New apps are set to vary the way in which mother and father save for faculty
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When Jordan Wexler’s niece recently lost her first tooth, he sent her $ 15 along with a video of himself dancing dressed as a tooth fairy.
The money was not the typical money that children traditionally receive under their pillows.
Instead, Wexler invested the money in EarlyBird, an app that enables parents, family and friends to save for the future of the children, where he serves as CEO.
The video is also on the company’s platform, where his niece regularly asks to watch it again.
“She had this connection to the product when she was almost 4 years old,” said Wexler.
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As app investing becomes mainstream, new businesses are springing up in the hopes of finding young millennial parents where they usually are – on their phones.
The apps aim to enable parents to automate investments in their children’s college education and other activities, and to help friends and family achieve those goals.
The accounts offered may include 529 plans – tax-relieved education savings accounts – as well as custody accounts that adults manage on behalf of minors.
Backer, a San Francisco-based company working to make 529 plans more accessible, went live with its app in 2017.
The company is run by CEO Jordan Lee, a self-described underperforming student, until a teacher became interested in him. Now his academic career includes degrees from Harvard, Yale and Princeton.
Through Backer, Lee wants to help ensure that children receive the same encouragement that he received.
He hopes the app’s posts get the message across, “You’re a college-bound person because someone thinks you are.”
529 Making Plans Easily Accessible
Participation rates in 529 savings plans are low. According to a recent survey by Edward Jones and Morning Consult, only 36% of Americans can correctly identify the funds as an instrument of education savings.
Those who are aware of the plans are often unaware that they can be applied for for purposes other than college, such as: B. K-12 tuition, practitioner programs, and some student debt.
In addition, the costs associated with the plans are often high.
Backer hopes to change that by bringing 529s to a wider audience at a lower cost. A backer account costs at least $ 1 per month, while it is up to families to decide if they want to pay more.
Setting aside even a little bit regularly can make a huge difference in how much you will ultimately save.
According to Lee, the company currently has about 50,000 families enrolled. About 70% of the company’s customers make less than $ 100,000. About half are not white.
The 529 plans Backer recommends to its customers typically cost around 20 basis points, according to Lee, compared to 60 basis points for an average 529.
Backer recently raised $ 8.4 million from venture capital investors led by Crosslink Capital, an early investor in Chime. Other investors included Rally Ventures, Correlation Ventures and Expansion Ventures.
“If you set aside even a little bit regularly, it can make a huge difference in how much you will ultimately save,” Lee said.
Ultimately, the goal for children is not to get into student debt, he said.
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To prevent people from accumulating large debts with students, Ksenia Yudina also founded the college savings app UNest.
Yudina, who serves as the company’s CEO, first came to the US from Russia when she was 18 and eventually took out $ 180,000 in student loans to fund her education.
Now she wants to help children and families avoid those high balances.
In 2020 UNest released its app. It currently includes five investment options across Vanguard funds, ranging from conservative to aggressive. The portfolios also have an age-dependent option that automatically converts to more conservative investments as the child grows.
UNest charges $ 3 per month or $ 6 per family. This monthly fee covers inventory and managed accounts for children with no commissions.
The accounts allow unlimited gifts from friends and family. Parents can also earn rewards on their UNest accounts by shopping with certain branded partners.
UNest’s accounts are custody accounts, which means that the investments ultimately belong to the child. This frees up the money compared to 529 plans that can be used for broader future goals like buying a car or a home.
Currently, 90% of UNest users earn less than $ 100,000.
The company has raised approximately $ 15 million in total venture capital funding through investors including Anthos, Draper Dragon, Artemis Fund, Northwestern Mutual, and Unlock Venture.
UNest’s users, who averaged 34 years old, have said they’d like more stocks and even cryptocurrencies to choose from that the company would eventually like to add.
However, the company’s focus remains on long-term buy-and-hold investments to create a legacy for younger generations, Yudina said.
For EarlyBird, the focus is not only on improving the long-term savings strategy for families, but also on solving the question of how best to donate to children.
Wexler said he had the revelation that there must be a better way searching the shelves of a local store for a gift for a friend’s child.
Now the company is hoping to inspire the same investment zeal that Wexler had when he got his first brokerage account from his father when he was 10.
EarlyBird’s app also offers custody accounts that the kids can eventually use for a variety of purposes, from tuition fees to starting a business.
The portfolios consist of exchange traded funds that range from conservative to aggressive. An algorithm provides recommendations based on how users answer certain questions.
Ultimately, the company plans to add 529 plans and cryptocurrencies to its investment menu.
EarlyBird has three price levels. There is no charge for investments from $ 0 to $ 200. However, once an account exceeds $ 200 the fee is $ 1 per month per child. As soon as an account reaches USD 5,000, it changes to 25 basis points.
At the end of December, the company presented its app to the public. So far, it has raised seed funding from investors such as Network Ventures, Chingona Ventures, and Bridge Investments.
By providing resources to children ages 6-13 to improve their financial literacy, and then only viewing their accounts ages 13-18, EarlyBird aims to help them prepare to manage their money in adulthood.
“Our goal is that by the time you start at zero to three years old, by age 18 or 21, depending on your state, you will have about $ 20,000 to $ 40,000 fully invested,” said Wexler.
“And you also have this priceless library of memories from loved ones over the age of 18.”