Bright Dickson (00:08):
Welcome to “Money and Mindset With Bright and Brian,” where we combine financial advice and positive psychology to help you find the joy in managing your finances. In each episode, we share practical advice for managing both your money and your outlook. I’m Bright Dickson, a student and teacher of positive psychology, and I’m here with my go-to money guy, Brian Ford.
Bright Dickson (00:31):
Taxes may not be high on your list of fun things, but in this episode, we’re breaking down something that might change your mind: the expanded 2021 Child Tax Credit. If you’re a parent, you won’t want to miss this. We’ll be joined by one of our colleagues at Truist, Bahari Harris, who’s an expert on this exciting new measure. Brian, you ready to dive in?
Bright Dickson (00:53):
Absolutely. All right, Bright, I know both of us are super pumped. We’ve got Bahari Harris with us. His title is senior vice president and emerging markets segment strategy manager at Truist. Even though he is as cool as his title, the main reason we’ve got him on the show today is this guy knows a heck of a lot more about the Child Tax Credit than we do, Bright. Bahari, welcome to Money and Mindset.
Bahari Harris (01:26):
Thank you so much for having me, it is truly an honor to be here.
Bright Dickson (01:31):
And Bahari, we’re so excited because you are officially our first guest on the show, and that is super exciting for us.
Brian Ford (01:37):
Yes, we’ve got someone else to talk to. I love Bright, but we’ve got another homie. I love it.
Bahari Harris (01:45):
Brian Ford (01:46):
I kind of like how our names ... You know, you got the Bright and Brian show, but I’m kind of feeling like Bright, Brian, Bahari. I’m feeling the B-Team here.
Bright Dickson (01:57):
Well, I’m super excited about the B-Team.
Bahari Harris (02:00):
Yeah, me too. I was going to say, I like the ring of that. And also knowing that I’m the first guest on this show, makes it even more of a privilege. So hopefully this won’t be the last time we can get together as the B-Team.
Brian Ford (02:12):
We agree, it’s great to have you. OK Bahari, let’s get into the Child Tax Credit, which is a pretty big deal for a lot of families. But what is the Child Tax Credit? And what changes are in store this year?
Bahari Harris (02:25):
Sure, Brian. The American Rescue Plan Act, which has been nicknamed the COVID Relief Package, introduces legislation that temporarily and significantly increases the existing Child Tax Credit for this fiscal year. Since its inception in 1998, the Child Tax Credit has assisted American parents with dependent children, and most recently that Child Tax Credit was exactly $2,000 per child. The expansion temporarily raises the maximum credit to $3,600 per child for qualifying children ages five and below, and to $3,000 per child for qualifying children between the ages of six and 17.
Brian Ford (03:10):
Boom. That’s a big increase. I love it.
Bahari Harris (03:13):
Oh yeah, definitely, and that’s not the only thing. When we think about the family income qualifications—so, single parent families making $75,000 a year or less and married parents making $150,000 or less will get the full amount of the expanded Child Tax Credit. And of course, for families earning up to $400,000 a year, they will get smaller amounts but still be eligible for that Child Tax Credit. The legislation also widens the eligibility for qualifying children. In fact, nine out of 10 American families with children are slated to receive this benefit.
Bahari Harris (03:52):
But probably the most unique aspect of this newly expanded benefit is that it provides some immediate relief in the form of advanced direct monthly payments. And parents have already started to receive these payments beginning on July the 15th. The payments will continue monthly through December the 15th and will total half of the full Child Tax Credit, and the other half will be claimed as a credit on tax returns filed at the beginning of next year.
Bright Dickson (04:22):
That’s so great, Bahari, and I’m so thrilled about this. I think this is really going to help American families, and what you said, it’s a little much math for me, but I’m going to try and figure it out. But in some of our conversations leading up to today, you’ve mentioned how unprecedented this is for American families and what a financial opportunity it is. Can you tell us a little bit more about that?
Bahari Harris (04:45):
Absolutely, and thank you for that question, Bright. I’ve heard many lofty descriptors for this policy. “Once in a generation opportunity” comes to mind. Historic. A game-changer. Unprecedented. Those are some descriptors that are all certainly very befitting of this change. But the one that I land on actually is an analogy offered by a senator from my home state of Virginia, where he says, “The Child Tax Credit is to children what Social Security is to seniors.” As it stands, this benefit is truly enormous in its impact. It could create a level of stability and change in the financial lives of tens of millions of Americans across the income spectrum, but especially for those at the base of the economic pyramid.
