401(k) AND OTHER INVESTMENT FEES

Many considerations should be an active part of any investment decision - your investment objectives/goals, comfort level with risk, time horizon, management issues (i.e., fund manager, utilizing a financial planner, etc.), asset allocation, and investment fees/expenses to name a few. This week I want to focus specifically on fees and expenses. [While a 401(k) is the most common type of account, you will find that following principles related to managing fees and expenses will apply to other types of investment accounts as well].

While your investment contributions, rate of return, and time are the primary gauges of your account's future value; the fees and expenses paid by your plan can substantially 'shrink' that value. The Department of Labor provides the following example:

Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent!

OVERVIEW OF PLAN FEES & EXPENSES...

ADMINISTRATIVE FEES. The costs of basic administrative services (i.e., accounting, plan record keeping, legal services, etc.) may be borne by different parties: covered by investment fees deducted from investment returns, paid by employer, or charged against the overall assets of the plan. The size of this fee is often correlated with the level of services provided (although note always the case) -- in addition to basic administrative services, some plans may also provide access to customer service reps, educational seminars, software, investment advice, electronic access to plan, online transactions, etc.

INVESTMENT FEES. The heftiest of investment fees are for managing the plan investments. Fees for investment management generally are assessed as a percentage of assets invested. You should always pay close attention to these fees. They will be reflected as an indirect charge against your account (they are deducted directly from your investment returns). Your net total return is your return after these fees have been deducted. Since these fees are not specifically identified on statements, they can go 'unfelt' by investors (out of sight out of mind).

'INDIVIDUAL' SERVICE FEES. Individual service fees are those that are charged separately to those who use particular features. Loan options and brokerage options (ability to purchase stock) are examples of particular features that would be assessed individual service fees.


FINDING INFORMATION ABOUT PLAN FEES:
- Financial sources - Wall Street Journal, Yahoo Finance, Morningstar...
- Plan prospectus (outline of fees associated with investment choices).
- The summary plan description (provided when you join the plan).
- Your account statement.
- Your plan's annual report.
- YOUR PLAN ADMINISTRATOR.

* Keep in mind that law merely requires that fees charged to a 401(k) plan be "reasonable" - there is no specific fee level that is set. If something seems 'unreasonable' to you, contact your plan administrator and let them know.

** By no means am I suggesting that cheaper is necessarily better... rather, fees are one relevant consideration in decision-making. Also, understand that higher cost by no means translates to consistently superior returns.

ADDITIONAL RESOURCES.
- A Look at 401(k) Plan Fees
- A Study of 401(k) Plan Fees and Expenses
- Managing Your 401(k): Fee Overview (FINRA)
- Mutual Fund Expense Analyzer

NEW RULES FOR CARD COMPANIES + CLOSING UNUSED ACCOUNTS

Last May I blogged about the proposed credit card changes by the Federal Reserve to crack down on unfair and deceptive card practices. Fortunately for consumers, the rules were passed last week. Unfortunately, the changes won't take effect for another year and a half (July 2010)! You can read my prior blog for a summary of the changes.


Today, I want to write about a growing phenomenon with card companies right now -- closing the cards of inactive accounts. Many people are wondering how this might impact their credit. How [or whether] your credit (score) will be impacted will largely depend upon your 'bigger' credit picture. Questions to ask ...

--> How many credit cards do you currently have? If you have several cards (I will call this more than 4), you have "enough" cards and closing one from that standpoint won't harm your credit. If you have 3 or fewer cards, closing one will lower your credit score. You may want to consider keeping the account open.

--> How long have you had the card? Age of other cards? If you have other [open] card accounts that you have had longer, closing a card with a shorter history will have a minimal impact; if the card being closed is the card you've had for the longest period of time, the impact will be larger as you will in effect be 'shrinking' the age of your credit history.

--> How much [if any] credit card debt do you have? If you pay your balance(s) in full each month, no problem. The higher the level of debt, however, the greater the impact (negatively) to your credit. Suppose you have $2,500 in CC debt and your total credit limits on your cards totals $10,000. Your debt to limit ratio is 25%. If the closed account had a credit limit of $5,000, your debt is obviously the same ($2,500) but your debt to credit limit ratio would now be 50% ($2500/$5000).

As a rule of thumb, if you have a high credit score with a strong mixture of credit, I wouldn't be overly concerned about the impact that a closed credit card account would have. If you want to keep your accounts open and active, the advice of consumer advocates [is said to work with most card companies]... Make at least one purchase every 6 months on the card - amount of purchase does not matter - and your card will be kept in an 'active' status.

THE BEST CREDIT CARD REWARD PROGRAMS

My inspiration for a tip this week came from an advertisement I saw for a new credit card offering some interesting reward incentives (see Fidelity card below) ... it got me thinking about credit card reward programs in general. The credit cards mentioned represent MY favorite reward card programs. Picking the "best" CC programs is sort of like picking the best cities in the country to live - there will always be room for differences of opinion [there are almost that many to choose from as well!].

The primary criteria I used to guide my decision-making process:
- No annual fee
- Permanent, not "introductory" rewards (i.e., 2X benefits for 6 months)
- Preference given to programs that credit the rewards regularly
- Straightforward program - uncomplicated (i.e., not tier-based, etc.)

BEFORE considering a reward-based credit card, you should be aware...
- Aware of your tendencies; it is easy to spend more when using plastic
- Cash back rewards tend to offer healthier benefits than points do
- CNN Money article on 'the risks of the rewards'
- Interest rates on reward cards tend to be higher than other cards
- Only worth considering if you pay your balance in full monthly
- Scrutinize carefully any offer that is 'up to' some % or amount
- Selection should meet your needs based upon projected card use
- Tools can help you analyze offers based on your spending habits
- Ultimately, ensure the benefits outweigh any associated costs
- USE ACCUMULATED REWARDS! 41% rarely/never use their rewards


- AMERICAN EXPRESS -
Depending on your circumstances, American Express has a couple of potentially strong reward cards. AmEx Clear offers a card with absolutely no fees (no annual fee, late fees, overlimit fees, cash advance fees, or balance transfer fees). I may question the value of a card if you commonly get hit with fees, but if you do and plan to continue using credit, this may be a smart solution. They also provide a free credit score annually. The AmEx Blue doesn't meet my simplicity rule (offers 5% back on some items after the first $6,500 spent each year; 1% on those purchases up to that point -- 1.5% and .5% respectively on "other" items). But, it can be a viable option for those that use their credit card to make most of their purchases.

- CAPITAL ONE NO HASSLES -
Capital One is perhaps the most polarizing credit card company on the planet. People with poor credit hate them; most with good credit love them. Here are some of the benefits I like [although not a "traditional" reward card, the rewards are definitely tangible]:
Competitive rates (I got 4.9% F a few years ago; 7.9% is advertised)
No transaction fees on international purchases
Cash advance rate = purchase rate
No fee to transfer balances

- CHASE FREEDOM -
This historically has been one of the more popular reward cards (definitely Chase's most popular card); in the past month and a half, they've updated the card. I wouldn't recommend the "new" card by any stretch; if you have the old card with the prior terms, you're ok to keep it.

- COSTCO TRUE EARNINGS -
3% benefit for gas purchases
3% benefit for restaurant purchases
2% benefit for travel purchases
1% benefit for everything else
No limits on rewards
* Need to be Costco member & the benefit is only credited annually

- DISCOVER OPEN ROAD -
5% benefit for gas purchases (any gas, not specific station)
5% benefit for auto maintenance purchases
5% benefit up to $100/billing period -- $1200/year
1% benefit on other purchases
* With a gas reward card, my preference is a card that provides the same maximum benefit regardless of where the gas is purchased. AAA (membership not required) offers a gas rewards card through Bank of America that provides a 5% benefit on all gas purchases as well.

