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NerdWallet's Smart Money Podcast
First-Generation Wealth Building and the Truth About Stablecoin Yields
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- [00:00]
Elizabeth Ayola
Today's episode is sponsored by Quint's.
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Sponsor Voice
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Elizabeth Ayola
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Elizabeth Ayola
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Elizabeth Ayola
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Sam Taub
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- [01:44]
Courtney Hale
And he did it.
- [01:46]
Elizabeth Ayola
Game day is saved. Wait, dad, did you forget Dib?
- [01:51]
Sam Taub
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- [02:02]
Elizabeth Ayola
Welcome to NerdWallet's Smart Money podcast where you send us your money questions and we answer them with the help of our genius nerds. I'm Elizabeth Ayola. Now on this episode, we'll be answering a listener's question about how to plan for retirement using accounts like IRA or 401ks. But first, we're bringing you part one of a two part series about 50 first generation wealth builders. Now, these are individuals, or trailblazers, as I like to call them, who are the first in their family to begin accumulating wealth. And that's something I'm personally on the journey to doing right now. So I'm excited to have this conversation. To kickstart the series, we have Rani Brown and Courtney Hale. Here they are engaged entrepreneurs who are both first in their family to build wealth. Welcome.
- [02:49]
Rani Brown
Excited to be here.
- [02:50]
Courtney Hale
Thank you for having us.
- [02:51]
Elizabeth Ayola
Of course. Excited to chat with you all. Now, it wouldn't be right if I didn't give you both a proper introduction.
- [02:57]
Rani Brown
So.
- [02:57]
Elizabeth Ayola
So we'll start with Rahni. She's the founder of Girl CEO Herlistic and the author of From Mopping Floors to Making Millions on Instagram. Now, Rani turned minimum wage income into a seven figure salary within a few short years. She's also equipping women nationwide on how to be the CEO in their business, in their lives and in their homes. Now we have Courtney, on the other hand, who is a former wealth manager turned full time entrepreneur. And through a company called Investing Uncomplicated, Courtney helps people to invest and create generational wealth. He also has a business called Super Money Kids Co, which I think is awesome. And with this business, he partners with schools and organizations nationwide to equip youth with financial literacy skills. So y' all both have quite the resume there.
- [03:45]
Rani Brown
Thank you so much.
- [03:48]
Elizabeth Ayola
So I like to start with an icebreaker just to kind of get the conversation started and learn a bit about both of you. So I'm gonna give you different icebreaker so that you don't have time to think about your answers. Okay? All right, so we're going to start with you, Ronnie. So when I say the word wealth, tell me the first thing that comes to mind.
- [04:08]
Rani Brown
Freedom.
- [04:09]
Elizabeth Ayola
Why?
- [04:10]
Rani Brown
I believe that true wealth is being able to have the freedom to live life on your own terms. Wake up when you want, travel where you want, spend time with the people you love. That's truly just my definition of freedom.
- [04:23]
Elizabeth Ayola
I agree with that. I think that's one of the words that come to mind for me as well. All right, now, Courtney, if your finances were a color, what color would it be?
- [04:32]
Courtney Hale
Why you couldn't give me the first question?
- [04:38]
Elizabeth Ayola
I'm saving the best for last.
- [04:42]
Courtney Hale
Oh, my goodness. This is such a hard. See, I want to say green, but I feel like that's the typical answer, right? Like, of course your money is green. Could you be a little bit more creative? Let me say this, I'm say black. All right. And I'm going to say black for two reasons. Number one, you always want your money in the black. You want your money growing. When you think about wealth, you want to see your net worth increase, right? So that's staying in the black versus being in the red, where things are going down. But I'm also going to say black as in black wealth, because what it looks like for black people to build wealth, it looks different in a lot of cases in terms of the risk that you can take, the opportunities you have to recreate yourselves, the hurdles that we have to overcome. So if my money was a color, I'm gonna say black for those two reasons.
