Money Management

Should you pay with plastic offered by a BNPL company? Here’s what you need to know. 

Buy-now-pay-later companies — often abbreviated as BNPL — include companies like Affirm, Klarna, and Afterpay (a subsidiary of Block). The BNPL business model exploded during the pandemic-fueled e-commerce boom of the past few years, and you’ve probably noticed offers to split your purchase into a few interest-free monthly installments when checking out at your favorite online merchants.

However, BNPL growth has slowed significantly as the pandemic-era growth has stalled and economic worries are making consumers more reluctant to spend money on non-essential purchases. So, some of the largest BNPL operators are rolling out co-branded payment cards that can be used anywhere — not just at retailers that directly offer their services.

How do buy-now-pay-later services work?

BNPL services are somewhat of a combination of a credit card and an installment loan. They split a purchase between a series of monthly payments, like a short-term installment loan. But like a credit card, the application process is quick and easy, you typically get an instant approval decision, and the money is paid directly to the merchant to complete a purchase.

Some BNPL services offer interest-free financing that is subsidized by the merchants — for example, Affirm’s most notable relationship involves offering interest-free financing on Peloton bikes and other fitness equipment. Others charge interest based on the customer’s creditworthiness, while some only charge interest to borrowers whose credit histories aren’t fantastic.

BNPL credit cards

As mentioned, some of the leading BNPL companies are issuing physical payment cards. Klarna was the first of the major BNPL to issue a co-branded Visa card. Affirm and Afterpay followed soon after.

As an example, the Affirm Card is designed to offer customers financing with the flexibility to spread their payments over time. One of the biggest limitations of BNPL in the past has been that these services could only be used if a merchant was a participant and offered the financing to its customers. The Affirm Card can be used everywhere major credit cards are accepted. When making a purchase, Affirm Card customers are given options for their payment plans, with six- and 12-month repayment options common.

Unlike with a traditional credit card, the payments are split evenly over the repayment period, as opposed to having a low minimum required payment, so when the payment period is over, the balance is paid off. Affirm’s card links to customers’ bank accounts, and therefore is technically a debit card, not a credit card. Some of Affirm’s payment plans are interest-free, while others charge interest, although it can be significantly less than the average credit card interest rate.

Consider the pros and cons

Like any financial tool, there are pros and cons of using BNPL payment cards. For example, the requirement to make a series of equal monthly payments can encourage you to be more responsible with your spending, as opposed to credit cards where the minimum payment will result in you paying for over a decade and spending thousands on interest. Also, because BNPL cards link to your checking account, it’s important to make sure there’s enough money in the account before every payment is due to avoid incurring overdraft fees.

The bottom line is that BNPL cards can certainly help you split big purchases over a few installments, making them easier to plan for, and you might not even have to pay any interest. However, paying for purchases in installments can certainly encourage some people to spend more than they otherwise would, and it’s easy to get into trouble if you’re not careful.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

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Helping your child open a bank account is one step in teaching them about money. Here’s the best age to make it happen. 

From the moment they are born, our children learn from us. They learn some lessons by watching, like how to be kind to animals and polite to people. Other lessons are better learned hands-on, like how to make cupcakes or manage a bank account. But how do you know the right time to teach a child to manage a bank account? Here, we take a look.

The tricky bit

Kids develop at different rates. The child who learns to read in kindergarten may not read better than their peers in third grade because everyone else caught up. The kid who can’t seem to kick a ball in third grade may end up being the best soccer player on the team by seventh grade. Physical, intellectual, and emotional development works like that. It’s messy but fascinating.

Still, financial experts suggest that most kids are ready to learn money concepts by age 9, which makes age 9 the ideal time to open a savings account (a checking account will come later when your child is ready for greater financial responsibility).

What a child learns by opening a savings account

Many adults could be better about putting money into savings. Even if they can afford it, spending is more fun than savings for most of us. Helping your child open a savings account can teach them the following:

The pleasure that can be found in saving for things they want. The way compound interest makes their money grow.How to set savings goals and stick with them.

