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Having children brings many joys. But for women, it can also have a financial dark side. Becoming a mother often results in a loss of pay and opportunities for career advancement, a phenomenon known as the motherhood penalty. In fact, women experience a 60% decrease in income compared to men in the decade after their first child is born, according to PricewaterhouseCoopers’ 2023 Women in Work Index.

Many factors contribute to the motherhood penalty, and not every woman experiences it in the same way. Understanding the motherhood penalty can help women — and their families — sidestep this financial setback.

How Does the Motherhood Penalty Work?

If you want to avoid the motherhood penalty and keep your budget on track, it pays to know your enemy. According to a 2023 article published in the scientific journal PNAS, women’s diminished earnings after the birth of a child is driven by both a reduction in employment and by lower earnings for those who remain employed. Let’s look at each of these factors.

Despite the fact that women today have achieved historic levels of education and are working at senior levels in the corporate world, they are still more likely than men to cut back on their working hours or stop working altogether after a baby is born. Some women may choose jobs that allow for more flexibility in hours even if those roles pay less.

Discrimination is a more insidious factor: Women make up nearly half of all U.S. workers and do the bulk of consumer spending, yet some hiring managers still believe that women’s earnings are not as critical as men’s for household support. (A quick look at any parent’s money tracker app would reveal just how untrue this stereotype is.) When two women are similarly qualified for a job, the one without children tends to earn more than the one who has kids. And when men and women hold similar positions, fatherhood seems to confer a salary advantage in many occupations.

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Why the Motherhood Penalty Matters

Dual-income households have been the norm among married couples for decades, and most households composed of married couples with children have two working parents, according to 2023 data from the Bureau of Labor Statistics. Families with two healthy incomes are most likely to be able to afford a home, and to be able to cover other large expenses, including the cost of kids. (A 2022 report from the Brookings Institution suggests that the average middle-income family today will spend more than $310,000 to raise a child to age 17.)

But the motherhood penalty takes an especially hard toll on families led by women. According to the 2023 Census, 21% of U.S. children are growing up in a household led by a single mother, who often has no other source of income than her own earnings. The motherhood penalty may contribute to the fact that nearly 30% of single-parent families are living below the federal poverty level.

Factors Contributing to the Motherhood Penalty

As noted above, the unspoken ideas that women belong at home caring for their children, or that women are not vital contributors to their family finances, continue to be a driver of the motherhood penalty. This is despite the fact that households where two parents work outside the home is now the norm in the U.S.

But there is another troubling scenario. Women may leave their job because childcare costs more than they earn. The cost of caring for an infant in a childcare center averages $15,417 per year per child. In big cities, the number climbs even higher: Washington, D.C. averages $24,243, for example. And even when women don’t stop working, they may scale back their hours, or take more flexible but less well-paid positions.

The motherhood penalty is unfair, and one additional factor adds to the unfairness: In households with two working parents, where each parent earns roughly the same amount, women still spend more time on caregiving responsibilities than men do — 12.2 hours per week on average, compared with 9 hours for men, according to a 2023 Pew Research Center report. Women also spend 4.6 hours doing housework to men’s 2 hours. Women’s work may be valued less, but as the old saying goes, it’s never done.

Recommended: Pros and Cons of Salary vs Hourly Pay

Tips to Avoid the Motherhood Penalty

So what can women do to safeguard their finances from the motherhood penalty?

Consider your career choice. Women can begin to protect their financial future while they are still contemplating a career path. Some research suggests that the motherhood penalty disappears for mothers who work in business and post-secondary education. And in STEM careers, and fields such as medicine and law, mothers actually appear to earn more than women who don’t have kids.

Stand up for fair earnings. Exercise your right to be fairly compensated with every step you take in the working world. Applying for a job? Do your research to learn what is a good entry-level salary. Offered a position? Learn how to ask for a signing bonus — with unemployment relatively low, employers in industries from retail to engineering may pay you to come on board.

Change jobs. Women may be less likely to change jobs after becoming mothers, as switching jobs can be stressful and time off is often allotted based on seniority. Yet changing jobs is one way to bump up your salary. When you do switch, make sure you understand what is a competitive pay rate. A growing number of states, including California, Colorado, and New York, have passed pay transparency laws that require employers to post salary ranges when they advertise job openings.