- [05:37]
Elizabeth Ayola
Love that we got there in the end, and I love your answer. So I'm black. Okay. All right. Now that we've broken some ice, I want to get into both of your backgrounds briefly. So I want to know what kind of socioeconomic bio background both of you grew up in and basically how it influences your views on money. And we can start with you, Ronnie.
- [05:58]
Rani Brown
So I would say that growing up, I had different types of experiences. I would say my mom was very hardworking, very responsible, very paying the bills on time. My dad was very financially irresponsible a little bit. And I used to remember him and my mom kind of fussing about that a lot. My mom was, like, always ready to pay bills sometimes. And my dad's, like, always. You know, he has something going on. Right. And then I had my. My grandmom, who was my father's mother, who was very, very financially educated. She had a lot of stock. She had a lot of real estate. She had a lot of land. And she was the person in the family that I really just admired growing up around that. I think that it made me be able to see the difference between what happens when you are responsible with your money versus when you're not responsible with your money. I saw my dad go through a lot of financial stress. I also saw my mom start her life over because of who she married and who she chose. So I got to see things through different views and different lenses, and it really shaped my decision making. As I grew older. I knew that I wanted to be successful. I knew that I wanted to build wealth, and I knew that I wanted to own my time, and I wanted to really have freedom to live life on my terms.
- [07:25]
Elizabeth Ayola
Courtney, can you tell us a bit about your socioeconomic background and how that influenced your views on money?
- [07:32]
Courtney Hale
I grew up in a family that was really, really loving. They were very supportive. They worked hard. They just didn't have much. And they really, like my mom and her siblings, really invested a lot in their children because they wanted their children to live better lives than what they did. My neighborhood, there wasn't conversations about wealth there, there weren't entrepreneurs. It was just a lot of people just trying to do their best. And that comes with some challenging times. Right? I have some very vivid memories of being a kid and parents not being able to pay bills or having moments where the lights were out, or my mom and I lived with my grandparents until I was about in the fifth grade. And for me, as I got older, obviously when you grow up without certain things, socially, that can be challenging. And so I remember having friends who would get new sneakers or would get a new car when they turned 16. I didn't get to experience any of that. But what those experiences did for me, it made me. I could never be broke again, you know, So I wanted to take risk. I wanted to talk to people who were successful, who made money. I wanted to go out and figure out how I could create a better life for me and my family. So not only I wouldn't have to experience that, but, you know, when I got married, when, you know, I had kids, they wouldn't have to experience some of the things that I experienced growing up. And I think in some ways I have some unhealthy beliefs and relationships as well because of the trauma that comes from that. But that absolutely has inspired me to pursue wealth and make better decisions with my money.
- [09:29]
Elizabeth Ayola
So now you guys have both given us some background into kind of your story of origin. And I know I briefly introduced what you do earlier, but can you tell me where you are now? So what are you both doing that's helping you on this path to generational wealth? Ronnie, you can start.
- [09:44]
Rani Brown
Yeah. So I own two companies. One of them is an educational platform for women. We empower women to be the CEOs of their businesses, their lives and their homes. And through that program, we educate women on how to start, grow and scale their businesses to new heights. We have different experts come in and educate the women on different topics. We do meetups, we do different retreats and things of that nature. And then my second company is called her, which is a plant based beauty and wellness brand. And we provide women with safe, toxin free products to help them prioritize their personal care.
- [10:23]
Elizabeth Ayola
And then, Courtney, what's your main source of income? What is your big money maker?
- [10:27]
Courtney Hale
My company, we. We do financial education. We teach everyday people to invest in the stock market. I also have A company, Supermoney University, that helps organizations incorporate financial literacy into their programming. Growing up broke, I'll say. You know, I developed an obsession with money, and I started my financial education work after my time as a wealth manager. I started with kids. The way that we were teaching kids worked out really, really well, and the pace was even good for adults. And so we started teaching adults how to manage their money better as well.