The power of making money fun

According to the U.S. Department of State’s Teachers Corner, using activities that make learning a new skill engaging and fun inspires a child to participate in what you’re teaching. Plus, having fun while learning also helps children retain what they’re learning better, because the entire process is enjoyable and memorable.

Anything you do, like stopping by for ice cream after each trip to the bank, will become associated with the experience. And how you approach the subject of money will also become part of the experience. If you preach at them about money like a 1920s tent evangelist, you’re going to strip the experience of joy. But if you let them know how excited you are for them and find ways to discuss money casually, that’s the vibe they’re going to pick up.

But what about checking?

Somewhere around the age of 15, “some” kids are ready to open a checking account. Notice the emphasis on the word some. As mentioned, children develop in spurts, and while one 15-year-old may be ready to conquer the financial world, another may be too stressed out or busy to bother balancing a checkbook. That’s okay. Just keep an eye on your child, and sometime before they leave home to go to college or start their young adult lives, slowly introduce them to the way checking accounts work.

Better they make mistakes while living under your roof, with you there to gently guide them, than to make their first banking mistakes when they’re out on their own.

How to set up a kid’s account

Despite how grown up your 16-year-old may think they are, children cannot open bank accounts on their own until they’re 18. However, as the child’s parent, grandparent, or legal guardian, you can make it work by opening a custodial account at a bank, credit union, or other financial institution.

A custodial account has both your names on it and allows you to have joint ownership. That means your child has the opportunity to use the account while you monitor account activity. Each of you can make deposits and withdrawals.

Here’s what you’ll need to open an account:

A valid picture ID with a current addressYour Social Security numberYour child’s name, birth date, and Social Security numberPersonal information, such as your phone number and email address

Not all banks are created equal

You’ll find that some banks are better than others regarding custodial accounts. Here’s what you’re looking for in the right bank:

No monthly maintenance feesA high annual percentage yield so your child can watch their money growA low minimum required to open an accountNo or low minimum balance requirementsFree online banking

Our job as parents is to do everything within our power to prepare our children for life outside the nest. While teaching them to manage a bank account won’t make them 100% ready for the real world, it is a good start.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Costco won’t officially give you a membership for free. But read on to see how you can snag one anyway. 

Many people love Costco and find shopping there to be a giant source of savings. But then there are those people who grumble about the membership fees — to the point where those fees deter them from joining.

A basic Costco membership costs $60 a year, while an Executive membership costs $120. These levels are slightly higher than Sam’s Club, which charges $50 for a basic membership and $110 a year for a Plus membership.

Plus, Sam’s Club commonly offers discounted memberships as promotions throughout the year. That’s a practice Costco doesn’t tend to employ. So if you’re looking for a cheaper Costco membership, it’s going to be hard to come by.

That said, there’s one trick you can employ to get Costco to pay for your annual membership. It’ll require you to spend a certain amount of money at the store during the year, but it can be done.

When your cash back covers your Costco membership fee

The reason Costco’s Executive membership costs twice as much as a basic one is that it gives you 2% cash back on your Costco purchases. And if you do a lot of shopping at Costco, that cash back can really add up.

If you spend $3,000 a year at Costco, you’ll get $60 back from your Executive membership. That’s enough to cover the cost of your upgrade from a basic membership. But if you spend $6,000 a year at Costco, your Executive membership will give you $120 back. And that’s enough to cover the cost of your upgraded membership in full.

Hitting the $6,000 mark may be easier than expected

You may be thinking, “How on earth am I going to spend $6,000 a year at Costco?” And to be clear, you should not force yourself to spend money on things you don’t particularly need or want simply to snag cash back that covers your membership fee. However, you may find that making certain purchases through Costco allows you to hit that threshold pretty easily.

