Pod Insights The Clark Howard Podcast 08.06.25 Trump Accounts For Newborns / Sim Card Danger & An Easy Fix About this episode Today, Clark explains the “Trump Account” for newborns - including how the account works and how best to manage one. Later - Get the lowdown on something we all need to protect ourselves from - cell phone sim swapping fraud. Trump Accounts: Segment 1 Ask Clark: Segment 2 Warning: Sim Swapping: Segment 3 Ask Clark: Segment 4 Mentioned on the show: Don’t Make This “Trump Account” Mistake Should You Start a 'Trump Account' for Your Child? What Is Umbrella Insurance and Do You Need It? How To Improve Your Credit Score in 5 Key Areas Credit Score Experts: How To Take Your Score from ‘Good’ To ‘Exceptional’ Why You Need To Lock Your Phone Number Today Axios: How Scattered Spider hackers are wreaking havoc on corporate America SIM Card Swapping: The Dangerous Cell Phone Scam Clark Howard's Guide to Saving Money on Your Wedding Are Money Market Funds a Safe Place To Stash My Savings? Clark.com resources Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
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0:50 Speaker 03 I'm so glad you're with us here on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. And one thing I've been asked about repeatedly over the last month is whether a parent should start a Trump account for their child. I'm going to give you what you need to know how the rules of this work. And later, I'm going to give you something you need to be so careful of. Cell phone SIM swapping is ugly, ugly, ugly, and can wipe out your assets so fast it's crazy. I'll explain how it all works.
1:35 Speaker 03 All right, so speaking of how it works, the Trump account, for a five-year period up till, I think, beginning of '29, a newborn child is ceded $1,000 by the federal government in a Trump account. And the money has tight guardrails about how that $1,000 can be invested. It's designed to go into low-cost index funds at an expense ratio of no more than 1/10 of 1%, which is fantastic.
2:11 Speaker 03 Parents have the option of adding up to $5,000 a year into one of these accounts. Don't do that. I'll tell you why in a second. Employers can give employees of small children up to $2,500 that comes to you tax-free. Do that. Take the employer money if the employer offers it to you. So the way this thing plays out, you have a newborn, you get the $1,000. It's like money falling out of the sky. It's invested in the account. You choose, go into one of the low-cost index funds.
2:54 Speaker 03 Leave it there till the child's an adult. Bam. Great. The $2,500, if you work for an employer that wants to cede that money, great. There's no downside to it. Why do I say don't contribute to it yourself beyond whatever an employer might, or the $1,000 that the feds give you have a child in the effective period? The tax treatment of the money at the end of the game, when the money is cashed out, is inferior to other ways of saving money for a child. You're taxed at what's known as ordinary income tax, which is the highest possible tax rate.
3:37 Speaker 03 Where if you put money in a 529 account, which is designed for college or trade school, that money used for college or trade school is tax-free. Grows all through the years tax-free. You spend it tax-free. In the event your child doesn't go to trade school or go to college, you can then transfer the money tax-free to another child, if you have another kid. Or you can move the money into, over the years, into a Roth IRA, tax-free, for that child's benefit. It can grow all through the years, tax-free, and be spent tax-free.
4:17 Speaker 03 So these other things, even a regular investment account would be better for money up to $5,000 a year than going into the Trump account because the money in an investment account put into the same index fund, when you ultimately sell it, it's taxed, it was known as long-term capital gains tax rate, which often is 0%, where ordinary income tax is the highest possible tax rate an account could have. So the Trump account, if money falls out of the sky from the federal government, birth of a child, or an employer, money falls out of the sky, tax-free to go into the account, take that money. Don't put any other money into it.
5:02 Speaker 04 Okay. Lawrence in Washington wrote in and asked, "Is it worthwhile to get separate auto policies for my two college kids? I'm worried about having a lawsuit liability if either of my kids gets into an accident." Krista has that question, too.
5:17 Speaker 03 So Lawrence, yes, if you provide support to a child and they are considered to be your dependent, where you're supplying 50% or more of their finances to live, which almost certainly you are with your college kids, it doesn't matter if you buy separate policies. There may be a state somewhere that this is not true. As a general rule, a lawyer who's coming after your kid because they had a wreck and it's their fault, they're suing for so much money, they are allowed to pierce beyond that
5:57 Speaker 03 child and come after your assets, which is why if you have a lot of assets, you need to have your own umbrella insurance policy, which is an excess liability policy that covers, they're sold in multiples of $1 million and up. They're crazy cheap for what they offer because the risk of that happening is so low, but if it happens, you're really glad you had the umbrella. So the reason you'd buy separate policies for the kids and have them be the owner of the vehicle is if that's cheaper for insurance, but you wouldn't do it for liability shield.
