Mary Buffett & The Difference Between Gifting Cash and Stocks

Posted on December 13, 2024 // 9 Comments

In a recent Fortune article, which in turn referenced an older ThinkAdvisor interview, Mary Buffett shared an anecdote about how her former father-in-law Warren Buffett changed the way he gifted his family $10,000 every year, from cash to shares of stock:

He would always give each of us $10,000 in hundred-dollar bills. As soon as we got home, we’d spend it — whooo! Then, one Christmas there was an envelope with a letter from him. Instead of cash, he’d given us $10,000 worth of shares in a company he’d recently bought, a trust Coca-Cola had. He said to either cash them in or keep them. I thought, “Well, [this stock] is worth more than $10,000. So I kept it, and it kept going up. Then, every year when he’d give us stock — Wells Fargo being one of them — I would just buy more of it because I knew it was going to go up.

Giving shares of stock instead of cash was small nudge that made a difference. A little bit of added friction. A little hint from the giver that you might want to keep it, but you aren’t forced to keep it.

I haven’t given my children any stock yet, but am starting to think they are ready. It won’t be a lot, but I’ll tell them about it and they can look at the custodial account statements each year. I’ll show them what paper stock certificates look like. I’m hoping that they’ll also see the growth from the investment, and then that’ll make them even less likely to sell the shares. But they’ll technically be free to sell them once they turn 18 (or up to 25 in some states).

Filed Under: Family, Investing //

Warren Buffett Memo on Estate Planning and Charitable Giving

Posted on December 5, 2024 // 2 Comments

Warren Buffett is known for his annual Letters to Shareholders, but last week he also made some extended comments inside a Berkshire Hathaway news release about to his charitable giving and estate planning. As with most of his writing, it is concise and direct, and thus worth reading the original. Here are a few of my takeaways after reading the “mini-letter”.

Many who diligently save and invest will achieve “runaway” wealth, especially those that live a long time. This includes a lot of Berkshire Hathaway shareholders, and many of them choose to give the excess back to society instead of keeping it in the family.

Things didn’t look great when I arrived at the beginning of The Great Depression. But the real action from compounding takes place in the final twenty years of a lifetime. By not stepping on any banana peels, I now remain in circulation at 94 with huge sums in savings – call these units of deferred consumption – that can be passed along to others who were given a very short straw at birth.

It also has been a particular pleasure to me that so many early Berkshire shareholders have independently arrived at a similar view. They have saved – lived well – taken good care of their families – and by extended compounding of their savings passed along large, sometimes huge, sums back into society. Their “claim checks” are being widely distributed to others less lucky.

Regarding wealthy parents and how much to give their children.

These bequests reflected our belief that hugely wealthy parents should leave their children enough so they can do anything but not enough that they can do nothing.

Regarding ALL parents and leaving stuff to their children. Talk to them while you are still alive!

I have one further suggestion for all parents, whether they are of modest or staggering wealth. When your children are mature, have them read your will before you sign it.

Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If any have questions or suggestions, listen carefully and adopt those found sensible. You don’t want your children asking “Why?” in respect to testamentary decisions when you are no longer able to respond.

The overall plan is that he is leaving his BRK shares to family foundations, whereupon his three children will be responsible for overlooking their disbursement. Buffett always believed in a “circle of competence”, which means that just because you are good at one thing, that doesn’t mean you are good at everything… Apparently, his circle doesn’t include dealing with the world of charitable grants. His children have agreed to take on this important responsibility, and all three have to agree unanimously for a grant to occur.

Passing on family values, not just money.

Instead, we shared a view that equal opportunity should begin at birth and extreme “look-at-me” styles of living should be legal but not admirable. As a family, we have had everything we needed or simply liked, but we have not sought enjoyment from the fact that others craved what we had.

Filed Under: Family, Giving Back //

Halfmore App: Turn Your Kids’ Chores into a Roth IRA

Posted on November 13, 2024 // 8 Comments

Roth IRAs are popular and powerful, and while they have an earned income requirement, they don’t have a minimum age requirement. As long as a child has “official” earned income, they can contribute that into a Roth IRA (technically a Custodial Roth IRA as a minor, with full rights when they turn 18).

There have been various tips floating around on how parents can help “support” the creation of earned income for their child. There was even a now-defunct website called 1417power.com that would “hire” your kids to take surveys online (of course, the parent had to “hire” 1417power.com first…).

A new app called Halfmore can now facilitate the creation of a nice paper trail between parents as employers and children as workers. They promise to turn chores into a Roth IRA balance. Based on their screenshots, examples of such chores include floor sweeping, washing the dishes, surface dusting, and plant watering. The screenshots also suggest a pay rate of $15 to $16 an hour.