- FIDELITY RETIREMENT AWARDS -
2% benefit ($50 Fidelity IRA investment for each $2500 in purchases)
2% benefit for 529 college saving plan option is also available
No limits on rewards
* Rewards can be rolled over to the next calendar year if your IRA contribution has been maxed out.

- MORTGAGE -
The card our household uses for most purchases is a Countrywide credit card (no longer available). It provides a 2% principal balance credit to our mortgage ($50 applied to our principal for every $2500 in purchases). I mention it to point out that new products are being created constantly that link cards to desirable rewards (i.e., the new Fidelity IRA card). I understand Wells Fargo has a similar mortgage-linked card (although the reward is smaller - 1%).

CREDIT CARD UPDATE ...

Many consumers have found an unexpected/unwanted surprise when opening their credit card statements this holiday season ... one of the most perplexing changes has been a general raising of interest rates (while other major rates have been dropping). The rationale? "A difficult market environment." Another common change (not as surprising) has been a reduction in credit limits; as you are likely aware, if you carry a balance this [lower credit limit] will negatively impact your credit score as the result will be a higher debt ratio (the proportion of your balance in relation to your credit limit). For many, these "surprises" have come even though no late payments have been made. According to Consumer Action, nearly half of banks now penalize cardholders for changes in their credit history with default rates up to 35%.

This is particularly troubling given that roughly a year and a half ago, Citi and others agreed to ditch this dispicable practice of hiking rates at any time for any reason when they told a Senate panel that they were going to give up that practice. Well, with these 'difficult times' they've changed their mind. Credit card holders are getting squeezed to make up for poor lending decisions made in housing, private student loans, and other areas. The Federal Reserve started pushing last May for new rules that would stop these types of practices as would the proposed Credit Cardholders Bill of Rights that I recently wrote about.

Although credit card companies can currently raise your rate for any reason, results of a recent Consumer Action survey outline the more common 'triggers' of interest rate increases (*the survey analyzed 146 cards from 47 different issuers):

- Credit score gets worse (90.48%)
- Paying mortgage, car loan or other creditor late (85.71%)
- Going over credit limit (57.14%)
- Bouncing a payment check (52.38%)
- Too much debt (42.86%)
- Too much available credit (33.33%)
- Getting a new credit card (33.33%)
- Inquiring about a car loan or mortgage (23.81%)

ADDITIONAL RESOURCES (Prior Financial Tip Blog Posts):
o Credit Card Balance Transfers
o Credit Card Selection
o Credit Card Trap Widens
o Credit Cardholders' Bill of Rights
o Debit Card Realities
o Negotiating a Lower Credit Card Rate
o Proposed Credit Card Changes
o Risk-Based Re-Pricing
o Schumer's Box
o Understanding Your Credit Card Statement

RESPONDING TO A TURBULENT MARKET

Last week, USA Today put forth an article on protecting yourself during this financial crisis. The question - what do you do now with your money? With so many people losing their head right now and reacting irrationally (shifting investments completely to bonds, ceasing 401(k) contributions, cashing out retirement accounts, etc.), keeping your head can be a challenge. Also, what you should be doing depends on a lot of "personal" factors (your time horizon, your tolerance for risk, your debt situation, etc.). The article outlined 'general' recommendations/ thoughts from some leading financial advisers based upon your age ...

IF YOU'RE IN YOUR 20s...
- Don't panic. You likely have less to lose (have often just begun investing and have a long time to recover from a downturn).
- As you invest, don't ignore your debt.

IF YOU'RE IN YOUR 30s...
- Prioritize retirement savings.
- Don't let fear squander your opportunity to take risk.
- Keep/build an emergency fund (but don't sell stocks to get there).
- Don't hastily temper the storm; make smooth transitions (i.e., make adjustments with new contributions without necessarily selling existing assets).

IF YOU'RE IN YOUR 40s...
- Take advantage of these prime earning years to contribute as much as possible into retirement savings; even if it means cutting back on spending.
- Resist the urge to stop contributing!
- Don't abandon the stock market; people currently stashing money in CDs and money market funds "are committing financial suicide." The 1.18% return on an average money market fund won't even keep up with inflation.
- Stay diversified.

IF YOU'RE IN YOUR 50s...
- Don't do anything rash.
- Keep saving.
- Don't overlook any potential ways to boost savings.
- Make sure you're not paying too much for your investments (i.e., fund 'loads' and expense ratios -- this is solid advice regardless of age, not sure why it is plugged in as specific advice for this age group).
- Keep in mind that you have longer than 15 years to make up losses even if you retire at age 65.

IF YOU'RE 60+...
- Toughest position given the shorter period of time to recover from losses.
- Adjust expectations.
- Consider putting off social security as long as possible; each year you put off the benefit between age 62 and 70 you increase your payment by 8%.
- Cut back on withdrawals if necessary.
- Work part time.
- Consider an immediate, fixed term annuity.
- Invest for comfort - make decisions you can sleep with at night.

While there are distinct differences in the advice provided to the different age groups, there is a definite theme ... keep your head (don't panic/ overreact), spend less, save more, diversify, stick to your financial game plan. Ironically, it sounds like the same advice you should be getting regardless of the economic climate ...

NOTE. USA Today article.

CREDIT-BASED INSURANCE SCORING

A bright financial future is predicated upon making good decisions today. It is well documented the significant role that credit plays in that financial future: lending decisions, rates/fees offered on those loans, employment, and insurance ... The belief is that your ability to manage credit can be used to predict future financial behavior. It has been known for quite some time that insurance companies have used credit history data to aid in predicting insurance risk. It has only been recently 'shared' how that information specifically is used to determine if you qualify for coverage, and at what rate ...

"Your insurance score is a snapshot of your insurance risk at a particular point in time. It is a number based on the information in your credit report that shows whether you’re more or less likely to have claims in the near future that will result in losses for the insurance company. As with all Fair Isaac scores, the higher your score, the less risk you represent." The insurance score that most companies use is created by Fair Isaac and is referred to by different names at the different credit reporting agencies — InScore at Equifax, the Experian/Fair Isaac Insurance Score at Experian, and the Fair Isaac Insurance Risk Score at TransUnion.

How is Your Insurance Score Created?
-- 40% - Previous Credit Performance
-- 30% - Current Level of Indebtedness
-- 15% - Length of Credit History
-- 10% - New Credit/ Pursuit of New Credit
-- 5% - Types of Credit Used

OTHER INSURANCE SCORING RESOURCES.
- Get the facts on credit-based insurance scoring.
- Improving your insurance score.
- Insurance scoring facts & fallacies.
- Obtain insurance underwriting history - free.
- Property and auto claims history - free CLUE Report.
- What is not in your insurance score?

[FREE] ONLINE FINANCIAL MANAGEMENT RESOURCES

As more and more people are living paycheck to paycheck (over 40% of households at last count!), more and more resources are surfacing to assist consumers with day-to-day money management. Many of these free resources are geared specifically to novice managers; below is only a sampling of the available resources with a few notes about each...

You'll note that the majority of these were not mentioned in my blog a year and a half ago on free budgeting tools. One of the underlying strengths of many of these new systems is their strong support networks - think of them as a Jenny Craig or Weight Watchers for your personal finances.

CLEAR CHECKBOOK.
- Account updating through many mobile services.
- Personalized reminders and alerts.
- Set spending limits.
- Scratch pad for notes, goals, price comparisons, etc.
- Simple editing features.