- [11:04]
Elizabeth Ayola
Entrepreneurship can definitely be risky business, but I bet it's so rewarding when it is fruitful and you make a lot of money from it. And it makes me think inheritances. Right? So that's a big component where some people are able to start building generational wealth. And I found that on average, American households will inherit about $46,200, according to the Federal Reserve data from 2020. But I do have to mention that that number is inflated by the top 1% and 10% of households by wealth. But that said, first generation wealth builders usually don't get that financial boost and they have to build their wealth from scratch. So I want to ask both of you, what did not having an inheritance.
- [11:45]
Rani Brown
Not having an inheritance meant that I had to work my behind off. I spent a lot of time working. You know, I actually started college and then I dropped out because I was a teen mom and I needed to create income for my son. So not having that inheritance was really understanding that I needed to 10x my work ethic. I needed to work hard. I need to wake up early, I needed to go to sleep late. I needed to catch up. So for the last 15 years of my life, I would say that me not having a inheritance created a goal for me to create one for my children so that they can inherit real estate and a successful company and be able to leverage the work that I've put in over the years.
- [12:29]
Elizabeth Ayola
What about you, Courtney?
- [12:30]
Rani Brown
Yeah.
- [12:31]
Courtney Hale
You know, they say what you don't know doesn't hurt you. You know, growing up, I didn't know what an inheritance was. I didn't know that people pass money down to their kids to give them a head start. So it never became something that I looked at as a disadvantage. You know, like I said, I come from a family of people that work really, really hard. And what you want in life, you work for, you believe, you pray for, and you get it.
- [12:56]
Elizabeth Ayola
That's right. I myself did not get an inheritance. I got an empty checking account once I became of age. So it is. But it can be a great way, right, to give you a head start. Like you said, Courtney, now I was excited about interviewing both of you because I know when it comes to building wealth, two can be better than one, and you can do it a lot faster. So it's wonderful that both of you have already started your journeys individually, and now you can come together and continue your mission. So, briefly, tell us how you guys met.
- [13:26]
Courtney Hale
First of all, we met at a retreat for CEOs outside of Nashville, Tennessee. So I am originally from Nashville. Ronnie is originally from D.C. so she actually flew from D.C. to outside of Nashville for this retreat. We were both invited by friends. Neither one of us wanted to go for different reasons, but we got there. I remember being there the first day, Ronnie got there the second day, and I walked in late, and I remember seeing this amazingly gorgeous woman that I just wanted to speak to and talk to, and I would work the rest of the afternoon to get her attention, and she did not notice me whatsoever. At the end of that particular day, they had a social event, and I remember going up to her at the social event and introducing myself and just asking her, you know, she wanted something to drink. She had a pineapple and Sprite. I went and bought her a drink and came back and thought this was gonna be my opportunity to have a conversation with this woman. But she took my drink and walked off. But I'm super persistent, and I found her, and we would have conversations. And I wasn't the only man trying to talk to this woman. And there was another man that came up trying to talk to her kind of similar, same time. And I kind of grabbed Ronnie by the hand and stood in front of her and told that guy that Ronnie was my girlfriend. I did. Absolutely. We talked the rest of that night, and we have not stopped talking since.
- [15:09]
Elizabeth Ayola
I love a good love story. So now you guys are here. I want to know, pivoting back to the finances part, because that's a big part of a relationship, and I think the success of any kind of relationship, finances. So can you talk a bit about how you are building wealth together? So what are some things that you're doing?
- [15:27]
Rani Brown
So we're a team. The best thing about this is that I have an expertise in one area, which is like, marketing and growing companies. And he has an expertise in a lot of things that I'm just not familiar with, like numbers and finances and investing in the stock market and real estate investing and all of the things. So, yes, we are doing things together, you know, buying properties together, and we help each other in our businesses a whole lot, and it's really been a blessing because it's opened my mind, and having someone who can really not just agree with you, but give you ideas and give you strategies, it's just been beautiful for me.
- [16:10]
Elizabeth Ayola
I love that you're able to partner with Courtney and you guys are able to build together. But before you met Courtney, what were kind of the strategies you were using to build wealth on your own?