For chores to be recognized as legitimate sources of income, your kids should be paid for tasks you would typically hire another neighborhood kid or a nanny to do (rather than for regular family chores). They should also be appropriate for your child’s age and abilities. Examples include cleaning the garage, mowing the lawn (without a machine), and babysitting. The work must be real, and the wages should be fair.

From what I can gather through the limited information on their website (I had to register to get more details), this is what they offer:

  • They will help you file for an EIN from the government, so you are registered as an official household employer. This is basically the type of thing you should do if you hired a full-time nanny.
  • Through the app, you can track the completion of chores and manage payroll for your children. For example, the washing of dishes can be marked down as 30 minutes of work.
  • They will prepare work documentation for IRS income tax filing and record-keeping requirements.
  • They will help you navigate Federal and State employment taxes.
  • They will help open a custodial Roth IRA for you at Fidelity or Schwab, and transfer money into that account.

The cost is $15 per month or ($144 per year). Their FAQ says this covers up to three children (another place on the website says up to five children). You could file for an EIN, track chores, and open up a custodial Roth yourself for “free”. You are essentially following the same steps as if you were hiring a full-time nanny as a household worker. But if you make enough money such that you are considering this scheme for your kids, then your hourly rate is probably high enough that the convenience factor makes this a reasonable fee.

If you need more chore ideas, here is the Montessori Chart of Age-Appropriate Chores For Kids that keeps floating around like a meme:

spoiledchores

Looking through my archives, I realized that I have already written about “Roth IRA for Kids” in 2007, 2012, and 2019. My eldest child is in middle school now, and I’m still working on how to best teach them about money. I can see a matching program later on in life when they have a real job from an outside employer. But right now, I don’t pay them anything to do their chores. Chores are not a job, they are a responsibility to their family. They can’t decline their chores by declining the money. Maybe I’ll pay for extra jobs around the house, but I think it’s gonna be a stretch for that to add up to thousands of dollars a year.

If you already plan on gifting your child money anyway, this might be a more efficient method. For me, I already tell them that we spend a lot of money on their education right now, and that is our “gift”. I am already paying plenty for tutoring, swim lessons, tennis lessons, STEM camps, etc. Not to mention who knows how much college will cost! I suppose I just feel like this is too far down the list. Maybe my attitude will change later. Maybe I’ll just let them have the sense of accomplishment from funding their own retirement accounts. 😁

Filed Under: Family, Investing, Retirement //

Apple Watch as Standalone Phone For Kids: BetterRoaming eSIM Review

Posted on September 23, 2024 // 22 Comments

Our middle school has adopted some of the recommendations as outlined in the book Anxious Generation and other public policy folks:

  • Phones are not allowed during the school day at all. They are allowed after school.
  • Recommended: No smartphone until high school.
  • Recommended: No social media until age 16.

However, the school also does not provide any supervision when not in an after-school activity, so we needed a way to communicate with them regarding pickups and carpools and such. I ended up buying an Apple Watch SE w/ Cellular (you can get a refurbished one for under $200) and went with BetterRoaming for service as a standalone phone. The major providers like T-Mobile, AT&T, and Verizon all have different policies, but they cost at least $12-$15 a month for an independent smartphone if you don’t already have some sort of expensive unlimited plan with them. However, if you’re on a cheapo MVNO like me (Mint Mobile), many don’t support smartwatches at all. Of those that do, like the free smartwatch included on Visible+, they only let you use the watch as a paired device that shares the number with your existing iPhone.

BetterRoaming is an eSIM provider that operates worldwide, formerly known as UK-based Truphone before it was acquired by private investors. I could not find a concrete source, but based on their other eSIMs, I believe it uses AT&T towers in the US. The cost for service is $99 annually upfront ($8.33/month) (or $10.99 per month, month-to-month) and includes unlimited talk, text, and data. This was the cheapest standalone plan I could find.

There was a 7-day free trial, which I appreciated. The setup was relatively easy; the parent will need an iPhone that is connected to the Apple Watch via the Watch app for setup and changing settings, but be sure to follow the directions from BetterRoaming carefully and set up the watch as an independent phone with its own phone number. Pick “Set up for a Family Member”. Apple Watch uses eSIM so the rest is done over the air.

During real world usage, I have found that texting with my child does not work very reliably. I’ve done it with the watch right next to me and sometimes the watch does not get the message. Other times, it’s probably my kid who does not notice the message. Making traditional phone calls is the most reliable method to make contact. (Sometimes she forgets to charge the Watch and it dies as well, so definitely have a fallback plan.) The speakerphone on the Apple Watch is pretty good, but based on my personal experience the speaker can get damaged if exposed to salt water.

There is a “Schooltime” feature on the Apple Watch that restricts usage during preset hours, like Monday-Friday, 7am to 3pm. The child can disable the feature, but it is logged. During Schooltime hours, incoming calls are all ignored and don’t show up on the watch at all. I added my phone number as an whitelisted phone number; this way I can always contact her in an emergency, or during M-F school holidays where the feature is still accidentally active.