Bahari Harris (05:34):
For instance, the Child Tax Credit will deliver more cash support to low and moderate income children than any other federal program on the books. In fact, the credit is three times the prepandemic size of the Temporary Assistance for Needy Families food subsidy program. And given its size and its simplicity, the proposal is expected to lift over 4 million children out of poverty this year alone. In other words, the Child Tax Credit policy could reduce the childhood poverty rate to almost half of what it is today.
Brian Ford (06:09):
Holy smokes. Wow.
Bahari Harris (06:12):
Yeah. Yeah, truly enormous impact. There’s one other major impact that stands out to me as it relates to the Child Tax Credit, and that is the issue of equity. The American Rescue Plan levels the playing field by making the Child Tax Credit more accessible to families with the greatest financial needs, which unfortunately are disproportionately Black and brown. For example, making the Child Tax Credit fully refundable will increase inclusion to 27 million children in the bottom 20% of the income distribution while helping to reduce historic and systemic racial disparities amongst its beneficiaries.
Bahari Harris (06:53):
Also, removing the earnings requirement from the Child Tax Credit ensures that those that have experienced an employment disruption by no fault of their own in 2020 will have full access to the benefit. This would not only help prevent the amplification of racial disparities that exist in employment, especially for those low-wage essential workers, but it also helps speed up the recovery efforts for families hardest hit by the pandemic. We stand at a truly transformational moment in time.
Brian Ford (07:25):
Well, Bahari, it’s obvious this Child Tax Credit’s a major breakthrough from a macro sense. But share with us, what can this mean for a family that will be receiving these additional payments?
Bahari Harris (07:37):
Sure, Brian, and I agree. Where the rubber hits the road in a practical, everyday household budget level is where we really begin to see the positive impacts and the opportunities for families. Let me give you three kind of case studies here that will make it even more plain. And Bright, I’ll try to keep the math really, really simple here so that it’s understandable.
Brian Ford (06:27):
Bright Dickson (08:00):
Bahari Harris (08:00):
Yeah. Let’s go with a single dad from the West Coast, right? He has two kids under the age of six. He makes the minimum wage. Well, the Child Tax Credit, as part of the full legislation with the American Rescue Plan, will give him a 63% boost in income this year with 50% of that coming from the Child Tax Credit alone. He’s already received about $4,200 in his economic impact payment. His Child Tax Credit, get this, goes up from previously $1,875 to $7,200 for the year. And he’ll get half of that, $3,600, this year alone between July and December. So if you’ve done the math with me, that comes up to just north of $9,500, which, if you make minimum wage in the United States, then you’re at $15,000 a year, so more than half, right? That 63% bump that I talked about is coming from this package.
Bahari Harris (09:01):
Another story, a refugee from Angola, recently minted United States citizen, is expecting her fourth child in the fall. She already has two children over the age of six, one under the age of five. And unfortunately she was recently unemployed because her pregnancy prevented her from working long hours. She and her husband earn together less than the $150,000 threshold for the full benefit. They stand to gain an extra $13,200 from the Child Tax Credit, with half of that, $6,600, coming before the end of the year.
Bahari Harris (09:39):
A third story is a couple from the Southeast. They’re small business owners whose food business shut down during COVID and had to take a Paycheck Protection Program loan. They earn a modest $80,000 a year in household income and they have one four-year-old child. They will see an additional $3,600 this year from the Child Tax Credit, of which $1,800 will be paid by the end of this year. Prior to COVID, the family had purchased a private healthcare insurance policy, which unfortunately lapsed because they could not afford it. So instead of having to make the choice between putting food on the table and affording healthcare premiums, this family can now do both as their business recovers. Bright and Brian, there are millions of stories like this across the United States.
Bright Dickson (10:29):
Bahari, thanks so much for all that information. This is so exciting and hopeful for American families and I want to hear all the millions of those stories, because this is really giving me hope, too. After the break, Bahari, Brian, and I will have more for you. We’ll talk about what all of this can mean for you and for your money and for your mindset.
Brian, as our main money guy, what do you think these payments mean for families? Especially the ones who, let’s say, are making minimum wage and those whose lives could be really changed by this money?
Brian Ford (11:10):
This certainly will be awesome for a lot of families, and I think the most important thing anyone receiving these payments can do is to have a plan. As Bahari was going through those examples, in my mind, I was thinking of real people. I know they were examples, but man, I mean, I work with thousands of folks, I can see these people in my mind. And if these families do nothing with the money, they can expect it to dwindle away over the next few months, and then they’ll look back where they started, wondering how it helped them at all. So having a plan is essential for getting the most out of these payments.
