The Trillion Dollar Wealth Gap

Plus, Ric’s interview with policy expert Shira Markoff of Prosperity Now

Ric Edelman: It's Friday, November 17th. Coming up on today's show how we're going to solve America's wealth gap. And blockchain forks.

Tokenization is Coming!

Today I want to talk with you about tokenization. What is it? Well, you really need to pay attention because this is the biggest thing coming in finance. Tokenization refers to the process of creating and distributing a digital representation of a real asset, and this is done on a blockchain. What do I mean by a real asset? Well, think real estate, commodities, artwork, stocks, bonds, intellectual property. Analysts say that $5 trillion worth of tokenized digital securities could be issued by the end of this decade. Already, Broadridge does $1 trillion worth of tokenized transactions every month on its blockchain. When you tokenize assets, you get the benefits of blockchain technology 24/7 operation, instant settlement, high degree of security. You also can program the tokens, which increases the level of automation. This is creating much better capital efficiency, allowing businesses to operate faster, cheaper, safer than ever before. Tri party repurchase agreements or money market fund redemptions can occur in seconds instead of the current T plus two settlement, meaning that it takes two days to get your money when you do a trade. Tokenization, demonetizes and democratizes. 

In other words, we can take an asset. Oh, look at a big office building that's 50 stories tall in Manhattan that's worth $100 million. Who can afford to buy that building? Only people with $100 million at their disposal. But what about retail investors, moms and pops trying to save for their retirement? They might want to invest in that real estate, but they don't have the money to do so. So you take that building and you tokenize it. You split that $100 million asset into 100 million slices of $1 each. Those tiny little pieces now become investable, purchasable by pretty much any investor. This is called Fractionalization. We already do this at Schwab. They offer you fractionalized shares of stock. You can buy a piece of IBM for as little as $5. You're not getting a whole share. Those cost hundreds of dollars, but you can buy a piece of a share for just five bucks. Fractionalization that's what tokenization allows you to do. You get better compliance, better audits, better transparency, and you get all of it 24/seven in real time. Streamlined, consolidated reporting, immutable record keeping and accounting. And blockchains are also cheaper to build and maintain. Thanks to all this, Bank of America says that banks are going to save $120 billion a year thanks to this new technology savings that will benefit everybody. 

You need to become familiar with tokenization, because we're going to see this in the marketplace in the not too distant future. Oh, wait, did I say not too distant future? How about the already here present? Yeah. Franklin Templeton has already released a tokenized money market fund. You don't even need a brokerage account to buy it. You don't even have to open an account at Franklin to do it. There's a free app on your smartphone called Benji. You can download the app and open an account and get a money market fund that's paying current interest rates for 5%, interest rates and money market accounts these days on a fully tokenized basis. What's going to come next? Tokenized shares of ETFs and mutual funds. We're going to be able to tokenize any real world asset you think you're giving your clients diversification. With the 20 or so asset classes already available in the not too distant future, there won't be 20 asset classes. There will be 20,000 of them.

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Exclusive Interview:  Policy Expert Shira Markoff of Prosperity Now

Ric Edelman: You're listening to the truth about your future. There's a problem we've talked about often on this program that has a lot of folks concerned. It is the growing wealth gap in America. It's big and growing, and there are some solutions being proposed out there. And we're going to talk about them right now. And joining me to do this is Shira Markoff. She is the senior policy fellow at Prosperity Now. Shira, great to have you on the program. 

Shira Markoff: Thanks for having me. 

Ric Edelman: So the wealth gap is big. It's trillions of dollars. And we're not just talking about rich versus poor people. We're talking about the fact that whites are far more likely to have wealth than minorities. Married women are far more likely to have wealth than single moms, divorced women or widows. So there's a big us versus them kind of thing going on in America that I think a lot of folks are aware of. That's not news, but what is kind of news and what I really want to get your insights on are some of the solutions that are being proposed to fix this problem. And one of the most common talked about is this thing called baby bonds. Talk about what baby bonds are and how they might solve this problem. 