- [16:20]
Rani Brown
Some of the things that I was doing was building my personal brand and, you know, selling products and growing my community. But I was doing a lot of B2C business. One of the most valuable things that I've learned from Courtney is understanding that there is B2B business that you can tap into and that there is money there and there are partnership opportunities. And he really pushed me to look at things a little differently. Another thing that he has really added to my life is being able to understand that the stock market is not just for later. Okay, you can make money in the stock market now. So changing my perspective from saving to investing has just been such a big eye opener now, because most of the time, you know that I've been an entrepreneur, I've been like this saver.
- [17:14]
Elizabeth Ayola
And I think you bring about a key point because some people think about wealth and they think it just means having a lot of money. But if you have money and you save, that's awesome. But if that money is not invested or compounding, then there's a limit to basically how much your wealth can grow. And when we talk about generational wealth, we're hopefully trying to pass this on, you know, across multiple generations, and you need, you know, robust amount of money to do that. So, Courtney, you come from a financial background, so in what ways were you building wealth?
- [17:43]
Courtney Hale
We think about what matters most to us, like peace time with our families, being able to travel. And so we design our lives in a way that allow us to do the things that we care about the most most. The money is important. Anytime we make money, we know we're going to put it into the stock market. We are interested and very intrigued by real estate. So that's definitely a part of our wealth building strategy. But ultimately we do those things so that we can have more time with the people in the places that we care the most about. How can we spend more time with our parents and be able to sit down with our kids as they grow up so fast? You know, and Ronnie has really helped me put into perspective, like your life design. How do you want to live? I think one of the things that I've realized in the time that Ronnie and I have been together, you know, is not actually the money that makes me happy. It's that I can wake up and I can spend time with my fiance. I can be there with my kids. Our daughter just got out of the hospital for two months. She had sickle cell disease. She had a bone marrow transplant that has cured her sickle cell disease.
- [19:01]
Elizabeth Ayola
Oh, wow, that's awesome.
- [19:02]
Courtney Hale
We've been able to be at the hospital with her every day. And I think about the times where, you know, I was working in corporate America, that would be very, very difficult, okay, to be with a family member in the hospital every single day. And if you work for an employer that is very generous and give you the time that you need to take care of family, you still go back to work with kind of like this burden where he's kind of like, I owe my employer. And now like, I'm beholden to do everything that they, they asked me to do. And it's just a really, really tough place to be in. We hadn't had that right. And we haven't been able to work as much.
- [19:45]
Sponsor Voice
All right.
- [19:46]
Courtney Hale
We haven't made as much money as we probably normally would during that time. But we don't care because what matters most is that we can be with our daughter. And so our life design has been really, really important.
- [20:00]
Elizabeth Ayola
Big part of generational wealth, you're right, are the intangible things. And, you know, many of us are making the money. Going back to Ronnie's first word that came to mind, for the freedom that we get to, you know, create through that wealth. So I just want to pivot briefly back to the strategies that you're using to build wealth for people listening who are maybe on that journey and trying to start their own path to generational wealth. So can you tell me a bit more about your strategies in terms of the steps that you're taking and then kind of what your short, medium, long term goals are for your wealth building.
- [20:32]
Courtney Hale
The first part is her listing. Ronnie's plant based skincare line has so much potential. It's really one of those businesses where we could actually grow it and pass it down to our children. We've had conversations about maybe selling it one day. So really putting the resources into that business so it can be a source of wealth for us at some point. We own a pretty significant amount of real estate, some of that real estate. We want it to create income for us which will allow us not to have to work at some point. We have some real estate that sits on land that we want to develop. You know, one instance where we want to build some townhomes and then rent those to create more income. We have another property where I don't even know what we want to do with it yet. There's another property that we own that we rent for the income, but we actually see that as an opportunity to potentially sell, then use those proceeds and actually invest that in the stock market for the long term.
- [21:42]
Elizabeth Ayola
So lots of investing and reinvesting happening.