Bright Dickson (11:44):
I totally agree about the need for the plan, but I’d love to get a little more specific, Brian. Can you give us a few tips on how to use this increased money to benefit our families and our financial situations in general?
Brian Ford (11:57):
You bet. First I want to chat about separating the payments from your everyday working capital. So, if the money goes into your everyday checking account, we want to get it out of there as fast as we can into a separate savings account where it’s not all mixed up with your everyday money. That’s important. Next, I want to give our listeners kind of a quick list of some good ideas to consider when deciding what to do with these additional funds. A few things to consider: do you have an emergency account? At Truist, we actually call it a financial confidence account because when you’ve got one of these and it’s funded, a tremendous amount of confidence will come into your life, regardless of if an emergency actually happens to you in the future. But do you have an emergency account?
Brian Ford (12:40):
Or do you have consumer debt that you could pay down? Could you add to your investments? Or does it make sense to invest in your career with some additional training or a certification that can actually increase your income? Then finally, a thought is you may want to use a little bit of this for some family fun. Look, you know me, I am the math guy, I am the financial nerd. I’d say probably not more than 10%, however, there’s nothing wrong with using a little bit of this on something that the whole family can enjoy.
Brian Ford (13:10):
BThen I will say, I said finally, but another thought came to me. Do we want to use a portion of these payments to actually help our children? What I mean by that is music lessons, maybe setting up a 529 college savings plan. It’s amazing, the research, Bright, that when children have an account specifically set aside for college, how much more likely they are to go to college and all the psychology that comes into that. Or maybe you just want to enroll the kiddos in a summer camp. But there’s a list of some stuff that I came up with that I think could be helpful as people think about this plan and what they can do with the money.
Bright Dickson (13:45):
Yeah. The plan is really the most important part, right? And I think thinking about what’s going to really be best for your future and for your kid’s future and for your family, that’s so critical. One other little detail, Brian, what do you think about the issue between getting the monthly payments or getting the lump sum? How would we go about figuring that out?
Brian Ford (14:07):
Yeah. It’s really interesting to look at the psychology of getting these payments in a single lump sum versus monthly payments over the next six months, like Bahari talked about. Most of us will get this money over a six month period and then we’ll get the remainder of it when we file our tax return, so it’s interesting to look at this. I think if we’ve got good intentions to use this money, it’s easier to make a good decision once. So these monthly payments, I’m a little worried. It’s almost like the government wants us to get the money in smaller bunches because this makes it easier to spend, and that’s good for the economy as a whole. However, that may not be best for your family economy.
Brian Ford (14:48):
Spending this extra money’s great for the country’s bottom line, however, your family’s bottom line may be better served by saving and investing this extra money. So if we want to outwit the system, we really do need to be intentional on a monthly basis to do what will serve our families best.
Bright Dickson (15:05):
Yep, absolutely. Bahari, question for you. As we think about the full landscape of government stimuli emerging from the pandemic and the recovery effort, can you talk a little about what impacts we’re seeing at the household level, as it relates to overall financial health and wellness?
Bahari Harris (15:24):
I’d be happy to. Economic stimulus payments during the pandemic had a positive impact on Americans’ financial health. Our friends at the Financial Health Network surveyed over 5,000 Americans prepandemic, and again in 2020, after the introduction of the first economic impact stimulus payment. The survey asked questions around financial health, and the results were really fascinating.
Bahari Harris (15:49):
In 2019, 66% of Americans said they were able to pay their bills on time. In 2020, that number jumped up to 69%. Similarly, in 2019, 53% of Americans said that they had put away three months of living expenses. In 2020, that number jumped to 59%. And in 2019, 39% of Americans said they were able to have their long-term savings on track. In 2020, that number jumped up to an incredible 47%. And we can expect these Child Tax Credit payments to have this same kind of effect based on the payment amounts and the consistency of the advanced payments especially.
Brian Ford (16:35):
I love those numbers. I mean, for someone who’s working day in and day out to try and increase people’s financial wellness, to see concrete numbers and to know that as Americans we’re putting this money to good use, just simply makes me happy. I love it. Well, Bright, I’m excited to hear what you have to say about the impact these payments could have on our mental well-being.
Bright Dickson (16:55):
Yeah. Getting this kind of windfall can totally give us a mental boost for sure, but there are definitely some things to watch out for, and we’ll talk about that in just a sec.
Brian Ford (17:17):
OK, we’ve covered ideas for using the Child Tax Credit payments to give your finances a boost, but Bright, how can they give our mindset a boost as well?
