Parents with young kids or those expecting a child may wonder: What financial steps should I take to set my family up for success?
Here are four of the top considerations, according to Rianka Dorsainvil, a certified financial planner and co-CEO of 2050 Wealth Partners. Dorsainvil is also a member of CNBC’s Advisor Council.
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1. Save for future education costs
There are tax-advantaged ways to save for your child’s future education.
Among the most popular is the 529 plan, which allows parents to invest money for higher education and other costs. The investment grows tax-free, and withdrawals are also tax-free if used for “qualified” expenses.
Qualified costs include enrollment at a college or university, books, computers, and room and board,, among others. They also include up to $10,000 a year of tuition at a private K-12 school, and up to $10,000 on student loan repayments during one’s lifetime.
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One big benefit, Dorsainvil said: Parents can easily change the account beneficiary later if their kid decides not to attend college. That new beneficiary can come from a host of family members. Parents can also withdraw the funds for other purposes, but would owe income tax and a 10% tax penalty on the investment earnings.
While each state has its own 529 plan, parents can invest in a plan outside of their state. Parents might miss out on a state tax break by doing so, but the most important factor when picking a plan is the investment quality, Dorsainvil said.
For example, parents should generally avoid funds with consistent negative returns and with an annual fee (known as an “expense ratio”) exceeding 0.5%, she said.
Parents also shouldn’t save for a child’s education at the expense of their own financial wellbeing, Dorsainvil said.
“There’s no loan for retirement,” she said. “So while it’s super important for our clients to save for our children’s education, we want to make sure they’re putting their financial oxygen mask on first and that they’re saving for their own retirement.”
2. Invest on your child’s behalf
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Parents who want to invest money for their kids — and not have their funds sitting in cash at the bank — can do so in custodial brokerage accounts.
For example, UGMA and UTMA accounts are held in the name of a minor but controlled by a parent until legal adulthood. That ranges from 18 to 21 years old, depending on the state. (The acronyms stand for Uniform Gifts to Minors Act and Uniform Transfers to Minors Act, respectively.)
One caveat: Once the beneficiary reaches adulthood, the money is theirs. Gifts and transfers made to these accounts can’t be revoked. The beneficiary can then use the money for any purpose.
“I think parents should ask, do they want to relinquish ownership of this money when their child is an adult?” Dorsainvil said. “That is the key question.”
There are other avenues for parents to invest for their kids, but they may be more challenging. For example, parents can set up a Roth individual retirement account for a minor, but the child must have earned income to do so, Dorsainvil said.
3. Update or prepare an estate plan
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A common misconception is that only the rich need wills and other estate documents — but it’s important for any parent to have a will, Dorsainvil said.
A will is a legal document that shares what you’d like to have done with your belongings and other assets in the event of your death.
Where this especially comes into play for parents with minor children: There’s a guardianship clause in wills that answers the question of who the parent would want to have physical custody of their children should anything happen to them, Dorsainvil said.
If both parents pass away early and there’s no living guardian, the state or court will generally decide — absent a will — what happens to the child, Dorsainvil said.
“I’m pretty sure every parent knows what they want to happen to their kid if they’re no longer there,” she said.
4. Use a dependent care flexible spending account
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Dependent care flexible spending accounts are a tax-advantaged way to save for annual costs of childcare.
Offered through the workplace, dependent care FSAs let families save up to $5,000 a year in pre-tax funds for daycare, after-school programs, work-related babysitting, summer day camps and more.
Dependents and programs must meet various criteria for parents to qualify for the tax break. For example, children must be under age 13; programs like piano or dance lessons, overnight camps and kindergarten tuition are ineligible.
Earmarking funds in a pre-tax account reduces your taxable income, since you don’t pay tax on those contributions.
You can also use the accounts to reimburse yourself for qualified expenses you’re paying out of pocket.
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Axel Lehmann, chairman of Credit Suisse Group AG, Colm Kelleher, chairman of UBS Group AG, Karin Keller-Sutter, Switzerland’s finance minister, Alain Berset, Switzerland’s president, Thomas Jordan, president of the Swiss National Bank (SNB), Marlene Amstad, chairperson of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a news conference in Bern, Switzerland, on Sunday, March 19, 2023.
