The Liquidity Event Podcast: Episode 56

 

Episode 56: Biden Cancels Student Loans and Serena Serves Up Financial Independence

Kate is in the hot seat this week while Shane is schmoosing with accountants at a conference in New Orleans. We love breaking news here on the podcast, and we got just that: Biden broke the internet with his student loan cancellation rollout. We have all the juicy details. Our hosts react to a guilty daughter struggling with supporting her mother financially. On other news, Chamath, an undisputed SPAC king is desperately trying to find an acquisition target for a billion dollars. In other news, Serena Willians is leaving tennis forever (she says!) and redefining retirement. This one is forgivable.

Read the Full Transcript:

Speaker 1:

This podcast is for informational purposes only and should not be considered tax or investment advice. Welcome to The Liquidity Event. A show about all things, personal finance, with a laser focus on equity compensation, hosted by AJ and Kate of Brooklyn. Each episode will take you through the week's news on FinTech, IPOs, specs, founder wins and fails crypto and whatever else these nerds think is interesting. Learn more and subscribe today at brooklynfi.com.

AJ:

Hello and welcome to The Liquidity Event. We are your hosts, AJ

Kate:

And Kate.

AJ:

And this episode... Ooh, Kate Kate round two. This is episode 56 being recorded on August 24th. Airing on August 26. This week, we'll be discussing breaking news about student loans, specs, Serena Williams, Elon Musk, of course, being a bad daughter and financially supporting your mom amongst other topics. How you doing Kate?

Kate:

Doing good. I don't know if you know this, but we are actually recording on a holiday. So love that we're talking about financially supporting moms, because today is my mother's 60th birthday.

AJ:

Oh, huge holiday. I know I would've given the entire company the day off. Apologies.

Kate:

Yeah. Yeah. Come on man. Got to get up with the times. August 24th.

AJ:

Happy birthday. Kate's mom. Shout out to Kate's mom. Kate's mom's name is?

Kate:

Scarlet. Scarlet Murray.

AJ:

Love name Scarlet. Classy, classy, classy.

Kate:

How are you doing? How's your day?

AJ:

I'm good. I'm good. My day's good. Little, little hectic, but always, always love the pod. Always love to just sit down and read articles. I was eating my egg toast rating these articles and excited to chat with that with you about them. The financial planner industry has been waiting with and what a hundred million student loan partners. We've all been waiting with bated breaths to be like, what is going on? Biden made this campaign promise and it is here. It was just posted on the white house website this morning. So this is truly breaking news here. I don't have any IPOs this week to do a deep dive. So I'm going to suggest we just dive right into student loans. What do you think? Is this a delivery on the campaign promise? Do we get to check the box for Biden?

Kate:

Yeah, I mean, I think it is one of those things where I think he really much had the gun to his head because he has to deliver this. So they've released, I think, a fairly reasonable delivery. I know that the scuttlebutt was that it would be between 10,000 and 50,000. So there are people out here who are probably very disappointed with the announcement. Looks like 20,000 in debt cancellation to Pell grant recipients. And then everybody else is looking at about 10,000 in cancellation. Now that's only if your income is below 125,000 for single filers and 250,000 for married. But I think it is certainly substantial.

AJ:

Yeah.

Kate:

It's not 50 K but take it.

AJ:

And by the way, if you do have student loans, please do read through the white house.gov. I mean, it will be trumpeted everywhere. I'm sure you can find this, but they did a very nice job of explaining their methodology and really selling this to us. I imagine there have been very smart people have been working on this rollout for months, if not the entirety of his presidency, because this was a huge campaign promise that truly affects, I don't want to say everyone, but a lot of people went to college. A lot of people have borrowed money, but really what's important to remember about this bill is that it's not aimed at can... And cancellation of debt was never the promise for everyone. And I think that's where we get a lot of disappointment and well, fuck this person. Well, I paid my loans off.