Bright Dickson (17:27):
I think for many people, their relationship to money will change, especially since they have more right now, right? As you get that money, you have to have a DTR with yourself about how you’ll use it. You’ll have to make that plan.
Brian Ford (17:43):
DTR, what the heck is that?
Bright Dickson (17:47):
It means “define the relationship.” So, it’s kind of a thing we say in the dating world, when you get to have that state of the union talk of “What’s going on here,” you know?
Brian Ford (17:58):
OK. Well, look, I haven’t been in that world for 21 years, so I wouldn’t know too much about that. But anyway, what are some tactics we can use to define the relationship? That’s what DTR stands for, right?
Bright Dickson (18:11):
Brian Ford (18:13):
So, yeah, what are some tactics we can use to define the relationship with ourselves relative to our money?
Bright Dickson (18:18):
So, again, this goes back to what we’re always talking about, which is how our habits around our money can affect our outlook and our well-being. These monthly payments, or a lump sum, however you choose to take it, will help your mindset, whether you’ve been struggling or you’ve been making a comfortable income throughout this pandemic. So, a couple of things here. Use this money to work towards your real goals, like paying bills or saving for a house. If you’re doing that and you’re really consciously thinking through, “How can I use this best?” it’s going to increase your sense of self-efficacy and also confidence. So, quick thing on what self-efficacy is and how it’s a little different from what you might hear around self-esteem.
Bright Dickson (19:05):
Self-esteem is like, “I feel good about myself. I’m valuable as a person just based on the fact that I exist and human life is inherently valuable,” right? That’s self-esteem. Self-efficacy is a little different. Self-efficacy is the belief, “I have the skills I need to be able to do what I need to do in the world, and if I don’t have a particular skill, I know how to go get that particular skill.” So, when we have self-efficacy, it means that we understand that we can take on the challenges that come in our paths, because we’re all going to have challenges, and that in and of itself breeds confidence.
Bright Dickson (19:46):
So, if you’re working towards your goals, you’re building your self-efficacy, you’re building your confidence, but it’s not shallow, it’s based on real stuff in the world. You’re making progress, you can see it in your bank account. You can see it in the way you’re living your life. The other thing is the mindset implications of getting the advanced monthly payments versus one lump sum next year. That’s going to differ for everyone, and that’s going to be a personal choice. But I definitely agree with you, Brian, that if we’re getting the monthly payments on time, sometimes we’re having to make those decisions over and over and over again. And it’s like the more we make decisions, the more fatigued our brains get. It’s called decision fatigue.
Bright Dickson (20:29):
So, think of the way that you have related to these kinds of decisions in the past and make sure that you’re doing things that will work with the way your brain works to give you the best total outcome. When you’re making that choice, make sure you’re understanding how you tend to make these decisions, the cost or benefits they have, and make the best decision for the way you work.
Bahari Harris (20:54):
Bright, that is so fascinating. I’m also interested in your take on how beneficiaries of the Child Tax payment, particularly those who are used to receiving a government subsidy that has restrictions on how it can be spent or applied; these families are now going to be receiving unrestricted cash payments, so what shifts in mindset might these families need to consider?
Bright Dickson (21:21):
Thanks for that question, Bahari. I think there’s some really important mindset shifts that need to come into play here. First, a couple of things. One, this policy’s design is really unique, and because of that, it can be uniquely powerful. Another thing is that families aren’t going to need to fill out reams of paperwork or jump through hoops to get this kind of cash. There aren’t drug tests, there aren’t work requirements, asset tests associated with it. So for the families that qualify, it’s coming, so that mental load is gone. That will make the benefit easier to obtain and maintain than others, such as housing vouchers or food subsidies, particularly for stressed-out single parents who don’t have enough time to deal with what they need to deal with.
Bright Dickson (22:08):
Recipients of this program will receive unrestricted cash, and this is different than other programs. For example, you can’t use those food vouchers to pay for diapers, and you can’t use a housing voucher to gas up your car or pay a babysitter. But parents will be able to use this money on whatever they need to, which can really help families stabilize their finances. So, from a personal perspective—and you guys know how my mind works by now, I’m a financial enthusiast, but this stuff doesn’t come naturally to me. I’ve received a couple of financial windfalls in my life, and whenever that happens, I find that it’s planning and really decisive action that makes the difference in how successfully I use that money.
Bright Dickson (22:58):
I think it can be really seriously tempting for a lot of us to go out and buy that big thing that we really want but maybe we don’t really need, right? Something that feels like a big reward. If we’ve been feeling like we’ve been struggling, we want to use buying that thing that we want to relieve some of that suffering. And that’s OK, and as Brian talked about earlier, it’s totally fine to spend on things that bring us real joy or that we will use a lot and use well. But it’s also really important to shift into long-term thinking here, so, how can I make the most out of this money?
