Taking wedding-gift registries to the bank
By Kelli B. Grant
A down payment on a new house. A trip to Italy. A $700 stroller. Sometimes the gifts people really want for their weddings, milestone birthdays or baby showers don’t match up with the individual budgets of family members and friends.
So-called financial registries that let consumers solicit contributions for a big purchase have been around for years, but now banks and other financial institutions are getting in on the action.
Investing site Betterment launched a gift-registry feature earlier this month, with contributions slotted into the recipient’s portfolio of Treasury bonds and exchange-traded funds. Earlier this year, Social Money — parent company of SmartyPig , an online bank with a 1% yield that allows account holders to ask others to chip in toward listed goals — announced it would market the technology to other banks. The first bank to license Social Money’s technology, India’s ICICI, will launch it this fall, says Social Money co-founder Mike Ferrari, and further partnerships are in the works.
The advantage of gift registries for financial institutions is simple: They’re big business.
On wedding registries alone, the average family member spends $146, while friends shell out $79, reports TheKnot.com. Multiply that by the typical 150 wedding guests for some 2 million weddings a year, and there’s easily more than $1 billion in gifts up for grabs. Swaying even 1% of guests to give to a financial registry instead of pitching in for a stand mixer or a china place setting would substantially increase deposits and generate fee income, says Benjamin Tobias, a certified financial planner based in Plantation, Fla. Registries could also provide a wealth of marketing information: After all, if you’ve got a registry that’s collecting money for a home down payment, chances are you’ll eventually be in the market for a mortgage.
For consumers, the appeal is likely to be significant, too. “The registry is a holdover from a time when you really were trying to help a couple who had nothing,” says Matt Wallaert, a New York–based behavioral psychologist. As couples marry later, he says, they may already have many traditional registry items but could use money toward a down payment, say, or even toward big-ticket goods like furniture that are too expensive to draw takers on a traditional registry. Unlike other registries, users aren’t locked in to spending the gift with a particular company, and they’re earning a return on the cash while they work toward that larger goal. Gift givers, meanwhile, may find financial registries more affordable than picked-over kitchenware registries, he says. And giving cash through the registries may be easier than corralling money from other well-wishers to cover the cost of a particular item. See related story on SmartMoney.com: Paying friends and family, by smartphone.
That said, experts say consumers should proceed with caution. “For a short-term goal — one that’s less than five years away — I would not invest in anything that goes up and down in the market,” says Tobias. A simple savings or money-market account is a safer bet, he says.
Fees on individual gifts and accounts can add to both the givers’ and receivers’ tabs. SmartyPig charges gift givers a 2.9% transaction fee for credit- or debit-card transactions. Betterment charges registry owners an annual account fee of 0.15% to 0.35% of the account balance, depending on the plan chosen, in addition to fees for individual investments. Basic accounts require a monthly deposit of at least $100 to avoid a $3 monthly fee.
But sites say their fees are minimal compared with those of other registries that collect for honeymoon and wedding costs — in some cases, the cut there can be as much as 10%. The fees are also far less than gift givers might pay to cover tax and shipping on a physical gift. SmartyPig’s Ferrari says the site’s charges cover credit-card processing fees and that givers can create their own account for free transfers.
Betterment’s chief executive, Jon Stein, says the site plans to add a money-market option this fall for users who want a conservative approach for short-term goals. Gifts made to a registry count toward an account holder’s monthly deposit, too, which means you might not need to contribute your own cash to avoid maintenance fees.
Gift preferences and etiquette present another potential hurdle to the success of such sites. Givers tend to like the idea of sending something tangible, thinking the recipient will always remember who gave them that punch bowl or toaster, Wallaert says. A cash gift toward a larger goal, however, may be lost in the shuffle. (Betterment gets around this by letting users “register” for virtual items tied to their goal, at various price points — like bedroom furniture or front-door keys for their future home — although all the money goes into one account that can be spent as the account holder sees fit.) And for registrants, there’s also the risk that a request for cash will come across as rude. “Giving guests direction about gift giving should be done with the utmost discretion and care,” says Daniel Post Senning, a spokesman for the Emily Post Institute. As with other kinds of registries, it’s not polite to list the gift information in an invitation. Family members can quietly spread the word, he says, or you could link to the information on a wedding website for interested parties to find.
Talking up your registry preference could do harm to more than your social standing. The same registry-finding tools gift givers use to find someone’s account can also easily be employed by thieves, points out Paul Stephens, the director of policy and advocacy for the Privacy Rights Clearinghouse. An attractive high-sum publicly posted account balance could lead to increased phishing and hacking attempts, he says. (Ferrari and Stein say users can control how much information about a registry is made public.)
In social financing, as in life, discretion is the key.Read the Original Article
This article originally published September 28th, 2012 on Market Watch