GEEZEO.
- Geezeo Blog.
- Numerous 'learning' resources.
- Product marketplace - compare various financial offers.
- Provides access/linking to investment accounts as well.
- Social network/financial support group.

I-EXPENSE ONLINE.
- Geared to detail-oriented individuals.
- One-click access to features.
- Test things with a guest account first.
- Tips section can be browsed for budgeting suggestions.
- Weekly progress chart.

MINT.
- Continually offering new and improved features.
- No bookkeeping required.
- Notifies you of account fees and finance charges.
- Provides solutions based upon personal spending patterns.
- Secure - uses same encryption banks use for data protection.

QUICKEN ONLINE.
- Connects to over 5,000 financial institutions.
- Live Community Forum.
- Sends reminders to a cell phone or e-mail (iPhone compatible).
- Transactions for accounts automatically download each night.
- View bills, spending details, account balances and transactions.

WESABE.
- Leverage smart decisions to an entire community.
- Personally targeted money tips.
- Share your money saving tips and goals with others.
- Some of the best user forums on the web.
- Translates "bankspeak" into friendly transaction descriptions.

YODLEE.
- Account sharing (w/ accountant, financial advisor, etc.).
- Connectivity to over 11,000 data sources.
- Consolidated view of all financial accounts.
- Expense, budgeting, and other analytical charts.
- Most comprehensive online solution.

GIFT CARDS

As the holidays approach, the topic of gift cards seems to always come up ... Despite the naysayers, people in general seem to love gift cards. Last year, gift cards were the second most popular gift to give (According to December 2007 issue of Consumer Reports Money Advisor); listed as the number one gift women wanted to receive (number three on the list for men). A Get Rich Slowly blog post outlines a growing concern of people and gift cards - what to do when stores go broke.

An AP article from earlier this year estimates that over $75 million in gift cards are at risk of becoming worthless pieces of plastic this year [from store and restaurant closings]. Kwame Kuadey, the author of GiftCardBlogger.com, a blog about gift cards, offers helpful suggestions if you find yourself in such a predicament:

- Get on the phone. Call the nearest store to find out if they are still accepting gift cards. Some, like Linens 'n Things, can continue to redeem gift cards by petitioning the bankruptcy court.

- If they are accepting, use immediately. They may not redeem for full value (i.e., Sharper Image customers that received 50% of value), but something is better than nothing. If they are not accepting gift cards, you can hope for:

- Competition. Do a google search to find out if competitors are running special promotions targeting gift card holders of the bankrupt company. For example, when Bennigans went out of business, Texas Roadhouse offered a promotion where holders of Bennigan's gift cards could exchange them for a free entree certificate that was good for any item on their menu. It is not an uncommon strategy to try to 'lure' new customers.

- Take them to court. Obviously you are low on the totem pole (essentially treated as an unsecured creditor) in the courts eyes. While odds are slim, it is your right [to take them to court].

- Go to the government. This would be a good strategy if the gift cards held are from local, small businesses. In this instance, contact your State Attorney General. Recently in St. Louis, a local spa (Spa 151) went out of business leaving several hundred gift card holders with worthless gift cards. More than 300 consumers filed complaints with the Attorney Generals office. The Missouri AG was able to get the former spa owners to pay over $100,000 to redeem the cards and certificates.

- The best offense. The last piece of advice offered is to be proactive. You don't need to be a financial analyst to know if a company is struggling. Store closings and layoffs are clear signs of a company that is having issues. The example he shared was Circuit City - a company that has shed thousands of employees, hundreds of stores, and has a stock price today of 26 cents.


ADDITIONAL GIFT CARD RESOURCES.
- Gift Card Buy Back
- Gift Card Tips & Tricks
- GiftCardBlogger.com
- Gift Certificates & Gift Cards
- Pros & Cons of Gift Cards
- SwapAGift.com

STUDENT LOAN BORROWER ASSISTANCE

The current instability in credit markets has touched just about every facet of our financial world; student lending is no exception. While some allowances have been made on the federal loan side, the private/alternative loan option just keeps getting uglier. I saw a notice from one of the biggest private loan providers yesterday with new rate info. The range? LIBOR + 4% to LIBOR + 12.75%! That obviously doesn't include their up front loan origination fees that would tack onto that (commonly 3-10%) ... Keep in mind that this "ugly" option isn't even available unless you have good credit [or a creditworthy co-signer].

This morning I came across a very comprehensive student loan web resource designed for borrowers, their families, and advocates - Student Loan Borrower Assistance. This 'project' is a program of the National Consumer Law Center, "focused on providing information about student loan rights and responsibilities for borrowers and advocates [as well as] ... to increase public understanding of student lending issues and to identify policy solutions to promote access to education, lessen student debt burdens and make loan repayment more manageable."

Student Loan Borrower Assistance provides information on ...

-- Answers pertaining to a wide range of frequently asked questions:
---> Collections
---> Default and delinquency
---> Loan cancellation
---> Repayment
---> Student loans and bankruptcy
---> Understanding student loans
---> Where to go for help

-- Links to student loan policy and legal issues

-- Solutions to student loan problems

CREDIT CARDHOLDERS' BILL OF RIGHTS

In May I blogged about potential credit card changes that were being discussed to crack down on unfair and deceptive industry practices. Representative Maloney of New York spearheaded the bill, H.R. 5244: Credit Cardholders' Bill of Rights Act of 2008, which would serve to amend the current Truth in Lending Act.

The bill passed the House (by nearly a 3 to 1 vote) on September 23rd. Govtrack.us - a website that tracks Congressional action - provides helpful details to track the progress/status of the bill (the full text of the bill is also provided).


Why is the bill being proposed?
Rep. Maloney: “Credit cards are an essential part of our economy, but for too long card issuers have been allowed to do whatever they want, any time, for any reason. A deal is a deal, but what sort of deal is it when one side gets to make all the decisions? This bill will get credit card practices back to basic principles of contractual fairness.”

"In 2007, credit card issuers imposed $18.1 billion in penalty fees on families carrying credit card balances—up more than 50% since 2003 and accounting for nearly half of the $40.7 billion in credit-card industry profits. While credit card companies will pull in more than $19 billion this year from late fees, over-limit charges, and other penalties, consumers nationwide are facing excessive credit card fees, sky-high interest rates, and unfair, incomprehensible agreements that credit card companies revise at will."


What issues would the proposed bill address?
- Bar creditors from changing agreement terms [open-ended accounts] until contract renewal (or for specific reasons laid out in contract).

- Eliminates universal default clause.

- Ends the credit card practice of applying consumer payments to lower interest debt first.

- Prohibits a creditor from furnishing information to a consumer reporting agency concerning a newly opened credit card account until the consumer has used or activated the credit card.

- Protects consumers from due date gimmicks by requiring credit card companies to mail bills 25 days (instead of 14) before the due date.

- Requires advance notice of rate increases on account. Authorizes a consumer who receives such notice to: (1) cancel the credit card without penalty or imposition of any fee; and (2) pay any outstanding balance that accrued before the effective date of the increase at the APR and in the repayment period in effect before notice was received.

- Requires each periodic account statement to provide specified information on obtaining the payoff balance.

- Restricts the frequency of over-the-limit fees.

