Ask Dr. Per Cap

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. Nimiipuu Community Development is happy to share this column as partner with Native Financial Learning Network funded by Northwest Area Foundation.

Hot Job Market

Dear Dr. Per Cap: 

I work a tribal job that requires a college degree.  However, I see listings for delivery drivers that offer wages and bonuses that pay better.  I’m really tempted to switch but my friends say I’m crazy to leave a real job.  What should I do?

Signed, 

Debating

Dear Debating:

Millions of Americans have similar thoughts.  The U.S. is currently undergoing a labor shortage of epic proportions.  In fact the country is more than 4 million workers light of a well-staffed labor force.

Economists are puzzled over the exact reason.  However, many point to a growing movement during the pandemic called The Great Resignation which has inspired people to reexamine their lives and careers.  Early retirements, scaled back work hours, and dramatic career shifts have been the result.

Employers are responding with big pay hikes and hiring bonuses like the ones tempting you.  There’s a McDonald’s near me that’s offering new hires as much as $20 an hour.  That’s forty thousand bucks a year.  Pay that competes with some “real jobs” your friends talk about.

For someone who spent years working in the service industry that label of a job not being real if it doesn’t require a degree or gets your hands dirty always ticked me off.  And if there’s one thing the pandemic has taught, hard working folks in supermarkets, shipping companies, and warehouses are vital to the economy and our modern way of life.  Don’t let peer pressure influence your decision.

You need to ask yourself what’s more important?  A paycheck or the nature of the work you do to earn it?  Higher pay is great but only if you enjoy what you’re doing.  Then again a meaningful career is a tough road if you can’t pay your bills.

I recommend a thorough review of your current expenses along with your current income.  Then compare how much a new job with higher pay will impact that bottom line.  If you see a significant jump in your disposable income, like 20% or more, a switch might make sense.

Then follow up with some soul searching to see if you’re emotionally ready for a very different type of work experience.  Also talk with your spouse, significant other, children, and any other family stakeholders who will be impacted by your career change.  You’ll find your answer when you think it through.

Auto Pay Pros and Cons

Dear Dr. Per Cap: 

I have all of my bills set to auto-pay.  I also use auto-pay for monthly subscriptions for streaming apps and razor blades, but my money wise girlfriend tells me auto-pay is a bad habit.  Is that true? 

Signed, 

Auto-Pay Ray

Dear Ray:

I get it.  Auto-pay is handy technology that enables consumers to pay bills on time with automatic withdrawals from a bank account, mobile payment app, or digital wallet.  But I understand your girlfriend’s concern because out of sight, out of mind isn’t always the best practice when managing money.

And there lays the good and the bad with auto-pay.

Auto-pay can certainly save time, effort, and even money if you’re someone who still mails payments like me.  Hey I admit – I like writing checks and I’m a sucker for Scooby-Doo stamps.  However, managing money is not a spectator sport and what might feel like a hassle, repeatedly dealing with bills and transactions, is actually a great way to keep finances on track.

Unfortunately, people who rely on auto-pay run the risk of completely ceasing to pay attention to their bills.  The hands off approach can sometimes prevent them from seeing the big financial picture and taking action.  Here are some examples.

  • Electricity bill is significantly higher in June than last year?  Maybe the AC needs servicing or the thermostat is set too low.
  • Water bill keeps creeping up two months in a row?  There could be a leak somewhere.
  • What about that free one month trial to Cheese of the Month Club?  Yeah, nobody noticed that high end cheddar the last time you made Indian tacos so cancel the subscription before monthly auto-payments kick in.

Many people today have so many auto and digital payments draining money from their accounts they can’t keep track and it ends up costing them more in the long run.  Here are a few tips to avoid being that person who flies exclusively on autopilot finance only to find it’s a bumpy ride.

  • Set up text alerts from your bank to notify you when auto-payments are made.  This will remind you when, where, and how much of your money is leaving your accounts.
  • Limit the number of auto-pay providers you use.  Pick one, such as a bank account or a single payment app, and use it for all of your auto-pays.
  • Pay attention to subscriptions that automatically renew and their costs.  Many subscriptions, like my daily newspaper, reel you in for a low teaser rate for the first twelve months.  After that the subscription automatically renews every month and the rate can increase too.

And lastly – hang on to your money wise girlfriend.  She sounds like a keeper!

II Accounts Earn Higher Interest

Dear Dr. Per Cap: 

Why does my IIM account pay so much higher interest than my bank account?   Isn’t it basically the same thing?

Signed, Loves Coffee

Dear Loves Coffees,

An IIM or Individual Indian Money account is a very unique financial product that differs from a bank account in several key ways.  For starters IIM accounts are available only to Native American people who have income from assets held in trust by the federal government.  Lease income, grazing and range permits, mineral rights, land sales, and settlement awards are just a few examples of trust income.

IIM accounts, managed by the Bureau of Trust Funds Administration formerly known as the Office of the Special Trustee for American Indians, are short term investments and highly liquid.  Meaning they can quickly and easily be converted to cash.

Over the past fifteen years IIM accounts have delivered about a 3.0% average annual return.  That beats the heck out of a typical savings account at a bank or credit union where current rates run as low as 0.15%.  Spoiler alert – it takes almost 500 years to double your principal with a 0.15% annual percentage yield.  And we wonder why so many people in this country struggle to save money – tsk, tsk.