For one thing, travel packages booked through Costco are eligible for cash back. So are purchases of appliances and electronics. So if you have a number of bigger-ticket items on your list, buying them at Costco could make sense not just from a cash back perspective, but also, because Costco offers great prices and service (like a second-year warranty on all laptops, for example).

Costco also offers a wide range of furniture — and if you don’t see something you like at your local store, you can look online for a much wider range of inventory. If you’ve been saving for a new living and dining room set, buying those things at Costco could get you to $6,000 in spending.

Plus, if you have a larger family to feed and shop at Costco weekly, you might easily spend $120 per trip on groceries and household essentials alone. At 50 weeks a year (because it’s fair to assume you’ll skip a couple of weeks), that’s $6,000 right there.

A Costco membership could offer you and your family a lot of value. And while you may not get a discount on that membership when you sign up, if you spend enough at Costco, you might be able to effectively get the cost of your membership covered in full — especially if you’re strategic in the way you shop.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Putting up roadblocks in your finances can be a good way to add to your savings. Read on to learn why. 

We’ve all been there; you want to be more mindful about your spending, so you decide to give yourself a set “allowance,” and that’s all the money you’re allowed to spend on purchases other than necessities. Except you haven’t made any moves to follow through with this idea, and despite giving yourself a weekly cap, you routinely go over your set amount — and wind up feeling guilty about it!

Well, you can stop doing that. For one thing, you shouldn’t ever feel bad about spending money. And for another, there’s a technique you can try to ensure you’re only spending the money you’ve budgeted for, and no more. Here’s how.

Lean on cash

This is a very simple technique. Let’s say you decide that your spending limit is $100 per week. Rather than relying on your math skills as you make purchases using your debit or credit card, hit up an ATM and withdraw $100 in cash at the beginning of the week. That’s it — that’s your spending money. Once it’s gone, it’s gone, and you’ll have to wait until the next week to make fun purchases.

If you want to make a larger purchase, you can save up part or all of your budgeted cash until you have enough to make the purchase. Think of this trick as giving yourself an allowance, as you might’ve gotten from your parents when you were a kid. And put your credit cards and debit card in a safe place to avoid the temptation to spend beyond your allotment (or withdraw more cash).

Cash is soooo 20th century, though

While cash is great for some situations, and it’s a good idea to have at least a little on hand, I recognize its limitations. If you’re a fan of online shopping (like I am), spending only cash is definitely going to present some problems. Thankfully, there’s a workaround. Rather than turning your spending money into cash, you can opt for a gift card instead.

If Amazon is your weakness, it’s very easy to buy an online gift card and apply it to your account. If you prefer to shop around, how about a Visa prepaid card instead? These come with a 16-digit card number, an expiration date, and a security code, so you can use them for online shopping like you would a credit or debit card.

Try these tips to make saving easier

It’s not enough to just limit your spending if you’re hoping to save more money toward specific goals. Once you’ve put the above technique into practice, give these ideas a try to ensure more success with saving.

Open the right savings account

There’s never been a better time to get a high-yield savings account. As of this writing, the average APY on a savings account is just 0.45% — but you can find high-yield savings accounts with online banks offering APYs 10 times that, or even higher.

Speaking from experience, the thought that your money can grow just from sitting in an account is very exciting — I have a recurring calendar entry for when my savings account pays me interest every month, so I can log into the account and see how much I made.

Outline goals for yourself

It’s much easier for me to prioritize saving money when I have a goal in mind for it. For example, right now I’m saving to buy a home next year. I know how much to set aside from every paycheck to make this dream a reality.

If you struggle to put your money to work, you might also struggle to save it at all. So think about what you want to happen in the future. Want to take a dream vacation? Have a comfortable retirement? Or even put together a down payment for a new car? Visualize it, and you’ll be more likely to follow through.