MARKET ANNIVERSARY ... INCREASE IN CYBERSCAMS

Ironically, today (10/9/08) marks the one year anniversary of the Dow Jones Industrials and S&P 500 averages hitting their all time highs. My how things have changed - the housing market has unwound (to put it mildly) due to the high volume of "liar loans" (low or no documentation home loans) and zero down payment requirements (43% of home purchases were made with no down payment). The result of people purchasing homes they couldn't afford - a record number of foreclosures. Poor lending standards (here and abroad) have also led to a precipitous drop in financial company stock values (60% on average) and has impacted all other aspects of not only the U.S. but global markets. All of the major market averages are down about 40% from the high last year, and over 20% in just the last seven trading sessions alone! The result? Panic, fear, and a wide range of financially 'unhealthy' emotions and reactions. I was reading the other day that over 1 in 5 people over the age of 45 have now stopped contributing to their 401(k) plans. While it can be a challenge to maintain a long-term perspective in this type of economic environment, you most definitely need to keep your eyes open as people will try to prey on your vulnerable state ...

USA Today published an article today reminding consumers of cymberscams that are designed to exploit fears. "Cybercrooks are creating fake websites, spam, phishing attacks and malicious software code to take advantage of anxiety during the economic calamity ... A new spin on old tactics."

Most of the scams are centered on phishing (sending spam e-mails in an attempt to get you to go to a "fake" website to request personal information), focusing on recent bank failures, mergers and takeovers. Some easy targets right now are current and former customers of Chase and Washington Mutual (as Chase is currently navigating its acquisition of WaMu). For example, a current e-mail that appears to come from Chase asks customers to go to the "Chase" website (a fake site), and provide personal information (user ID, password, name, address, phone number, Chase credit card number, ...). Phishing attacks on Citigroup soared after it announced its intent to acquire Wachovia (since that has fallen through with a subsequent "better offer" from Wells Fargo, WF customers should be on the look out).

The article doesn't provide any "new" suggestions [as was mentioned, this is not a new problem]. Their suggestions:

1. Be Aware. Be suspicious of e-mail requesting personal info.
2. Don't Click. Don't click the link in the e-mail to visit the website.
3. Be Secure. Use secure websites (i.e., https:// and 'padlock' icon).
4. Don't Fill Out E-mail Forms. Never fill out forms within an e-mail.
5. Keep an Eye on Your Accounts. Monitor your account activity.

REWARDING THOSE WHO SERVE ...

It seems pointless to opine about the current Wall Street woes, bailout, and other issues that have yet to finish "unwinding" ... I'll definitely spend some time exploring these issues when a specific direction has been decided upon. I thought this week it would be nice to focus on something much more positive (not a lot of positive financial news out there) ...

On June 22, 1944, FDR signed into law what has since been heralded as one of the most significant pieces of legislation ever produced because of its far-reaching social, economic, and political impacts - the GI Bill. By the time the original GI Bill ended in 1956, nearly half of the 16 million World War II veterans had participated in an education or training program.

In 1984, Senator Montgomery revamped the bill which has since been known as the "Montgomery GI Bill" ensuring education programs for our newest generation of combat veterans. This year (2008), the GI Bill was updated once again. The new law gives veterans with active duty service on, or after, 9/11/2001, enhanced educational benefits that cover more educational expenses, provide a living allowance, money for books, and the ability to transfer unused educational benefits to a spouse or children.


Facts About Post- 9/11 GI Bill:
- Benefits take effect on August 1, 2009
- Benefit-eligible for up to 15 years (instead of 10)
- Provides a stipend of up to $1,000 for books and supplies
- Provides up to 100% of tuition costs
- Provides monthly housing stipend
- Transferable benefits (see additional links below for details)
- Unlike prior GI Bills, benefits extend to activated Guard & Reservists

Eligibility Requirements:
If you have served a total of at least 90 consecutive days on active duty in the Armed Forces since Sept. 11, 2001, you’re eligible. The actual benefits you receive under this program are determined by the amount of accumulated post 9/11 service provided. To be eligible for the full benefit, you must have three years of active duty service after 9/11 or have been discharged due to a service-connected disability.

Benefits Based Upon Service:
* 100% - 36 or more total months
* 100% - 30 or more consecutive days with disability-related discharge
* 90% - 30 total months
* 80% - 24 total months
* 70% - 18 total months
* 60% - 12 total months
* 50% - six total months
* 40% - 90 or more days

Additional Links:
- About GI Bill 2008
- Calculate Benefits
- GI Bill Fact Sheet
- GI Bill Home Page
- New GI Bill Overview

IS YOUR MONEY SAFE?

The turmoil surrounding the financial markets in the past weeks has been unsettling to say the least. Bank failures, Fannie/Freddie, Lehman bankruptcy, AIG ... the list of problems is a pretty long one. The surfacing question for most - 'Is My Money Safe?' ...


Should I worry about the safety of my bank accounts?
In most instances, your money is FDIC insured (up to a limit of $100,000 at each bank - twice that amount for joint accounts). Insured accounts include checking, savings, and certificates of deposit (CDs).

Is coverage provided on my retirement-savings accounts?
Yes, certain types of retirement accounts are covered by FDIC insurance (Traditional, Roth, and SEP IRAs and Keogh Plans); deposits in these accounts are added together and insured up to $250,000 per person. This does not insure against the loss of value in your account by taking investment risk ...

What if I bank at a credit union?
The National Credit Union Share Insurance Fund was established by Congress to insure individual accounts up to $100,000 -- similar to FDIC insurance. Credit Union retirement accounts are also insured at comparable levels to "regular" bank retirement savings accounts.

If my bank gets taken over (like IndyMac), how long will it take for me to have access to my money?
IndyMac customers had continuous access to their deposits through ATM and debit cards. After the bank was seized on a Friday by federal regulators, some customers did not have online or phone access for the weekend, but everyone had full access to all their insured money by Monday morning.

How can I check to see if all my money is insured?
Both the FDIC and NCUA websites have calculators that will allow you to plug in your account info and deposit amounts to find out whether any of your money is uninsured. Go to -- http://www.fdic.gov/edie and http://webapps.ncua.gov/ins.

What if the firm where I have a brokerage account goes bankrupt (i.e., Lehman)?
Firms must follow strict rules about segregating customers' investments from the firm's money - so your account should remain intact even if the brokerages goes under and another firm takes over its business. For example, stocks, bonds, and mutual funds are physically held by an independent depository, not the brokerage firm.

What if my mortgage lender or servicer goes belly up? The problem is the lender's, not yours. Continue paying your mortgage; during the bankruptcy process your loan file will be transferred to a new owner or servicer and you will be notified by both parties. Your loan terms will remain unchanged even if the institution fails.

SOURCE - Kiplinger's Personal Finance (10/2008).


ADDITIONAL RESOURCES.
- FDIC -- Deposit Insurance Awareness Campaign
- Is My Bank Sound?
- List of Failed Banks
- Your Insured Deposits: FDIC's Guide to Deposit Insurance Coverage

SAVE MORE EACH MONTH ...

During these difficult economic times, all of us are looking for ways to make a dollar go further. Recently, BusinessWeek asked financial experts for their recommendations for reducing expenses and saving more. They provided 25 suggestions for consideration ...

1. Track every expense - it's tough to argue the fact that the best way to curb spending is to know exactly where your money is going.

2. Vacation in the off-season

3. Cut out investment charges and fees - Commissions and high cost mutual funds eat at ones returns; low-cost mutual funds and index funds can help you easiliy avoid unnecessary costs.

4. Cut back on eating out

5. Downsize your car - Too much car payment? Gas guzzler? ...

6. Cut utility bills, especially electricity - Energy efficient light bulbs, turn thermostat down, unplug/turn off unused appliances.

7. Make sure you don't have too much insurance - Assess your needs and then shop from time to time to make sure you are getting a fair price.