- [21:44]
Courtney Hale
Yeah, yeah. You invest for your money to grow and for you to reinvest it. That's our strategy, and that's what we do. We're really, really good about identifying great stocks to invest in for the long term. We do like ETFs as well. I really believe if we never sell a business. Right. I really believe that our best opportunity for more wealth is through the stock market.
- [22:12]
Elizabeth Ayola
I'm definitely on the slow and steady route to building wealth. So consistently investing is usually a good strategy. Now, one of the last questions I have for you all is, you know, a big part of generational wealth is ensuring that you have strategies in place so that it continues throughout future generations. And a lot of the time, effective estate planning is a big part of that. Do you guys have any trust or any strategies that you're putting in place? You both have children to ensure that that wealth is transferred down?
- [22:44]
Rani Brown
Yeah, he doesn't play about that. So if I can give you just a small peek into high level. Yeah, Just a peek into the background of his life. We were both formerly married, and his wife, his then wife, passed away from a medical condition, a heart transplant, and it was totally unexpected. And I think since then, he has not played around with, like, life insurance and just all of the things. Having all of the things in place and wills and things of that nature. So when it comes to retirement and what happens when we're no longer here, I think that has been such a priority for him just because what he has had to endure and experience as a single dad, you know, being left with his baby girl and her also having a medical condition. So he does not play when it comes to all of the ducks being in a row.
- [23:46]
Elizabeth Ayola
That's amazing. And Courtney, do you use a tax professional or estate planning attorney? What have you used to kind of make sure you have those things in place?
- [23:56]
Courtney Hale
All of the above. So we have estate. We have an estate attorney. We have a business attorney. We have CPAs that.
- [24:06]
Elizabeth Ayola
We have a whole team.
- [24:08]
Courtney Hale
We have a team, and you have to have a team to make sure things are done. The right way. I know we live in a very, like, DIY society now, and there are all of the sites and things that you can utilize, and some of that is really, really helpful, for sure. But having somebody that you can actually ask a question or having an expert that can actually show you a better way to do something is invaluable. We take advantage of that because you don't want to mess these things up. I know better than anybody that tomorrow is not promised. No matter how you feel today, no matter what you look like, what you have, you can have it all going on and nothing bad ever happens, and it can change. And so you have to prepare because your family suffers if you don't do it the right way.
- [24:58]
Elizabeth Ayola
And on that note, I have one more question. I'm going to shoot it to you, Ronnie, which is we're going to daydream a little bit. How will you know when you have achieved generational wealth? What will that look like for you? So we're at the finish line of achieving generational wealth. What does that look like?
- [25:15]
Rani Brown
So I am sitting on my beach front property. Let me visualize this for you. I am drinking a cup, and the cup has lemon and strawberry and watermelons floating around. I look to my left and I see all my friends, fruit trees growing, and my garden is there. There's me and my kids and my mom. And, you know, they are just coming to visit because none of them live with me anymore.
- [25:45]
Elizabeth Ayola
And.
- [25:51]
Rani Brown
I look down at my phone and something tells me to just go on social media. And then I look down and I realize that I cannot even find the app anymore because I'm not even on it. I've deleted myself from it. I've completely just disappeared. And I'm just being present in the moment, and life is good. I'm checking my. My portfolio, and the stock market is making me over six figures every single year. And I'm just being present in the moment.
- [26:24]
Elizabeth Ayola
That sounds like freedom, Ronnie. And I think that's the perfect note to end on. Beautiful. Thank you, Courtney and Ronnie, sharing your stories, your journey, and we wish you all the best. Please. I'm gonna check in in another, I don't know, 10 or 15 years to see if everyone moved out your house.
- [26:46]
Courtney Hale
Check in in five. Check in in five.
- [26:48]
Rani Brown
Check in in 5 years.
- [26:50]
Elizabeth Ayola
Love that, love that, love that. Thank you guys so much for coming on.
- [26:54]
Rani Brown
All right, thank you.
- [26:55]
Courtney Hale
Thank you.
