Welcome to Childfree Wealth Podcast, where we talk about financial planning for those who have chosen to live a childfree life. In this episode, we're discussing the recent Silicon Valley Bank bank run and what it means for your finances. Our hosts, Bri Conn and Dr. Jay Zigmont, CFP®, will be sharing their insights and tips on how to protect your wealth in uncertain times.
The Silicon Valley Bank bank run was a wake-up call for many individuals, as they saw how quickly things can go wrong in the financial world. In this episode, we'll be discussing what happened and why it matters. Our hosts will also be sharing their thoughts on how to navigate uncertain times and keep your finances safe.
We'll also be talking about the importance of keeping cash on hand, even in a world where digital payments are becoming increasingly common. Our hosts will be sharing their tips on how much cash to keep on hand and where to store it to protect your finances.
Finally, we'll be discussing the importance of the internet in banking transactions, including online transfers and Venmo. While digital payments are convenient, they also come with risks, especially in times of internet outages. Our hosts will be sharing their tips on how to protect your finances when the internet goes down and how to stay vigilant against fraud.
So whether you're childfree and looking to protect your wealth, or just interested in financial planning in uncertain times, this episode is for you. Tune in now to hear Bri Conn and Dr. Jay Zigmont, CFP®, discuss the recent Silicon Valley Bank bank run and share their tips on how to keep your finances safe.
Be sure to join the conversation by emailing us at firstname.lastname@example.org, following Childfree Wealth on social media, or visiting our website www.childfreewealth.com!
Disclaimer: This podcast is for educational & entertainment purposes. Please consult your advisor before implementing any ideas heard on this podcast.
00:00:00:12 - Bri
Hi. You're listening to the Childfree Wealth podcast we’re your hosts, Bri and Dr. Jay Certified Financial Planner. Here we discuss life and finances as it relates to being childfree. This podcast is for educational entertainment purposes only. Please consult your advisor before implementing any ideas heard on this podcast.
Hey guys, we're back. I'm here with Dr. Jay and we’re talking about Silicon Valley Bank and protecting your money today.
So, Dr. Jay. With the recent news of the Silicon Valley Bank going under, what can you tell us about that?
00:00:38:19 - Dr. Jay
Oh, this is this is a fun one. I think we're going to learn more as we get a year or two away from it. But it's what was called a bank run, which is really simple. If you go to the bank right now and you try to take out all your money and you ask for too much, they don't have it.
One of my colleagues went to the bank the other day and this one was in front of them. She's a printer eighties and she had heard about these bank runs, said, “Hey, I want to pull out my $250,000 from the bank.” And the bank goes, “No, I don't have it.” And of course, she then was like, “This is in my account. Give it to me.”
But the reality check is they probably may have 25 grand in cash or something like that. They don't have a quarter million dollars in cash. And by the way, what was she going to do, put in the mattress? I mean, what would you do with a quarter million dollars in cash, Bri?
00:01:30:05 - Bri
You know, I really don't know. I would not feel safe having that in my house or on my person. But when you say they don't have it, where is that money then?
00:01:38:17 - Dr. Jay
So they've actually lent it out to people and the way that the system works is they can actually lend more money than they bring in. That's a separate discussion. We can do economics and things, but they in the Silicon Valley banking example, they have bought a whole bunch of bonds and mortgage backed securities that had a ten year duration.
But what happened was that works great as long as nobody wants their money in the ten years because they're making money on it and they just have it on the banks, it becomes ask for it. They actually had to sell bonds at a loss and then that loss then gets hurt and it keeps like snowballing the point where they don’t have it. Then the banks themselves, you know, they may have liquidity issues.
This is like a fancy way of saying they just don't have the cash. Like, seriously, if you go to the vault of like, hey, is there piles of cash or like the Scrooge McDuck vault of gold coins? There isn’t. There's zeros and ones on a bank account somewhere. And with SBB, it was kind of interesting as we pull pulling apart, they had enough money around.
They were actually pretty well capitalized, but they didn't have it in the bank or then suddenly they can get to and this is kind of what is weird things you put money in, you think like they put it in Bri's account and leave it there. But no, they took Bri's amount and gave it to someone else for a mortgage.
