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.

Minor’s Trust Dip

Dear Dr. Per Cap:

My daughter is a high school senior set to receive a minor’s trust payment in a few months. I’m worried it will be a lot less than she expected since the coronavirus sent the stock market reeling. Is it fair for her to receive less than kids in previous years?

Signed, Doubting Dad

Dear Doubting Dad:

I’m afraid many beneficiaries of minor’s trusts are feeling a pinch in their account balances thanks to a one-two punch from the coronavirus. Investment losses you mention are one blow. Smaller per capita payments from shuddered tribal casinos and other lost revenues are another.

Is it fair? Anytime we invest money there is a risk we’ll lose a portion or all of it. A dose of tough love says it’s not a question of fair. It’s a fact of life. However, every minor’s trust has a trustee whose job is to manage investment risk wisely on behalf of the trust’s beneficiaries – young Native people like your daughter. But risk can never be completely eliminated. The only time investment losses aren’t fair is if a trustee really screws up and manages the trust irresponsibly.

Sadly this has happened in Indian Country, but hopefully your tribe has a good handle on financial management. Before you sound any alarms, check with your tribal finance department for the current balance in your daughter’s minor’s trust account. You might be pleasantly surprised to learn her balance hasn’t dropped as much as you think. That’s because many minor’s trusts are designed to reduce risk by dividing the trust into different categories called tranches.

Depending on a child’s age, funds representing his or her portion of the trust are placed into a one of the tranches. Generally, the younger age tranche is invested for growth. Meaning it’s heavily invested in stocks because as an asset class, stocks of publicly traded companies offer a higher potential return than fixed income investments like bonds or cash.

However, stocks are riskier than fixed income, as the coronavirus has reminded us. So the idea is that younger kids can assume the risk because they have more years to make up for any investment losses. As children get older their funds are moved into less risky tranches with portfolios that hold larger portions of fixed income investments and fewer stocks. Then when they near eighteen their money is placed into a very low risk tranche, just in case a shock like the coronavirus sends the stock market swirling.

Since the stock market was trading at record highs as recently as mid-February it’s quite possible your daughter’s minor’s trust monies were placed into a low risk tranche before the crisis hit. But we’ve seen the apprehension before. When the stock market dropped 38% in 2008 many minor’s trusts in Indian Country took a hit. But by 2009 a steady recovery began that created the longest period of growth in stock market history and many minor’s trusts increased in value by leaps and bounds. Hopefully, the economic damage from coronavirus will be short term so my advice right now to all minor’s trust beneficiaries and their families is to be patient and not panic.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.

Coronavirus Relief Payments

Dear Dr. Per Cap: 

I’m sweating the COVID-19 stimulus checks that are supposed to becoming soon. What will the amount be and when will they go out? 

Signed, Needing Money 

Dear Needing,

Now that the Coronavirus Aid, Relief, and Economic Security (CARES) Act has passed both houses of congress the bill states that the Treasury secretary will send payments, either by mail or direct deposit, “as rapidly as possible.” Gotta love that official language! 

But seriously, IRS should begin issuing direct payments to households by mid-April. Hopefully they’ll come even sooner but we’re talking about the largest government rescue package in U.S. history. Some of the details will take time. 

Payments of $1,200 will go to any adult with a social security number who is not listed as a dependent on someone else’s tax return and has an adjusted gross income of less than $75,000. Married couples earning less than $150,000 will receive $2,400. For a single parent claiming head of household, a common filing status in Indian Country, the maximum income for a full $1,200 payment is $112,500. In addition to these base payments parents or guardians will receive an extra $500 for each child under 17. 

For folks earning more than the amounts listed above, payments will be reduced by $5 for every additional $100 of income. Here’s an example. A single person with no children earning $80,000 will receive a check for $950 ($1,200 minus $250). For single persons earning $99,000 or more and married couples earning $198,000 the base payment will phase out completely. 

An earlier version of the bill stipulated smaller $600 payments for low income social security recipients but fortunately, that was dumped in favor of the larger $1,200 payments. 