- [26:56]
Elizabeth Ayola
If you're thinking about how to build generational wealth or the best strategies to use to increase your income, we nerds are here to help leave us a voicemail. Or you can send us a text on the at 901-730-6373. That's 901-730-Nerd. Alrighty. Next up, we're going to talk through the difference between bitcoins and stablecoins, and also whether you should be investing in crypto at all. Stay with us.
- [27:27]
Sponsor Voice
Today's episode is sponsored by adt.
- [27:30]
Elizabeth Ayola
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Elizabeth Ayola
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Elizabeth Ayola
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Elizabeth Ayola
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Elizabeth Ayola
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- [28:03]
Sponsor Voice
The following is a paid sponsorship, not an endorsement by NerdWallet's editorial team. Today's episode is sponsored by Bilt.
- [28:10]
Elizabeth Ayola
By now you've probably heard of Bilt, where you can earn points on your monthly rent payment. But did you know that they make it possible for you to get more outside of your home, too?
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Elizabeth Ayola
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Elizabeth Ayola
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- [29:04]
Sponsor Voice
I N B I L T.com smartmoney make sure to use our URL so they know we sent you. We're back. And answering your money questions to help you make smarter financial decisions. This episode's question comes from George, the father in law of Smart Money's marketing strategist Cody Goff. Here it is. What are the distinctions between stablecoins and bitcoins? My understanding is that stablecoins owned through crypto exchanges can offer interest rates of at least 30 double what banks can pay on cash deposits. Is this correct? Again, this comes from George Cody's father in law.
- [29:37]
Elizabeth Ayola
To help us answer Cody's father in law George's question, we are joined by nerd Wallet investing writer Sam Taub. Welcome back to Smart Money.
- [29:45]
Sam Taub
Sam, Great to be back.
- [29:47]
Elizabeth Ayola
Now let's start with some definitions since that's the core to George's question. Sam, can you explain what a stablecoin is? I'm guessing it has nothing to do with horses and also what a cryptocurrency is. Since Bitcoin is just one type of.
- [30:04]
Sam Taub
Cryptocurrency, let's start with cryptocurrency. Cryptocurrency is a type of decentralized digital money. Ordinary money, which crypto people sometimes call fiat money, is issued by governments and they control the supply of money and enforce anti counterfeiting laws. That's why it has value. Cryptocurrency, on the other hand, is created and counterfeit proofed by cryptographic computer algorithms without the need for a central authority like a bank or a government. Now, bitcoin and stablecoins are both types of cryptocurrency. Most cryptocurrencies, including bitcoin, have a market price in dollars that varies over time, and sometimes it swings pretty wildly. Stablecoins, on the other hand, are cryptocurrencies whose value is pegged to a conventional currency, typically the US Dollar. Stablecoins like Circle and Tether, to name a couple of the biggest ones, generally maintain a market price of $1 per coin, sometimes plus or minus a cent or two.
- [31:14]
Elizabeth Ayola
That's definitely a lot cheaper than bitcoin. I mean a dollar.
- [31:19]
Sam Taub
Yes it is.
- [31:19]
Elizabeth Ayola
So is one better or safer than the other?
- [31:22]
Sam Taub
So stablecoins in theory are a better stand in for conventional money than older cryptocurrencies like Bitcoin. People generally want money to have a stable value. If it swings wildly between highs and lows, as Bitcoin so often does, that can actually create a disincentive to spend it. Stablecoins solve this problem by fixing their price to the dollar or another fiat currency variable price. Cryptocurrencies like bitcoin, on the other hand, are more popular as speculative investments. Those wild price swings make them kind of impractical as payment methods, but you can make a lot of money or lose a lot of money trading those price swings.
- [32:08]
Sponsor Voice
We should note that even though stablecoins purport to be stable, this has not always been the case. And is it currently the case though.
- [32:17]
Sam Taub
That's a good note. In the past, certain dollar stablecoins have had scandals that have caused their prices to diverge pretty sharply from $1. These scandals often involve the stablecoin issuer doing something sketchy with their cash reserves that back the stablecoin.
