Money Rehab with Nicole Lapin - How To Build Generational Wealth

Episode Date: June 19, 2023

On Juneteenth we celebrate the end of slavery, acknowledge how much progress still needs to be made, and commit to make that progress. We can’t say that we live in an equal world while White Americans hold 84 percent of total U.S. wealth but make up only 60 percent of the population—while Black Americans hold 4 percent of the wealth and make up 13 percent of the population. Closing the racial wealth gap will take more than promotions and raises (although those are important too), it will take investments in multigenerational wealth. To give the roadmap to that wealth, Nicole passes the mic to investing expert and MNN host Dominique Broadway.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's B-O-F-A dot com slash N-E-W pros, P-R-O-S, media. B-O-F-A dot com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. it's time for some money rehab. Today is Juneteenth, a day where, to put it simply, we commemorate the end of slavery. It's a celebration of June 19th, 1865, when the order was made to free slaves in Texas. It's a celebration of freedom, but it goes hand in hand with remembering everything that came before it.

And further complicating the spirit of the day are the ways racism and generational trauma still exist today. So as a person who wants to be a good ally, how do I show up on Juneteenth? What is the most significant thing I can give to have an impact? I am still getting educated on the best way to answer these questions. to have an impact? I am still getting educated on the best way to answer these questions. But what I've come up with today is that the most meaningful thing I can do is to use whatever platform I have to amplify the voices who have been traditionally marginalized. So today I'm going to be passing the mic over to Dominique Broadway, who is a brilliant investor that I love and respect so much and for so many years now. As a Black woman, she is a true disruptor

in the space that has traditionally been dominated by white men. She has made it her mission to help the 99% build generational wealth, and she is doing it. Today, you're going to hear one of the episodes of her MNN podcast, We Have Options. And just to share my thinking here, I'm actually not going to be sharing an episode where she talks about race. Maybe that's right. Maybe that's not. I don't pretend to have all the answers on being a good ally. I am still very much learning and probably always will be. But what I've been told is that the burden of the Black community to have to explain racism is a heavy one. So instead, I'm going to showcase Dominique's work, what she's built for herself and her family, what makes her powerful, what brings her joy, which is helping

people live richer lives in every sense of the word. So here's an episode where she describes how she's building generational wealth for her daughters. And I know you'll love it. This is We Have Options, hosted by me, personal finance expert Dominique Broadway. I left my career as a financial advisor to the 1% to help the 99% build generational wealth. No matter who you are, you have options and I am here to help you turn those options into dollar signs. So as a mother and a financial planner or personal finance expert, I am obviously hyper-focused on ensuring that financial limitations do not hinder my kids from reaching their dreams, whatever those dreams may be. And I know that we're talking about options all the

time. And I also know that we've even tried to use AI to explain options to a seven-year-old. Not sure if that worked. But outside of options, it's very important to make sure that we have very strong, long-term, buy and hold investment portfolios, not just for ourselves, but also for our children, right? And I want to make sure, my goal is that my kids are millionaires by the time that they are ready to buy a car, go to college, start a business, travel, or whatever it is, right? So I've put several actions in motion, which I'm now going to be sharing with you that you can do the same things for your little ones as well, no matter how old they are, just, you can do the same things for your little ones as well, no matter how old they are. Okay.

Now just to kind of level set, my kids are young. Okay. Like really young. One is one and one is three, very young. And one of the things that I wanted to make sure that I always did is just save for them, right? And have that, put that money aside. And one of the biggest things, as we're going to talk about just some of the strategies in general is I want you to know that no matter what age your child is at, you can start now with whatever money you have. This could be $5, $10, $20, whatever it is, right? The most important thing is that you start. That is the most important thing when it comes to kids and I meet people all the time They're like, oh I want to start for my children. I want to start for my children What do I need to do? Just start just start i'll be sharing with you guys how to start today. Okay, so Just to to kind of take it back

Like I said, whether it's five dollars a week or however much you can afford If you take nothing else from this, please start Today, okay, so if you contributed thirty dollars a month or however much you can afford. If you take nothing else from this, please start today. Okay. So if you contributed $30 a month from the day your baby comes to the world, that's only a dollar a day, right? They could have about $13,000 by the day they turn 18. Now I know that that doesn't seem like a lot, right? But you would be so surprised at how many kids by the time they turn 18, their parents have literally nothing saved for them, right? Now, to make it a little bit better, so, okay, cool, $13,000 by the time

