The average cost of four-year college and tuition in the US has more than doubled in the 21st century, according to the Education Data Initiative.
This, along with other rising costs such as that of housing and vehicles, has put a greater emphasis for some parents on saving for their children’s future, educational or otherwise.
The average cost of a four-year college in the US is $35,331 per student per year, according to the Education Data Initiative, which reported that on average, parents saved over $5,000 last year for their kids’ college education.
UNest wants to help. Launched in February of 2020, UNest is a California-based fintech company and broker-dealer claiming to “make it easier than ever for parents to invest in their kids’ future.”
Many already use 529 plans to save for their kids’ college (30 percent of college savings accounts, according to the Education Data Initiative), tax-advantaged accounts for which there is no federal income tax, but from which the money must be used for educational expenses.
Instead of 529 plans, UNest offers UTMA plans, which allow the money saved to be used for any purpose, as long as it’s for the child. That could be education or it could be something else like their first house or a wedding, UNest president Jon Walker says.
When starting out, UNest offered 529 plans, but that changed in late 2020 to better fit customers’ needs. “As we started to grow, what we quickly saw, especially with the changing landscape and everything that’s going on, we saw a lot of the parents coming to us… not being sure. Are my kids going to go to college, just with the education landscape changing? What if my child just wants to go into business for themselves? Or what if their future is something besides education?”
Walker, who has lived in Utah for about 25 years, became the company’s president in mid-January. He takes over a day-to-day leadership role, along with leading efforts to introduce greater investing flexibility to UNest users, such as crypto, NFT, and individual stock investing products.
Currently, when a user signs up for UNest, the signup process includes an evaluation of the user’s time horizon and risk tolerance. From there, they can invest in “advisor-guided portfolios.”
UNest charges between $2.99 per month for its regular plan to $5.98 per month for its family plan, which is for up to five children. Both come with the choice of five investment options: a “conservative option” that invests in fixed income and bond ETFs, an “aggressive option” that invests 100 percent in Vanguard equity index ETFs, and three age-based options: conservative, moderate, and aggressive, which include a balance between fixed income and equities.
Age-based investments aim to maximize growth early in the child’s life and shift toward investments with less volatility risk as the child gets closer to the age at which they can access the funds, usually age 21, according to the company. Parents can withdraw from their UNest Investment Account at any time penalty-free, as long as the funds are used to benefit the child, the company says.
Up to $2,200 in annual UNest account earnings is tax-advantaged. The first $1,100 of income is tax-free and the next $1,100 is taxed at the child’s tax rate. Beyond that, gains to the account are taxed at the parents’ tax rate. After signing up, a minimum contribution of $25 is required, which can be made by parents, family, and friends.
Walker says that financial literacy is a “pandemic in its own right,” saying that people may have heard about education savings accounts, but getting started and doing it early is a big step in the right direction. “Our whole objective is lowering those barriers, letting parents get in now, set up an account in under five minutes, and let that money compound and grow,” Walker says.
“Making little contributions every month may not seem like a lot now, but by the time the child has access to that, it can make a real meaningful difference in their life. That’s really what we’re trying to solve for and to help with, but people don’t know where to start or what to do.”
While UNest is a financial advisor that currently curates portfolios for users, Walker says the company will also be making a concerted effort on the financial education front with “UNest Learn.” “It’s important to provide people the tools, but if they don’t know how to use the tools or don’t understand it, it doesn’t really benefit anyone,” he says. “UNest Learn is really putting an emphasis on financial literacy, to help educate the people we’re helping.”
Beyond those developments and the rollout of UNest’s crypto, NFT, and individual stock products, another of Walker’s initiatives is to “expand the company’s presence in Utah,” according to a press release. Walker said the company will still be headquartered in California, but they’ve already made “seven or eight hires” in Utah, and are looking into the possibility of opening an office in the state, citing the “amazing talent” and “quality of life” that Utah offers.
The company has seen significant interest since its launch two years ago. UNest currently has 400,000 users, with Walker saying they’ve set a goal of 1 million users for the end of 2022.
To date, UNest has raised almost $40 million in financing, with Walker anticipating “probably one to two rounds of financing” in the next 24 months.