per day? 

Katie: No, per month. $30 per month. 

Henah: $30 per month. And they…so then it's acceptable to pay you $2 an hour? 

Katie: Yes. And that is, I believe, again, I think that's federally, but then some states have different laws, but in any case, it's like an abysmal amount of money, and it's basically just a way for employers to pass costs onto customers instead of actually paying employees fairly out of the money that they are making.

So from the brief research that I've done on the topic, it sounds like tipping is really this practice that was instituted when you had people that were no longer in slavery, who were now working service jobs or who were working for, you know, wealthy white families as housekeepers, nannies, like that type of work. And the thing was like, “Oh, well if you really wanna be paid well, you gotta really show out. You gotta really prove that you're worth it.” So it structured their payment such that it was contingent upon them doing a quote unquote, you know, over-the-top, exemplary job. That's kind of, I think, the reason why tipping has such a fraught history and is such a questionable practice now, because still it is used really as a means to exploit labor.

So that being said, I think with all that in mind, it is the system that we currently have and it is the system that service workers are currently working under. So to your point, it kind of puts you as a customer in a weird position 'cause you're like, well, I might disagree fundamentally with this practice, but I don't wanna take that out on you, the person who is serving me at this restaurant or who is the barista who's making my coffee. Like, it's not your fault that your primary source of income is coming from tips. So I don't know. I guess that's…I agree. And I also see why this is kind of a contentious question. 

Henah: Yeah. And I understand the reader's question about the pressure to do it. Because you also feel like, well, also if you don't give enough, then it looks a certain way. And then if you feel like you have a hard time with it, then the person that you're tipping seems to feel insulted. Like, I think that there's so many layers to that. Do I think that the person who is checking out my socks needs to be tipped? I don't know. I don't personally feel like that is something where I'm exchanging their talent or efforts in exchange for what I am paying for. 

Katie: Well, it's funny, did you see the meme of like the midterm voting booth and it had a tip prompt on it, and they're like, god, really? Which obviously is not…but I think it speaks to this idea that in the culture broadly, people are like aware of that they'll flip that iPad towards you and the tip options are 20%, 25%, 30%, and you're like, “I bought a muffin that you reached behind the counter to hand me. Like, I'm already paying for the muffin. What am I being asked to tip for?” So I think, I don't know, this is a very zeitgeisty topic as well. 

Henah: To your point, the percentages that they default to is also very surprising. Like I have been the tip thing on the iPad and it's like 30% was the minimum. 

Katie: Yeah. Oh god.

Henah: And I'm just very surprised by that, because I feel even as a generous tipper that 30% feels so high as a threshold. Then if you hit “No” and put my own amount in, then that also looks kind of funky. Like to be like, “No, I don't think you deserve this bottom 30%. I'm actually gonna…”

Katie: And the people behind you in line are like watching you fill it out.

Henah: Like, yeah, there's a judgment behind it. Even if…20% is still really generous, I don't know; maybe someone will say, “Oh, that's not generous at all.” But I guess from the cultural standards that we've seen, I would say, you know, for takeout, 10%, 15%, if you're the one going into the store and picking your food up and bringing it home. And I know, Katie, like you get delivery quite a bit. What do you generally do for that? 

Katie: My kind of rule of thumb is takeout, I'll do 15%, like you said. For delivery, which I…my Uber eats, I have a problem; I'm trying to cut back. But I will do 20% tip if it's, you know, the full tip will go to the driver. I'll do a 20% tip if it's normal weather, and I'll usually do 25% if it's bad weather. So here in Colorado it'll snow a lot. Some days it's really rainy, and if it's like crap weather and that's why I'm trying to stay inside, I'll usually do 25%. But even then sometimes I'm like this is a $20…like, I don't feel like this tip is very much money nominally, and they're still having to get, you know, spend the gas money and the time to deliver it to me. So even that sometimes feels like not enough but tipping, you know, 40% or 50% of the order value also sometimes feels like at this point I'm not even gonna order this, because now I've inflated the cost of what I'm buying by so much that it no longer makes sense. 

Henah: Right. I think that's a great point too, of like what's the bill total? Like are we talking about 10 bucks or are we talking about $300 at a big dinner? 20% on either of those is gonna be widely different. And so it's… 

Katie: And if you're a delivery driver, like your effort is not changing, right? Whether the person is buying something that costs $300 or $20, you're still driving to the same restaurant and then driving the same distance to drop it off. So the more I think about this, the more I'm like, I should just have a rule of thumb for the dollar amount that I'm gonna tip depending on, you know, I'm pretty much ordering from the same restaurants around town, but rather than making it a portion of the order, just always making it a rule that I'm gonna give them a certain amount of money.

Henah: The Cheba Hut in Fort Collins is ready for your…

Katie: Oh my god, I went to get sushi the other night. I always get the same roll at White Tree Sushi. It's called the Vegas roll. It's deep fried 'cause I'm a dumpster human. And I walked in the other night to pick it up and the lady was like, “Oh, Katie, it's so good to put a face to a name. I always see your Las Vegas roll order.” And I was like…and that's on needing to cut back on my dining out budget. 

Henah: I will say that when we used to live in Santa Barbara, the people knew our Taco Bell order 'cause it was around the corner. So I’m no better off. Don't worry. $2 and 13 cents is not even a bean burrito. So that… 

Katie: Right, exactly. 

Henah: You could work an hour and not even make that. That's actually a really great point of like, maybe it's less about the percentage and more about the standard amount. I never even thought of it that way. At the same time, if I am going to something that's way nicer, maybe I'm willing to pay a little bit more for extra service.  

Katie: If you're talking dine-in, where somebody is actually coming to your table every 20 minutes and bringing you things and like that, to me it makes sense for it to be a percentage of the bill. 

Henah: Well, I think because delivery seems like such a one-time transaction and dine-in seems like more of an experience, right? Where you're like, there's multiple steps to this and if they go above and beyond… 

Katie: Agreed. And I think there is some motivation to me, at least, in becoming more financially independent and earning more and saving more, so that you can give generous tips and you know, have some sort of rule of thumb. I know I think Ramit Sethi has talked about this, where every time you go out to eat, being able to say, like, one of my rules in my rich life is I'm gonna tip 50 bucks every…no matter what the bill is. Like I am gonna give that person a $50 tip. I think that's really cool, 'cause it's a very motivating way to kind of pay it forward, and yeah, so I dunno, I think there is like a positive silver lining element of this conversation.

But I will kind of close up by saying…I will go out on a limb and say that if I'm going to a clothing store and purchasing clothing and I, you know, found what I needed, did it all, and then went to the register to pay, I don't feel compelled to tip the cashier who is ringing me up for the clothes or you know, those types of scenarios. I feel like that's more just a function of the iPad point of sales system kind of proliferating, where it's designed for restaurants or designed for cafes. But I think it makes sense to draw a line at some point. Like I don't think you should always feel obligated. 

Henah: Yeah, I agree. I think that there are circumstances where it feels really appropriate, and then ones where you don't feel like you have to feel pressured to do it just because someone is holding it in your face. 

Katie: Yeah. And people are standing behind you watching. Going up and being like, no, I paid for my sweater and I'm not tipping for it. 

Henah: Stick to your morals. Say it with your chest, as you would say.

Katie: Well, thanks for listening to this installment of Rich Girl Roundup. We will be back next Friday with another interesting question.