Shira Markoff: So baby bonds are based on this concept that it takes money to make money. We've all heard that before. And so when you have a young adult who is born into a household that doesn't have a lot of wealth, it's really hard for them to then get started in their adult lives. They don't have kind of a springboard to build off of. So baby bonds really are this idea that every child should have money set aside for their future. And so what basically happens is the government puts aside money for them shortly after birth, and then that money grows until they're an adult. And then they can use that money to purchase a home. Could be for college education, could be for starting a business. And so that gives them some opportunity to have some money to get started. 

Ric Edelman: The basic concept is that folks who are in the lower economic spectrum of the country don't have the ability to amass the kind of wealth needed to do any of those three things go to college, buy a home, or start a business. And their inability to do those things keeps poor people poor. So this is an effort to try to break that logjam. Since we can't do it generationally, then let's just do it artificially by providing some government support and by letting the government provide funds. At the time you're a newborn, you've got 18 or 28, 30 years to let the money grow where it can potentially do you some good. That's the philosophy behind this, right? 

Shira Markoff: Yeah. That's correct. It's really about evening the playing field a little bit so that somebody who is born into that household that doesn't have a lot of wealth, which is disproportionately people of color, people who are black, Latinx or indigenous, so that they have some initial money to get themselves started in life. 

Ric Edelman: So talk about some of the different proposals because they vary.

Shira Markoff: Well, I think the one that most people will have heard of is the idea proposed by Senator Cory Booker and Representative Ayanna Pressley, which is the American Opportunity Accounts Act, and that would create a national baby bonds program. So in their proposal, every child born in the US would get an initial $1,000 that would be invested for them by the government. And then each year, up to $2,000 would be added to their account based on their household income. So those at the lowest end of the income spectrum would get that full $2,000, and kids at the higher end of the income spectrum would not get any additional money. And then when the children become adults, they could use that money for buying a home, paying for college, retirement or some other wealth building uses as well. And I do want to say that 18 year old’s, they're not ready to buy a home. But it's not that the money has to be used at age 18. 

Ric Edelman: Could that 18 year old withdraw the money to buy a Corvette? 

Shira Markoff: No, they couldn't, so it would only be allowable for homeownership, post-secondary education, retirement investment, or there's other wealth building investments. 

Ric Edelman: Yeah, I wonder about the risk of loopholes. We always worry about fraud and abuse in any government program. And, you know, good deeds never go unpunished. And I just wonder if, for example, a beneficiary were to use the money, say, to buy a home, but then after they've done that in accordance with the program, they could then immediately sell the home, converting that money back into cash so they can then go buy the Corvette. Is there any notion or consideration to trying to reduce or prevent those kinds of abuses? 

Shira Markoff: There is no provision for checking that. 

Ric Edelman: What is the expected annual cost of Senator Booker's baby bonds proposal? 

Shira Markoff: So right now it's anticipated it would be about $60 billion per year. 

Ric Edelman: And so that's obviously going to be one headwind in Congress, getting the approval for that. But what is really worth noting is that there have been a number of states that have created a variety of different kinds of programs where they give small amounts of money to newborns, and the studies have shown that even giving a very small amount increases dramatically the likelihood that the child will end up going to college. It's just the acknowledgment that, wow, somebody has opened an account for you, and they have funded it, even with as little as $100, inspires the parents to continue their efforts to save for the child's college. So there is some good academic data that provides some hope and aspiration for the success of programs like this. Whether or not it's going to achieve the approval of Congress to spend $60 billion a year, given today's economic and political headwinds, I think remains to be seen. Can you tell us what the current attitude in Congress is about the senator's proposal? 

Shira Markoff: As we know, we have a divided Congress between the House and the Senate right now, and they're not really agreeing on much of anything at the moment. This legislation was originally introduced in 2018, and the number of co-sponsors has increased each year. Currently, there are, I believe, 15 co-sponsors in the Senate for this legislation. They are all Democrats. The other thing is that a number of states have proposed, or in some cases, actually passed legislation, and I think that will increase the momentum for a federal program. 

