Knowledge for My Kids

My middle daughter is graduating high school this week, one semester early. Soon she will turn 18 and will officially be an adult. I gave her some advice and assistance with some things today as she is preparing to go it “on her own” and I thought I would share that information in case someone finds it helpful. This is about 90% or more about financials, so expect that if you choose to read on…

Money, Money, Money…Money

Not surprisingly, a lot of the conversation revolved around things related to finances. Our kids are in various states of earning their own money, but I want to make sure they are squeezing everything they can out of what they earn!

Banking

To me, gone are the days of brick and mortar banks. Sure, they’re still all over the place, and sometimes it’s convenient to go into a bank branch for things. But honestly, that convenience is outweighed by the benefits of banking with more modern institutions. Specifically, we “bank” with SoFi.

SoFi doesn’t have branches to go to as they are purely an internet banking play. But, they offer benefits that traditional banks just can’t (or won’t) compete with:

1. Account Open Bonus
   Just for opening an account and setting up direct deposit they will give you a cash bonus in your account (free money = good™️). With SoFi that is (currently) $50 if your direct deposit is up to $4,999 per month or $250 if your direct deposit is $5,000 or more. That’s good stuff!
2. 2.50% APR Interest Bearing Checking
   They pay you just to hold your money (free money = good™️). Traditional banks don’t pay interest on checking or if they do, it’s a minuscule, sub-1% rate. 2.50% isn’t much, but it’s something!
3. 3.75% APR Interest Bearing Savings
   Similar to Checking, SoFi pays interest on a standard Savings account. The “SoFi Plus” membership I have pays 3.75% APR. We recently had a banker pitching a 6 month Certificate of Deposit (CD) that paid 3.30% and that ties up your money for six months.
4. Referral Bonus
   Like with my button above, SoFi pays you $50 with you refer someone and they open an account (free money = good™️).
5. No account fees, NSF forgiveness
   I don’t want to pay a monthly fee to have a bank. SoFi doesn’t charge any fees. Also, they offer forgiveness for Non-Sufficient Funds transactions up to $50. So if we “ooopsie” and overdraft, there are no fees to pay as long as it’s by less than $50.
6. No ATM fees
   This is big. People wonder what ATMs they can use if there aren’t branches. SoFi uses the Allpoint ATM network of 55,000+ ATMs that I can use with no fees to get cash. These are also at very convenient places like grocery stores, gas stations, pharmacies, etc.
7. Cash Back Rewards
   Like with credit cards described below, if you’re going to spend money, let them pay you to do it! SoFi offers cash back rewards for purchases made with your debit card (free money = good™️). They also pay rewards for doing mundane things like using BillPay or even logging into the app.

They drive a lot of traffic to their mobile app as you would expect, and my experience has been that it’s a pretty decent app. It’s not as good as Capital One’s mobile app, in my opinion, but it’s very solid and better than some I’ve used with traditional banks.

What About Cash Deposits?

This is the biggest question I get when I recommend online banks. No worries here. It’s not quite as seamless as going to a bank branch or a bank ATM to deposit cash. They use a service called Green Dot which is available at lots of retailers, pharmacies, etc. Green Dot takes your debit card and deposits money into SoFi on your behalf for a small $4.95 fee. I don’t like the fee part, but I deposit so little cash it’s really not a big deal.

Banking for Students

My graduating daughter isn’t quite 18 so she can’t open a SoFi account on her own yet and you are only allowed one account with SoFi per social security number. So to help until she turns 18, I sought out the best student banking offering I could find. As it turned out, I opted for Capital One’s MONEY TEEN Checking account. Basically I was able to open an individual account with her as the primary account user, and she can use the app for deposits, gets a debit card, etc…All the things you would expect with a checking account but with oversight from dad until she’s 18. Capital One even pays a small 0.10% APR interest on this kind of checking account. But, full disclosure, I intend to help transition her to SoFi once she turns 18.

Their mobile experience is top-notch, and account management happens in the same online account as our credit card accounts which is very handy.

Budgeting

I’ve written before about being a firm believer in basic budgeting. People can argue about what app is best for managing a budget, but it’s the principles of budgeting that I try to impart. I keep it very simple by effectively using an electronic version of the envelope system (aka zero-based budgeting). This is very well supported with the platform You Need A Budget or YNAB for short.

The most important aspect of this is making sure you give every dollar a “job” to do. This helps keep you aware of what you’re spending money on and helps you make informed decisions about buying things. Your budget doesn’t judge you…Starbucks is certainly a perfectly good “job” for your dollars to do. Managing a budget just helps keep you aware of how much you are allocating to that job (your budgeted amount) and keeps track of how much you’re spending on it (your actuals for each category).

