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.

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.

Family Matters

Dear Dr. Per Cap: 

My cousin has a habit of not paying back loans, but just asked to borrow more money.  How can I help without getting burned? 

Signed, 

Twice Burned

Dear Twice Burned:

I’ve learned over the years that money lent to friends and family has a bad track record of not getting paid back in full, not getting paid back on time, or a combination of both. Let me share a little story that I hope offers a fair solution.

About ten years ago a really good friend was in a pinch and asked me for a loan.  He wanted to borrow more money than I felt comfortable lending so I offered the following alternative.  Rather than extend a personal loan I’d give him a lesser amount of money.  That’s right.  I offered to give him half the amount he wanted to borrow.  He was grateful but said he didn’t want charity and would pay me back.

I made a quick detour down tough love highway.   

“Look” I said in a respectful yet serious tone.  “When you come to me and ask for a no interest, no collateral, nothing down loan without a formal agreement – just your word and a hand shake.  I’m sorry, but in my book that’s charity.”

I then told him that I wouldn’t risk our friendship over a loan and that I’d sleep a whole lot better giving him money that I knew I’d never see again rather than lending money with so many uncertainties.  I also said I’d only do it one time.

He saw my point of view, accepted the gift, and we’ve remained great friends ever since.

I know this solution might not work for everyone.  For starters you need to decide how much money you can afford to give rather than lend.  50%, 30%, or 10% of the ask are all fair offers, but that’s for you to decide.

I swear by this strategy and use it whenever the need arises.  I really think offering a no strings attached cash gift while still requiring a friend or family member to take responsibility for securing the remaining money forces the person to think through their dilemma a little more thoroughly and consider other options – do I really need to borrow such a large amount, is it possible to earn some extra cash on my own?

Give this one a try and remember – no amount of money can buy a great friendship but a broken promise can destroy one.

Why Tip?

Dear Dr. Per Cap: 

I’m a server at a restaurant and get frustrated when Native customers don’t tip. I work hard to provide good service and it’s not only insulting but tough financially when my own people stiff me. What’s up with Natives who don’t tip?

Signed, Tips Please


Dear Tips,

Although I’ve heard this complaint before, calling Native people out publicly as bad tippers is a stereotype we want to avoid. I also worked for tips back in the day and it was a common gripe among coworkers that Native people were notoriously bad tippers, even when the server was Native too. I always tried to not take it personally because some customers tipped insanely well which balanced out the stiffs.

I really don’t know why some Natives have a reputation for not tipping although I have heard friends say they don’t feel obligated to pay extra for a meal by leaving a tip. I also think there might be some confusion over the unwritten rules of tipping. You’re expected to tip a server, a food delivery driver, and a blackjack dealer for a winning hand. However, you don’t tip a mail carrier for delivering your tax refund check or a janitor for throwing out the trash. When Uber started the ride hailing revolution a few years ago they boasted a no tip policy, but later switched gears and now encourage riders to tip.

Then again maybe some Natives are just taking penny-pinching to the extreme and need to be reminded to leave a few bucks on the table after a good meal. There I said it.

I’ve also learned that people who have worked for tips tend to be good tippers themselves, probably because they understand the tough nature of many service jobs. Moreover, unless someone has worked in a restaurant they might not know that many servers are paid below minimum wage under the assumption that tips will more than make up the difference. This explains why restaurant employees who serve food earn about three times as much as their coworkers who prepare it. However, this could soon change as a new proposal to raise the federal minimum wage to $15 an hour would also eliminate a sub-minimum wage as low as $2.13 an hour for millions of tipped employees. 

Not sure how I feel about that and I’m not alone. A few years ago a New York City restaurant owner started a “Hospitality Included” aka no tipping policy at his restaurants. However, the results were mixed because he lost customers when he had to raise prices so he could pay his employees more to make up for their lost tips. So a big concern with a higher federal minimum wage is that prices at all restaurants will rise or jobs will be cut as restaurants run leaner staffs to reduce costs.

While I’m certainly a fan of a livable wage I must admit I’m getting a little tired of the tipping culture encroaching on more and more services. I get annoyed when I see tip jars popping up at cash registers everywhere and I steer clear of small coffee shops and food trucks that put your charges on an iPad with a giant “Tip Me” button. Also seems like the percentage we’re supposed to tip keeps going up…15%, 18%, 20%. Where does it stop? Tip inflation is one reason I find myself eating a lot more meals at home these days.

So let’s leave it at this. Regardless of how you feel about the nature of tipping we all need to realize that for better or worse tipping your server is expected when dining out. You pay for the meal and you tip for the service.  So unless your service is absolutely horrible let’s all try to show a little financial appreciation for the person who brings us our food.