Podcast Summary: "Unpacking Two Big Ideas: Infinite Banking and Saving For Young Children"

The Stacking Benjamins Show | Episode SB1729 | September 1, 2025

Overview

This fun and insightful Labor Day episode of The Stacking Benjamins Show centers on two hot personal finance topics:

1. The reality and risks of "infinite banking"/"velocity banking" strategies using permanent life insurance (Guest: Tony Stewart, chartered life insurance expert)
2. Creative, practical approaches for saving for young children and grandchildren (Guest: Chuck Jaffe, Money Life host and financial journalist)

True to the show's signature basement-table humor and relatability, hosts Joe Saul-Sehy and OG break down complex money concepts, share stories and advice, and bring in experts to tackle listener questions. The episode balances warnings against dubious insurance-based strategies with actionable tips for building generational wealth.

Segment 1: Infinite Banking & Permanent Life Insurance – Debunked

Guest: Tony Stewart, CLU, life insurance expert
[07:36 – 35:46]

Permanent Life Insurance: What Is It Actually Good For?

• Tony Stewart: Permanent life insurance is frequently misunderstood—it's drifted far from its intended purpose: risk protection. Most people only need it in select situations (e.g., special-needs children, estate planning, permanent dependent support).

  • Quote:

    "Permanent life insurance is probably one of the most misunderstood and complex financial products out there...when you look at other coverage like, let's say, auto insurance, you're perfectly happy at the end of the year if you don't have an auto accident. You don't expect any cash back. But with life insurance, people are like, hey, I want cash back, but there's no real reason for it beyond good marketing." – Tony Stewart [07:55]

• As assets grow, insurance needs decrease (the "glide path"). Most people can outgrow their need for permanent life insurance as financial independence increases:

  "...as your other assets grow, you don't have the need for life insurance or you have a reduced need for life insurance." – Tony Stewart [10:08]

What is Infinite Banking / Velocity Banking?

• Definition:
  It's the pitch that you can use a permanent life insurance policy as your own private "bank"—borrowing against your cash value to pay off debt or fund investments, supposedly at an advantage.

• Pitch: "Be your own banker," "Banking on yourself," "Infinite banking," "Missing Money"—all similar schemes.

• Reality Check:

  • Borrowing against your own policy isn't "free"—insurance companies charge 7–8% (or more) in interest when you take a policy loan.
    • Quote:

      "...if you were going to borrow money from yourself...would you charge yourself interest? ...Guess what? If you take money out of your life insurance policy, the insurance company is going to charge you interest on that loan." – Tony Stewart [12:25]

  • "Credit back" schemes are smoke and mirrors; insurers never lose the math.
    • Quote:

      "There's no free lunch; the insurance companies are taking the money out somewhere...if you went up to a guy on the street and he said, 'Hey Joe, you can borrow money from me, I'm going to charge you 8%, but then I'll credit it back,' would you take that deal?" – Tony Stewart [13:23]

How Policy Loans Really Work

• Your policy’s cash value is a reserve, not a true bank account.

• Taking cash out decreases the amount "at risk" for the insurer, which undermines the whole "glide path" designed to keep insurance affordable over time.

• Early withdrawals hit with massive surrender charges—you essentially can’t get at your own money for 15+ years without heavy penalties.

  • Quote:

    "It takes a long time for that cash value to equal the sum of premiums paid...it's going to be 15 to 20 to 30 years, depending on how much cash you're putting into the policy before your cash value even equals the sum of premiums that you've paid." – Tony Stewart [21:09]

• Policies are loaded with fees (administrative, mortality costs) siphoning off value and increasing the risk your policy will lapse.

• “Paid up” policies aren’t really “paid off”—if you stop paying, the policy may gradually eat up the cash value until it collapses.

Real-Life Example: The 24-Year-Old Trap

• Tony describes a young woman (24, no dependents, not maxing her retirement) sold a $1M policy with $500 monthly premiums—locking her into years of bad returns, high charges, and no access to cash.
  • Quote:

    "She had a surrender charge of 16 years...cash value wasn't going to equal the premiums until about year 18...there's no way, unfortunately, to get your money back from it." – Tony Stewart [26:06]

• Policies like these often lapse in the first 5 years, with the insurer keeping the bulk of payments via surrender charges.

Why These Schemes Persist

• Insurance companies and agents make huge commissions ("the house always wins" analogy).

  • Quote (humorous, framing):

    "...it's called velocity banking because the commission check hits the agent's bank account so fast...infinite banking because it makes the insurance agent an infinite amount of money..." – Joe Saul-Sehy [36:11]

• Regulatory oversight is limited; sales tactics (including “buy while you’re young” and “lock in insurability”) exploit consumer fears and confusion.

Indexed Universal Life Warnings

• Equity Index Universal Life (EIUL) policies—often used for infinite banking—are pegged as "the worst insurance product ever invented."
  • Caps on upside (usually 10-12%), arbitrary participation rates, downside protection... but steep fees and returns vastly under Index funds.
  • Quote:

    "If you're invested in the S&P 500, returns 20% in a year, you get 10%... participation rate [can drop to 80%], so you're only getting 8%..." – Tony Stewart [31:28]

Policies for Children

• Only makes sense if a child is genuinely a breadwinner (rare: child actor, etc.). For normal families, insurance on kids is more about parental peace of mind than financial sense.

  "Are you financially dependent on your 5-year-old? Probably not." – Tony Stewart [32:43]

Bottom Line: Keep Insurance AND Investing Simple

• Permanent life insurance is for specific edge cases—NOT for self-banking or as a primary investment vehicle.
• For most, term insurance plus investing in standard accounts is superior in cost, transparency, and returns.