Automate it

This is the tip I give to others but don’t actually follow myself. But that’s the nice thing about personal finance — it’s personal. Automating savings contributions is a great way to take the decision out of saving. If you have a transfer set up to send money from your checking account to your savings every time you get paid, you won’t have time to accidentally spend what you wanted to save, and you won’t even have to remember to make the transfer yourself.

We’d all like to save more money, and if you struggle with overspending, it could be worth trying to give yourself an allowance in the form of cash (or prepaid card). While you’re at it, make sure you’ve got a great high-yield savings account at a reputable bank, so the money you’re putting aside has a chance to grow.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Amazon.com and Visa. The Motley Fool has a disclosure policy.

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I bond yields have declined a bit in recent years but could still be great tools to protect against inflation. Keep reading to learn how. 

Series I Savings Bonds, which are more commonly referred to as I bonds, have yields that vary based on inflation. The basic idea is that yields rise along with inflation, so your savings maintains its value better than it is likely to do in a savings account or other non-protected instrument — especially during periods of high inflation.

First, the bad news. I bond yields have declined significantly since inflation peaked in 2022. The guaranteed yield on I bonds purchased in mid-2022 was 9.62%, and this has since cooled down to 4.3% for I bonds issued from May through October 2023. However, I bonds can still be a smart place to put some of your cash and help you diversify your investments. Here’s what you should know.

How do I bonds work?

I bonds are a special type of U.S. savings bond issued by the Treasury Department. Every six months, the Treasury reveals updated I bond interest rates that take effect for bonds purchased from May through October, and those purchased from November through April.

Regardless of when you buy, the yield that is in place at that time is guaranteed for six months. So, if you buy an I bond before the end of October, you’d still have the current 4.3% yield for six months, regardless of what yield is announced starting in November.

It’s important to realize that an I bond’s yield has two components: a fixed rate that is guaranteed for the life of the bond, as well as an inflation adjustment. For example, as of this writing, a new I bond would have a yield of 4.3%. However, 0.9% of this is the fixed-rate component, with the other 3.4% coming from the inflation adjustment.

This is very important to know, as 0.9% is actually a significantly higher fixed rate than recently issued I bonds have had. For example, bonds issued from May through October of last year had a 9.62% yield, but had a 0% fixed-rate component. So, those bonds are only paying the inflation adjustment now and yield significantly less than new I bonds issued today.

How it works

Let’s say you buy $5,000 worth of I bonds on Oct. 2, the day of this writing. You’d get a guaranteed 4.3% yield until early April. At that time, your yield would change to the bond’s fixed rate of 0.9% plus whatever inflation adjustment is in place at that time.

After another six months, the inflation-based component would change again, with the 0.9% fixed rate staying the same.

The biggest downsides to buying I bonds are the restrictions involved. You have to keep your I bonds for a minimum of one year, and there’s a penalty equal to three months’ worth of interest if you cash in before five years. And I bonds are limited to $10,000 per person, per year, so if you have a lot of cash to put to work, I bonds might not completely meet your needs.

Are I bonds better than savings accounts or CDs?

You might be thinking, “Well, I can get a 5% (or higher) yield from a high-yield savings account or CD right now, so why should I go through the trouble of buying an I bond?” But there are benefits and drawbacks to both.

For one thing, I bond yields are based on the current inflationary environment, not the interest rate environment, which can be two very different things. This is why I bond yields were significantly higher last year, even though we’ve been in a rising-rate environment since then. It’s also why the fixed component of I bond yields has risen from 0% to 0.9% in that time.

On the other hand, if inflation collapses, I bonds could pay next to nothing even if interest rates are high. And the $10,000 annual limit could be an issue if you’re trying to protect a large amount of money from inflation.

The bottom line on I bonds

I bonds can be a great way to protect your money from inflation over time. You aren’t going to make a ton of money, but these can be excellent financial instruments if you aren’t worried about getting consistent yields from your cash (meaning that you don’t rely on the yields to cover living expenses) and don’t want your savings to lose value in inflationary environments.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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