Ric Edelman: Talk about some of the state programs and how they operate. 

Shira Markoff: Sure. So the first state to pass baby bonds legislation was Connecticut in 2021. Their program would set aside $3,200 for children whose births are covered by their state's Medicaid program, so very targeted towards kids in low-income families. They're still trying to kind of get it funded. In Washington, D.C., there was also legislation passed in 2021 creating a similar program, although the amount that's invested would be $17,500 for kids from the lowest income families. And they're right now in the process of implementing that program. And then lastly, California last year passed a similar initiative, but very targeted toward some of the most vulnerable kids in the state. So children who lost a parent or caregiver to Covid-19, who are in low income households or kids who are in long-term foster care. And so that program would provide them with funds that they could use when they become adults to complete their transition to adulthood, especially the kids who are in foster care who wouldn't have family support. 

Ric Edelman: So are you familiar with the proposal that I envisioned called RISE? Tell me what your thoughts are regarding that. 

Shira Markoff: I think that proposal has a lot of merit because as we know, there is an extreme issue with crisis around retirement in this country, especially people from low income households, people of color not having adequate money to sustain themselves in retirement. So I think it's a really great proposal. You know, my work is much more focused on a different part of the life cycle that's focused on young adulthood and helping young adults to get started. And I could actually see these as complementary proposals, because what I think is that if we help young adults to get started and build wealth over their lifetime, they'll be more stable and secure and have assets going into retirement. And then you have something like rise, which is providing them with a secure retirement, and then they would be able to have that secure retirement and be able to retain some wealth to pass down to the next generation, helping them to be even more financially secure. So I really see these things as complementary. And I think given the vast inequities that we have in this country, we need multiple interventions at different points in the life cycle. 

Ric Edelman: I completely agree with you. And that is the reason why I created my proposal called RISE, Retirement Income Security for Everyone. If you're interested in it, you can look at the website I've built, We can RISE.com. And my proposal, if you're not familiar with it, addresses three elements that I think are either missing or a weakness in traditional other baby bonds proposals. The first, as you noted, they address people's needs in their 20s and 30s as opposed to their 70s and 80s. They deal with homeownership, education, and entrepreneurship. They don't deal with retirement. And while we definitely need to help young people go to college, buy a home and start a business, we also, I believe, need to help them pay attention to retirement. So my proposal is specifically and solely focused on retirement because the senator's baby bonds proposal deals with the other three. So I'm providing that fourth element that Senator Booker's does not. Second, the very name of baby bonds is itself an issue. Bonds, meaning we're going to invest the money in relatively low interest earning investments. Now, you have to do that when you're dealing with a relatively short time horizon, like helping kids to go to college. But if you're dealing with retirement, which is 50, 60, 70 years away, you can invest in stocks, which give you the potential for a much higher rate of return. 

So my proposal by focusing on retirement, allows us to take a higher investment risk than you can in a shorter term proposal. And finally, that $60 billion price tag is a big political hurdle. Everybody can agree, I think, Shira, with the concept of, yeah, let's set money aside for babies to help them get a good start in life. The trick is, how do you get Congress willing to write the check for $60 billion a year?

My proposal is privately funded. It doesn't cost the government, doesn't cost taxpayers any money. So I agree with you completely. My idea is meant to be complementary. It's meant to be a supplement of the others. So I would encourage you to go to Prosperity's website, Prosperity Now.org, to look at the work that Shira's organization is doing and their advice and information about the various baby bonds proposals at both the federal and the state level.  Prosperity Now.org. The link is in our show notes. You can also look, as I said at my proposal, We can RISE.com, which is also in the show notes. And I really hope, Shira, that you continue success in persuading members of Congress to pay attention to this as well as legislators at the state capitals, because clearly we have a huge wealth gap in America, and it's getting worse. 