So how will IRS determine income? The plan is to use 2019 tax returns. But if you haven’t yet filed for 2019 they’ll use your 2018 return. But remember that the amount of benefits will ultimately be based on this year’s 2020 income. Meaning that when you file your 2020 tax return next year IRS will make a final determination on the amount of your relief payment. That’s good news for people who might suffer a steep drop in income this year from a layoff or furlough. Here’s an example. Say you’re single and earned over $100,000 in 2019 but in 2020 you’re income drops below $70,000? Well, since you don’t qualify for a relief payment now you’ll be able to claim one next year in the form of a larger refund or smaller tax payment. 

And here’s an interesting twist. If by chance you earn more in 2020 and exceed the stimulus income threshold, meaning you ultimately qualify for less relief money than you receive, IRS won’t require you to pay it back. 

If you don’t file a tax return the IRS plans to access social security records to determine your eligibility for a relief payment. So don’t sweat it if you earn less than the minimum income required to file. Moreover, payments are not taxable and even people who owe back taxes won’t have their relief payments blocked or garnished. 

I realize $1,200 only goes so far but hopefully it’s enough to cover some necessities until the economy gets rolling again. Until then good luck and stay healthy!

Stock Market Correction

Dear Dr. Per Cap:

2019 was another great year for the stock market.  I’m thrilled that my 401k balance is up but I keep hearing that the market is due for a “correction”.  What exactly does that mean?

Signed, Hoping to Retire Soon


Dear Hoping

Yep, 2019 was another banner year for Wall Street.  The S&P 500, a leading stock index that many investors use to gauge the overall market, finished the year up nearly 30%.  That extends the current bull market, a prolonged period in which stocks continue to rise, to more than ten years – making it the longest bull market in modern stock market history.

So the big question that’s been on every investor’s mind for the last few years is – how long will it last?  That’s where the term correction comes in.  A stock market correction is a drop of at least 10% from the market’s most recent peak.  Here’s an example.  On January 16th, 2020 the S&P 500 closed at a record high of 3,329 points.  That means a correction occurs if the index drops 10% or about 332 points.  However, should the S&P 500 peak again, in fact it already has, then it will need to lose more than 332 points to trigger a correctionBecause the actual number of points required for a stock market correction is always relative to its peak.

We actually saw a correction in February 2018 when the market dropped more than 340 points or roughly 12% from a then record of 2,870 points set the previous month.  And while 2018 ended up being a down year for stocks, the trend over the past decade has been so overwhelmingly positive that most investors didn’t fret much.

The real concern is what happens if a correction is prolonged – say six months or more before it bounces back.  Moreover, what happens if it drops a lot more than 10%?  Well if the market drops low enough for a long enough period it will go from being called a bull market to a bear market.  And that’s the major fear.  The last bear market occurred after the financial crisis of 2008 when the S&P 500 closed the year down 37%.  Ouch!

I’d need a crystal ball to tell you if a big stock market correction is coming in 2020 or when the bull market will finally end.  In fact no one knows -not even the big shot investing pros on Wall Street.  But if you’re concerned, and every wise investor should be, now is a good time to review the holdings in your 401k plan to make sure they are properly diversified to suit your needs.  This means, as I’ve stated before in this column, maintaining a healthy balance of stocks and bonds.  Remember that if you want to play it safe you should increase your bonds or fixed income investments while lowering your exposure to stocks or equities.

One strategy is to subtract your age from 100 and place that percentage of your total investments in stocks and the rest in bonds.  So a sixty-five-year-old person would invest 65% of her holdings in bonds and 35% in stocks.  Keep rocking toward retirement!

Romance Scam 911

Dear Dr. Per Cap:

My uncle is elderly and recently met a person he claims “is the love of my life” on a dating website.  Our tribe pays per cap and the other day he asked me to drive him to Western Union so he could send his online “girlfriend” some cash.  I see a train wreck coming but how can I warn my uncle without breaking his heart?

Signed, Suspicious Niece


Dear Suspicious Niece

I agree this doesn’t sound good.  It has all the makings of a classic romance scam.

According to the Federal Trade Commission romance scams sometimes called Casanova scams were the most reported scam in 2018 duping unsuspecting love struck hearts out of a collective $143 million.  The typical victim lost about $2,600.  Elders who might be divorced, widowed, or disabled are the most frequently targeted.

Often the scammer will create a fake profile on a dating website doctored with phony photos of a model gorgeous person, fake location, and other bogus details.  Once they win their victim over they begin asking for gifts, money, bank account and credit card numbers, and other personal info.  And from there the con is on.