Don’t share your status. It’s unlikely that you’ll be asked during a job interview if you have caregiving responsibilities, as doing so may violate federal and state laws. But many women casually disclose that they are parents during the interview process without thinking twice about it. Avoid talking about your personal life when interviewing for a job and consider that many employers examine applicants’ social media feeds during their screening process.

Advocate for fair pay and families. Research suggests that moms in women-dominated and low-paid professions face the greatest motherhood penalty. To help promote equitable pay that can sustain families, you can support raising the minimum wage. Lifting your voice in favor of government support for affordable childcare and for mandatory paid parental/caregiver leave can also help ensure that women who want to stay in the workforce after having a child can afford to do so.

The Takeaway

Despite the fact that women are working outside the home in historic numbers, the motherhood penalty still exacts a perilous price for many women and their families. Acknowledging that women are financially penalized for becoming parents is a first step in fighting back against the stereotyping and discrimination that is often at the root of this problem.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

What is meant by the motherhood penalty?

The motherhood penalty refers to the fact that women’s earnings suffer after they have children, sometimes due to discrimination in hiring or the awarding of promotions, and sometimes because women scale back on work or stop working altogether after having a child.

How does the motherhood penalty affect a woman’s career?

The motherhood penalty results in lower earnings, and because future earnings are often based on current salary, the diminishment in income often persists as a woman progresses up the ladder.

How can I avoid the motherhood penalty?

A primary way to avoid the motherhood penalty is to know your worth. Do your research on salary before taking a job, and reevaluate your salary at least yearly by looking at comparable positions.

Photo credit: iStock/Pekic

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SORL-Q224-1860153-V1

Money management — how to save, budget, and invest — is a vital life skill that isn’t part of most school curriculums. As a result, it often falls to parents to prepare kids for this aspect of adulthood. The trouble is, talking about things like spending, saving, and taxes with your kids may not come naturally, especially if you were raised in a “don’t talk about money” household.

So when — and how — do you start talking about money with your kids?

Generally, it’s never too early to begin teaching kids about the concept of money. You might start just by normalizing conversations about money, so kids feel comfortable asking questions. Other easy strategies include offering a piggy bank to young kids, to introduce the concept of saving, and providing an allowance to older children, which helps them learn to budget and manage their own money.

Read on to learn more about some of the best ways to teach kids about money and put them on the path towards financial health and independence.

Why It’s Important To Teach Kids About Money Management

Whether it’s the importance of saving or how to open a new bank account, money lessons help ensure that kids will make smart financial decisions in the future.

Children who are introduced to basic financial concepts at an early age are likely to feel more confident about their spending habits and have less financial anxiety when they’re older. Teaching young children simple lessons about money management also makes it easier to impart more complex financial lessons as they get older. This can help set them up for success when they get that first summer job, go off to college, and enter the working world.

Money Management Explained

First, let’s look at the big picture. Helping kids understand the basics of money management is important…but what is money management anyway? Some adults can’t answer that question, let alone explain it to their children.

Simply put, money management refers to how you handle all of your finances. It involves keeping track of what’s coming in and what’s going out (and making sure that latter doesn’t exceed the former), being smart about debt, and setting money aside for both short- and long-term goals.

While adults generally understand that saving money is important, it typically takes an engaging approach to get kids psyched about hoarding their pennies rather than spending them on a video game. With the right strategies, however, teaching kids about money management can wind up being a satisfying and fun experience for the whole family. It might even give you a renewed focus on your own money skills.

Money Management for Kids in 6 Steps

Here’s a look at some of the best ways to boost money management for kids.

1. Start Early

Children as young as three years old can start to grasp the basic concept of “We need dollars to get ice cream.” Talking about money in a positive, or simply neutral, way and being transparent about your own financial life (“I got paid today,” or “I need to pay bills tonight”) begins to ground kids in the ebb and flow of finances. It helps a child learn the value of money.

Parents can use a routine trip to the grocery store to point out price tags and how some things cost more than others. Asking a salesperson or cashier, “How much is this?” can clue children in to a transactional truth: You have to have money to buy something. Paying bills in front of them helps them understand that families also have household expenses.