8. Find cheaper beverages to drink - They refer to this as "fancy" coffee and drinks. I think you get the idea.

9. Examine your phone service - Examine your bill; unnecessary services?

10. Stop paying for premium cable - Some people will cut altogether to save money; others will 'downsize' to basic cable.

11. Drive less; consolidate trips - Public transportation, walk, bike - when driving, do errands for one trip.

12. Use warehouse stores wisely - Shop from a list; buy what you need. A good deal isn't so good if you wind up throwing half of it away.

13. Lay down the law with your free-spending friends - Inform them of your interest in spending less. You'll find most will be supportive.

14. Find free entertainment

15. Consider alternatives to a gym membership - Only worthwhile if you go regularly; consider working out at home, park facilities, or individual classes.

16. Cut your own lawn

17. Be smart with credit cards - Pay your balance in full to avoid interest and finance charges. Some advise consumers to go to a cash-based system to avoid impulse purchases.

18. Annualize your expenses - Putting an annual cost to items (i.e., $X for pizza, $Y for soda pop, etc.) can help put purchases into perspective.

19. Force yourself to save - Recommendation is to "trick yourself;" automatically transfer money to a savings or investment account; you won't be tempted to spend money that isn't there.

20. Institute a waiting period for major purchases - By waiting to make a major purchase (48 hours or so) you eliminate the strong urge to make emotional purchases. You can always make the purchase if you still want it.

21. Pay bills online - Most bill-pay services are free; save yourself the cost of stamps and potential late fees.

22. Make sure you're deducting all business expenses - Avoid the mistake of mixing business and personal expenses.

23. Buy generic drugs and groceries - Store-brand products in grocery stores are often made by the same manufacturers as the brand-name items.

24. Buy used - Cars, books, furniture, etc. can be purchased used for a fraction of the original price.

25. Shop smart - Coupons, comparison shopping, shop online, and then buy what is needed; when an item is 20% off, we often waste $8 to save $2.


If you're still looking for more ways to save, you can peruse the popular 66 Ways to Save Money publication.

NO MORE FREE LUNCH ...

We're all familiar with the saying "There is no such thing as a free lunch." Often, what appears to be 'free' comes at a heavy cost ... ask a lot of college students about their "free T-shirt" or "free pizza." For quite some time, retirement seminars held by financial service companies have commonly offered a free lunch as an incentive to participants while floating their sales pitches. Unfortunately, when national and state regulators examined these "free lunch" seminars in 2006 and 2007, they found that 57% used misleading or exaggerated advertising and sales materials. Guarantees of high returns, risk-free rewards, and confusing products ...

Just as college students become targets of financial predators, so to do seniors. Microtargeting -- a practice that has grown in popularity during the past decade -- uses data gathered from public records, financial and other commercial transactions, and credit reports to identify individuals [that meet their desired target audience] for all types of promotions (i.e., phone, mail, and e-mail). In this case, a list of people that are elderly, living in a single-person household, having a history of opportunity seeking, become a perfect target as they are much more vulnerable to fraudulent marketing ploys.

Free investment seminars are widespread. According to a recent survey by the FINRA Investor Education Foundation, 78% of those polled got at least one invitation to a free investment seminar in the past three years; and nearly 60% got six or more offers. Nearly 25% of all those investors said that they went to at least one seminar during those three years.

Be aware that many very common financial designations - Financial Analyst, Financial Advisor, Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager - are often just generic terms or job titles and may be used by investment professionals who may not hold any "real" designation! Know what the designations mean (see: http://apps.finra.org/DataDirectory/1/prodesignations.aspx). Some states, (go to: http://www.sos.mo.gov/securities/news.asp?nID=694) such as Missouri, have established rules to stop securities brokers and investment advisers from using misleading credentials targeted at senior investors. Unfortunately, this list of states is very small (only four - MA, MO, NE, and NH).

ADDITIONAL RESOURCES.
- 2007 "Free Lunch" Investment Seminars (Missouri Report)
- Are you Vulerable? Play the Scam Game
- Avoiding the Heartburn from the Free Lunch
- Check the Background of the Investment Professional
- File an Investor Complaint
- Top 10 Threats for Investors: 2008

CREDIT/SECURITY FREEZE

I started writing about the issue of a credit freeze (sometimes referred to as a security freeze) a couple of years ago when they first surfaced. This past week there was [finally] some refreshing information coming from the State of Missouri, one of only five states that had yet to pass credit freeze legislation.

Credit Freeze Refresher...
Each year, more than 8 million people fall victim to identity theft in the U.S. People fall prey for numerous reasons: mismanagement of personal information, fraud and financial scams, compromised data, dumpster diving, oftentimes for reasons beyond ones own control. The credit freeze was developed as a way to allow a consumer to protect their personal information/credit by "freezing" their credit file. With a credit freeze, no one (including you) can open any form of credit in your name until your credit file is “thawed.” This has become a very streamlined process which can now be taken care of completely online.

Nearly a year ago (11/1/07), the credit bureaus voluntarily offered to allow credit freezes to be available to everyone (a 'benefit' that had prior only been avaialable to residents of states that had passed credit freeze legislation). Last week, the Missouri legislature passed a state credit freeze law also lowering the cost of a credit freeze to $5 ($10 is average -- it is also the max charged). The Governor has already signed the bill and it took effect last week (August 28).

Credit Freeze Instructions...
Instructions for freezing ones credit can be found on the website of the individual credit reporting agencies:
- Equifax
- Experian
- TransUnion (FREE Online)

* Click here for a comprehensive list of State Credit Freeze Requirements and Fees.

ARCHIVED TIPS (2007)

As a follow-up to last weeks post (2006 archive of tips), I have provided a topical/organized archive for 2007 tips. The hot links will allow you to easily review prior tips. You can also view archived tips (by date) on the blog site (http://financialtip.blogspot.com).

BUDGETING.
- Free Budgeting Tools (02/2007)
- Payment Myopia (07/2007)

CREDIT.
- Credit Freeze Update (10/2007)
- Credit Inquiries (11/2007)
- Credit Scoring (04/2007)
- Credit ‘Piggybacking’ (09/2007)
- Free Credit Score (03/2007)
- Improving Your Credit (10/2007)
- Ordering Your Free Credit Report (02/2007)
- Your Credit – Your Rights (06/2007)

CREDIT CARDS.
- Credit Card Balance Transfers (08/2007)
- Credit Card Selection (11/2007)
- Credit Cards – ‘Risk-Based Re-Pricing’ (12/2007)
- Do You Understand Your Debit Card? (02/2007)
- Understanding Your Credit Card Statement (01/2007)

DEBT ELIMINATION.
- Debt Settlement (11/2007)
- Eliminating Credit Card Debt (07/2007)
- The Road to Eliminating Debt (08/2007)

EXTENSION.
- American Saves Week (03/2007)
- Cooperative Extension Resources (03/2007)

FINANCIAL PLANNING.
- Be a Smarter Investor (04/2007)
- Compensation for Financial Advice (07/2007)
- Financial Planning Resources (10/2007)
- High Yield Savings Accounts (08/2007)

IDENTITY THEFT.
- Identity Theft Resources (03/2007)

INSURANCE.
- Selecting an Insurance Company (05/2007)

OTHER.
- Consumer Action Handbook (05/2007)
- Getting the Best Deals (02/2007)
- Moving? Relocation Resources (04/2007)
- Open Courseware (06/2007)
- PayDay Lending (09/2007)
- Sunk Cost Effect (06/2007)
- What is Your Money Personality (03/2007)

STUDENT RESOURCES.
- FAFSA (01/2007)
- FAFSA Priority Deadline (02/2007)
- Finding Scholarship Dollars (09/2007)
- Legislative Information for Current Students (01/2007)
- Loan Consolidation Updates (10/2007)
- Private Loan Consolidation (05/2007)
- Purchasing a Textbook (09/2007)

TAXES.
- Free Tax Assistance – VITA (01/2007)
- Splitting Your Tax Refund (01/2007)

ARCHIVED TIPS (2006)

After a financial tip is sent, I often wonder what transpires after that ... Read? Deleted? Behavior or attitude change? Further research into topic? Hopefully [when personally relevant], it is reviewed by most of you at that time. After that? It likely turns into an 'out of sight, out of mind' situation... I felt it would be beneficial to provide a summary of past financial tips. I will begin by topically listing ones sent in 2006. Interestingly, of the 25 that were sent (although I had started the financial tip about 6 years prior, I only started blogging during the second half of the year), 23 of them are still as viable today as they were then (of the other 2, one was a "welcome to my blog" and the second addressed student loan consolidation which has endured numerous changes since then). "Hot" links are provided so that you can easily review any prior tips; the date is also listed in the event that the links don't work for you; you can go to the archive on the right side of the tip blog site (http://financialtip.blogspot.com) to review the information.