It’s frightening how rampant these scams have become and it’s all because the fair weather fraudsters are master manipulators who know how to appeal to a victim’s emotions.  Many people just like your uncle hope to be swept off their feet by the romantic partner of their dreams.  But love is a powerful emotion that can cause people to not think clearly or make rash decisions.  Who among us has never been blinded by love?  Certainly not Prince Harry!

Sadly, I come across people like your uncle in many parts of Indian Country.  Intervention can be tricky because victims might be deeply invested on an emotional level.  In fact I’ve even seen cases where a victim is presented with overwhelming evidence that their online romance is a con and they still won’t believe the truth.  Unfortunately, it might not be as easy as simply telling your uncle that his supposed soulmate is a sham, taking away his phone, or freezing his bank account.

Experts warn that victims who are abruptly cut off from a romance scam relationship can suffer from tremendous feelings of loneliness, isolation, depression, even suicidal thoughts.  There’s now a hollow in their lives that the romance scam filled – albeit in a very unhealthy, harmful way.

Moreover, support for victims of online scams which can include romance, lottery scams, and other web based frauds is a relatively new area of mental health.  Meaning counselors, therapists, and caregivers are not always trained on how to treat them.

So please act carefully.  As a first step you can address the source of income that your uncle is using to send money to his online love interest.  If it’s per capita contact your tribal finance office or the bank to see if you or another trusted relative can become the designated custodian of his financial accounts so that any transactions must be authorized.  Also consider reporting the suspect profile to the dating website; although most romance scammers will switch communications to text or email pretty quickly.

But most importantly encourage friends and family to engage more with your uncle and spend as much time with him as possible so that he understands how much the real people in his life care about him and love him.  

Point-of-Sale Financing

 Dear Dr. Per Cap:

I just bought a couch at Wayfair using Wayfair Financing – payments are $35 a month for 18 months which adds up to about $100 in interest.  It reminds me of layaway that my folks used when I was a kid.  Only I don’t have to wait because they’re shipping my couch right away!  Is this a smart way to buy stuff?

Signed, Couch Potato


Dear Couch Potato

Like a lot of questions in finance – it depends.  Wayfair Financing is a type of credit called a point-of-sale loan.  It’s a financial product that’s been around for a while but we’re seeing them advertised a lot more lately, especially at online store checkouts.  I relate to your memories of layaway.  I still remember that BMX bike my grandma put on layaway for me at K-mart when I was ten.  What a ride!  However, point-of-sale loans are not layaway.

For one they are installment loans with fixed payments for a specific period of time or term.  Layaway was just an agreement that a store would hold your merchandise for a month or two while you made payments.  Layaway was also mostly used to purchase big ticket items like TV’s, appliances, and furniture.  But point-of sale loans are common for merchandise under $100.

Many online stores advertise point-of-sale financing.  Wayfair currently partners with four companies: Affirm, Fortiva, Genesis Credit, and Katapult formerly known as Zibby to offer customers point-of-sale financing.  But there are other financial technology or fintech firms offering similar loans.   What’s tricky is they all structure their products differently.

For example some companies check credit before approving a loan while others look at non-traditional lending history – like Affirm which might review a person’s bank account balance.

Afterpay, which is used by stores like Urban Outfitters and Forever 21, doesn’t charge interest to qualified borrowers; while other point-of-sale lenders charge interest based on creditworthiness.

Then you’ve got Katapult which calls their product a lease-to-own payment option and charges a $45 fee upfront and no interest if paid in full within 90 days.

Point-of-sale financing can appeal to folks who can’t qualify for a credit card.  Moreover, some people actually prefer point-of-sale financing to credit cards because interest rates are sometimes lower and a borrower will usually know upfront how much they will pay in total.

However, point-of-sale financing has drawbacks too.  Loans that aren’t paid off might show up as delinquencies on a credit report prompting debt collectors to get involved.  Yikes!  Moreover, late fees can apply to missed payments which add up.

Here’s another issue – what happens if you need to return an item before a point-of-sale loan has been paid off?  When using a credit card the Truth in Lending Act (TILA) provides chargeback rights so a borrower is entitled to a refund.  Unfortunately TILA doesn’t apply to point-of sale financing so refunds might be problematic.

So as with any financial product, do a little homework and consider all your options before agreeing to point-of-sale financing.  Savvy shopping!