Thoughts on Financial Education, Retirement, Starbucks Partners

These are ideas I wrote on 2018-01-27 about financial education and retirement accounts for Starbucks partners (employees). I am thinking about starting a financial education corporation or not-for-profit after finishing my Education Ph.D. in August 2019.

Giving financial advice is largely unregulated, but investment advice as basic as “put 50% of your money in VTSMX” is regulated. A firm must be an Registered Investment Adviser (RIA) with one or more Investment Adviser Representatives (IARs) to proffer such advice. Becoming an IAR requires passing the FINRA Series 65 exam for $175, and an RIA can have just one IAR. The RIA must be registered with FINRA and the U.S. states it does business in (or, for huge firms RIAs, with the SEC), which costs several hundred dollars more. For instance, LearnVest, Inc. has a subsidiary called LearnVest Planning Services LLC that is an RIA. Becoming a Certified Financial Planner (CFP) or other achievement is not required. The Series 65 exam can be studied for in a week or less and only 72% is required to pass. It is offered at Prometric testing centers. LearnVest, and my venture, would share the characteristic of just advising clients on what to do with their money, but not managing their money. We would both have zero assets under management (AUM) meaning we just advise on what type of accounts to open, what companies to use (e.g., Vanguard), and what moves to make. These “moves” would largely be related to general financial planning and tax avoidance, but not timing the market or picking sectors or individual stocks.

In particular, the mobile apps available for learning about personal finance are shockingly pathetic. Most focus on particular areas (e.g., You Need a Budget, Mint, Personal Capital) rather than being comprehensive. LearnVest’s mobile app is particularly egregious, being available only for iOS and not having been updated for four years.

An example: A Starbucks employee should probably have a Fidelity Roth IRA (“Partner Roast“) contributing at least 5% of each paycheck for the 100% “safe harbor” employer match on up to 5% contributed, but then additionally should have a Vanguard Roth IRA to contribute more money each year. If they can only muster $1000, they can use the STAR fund (VGTSX, $1000 min), or more preferably the total stock market index fund (VTSMX) if they have $3000 to spare (note: Vanguard ETFs may be an option for smaller balances). The additional Roth IRA is needed because a Starbucks employee who makes $25,000 per year would only be contributing $2500 to their Roth IRA even with the partner match, while the max per year to contribute to Roth IRAs is $5500. While the partner could contribute more than 5% of income, it can be difficult to predict one’s future financial situation or exact income at the start of the year. If a Starbucks partner starts out contributing 15% of income + 5% match but then has to reduce to zero later in the year, they lose out on the safe harbor match for the duration of pay periods where they reduced their contribution to zero. However, like most employer-sponsored retirement savings plans, the Starbucks–Fidelity offering does not allow Starbucks partners to contribute from their checking account! They can only contribute from payroll by setting the percentage in advance. However, it is perfectly lawful to have two Roth IRA accounts as long as the combined contributions don’t exceed $5500 for the year (or $6500 if Age 50+). Further, Americans can contribute for the prior year up to the tax deadline (e.g., until 2018-04-17 for Year 2017). I speculate that 95%+ Starbucks partners don’t know this. Further, the majority probably don’t even have a 3-month emergency fund. Finally, Starbucks offers many benefits, but not a financial wellness program.

One thought on “Thoughts on Financial Education, Retirement, Starbucks Partners

  1. Pingback: Tax-Exempt Retirement Contributions and the Bucket Analogy | Richard Thripp's Website

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