Which is what a bank supposed to do. But then when you go after your money, you're actually gonna take money from someone else who just deposited something, and it keeps moving. And I don't know. I mean, you said you don't trust. You don't trust having a quarter million dollars of cash in your mattress. Do you trust having it in the bank?
00:03:17:04 - Bri
Yeah, I would. I’ve been conditioned to say that banks are safe if they have FDIC backing.
00:03:28:03 - Dr. Jay
Well, but now there are a whole bunch of people with millions of dollars in this bank and couldn't get it.
00:03:36:02 - Bri
Yeah, it definitely brings a different perspective and makes person think again on it.
00:03:44:00 - Dr. Jay
So let's try this. FDIC. All right. So FDIC is insurance that covers $250,000 per person, per let's call it per bank. There's some small things that you get different accounts, but it's called per bank. So you and your wife could insure up to half million dollars. Once it gets over that half million dollars, there is no insurance now. Right now, the US government has said, yeah, we're going to cover the rest of it.
They go, well, why would I have a more and a half million dollars in cash in the bank and for individuals? I'm going, I don't know. You shouldn't you probably should invest that money or do things. But like, let's say you sold a house and the house was worth a bunch of money and the money's in there while you're buying next house.
The federal government said, “Hey, I'll cover you,” but they don't have to. They could have just said, Yep, everybody over half a million dollars need to wait until the bank is sold. You getting freaked out yet?
00:04:39:15 - Bri
Yeah, a little bit. But I don't have more than half a million dollars lying around, so that makes me more comfortable right now. But yeah a little bit.
00:04:52:01 - Dr. Jay
By the way, it's okay to be a little freaked out if you have more than as an individual $250,000 or as a couple half million, you spread that across different banks. Let's be real that there's some services when I use it and I get nothing for the referral, I just like them is Max My Interest. They charge you a little fee, but they actually will move to you the highest high yield savings account, but also stay on the FDIC limit.
That's a good thing that way. Yeah. You know, you're going to get your money back eventually. One of the issues with SVB was that a lot of people were like, yeah, I need to make payroll on Friday and I need $1,000,000 payroll and I don't have it. Which then becomes this next big nightmare of like, oh, my employer can't pay me.
Sounds weird, right? I work for a health system and years ago they had some financial issues and the staff used to actually… This is back when we were getting paper checks. And I know like you've never seen that Bri as, you know, paper checks have never existed in your lifetime.
00:05:53:10 - Bri
I write paper checks to myself every month.
00:05:56:13 - Dr. Jay
Yeah the ones you write. But you know, you haven’t seen an employer, you have a paper check but used to be they take the paper checks down to the bank and be the first one to deposit it because when it gets to the end of the payroll, they may not have enough money for everybody. Now, I mean, that's not today, but it's a lesson to learn, you know, and our grandparents literally used to keep money in the mattress because bank runs and run out of money.
And what do I do? I mean, I don't know what the hard part of this is. You don't want to freak out, but you want to be smart about it. What do you think, Bri?
00:06:34:12 - Bri
I guess one question I have is all of the money that people have, is there actually that amount of money like printed off somewhere and stored or is it just kind of an accounting number almost? And it's just written as we have that much amount of money, but it's never been printed off.
00:06:54:14 - Dr. Jay
Oh, we can have a whole different debate on, you know, what actually backs the dollar and do we actually have dollars on hand and currency and it all. Yeah, we'll lose listeners immediately when you start going down that road. But the reality check is it's zeros and ones, you know, it is just computer code that says you have money now, but the code is backed up and all that in the papers backs up the code and but yeah, it's a little rough.
I also think the other thing that people are out with banking is what happens if the internet's down. I know it sounds weird concept, but it's happened before or what happens, it's like you can't use your credit card or your debit card or whatever.
Yeah, I was there at our old house. We were in Connecticut. We had a pretty rough winter storm and we were out of power for almost two weeks. But we had a generator and all that. Go to the gas station, though. The credit card machine doesn't work.
00:07:48:03 - Dr. Jay
How much cash do you keep around, Bri?
00:07:50:11 - Bri
Not much. Not much. Yeah, I think I have like a 20 because my mom sent it to me for a birthday.