6:40 Speaker 04 Steven in Minnesota says, "We have finally been able to save around $100,000."
6:45 Speaker 03 Congratulations.
6:47 Speaker 04 Money that has not come easily. We are needing to finish our basement. The thought of digging into our savings currently in a high-yield savings account earning over 4% is not favorable. On the other hand, we have equity in our home and can tap that via an equity loan or line of credit that comes at the credit union's fair but higher around 7% rate for a loan and a variable percentage on a HELOC, not as favorable. Do we save the savings and keep earning at 4% or go with equity and pay the 7% rate to finish our basement?
7:20 Speaker 03 So this is a tough one. You haven't said how much finishing the basement will be. And you haven't said, Steven, how much $100,000 represents of how many months of living expenses that $100,000 will cover. So you want as a minimum cushion to have three months of living expenses in savings. The recommended amount, though, is actually six months. Don't know what your monthly costs are of living. You would not want to borrow money at 7% when you can give up earning 4% on your savings
8:02 Speaker 03 as long as it doesn't eat into that cushion I'm talking about for the rainy day. So I would say your first money that you use for the reno of the basement.
8:16 Speaker 03 Is money from the hundred thousand you've saved rather than borrowing money. When you're getting close to that point where you would no longer be able to cover six months' living expense, that's when the remaining cost of doing the basement would come from either a home equity loan fixed rate or a HELOC floating rate, whichever feels best at that time. If you do the home equity loan, I don't want you to borrow more money than you can pay back in a 60-month window. In other words, I don't like home equity loans lingering year after year after year.
8:57 Speaker 03 I like a five-year payment window paying back on that.
9:02 Speaker 04 Jerome in Maine says, "I've never heard Clark mention that paying all credit card bills in full before the statement date can temporarily lower your credit score. My score drops from 822 to 783 if I show no activity in a month. The next month, the score goes back up to 822 if any activity is reported."
9:21 Speaker 03 Okay, this is an interesting scenario you're talking about, Jerome, because there is activity on your account if you're charging on it but paying in full before the due date. Now, I've talked before about how Lain and I do this, but what we do is twice a month, we pay what is owed on our cards, not related to the closing date. We're always getting it fully paid off. You can tell because it'll say, it'll tell you that you've paid your balance for that month. If you look at the electronic statement or you're looking at a paper statement, you know what you have to pay for that month.
10:05 Speaker 03 The whole idea is we're holding down our available credit usage. You want to have your ratios of the amount of outstanding credit used versus your credit limits be as low as possible. Ours averages 3%. The reason that's significant is that your credit score is so affected by the amount of available credit you're using. So, we don't specifically... Go on a glide path to bring the balance to zero on the closing date of a statement.
10:46 Speaker 03 What we're doing is by making two payments a month based on the current balance is we're getting them to where the amount charged shows very low. So we are reducing the percent of available credit we're using and we're never paying interest by doing the payments we do twice a month. Gosh, I hope that made sense. Coming up ahead, I want to talk about something that criminals are doing that can cost you big bucks. SIM swapping, something that is pretty easy for you to put protections in place.
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12:10 Speaker 02 Price and participation may vary. Promotion pricing may be lower than meal pricing.
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13:13 Speaker 03 SIM swapping is something that has caused people so many problems. And yeah, I read the financial press every day. I read so many financial publications. And it was funny because it was an article recently that I read that was to a corporate audience and it was woe is us. All the problems we're having because of people stealing people's SIMs on their cell phones. What does that mean anyway? So criminal will impersonate you. Sometimes it's with the help of insiders at the big cellphone companies.
13:53 Speaker 03 Or it could just be an outsider doing a SIM swap steal. What they do is they steal your phone number. They convince your cellphone carrier that they are you and port your number out to someone else. Why is this so significant in criminal activity? Because think how often companies have fooled themselves into thinking they are protecting themselves from criminals impersonating their customers to get into their accounts.