Overall, a couple of months in, I am satisfied with the combination of Apple Watch + BetterRoaming service. My middle school child now has the equivalent of a flip phone that is attached to her wrist (more likely to be heard, but also less likely to be lost). I didn’t have to change from my cheap MVNO plan (yet, I’ll need a family plan soon). I don’t have to worry about running out of minutes or text or data, even though we barely use them. I can track her location with “Find My” app, if necessary. I feel the cost is fair (of course, I’d like it to be cheaper given the light usage). With luck, the watch will last long enough to be passed down to the next child. 🤞

Filed Under: Deals & Offers, Family //

Americans Spend More Money Dining Out than Eating at Home (Again)

Posted on July 29, 2024 // 9 Comments

Like everyone else, we’ve been hit with inflation both at the grocery store and while dining out. Eating at a sit-down restaurant with our family of five has been a $100+ affair for a while now (gotta tip 20% with the chaos that we bring!), but nowadays even fast casual meals are inching towards the $100 mark. This had led us to cook at home as much as we can, schedule permitting. It’s been probably a year since we’ve used Uber Eats or DoorDash.

So I’m actually a bit surprised by the chart above that says that Americans (again) spend more of their food budget dining out than at the grocery store. I know that we were there already before COVID hit, but I figured that the inflation spike would have kept a damper on things. Image credit to Sherwood News. Data is from the USDA Economic Research Service (ERS) which separates Food-Away-From-Home (FAFH) and Food-At-Home (FHA).

  • Food-Away-From-Home (FAFH) includes meals and snacks supplied by commercial food service establishments (like all restaurants, bars, and hotels) and by eating facilities in non-commercial institutions (like schools, offices, and hospitals).
  • Food At Home (FAH) includes food bought at grocery stores, convenience stores, warehouse clubs and supercenters, mail order, and online orders delivered to home.

This means that all those rotisserie chickens, half-baked pizzas, taco kits, and salads that I buy at the grocery store and Costco are still considered food-at-home. Nowadays, 1/3rd of Whole Foods is prepared foods from sushi to rice bowls to salad bar.

Here’s the same data set looking all the way back to 1960 that includes total spending on food as a percentage of personal disposable income. (source).

The trend is clear: We love to dine out at restaurants, even if it costs more than food from the grocery store, and even if it starts to cut into the rest of our overall budget.

To buck this trend, I’ve started watching meal prep videos on YouTube and hoping to get better at cooking multiple meals at once. I don’t know if it’ll work out.

Filed Under: Budgeting, Family //

Worried About Unused 529 Funds? New 529 to Roth IRA Rollover Option

Posted on May 3, 2023 // 10 Comments

One of the concerns about contributing to 529 plan for college savings is that you won’t end up using all the money and end up being hit with additional taxes (at ordinary income rates) and penalties on an non-qualified withdrawal. The funds potentially would have been better off simply invested in a taxable brokerage account (and long-term capital gains rates).

This was partially addressed within the SECURE 2.0 Act of 2022, part of the Consolidated Appropriations Act (CAA) of 2023. Specifically, Section 126 [PDF link], “Special Rules for Certain Distributions from Long-term Qualified Tuition Programs to Roth IRAs”, which adds the ability to roll your 529 funds into a Roth IRA both tax-free and penalty-free starting in 2024. Kitces.com covers many of the major points. Here is a quick summary of the rollover requirements:

  • The Roth IRA receiving the rollover money must be owned by the beneficiary of the 529 plan. (Unless the beneficiary is also the owner, the money can’t go to the owner’s Roth IRA.)
  • The 529 plan must have been open for at least 15 years.
  • The rollover amount must have been in the 529 account for at least 5 years before your distribution date (contributions and attached earnings).
  • The annual rollover amount is limited to annual IRA contribution limits, and is reduced by any “regular” Roth IRA contributions made during the tax year. (You are not able to exceed the usual max contribution limits. However, the income (MAGI) limits that usually lower the contribution limits due to high income do not apply.)
  • The Roth IRA owner still needs to earn taxable income, at least equal to the amount of the rollover.
  • The maximum lifetime amount that can be moved from a 529 plan to a Roth IRA is $35,000 per person. (This may not be as much in 15+ years if they don’t increase it with inflation.)

In general, this seems like a reasonable way to alleviate the over-contribution concerns, although the money must still technically go to the beneficiary (usually the kid) and not the owner (usually the parent or grandparent). Previously, options for leftover money included graduate school, changing the beneficiary to another family member or future grandchild, or paying back up to $10,000 in qualified student loans.