AJ:

Why is this person getting a handout? The $10,000 number is really interesting because if you have $200,000 of grad school debt, $10,000 of cancellation feels like, nice, thank you. But it doesn't really change my life dramatically. But really this is targeted at the folks who maybe borrowed 20,000, but their annual income is never going to be above 35,000. And that $20,000 of debt consistently just ruins their ability to get ahead financially. So cutting out 10,000 for that kind of small amount borrowed, but huge financial impact, that's really what the focus of this bill is. So applause there. And just for anyone... And I get it, I paid off my student loans. There's a tinge of, oh, well what about me? And I respect that. I hear that feeling. And I think that's real, but let's just focus on what the purpose of this bill was.

AJ:

Yeah, other details here. Yeah. 10 K forgiven for folks making less than a hundred twenty five, 20K if you had Pell grants, which are typically given to lower income folks and even capped at $6,000 a year. So that to me is basically a huge win. So your family could not pay for college. You got a Pell grant, you got $6,000 a year for four years of college. This could really dramatically change recently graduated college seniors, and really set them on this incredible trajectory to say like, oh, I am starting my first job and I don't have to make a $600 student loan payment. I can live near my job. I can buy a better car so I can get to my job. I can contribute to my 401k. That's my positive spin here.

Kate:

Yeah. I can focus on paying my increased rent.

AJ:

Exactly. Thanks Biden. Yeah, exactly. Thanks for the... Where's the 9% inflation adjustment for the 10K you promised three years ago. But yeah, there's this great statistic in here that nearly all Pell grant recipients come from families with income of less than $60,000. I remember that's total household income. That's not just a one person salary, so that's a win. And even last week, sort of like a teaser to this, we saw Biden come out with a specific targeted student loan forgiveness program for borrowers specifically who had borrowed loans for ITT tech, ITT Technical Institute, which was essentially a for-profit college that promised degrees and job placement and never delivered. So that was more of, I kind of view that as a class action settlement, as opposed to a policy change, but that was a little taste of what was going to come this week. And here we are.

Kate:

Yeah. I think they've been fairly successful. The Biden administration with their recent kind of rollouts, the student loan cancellation announcement and the inflation reduction act, right. We're seeing the kind of structure where the folks who are benefiting the most are the folks who have lower incomes with the rebates and the credits that we're seeing, especially with the rebates in the inflation reduction act, it is sort of tiered. Your income, they're looking at median income and where your income fits and the median income of your region. And it's at least supposed to work so that the people who benefit the most are the people who really need it. And I see that echoed in the way that the student loan cancellations being kind of handled, which is really cool.

AJ:

I mean, they come out and say it in this first sentence, which is no high income individual or high income household in the top 5% of incomes will benefit from this action full stop. So if you make more than 250,000 as a household, you are already in the top 5%, congratulations. This is not a program designed for you. That said, I think there are lots of folks who are in the 250,000 income bracket and their loans are actually outsized. I think of doctors, the promise of the doctor is that you go to medical school for what is it? Eight years you're intimately familiar with this case.

Kate:

Yeah. You go to med school for four years. And depending on what your specialty is, you've got a residency of three to four years. And in residency you're working like 80 hours a week. It's crazy. Actually some of the residents have been unionizing lately. So that's an interesting thing to watch, but you're working 80 hours and you're making 50 grand. If you do the math on that, I mean, it's not even minimum wage. So those folks actually could benefit from this because they're way below that income cap

AJ:

And with medical school, I mean, as financial planners, I've seen medical school debt 500, $600,000. And the promise with doctors is that yes, you do that. You go to your eight years and then within three years you're making a million dollars a year, but it just takes so long. And so many life changes happen. I mean, we've seen folks with that debt leave the medical professional together and what are they supposed to do? So it does definitely cut out a lot of folks, but intentionally as they come right out and say in that first sentence. Anything else that... Oh yeah. So one thing to point out to ensure a smooth transition and prevent unnecessary defaults, the pause on student loan payments for everyone is extended one final time through the end of the year. So if you are currently on pause, you still have some time to figure it out and then you should expect to resume payments in 2023.

Kate:

Love that.

