Podcast Summary: How to Money – Episode #949 Release Date: February 24, 2025

Hosts: Joel and Matt
Podcast: How to Money by iHeartPodcasts

Best friends Joel and Matt delve into essential personal finance topics in this episode of How to Money. They address listener questions on direct indexing, the challenges of co-signing loans within families, and the best methods for empowering children with financial tools. Through engaging discussions, practical advice, and personal anecdotes, Joel and Matt provide valuable insights to help listeners navigate their financial journeys.

1. Sticky Cosigning Situations

Listener: Merv Best from [Timestamp: 07:05]

Merv reaches out with a concerning situation where he co-signed a student loan for his great niece, who has since stopped making payments. Consequently, his bank, Navy Federal Credit Union, is withdrawing payments from his account without his permission. Merv seeks guidance on the legality of this action and how to encourage his great niece to honor the loan.

Joel’s Response: [07:51] Joel empathizes with Merv's frustration, highlighting the emotional and financial strain co-signing can impose on relationships. He advises viewing financial transactions with family as potential gifts rather than loans to avoid such pitfalls.

Key Insights:

• Legal Implications: Co-signing a loan makes you legally responsible for the debt. If the primary borrower defaults, the lender can pursue you for repayment, including through mechanisms like the right to offset, where funds are withdrawn directly from your account.

• Relationship Strain: Mixing money with family can lead to significant relational damage, comparable to "a double whammy" (08:23), affecting both financial stability and personal bonds.

Matt’s Advice: [12:32] Matt recommends a heartfelt, in-person conversation with the niece to discuss the impact of her non-payment on both Merv’s finances and their relationship. He suggests emphasizing the potential negative effects on her credit score and the importance of maintaining both financial responsibility and familial ties.

Notable Quote: Joel: "When you co-sign a loan, you've created a legal obligation for that debt, even if you never saw a dime of that money." [11:05]

2. Empowering Kids with Financial Tools

Listener: Chad from [Timestamp: 41:39]

Chad seeks advice on enabling his 11-year-old son to make purchases using an Apple Watch with cellular capabilities. He is torn between using physical cash or setting up a digital payment method, such as making his son an authorized user on a Chase credit card with a limited limit.

Matt’s Perspective: [42:15] Matt shares his preference for using physical cash, recounting his 11-year-old daughter’s experiences. He points out that cash can limit potential financial exposure, whereas digital methods might introduce complexities like device costs and service plans.

Joel’s Suggestions: [44:08] Joel recommends Capital One’s free teen accounts paired with a debit card. This allows parents to oversee funds while granting kids the ability to manage their spending responsibly. He cautions against giving children access to adult credit cards to prevent financial mishaps.

Key Takeaways:

• Physical Cash vs. Digital Payments: While cash offers simplicity and limited risk, digital payments provide convenience but require careful oversight.

• Authorized Users: Making a child an authorized user can help build their credit without the risks associated with direct access to adult credit lines.

Notable Quote: Matt: "Mo money, more problems... That is true because now you've got something that you've got to provide service for." [43:31]

3. Is Direct Indexing Worth It?

Listener: Greg from Lynwood, Washington [Timestamp: 28:29]

Greg evaluates a direct indexing strategy offered by his Fidelity advisor, which involves opening a Separately Managed Account (SMA) with a 0.4% fee. He compares it to holding an ETF fund, analyzing potential tax benefits through tax loss harvesting versus the higher fees.

Joel’s Analysis: [30:09] Joel appreciates Greg’s analytical approach, acknowledging the nuanced benefits direct indexing can offer, especially for tax optimization through strategies like tax loss harvesting.

Matt’s Recommendations: [32:46] Matt explains tax loss harvesting—selling investments at a loss to offset gains—and its benefits, particularly for high-income earners like Greg. He suggests considering alternatives such as Betterment’s robo-advisor services, which offer tax loss harvesting at a significantly lower fee (0.25%) compared to Fidelity's SMA.

Key Insights:

• Tax Efficiency vs. Fees: While direct indexing can enhance tax efficiency, the associated fees may offset potential gains unless managed through cost-effective platforms.

• Alternative Solutions: Platforms like Betterment provide automated tax loss harvesting at lower costs, offering a balanced approach for investors seeking tax optimization without hefty fees.

Notable Quote: Joel: "Tax loss harvesting is more effective for higher income earners. So... the stakes are higher and that a tax loss harvesting strategy could have, I would say, a not insignificant impact on his tax situation." [32:45]

4. Prioritizing HSAs Over IRAs

Listener: Megan from [Timestamp: 47:22]

Megan asks whether she should prioritize investing in a Health Savings Account (HSA) over an Individual Retirement Account (IRA) given limited funds.