00:07:57:18 - Dr. Jay
Yeah, my rolled. My wife is. We each have to have a hundred bucks on cash at all times y cause that's enough to get you out of most jams if your car doesn't work. In actuality, people ask me about emergency funds if you won't spend it, I encourage you to leave $1,000 in cash somewhere secure. Now, mind you, there's a risk that they will steal it or a house was on fire.
But you know what? We've got to take one risk with the other. But the tree falls in my house. I'm much more likely to get somebody come out here and cut it up and make my house secure. If I have cash on hand, then trying to get them to take credit card.
00:08:33:11 - Bri
00:08:35:01 - Dr. Jay
You know, but we're so used to like, well, let me venmo you if I have no Internet.
00:08:40:01 - Bri
That's going to be my question. But yeah, I guess if you don't have Internet and can't get cell service or anything, then what are people going to do. Yeah, great point. Okay.
00:08:50:06 - Dr. Jay
For everybody listening, if you missed the intro, part of the fun of this is we are in two different generations. So you you're technically a millennial, Bri?
00:08:58:19 - Bri
I was born in 97, so I'm a Gen Z-er.
00:09:03:21 - Dr. Jay
Wow. So we're actually three generations apart. I'm Gen X, you're Gen Z. And I'll tell you, I don't love the generational tags, but 20 years of difference is a different perspective. You know, I told Bri about emergencies she’s like, well, I just Venmo you and I'm like, yeah, but what if you on Internet and she's like, oh, like literally I was born when there was no Internet.
Like, I know, you know, you've always had it, but it's, it's the hard part. And when it comes to banking, we're just used it all being there.
00:09:37:21 - Bri
That's very true. Yeah. It's just typically there and easy. I mean, I log in on my phone, I check things, I move things around, I deposit checks on my phone and yeah, I've been on the Internet. That's hard.
00:09:52:15 - Dr. Jay
So last week we had umm… so I'm in Mississippi, we had some tornadoes come through and actually had an Internet outage. I have fiber, the gigabit fiber to my house. I'm the middle of nowhere. But someone had taken down the fiber. We were out for a day and a half. Like I started having like the shakes and withdrawals from none of the Internet.
I mean, you can't stream anything because I don't have any cable TV. Like, I stream everything. I had to cancel client meetings. I couldn't even use my phone because I'm in the middle of nowhere. We have no cell phone service. I'm like outside holding my phone up and like trying to find a bar just to email people. We don't we think about these things and it's all our finances are there.
00:10:34:01 - Bri
00:10:34:22 - Dr. Jay
That freak you out yet Bri?
00:10:37:20 - Bri
It does. But also in the same sense, you know, growing up, my grandparents on the farm and on my brother on the farm, I remember when we when, you know, in order to make a phone call with your cell phone, you had to go stand outside in the middle of the road, just like one right specific spot in order to make that phone call.
And even now, there's lots of there. You can't get any sort of connected. But when you say, you know, does it freak you out with your money? Oh, yeah, now it does. So I'm someone who I like to have access to my money.
00:11:09:03 - Dr. Jay
All right, now that I freak you out, let me work your way back. So a couple of things. One, you got to have some cash hanging around because just stuff happens. One of my colleagues when she was that she was raising her kids, she gave them $100 bill in their wallet and said, if you ever get in an emergency, you have this.
You don't have to ask questions. I'll replace it. You're like in the cab, whatever. Now, by the way, it was like, well, now I can Uber if you have internet, like if you see a recurring theme, it's all about technology. So we need to have a backup of technologies. From a banking standpoint, technology was actually what brought down SVB.
It looks like what we've seen is Peter Thiel and a few others said that everybody else was in venture capital world. I think there's a problem at SVB pull your money out and then overnight, billions gone. It was a Twitter bank run essentially.
00:12:03:16 - Bri
Oh, good old Twitter.
00:12:06:05 - Dr. Jay
By the way, the old school was literally there'd be a line outside the bank and then one person would say, oh, they ran out of money. And next thing you know, the line is triple, and that was the bank run. So now we've brought it to the Internet and done an Internet bank run. So we want to make sure everything is under the FDIC limits.