BUDGETING.
- Emergency Funds (09/2006)
- The “Latte” Factor (08/2006)

CREDIT.
- Credit Myths (10/2006)
- Fair and Accurate Credit Transactions Act (08/2006)
- Specialty Credit Reports (08/2006)

CREDIT CARDS.
- Credit Card Trap Widens (10/2006)
- Negotiating a Lower Credit Card Rate (11/2006)

DEBT ELIMINATION.
- Eliminating Debt – Psychological vs. Financial (11/2006)

FINANCIAL PLANNING.
- Pension Protection Act of 2006 (10/2006)
- Vesting (09/2006)

IDENTITY THEFT.
- Lost Your Wallet (08/2006)

OTHER.
- Extended Warranties – Unwarranted? (12/2006)
- Opting Out of Credit Card Offers (09/2006)
- Opting Out of Unwanted Solicitations (08/2006)
- Personal Finance – Educational Resources (11/2006)
- Record Keeping (09/2006)
- Successful Models in Financial Education (11/2006)

PREDATORY LENDING.
- PayDay Loans (08/2006)

STUDENT LOANS.
- 8% Rule (10/2006)
- Alternative Student Loans (08/2006)
- Grad Plus vs. Private Loans (08/2006)
- Private Student Loan Consolidation (12/2006)
- Student Loans – Legislative Update (08/2006)

SCHUMER'S BOX

All credit card offers are required to include a chart outlining basic rates and fees, referred to as the Schumer Box. This [cost of a credit] summary is named after Senator Charles Schumer, the New York Congressman responsible for the legislation requiring that card terms be clearly outlined in all promotional materials. Credit card companies are required to list long-term rates in at least 18-point type and other key disclosures in 12-point type. Click box to enlarge.


What "The Box" includes:
-- Annual Fee [if applicable]
-- (APR) Annual Percentage Rate [for purchases]
-- Other APRs (balance transfer, cash advances, default ...)
-- Grace Period
-- Finance Calculation Method
-- Other Transaction Fees:
====> Balance Transfers
====> Late Payments
====> Exceeding Credit Limit Fee
====> Cash Advances

All credit card companies will utilize a similar format, making credit card comparison shopping much simpler. Although the Schumer’s Box contains "basic" card terms, there are other terms you should look for in the fine print (i.e., universal default clause, dispute resolution/arbitration, other fees, etc.) ...

Additional Resources.
- Credit Card Selection (11/07)
- Credit Card Trap Widens (10/06)
- Understanding Your Credit Card Statement (01/07)

[STILL] THE BEST HIGH YIELD SAVINGS ACCOUNTS

A year ago I shared information regarding high yield savings accounts. It shouldn't be news to anyone that interest rates have gone down since then -- accounts that had been paying 5+ percent are now paying significantly less (yielding 3-3.5%). I wanted to know if highest yielding accounts at that time [Aug 2007] were still on top ... [if you are not yet an 'e-banker' the FRB of NY provides useful information (http://www.newyorkfed.org/education/ebanking/index.html)]. While the Internet offers the potential for safe, convenient ways to conduct business, safe online banking involves making good choices to avoid costly mistakes and scams. Do your homework! Are my deposits [FDIC] insured? Is my personal information private and secure? The question for many at this point - does my savings account still offer the best yield ...??


*THE BEST BACK THEN & WHAT THEY OFFER NOW*:
-----------------------------------------------------------------
􀂄 Amboy (http://www.amboydirect.com) -- 3.25%
􀂄 AmTrust (http://www.amtrustdirect.com) -- 2.5%
􀂄 Capital One (http://www.capitalone.com) -- 2.5% (3.5% if 10k+)
􀂄 Emigrant (http://www.emigrantdirect.com) -- 3%
􀂄 E-Trade (http://www.etrade.com) -- 3.3%
􀂄 First Nat'l Bank of Omaha (http://www.fnbodirect.com) -- 3.5%
􀂄 Flushing Savings Bank (http://www.igobanking.com) -- 3.28%
􀂄 HSBC (http://www.hsbcdirect.com) -- 3.5%
􀂄 Savings Square (http://www.savingssquare.com) -- 3.05%
􀂄 UFB (http://www.ufbdirect.com) -- 2.96%
􀂄 Univest (http://www.univestdirect.com) -- 3%

It appears if you used this list a year ago, you would have done quite well. The following are accounts that also currently fit the bill [not much difference between August 2008 and August 2007 - the best then appear to still be the best now!].

- Heartland Bank (http://www.heartlandbankdirect.com/) - 3.55%
- ING (www.ingdirect.com) -- 3% (just missed cut a year ago - 4.5%)
- Provident Bank (www.bankprovidentonline.com) - 3.3%
- Washington Mutual (http://www.wamu.com/personal) - 3.75%**

Bankrate.com is a great web resource for current rate data on all types of financial products.


* A year ago, it was common practice to open accounts with no minimum balance required as well as no fees. Tiered interest rates - higher rates paid for higher balances is now a common practice. Always confirm this type of information prior to opening an account to avoid surprises!

** Must also have WAMU checking account open/linked to receive rate.

*** All rates provided were accurate as of first week of August, 2008.

PROJECT ON STUDENT DEBT

Keeping up with the world of student loans is a near impossibility ... the myriad of issues facing borrowers, the complicated worlds of federal and private loans, consolidation and loan repayment issues. That of course doesn't even touch upon the continual change in student loan policies and regulations, making the world of student loans a literal moving target. It is definitely enough to give one a headache.

Let me share one of the most useful student loan resources I've come across - The Project on Student Debt. Their mission: "Recognizing that loans play a critical role in making college possible, the Project's goal is to identify cost-effective solutions that expand educational opportunity, protect family financial security, and advance economic competitiveness." Let me share a few of the resources/info available on their site: (http://projectonstudentdebt.org/).

- Borrower's guide [based on the numerous July 1, 2008 changes].
- Current loan policy initiatives.
- Find out how the credit squeeze impacts the student loan industry.
- Information borrowers can use both before and after borrowing loans.
- Overview of current loan terms and rates.
- Resources/assistance for borrowers having trouble with their loans.
- State by State student loan indebtness data.
- Student loan tips for recent graduates.
- Up-to-date info on the new Income-Based Repayment option.
- Up-to-date info on the new Public Service Loan Forgiveness program.

The website is easy to navigate and to find whatever you are looking for (also, all information provided on their site is free). It's critical to review this type of information prior to making student loan decisions.