AJ:

I call this a very-

Kate:

Pro this announcement. Absolutely. Even though I am one of those people who refinanced her student loans. So I have 13 grand leftover from grad school that I just refused to pay. Because I could refinance it at two and a half percent and I'm a financial planner. So yeah. I'm like, let it roll.

AJ:

Yeah, let it ride. I mean, that's one of the biggest questions we get as financial planners is I have this crushing student loan debt. Should I pay it off? And our financial planner answer is always, of course it depends. It depends on your financial situation. It depends on the interest rate. It depends on your goals. But I always say to clients, are you up at night worrying about this? And if the answer is no, often we say it's a big loan. It's going to take time to pay it off. If you can ignore the interest rate and just think about the monthly payment and just make auto payments. You're good. So yeah, this is a win. I'm excited for this. Speaking of financial wins and families. There's this great article that my friend Emily sent me. I'm sure some people sent it to you, Kate as well. From a [inaudible 00:11:03] 29, please read the title because it's just so good.

Kate:

I'm tired of [inaudible 00:11:08]

AJ:

On your mother's birthday.

Kate:

Yeah. Right. Oh, on my mom's birthday. Love this, love this. The article is titled, I'm tired of financially supporting my mom. Am I a bad daughter? And it's interesting. It's like one of those Dear Abbey things where somebody's writing in they're 29 years old and they're a manager at a medical clinic. It doesn't sound like they're a big spender. They save a lot. They're funding Roth IRA, which is great. But mom is in her mid fifties. She's still working. They're realizing slowly that this person, the author and their brother are basically going to be her retirement fund. And so there's a lot of emotions that come up with that. A lot of anger, frustration, but then there's also guilt, right? Because that's mom and mom took care of you and mom raised you and mom made your breakfast in the mornings. So where are the lines sort of drawn there? And this person's looking for guidance with all of that. And I think both of us can relate as single mom, gals or gals with single moms I guess.

AJ:

I was like, what? Is there something I don't know?

Kate:

No, no, not single moms. No. We have moms that we were very close with who were. So I think it was a really interesting article. This concept, so we call it, for those of you who haven't ever listened to the other episode that I was on in addition to being a certified financial planner here at Brooklyn FI am also a certified financial therapist. So in the financial therapy world, we would call this an issue of financial entanglement, where somebody is feeling emotions of guilt and pressure and all of this negative stuff around financially supporting another full-fledged adult. And so for me, as I was reading this, the financial therapy alarm bells are ringing because we've got, we call it financial entanglement, which is basically money codependency. And so I definitely think this person should look into some financial therapy and also maybe some financial planning.

AJ:

Yeah. I mean, such a hard, I mean, this is a extremely common situation. I would say, this is the norm. The exception to the rule is, oh, my parents save perfectly for retirement. And they sent me a PDF that says, oh, don't worry about it. We've got 2 million in the bank. And by the way, when we die, here's the funeral director to call. I've seen that before. And it is crazy. I mean, my family doesn't even have that, right? The problem with death and parents and family and emotion and money is that this stuff is hard to talk about. And even if you have a financial planner, even if you have a financial therapist, even if you are a financial planner with a therapist and a financial therapist, it's still hard to do, right? It's just hard to sit mom down. Or in this case, this story is really sad because there wasn't dad in the picture, there were two incomes.

AJ:

Dad passed away, left mom some money. And then there was a financial planning mistake made she withdrew money from a retirement account and paid a bunch of taxes on it, which she did not have to. You and I can read that sentence as financial planners and go, you didn't need to take out that money. You did not need to pay all those taxes right away. We could have done it over. With death there are actually a lot of benefits and protections built in to protect surviving spouses and kids. So to me, I just went, oh my God, we had to do this planning. So PSA soapbox, if you have anyone in your life who has recently experienced the death of a loved one, like pause, hold the phone, try to talk to a fee only financial planner. If you can't afford one, there are actually tons of resources.