2. Provide an Allowance

Offering an allowance can be a great way to teach kids to manage money responsibly. The ground rules for a child’s allowance vary from family to family; some start a child off with an allowance at age five, and others at age 14. How much kids get also varies widely and is entirely up to you. One rule of thumb is to match the number of dollars per week with a child’s age, such as $10 a week for a ten year old. You might also ask around among other parents to get a sense of the “going rate.”

Here’s a look at the two common ways to structure allowance.

•   Chore-based allowance: With this set-up, a child does chores in order to get paid. This system can instill a strong work ethic that will benefit children in the future. Some say a drawback of this method is that it could send a message that household chores are optional. But for many families, it works well.

•   Fixed allowance: Here, you agree to pay your child a set amount of money every week or month no matter what. Separately, they are expected to do their chores and help around the house because they are part of the family. This arrangement allows a child to feel part of a greater whole — to be responsible for the tidiness of their room and offer to help with the dishes because that’s what family members do. Some may argue that paying children an allowance that isn’t chore-based could compromise their work ethic or promote a sense of entitlement, but it’s really up to each family to determine what works best for them.

3. Encourage Saving and Goal-Setting

Just as adults are motivated to save when they want to have enough money for, say, a vacation or new car, your child may be incentivized to save a target amount for a specific purpose. Or, you may have a child who just wants to see how high their savings can go — that’s fine too! You can encourage them to save just to find out how much they can stash.

You might also offer rewards for reaching savings milestones. For example, you could make a deal that if your child saves a certain amount, you’ll kick in a little bit more. This rewards them for exercising restraint, and it’s similar to a vesting or “company match” principle, which you could explain to an older child.

4. Give Them a Place to Stash Their Cash

For younger kids, keeping money close at hand can work well. Having their own piggy bank or child’s safe can also make saving more fun. For older kids, you might want to open a savings account in their name. Many banks offer savings accounts specifically geared toward children and teens. Typically, these are joint or custodial accounts that come with parental controls and tools that teach financial education.

5. Introduce Them to Credit

As teenagers become more independent and start driving themselves around, consider enrolling your child as an authorized user on one of your credit cards. This can not only be helpful in the event of an emergency, like a flat tire, it’s an opportunity to discuss how to be responsible with credit. You can explain how credit cards work differently than debit cards and how interest racks up quickly if you don’t pay off what you charge in full by the end of the billing cycle.

6. Explain Budgeting When They Graduate From College

Once your kids are earning money regularly and responsible for paying their own room and board, it’s a good idea to help them draw up a budget based on their salary and estimated expenses.

There are all kinds of budgeting methods, but they might start with the basic 50/30/20 approach. This involves putting 50% of their earnings toward needs, 30% toward wants, and 20% toward savings (including any money they are putting into a retirement plan offered by their employer). If their employer offers any matching contributions to their retirement contributions, encourage them to take full advantage, since this is essentially free money.

Fun Ways To Teach Kids Money Management

To make financial literacy fun and engaging, try one of these four money activities for kids.

Go Thrifting

Buying second-hand clothes can be a great way to teach kids how to be smart spenders. You might first go to a regular clothing store and look at the price tags on new clothing, then head to a local thrift store and compare prices. Consider giving your child a set amount they can spend on second-hand clothing. You can then enjoy watching them try to get as much as they can for their money.

Encourage Some Sibling Rivalry

If you’re teaching more than one child about money, consider setting up a competition to see which sibling can save more by a certain date. You might set a goal, such as saving a specific amount or towards a specific item, then offer a reward to the winner.

Set Up a Lemonade Stand

Letting kids set up and run a lemonade stand can help them learn valuable lessons about money, including earning income and entrepreneurship. It can also help them build confidence, resilience, and management skills. Plus, it’s fun. Just be aware that many states require kids to have a permit to operate a lemonade stand, so the first step is doing a bit of research.

Play Financial Board Games

Classic board games like Monopoly and Payday can also be great money activities for children. In Monopoly, for example, players buy and trade properties, develop them, and collect rent. There is even Monopoly Jr. for younger kids. Other fun money board games for your next family game night: the Game of Life, the Allowance Game, the Stock Exchange Game, and the Sub Shop Board Game.