There are a few interesting, potential wrinkles that a few readers have pointed out:

  • Making yourself both owner and beneficiary to fund future Roth IRA contributions for yourself (even with no kids). As you aren’t really increasing the total amount you are able to stuff into a Roth IRA in the future, the primary benefit is basically to access the tax-deferral benefit early. For example, you could put in $2,000 today and expect to roll over $6,000 in 15 years (7.6% annualized return). The exception may be if you expect not to be able to do Roth IRA contributions in the future because your income is too high AND the Backdoor Roth IRA method is not available to you. Still, 15 years is a long time to wait, and the law may change in the future to restrict this type of move. In such a case, it may backfire and subject you to taxes and penalties.
  • Planning to change the beneficiary from kid to yourself later on. Maybe you don’t want your kid to have the unspent funds, and plan to simply change the beneficiary to yourself later on. However, it’s not 100% clear if beneficiary changes will reset the 15-year clock or otherwise affect rollover eligibility. The law specifically restricted the rollover
  • Contributing extra money for the specific purpose of early funding for your children’s Roth IRAs. This might spur higher-income parents to put even more money into their 529s on purpose, as you are essentially indirectly able to fund a Roth IRA with tax-deferred growth for your kid way before they have earned income. When they eventually do have any form of earned income from a part-time or entry-level job in their teens or early 20s, the money can just roll into their Roth IRA officially (up to the limits).

I don’t have any immediate plans to take advantage of any of these potential scenarios, but taken together it does make me feel better about the 529 contributions that I have already made. Which I suppose is the overall idea?

In terms of other actionable advice, it may be worth it to start a 529 for each child immediately or as soon as possible, even if only putting in $25 or whatever is the minimum amount, just to start the 15 year clock in case you do want to take advantage of this feature down the road. There are countless examples out there of the benefit of starting the compounding early, especially when it can keep growing tax-free forever.

Filed Under: College & Education, Family, Investing, Retirement //

Refinery29 Money Diaries: Interview Questions Answered

Posted on March 28, 2023 // 3 Comments

I’ve always been fascinated by stories about money. There are just so many ways that people earn and spend their money, yet we rarely share because we are taught to be secretive about it. I recently discovered the Refinery29 Money Diaries such as A Week In Portland, OR, On A $105,000 Salary. There is even a book. The participants are all asked the same set of questions, and I have answered them myself below as an interesting exercise in self-reflection.

Was there an expectation for you to attend higher education? Did you participate in any form of higher education? If yes, how did you pay for it?

Yes, there was definitely an expectation for me to attend higher education. My parents were willing to help pay for some of my tuition, but they had limited resources and there was definitely a “value” hurdle. If they personally didn’t think the school was worth it (based on their personal opinion of the school’s reputation), they weren’t going to help pay for it. I applied to about four schools.

I am very thankful that my parents did help me with a significant portion of my college tuition and boarding costs. I finished my undergraduate degree with about $30,000 in student loan debt (this was over 20 years ago now). I went straight onto grad school and at that point was able to cover my own tuition and living costs using a fellowship stipend and income as a graduate student instructor and/or researcher. I started paying down the $30,000 in student loans during my graduate school years (helped by various side hustle income) and finished paying it off completely within 4 years of finishing my undergraduate degree. A major motivator was that I wanted to be debt-free before proposing marriage to my then-girlfriend.

Growing up, what kind of conversations did you have about money? Did your parent/guardian(s) educate you about finances?

I don’t remember many direct conversations about money, but I did a lot of learning through observations. I saw frugality, self-discipline, and not being wasteful. My parents did not buy things without carefully considering the cost-to-benefit ratio. We hardly ever ate out at restaurants. They did not focus on material things, and were very practical. They worked long hours, played it safe, followed the rules, and built a very solid life over time. Education was highly valued.

However, I wasn’t exposed to things like entrepreneurship, taking asymmetric risks, or investing in stocks and real estate. That journey was left to me, but I felt that I had a very stable base to get there. I knew how to live below my means, even if my “means” started out as less than $20,000 a year of annual income. I could create the raw material of having money left over to invest.

What was your first job and why did you get it?

My first job was probably either a math tutor or restaurant cashier at around age 16. Here is a list of every job I’ve ever had.

Did you worry about money growing up?

My observation is that kids notice money issues when they have a different experiences from their friends. Most people who “didn’t feel poor growing up” had that feeling because all of their friends were in the same situation, for example living together in a homogenous neighborhood or housing development. Similarly, post people who “didn’t feel RICH growing up” also had that feeling because all of their friends were in the same situation. I’m afraid that my kids are going to be in the latter group.