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Following Credit Suisse‘s “emergency rescue” by rival UBS, Swiss authorities placed a heavy emphasis on the role of U.S. regional banking collapses in pushing the stricken Swiss lender to the brink.
“The latest developments that emanated from the banks in the U.S. hit us at the most unfavorable moment. One time, like last year, we were able to overcome the deep market uncertainty, but not this second time,” Credit Suisse Chairman Axel Lehmann told a press conference on Sunday night.
“The accelerating loss of confidence and the escalation over the last few days have made it clear that Credit Suisse can no longer exist in its current form. We are happy to have found a solution, which I’m convinced will bring lasting stability and security for clients, staff, financial markets and to Switzerland.”
SNB Chairman Thomas Jordan also lamented the “U.S. banking crisis” for accelerating a “loss of confidence in Switzerland” which had repercussions for Credit Suisse’s liquidity.
However, the downward spiral of Credit Suisse’s share price and mounting asset outflows were underway long before the collapse of Silicon Valley Bank earlier this month. Swiss regulator FINMA has come under fire for allowing the situation to deteriorate as the bank spent years mired in losses and scandal.
Mark Yallop, chairman of the U.K.’s Financial Markets Standards Board and former U.K. CEO at UBS, told CNBC on Tuesday that he agreed with the broad assessment that Credit Suisse’s downfall was “idiosyncratic.”
“It’s unfortunate that the problems with some of the smaller U.S. banks in the last two or three weeks happened at the same time as this issue with Credit Suisse but the two are completely different and very largely unrelated,” he said.
“The issues at Credit Suisse are to do with a long history of revolving doors at the top of the firm in management terms, a changing plan, and on top of a series of operational risk and control and compliance problems.”
The final straw that sent the share price to an all-time low ahead of a 50 billion loan from the SNB last Thursday, which ultimately failed to restore market confidence in the bank, was the announcement from top investor the Saudi National Bank that it could not provide any more funding to Credit Suisse.
“One never knows with a bank collapse when the moment of crisis will come, but at that point, that was the moment when investors finally threw in the towel and said enough is enough, and the actions that we saw over the weekend became pretty much inevitable,” Yallop added.
What’s more, swift action from Federal Reserve and the Treasury Department has largely been credited with successfully stemming any potential contagion to the U.S. financial system, which begs the question of how much of the blame for Credit Suisse’s demise can really be apportioned to the SVB collapse.
Steven Glass, managing director and analyst at Pella Funds Management, told CNBC last week that the plunge in Credit Suisse’s share price had been a long time coming, and that the loss of confidence of clients was actually crystalized by the bank’s exposure to the Greensill Capital collapse in 2021.
“The problem with Greensill, it was actually a huge issue, because that fund was marketed to a whole lot of [Credit Suisse’s] high-net-worth individual clients as a very safe fund, as a way to get yield in a low-yield world, and when that blew up, a whole lot of their franchise lost money and they basically lost trust in Credit Suisse,” Glass told CNBC’s “Capital Connection.”
In the aftermath of 9/11, new regulations forced Swiss banks to abandon the client secrecy that for centuries formed their modus operandi, and banks like Credit Suisse took on greater risk in a bid to retain their profitability and prevent high-net-worth clients from taking their money elsewhere, Glass argued.
He suggested that in this context, Credit Suisse losing the trust of its remaining high-net-worth individuals through Greensill, and a litany of other issues down the years, meant the bank “shot itself in the foot.”
“Yes, this has come at the same time as SVB and yes as Signature Bank and we can see why one might say it’s a broader banking crisis, but in actual fact, what we believe is that a lot of those banks actually had a problem with their business model, more than there being an overt banking crisis,” Glass concluded.
This was echoed by Octavio Marenzi, CEO of Opimas, who told CNBC’s Capital Connection on Tuesday that the Credit Suisse debacle meant Switzerland’s “carefully crafted, honed reputation” for financial stability “lies in tatters.”
Binance is the world’s biggest cryptocurrency exchange, handling $490 billion of spot trading volumes in March 2022.
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Binance is the world’s largest crypto exchange by volume and assets, processing $9.5 trillion worth of trades in 2021 alone. But it’s not supposed to be allowed to operate in China, which banned cryptocurrency trading in 2021.