Recommended: 52 Week Savings Challenge (2024 Edition)

The Takeaway

Teaching kids about money and how to manage it can prepare them to be financially responsible adults. By offering an allowance or payment for doing extra chores, kids can learn the value of money and rewards of saving and delayed gratification. Helping older kids learn how to budget and set up a bank account can instill a sense of confidence and independence, not to mention pride.

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FAQ

When should you start teaching kids money management?

Children as young as three years old can begin to understand the concept of paying for something and saving money in a piggy bank. Some parents start giving kids an allowance between the ages of five and seven, which can help them learn basic financial literacy concepts like saving, spending, and sharing. As kids get older, you can gradually introduce more complex concepts like budgeting, investing, and “good” vs. “bad” debt.

What are the benefits of teaching kids money management?

Teaching kids about money has numerous benefits. It instills financial responsibility, fosters good habits early on, and prepares them for real-world financial challenges. It also encourages critical thinking, goal-setting, and independence in making financial decisions.

How do you teach kids the value of money?

You can teach the value of money through hands-on experiences and age-appropriate activities. Encourage earning money through chores or tasks, involve them in family budgeting discussions, and demonstrate the consequences of spending choices. Emphasize the importance of saving for goals and how to differentiate between needs and wants.

How do you organize your kids’ money?

You can organize a kid’s money by helping them establish savings goals, allocate their money into different categories (such as saving, spending, and giving), and track their progress regularly. Consider using tools like jars, envelopes, or savings accounts to physically or digitally separate their money.

What is the 3 piggy bank system?

The “three piggy bank” system involves dividing money into three categories: saving, spending, and sharing. Each piggy bank represents a different purpose, teaching kids to allocate their money wisely. They learn the importance of saving for future goals, budgeting for everyday expenses, and contributing to charitable causes or sharing with others. This system helps instill foundational money management skills in a simple and practical way.

Photo credit: iStock/kate_sept2004

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SOBK-Q224-1855684-V1

Raising the minimum wage, which is a hot-button political issue, could have immediate effects on the lives of low-wage hourly workers. It could help them to move out of poverty and keep up with inflation. Some economists argue that other pros of raising the minimum wage could include increased consumer spending, reduced government assistance (and increased tax revenue), and stronger employee retention and morale.

Alternatively, other financial experts point to the cons of raising the minimum wage, including potentially increasing the cost of living, reducing opportunities for inexperienced workers, and triggering more unemployment.

Learn more here, including the purpose of the federal minimum wage, where the minimum wage currently stands, and the pros and cons of raising it.

What Is the Federal Minimum Wage in 2024?

The federal minimum wage in 2024 is $7.25 per hour. The last time that minimum wage increased was on July 24, 2009, when it grew $0.70 from $6.55 an hour. This was part of a three-phased increase enacted by Congress in 2007.

It’s worth noting that tipped employees (say, waiters) have a different rate. The current federal tipped minimum wage is $2.13, as long as the worker’s tips make up the difference between that and the standard minimum wage.

Some states have their own minimum wage laws with a higher (or lower) starting wage than the federal minimum. In such states, employers must pay out the higher of the two minimum wages.

Here are some minimum wage fast facts:

•   The highest current minimum wage is in Washington, D.C., where it is $17.00.

•   There are 58 cities and counties with minimum wages higher than their state’s figures. Of these, the city of Tukwila, Washington, currently has the highest wage at $20.29 per hour.

•   As of 2023, about 20.6 million US workers make less than $15 per hour, and many are making the federal minimum wage of $7.25 per hour or less.

•   While the minimum wage has been stagnant since 2009, inflation has not. The spending power of $7.25 in 2009 is equivalent to $10.55 today. This means that $7.25 can buy today about 68% (or just over two-thirds) of what it could buy in 2009.

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What Is the Purpose of the Minimum Wage?

So why was the minimum wage originally created? The minimum wage was an idea that gained traction during the Great Depression era. During that time, President Franklin D. Roosevelt worked with Congress to pass the Fair Labor Standards Act of 1938, which officially established the minimum wage. Even then, politicians bickered over the hourly rate and potential impacts on the economy, and the final legislation (25 cents an hour) was not what FDR originally had in mind.