Shira Markoff: Absolutely. Completely agree with that. And thank you for highlighting this important issue. 

Ric Edelman: Well, that's Shira Markoff, the senior policy fellow at Prosperity Now.org. Shira, thanks again for joining us. 

Shira Markoff: Thank you. 

Ric Edelman: Let me switch gears now. Bitcoin's been around since 2009 and we don't have a bitcoin ETF, at least not yet. But there are applications in front of the SEC any day now. The SEC may very well approve one or more of these bitcoin ETF applications. It's coming soon. You don't have a lot of time to wait. You need to get the knowledge you need right now about crypto, so that you're prepared and ready to help your clients when these ETFs enter the market. Your clients are going to call you asking you for your opinion. You need to demonstrate to them that you've gotten that knowledge, and there's only one way for you to do it. Get your CBDA to become certified in blockchain and digital assets. It's offered by DACFP, the Digital Assets Council of Financial Professionals. It's online self-study and self-paced. It's listed in FINRA's database of professional designations, just like the CFP®, the CFA, the CLU, and the ChFC. You need to serve your clients. You also need to build your practice, and the CBDA designation will help you do both. Enroll today and get your CBDA designation. The link for enrolling is in the show notes. 

Crypto Explainer: Blockchain Forks

Ric Edelman: Let me share with you a term that you come across in the world of crypto. The notion of forks. Oh, I don't mean the stuff you use to have dinner with. I'm talking about blockchain forks. A blockchain fork occurs when a blockchain splits into two blockchains. It forks. It's the result of disagreements by developers over how the blockchain should operate. So when they can't reach a conclusion whether they should turn left or right, they split the blockchain into two blockchains. One of them goes left, the other one goes right, and from then on they are separate and distinct blockchains. That's called a hard fork when there's a complete differentiation between the two.

But there's also something called a soft fork. That's the creation of a new coin that uses the original blockchain. So instead of having one blockchain that turns into two blockchains, you have one blockchain that has two different coins on it hard fork and soft fork. Just some more of the lingo you should become familiar with in the world of crypto. Hey, totally change the subject.

Now let's talk about water. The average American family uses 300 gallons of water every day. That doesn't count swimming or boating or fishing, let alone water needed for manufacturing, mining, electricity, or of course, agriculture. So clearly we're using a lot of water every day. Each one of us. There are two types of water that we need to focus on clean water versus drinking water. You might think that one equals the other, but not really. Clean water might look clear, but it can still have bacteria or chemicals or metals. Drinking water is what's safe to drink or to use when you're preparing food. So yeah, it can get confusing. Tap water might be clean, but not safe to drink because it might have high levels of arsenic. Even though bottled water might be safe to drink, it might not be clean because it's stored in plastic containers, and those containers leach chemicals into the water.

So yeah, it can be confusing. The best way to ensure that your water is both clean and safe to use is by using a public water system that meets the standards of the Safe Drinking Water Act or use a home filtration system that removes the impurities from your tap water. You can also test your water, which you ought to do pretty regularly, to see if there are any contaminants that might affect the water's quality and safety. 

And of course, one big problem once you get past the issue of whether your drinking water is safe water or clean water is that we simply don't have as much water as we need. All of this explains why water is a big business. The global water and wastewater treatment market is $300 billion. That's expected to double by the end of the decade. New technologies are being created that clean water as well solar powered water filtration, desalination systems, nanotechnology, wastewater treatment and water purification facilities. It's big business.

If you'd like to invest in this business, you ought to consider the Global X Clean Water ETF. The symbol is AQWA; AQWA and you can learn more about it at Global X ETFs.com. If you're an investor, ask your financial advisor about not just drinking, but investing in water. The Global X Clean Water ETF.

Thanks for joining us today. You know, we've got a new episode of the podcast every weekday. So if you miss one or if you're looking for info on a specific topic, you can find all our past shows at TheTruthAYF.com.

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