Binance founder Changpeng “CZ” Zhao has touted the exchange’s know-your-customer systems, known as KYC, as a billion-dollar effort. Among other functions, they are supposed to stop customers that aren’t supposed to be on the platform, including residents of China.
But customers in China and around the world regularly subvert Binance’s controls to hide their country of residence or origin, messages in Binance’s official Chinese-language chatrooms show.
CNBC obtained, translated and reviewed hundreds of messages from a Discord server and Telegram group which are controlled and operated by Binance. More than 220,000 users were registered across both groups, which were freely accessible to anyone who registered and joined. Until late March, there were no controls on access, which is how CNBC was able to review messages from 2021 to 2023.
The messages CNBC reviewed come from accounts identified as Binance employees or Binance-trained volunteers known as “Angels.” In these messages, they shared techniques that can be used to evade Binance’s KYC, residency, and verification systems.
Some of the techniques that employees and volunteers have shared involve forging bank documents or offering false addresses. Others involve simple manipulation of Binance’s systems.
Employees, volunteers, and customers also shared video guides and documents that showed mainland residents how to falsify their country of residence in order to obtain Binance’s debit card, which would effectively turn their Binance crypto into a conventional checking account.
Whatever the method, Binance’s Chinese users take on a significant risk: In China, crypto exchanges have been outlawed since 2017, while crypto itself was outlawed in 2021. Many of the products that Chinese residents seek access to are also illegal under Chinese law.
The techniques shared with and among customers also call into question the effectiveness of Binance’s anti-money laundering efforts. For international businesses like Binance, KYC and anti-money laundering efforts are critical in ensuring customers aren’t engaged in illegal activity, like terrorism or fraud.
Experts in financial regulation shared concern that Binance’s KYC and AML efforts can be so easily thwarted.
“If I had a eight out of 10 concern about Binance from a regulatory perspective and from a national security perspective, this takes it to a 10 out of 10,” Duke University professor and former FDIC chief innovation officer Sultan Meghji told CNBC.
Meghji’s concerns about the laxity of Binance’s enforcement of KYC guidelines extend beyond China. “I think explicitly about the national security implications of how terrorists, criminals, money launderers, cyber people in North Korea, Russian oligarchs, et cetera, could use this to get access to this infrastructure,” he said, referring to some of the techniques described.
Wells Fargo anti-money laundering executive Jim Richards agreed that the techniques for bypassing Binance’s KYC controls could have implications beyond China. “What about North Korean customers, or Russian customers, or Iranian customers?” Richards asked.
When reached for comment on the findings in this article, a Binance spokesperson told CNBC, “We have taken action against employees who may have violated our internal policies including wrongly soliciting or making recommendations that are not allowed or in line with our standards. We have strict policies requiring all users to pass KYC by providing us with their country of residence and other personal identification information.”
The spokesperson added, “Binance employees are explicitly forbidden from suggesting or supporting users in circumventing their local laws and regulatory policies, and would be immediately dismissed or audited if found to have violated those policies.”
CNBC also reached out to the Binance employees and Angels named in this article. One told CNBC to contact Binance’s PR team. The rest did not reply.
Public compliance, private evasion
In 2021, after China banned cryptocurrency, Bloomberg reported that Binance had stopped letting Chinese mobile phone numbers register. The company told Bloomberg that it had blocked Chinese IP addresses as well.
But Chinese customers have continued to seek ways to trade on Binance, which include using instructions provided by employees and volunteers. In some cases, these instructions rely on virtual private networks, or VPNs, software that can disguise the user’s location and send messages through the Chinese Internet firewall.
In May 2022, in a support channel on Binance’s Discord server, a user asked “How can mainland users register now?”
A person using the handle Yaya and identifying as a Binance employee told them to activate their VPN and register as a Taiwanese resident, then switch their nationality back to China. The employee also suggested avoiding using VPN nodes in the “United States, Singapore, and Hong Kong.” Binance officially restricts access to certain products in those countries.
Messages obtained by CNBC from Binance’s Chinese-language Discord server.
