New apps aim to change the way parents save at university

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When Jordan Wexler’s niece recently lost her first tooth, he sent her $15 with a video of himself dancing while dressed as a tooth fairy.

Money was not the usual cash that children traditionally receive under their pillows.

Instead, Wexler put the money into an investment in EarlyBird, an app that aims to allow parents, family and friends to save for children’s futures, where he serves as CEO.

The video also lives on the company’s platform, where his niece regularly asks to watch it again.

“She’s had that association with the product already for about 4 years,” Wexler said.

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As investing in apps becomes more and more popular, new companies have sprung up hoping to find parents of young millennials in their usual spot – on their phones.

The apps aim to make it so that parents can automate investing in their children’s college education and other activities, and allow friends and family to help achieve these goals.

Accounts offered can include 529 plans — savings accounts with education tax concessions — as well as trust investment accounts managed by adults on behalf of minors.

Backer, a San Francisco-based company that makes 529 plans accessible, began implementing it in 2017.

The company is led by CEO Jordan Lee, a self-described underperformer until a teacher showed an interest in him. Now, his academic career includes degrees from Harvard, Yale, and Princeton.

Through Backer, Lee wants to help give kids the same encouragement he’s received.

The message he said he hoped contributions to the app would convey: “You’re a college-bound person because someone thinks you are.”

Make 529 accessible plans

Participation rates in 529 savings plans are low. Only 36% of Americans can correctly identify money as a tool for providing education, according to a recent survey by Edward Jones and Morning Consult.

Those who know about plans often don’t know that they can be offered for uses other than college, such as K-12 classes, practitioner programs, and some student debt payment.

Furthermore, the costs associated with plans are often high.

Packer hopes to change that by making the 529 available to a wider audience at lower costs. A Backer account costs as little as $1 per month, while it’s up to families to decide if they want to pay more.

Dedicating a little regularly can make a big difference in how much you’ll end up saving.

According to Lee, the company currently has about 50,000 families registered. About 70% of the company’s clients earn less than $100,000. About half of them are non-white.

The 529 plan that Backer recommends to clients typically costs about 20 basis points, compared to 60 basis points for an average of 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 include Raleigh Ventures, Correlation Ventures and Expansion Ventures.

Setting aside a little regularly can make a big difference in how much you will eventually save,” he told me.

Ultimately, he said, the goal is not to accumulate student debt.

long term strategy

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Helping prevent people from amassing large student debt balances is also why Ksenia Yudina founded UNest college savings app.

Yudina, who is the company’s CEO, first came to the United States from Russia when she was 18 and eventually took out $180,000 in student loans to pay for her education.

Now, you want to help children and families avoid accumulating those high balances.

In 2020, UNest launched its app. It currently includes five investment options by Vanguard funds that range from conservative to aggressive. The portfolios also come with an age-based option, which automatically rebalances into more conservative investments as the child grows.

UNest charges $3 per month, or $6 per household. This monthly fee covers children’s inventory and managed accounts, with no commissions.

Accounts allow unlimited gifts from friends and family. Parents can also earn rewards for their UNest accounts by shopping with select brand partners.

UNest accounts are custodian accounts, which means that the investments ultimately belong to the child. This frees up funds to be used for broader future goals, such as buying a car or home, against 529 plans.

Currently, 90% of UNest users earn less than $100,000.

The company has raised a total of about $15 million in venture capital funding through investors including Anthos, Draper Dragon, Artemis Fund, Northwestern Mutual and Unlock Venture.

UNest users, whose average age is 34, said they would like more stocks and even cryptocurrencies to choose from, which the company plans to eventually add.

But Yudina said the company’s focus remains on long-term acquisition and retention investments to create a legacy for younger generations.

early inspiration

For EarlyBird, the focus is not only on improving families’ long-term savings strategy, but also helping to solve the question of how best to give to children.

Wexler said he had an idea there had to be a better way when he was scouring the shelves of a local store to get a gift for a friend’s kid.

Now, the company hopes to inspire the same enthusiasm for investing that Wexler got when he received his first brokerage account from his father when he was 10 years old.

EarlyBird also provides trustee investment accounts that kids can eventually use for multiple purposes, from college tuition to starting a business.

Portfolios consist of exchange-traded funds, which range from conservative to aggressive. The algorithm makes recommendations based on how users answer certain questions.

Ultimately, the company plans to expand to include 529 plans and cryptocurrencies to its portfolio of investments.

Early Bird has three pricing tiers. For investments from $0 to $200, there is no cost. However, once the account exceeds $200, the fee becomes $1 per month per child. Then once the account hits $5,000, that turns into 25 basis points.

The company launched its app publicly at the end of December. So far, it has raised seed funding through investors including Network Ventures, Chingona Ventures and Bridge Investments.

By providing 6- to 13-year-olds with the resources to build their financial literacy, and then show-only access to their 13-18-year-olds, EarlyBird plans to help them prepare to manage their money in adulthood.

“Our goal is that if you start at around 0 to 3 years old, you can fully invest about $20,000 to $40,000 by the time you turn 18 or 21, depending on the state,” Wexler said.

“And you also have this priceless library of memories from your loved ones over the age of 18.”

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