Regardless of the final number that Congress landed on, FDR’s vision for this minimum wage law was to “end starvation wages and intolerable hours,” according to the Department of Labor. The Legal Information Institute of Cornell Law School paints an even clearer picture: The minimum wage was designed to create a minimum standard of living to protect the health and well-being of employees.

In short, early proponents of the minimum wage legislation intended for it to be a living wage. And as the Kenan Institute of Private Enterprise points out, in today’s economy, “there is a stark difference between the federal minimum wage and a living wage.”

Recommended: Salary vs. Hourly Pay

Benefits of Raising the Minimum Wage

Many economists point to several pros of raising the minimum wage, including the following:

Helping Families Get Out of Poverty

Even without minimum wage increases in today’s market, inflation is skyrocketing. In July 2022, it was up 9.1% year-over-year, a four-decade high. In 2023, it was 4.98%. The average American family is likely trying to cut grocery costs, gas prices, and utility bills.

The Raise the Wage Act of 2023 focuses on raising the minimum wage to $17 an hour by 2028, giving almost 30 million American workers a long overdue raise and more buying power to make ends meet.

While raising the minimum wage will not stop inflation’s effects, it could help families more easily afford basic necessities. It can also fulfill the legislation’s original intention of eliminating starvation wages and establishing a minimum standard of living.

Increasing Consumer Spending

Multiple studies over the last decade have demonstrated that low wage earners are more likely to put their income directly back into the economy. That’s because low wage workers spend a larger portion of their budget on immediate needs, like food, clothing, transportation, and shelter.

Increased consumer spending is a boon to the economy, as it is a positive economic indicator reflecting consumer confidence in the market — and brings more revenue to small businesses and corporations alike.

Increasing Federal Revenues

Reports have found that federal spending would both increase and decrease if the minimum wage were raised. While those with newly raised wages might rely on government assistance less (for example, there could be reduced spending on nutrition programs like SNAP), workers who lose their jobs as a result of minimum wage increases will put an excess burden on unemployment.

However, increased tax revenue from higher wages should boost federal revenues overall.

Increasing Employee Retention and Performance

The theory of efficiency wages suggests that higher-paid employees are more motivated to work harder and thus produce more goods and services faster. If that theory is true, increasing the minimum wage could help businesses become more profitable.

Further, employees are more likely to stay with a company longer if they earn good wages. The longer an employee is with a company, the more skilled that employee can become — and thus more valuable to the business.

On top of that, employee turnover is expensive. Replacing an employee with a new candidate can cost up to 150% of the worker’s salary or possibly more. In many cases, it might be cheaper for a business to pay an employee a better salary to keep them from leaving. It could be cheaper than recruiting and training a new worker to replace them after they’ve left.

Cons of Raising the Minimum Wage

There are multiple downsides to raising the minimum wage to consider when debating this policy as well:

Increasing Labor Costs and Unemployment

The largest concern with raising the minimum wage is increased labor costs. If the minimum wage increased to $15 an hour, businesses would suddenly need to give raises to everyone making less than that.

But if some employees were making $10 to $15 an hour, they might not be thrilled to hear that other workers with less tenure and experience are suddenly being paid the same. And employees who were making $15 an hour or slightly above it may also expect a raise once entry-level workers are bumped to $15.

The problem? Not all businesses can afford that. Restaurants, for example, operate at a 3% to 5% profit margin. Increasing labor costs could shrink (or eliminate) their margins, meaning they might have to let go of some staff or go out of business.

Another aspect of this is that if employers have to raise their wages, they might well raise their prices, passing along the increase to their customers.

Increasing Cost of Living

As businesses adjust prices to accommodate higher labor costs, consumers should expect that their dollars won’t go as far as they used to. That is, many economists argue that minimum wage is correlated with inflation. Some say that if business owners have to raise the minimum wage they pay workers, they will pay along those costs to their customers, ratcheting up their prices and contributing to inflation.

That said, other economists paint inflation as the boogeyman of the minimum wage debate. For example, Daniel Kuehn, a research associate at The Urban Institute, has said that, though increasing wages will increase the cost of goods and services, it’s not really a 1:1 ratio. In other words, it won’t be “enough for consumers to really feel a burn in their wallet.”