In my case, my parents put a premium on a good public school education but were probably below the average income level, so we usually ended up living in a cheaper rental in an affluent neighborhood. Therefore, I definitely noticed that I lived in an apartment or duplex when my friends lived in a single-family house. We drove the old import car when they pulled up in the brand-new SUV. The four of us shared a single bathroom, while others had their own bedroom and their own bathroom. I still had a happy childhood and was never hungry or scared, but I did notice these types of things.

Do you worry about money now?

I probably shouldn’t, but yes, I do. Rationally, I should just be thankful for my health and my family’s health. Those are gifts that can be taken away much more easily and suddenly than my relatively-conservative investments and job income.

At what age did you become financially responsible for yourself and do you have a financial safety net?

I started graduate school at age 21 and that was when my income was high enough to pay all of my own bills. My $30k in student loans were in deferral, and I knew that I’d have to take care of them at some point, but my monthly cashflow was net positive.

I’m sure I had a few hundred dollars in my checking account as an “emergency fund”, but even more importantly, I always knew my parents still had my back even if I no longer received money from them. If something truly catastrophic happened, I knew they would come in and help. I’m sure I took it for granted at the time, but now in retrospect it is so valuable because it allows you to feel comfortable taking some risks in your life. Many people struggle today because they had to drop out of college early and were stuck with the tuition debt but no degree. Many people who had the potential to become doctors decided to become nurses because that was a surer, safer path.

Do you or have you ever received passive or inherited income? If yes, please explain.

I have not received any income from a trust or inheritance. My wife did receive an inheritance very recently. We plan to use any inheritance to help “pay it forward” and cover our three kids’ educational expenses and/or help them buy a first home. Both sets of grandparents greatly value education. While we didn’t receive any financial assistance for a home downpayment ourselves, I am not necessarily against helping my kids in such a way. (I would still be impressed if they can pull it off on their own.)

Filed Under: College & Education, Family //

Some Holiday Thoughts on Effort, Results, and Control

Posted on December 26, 2022 // 14 Comments

Happy Holidays! I hope that everyone reading this is enjoying time with family and friends in their own tradition. This is a time for reflection, but my interest in diving deeply into financial topics has been low recently. As I sit amongst a pile of used wrapping paper and cookie crumbs, allow me to reflect on something else.

By chance, my wife recently met a nurse that worked in the pediatric ICU at the same time that our youngest daughter spent some time there. Nearly exactly four years ago today, she experienced sudden, unexplained seizures that lasted on and off for nearly 48 hours. I’ll never forget the uncontrollable screaming and violent movements, the cage that she was put inside to keep her from climbing out and hurting herself. The feeling of complete helplessness. I won’t go into detail, but the short version is that after years of behavioral and speech therapy (and ongoing anti-seizure medication twice every day), she is now at a mainstream kindergarten school. She is a happy, hilarious, spunky little human. She is a fighter.

Where the nurse comes in is that she remembers both our daughter and another child that came in with the same starting conditions, but for the other child the seizures didn’t stop and they never recovered “normal” brain function. This other child has been on my mind. Both of their lives could have been very different. They were equally innocent. We were lucky. I was overcome again by that same feeling of helplessness.

There is so much we can’t control. I couldn’t choose the country where I was born. I couldn’t choose my parents. I couldn’t choose my genes. I couldn’t choose my gender or race or sexual orientation or decade that I was born. I couldn’t choose to have working eyes, ears, or nervous system.

Yet I crave control. Take this site. I want to control how to make more money. I want to control how to spend less money. I want to find the best way to invest that difference into ownership of businesses and other assets. I want these money factories reliably provide me a stream of income. I want to be be able to walk away from bloated corporations, the blind following of metrics, and self-enriching executives. I want spend my time doing something meaningful and fulfilling. I have worked decades for this ability. I have been very fortunate that for the most part, more work has equalled more results. Yet I would give every single penny up if I was the parent of the other child, in order to switch situations with my child.

So that’s the paradox that I’ve been thinking about. We need to respect that we can’t control the cards of which we’ve been dealt, and neither can anyone else. There would be much more grace and forgiveness in this world if we all remembered that. However, we also need to play our own cards as well as we possibly can. So many people don’t feel like they have a chance, so they don’t bother trying. I feel it is critically important that everyone feels they have a chance. Even if effort and reward are not always directly linked, we need to act as if our efforts are worth it. How do you help encourage yourself and others to keep up the effort?

While trying to work this out internally, I appreciated these quotes from Mahatma Ghandi:

Satisfaction lies in the effort, not in the attainment, full effort is full victory.

Glory lies in the attempt to reach one’s goal and not in reaching it.

You may never know what results come of your actions, but if you do nothing, there will be no results.

Change yourself – you are in control.

Here’s the remarkable story of another amazing child who made the most from what he was given. Even though it was prematurely ended by tragic accident, he lived well and I am both humbled and inspired by his story.

Filed Under: Family //

Reader Question: Higher Interest Rates on Cash Without Internet Access or Cell Phone?