I don't care if it's over by five bucks, whatever. You'll just put that at risk. That means using multiple accounts. Also, if you've got more than the FDIC limit for cash, you probably should be investing it. You know, just just rolling that out. Now, your investments are not guaranteed because they'll go up or down as the market goes up or down.
But, you know, you want to be making some money on it. Right now, high yield savings accounts are doing very well. We're in 2023. That's not a bad place, but I can split it across accounts. People say, well, can I use online banks? Sure. As long as the FDIC, you know. So I've been banking with Ally forever.
Back when Internet banks were a weird idea, they've been giving me a higher fee, higher interest than my local bank. Cool. They're FDIC. I don't need them to have a brick and mortar building to go to. That works fine also. So as you were talking about, everything's online, need some type of password manager. So you have like real passwords, not like Post-it notes like my wife does for all of her passwords.
And you need to, you know, have some security around that. Two factor authentication, the reality check of like, is my bank going to go under? Maybe, but your deposit should be okay. You just may have a delay of a week or two. Get to it. So, Bri, would you be okay if you had no access to your money for two weeks?
00:13:58:04 - Bri
It would be a lot of calling to different places, like all of my re-occurring utilities saying, hey, you know, this is what's happening. And I did have that actually at one point in college, my was when I only use debit card for anything and somebody hacked into my bank account. And so for a couple weeks, I had to call and say, Hey, I'm sorry, I can't pay this right now.
I have to wait because this is what happened and they were fine with it and everything got paid. When I got my money back.
00:14:25:17 - Dr. Jay
Yeah, most people can make it work. I like to have two different bank account banks for that reason, not necessarily the bank's going to go under, but because the technology and financial technology sucks and it's just like you might go to log in like, Oh no, we're down for maintenance. And you're like, Yeah, but I need my money.
And they're like, No. So at least at that bank, a bank account. Also, when it comes to investing, keep in mind your your cash may be protected under FDIC dependent place, but your brokerage is not protected under FDIC. There's actually something different called SIPC, which is a different insurance for securities. The way this works is that it protects up to half a million dollars.
$250,000 of that can be cash. Up to, no more. It protects it in case fraud, this sort of like the Bernie Madoff type things. By the way, if you haven't seen it yet, check out the Madoff documentary on Netflix. It was really interesting to see. We’re talking about real fraud. That's a that protects. The bonuses of a brokerage is they're actually what's called a custodian there just holding your stock and they're required to have it separate.
So it's not like the bank where they take your money and give it to someone else. They're required to hold it separate. Now we can have some separate discussions on direct registration, a few things that might help you there, but just understand it's held separate. So if you have your money in Vanguard or Fidelity or whatever and they go out of business, well, first thing is, if like Vanguard goes up as the second largest holder in the U.S., we're all going to have issues.
But your securities are still okay you're what have you invested in. Keep might SIPC does not protect against like oh what happens if you know the company goes out of business like that I have invested in? Nope you put all your money in Tesla and all goes away. That's on you overall goes up that's on you do insurance doesn't protect what's that that's.
00:16:26:18 - Bri
That’s a business risk that you take.
00:16:29:03 - Dr. Jay
Yeah that's the investment risk you're taking on. But you're still protected. You know, you can't have like a I have to figure out on my case. Can't say never. But let's say there's not a highway, an easy way to have a bank run on a brokerage because the money's separate. The other thing you'll find is a lot of brokerages have a additional insurance that covers your assets up to, you know, millions of dollars as you go through it.
So so it's a little less risky. I think the reality check is you need to have a plan and understand what risk you are taking. And while banks yeah you're great and we haven't seen too many bank closures knock on wood we've seen a bunch in the past couple of months like, you know, that, you know, it's been one of those things where there can be a contagion between banks where people are taking their money from the smaller banks and go to the middle sized banks and then the smaller banks get run out of money and then the metals have to go.
It just it's a bit of fear and freak out. So I use that example of the woman who was trying to take out $250,000. You know, she's going back to everybody in her community and saying, the bank doesn't have my money. What the bank really meant is they have to order a bank drop off. And by the way, if you see something funny, they order that.