Recommended: Compare Texas Cost of Living to California Cost of Living

Decreasing Opportunity for Inexperienced Workers

Typically, employees without specialized skills — first-time workers in high school and college, people with disabilities, and the elderly — fill some minimum wage jobs to earn what might be considered entry-level salaries. But as employers are forced to pay workers more, some argue that companies will look for employees with more experience (or will invest in automated technology). This could make it more challenging for unskilled laborers to find work.

Handling the Effects of Raising the Minimum Wage

Businesses may need to adjust practices to pay employees a higher hourly rate if the federal or state minimum wage increases. Here are a few ways company leaders might be able to handle the effects of increased wages:

•   Raising prices: If a company’s labor costs go up, the company may need to offset those expenses with higher prices for its goods and services. Paying attention to what competitors are doing and how consumers are reacting to price hikes can be helpful in determining how much you raise prices.

•   Working with independent contractors: Independent contractors might be more affordable than full-time employees for specific job duties. For instance, the employer would save on paying benefits (though that could mean staff workers get laid off and go on unemployment).

Before establishing an independent contractor model at your business, it’s a good idea to research the guardrails around independent contractors, as defined by the IRS.

•   Automating some positions: Technology continues to offer new ways to automate certain business functions, which may allow employers to reduce headcount, avoid future hires, or reassign existing employees to more revenue-generating work.

•   Reducing hours or cutting costs: Business owners who do not want to lose any employees might be able to reduce overall hours or find other ways to cut costs instead (perhaps a less expensive benefits package, for instance).

•   Getting creative: Offsetting increased labor costs can be as easy as generating more business. But then generating more business isn’t always so easy. Some creative ideas to get customers in the door could include loyalty programs or offering low-cost alternatives for budget-conscious customers.

The Takeaway

The original intention for establishing a minimum wage was to enable workers to have a standard of living that allowed for their health and well-being. While opponents may still argue over “living wage vs. starting wage,” many signs point to today’s federal minimum wage not being enough to have a basic standard of living. Raising the minimum wage has several pros, but it’s important to remember that there are many negative effects to minimum wage increases as well. The economic solution may not be simple, but it will likely be a debate that’s in the spotlight today and in the near future.

A high-yield bank account can be a good idea no matter what your wages are.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How does increasing the minimum wage affect the economy?

Some economists argue that increasing the minimum wage encourages consumer spending, helps families out of poverty, and boosts tax revenue while reducing tax-funded government assistance. Other economists point out the cons of raising the minimum wage, like increased inflation and unemployment.

How does decreasing the minimum wage affect the economy?

In general, the discussion around minimum wage is about increasing it. Economists and politicians are not considering decreasing the minimum wage; doing so would send more families into poverty and decrease consumer spending.

Why are state minimum wages different?

States are able to enact their own laws that supplement or deviate from federal laws. Many states with a higher cost of living, like California and Washington, have increased their minimum wage to roughly double the federal minimum. If a state’s minimum wage differs from the federal minimum wage, employers must pay the higher of the two rates.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Investing in farmland can take many forms, including buying related stocks, or even farmland REITs. That’s contrary to what many people might think: That investing in farmland or agriculture may involve owning farmland and operating a farm.

Many investors overlook this business sector when deciding where to put their money because they don’t see themselves toiling the land. But there are various options to invest in agriculture without being a farmer.

Why Invest in Farmland?

Investing in farmland or the agriculture sector is more than just owning some of that farmland and working the land. Agriculture can be an alternative investment that diversifies an investor’s portfolio. Investors can get exposure to agriculture and farming by investing in businesses involved in any part of the farming process, from the seeds in the ground to the distribution of products to grocery stores.

While there’s no guarantee that growth will occur in the space during the years ahead, it may be helpful for investors to get a feel for the soil, so to speak, before planting an investment.

4 Ways to Invest in Farmland

There are a handful of key ways to invest in farmland, including through stocks, exchange-traded funds (ETFs), and REITs.

1. Agriculture Stocks

Investors can put money into various publicly-traded companies that provide services in the farming industry. These agribusiness firms range from those involved in actual crop production — though many crop producers are privately held — to companies in the farming support businesses. The farming support businesses include companies that make fertilizer and seeds, manufacture farming equipment, and process and distribute crops.