Posted on November 20, 2022 // 2 Comments

Here’s a reader question that I found interesting regarding “low-tech” retirees:

Hi – my 82 year-old father-in-law does not own a cell phone or a computer. He has very little “visibility” on the internet because he was a self-employed craftsman for the last 40 years. But he has money to invest, and it is sitting in a near-zero savings account. For the reasons listed above, he cannot qualify for any of the high-yield savings accounts that are out there. Their methods of identifying customers require a cell phone and some kind of documentable internet presence. Maybe he is an extreme example, but I am guessing there are others in similar situations. Any thoughts on how such a person can obtain a higher yield? Thanks.

I am empathetic to this problem as I am frequently helping older relatives navigate modern life without internet access. I’m also a fan of low-tech as a backup form of resilience and emergency preparedness. What would happen if the power went down for an extended period? What would happen if you passed away suddenly and nobody could figure out your passwords?

This question specifically addresses low interest rates on cash. It is not an accident that NONE of the three biggest banks by branch size (Bank of America, Chase, and Wells Fargo) offer a decent interest rate on their basic checking and savings accounts. (Even Citibank only offers their high-yield Accelerate savings account in states where they have no physical branches.) If they made it easy to sign up for a “high-yield savings account”, they would lose many millions in profit as all the offline folks would happily switch over their deposits earning 0.01% APY. My 94yo great-aunt will dilute her dish soap until it comes back on sale at the local grocery store. You can bet she would walk right into her local branch to sign up for a savings account paying 3% APY instead of 0.02% APY!

My first thought is that I would open an account with Fidelity Investments, as they have solid history as a traditional broker with a fully-staffed customer service phone line. Fidelity would still run just fine if there was only snail-mail envelopes and rotary phones. This Fidelity Core Positions page is a handy bookmark to see the current interest rates (screenshot below taken 11/18/2022) on the various options for your core position (default for uninvested cash). As you can see, the rates are quite competitive with online banks. Money market funds are not FDIC-insured, but they are very close (and even closer after recent regulations). I personally don’t lose a bit of sleep on my Fidelity money market funds and I also snail mail them large checks every year for my Solo 401k plan.

In addition, Fidelity has a decent branch network (“Investor Centers”) at major metro areas nationwide. Finally, Fidelity offers a solid inventory for brokered CDs and access to Treasury bills and bonds if you were willing to lock up your money for a higher rate.

Why don’t I include Vanguard? While Vanguard money market funds are excellent and usually pay even higher interest rates than Fidelity money market funds, I have heard far too many customer complaints about hour-long hold times for phone customer service. Vanguard also does not have a physical branch network. I try my best to only use Vanguard for simple index fund transactions and nothing complicated. Meanwhile, TD Ameritrade and Schwab do have some money market options and physical branches, but you must make every transaction manually while the default is a sad cash sweep program paying less than 0.50% APY. This is why I’d pick Fidelity over the others. (No, Fidelity did not pay me to say any of this. Unfortunately…)

Another option would be a local credit union that is looking for loan growth (which requires deposit growth) and thus is offering high interest rates. You would want to find one that has a physical branch in your area, and the best resource for this is DepositAccounts.com which allows you to search by zip code. Make sure to uncheck the “Web Only” box and check the “Local Branches” box.

This will hopefully let you find a physical branch nearby that will offer a decent rate. Oftentimes, the good rates only show up in certificates of deposit (which allow them to match maturities) but you could simply ladder even 1-year CDs over time to maintain a solid rate with decent liquidity. Many of the military-affiliated credit unions have a larger branch network and a history of competitive products, and some of them can be joined without military status. Good luck and thanks for helping others!

Filed Under: Banking, Family //

Till Financial Review: Kid Banking App That Teaches Compound Interest

Posted on April 21, 2022 // 17 Comments

There are many apps in the “reloadable debit card for kids” category, where parents can transfer money into their account and kids can spend it. However, I have been looking for a better app that can illustrate the power of compound interest and deferred gratification. Till Financial allows the parent to incentivize savings via both custom matching and interest amounts. The idea is to provide them a safe place to fail and learn, such that they don’t have to learn it later through missed opportunities and credit card debt. Here are some important highlights followed by details about my favorite features:

  • No monthly fees. No premium tier exists, so not even requests to “upgrade”.
  • Child can be of any age. Family owner must be 18+.
  • Free virtual and optional physical Visa debit card.
  • Now supports both iOS and Android app.
  • Banking services provided by Coastal Community Bank, Member FDIC.
  • No interest paid.

Match each savings contribution. Parents can encourage transfers to savings by matching each transfer by a custom percentage. For example, if they move $10 from their Spend bucket to the Savings bucket, you might match another $5 or $10. Any transfers both in and out of savings must be approved by a parent/admin account.