CNBC
User #1: How can mainland users register now? yaya.z: [How to register for mainland clients]: Clients need to use a VPN that excludes IP addresses from restricted regions such as the United States, Singapore, and Hong Kong. Then use overseas email (Outlook, Gmail, ProtonMail) to register. Please choose Taiwan as a place of residence; then switch back to China at the authentication phase, then upload the mainland ID card.
There are steps that exchanges can and should take to prevent VPN use, said Neel Maitra, a partner at law firm Wilson Sonsini and a former SEC senior special counsel for cryptocurrency issues.
“Most best practices by exchanges also account for common evasive behaviors,” Maitra told CNBC. “While it is true an exchange cannot necessarily prevent or effectively police all possible forms of evasion, I think most regulators would require that they police against the most common evasive forms.”
Binance told CNBC it had implemented “advanced detection tools” to root out users in “restricted and sanctioned regions that had access to sophisticated masking tools including VPNs.”
In other cases, the advice does not rely on a VPN.
In Dec. 2022, a person with the handle Stella, who was identified as a Binance community manager in the company’s online marketing materials, posted messages in a server-wide announcement channel, explaining how people could use a specialized “VPN-free” domain name and download an app which appears to be specifically tailored for customers in mainland China to use Binance services.
CNBC was provided the link to this app from an email address with a binance.com domain. A reporter was able to download the app from a location within China without a VPN, and register using a Chinese phone number. The app is hosted on Tencent, which offers a cloud computing service popular within China, and offers the ability to purchase crypto from other Binance customers in prices denominated in Chinese yuan, using the popular Chinese apps WeChat or Alipay. It also has options to submit Chinese identity documents for KYC verification.
Binance told CNBC it does not offer a specialized version of its app for Chinese customers. “‘Binance does not offer a ‘Binance Chinese Android app,” a spokesperson said. “There is only one official Binance app.”
More often, employees appear to refer questions about KYC to Binance Angels, creating a gap between the company and potential regulatory violations, messages reviewed by CNBC show. Binance has emphasized that Angels “are not representatives of Binance.”
“Our role is limited, and we do not speak on Binance’s behalf,” an Angel said in a Binance blog post.
But Binance’s Chinese-language Angels go through a separate training process that takes up to a year, according to a Binance hiring page. They’re vetted, trained, and deployed across Binance’s Telegram and Discord groups, operating under the supervision of Binance employees.
In one Oct. 2022 exchange reviewed by CNBC, an Angel advised a user who was having trouble accessing the specialized Binance websites that were supposed to work within mainland China.
That Angel told the user to switch their VPN to a different region and try again.
“How do users in mainland China register their accounts?” another user asked in a Mar. 2022 message.
“Register with an overseas email address,” the same Angel responded, before telling the user to pick Taiwan as their residence.
That volunteer offered similar guidance to other customers. In Apr. 2022, another purported mainland China resident asked “What could I do if proof of residence is required? Can I change my place of residence?”
“Proof of registered residence is not required,” this Angel responded.
In another case, a purported mainland resident worried about uploading their Chinese identity documents, messages from March 2022 show. The same Angel reassured the user they could claim to be in Taiwan but still submit a Chinese identity card, and Binance wouldn’t stop them.
“[Binance] doesn’t do business on the mainland, but it can’t stop mainland users from bypassing the great firewall to play,” the Angel assured the user.
Angels also teach users about the exchange’s offerings, best practices, and the blockchain.
In one question-and-answer lesson from Apr. 2022, two Binance Angels showed Chinese users how they could participate in Launchpad, Binance’s IPO-like product for new crypto tokens.
Chinese residents are prohibited from participating in initial exchange offerings under Chinese laws, including a specific ban on initial coin offerings.
“How do mainland users participate in Launchpad?” the Angel leading the session asked, rhetorically.
Several users said it was impossible.
But other participants in the Q&A, including a different Angel, said registering a foreign company or with foreign KYC would let mainland users sidestep Binance’s controls.
“Congratulations to this top student,” the session-leading Angel responded to the user who answered “overseas company” the fastest.
In comment to CNBC about the findings in this article, Binance reiterated that the Angels are not employees.