Brian Ford (23:44):
Yep. Bright, I totally agree, that’s a critical way to be thinking about it. So, how should our listeners be thinking about this in order to get into that long-term mindset?
Bright Dickson (23:55):
You know, Brian, I think a lot of it is about visualizing your family’s future. And I’m going to say this knowing that for a lot of people, this is going to sound a little out there, maybe a little woo-woo, but I really do recommend it. I recommend that you actually sit down and do a visualization exercise around your family’s future. What that looks like is you just take 10 minutes or so, find a quiet place, sit down and relax, close your eyes, and just let your mind wander into about five years in the future. Make sure you bring all your family members into that picture, think about where you are, what you’re doing, and then think about what’s behind it. What created your ability to be there in that moment, five years in the future, feeling stable, feeling happy, feeling like you’re working toward what you want?
Bright Dickson (24:54):
What are the systems and practices that you’ve put into place to create that? What’s your relationship to money that set you up for that kind of success? What are you able to do now that you’re feeling more confident and free with your finances? So really you’re just going to sit there and let your brain, your beautiful, imaginative brain, create that picture for you. Really build it out, see it, hear it, all of that stuff. Sometimes it’s going to take a little practice, but it really works. Then once you’ve got that picture and you’ve got that understanding of those systems and what you did to make that happen, grab some paper and a pencil and write down what it’s going to take to get you there. Make a plan that includes things like saving, it includes educational expenses, all of this stuff that makes us live happy and stable lives. Having a really clear picture of what we want increases our ability to make it happen.
Bahari Harris (26:00):
Now Bright, that sounds like a money meditation.
Bright Dickson (26:05):
Yeah, I think that’s exactly right, Bahari. I mean, it really is a money meditation, and it’s a money meditation for your future. One more thing on this, and you guys know how big I am into relationships. We did a previous episode about money and relationships, and some of what we talked about then applies here too, so listeners, go back and listen to that if you haven’t already. It’s going to be really important for anyone who’s co-parenting with someone else, whether you’re married, whether you’re cohabitating, whether you’re not doing those things, whatever it is, it’s really going to be important for you and your co-parenting partner to talk about how to make the best use of this money. You may have really different ideas about it, and it’s best to go ahead and talk it through at the outset.
Bright Dickson (27:00):
We all know that these kinds of conversations, money conversations can be tough, but it’s really in the best interest of your family to have them, right? You want to have them now rather than later so that mistakes aren’t made, so that things aren’t unclear. While they can feel hard, just like we talked about in that previous episode, while these conversations can feel like obstacles, what they really are, are opportunities to strengthen your relationship. So you’re doing two things. One, you’re solving the problem. Two, you have the opportunity to strengthen your relationship.
Bright Dickson (27:36):
And that kind of early planning will make later decisions about it easier. That decision fatigue is a real thing, so when we’re making lots of decisions, there’s a mental and energetic cost to that decision-making, and that takes a toll over time. And I think parents inherently get this, when you’ve got to think about it at the end of the day, when you’ve already made a bunch of decisions at work, and then you’ve got to make dinner decisions and then you’ve got to make bedtime decisions—all of those decisions, they take a toll, they make you tired. So the more you can go ahead and make those decisions and plans at the outset, the more energy you’re going to have to apply to actually enjoying the benefits of the Child Tax Credit, right? There’s a way in which this is not only a benefit, but a joy.
Brian Ford (28:27):
I love it. I think this is a good conversation. We’ve got to have a plan for this money and we’ve got to include our loved ones. It’s good advice. Look, we know these payments are going to open up a lot of opportunity for families, and we want our listeners to make the most of it.
Bright Dickson (28:44):
Bahari, thank you so, so much for being our very first guest on Money and Mindset. We’re so, so grateful to you for giving us the nuts and bolts of this program and for showing us what it can do. Your insight is incredible and we’re so happy you joined us, and we hope you’ll come back at some point.
Bahari Harris (29:02):
My pleasure, thanks for having me.
Bright Dickson (29:11):
Thanks for tuning into this episode of “Money and Mindset With Bright and Brian.” Next episode: can money make you happy? We’ll talk about research that reveals when money can actually bring you joy, and when it can’t.
Brian Ford (29:24):
If you enjoyed our chat, consider subscribing or share it with someone you care about, especially if they’re a parent taking care of kiddos. See you next time.