YNAB has a ton of other great principles, too, especially around getting out of debt and helping to age your money so that you’re living on last month’s income (that’s the goal anyway). But fundamentally the thing I use every day is making sure I fund the spend categories I use with our anticipated spend for each category and then monitor how we actually spend against those. And I account for every dollar. You work hard to earn that money…make sure you know where it’s going!

More than just money in, money out, YNAB affords me the ability to plan. Specifically, I know there are charges that happen every month and there are charges that happen every year. Those annual ones can be killers if you don’t plan for them. Take our $160 Amazon Prime membership. That hurts when it hits the account! But I know it’s about $160 and it happens every year. I have a Subscriptions group of categories and one set up for Amazon Prime and I try to allocate money each month to it. Specifically $160 per year is $13.33 per month, so I look to allocate $14 per month to that spending category. When the renewal hits each year, if I have been diligent, it’s already paid for and therefore does not disrupt my budget.

I do sometimes check out other platforms to see if they are better than YNAB for any reason. The one contender recently was Monarch Money. It seems more modern and looks to be very good. I just didn’t have the oomph to up and change without some burning reason to do so. My biggest “burning reason” is cost. YNAB ain’t cheap. It’s about $90 a year for the membership I use. But, in true YNAB fashion I try to use the YNAB category in my Subscriptions group to plan for it at about $8 a month. I am about 75% successful with that planning but aim to get to 100%.

Credit Cards

I always tell my kids be VERY careful with credit cards. They can be so damaging if used improperly, and I can’t stress that enough. However, having a credit history is a necessary part of living in today’s world. They’ll need a credit history, ironically, in order to obtain debt to buy a car or a house someday.

Secured Credit

One way to get started establishing credit is with a secured credit card. This basically means that the potential debt on the card is covered by your own money in a savings account so you really can’t get into trouble with debt…You can only spend what you have in the secured account. My kids didn’t go this route, but it’s a decent path for those without other options.

Authorized Users

This is something we’ve done some of. Basically we are helping our kids build credit “age” (how long they have had credit) by making them an authorized user on our main credit card account. They don’t use the card (unless we need them to pick up a gallon of milk or something) and in some cases don’t even carry it. But just by virtue of being an authorized user, the credit card company should report our good payment history to the credit bureaus for our kids’ social security numbers.

Use It Wisely

I fall victim to it all the time…it’s so easy to buy something now and pay for it over time. Instant gratification! But, this can quickly add up ans before you know it, you have a big credit card bill every month at, unfortunately, usually an ugly interest rate. You don’t get to use credit cards for free…The bank issuing the card charges you interest every month on any balance you carry with them. Remember the 2.50% interest SoFi pays for checking? Yeah, it’s a little different when the bank is on the receiving end. It’s not unheard of to have a variable APR of 14% to even 24%. That is damn near criminal in my mind. And all it usually serves is to feed the instant gratification of not waiting and saving the money to buy something.

Of course there are exceptions where credit card debt, called “consumer debt,” can’t be avoided. If your car breaks down and you don’t have cash to pay for the repairs, you still have to be able to get to work. Having a credit card can help in these situations.

Get Paid To Use Them

So, using a credit card is a foregone conclusion since you have to build a credit history in order to function in society. The absolutely best way to build a solid credit history is to use a credit card and pay it off every month. Period. But even better than that, like with SoFi above, credit card companies offer you incentives to use their cards. I shopped the various programs out there for what was a good match for us and it turned out there are two cards from Capital One that are proving beneficial for us.

The Savor card pays cash back rewards just for using their card (free money = good™️). This particular card emphasizes Dining and Groceries purchases by paying 3% Cash Back on all dining, entertainment, and grocery store purchases. Spend $500 on groceries? They pay back $15 in cold, hard cash. Most other purchases earn 1% cash back so we literally are getting paid even if just a little to spend money. We take advantage of this by always using the Savor card when we eat out or on groceries. Apply for the Capital One Savor Card using my referral link and earn us both a sign up bonus!

The second Capital One card we use is a more general purpose Quicksilver card. It offers a simpler Cash Back Rewards structure of offering 1.5% Cash Back on all purchases regardless of the category.

Because of the additional 0.5% cash back on this card, it is the card I use to pay most of our bills. Comes in handy when we pay a fat AT&T Wireless bill every month and get nearly $10 in cash back rewards!

The goal to doing this the “right” way, of course, is to spend on the card but pay it off every month. Both the Savor and Quicksilver cards come with ugly variable interest rates, so avoid that altogether by always paying off the full balance every month possible.

Some people prefer to get their rewards via airline miles. There is certainly validity to this approach. We just found that we don’t travel by air a whole lot and would prefer to more routinely just get cash in our pockets.

That’s all for now. I’ll update this if I decide to write more on imparting any particular wisdom or knowledge to our kids!