14:35 Speaker 03 With two factor authentication, you know how they'll send you the one time use code? Well, criminals adapt and they figured out how easy it was to just steal your number, swipe it right out from under you. Suddenly you're not getting messages or phone calls or whatever on your phone, which is why they normally strike overnight when you're sleeping and don't even realize they steal your service. They put your number on their phone. The two factor comes to them and before you know it, they have swiped the money out of your bank
15:15 Speaker 03 account, your brokerage account, your savings account, your retirement account. The money is gone. And then there becomes this big fight, which is what was so funny about the article, was that corporate America is like, oh no. All right. How are we going to handle this? Are we just gonna not give people their money back because our security system fell down? Or are we going to give them the money back? Then our profits go down. Everybody's dealing with this SIM swap hot potato. What you need to know is that this is a key tool in criminals'
15:55 Speaker 03 toolbox now to impersonate you, steal your cell service, get the code, use the code to verify that they are you when they're not, and then move that money out of your accounts. So what's the role you and I have to play? It's so easy. You just put a SIM lock in place with your cell phone provider. With my cell phone provider, mine is Google Fi, I just am able to do it right in my Google Fi account and I have my number locked so that if somebody
16:34 Speaker 03 tries to move my service somewhere else, they can't do it. And so they just go on to the next potential person they're going to steal money from. As best I know, about zero people have put in place a SIM lock with their cell phone provider. Every cellphone provider has a different procedure for putting it in place. You just gotta look signing into your account or on your app for your cellphone provider. There will be a procedure that you can do that will lock your cellphone service to you. Now it creates some hassle when later you decide, I don't like who I'm with and you want
17:19 Speaker 03 to switch to somebody else. You have to go through the procedure first to take off your SIM protection and then you're able to move your service to someone else. But again, odds are close to zero that you have put this simple step in place that stops the criminal cold who's trying to impersonate you and steal your money. Remember this, there's probably not a single person who's not been a part of breach after breach after breach. When we get those inane letters from corporations or governments or colleges, I got one recently
18:01 Speaker 03 from a college saying that my information had been breached. And so the criminals have this stuff sitting there. They know our current address, prior addresses, date of birth. They know so much about us, including our social security number, that when they decide it's your turn, they're going to try to steal your money. One of the key tools that will shut them down is having that SIM lock in place.
18:31 Speaker 04 Okay, go into questions. Rob in Washington wrote this one. Hi Clark, I'm from the Seattle area where housing prices are insane.
18:39 Speaker 03 Is that the Seattle slogan now? Remember Crazy Eddie where our prices will drive you insane? Seattle, where housing prices will drive you insane.
18:49 Speaker 04 With baby boomers being overhoused, do you think we'll eventually see a surplus of homes as they age out? Could that bring prices down long-term despite today's shortage? I'm wondering if housing values might not keep rising like everyone assumes. Long-term, could housing no longer be the guaranteed appreciating asset it's been in the modern era?
19:09 Speaker 03 Yeah, so the housing market, Rob, has gotten obviously ahead of itself. It has outstripped people's ability to afford a home. That's why this year...
19:23 Speaker 03 There's a trend continuing that started last year in a small number of cities where home prices have stalled out, sales have stalled out, and in a number of major metro areas that saw big run-ups from 19 to 24, have seen housing values on average actually decline. So what happens in the housing market is you have homeowners that may have reached a point they want to sell, but they have in their mind that they want X number of dollars. Buyers say, can't do it. And so the buyers strike. The sellers sit there in
20:05 Speaker 03 that house and continue to live there. And a lot of baby boomers who would have decided this was the cycle in life when they were ready to move on and sell the house that they have kids, they raise their kids in, they're now stuck in that house because they're not at that point where they're ready for price capitulation. So what happens, Rob, is you get back to equilibrium at some point. You get to the point where people say, okay, I gotta get out. And it doesn't necessarily mean price drops that are dramatic. What it does mean, though, is that housing prices essentially do drop in real dollar terms
20:48 Speaker 03 as over the years people's pay creeps up, but home values may not keep up with that. There's a trend that that supports what I'm saying, that people who bought in recent years, we're seeing for the first time in a good while, we're seeing a rise sadly in foreclosures. The people did everything they could to get a home, and it was a step too far. They can't afford it, and they can't sell it to somebody for what they paid for it. So the market has stalled out. Are we going to see an out and out severe drop in housing prices like we saw in the aftermath of the banking scandals in 2008 to 12? Nope.
21:36 Speaker 03 That's not what's going to happen here, but the effective affordability of houses will improve over the next several years as sellers say, hey, I can't get that price I thought I was going to get. I need to move on. I'll get what I can. Now, the other factor, though, we are short houses in the United States. The number of houses being constructed over the last 15 years is significantly less each year than historically was. So there are multiple things going on at once. We literally do have a housing shortage in most markets in the U.S.
