Why 529s are a 'crazy cobweb': Q&A with In|Vest speaker, Littlefund CEO Mimi Chan
Q: You started Littlefund after becoming a parent yourself, correct?
MIMI CHAN: My daughter was born in 2015. Although we were grateful for the overwhelming support and gifts for our daughter, I felt very guilty. Many of those gifts were either being donated to stores or family groups. I saw this opportunity to redirect this into something much more meaningful. I thought about the saving bonds that people used to buy for children and wondered, "Wow, there’s not a modern version of that that exists anymore." That didn’t make sense to me, because money is now socially accepted as a gift.
But the process to give to children is complicated, restrictive and confusing for families. If you’re going to do a 529 account there’s a minimum amount that you have to give and there’s also paperwork that goes with it. The alternative is writing a check, but we know that there is a lack of intimacy with a check. What we’ve done is put sending and receiving money for children into one single step, so it’s like giving a gift. Just simply use the email of the guardian to send money into the account.
I’m sending a gift of savings and I know that it’s also an investment. It makes me feel great that the spirit behind that is well-intentioned and it helps families basically think about the different types of goals that are encouraging for their childrens' future. This also lays the foundation for what we’re trying to do, which is ultimately becoming a financial wellness platform for families. This is helping them in a very easy, non-intimidating, and social way to get started on their child’s financial journey.
What about checking with the parents first before giving? Maybe they’re using a different service or they’ve already got a 529 account?
The platform is very flexible, it’s pretty much cash. It takes five minutes for parents to accept and they can choose however they want to manage those funds, whether to keep it in the account or withdraw and put it into a specific account. It’s 100% free for families to accept, we don’t get commissions for that. We also don’t tell them how to give a gift, like, if you’re going to give a gift, only give to a 529. A lot of parents feel the temptation toward demanding a very specific gift. Littlefund provides some options of goals. We allow for free ACH transfers, as long as both sides have an account. We also offer this option where you choose the gift with a credit card and you ship the gift with a credit card.
What we’re seeing is that families are gifting to other families for children. It’s this network that has built up on Littlefund. Their children are on Littlefund and so it’s very easy for them to gift and regift. As a parent you’re going to lots of children’s parties, so now you can give the gift in less than five minutes and like it’s an e-commerce check out.
Couldn’t you just send money via PayPal? What’s different about Littlefund?
There are several differences. We offer an actual FDIC-insured bank account. And they’re earning awards on top of that. There’s the community. And in our next phase we will be integrating an investment option with the account. You can decide to move some money into a 529 and open an investment account with Littlefund’s partner that sits right here on our platform. We will be integrating those options within our platform so that it’s a seamless experience from collection to investment. Right now we’re just focused on the bank account. We’d like to then introduce that next phase as we educate our vast majority of families on other opportunities to keep growing this money.
We kept to the account for the launch because many parents still do not use 529s as a way to save and adoption of that account has been historically low. We know that there is an opportunity to bring that type of product to the mass majority. How then do we do it in a seamless way that is very familiar and non-intimidating to those who chose not to do it in the first place? It’s about how do we create that path to inclusion for all.
Are you going to try and integrate the entire universe of 529 investing into your product?
There is no road map. Without getting too deep into the product plan, I will say we are going to make sure there is an overwhelming amount of 529 sponsored plans. We are going to offer options based on where they are living and what their goals are. We would be able to offer that as a very simple choice for families versus making them do the legwork of figuring it out and then having so many choices and trying to understand all the technicalities that go with each separate plan for each state. It’s a crazy cobweb there and we’re going to take all of that out.
In Littlefund, we have set it up so that I understand my financial contribution is toward education and then let the parent decide where and how that education funding is spent. Or maybe I want to do a custom goal, like maybe you want to go on your first trip to Paris or a Disney cruise. It’s not like a custodial account either. It’s been set up as a very simple financial account. The caretaker has full access and ownership, which bypasses a lot of the hurdles in setting up a custodial account. You can do this in five minutes and just start auto piloting money every week for Billy.
How many people are using Littlefund?
We are still early. We just launched a couple of months ago, but we’ve transacted over 10,000 transactions. We are looking to grow rapidly, especially after this next quarter with the new incentive programs that we’re putting in. We’re on target to hitting already over 5,000 users. Our community spans across the U.S. — we haven’t hit Alaska yet. But we have users in Hawaii, we’ve got users in Idaho. This is the most exciting part to us, because we know that it’s a product that resonates, not just for Silicon Valley. It’s a very simple idea, but it’s what families are looking for and it doesn’t matter where you’re at. You have the same sort of issues.
How will Littlefund become sustainable?
We think these are very basic services that we want to encourage families to have, because it’s the right thing for us to do. That's our mission so we don’t charge for those services. We are focused on growth right now and our investors are aligned with our mission to do that. In the next phase as we start introducing and expanding our offerings we will then charge for for those services. We will offer some sort of premium type of account. But ultimately what I believe is we're adding value by enabling them to further their goals. We will charge with transparency for that value-added service. But our basic service will be free so that we can help more families get on this path.