Joel’s Recommendation: [48:09] Joel asserts that HSAs often take precedence due to their unmatched tax advantages. He describes HSAs as having a "triple tax advantage," making them superior to IRAs when optimizing for tax efficiency.

Matt’s Counterpoint: [49:15] Matt highlights that while HSAs offer superior tax benefits, they require more diligent management and organization over time. In contrast, Roth IRAs are more "set and forget" accounts, suitable for those seeking simplicity.

Key Takeaways:

• Tax Advantages: HSAs provide tax-free contributions, growth, and withdrawals for qualified medical expenses, making them exceptionally beneficial for long-term financial health.

• Flexibility: Both HSAs and Roth IRAs offer flexible withdrawal rules, but HSAs double as a retirement tool after age 65 without penalties for non-medical withdrawals.

• Management Effort: HSAs demand more active management to fully leverage their benefits, whereas IRAs offer a more passive investment approach.

Notable Quote: Joel: "If you are optimizing for the absolute best rate... the HSA, you literally can't beat that." [48:05]

5. Personal Stories and Anecdotes

Joel’s Family Situation: [03:40] Joel shares a heartfelt story about his mother battling skin cancer and the financial strain of hospital stays. He discovered the American Cancer Society’s Hope Lodge, a resource for affordable lodging during cancer treatment, emphasizing the importance of seeking support and utilizing available resources.

Notable Quote: Joel: "Don't assume that you have to go it alone." [04:00]

6. Beer Tasting Segment

Throughout the episode, Joel and Matt incorporate a lighthearted segment where they taste Prairie Artisan Ales’ Tiny S's, a sweet, fruited sour ale. They discuss its unique flavor profile, comparing it to childhood candies and highlighting its novelty nature.

Notable Quote: Matt: "It's like Skittles sweet, 100%. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar." [52:31]

7. Employers’ 401(k) Plans with No Match

Listener: Vicki from Ohio [Timestamp: 19:23]

Vicki is frustrated with her employer’s 401(k) plan, which offers no matching contributions and is managed through an insurance company with high fees and restrictive terms. She seeks advice on managing her retirement investments given these limitations.

Joel’s Guidance: [20:05] Joel commends Vicki for maximizing her HSA and recommends ignoring the subpar 401(k). He suggests utilizing low-cost brokerage firms like Vanguard, Fidelity, or Schwab for better investment options and fees.

Matt’s Advice: [25:40] Matt encourages Vicki to consider alternatives such as petitioning her employer to switch to a more cost-effective 401(k) provider. If unsuccessful, he advises maintaining her separate brokerage account and contributing to a Roth IRA for additional tax-advantaged growth.

Key Takeaways:

• Avoid High-Fee 401(k)s: Without matching contributions, high-fee 401(k) plans can significantly erode investment returns over time.

• Alternative Investments: Utilizing Roth IRAs and low-cost brokerage accounts can provide better investment flexibility and cost efficiency.

• Advocating for Change: Employees can influence their employers to adopt more favorable retirement plan options by presenting cost-saving alternatives.

Notable Quote: Joel: "If you have to choose, prioritize the HSA first." [48:09]

Conclusion

In this episode of How to Money, Joel and Matt tackle complex personal finance issues with empathy and expertise. From the risks of co-signing loans and empowering children financially to optimizing investment strategies and navigating flawed employer benefits, the hosts provide actionable advice tailored to diverse financial scenarios. Their blend of personal stories, practical tips, and thoughtful analysis makes this episode a valuable resource for anyone looking to enhance their financial well-being.

Call to Action: Have a money question? Submit it through the Voice Memo app and email it to us@howtomoneypodmail.com. The hosts look forward to addressing your queries in future episodes.

Resources Mentioned:

• howtomoney.com
• Betterment (Robo Advisor)
• Capital One’s Teen Accounts
• American Cancer Society’s Hope Lodge

Notable Quotes Recap:

• Joel: "When you co-sign a loan, you've created a legal obligation for that debt, even if you never saw a dime of that money." [11:05]
• Matt: "Mo money, more problems... That is true because now you've got something that you've got to provide service for." [43:31]
• Joel: "If you are optimizing for the absolute best rate... the HSA, you literally can't beat that." [48:05]
• Matt: "It's like Skittles sweet, 100%. It's like, as I drink it, I can kind of crunch my teeth together and I can almost feel the sugar." [52:31]

Stay tuned for future episodes where Joel and Matt continue to demystify personal finance, making it accessible and actionable for everyone.