Pay monthly “interest” on savings balances. Parents can also encourage savings accumulation by paying a custom “interest” rate. For example, you might pay them 5% or 10% monthly for a while and see if they notice how fast it can compound if they don’t touch it. 5% growth every month compounded for a year is +80% growth, i.e. $100 would turn into $180. 10% growth every month compounded for a year is +213% growth, i.e. $100 would turn into $313!

Automatic weekly allowance or one-time transfers. You set the allowance to “auto-pilot” once a week, or just give manually.

Save for a specific goal. Your child can set a goal (ex. $100 for Airpods) and then redirect their allowance, other income, or requested gifts from friends and family into that goal.

Tasks. You can create a menu of specific tasks along with specific payouts (ex. $25 for mowing the lawn.) Tasks can be made available daily, weekly, or on a one-time basis.

If it’s free, how does Till plan on making money? This quote from TechCrunch sums it up well:

Besides making money on interchange fees, Till aims to earn revenue by partnering with merchants to offer rewards to users. It also plans to earn referral fees by referring the teens to other financial institutions when they get older and have different needs.

“It’s not our intention to be your son or daughter’s forever bank. It’s our intention to be their first bank,” Burton said. “So, when they hit the age of majority, we’re actually giving them a high-five off of our platform and introducing them to maybe their first college loan or their first credit card.”

Does Till offer a sign-up bonus for new customers? Yes, if you apply at this link and enter my referral code JP8548 during sign-up, you will get $25 (now only $10?) once you set up an account, create a family, fund, and make one debit card purchase transaction. My cash bonus arrived without problem.

My kids are still on the younger side, so I have been using this mostly as a virtual piggy bank for my kids so far, as they can log into their account and see the (growing) balance. I expect to gradually allow them to handle money and take some responsibility for their spending and saving decisions.

Bottom line. If you are looking for an educational spending app for your kids, check out Till. This is not a “high interest” account, but more about showing them how compound interest and consistent savings adds up. Hopefully, they can use the app to learn deferred gratification in a real-world environment. There is currently a referral bonus for new customers.

Filed Under: Banking, Deals & Offers, Family //

Problems with TASC Denying Dependent Care Expense Reimbursement With No Reason Provided?

Posted on March 6, 2022 // 20 Comments

My muscles tense up with just the thought of dealing with health insurance claims and flexible spending account reimbursement. I feel they are both incentivized to deny your claims and thus put up layers and layers of bureaucracy in the hopes that you’ll just give up. Sometimes I feel like I’m a customer of Insuricare.

I have actually skipped participating in FSAs for entire years due to bad administrators. At some point, the potential tax savings isn’t worth the added stress and time spent to submit $20 receipts for approval. However, I thought it might be different for the Dependent Care Flexible Spending Account (DCFSA). I can contribute $5,000 and a single preschool tuition alone was easily over that. Just one receipt and done! Right?

No. This is light paraphrasing of my recent interaction with TASC (Total Administrative Services Corporation), which is the benefits administration provider for our DCFSA. I wish I had a recording of the call; I really felt that I was in the movie Office Space. Even worse, it wasn’t this person’s fault. The highly-paid people who created this situation made sure they had a layer of low-paid workers shielding them from the actual customers (again, see Insuricare). You can skip to the end if you want the final resolution.

Me: Hi! I am checking in again on why my dependent care expense reimbursement request was denied (again).

TASC: I see that it was denied again. I can’t tell you why it was denied. I can tell you the things we usually look for: name of provider, name of service recipient, date, amount, and description of service.

Me: The receipt that I sent in has all of those things.

TASC: I see. I can tell you the things we usually look for: name of provider, name of service recipient, date, amount, and description of service.

Me: So which of those things was missing in my reimbursement request?

TASC: I can’t tell you that.

Me: Can I talk to the people who denied me?

TASC: No, you can’t talk to them. They are in a separate department. They don’t talk to customers. We talk to the customers.

Me: So I can’t talk to the people who denied my request. They are just allowed to deny my request without providing even the tiniest clue to say WHY they denied my request?

TASC: That is correct.

Me: So can you tell me EXACTLY what I need to do to get my reimbursement approved? I am contributing $5,000 of my paycheck to this Dependent Care FSA this year. It’s a lot of money.

TASC: You need to send in a new reimbursement request. I can tell you the things we usually look for: name of provider, name of service recipient, date, amount, and description of service.

Me: How should it be different than my previous reimbursement request?

TASC: I can’t tell you that.

Me: I must point out that I submitted the exact same documentation in 2020 and it was approved.

TASC: I can’t help you with that. I can tell you the things we usually look for: name of provider, name of service recipient, date, amount, and description of service.

Me: Umm… we don’t seem to be making any progress here. Can I talk to a supervisor?