Segment 2: Saving for Children and Grandkids – Building Financial Habits & Wealth

Guest: Chuck Jaffe, host of Money Life, financial journalist
[43:55 – 65:04]

Chuck’s Personal Story – Stocks Over Savings Bonds

• Chuck’s brother was gifted AT&T stock as a baby; it turned into enough for a house down payment thanks to decades of DRIPs and splits.

• Chuck repeated the model for his own children—even before low commissions existed, buying small amounts of high-profile stocks (companies kids recognize) at birth.

  • Quote:

    "My kids had stock portfolios from the day they were born...Amazingly, because you tell a kid they come into a bunch of money when they're 21...they didn't go off and blow it." – Chuck Jaffe [46:04]

TEACH Kids With Real Companies

• Kids stay engaged if they "own" brands they know (McDonald’s, Coca-Cola, etc.)
  • Example: Chuck's daughter learns a lesson about risk/reward after losing her position in Noodle Cadoodle when the company went bankrupt, and later on managing a windfall from Under Armour stock.
    • Quote:

      "'...take some of that money off the table.' She says, ‘No, don't want to.’ Noodle Cadoodle goes bankrupt. Later, when Under Armour soars, 'remember Noodle Cadoodle?'—'Yeah, let's take some off the table.' [They] get it. They learned that lesson early." – Chuck Jaffe [51:22]

2025: Creativity With Early Saving – "The Trump Account" and Child Roth IRAs

• New federal accounts for newborns ("Trump account" = $1,000 per child) are now a thing, but grandparents/parents can go further:

  • Chuck plans to pay his grandchild $2,000 for "voiceover work" (for use on his podcast—real work, real payment), issues a 1099, and funds a Roth IRA for the baby.
    • Quote:

      "My dog's sounders are paid in treats. My baby's gonna get $2,000 in cash...issue a 1099, put that money into a Roth IRA. That's how you're going to do it." – Chuck Jaffe [53:30]

• You do need legitimate income—get creative, but be honest with IRS guidelines.

Investment Choices: Stocks vs. Index Funds?

• For “fun” and learning: individual stocks in a custodial account.
• For long-term, set-it-and-forget-it growth: broad market index funds inside a Roth IRA (once reportable income allows).

Ownership, Beneficiaries, and Family Involvement

• Custodial accounts can be set up by parents or grandparents.
• UTMAs may impact student aid, but realistically, for most families the impact is small—better to have money than not.
• Chuck checks with the parents on how they'd like assets held and is flexible about transferring management as kids grow.

Financial Lessons for Life

• Early participants in their own investing journey tend to treat windfalls prudently.
• It’s not about perfection—it's about building behaviors and money awareness, across generations.

Segment 3: Rapid-Fire Co-Host Reflections and Takeaways

[65:04 – end]

OG & Joe on Saving for Kids

• You don’t need to be rich to start saving; automatic, small contributions to a 529 or custodial account add up.

  • Quote:

    "We put 50 bucks most of the time on, but on occasion off just on auto...by the time they went to college, it was a year's worth of school." – OG [65:48]

• Key advice:

  • Involve kids early, show them the difference between saving in a bank vs. investing for growth.
  • The "right" way to save for kids’ futures depends on your personality and your family's needs—don't let the perfect be the enemy of the good.
  • A little done consistently beats doing nothing at all.
    • Quote:

      "...do something that is moving you in that direction because it's easy to build on top of it when you've got those habits established..." – OG [65:48]

General Theme:

• Whether saving for yourself, your kids, or grandkids, the winning combo is:
  Start early. Keep it simple. And teach as you go.

Notable Quotes & Moments

• On infinite banking:

  "It's a solution in search of a problem...If you need life insurance, you should have life insurance. If you have debt and you need to pay off your debt, you should pay off your debt...it doesn't make sense to pile those two things together." – OG [36:44]

• On child life insurance:

  "If you buy a $20,000 policy on your kid and it gives you peace of mind, that's fine...But when we get into these other things, yeah, that's going to hurt your overall financial picture." – Tony Stewart [34:23]

• Practical wisdom:

  "Ready is a decision, not a feeling...you’re never going to feel ready." – Doug quoting his dad [42:07]

Timestamps for Key Segments

• 07:36 – Tony Stewart segment begins: Breaking down permanent life insurance, infinite/velocity banking
• 12:25 – Why policies loans are not “borrowing from yourself”
• 21:09 – How surrender charges destroy early value
• 26:06 – The real-life example: Young person sold an inappropriate policy
• 31:28 – Dangers of Equity Index Universal Life
• 32:43 – Why insurance on kids rarely makes sense
• 43:55 – Chuck Jaffe segment begins: Building generational wealth, teaching kids about money via stocks
• 46:04 – The power of childhood investing and learning
• 51:22 – How kids learn about risk/reward through their own stock portfolios
• 53:30 – Creative use of the child Roth IRA (paying for real work, documented income)
• 65:04 – Host reflections on kid savings accounts
• 68:00 – Advocating for practice over perfection, and making money lessons a family affair

Conclusion: Key Takeaways

• Avoid infinite banking and velocity banking schemes via life insurance. For nearly all, term insurance plus regular investing is simpler, safer, and more profitable.
• Teach money values early—even small amounts, invested regularly, grow with time and parent/child engagement.
• Creativity and intention matter: There are many right ways to set your children's wealth in motion—choose one and get started.
• Don’t let complex schemes or perfectionism stall you. Simplicity and early action are your best friends.

More from the episode:

• Tony Stewart: "Get Ready Money" podcast (YouTube, Apple, Spotify)
• Chuck Jaffe: "Money Life with Chuck Jaffe" – daily personal finance show

[Episode ends at ~77:22 with friendly banter and outtakes.]