AJ:

Honestly, the government has great resources. The CFPB has tons of free resources. They have a helpline you can call. Don't withdraw, don't start moving money around. There's going to be... If there's a lot of money, financial advisors are definitely going to start reaching out to you. Just pause before you make moves, because this was a truly avoidable mistake and understandable. You just lost your husband. You're grieving. I get it. But yeah, it's just so important for this kind of planning. What do we say to client? What's your advice, Kate, to someone who is like, I know I need to do this. And mom is still around. Mom's great. How do I even start this conversation?

Kate:

Yeah. I think you start it with somebody who can moderate it. It's hard to, as you're in this relationship, you're entrenched in this relationship and there's all this history that comes before this moment. And so, you are emotionally entangled. The other person is emotionally entangled and you each have your roles. I'm a CFP, have been a CFP for years. I've been working as a planner for close to a decade now. And my mother still looks at me as her daughter, which that's natural. It's part of the process. But I think it can be really helpful.

AJ:

Oh sweetie you love money stuff don't you?

Kate:

You love that. Yeah. You're so good at that. But which my mom is really supportive and wonderful, but I am her daughter.

AJ:

We love you Scarlet, by the way, this is not a dig against you.

Kate:

But I am her daughter. She used to change my diapers. It's reality. She remembers it. And so because there are those dynamics at play. And because this is an emotional thing, I would recommend talk to a financial planner, talk to a financial therapist, or what's better, a planner who has that competency to meet you and understand that this is an emotional thing. What you do not need is a spreadsheet to solve this problem immediately. What you do need is somebody who can moderate a conversation and who can set appropriate limits and bring some organization in order and good advice. So I would say check out the professionals.

AJ:

This is not professional advice, but something that I found with my friends is like, I'm always yeah, go to this person. They're like, how do I find this person? This person costs $600 a month. I don't want to do that. Fine. It doesn't need to be an absolute professional. How about someone in your life that's slightly removed from the situation who kind of knows you both who can help moderate. Here's mom and daughter. What about aunt? Or what about second cousin or neighbor you're close with. Just someone who can be in the room because you're going to start screaming at each other and crying, or emotions are going to come up or someone's going to storm off or someone's going to withhold information and be uncomfortable. You have to have that moderator there. I mean we learn, we do this in our internal meetings to just have that other person. Who's like, okay, great point, Kate.

AJ:

Thanks. Let's hear from the other side here and see if we could just take some notes and come to a conclusion, but no, this person, the rhetorical question of the article title, am I a bad daughter? The answer is no. And this article actually has great general financial planning tips, emergency fund, how to talk about things, but cannot stress the importance enough of having these conversations and these can take it 10 years or 20 years to get an estate plan in place. You might not be able to accomplish it in one conversation. It's going to be a series of conversations over many years. We're still in year three of five of mine I think.

Kate:

Amazing. The benefit of starting early too, is think about these things before they're a problem. If you are doing financial planning, it's great to bring kids into that conversation. Here's what I'm doing as far as saving for retirement. Here's what I'm doing as far as funding your college, and that doesn't have to we're fully fund your college and here's everything that goes into it could be. We're going to do it 50/50. 50% on you. And 50% on me. Here's the plan and pulling kids into those conversations has a dual benefit. One you're sort of addressing the problem before it exists. And two, you are teaching those kids good financial hygiene and what financial planning is, and it becomes this integrative part of their life because it is important. So it's great to make it a family affair.

AJ:

Also, I find approaching from it from a place of how do I help you move forward? To me, it's like, where do we start? Let's open the mail. Hey, I see that pile of statements from Schwab over there. What's in there. Oh, can we open it together? I'm not trying to pry. I want to help you. And I want to just start to understand. Getting a foot in the door, establishing that trust of no mom, I'm not wishing that you would die tomorrow so I can have all your money. It's like, no, I want to understand what's going on tomorrow. And I'm not... They're embarrassed because even if there is money, even if there is savings, they're insecure about, is it enough? Am I going to be a burden? That codependency, you talked about that it goes both ways.

Kate:

Totally.

AJ:

Speaking of, I don't have a good segue here. Speaking of-

Kate:

Am I a bitch?