"OPT OUT"

I don't think anyone would argue that solicitations from various sources and means can become extremely annoying. It's been almost two years since I shared resources for opting out of such unwanted solicitations and felt it was a good time for a reminder ...

The National "Do Not Call Registry" allows you to register both land lines and cell phones (https://www.donotcall.gov) by e-mail; or you can call toll free 1-888-382-1222 (from the number you are registering). Registration is free. It used to be effective for five years. With the passing of the Do-Not-Call Improvement Act of 2007 (signed in Feb. 2008), numbers placed on the registry will now remain [removed] permanently (until you "opt in"). Solicitors affected by the legislation are now required to stop the calls within 31 days of registration. Unfortunately, it won't stop all telemarketer calls. Banks, phone companies, airlines, insurance companies, nonprofit charitable organizations, and politicians are not under the jurisdiction of the FTC, and won't be impacted by the list. In addition, the list only applies to calls across state lines. Sales calls within a State will still be permitted unless you also opt out of solicitations through your State ‘do not call’ registry (or if your State integrated their list with the national one - some did when the Federal list was initiated in 2003). For state info: http://www.the-dma.org/government/donotcalllists.shtml.

Under the Fair Credit Reporting Act, credit reporting agencies are permitted to include your name on lists used by creditors or insurers to make firm offers of credit or insurance. What you may not have known is that the FCRA also enables you to “Opt-Out,” which prevents the credit reporting agencies from providing the information contained in your credit file to others.


HOW TO DO IT?
There are two good ways to stop [or at least slow] offers:

(1) Go to www.OptOutPrescreen.com (or call 888-5-optout). These are the credit reporting agencies opt in/opt out resources which will stop the agencies from selling your information to direct marketers. You can opt out for a five-year period or permanently (you can always opt back in if you decide you miss the mail!). If you use the website provided, you can fill out a very brief, simple form to opt out. It will then provide a screen with the information you provided that you will need to print out, sign, and mail to the address provided in order to permanently opt out. If you don’t do that last step (print and mail), it will opt you out for the 5-year period instead.

(2) Direct Marketing Association (DMA) Do Not Mail file.
(http://www.dmaconsumers.org/cgi/offmailinglist)
You can access this online – this process costs $1. You can also send a letter or postcard with your name, address and signature to: Mail Preference Service; Direct Marketing Association; PO Box 643; Carmel, NY 10512. The ‘mail method’ also costs $1 [+ postage]. Your name stays on the list for 5 years, and you can re-register at the end of that period.

Credit card companies get consumer information from other sources in addition to those mentioned above, so, while these two methods will considerably slow down credit card offers, the offers won't necessarily stop completely. For additional info, review the FAQ page for opting in/out at: https://www.optoutprescreen.com/faq.htm.

REBATE SNAFU

Typically, people are rewarded for doing the "right thing" - the recent tax stimulus has created a headache for some; but a solution has been created ...

If you were among those taxpayers who chose to have your tax refund directly deposited into an IRA, you won't be surprised at this point [since the last of the tax rebate checks have now been issued] to learn that your economic stimulus check has also been direct-deposited into that same account. This is not a concern unless you had already contributed the maximum amount to your IRA (or had other plans for the rebate).

The IRS is allowing you (in this circumstance) to withdraw up to the full amount of the stimulus payment without triggering taxes or the 10% penalty for early withdrawal. You also won't have to withdraw any earnings on the amount either (typically earnings on excess contributions have to be withdrawn but the IRS has waived that rule). The money will be treated as if it had never gone into the account. You have until April 15, 2009 (October 15th if you file for an extension on 2008 taxes) to retrieve the money from the IRA.


Additional Resources.
Economic Stimulus Payment FAQ
Not Too Late to Get Rebate

"FREE CREDIT" SERVICES

"Free credit" advertisements bombard consumers every day. I've talked about misgivings with common ones like freecreditreport.com (a place where you get something for free and then proceed to overpay for that 'freebie'). Let me share some freebies that are worth your time.

AnnualCreditReport.com. This freebie should be on everyones list. This is the only "legitimate" source for obtaining your free credit report. This is the government-sponsored site that allows you to obtain one report per year from each of the three major credit bureaus.

Free credit monitoring. Under normal circumstances, this is not a free service, it is one you pay for (and the cost-benefits are arguable). Under a recent class action settlement, TransUnion has agreed to offer free credit monitoring to more than 160 million people. Eligible? Anyone who had an open credit account or open line of credit [credit cards, car loans, mortgages, student loans, or any other loan would qualify] from any lender any time between January 1, 1987 and May 28, 2008. Go to www.listclassaction.com from now until September 24 to sign up. If you go, you'll find you have two options:
(a) 6 months* of free credit monitoring with a cash payment (if there is a settlement remaining) and the option of filing an individual suit; or
(b) 9 months of "enhanced" services with no cash payment and no potential lawsuit.
*The 6 month option provides unlimited daily access to your TransUnion credit report and TransUnion credit score and e-mail notification of any 'critical' changes in your credit report.

Credit Card Service. Many credit card companies (most?) have numerous credit services available [for fee] to manage credit, view credit, "prevent" identity theft, etc. Rumor has it that Washington Mutual actually provides ones credit score [for free] as part of your credit card statement each month. Not a bad card benefit.

Credit Score Simulators. I recently came across several free websites that will use various pieces of your provided information in order to assist you in 'simulating' what your credit score is. They claim to be pretty accurate - I'll let you be the judge. In no particular order:

- http://credit.com
- http://www.freebiecreditreport.com/estimatecreditscore.php
- http://www.freecreditanalyzer.com
- http://www.bankrate.com/brm/fico/calc.asp
- http://www.creditkarma.com
- https://www.quizzle.com

JULY 1 -- RATE CHANGE

As I've mentioned a couple times in the past few months, federal student loan rates would be dropping come July 1. The only question was how much (*recall that this only impacts federal student loans that were taken out before June 30, 2006 and have not been consolidated; this does not impact loans borrowed since then or previously consolidated loans. All federal loans borrowed after that are fixed rate, not variable rate loans). That 'hunch' will become a reality next week ...

July 1 is an important date not only because rates are set each year at that time. This year, July 1st also marks the date many professionals in public service careers can take a step toward loan forgiveness. Lets address these issues one at a time:

RATE DROP.
All unconsolidated loans origintated prior to 7/1/06 will have their rates reset to 4.21% (3.61% if you are in school or in your grace period); that is a full 3% less than this years levels (7.22% and 6.62%)! Federal loan consolidation is the only process available to lock in this rate.

OTHER NOTABLE LOAN ADJUSTMENTS ON 7/1.
- 'New' subsidized loan rates for undergrads will drop from 6.8 to 6%.
- Stafford loan fees will drop 1/2% point to 2% of amount borrowed.
- Undergrads can borrow $2,000 more per year in unsubsidized loans.
- Total undergrad loan borrowing limits will increase to $31,000 for dependent students; $57,500 for independent students.

LOAN FORGIVENESS STEPS.
If you're new to my financial tip or don't recall me mentioning the new loan forgiveness provisions available to some public service professionals, you will want to review the site -- http://ibrinfo.org -- which will provide detailed info as well as updates as new info becomes available ... this program is only available for people repaying through the Direct Loan program. Beginning on July 1, individuals that had previously consolidated with a private company in the FFEL program (i.e., Sallie Mae, Wells Fargo, etc.) will be able to reconsolidate into the Direct Loan program to be eligible for the public service loan forgiveness (http://loanconsolidation.ed.gov).