Don't tell you when it's coming. It comes in the armored car, the whole works, and then they hand this woman here, here's $250,000. Good luck getting in your car like you. We had armored service come in, but they can get it. They didn't have it at that moment.
00:18:06:10 - Bri
00:18:07:04 - Dr. Jay
And that. But then people freak out. Well if they didn't have her money, do they have my money? And this is where bank run starts happening. We just start going through it. I just I don't know. I think the reality check for everybody is your money's probably safe. Don't go over the limits, but have a backup plan to bring.
Are you going to take some money out of the ATM and leave some cash right now?
00:18:30:12 - Bri
I might now. Yeah, I might be doing that now.
00:18:33:20 - Dr. Jay
I mean, your wife's a pilot is a great example. She could end up all over the U.S. and a little cash probably is a good place for her to have.
00:18:42:22 - Bri
She does keep cash on hand when she goes. She always goes and usually gets like $100 in ones, which sounds weird.
00:18:51:10 - Dr. Jay
Is she going to the strip club? I mean, you know, I'm just going to call out the $100 in ones.
00:18:57:06 - Bri
She jokingly calls it her stripper money, but she takes it so she can tip van drivers and all the drivers and all that.
00:19:04:02 - Dr. Jay
So yeah, a little cash is a good thing to have. I mean, you know, I have to keep a lot of it. The other one, by the way, on cash is if you ever need emergencies, you can usually get discounts by paying by cash. You want to get a contract at your house? Tell them you're paying cash. And they'll not only discount you, but they'll be there in 20 minutes.
It's kind of how it works. But I don't want I keep $250,000 in my mattress.
Now, by the way, I will call it out because you may have a parent or grandparent who's literally keeping the cash in the mattress. I'm not going to call any family members. But, you know, let's just say I know some people. And the challenge is, A) knowing where it is? B) What happens if they don't, you know, they can't tell you and then how much is it?
And it's also not keeping up with inflation. One of my neighbors had a great example. This his father, who is, you know, from the Depression, you know, so we're kind of working ages, always kept gold coins around in case things happen. So there was a there was a little coffee can the gold coins, everybody knew it existed.
And Dad said, hey, if there's ever a rainy day, I've got these gold coins. Dad passes. And he never told anyone where the coins were. They ripped up the entire house, the yard, everything, because it's probably buried out by a tree or something. Yeah. Never found it there. They guess about a quarter million dollars in gold coins is missing.
And that's the challenge of keeping cash on it. So at least know where it is, you know, share with others. But you need to have some mix, you know, like we don't want have all the money in our mattress. We don't want it all in the bank. We don't want all of it in the market. We've got to find that balance.
00:20:50:11 - Bri
That's it. That's a really good point about knowing where it is, I think, too, is sometimes it can be hard to have those discussions with parents and I know that I am with my parents. I'm very much like, no, I need to know these things because what if something happens? Then I'm going to be the one who's in charge of this and trying to figure things out.
00:21:09:12 - Dr. Jay
And they tell you, oh, we'll tell you when it's time. And then they have a stroke and they're like, I can't tell you.
00:21:14:09 - Bri
00:21:15:18 - Dr. Jay
Or dementia, Alzheimer's. That happened to me. The example with my neighbor was dementia and I was like, nope, not much we can do.
00:21:22:15 - Bri
Yeah you never know.
00:21:24:22 - Dr. Jay
My point is that a put all your money in the bank. Just have a plan. Have it spread out. You know, I'm not trying to, like, get doomsday prepping down, you know, everything. I mean, we can, we can have a separate episode on that, but, you know, just have a little backup. You know, when I talk about that, that emergency in the in the snow, I had cash and a gas tank and a generator.
And I went to the gas station, filled up and we had power the entire time, including Internet. We had power because remember, if you and power goes out on the Internet and we had no problems. I actually had to like give some cash to one my neighbor so he could do the same thing and he's like, “Oh, oh, nevermind I can’t Venmo, you.” But, you know, like this, just like the automatic. I will. No, I can't. I'll send it to you when I get when we get back.
00:22:13:04 - Bri
That and to just depending on generations I know my parents, even my brother who is younger than I am, does not have… they don't have Venmo. They're like, I don't know. That is sorry. And so having cash on hand it can be really good cause there have been times where it's been one family member paid for something. Or like my parents have paid for something and they need to pay my parents.