AJ:

Am I a bad daughter here? The king of SPAC, Chamath, who is a kind of popular Fintwit personality who was trumpeting the success of SPACs had a lot of success during the 2020, 2021 IPO Bonanza. I don't think SPACs are dead, but there's definitely been a pullback. SPACs, for those who don't know, special purpose acquisition company. These are essentially groups of investors that decide to go public today with a target of a specific type of company that they're going to merge with to eventually take that company public. So Kate and I today could form the AJ Kate SPAC, we each put in a billion dollars. We go public next week. And our target is that we're going to acquire a financial therapy company and we have two years to do it. These are highly regulated investment vehicles. And if we don't find our target within two years, we got to give our money back to investors.

AJ:

So the headline here, the SPAC king goes silent with his empire shriveling. So he's got a bunch of SPACs. One of the biggest ones, it's a over a billion dollars. And they just requested an extension to find that target. Part of the problem with this desert IPO market we've seen is that it's not just companies going public it's that everyone wants to wait. Everyone kind of wants to wait to see what happens with the economy. So I imagine there are a lot of SPACs out there who are chomping at the heels of these exciting companies. And these companies are going like, no, I don't want to go public via SPAC. I want to wait for June 2023, when my analysts tell me the market's going to go back up and I'm going to get a great, better price and a more flashy debut. So that two year acquisition, that goes pretty fast, right?

Kate:

Yeah. I mean, it's just not a lot of time. And I think SPACs were coming off a period where SPACs were really sexy and everybody was writing articles about SPACs and it was a big deal, but I think

AJ:

SPAC-tacular.

Kate:

SPAC-tacular. There we go. Yeah. I think by and large, there was a lot of investor interest in SPACs. And I think by and large, most investors, I always say that good investing should be really boring. So I think for most investors, SPACs are just way too risky and aggressive to even fool with. We've a lot that goes into that. If you're worrying about IPOing because you have equity compensation, that makes sense to me. But if you're kind of willingly putting yourself into a SPAC position where you got a two year target, it's a lot of stress. I kind of put it in that bucket of rental properties. Everybody wants to make money off real estate because it's sexy, but it's like, it's just so much stress and you really don't have to work that hard.

AJ:

Yeah. Well, it's the irony of the term passive income. We hear this all the time and it's like, oh, I want passive income. I want to run a rental property. I'm sorry, what? You want to be a landlord and you want to deal with the ceiling breaking and the toilet not flushing and this and okay, fine. You hire a management company, but the management company doesn't know your wifi password. It's not passive at all. You know what's passive? Investing in the stock market and getting paid dividends, occasionally.

Kate:

Boring. That's boring stuff.

AJ:

That's passive to me,

Kate:

Not sexy stuff.

AJ:

Listeners are so over our spiel, but I'm going to keep saying it until the cows come home. A fantastic article this week from, I'm such a fangirl of Scott Galloway, marketing professor at NYU general, great business thinker, marketing leader, co-host of podcast with Kara Switcher. Oh my God, my brain. I listen to this all the time. It just left my brain. Anyways. Wow. That's embarrassing.

AJ:

I listen his podcast every day, but I was so excited about this article. So he's calling it welfare. He has great newsletters. Every Friday, he'll send you something with a bunch of charts and graphs that's making a big point about the economy are about finance and this one's called Welfare Queens. And essentially the point here is that the biggest venture capital firm of, and the most successful VC firm of all time is actually the US government. We got a man on the moon. We've invested in solar. He just lists off tens, dozens of inventions and progress that have been made by loans or literal direct funding from the US government. So it was a cool way to think about it. We have all these tech billionaires shitting on the government and saying, well, there's bureaucracy and they're inflated and they don't get things done, which is ironic.

AJ:

Elon of course, Elon Musk is one of those critics. He took a 465 million loan from the government to found Tesla. He's gotten tons of solar credits. Part of Tesla's whole marketing strategy is that if you buy a Tesla, you get a $7,500 tax credit as an individual. You don't get that if you buy an Accord these days. So it's just an interesting way to think about think bloated government and a lot of the failures, but at the end of the day, we pay taxes. But those tax dollars do go to great things. And this is obviously in the news because of the inflation reduction act or the IRA as it's-

Kate:

The IRA. It kills me. It kills me.