Stitch Frustration GIFfrom Stitch GIFs

After an additional 15-minute hold time (where I reminded myself of the $1,000 in tax savings at the end of the rainbow) and another discussion with the supervisor, they finally told me about the existence of an alternative method: the TASC Dependent Care Contract. My preschool provider had to fill it out (I felt bad making more work for them), I signed it, scanned it, uploaded it, and it was finally approved. (There may be different versions of the form out there. I wouldn’t put it past them.)

Note that I had talked to three different customer service reps about my denied reimbursement request, and NONE of them mentioned this magical form. Only after escalating to a supervisor was this option finally revealed to me. I hope that some of these keywords will make it into Google and other search engines and help the next parent pulling out their hair.

If you want to cover all your bases, you should also ask your care provider to fill out IRS Form W-10, “Dependent Care Provider’s Identification and Certification” at the same time as the TASC form.

Filed Under: Deals & Offers, Family, Taxes //

Don’t Die With Zero: Money Still Buys Better Experiences When You’re Old

Posted on September 14, 2021 // 7 Comments

The idea of “consumption smoothing” tries to balance how our income changes over time with our spending needs. In theory, it may be ideal to go into debt when you are really young, save heavily when you are middle-aged, and spend it down when you are old (source):

The book Die With Zero (my review) reminds us that when we are young, we tend to have little money but lots of health. When we are old, we tend to have lots of time and much less health. So we should spend most of our money during our younger “best years” instead of when we are old. Here is a graphic from the book:

I enthusiastically support the idea of creating a specific bucket list of items designed for each stage of your life. However, I don’t like the title “Die with Zero” because it suggests that your time at the end is not valuable. A young, healthy person might think – why bother saving too much when you’re too old to enjoy it? Well, I would say that you start to appreciate the bottom layers of Maslow’s Hierarchy of Needs when you see them missing in someone’s life. (image credit)

We help take care of an older relative, and she has recently gotten to the stage where she can no longer safely live independently. According to the Katz Index of Independence, here are the basic activities of daily living (ADLs):

  • Bathing and showering: the ability to bathe self and maintain dental, hair, and nail hygiene.
  • Continence: having complete control of bowels and bladder.
  • Dressing: the ability to select appropriate clothes and outerwear, and to dress self independently
  • Mobility: being able to walk or transfer from one place to another, specifically in and out of a bed or chair.
  • Feeding (excluding meal preparation): the ability to get food from plate to mouth, and to chew and swallow.
  • Toileting: the ability to get on and off the toilet and clean self without assistance.

You may be 100% there mentally and only be struggling with one of these things, but that’s enough that you can’t live independently. The next level of “instrumental” activities of daily living includes things like cleaning, laundry, paying the bills, managing medication, cooking, shopping, communicating via telephone/computer, or transportation.

According to AARP, nearly 80% of adults age 65 and older want to remain in their current residence as long as possible. Seniors vastly prefer “aging in place” to facility care, and why wouldn’t they? The standard of care in an average nursing home is simply not that great. You live on their schedule, ignored most of the time. They are only required to give two baths a week. There are no national laws or regulations for staff to resident ratios. You may face a ratio of 15 residents to 1 nurse aid or worse. Medicaid pays for 6 in 10 nursing home residents. In 2021, a single Medicaid user must have under $2,382 per month in income and less than $2,000 in countable assets to qualify financially. Truly having “zero” near the end is not fun.

However, if you have the financial means, you can hire your own personal home health aide. This 1:1 ratio gives you your freedom back. You get to live in your own house. You wake up and live on your own schedule. You get to choose the food that you eat. You bath every day. You have someone to drive you wherever you want. You can still do your own shopping. You can have lunch with your friends. You can go to social events (memories! experiences!). This can get expensive at $15 to $30 an hour (often less overnight), but I’ve discovered that 1-on-1 help is the “luxury good” that the wealthy buy at this stage of their lives.

One of the findings of behavioral psychology is that above a certain level of income (maybe $80k a year in 2021?), you don’t get that much happier. At a certain point, you have your needs met and you feel safe and relatively comfortable. Above that, it’s mostly a nicer house, fancier car, more expensive restaurants, etc. Earning more doesn’t give you a more loving family and group of friends. When you get older, I’ve now seen how extra money can get you back to that level of satisfied comfort if you have health issues. The difference that I see in happiness levels was surprising to me. It just reminds me that the freedom to spend our time how we wish is the true goal.

Upgrading from the “economy” to “business class” lifestyle in your 40s is nice, but so is upgrading from a nursing home to 1-on-1 personal attention in your 70s and 80s. The very wealthy can afford both. But for the rest of us, it’s something to think about. Maximize pleasure when you are younger, or minimize suffering when you are older?

Filed Under: Family, Retirement //
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