22:20 Speaker 04 Joy in North Carolina says, I'm getting married next year.
22:24 Speaker 03 Congratulations.
22:25 Speaker 04 We're still working out the details, but the wedding will likely happen in the middle of hurricane season.
22:31 Speaker 03 Great start.
22:34 Speaker 04 A wet knot can't be untied, they say. I've heard that it's a good idea to purchase wedding insurance, even if the weather might not be a problem. Do you have any recommendations for companies to purchase wedding insurance through?
22:47 Speaker 03 So Joy, we only with wedding insurance ever hear about complaints people have with filing a claim. Wedding insurance is actually a very generally relatively low cost purchase versus the cost of a wedding from a few hundred dollars to for, there are weddings that cost a lot more to insure, but usually maybe a grand for wedding insurance. The weather factor you bring up, very hard to claim against. It won't cover like a heavy downpour. It won't cover a violent thunderstorm. It may cover a named hurricane, may not cover a
23:29 Speaker 03 tropical depression. You know, so the wording of the contract is everything. And in terms of weather issues, what does it cover if you have? A triggering circumstance. It will cover deposits that you've had to pay that were nonrefundable. And depending on the policy, they cover other expenses that you incur that are nonrefundables on venues and things like that because there was a triggering event. But you have to read the policy. I can't emphasize this enough. You have to read the policy terms so closely and it'll be page after page after page.
24:14 Speaker 03 And a lot of it, you're going to be, huh? What do they mean here? But it all starts with what is a qualifying event? Does it count if, let's say, the mother of the bride is ill and, you know, can't come to the wedding on that date? What are the things that it will allow you the ability to make a claim before you buy it? Do not think any wedding insurance policy is true, real peace of mind.
24:48 Speaker 04 David in Illinois says, I recently noticed on my government market account, market account with Fidelity in small print at the bottom that it says, you could lose money in the money market account. I was confused about this and called Fidelity and they said the only way that that would be possible would be extremely unlikely. And the economy would have to be in a terrible place. And it's a term called breaking the buck. Have you ever heard of this before? And would there ever be a point when I would have to be worried about keeping money in a money market account?
25:19 Speaker 03 Yeah. So David, first of all, I really, really am thrilled that you read the terms because people assume that a money market account is 100% without doubt safe.
25:38 Speaker 03 They're as close to that as they could be, but they're not 100%. It's not like having an FDIC insured account at a credit union, well, credit union would be NCUA, credit union or FDIC at a bank where the first $250,000 is insured if the financial institution fails. With a money market account, there's been one instant I can recall, money market account, money market is actually technically called a money market mutual fund of various types.
26:16 Speaker 03 There was one circumstance where a money market fund fell to 97 cents on the dollar. People ultimately ended up with all their money, but after a delay. And it could very, very, very, very rarely happen. I put money in a variety of money market mutual funds. I know how rare the possibility is. And it would not have to be Armageddon, but it would be an extremely unlikely set of financial circumstances that might lead to a money market mutual fund not paying you back
27:00 Speaker 03 at the buck. You know, the whole idea is it's a continued constant value of a dollar a share in a money market mutual fund. There are some money market funds that in their prospectus lay out for you that there is more risk involved with them. A government money market fund, a treasury money market fund, those kind, it would be almost unheard of that they would be in a position that they would break the buck. So of things I would worry about, this would be down the list. Yes, possible. No, it's not likely.
27:43 Speaker 03 The probabilities are so really low that it's definitely something that you never need to lose a minute's sleep on. There are some. Money market instruments that are geared towards sophisticated investors that have higher levels of risk, that is not something that if you're in a mainstream money market mutual fund with Vanguard, Fidelity, Schwab, or even one of their high-cost competitors that you really need to fret about. And I want to thank you so much for joining us on today's podcast. I hope that you heard something that made you think, something
28:27 Speaker 03 that maybe you didn't know before, something that makes you feel like you should do something that you're not doing right now with your money, or do something better with your money that you've been doing. Because that's what I'm about with everything we do here is about you being empowered with knowledge that you can act on, that can make you stronger financially, that can put you on a better path moving forward with your wallet. In short, that you learn ways from us that you can save more and spend less, and don't let anybody rip you off. And if you do nothing else today, I want you to make sure with your cell phone
29:11 Speaker 03 carrier that you have your SIM locked down. Because I don't want money that you've worked hard to save suddenly vanishes from your life. And we'll see you Friday. And you know what Friday means? Clark stays.
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