AJ:

Come on, you guys.

Kate:

It hurts me.

AJ:

That's the acronym you came up with?

Kate:

IRA.

AJ:

IRA.

Kate:

Ugh. I know that was it.

AJ:

Anyways. Ooh, you got something in here about Serena Williams. What's she up to?

Kate:

I do. So miss Serena. So there was a great article that came out this week that basically Serena Williams was kind of giving her thoughts on retirement. And it's one of those things that was kind of circulating on LinkedIn and caught my eye, but she has this great quote, which I'm going to read. It's a little lengthy, but I think it's worth it. So Serena says, "I have never liked the word retirement. It doesn't feel like a modern word to me. Maybe the best word to describe what I'm up to is evolution. I'm here to tell you that I'm moving away, that I'm evolving away from tennis, toward other things that are important to me." And so basically this quote, which is obviously about her evolution away from tennis is basically being applied to the financial services industry. And so the title of the article is that Serena Williams view of retirement is a warning shot for financial advisors.

Kate:

Now I think those of us who've been paying attention and certainly Brooklyn FI falls into that group, we already knew this kind of. We know this from our conversations with clients, folks are coming in and they don't want to work until they're 65 or 67 and then put the keys on the table so to say, and never work again a day in their life. They are much more interested in customized planning around their goals and around what they want out of life. We call it life planning and we do exercises with clients. I actually just did one before I came here to record with a client around what does success look like to you? What does your life look like if we remove all of these obstacles of, I don't have enough money or all these weird obstacles that we put on ourselves that do exist in the real world, but we get at, if it's an ideal situation, what does it look like for you?

Kate:

And then how do we bring real life as close to that ideal as we can get? And so what we're seeing is that more people want time off. They want to take a year or two off, maybe every five years and kind of intersperse things so that it's a much more retirement, so to say, and working life kind of bleed into each other. And what's interesting is that I think a lot of financial planning models are not built with that in mind. So customized planning becomes way more important so that you can do that. And I think overall it's a good thing because from studying the brain and psychology and how human beings work, it's not a good idea to work like hell until you turn 67 and then put the keys on the table and never work again. Because what happens is you die in five years.

AJ:

Yeah that's what happens. The statistics should be like, you don't get bored. You literally die. Yeah. You just die. There's no reason to live anymore because you had self-worth at work and then you're on the golf course, which is fun for six months and then you're bored and then your heart literally gives out because it has no purpose to live.

Kate:

Exactly because you haven't built-

AJ:

That's a statistic folks, by the way, that's an American heart association, an ARP statistic. We didn't just make that up,

Kate:

No, it's real. It's real because people we spend all of this time, it's the American dream, the twisted version of the American dream. We spend all this time working and dreaming of the day when we can get to the fabled land of retirement when we never have to work again. And then we get there and we lose all of our social interaction. We lose all of our purpose and goals because we haven't spent time thinking about okay, but what does that look like? Where do I get my social interaction? Where do I get my self worth, so I thought this article was really cool. And hopefully it is a warning shot for folks who are sleeping on that.

AJ:

Yeah. Figure it out folks. That's why we named our company, Brooklyn FI. The FI stands for financial independence. Thank you so much, Kate. You have been a fantastic, co-host great to have you back. Thanks folks for listening to The Liquidity Event, you can email us at liquidityeventatbrooklynfi.com. Show notes at brooklynfi.com/episode56. We'll see you next week. Take care.

Kate:

Thanks. See you around.

Speaker 1:

Thanks for listening to The Liquidity Event, hosted by AJ and Shane of Brooklyn FI and head on over to brooklynfi.com where you can subscribe to the podcast or YouTube channel, or if you want to learn about their full service, financial planning, tax and investment firm, specializing in tech professionals and creatives on the path to financial independence. We'll see you next time on The Liquidity Event.