they're 18, 30 bucks a month. Okay, cool, right? It could actually probably be higher than that if you're putting the money in the stock market. Now, let's say if you increased the amount that you're saving, right? So, I put in some numbers here in this little compound interest calculator, right? So, let's say if you started with $200, you say, hey, I'm going to go ahead and put 200 bucks in to an account for my child. And we're about to talk about what type of accounts there are. And then I'm going to do $200 a month into this account, right? If you do that, just $200 a month, not ever increasing that amount from the time that they are born to the time that they're 18, they'll have about $86,000. That's actually amazing because I would love, raise your hand, if you had $86,000 saved for you

or invested for you by the time you went to college. I cannot put my hand up. And my parents actually did save an investment, my grandparents, but I did not have $86,000. So imagine how much your life could be different or how much flexibility you would have even if you had $80,000 or $86,000. Now that's if we just did $200 a month, right? So let's say if your bag increases, you start trading options, whatever, and you increase that from $200 a month to $500 a month for your child at an average rate of return of 7%. So if you do $200 a month for your child, which is absolutely amazing, they'll have about $86,000. If you increase that to $500 a month, your child will have $216,000 by the time that they turn 18. Come on. That's amazing, right? Just by starting now and being consistent, okay? That's literally

all you need to do, okay? Now, and I will share with you how I started to invest. So one of the first pots of money that I accumulated from our children was from the baby shower, right? So you probably noticed if you've ever had children or maybe if you're about to have children, when you have your baby shower, people tend to give you, they may give you gift cards, they'll give you cash, they'll give you diapers, et cetera, et cetera. All the cash that we received, I took it and put it aside into an account because my daughter wasn't born, so she didn't have a social yet. And then by the time she was born, I went and opened up an account, a custodial investment

account and dropped that initial amount of money in there, right? I think it may have been like a little over a thousand dollars, right? So that was her first amount of money that she had, right? She wasn't even a month old and she had some money already sitting there. And then I was able to start just picking certain companies that I liked, right? I always talk about picking and investing into companies that I already like, that I already use, right? And just setting it up to buy more of those companies every single month. And by having that money, anytime she earns dividends, having it set to reinvest, right? And I actually had an article come out last year talking about this exact strategy and how both my daughters are

on track to be millionaires by the age of 16, just doing this very simple strategy, which essentially is called dollar cost averaging, right? Picking a dollar amount, setting that dollar amount, and then investing it every single month. This strategy that I'm sharing with you is 100% on autopilot, you guys. I literally don't have to think about it. I don't have to lift a finger. It just happens. Every month on whatever day of the month, I think around the fifth, this set amount goes from a checking or savings account straight into this investment account. Okay. Boom. That's it. And the money just keeps growing and growing and growing and growing. All right. Now you're probably wondering, okay, Dominique, I get it. I've decided what amount I want to actually invest. Maybe it's a hundred bucks. Okay. Whatever. 50 bucks a month,

whatever it is. And I've decided a couple of stocks I want to invest in. Okay. So where do I put the money, right? What type of accounts? So I'm going to share with you a couple of different types of accounts that you can use. And I'm also going to share with you the ones that I have and the ones that I don't have. All right. So a lot of these accounts are going to be just really vital when it comes to like your children's long-term financial success, right? These accounts are going to be just really vital when it comes to your children's long-term financial success, right? These accounts are better than simply opening a standard savings account, which typically will offer low returns and they can't keep up with inflation. So even right now as interest rates are high, higher than normal, 4%, 3%, 4% is what we're seeing in savings accounts, but that's still nowhere near inflation that's

around 8%, right? And in the markets, you're typically going to see at least 10% to 12% returns, right? So you're going to get your best returns by being in the market, all right? So one of the first ones, like I've actually already mentioned, is a custodial brokerage account, right? So the custodial brokerage account is similar to a standard investment account that you may probably already have for yourself. The most significant difference is that it is in your child's name and ultimately their ownership. Now, if your child is five or three, they can't access the money, right? They're kids, but you are the custodian or the person in charge of it until that person gets of age. And believe it or not, we all assume

that of age is 18. Of age actually varies based on what state you're in. So I would say Google and see like, what's the custodian age for whatever state, Florida, Texas, wherever you live. It actually varies. Some are like 18, some are 19, some are 20, some are 21. It's very interesting. But of age will vary based on your state. Okay? And from parents to family and friends, anyone can add money into a custodial brokerage account. And it's really cool. They can do up to $15,000 per year before a gift tax is incurred. So when my kids have birthdays or holidays or whatever, I always tell people, in lieu of gifts, please give the children money, right? And I can just toss that money into their brokerage