“Binance Angel Program is a community ambassador program, no different than the community ambassadors that operate on other platforms like Wikipedia and Reddit. Binance Angels are not given access to Binance equipment or Binance internal systems, nor do they have the authority to speak for Binance. Binance Angels are forbidden from sharing recommendations that are against our company policies or the law and would be immediately removed from the Binance Angel Program if they were found doing so.”
The Palau dodge
Palau launched its digital residency program in 2022 in an effort to modernize physical identity cards, rolling out an NFT-linked identity card that’s available for a few hundred U.S. dollars annually.
In a 2022 visit to the archipelago, Zhao called it a “very innovative” effort.
But Palau’s program also lets users around the world access Binance using their Palau “residency” to hide their country of citizenship and residency.
Customers openly referred to Palau’s program as a way to sidestep Binance’s country-specific controls, according to Telegram and Discord messages CNBC reviewed.
When users asked how to access products and currencies otherwise unavailable to Chinese residents, Angels guided them to an Oct. 2022 tweet from a handle that belongs to a Binance client relationship manager, according to a Binance customer who worked with them. That tweet, which has since been deleted, linked to a third-party Mandarin YouTube guide on using the Palau residency to pass Binance’s European Union KYC controls, even if the user lived outside the EU.
“Passing” allowed users to apply for Binance’s restricted Visa debit card, which lets them turn their crypto into fiat currency for use anywhere. (Visa declined to provide comment for this story.)
Specifically, the third-party video walks users through how to register with Palau, purchase the Palau ID, and upload the ID to Binance’s exchange. It then shows a user how to create a placeholder mail-forwarding Austrian address. Then, it offers an apparently genuine bank statement from the video creator’s German bank account, and explains how to modify the bank statement to include the Austrian address. Forging the bank statement takes nothing more than a PDF editor, according to the video’s creator.
In Nov. 2022, one user who said they were in mainland China inquired about the Binance Card, messages from the Discord server show. An Angel directed them to the video, and suggested it would help them get it.
In comment to CNBC, Binance says it did not have any part in creating the video guide. “That video is not a Binance-owned piece of content, nor is the content creator a Binance employee or even a Binance Angel.”
The technique of using fake Austrian credentials was well-known enough to be discussed in other chats in Nov. and Dec. 2022, although some of these chats did not make specific reference to this video.
One Binance employee warned an applicant not to apply for the Binance debit card “casually,” noting, “Some users said their accounts were banned after attempts to change their addresses to unauthorized countries.”
The customer reassured the Binance employee that they had used Austrian bank statements.
Similarly, in Dec. 2022 messages on Binance’s Chinese-language Telegram group, users complained that they couldn’t get a Binance debit card.
“If you are Chinese, you can’t,” one user said.
Another user guided them to a different video that used the same false proof-of-address and took advantage of an account from the same German bank.
“What if you can’t produce the relevant documents?” the creator of this second video asked rhetorically. “You can join my Telegram group. Someone in my group provides this service which can help you customize this address certificate.”
Or, the creator continued, mainland users could obtain “proof of address” or “overseas professional customization” on Taobao, a Chinese marketplace.
Regulatory and compliance experts told CNBC they were alarmed by how easily Binance users were able to fake KYC credentials.
“I’m sitting at main Justice, or the National Security Council, I get very concerned hearing this. If I’m sitting at the IRS, I get very concerned about this,” Meghji told CNBC.
Richards told CNBC that any unauthorized access to Binance would concern the exchange’s traditional financial partners, from Visa to a customer’s bank. If a user tried to withdraw funds from Binance into a JP Morgan Chase checking account, for example, it might cause some concern.
“Chase would look at the source of funds and see that they’re coming from Binance,” Richards said. “And if they know that Binance is suspect, then the source of funds could be seen as suspect.”
CNBC asked Binance for comment on the substance of all the reporting in this article, and shared several specific posts and messages in the process. All of those messages and posts, including the Binance employee’s Tweet sharing the how-to video, were deleted after CNBC provided them to Binance.
In addition, hours after Binance responded to CNBC, messages apeared on Twitter suggesting that some customers’ Binance debit cards had been frozen.
“Why is my Binance card frozen?” the customer asked in Chinese.
The employee told the customer to take their concerns to Binance’s banking partner.
“How do Binance applicants know which bank is issuing the card?” the user retorted.