And so now it goes me. And then I have to send money to them for whatever gift was bought. So having cash on hand is a very, very good point.
00:22:45:03 - Dr. Jay
And people don't think about it. But Venmo Cash app, PayPal are all essentially banking services with an app on it. You got to watch the money that's in there. There's been a bigger issues there with, you know, people like hacking accounts and all that because, you know, not Bri, but many other people have one password for everything. And, you know, all of a sudden they're and they're Venmo and other things.
The other one to keep in mind, just one of those little plugs if you're using Venmo cash app all that in 2023. IRS has said that if you get over $600 in cash deposits to you, you are going to get a 1099 on that and have to pay income taxes.
00:23:22:07 - Bri
Okay. Question with that then, because I know I'm already over that limit this year from trips, but so I paid for different things when I got married on a destination wedding. So I paid for a bunch of things and then people paid me back for different excursions. Do I have to pay taxes on what I was reimbursed for by those people?
00:23:43:18 - Dr. Jay
If you don't have paperwork that says those are gifts, yes.
00:23:46:22 - Bri
00:23:48:09 - Dr. Jay
This is the problem. So the second analysis is a limit. And by the way, 600 bucks is like, you know, going out to eat a couple times. Yes. If you like covered a oh, then then know your park, you can go over 600 bucks in a month. But what happens if you don't have paperwork and documentation of what that money is, you now have a 1099 for $10,000 of income and you're going to be paying tax on every penny of that.
00:24:11:19 - Bri
00:24:12:23 - Dr. Jay
So you're freaking out, aren't you?
00:24:15:01 - Bri
Yeah. Well, it, it, it was quite a bit. What can I do then or what, you know, people do to, to say, hey, you know, this wasn't a reimbursement for something.
00:24:27:20 - Dr. Jay
You need paperwork, you need documentation, you need to show what that was. Also, this is where people try to like get like smart on the apps like, oh, this is money I sent to friends and family. Yeah. Well, then you need something to say. That's a gift. Then you may not have to pay taxes or hey, it's a reimbursement of__. Then you may not. But if I said Hey is a gift, but then I'm reimbursed and it's getting weird and you're going to have to talk to your tax preparer on this. But I, I have a feeling they were supposed to actually do that for 2022 and IRS push it off one year. I have a feeling a whole lot of people are going to get smacked upside the head by this because they don't think of, you know, Venmo being part of their banking and their income and all that. It is.
Since you're a U.S. citizen, you are taxed on your worldwide earnings, which includes, hey, I sent you 20 bucks for pizza.
00:25:23:06 - Bri
Okay, that makes sense.
00:25:26:08 - Dr. Jay
So you better have the documentation says that's a gift or that's a reimbursement or whatever that is. And then have a good conversation with your tax preparer on that because if you don't want, you're out of luck. Also, keep in mind, if you, like, sell things on like eBay or Facebook marketplace, all that. There used to be there was a $20,000 and 200 item limit.
Now it's 600 bucks again. And that is income. So if Bri decided all those books behind her, she’d probably get like three bucks, but sells all the books on eBay. Then that all becomes income and you're going to pay tax on it. You go, Well, but I shouldn’t have to pay income taxes. Nope. Any income you get cash, cash apps, payroll checks, Uber, any of that you have to pay income taxes on.
00:26:13:00 - Bri
00:26:14:14 - Dr. Jay
Now, by the way, people have hid it for years, but that's why they changed rules.
00:26:18:14 - Bri
00:26:19:13 - Dr. Jay
We'll have a separate discussion on them going after the people with $600 in Venmo versus the billionaires not paying their taxes. But that's like a whole different topic.
00:26:28:05 - Bri
Yeah, that makes sense. Okay, things are coming together there.
00:26:34:02 - Dr. Jay
So you feel better or worse about the banks?
00:26:38:08 - Bri
I think I need to adjust how I do some things and keeping cash on hand probably would be good, but I also, you know, you mentioned having different accounts at different banks and I'm very much that person. I have certain money that I don't like to see, so I have it at a different bank, so I can't see it.