- [32:35]
Sponsor Voice
Well, there has been some regulatory news in the world of crypto and stablecoins. Over the summer, the president signed the Genius act, which creates a licensing and regulatory news framework for stablecoins, among other things. So can you outline how this act changes the crypto landscape and what it means for regular folks who might be interested in dabbling in stablecoins?
- [32:54]
Sam Taub
An important provision of the Genius act for consumers is that it requires stablecoins to be backed one to one by dollars or certain cash equivalent assets like treasury bills. In other words, stablecoin issuers have to have exactly the same amount of money in the bank as they have stablecoins in circulation. This is an important peace of mind thing because as we talked about in the past, some stablecoin issuers have gotten in trouble with regulators and with investors for using the funds that they claim are backing their coins and investing them in risky ways to try to make a profit on the side. If you're going to buy these coins that are supposed to be crypto equivalents to the dollar, you kind of want them to be fully backed by dollars. You don't want them to be just sketchy IOUs. And this new law also imposes new licensing requirements and auditing requirements on stablecoin issuers to make sure that they're reputable financial institutions in good standing and that they're fully compliant with laws against money laundering and sanctions evasion and things like that. This too has been an issue for stablecoins in the past. Tether once again has gotten in trouble before for being implicated in people using their cryptocurrency to do illegal stuff. Now, it's worth mentioning George asked about the yields that some stablecoins pay. Not all stablecoins pay yields, but some of them do. One potential downside of these new regulations is that they could lower some of the yields that you can earn by investing in stablecoins.
- [34:39]
Elizabeth Ayola
Well, Cody's father in law, George, is interested in earning interest on these stablecoins and ngo, also known as not gonna lie. I wasn't familiar with this before during research for this episode, but hey, I learned while doing research that you can in fact earn interest on some stable coins. And these are called yield bearing stablecoins. Now Sam, how exactly does this work and what kind of yield are we talking about here? I mean, a lot of high yield savings accounts can get folks a rate of maybe 3.5% or even 4%. So is a yield bearing stablecoin getting people a much better yield on their money?
- [35:17]
Sam Taub
I'm glad you brought up high yield savings accounts because the way that these yield bearing stablecoins work is conceptually kind of similar. When you put money in a savings account, the bank isn't actually keeping those exact dollars in your account. It lends them out to other customers and it earns interest on those loans and it shares that interest with you. Yield bearing stablecoins do a similar thing when you deposit money on them. They use it to issue crypto based loans or they put it in crypto staking programs or they invest in yield bearing securities like bonds and they share those returns with you. As of today, the yields on some stablecoins are currently a little bit higher than what you can get in a savings account. I don't know about double, but it's a little bit higher. Two of the biggest yield bearing stablecoins s USDE and USDS currently pay APYs of 5% and 4.75% respectively. For comparison, the highest yielding savings accounts in NerdWallet's best high yield Savings Accounts Roundup, which you can find a link to in today's episode Description, currently pay 4.51%. However, both of the stablecoins named above generate yields by investing in somewhat risky things like crypto based loans or by investing in other yield bearing stablecoins, and that might not be permissible under the new GENIUS act rules. Once those are fully implemented, the yields on these things may drift down to the 3.5% to 4% range because that's what treasury bills pay. And under the new rules, treasury bills may be just about the highest yielding thing that stablecoin issuers will be allowed to invest in.
- [37:13]
Sponsor Voice
Well, speaking of risk, there are going to be some risks to having your money in a stablecoin like this. One that comes to mind is liquidity. People might not be able to get out their money as easily as the money they would have in a hild savings account, for example. Can you think of any other risks that folks should be aware of here?
- [37:28]
Sam Taub
Sam Liquidity is definitely a concern, especially if there's some kind of crisis in whatever the stablecoin is invested in. And if a lot of people try to pull their money out at the same time. In a scenario like that, there could also be a risk of not getting the promised yield or even of not getting your money out at all. We talked earlier about how there are some conceptual similarities between yield bearing stablecoins and high yield savings accounts, but one important difference is that stablecoins have a lot less guardrails. The Federal Deposit Insurance Corporation does not cover cryptocurrency, and there's less regulation on cryptocurrency in general than there is on the traditional financial system. Now the new regulatory requirements of the GENIUS act could reduce these risks somewhat, but yield bearing stablecoins are still not going to be as safe as a conventional bank account. There's still going to be no insurance, for example.
