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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 an investment in EarlyBird, an app that allows parents, family, and friends to save for the future of the kids, 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 investing apps become more prevalent, new companies are springing up hoping to find young millennial parents where they normally 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-privileged savings accounts for education – 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 online 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.
The message he said he hoped the app posts convey, “You are 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 poll by Edward Jones and Morning Consult, only 36% of Americans can correctly identify the funds as an education savings tool.
Those who are aware of the plans are often unaware that they can be applied for for purposes other than college, such as K-12 tuition fees, practitioner programs, and paying off some student debts.
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 families have 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.
Backer’s recommended 529 plans typically cost customers around 20 basis points, compared to 60 basis points for an average 529, according to Lee.
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 ultimately save,” Lee said.
Ultimately, the goal for children is not to get into student debt, he said.
Long term strategy
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Ksenia Yudina also helped prevent people from building up large student debt, so she 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 launched its app. It currently includes five investment options through 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 that can be used for broader future goals like buying a car or a home compared to 529 plans.
Currently, 90% of UNest users earn less than $ 100,000.
The company has raised a total of approximately $ 15 million in venture capital through investors such as Anthos, Draper Dragon, Artemis Fund, Northwestern Mutual, and Unlock Venture.
UNest’s users, who average 34 years old, have stated that they want more stocks and even cryptocurrencies to choose from that the company may want to add.
However, the company’s focus remains on long-term buy-and-hold investments to create a legacy for younger generations, Yudina said.
Early inspiration
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 give something 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 hopes 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 ultimately 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 US $ 5,000, it switches to 25 basis points.
The company publicly launched its app at the end of December. So far, start-up capital has been raised by investors such as Network Ventures, Chingona Ventures and Bridge Investments.
By providing resources for children ages 6-13 to build their financial literacy and then accessing 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.”
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