The reason for the huge difference in return is because IIM funds are pooled with other trust monies into something called the U.S. Treasury Overnighter.  No, it’s not a sleep over at grandma’s house.  Although I sure do miss those big family breakfasts!

The Treasury Overnighter is an investment that matches yields on U.S. Treasury bills, a type of government bond that matures in four weeks.  The collective power of over a billion dollars of Indian trust monies invested in higher yielding bonds are why IIM accounts earn a rate of return that blows regular bank accounts out of the water. 

But there’s another big difference.  Unlike a bank account a person can’t deposit money into an IIM account earned from wages, salaries, side hustles, and other non-trust sources.  The funds have to come exclusively from trust income.

However, to take advantage of the higher returns a person can and should use an IIM account like a bank account if they have substantial trust income.  They simply need to place a voluntary hold on the account.  Otherwise funds are automatically dispersed when the account balance reaches $15 or less depending on the type of trust income in the account.  Once a voluntary hold takes effect the IIM account holder can receive disbursements any time either by check, direct deposit, or debit card.

For more information reach out to your local Bureau of Trust Funds Administration (BTFA) Fiduciary Trust Officer or contact the Trust Beneficiary Call Center (TBCC) at 1-888-678-6836.

Commitment Device

Dear Dr. Per Cap: 

How can I convince my dad he needs to save for retirement?  He just spends and spends while saying “live in the now”.

Signed, Worried About Daddy

Dear Worried,

You’re an awesome daughter to show concern for your dad’s financial future.  The percentage of folks not saving enough for retirement is staggering.  It’s a huge problem not only in Indian Country but all over the U.S. and keeps economists and policy makers from sleeping at night.  Or at least I hope it does.

Would you believe my seven-year-old daughter has the answer?  Let me start by saying it has to do with what’s known in behavioral economics (the study of emotional, psychological, and social factors that influence financial decisions) as a commitment device.  No, I’m not talking about how my uncle’s favorite snag finally convinced him to walk down the aisle.  Trust me.  He made Peter Pan look like Ward Cleaver before my aunt came along.

A commitment device is something that makes it harder to stray . . . (ok, enough about my uncle!) or difficult to take an adverse financial action.  Like a restricted savings account that charges penalties for early withdrawals, a joint checking account that requires two signatures, or an investing club in which members must explain and defend their trades to other club members before executing them.

Now back to my daughter.  A while back I showed her an age progression photo app on my phone.  One of those quirky little time sucks that takes a photo and ages the subject by 20, 50, or even 80 years.  Her favorite pic has me looking more like an extra from Zombieland: Double Tap than a middle aged Native dude with a dad bod.

Well turns out some people use the apps to try to save more for retirement by viewing their age progression photos.  The idea being that people who have a hard time coming to terms with their impending age affluence might snap if they see a photo of what they’ll look like when they’re ready to collect social security.

This is just one example of a commitment device that can keep your dad focused on the future.   It’s all about creating a barrier, either physical or emotional, to avoid spending today at the expense of tomorrow. 

Commitment devices work best when they make people think rather than fear because experts warn you can’t scare someone into a solution.  However, you can inspire them to critically think they’re way into one.

More Covid-19 Relief

Dear Dr. Per Cap: 

How do I know if I’m eligible to receive the new Covid-19 monthly relief payments that were just announced?

Signed,

Arizona Mom 

Dear Arizona Mom

It’s official.  Starting in July the IRS will begin making monthly payments to families that qualify for a recently expanded child tax credit.  This Covid-19 related benefit is part of the American Rescue Plan, a nearly $2 trillion dollar relief package signed into law in March.  It’s the latest round of numerous federal relief packages since the virus hit last spring.

The first step to qualify is to file a 2020 tax return.  The filing deadline has been extended to May 17th but don’t wait that long.  The credit is based on your 2020 federal return so the sooner you file the sooner you can qualify for the direct payments.

The child tax credit is nothing new; however, it’s ordinarily capped at $2,000 a year for each child under seventeen for families under a certain income level.  The new and expanded credit increases this amount to $3,600 for each child six and under and $3,000 for older kids of families earning less than $75,000 a year or $150,000 for married couples.

Similar to the three Covid-19 Economic Impact payments, the last of which was paid earlier this year, the amount of the expanded child tax credit is gradually reduced for higher income families and completely phases out for families earning $95,000 annually or $170,000 for married couples.

As mentioned, a unique feature of the credit is that rather than wait until next year to claim it, payments begin in July.

Also remember that this is a one year expansion of the child tax credit that only applies to 2021.  For families that qualify for the full credit monthly payments will amount to $300 for each child six and

under and $250 for ages seven and up.  Payments will be made by check, direct deposit, or debit card through December.

If that math doesn’t add up, it’s because it doesn’t.  Six months of payments only equals $1,500 and $1,800 respectively or half the full credit amount.  The remaining half will be claimed next year when filing your 2021 tax return.

As always, keep tabs on your available tribal Covid-19 benefits too.  The American Rescue Plan provides specific funds to support tribal nations in their ongoing efforts to provide expended services and benefits to tribal citizens.  In the meantime stay safe.  We’re in a lot better shape than a year ago but we need to stay vigilant.