- [38:28]
Sponsor Voice
Got it. So we tend to be a pretty risk averse bunch here on the Smart Money podcast. And I'm not about to put my money into one of these cryptocurrencies, but there has to be some use case for putting your money into yield bearing stablecoins could be a good idea. What do you think Sam?
- [38:45]
Sam Taub
Well, more than 5 million US households do not have bank accounts, according to the latest FDIC data, which is from 2023. NerdWallet's chief economist Elizabeth Renter wrote a really great article a couple years back about some of the costs of being unbanked. One thing that actually isn't mentioned in that article is that it's really hard to grow your money if you don't have a bank account. Crypto, for better or worse, is much less paperwork heavy than the conventional financial system is. So there's a possibility that yield bearing stablecoins, especially with the new protections introduced by the GENIUS act, could be a viable alternative to savings accounts for people who can't open a bank account for one reason or another.
- [39:33]
Elizabeth Ayola
Do you have any other thoughts you'd like to leave our listeners with? If they are considering trying to get a yield from their crypto, stablecoins bill.
- [39:41]
Sam Taub
Themselves as crypto equivalents to regular currencies like the dollar. Yield bearing stablecoins bill themselves as higher yielding crypto alternatives to savings accounts, but they get those higher yields by sometimes doing risky stuff with their reserves that savings accounts are not allowed to do. The GENIUS act may crack down on that risky stuff, but in the process it may drive down stablecoin returns to about the same level as what online high yield savings accounts pay. Now, if you're interested in earning passive income from your crypto investments and you're okay with some price volatility, that is you don't care about your crypto staying level to the dollar, crypto staking may also be worth looking into. Staking is a feature of certain cryptocurrencies like Ethereum and Solana, where new coins are created and paid out to holders who lock up their crypto for a certain period of time. I'm not going to get into the details of how crypto staking works here, but if listeners are curious, they can check out our crypto staking article, which I actually just updated with a calculator that shows you how much you can earn with staking and how much you might owe in taxes. You can find a link to that article as well in the description of today's episode.
- [41:04]
Sponsor Voice
So if stablecoins are like the High Yield Savings Account, staking almost sounds like a certificate of deposit. Do you think that's a good analogy?
- [41:11]
Sam Taub
Kind of sorta. You could also maybe compare it to dividends in that there's a little bit more uncertainty as to how much you might make on staking, but there's also the potential to earn more than you would in a traditional kind of interest bearing savings vehicle.
- [41:28]
Sponsor Voice
Yeah, and I think it's good to underline that whenever you are investing or hoping to get a yield from crypto, there's going to be more uncertainty than if you're going with traditional banking products.
- [41:37]
Elizabeth Ayola
Definitely it's not for the risk averse it sounds like.
- [41:40]
Sponsor Voice
Yes. Well Sam, thank you so much for coming on and explaining all this for us today.
- [41:44]
Sam Taub
Of course. Always happy to be here.
- [41:46]
Sponsor Voice
That's all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730 N E R D. You can also email us at podcastnerdwallet.com join.
- [42:02]
Sam Taub
Us next time to hear about how to balance Roth versus traditional contributions and rollovers. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts and iHeartRadio to automatically download new episodes.
- [42:16]
Elizabeth Ayola
And here's our brief disclaimer. We are not your financial or investment advisors. This nerdy information is provided for general educational and entertainment purposes and it might not apply to your specific circumstances.
- [42:27]
Sponsor Voice
This episode was produced by Tess Viglund. Larry Georgie helped with editing, Nick Karisimi Mixer Audio and a big thank you to nurse NerdWallet's editors for all their help.
- [42:35]
Sam Taub
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Courtney Hale
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Sam Taub
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