Companies in the agriculture industry include, but are not limited to:

•   Archer Daniels Midland Company (ADM): A large food processing and commodities trading firm

•   Deere & Company (DE): Known as John Deere, this company manufactures agricultural machinery and heavy equipment

•   Corteva, Inc. (CTVA): An agricultural chemical, fertilizer, and seed company

•   The Mosaic Company (MOS): A large company that produces fertilizer and seeds

•   AGCO Corporation (AGCO): An industrial company that’s perhaps best known for selling tractors.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

2. Agriculture ETFs and Mutual Funds

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to the agricultural industry. Agriculture-focused mutual funds and ETFs invest in a basket of farming stocks, commodities, and related assets, allowing investors to diversify farming exposure.

3. Farm REITs

Farm and agricultural real estate investment trusts (REITs) own farmland and lease it to tenants who do the actual farming. REITs that invest in farmland can be a good option for investors who want exposure to farmland without actually owning a farm.

This type of investment can provide investors with various benefits. For example, a REIT is a type of liquid asset, meaning an investor can quickly sell the investment on the stock market. In contrast, if an investor were actually to own farmland outright, trying to sell the land could be a drawn-out and complex process. Other benefits include regular dividend payments and geographical and crop diversification.

4. Commodities

Agricultural commodities are the products produced by farms, like corn, soybeans, and wheat. Usually, this is done by trading futures contracts, though large investors may actually purchase and sell the physical commodities.

Trading commodities can be a profitable, though risky, endeavor. Investors who trade commodities look to take advantage of the market’s volatility for short-term gains. Commodity trading can be risky, especially for a novice investor. ETFs with exposure to commodities may be better for investors with lower risk tolerance.

Recommended: Why Is It Risky to Invest in Commodities?

Benefits and Risks of Investing in Agriculture

Investing in farmland and agriculture has its pros and cons. Here are some of the benefits and risks investors should consider.

Benefits

One of the significant benefits of agriculture investments is that people always need to eat, so there will usually be some demand support for businesses in the industry. Because of this, some investors view the sector as somewhat recession-proof (at least parts of it), and potentially, a good way to diversify a portfolio.

Another benefit is that farmland REITs and certain agriculture stocks can provide passive income through regular dividend payouts. Additionally, farmland investments can provide a hedge against rising inflation.

Risks

The agricultural and farming sector can be fickle, as it’s subject to various risk factors that can impact investments. Uncertainties stemming from weather to government policies to the global commodities markets can cause volatile swings in prices and income that affect investments in the sector.

Here are some risks facing agricultural investments:

•   Production risk: Major weather events, crop diseases, and other factors can affect the quantity and quality of commodities produced.

•   Market risk: The global markets for commodities can affect farming and agricultural business as prices can swing wildly, making crop production and agribusiness demand uncertain.

•   Financial risk: Farms and related businesses often use debt to fund operations, so rising interest rates and credit tightening can hinder companies in the industry.

•   Regulatory risk: Changes in taxes, regulations, subsidies, and other government actions can impact agricultural businesses and investments.

The Takeaway

Investors who want to invest in the agriculture sector don’t necessarily need to buy a farm. Several investment vehicles can fit their needs to get exposure to farming. Farmland REITs, agribusiness stocks, and farming and commodity ETFs can be options to build wealth in the farm business.

While investing in farmland may have some advantages, it has its risks, too – which investors should take note of before making any investments. If you’re interested in adding an alternative investment, like farmland, to your portfolio, it may be a good idea to speak with a financial professional for guidance.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

FAQ

Is farmland a good investment?

Farmland might be a good investment, as agricultural investments can help diversify a portfolio. Depending on what areas of the agriculture business you invest in, the assets can produce steady income and long-term capital gains. These investments do have risks, too, however.

Is farmland a risky investment?

Farmland can be a risky investment, as it faces risks from all sorts of directions – weather, government regulation, global commodities markets, and more.

Is farmland recession-proof?

A farmland investment might be called recession-proof, and that may be true to a degree as there’s likely always going to be a base level of demand for the sector’s products (people need to eat!). But like any other sector, a recession would likely lead to a significant downturn in the agricultural space.

How profitable is farmland?

How profitable farmland investments ultimately are depends on the whims of the markets, and numerous other factors, including the weather, global demand, and even consumer tastes.

Photo credit: iStock/PeopleImages

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