The Weekly Commentary - 06/21/2021

Billionaires Build Wealth While the Personal Finances of Americans Stall

Many of us spend our careers trying to improve our personal finances and personal wealth through saving our cash in the best savings accounts we can find. Some of us may even invest a little to grow our money. However, one thing that stops us being able to save as much as we would like, or invest even more, is that a lot of our paychecks are eaten into by tax.

Tax is meant to be a good thing for wider society. It pays for a great deal of infrastructure that many of us enjoy on a day-to-day basis. And, the idea behind it is benevolent. Those that can afford to give more, should. While those that earn less, do not have to give as big a percentage of their salaries. However, a recent report by ProPublica has shown that the ultra wealthy barely pay tax at all.

The report used leaked IRS data to see how much tax the likes of Jeff Bezos and Warren Buffett pay. It highlighted that some of the top 25 richest Americans pay hardly any income tax as so much of their wealth is caught up in their companies‘ stock price. As a result, the unrealized gains remain untaxed. However, they are able to borrow huge amounts of money on the back of those gains and grow their companies even further.

Bitcoin Price Bounces after Tesla Reaccepts the Cryptocurrency as a Type of Payment

Not a week goes by without Bitcoin being in the news for one thing for another. The price volatility on a week-by-week basis can be eye-watering – especially for those investing in the currency as a way to bolster their personal finances.

This week has been no exception.

Bitcoin’s price rebounded after a temporary fall as Elon Musk, Tesla’s contentious CEO, announced via Twitter that the electric car company would resume taking Bitcoin as a form of payment. The cryptocurrency is now trading around $40,000 which seems to be a price where it meets a little resistance. It rose back to $40,000 having grown by 10% on the back of Elon Musk’s tweet.

The reason that Tesla had stopped taking payments of Bitcoin was because it had been found to be run in an unsustainable way. Given that one of Tesla’s main motivations is to help create cars to reduce carbon emissions, supporting a company that produces them hand over fist meant that Musk acted quickly in removing it from Tesla’s payment options.

Now, while working with Musk and Tesla, Bitcoin has started to address the concerns created by the un-environmentally friendly practices.

Black Americans Found to Suffer Inequality With Life Insurance Policies

A recent investigation found that Black Americans have had too little life insurance for decades now. Life insurance is one of those things that many of us are not sure we need. However, once we take out a mortgage or have children, we should consider it. Given those are issues that apply to a large proportion of the US population – regardless of race – it makes for uneasy reading to see that those surveyed in the investigation who were black tend to have a lot less coverage.

For example, the average death benefit for White people with life insurance was $150,000. However, the average death benefit for Black people was 33% of that at $50,000. Some may point to the disparity and inequality of earnings between races as a reason for the huge differential in cover. However, in this survey, Black people only made an average of $5,000 less than their white counterparts.

Interestingly however, those in the industry claim that it is not affordability that has provoked this disparity in life insurance cover. Instead, they believe it to be about mindset. Ebony Ruffin, whose life insurance company specializes in helping Black families, claims that as previous generations took out low life insurance coverage, current generations follow suit.

Ruffin goes on to say, understandably, that as more and more Black people are starting to earn more and earnings inequality narrows, the divergence in life insurance needs to stop.

Using 529 College Savings Plans as a Way to Transfer Wealth

Some of us may be at the lucky stage in our life, where our personal finances are looking pretty healthy. And, in fact, we are looking to try to minimize any estate bills when we die. Doing so means that we can pass on as much as possible to our children. An article this week has highlighted how a 529 college savings plan can be a good vehicle to help shield an estate from tax.

While there are no federal deductions on contributions – meaning your payments into a 529 account will be taken from your post-tax pay – there are still some tax efficiencies that can help. The money in those accounts – used for education expenses at college or a vocational school – can be invested and any growth is tax-free. Some plans even enjoy tax breaks at a state level. Plans can be changed to a different beneficiary of the same generation if needed.

If the plan is not used at all, or too much is saved, there may be some penalty payments due. Income tax and a 10% penalty are charged, but the money invested will still have grown at a tax deferred rate for a number of years. The benefits can sometimes, therefore, outweigh the risk. Speaking with a professional advisor will help anyone in this position calculate whether this is a good method of estate planning. However, it is definitely something that a lot of people will benefit from even just by considering it.