account because they get so many gifts throughout the year. And as you guys know, my kids, well, I don't know about your kids, but my kids are still at the age where they like the box that the gift came in, I feel like, than the actual gift. And so of course, family will still give them toys. But I'm like, hey, if you're going to give them toys, maybe just give them one toy and then give them cash or stock or stock equivalent instead of just a bunch of toys. Because the toys end up eventually after a couple of weeks just ended up sitting in a corner anyway. All right. So that's one easy way just to start adding money to your children's brokerage account without you having to do it yourself. Right. Having family and friends give money to these accounts in lieu of gifts. All right. Next, and this is my favorite

account for my children, is a minor Roth IRA, a minor Roth IRA. So a minor Roth IRA is an account that parents or guardians can open up on behalf of a minor who is earning money. So my daughter Dawson has already started earning a little money. And so she does this, like if we post brand campaigns on Instagram, they're like, hey, we want Dawson in. They have to pay her, right? And also she's a brand ambassador for finances demystified. So if you see her in ads or in presentations or whatever, she has to get paid, right? She's like talent. And so she has a set amount that she's getting paid every month, not tons of money, but just a little bit of money that she's getting paid every month. And that qualifies her to be determined as someone who is earning income, right? And so now when she

earns this income, I am able to take that money and put it straight into a Roth IRA. And it's really cool. So right now you can put up to, in the limits change year over year, you can put up to $6,500 a year into a Roth IRA. So every year, my goal is to max out the minor Roth IRA for Dawson and for Demi, and then still have the monthly investments going into the custodial investment account as well. So we have two things happening here. Now, the cool thing with the Roth IRA, the minor Roth IRA, is that any money that is earned in there, it's tax-free. So if that account grows from $2 to $2 million, when they start taking that money out, it's literally all tax-free. So my plan is to have one account, Roth IRA, millions of dollars in there that my children can access completely tax-free, right? Boom. As simple as that, because I started early, starting now and investing over time, right? And this is just a really, really great way

to have a tax-free account for your children. And another cool thing is that anything that you put into a minor Roth IRA or a Roth IRA, you can take out, right? So let's say if you put a thousand dollars in today, then you're like, oh my gosh, next week I need that thousand dollars. You can take that out completely penalty free, which is also really great. Okay. Now, another different type of account that you can use for your children is a 529 plan. Now I'm going to disclose that my children do not have 529 plans. My children don't have 529 plans because in my opinion, I don't think that college and the traditional school system, the way it is now is going to be as important as it is now when my children get to be college age. And we're already starting to see, obviously our degrees are all important. I have tons of them, but there's so many different ways to get our education. So I really feel that

18 years from now, I don't think that my children will end up going to college. I think there'll be some sort of other learning experience, but I don't think it will be college. So I've opted out of doing a 529 at this time. But 529 plans are great, right? Especially if your children are a lot older than mine. So when you invest into a 529 plan, there are tons of considerable tax savings, right? When the money goes towards education. So you can also use it towards private schools, college, trade schools, right? For tuition, housing, and supplies. The tax benefits can equate to thousands of extra dollars that goes to your children in the future, which are really, really great. So I think that 529s are great

if you have children that are going to school for the next maybe five to seven years, but do your own research. And like I said, these are just my thoughts. I still think it's a great plan if you think your children will be going to college, but I think that school's not gonna be as relevant or college specifically is not gonna be as relevant

by the time our children get there. But do your own research and make your own decisions. Either way, it's still a great plan for those who are looking for their children to go to school or also, as I mentioned, for the private school aspect as well. So 529 plans are another great place. So these are all of the different types of accounts that you can set up for your children. As you can see, there's a variety of accounts. You can even stack them and do multiple types of accounts, having custodial just savings accounts for some of their cash, custodial brokerage accounts. You can also have 529 plans for those students preparing to go to college. And then also having the minor Roth IRA, which gives them the ability to have one

nice account that is completely tax-free. Because we do not know what the tax bracket will be, I don't know, 30, 40 years from now, right? So it's really important to make sure that you have money that is also tax-free growing for your children as well, all right? So hopefully if you took nothing else from this today, the steps you need to take, first things first, most important one, start today. Start now. The next thing you want to do is pick which account you want to start with. We've talked about all the different accounts, custodial savings accounts, custodial brokerage accounts, 529 plans, IRAs. Pick an amount that you want to invest and then set it automatically to happen every single month. This is something

that your future self will thank you for. And trust me, your children will definitely thank you for it as well. We Have Options is a production of Money News Network. We Have Options is written and hosted by me, Dominique Broadway. Our executive producer is Morgan Lavoie.