* Remember that to be eligible for the loan forgiveness, you need to be in one of three repayment plans: standard, income contingent, or income based (not available until July 2009). If you're in a different repayment option, you can switch to one of these plans at any time. Your ten years of "clocked" payment time (to meet the forgiveness criteria) could begin as early as last October (10/07) if you had been using one of these repayment plans [per prior tip instruction].

* If you are unsure of the types of loans you have or whether they have been consolidated, you can find out at NSLDS (http://www.nslds.ed.gov/nslds_SA/).

* The Project on Student Debt provides a nice overview of federal loan terms and rates for 2008-09 (http://projectonstudentdebt.org/files/pub/2008-09_loan_terms.pdf).

DEBIT CARD REALITIES

The pros and cons of credit cards are well documented and seem to be understood [although many people continue to fall into the CC trap]. In a stark contrast to credit cards, debit cards enable consumers to make purchases with existing money (checking account), avoiding the prominent problem that credit cards promote (get today, pay for it later).

Although debit cards typically look like a credit card (Visa or Mastercard logo on it), that is where the similarities really end. The Privacy Rights Clearinghouse (a consumer rights organization) does a great job outlining the drawbacks of debit cards ...

- Do not have the same legal protections as credit cards. Legal liability with a lost or stolen credit card is a maximum of $50. With a debit card, federal law limits your liability to $50 only if you notify your financial institution within two business days of the theft ($500 if you don't meet the two day deadline). Experience has found that in many instances, although stolen funds are eventually replenished, the compromised funds are usually not available during the interim (a deficiency most people aren't prepared financially to deal with effectively).

- Consumer protections for debit cards are not as strong as those for credit cards. Because funds are withdrawn from your account quickly, you aren't able to 'stop payment' during a dispute.

- Payment acceptance. Many large rental car firms [namely Hertz and Avis] have stopped people from renting cars using debit cards (you can pay for the rental after, you simply can't reserve the car with a debit card).

- Merchant 'blocking'. A common practice where merchants withhold an amount on a debit card until the transaction is fully processed. Hotels, gas stations and rental car agencies are the most common culprits of this practice. Because the "held" amount is 'unavailable' in your account, it can cause the account to be overdrafted.

- Can be charged for 'potential' overdrafts. With signature (non-pin) transactions, the debit is processed through a credit card payment system [meaning the money will take a couple days to clear your account]. Even though the money is 'physically' in your account, some banks will charge an overdraft fee if the pending activity exceeds the available balance, even if the balance is sufficient to cover the debit when it finally posts.

- Debit cards aren't necessarily a way to avoid debt. One common reason debit cards are favored by some over credit cards is "fiscal responsibility" - not allowing one to spend money they don't have. The reality? Some banks will process debit card charges despite insufficient account balances, creating overdraft fees and undermining your management system.

- Debit card usage. Many card issuers limit the number of uses each month; after that, fees are charged. Some will enforce maximum daily spending limits.

- Credit. Using a debit card to the exclusion of a credit card can affect your creditworthiness ... a debit card won't build your credit. That may or may not matter to you, but is worth consideration. Obviously good credit is important when searching for credit (car loan, mortgage, insurance, etc.).


To learn more, visit: http://www.privacyrights.org/

FINANCIAL PITFALLS ... OVERCONFIDENCE

I have written regularly about the importance of information (to be able to make informed decisions); and some of the more common barriers to making sound choices. Notable among these roadblocks are misinformation, fear, greed, pride, and desperation. Today, I want to write about a commonly overlooked pitfall - overconfidence ...

One of the most common biases researchers have documented is our natural tendency to be overconfident about beliefs and abilities as well as overoptimistic about our assessments of the future. One illustration I always find humorous is where large groups of participants are questioned about their competence as auto drivers [in relation to the average driver in the group as well as to everyone who drives a car]. Obviously driving a car is a risky activity and skill plays an important role. In the case of college students, 80 to 90% believed they were more skillful, safer drivers than others in the class. In another experiment involving students, people were asked about likely future outcomes for themselves and their roommates. They typically had very idealistic views about their own futures (i.e., successful careers, good health, happy marriages, etc.). When asked to speculate about their roommates' futures, their responses were far different ... they were far more likely to become alcoholics, suffer illnesses, get divorced, and a plethora of other unfavorable outcomes. Different studies reveal similar phenomena (when asked to rank how well people get along with others, 100% of respondents ranked themselves in the top half of the population; 25% believed that they were in the top 1% of the population). I think you get my point.

Many researchers have argued that this tendency to be overconfident is particularly strong among investors. More than most other groups, investors tend to exaggerate their own skill and deny the role of chance. They overestimate their own knowledge, underestimate the risks involved, and exaggerate their ability to control events. Research conducted (by Odean & Barber) found that the more individual investors traded, the worse the return/performance [and male investors traded much more than women, with correspondingly poorer results]. Many potential explanations exist for this "illusion" of financial skill; having a selective memory of success is a likely culprit in many instances. In hindsight, it is easy to convince yourself that you knew Google was going to be a great investment. People are prone to attribute any good outcome to their own abilities and rationalize away bad outcomes as resulting from unusual external events (outside of our control).

Just some food for thought as you make your daily financial decisions ...

CURES FOR A LEAN PURSE

This week I began reading again The Richest Man in Babylon, a small book my dad first introduced me to sometime during my teenage years. The easy read is a financial classic; the principles of prosperity encapsulated therein have merely been echoed over the past 80+ years (since first being introduced in 1926). None of these concepts will likely be a revelation to you, yet people consistently struggle with them. The following statement from the text is on the mark. "Deride not what I say because of its simplicity. Truth is always simple."


7 CURES FOR A LEAN PURSE:

1. For every ten coins thou placest within thy purse take out for use but nine. Two timeless concepts are illustrated: (a) spend less than you make; and (b) save 10% or more of what you earn.

2. Control thy expenditures. Do not confuse needs with wants. "All are burdened with more desires than they can gratify." Budget - 'keep working with thy budget, keep adjusting it to help thee. Make it thy first assistant in defending thy fattening purse... like a bright light in a dark cave, a budget shows up the leaks from thy purse and enables thee to stop them and control thy expenditures for definite and gratifying purposes.'

3. Make thy gold multiply. "Gold in a purse is gratifying to own and satisfieth a miserly soul but earns nothing. The earnings it will make shall build our fortunes." It was Albert Einstein that referred to compound interest as the 8th wonder of the world.

4. Guard thy treasures from loss. "Study carefully [consult with wise men], before parting with thy treasure, be not misled by thy own romantic desires to make wealth rapidly ... Before thou entrust it as an investment, acquaint thyself with the dangers which may beset it."

5. Make of thy dwelling a profitable investment. 'Own thy own home ...'

6. Insure a future income. Suggests utilizing the benefits of the time value of money (power of compounding) to set aside [consistently] now for future years when one's earning ability is diminished. Even saving small amounts can become large sums when done consistently over a long period of time.

7. Increase thy ability to earn. "Cultivate your powers to study and become wiser, to become more skillful ... have an interest in what you do, a concentration upon your task, more persistence in effort ... and you will find your ability to earn increase. The more of wisdom we know, the more we may earn. Be in the front rank of progress and not stand still, lest you be left behind."

STUDENT LOAN UPDATE

It doesn't seem like a week goes by where there is not bad news relating to the student loan world (which has been walking lock-step with the housing and credit 'issues' that dominate the press) ...

Most of the bad news began last year when Congress decided to do students a "favor" ... long story short, that essentially drove many lenders out of the business. As of last October 1st (2007), private student loan companies that had offered substantial, competitive borrower benefits on their federal student loan consolidation product discontinued their benefits (this took on several faces - some discontinued their federal loan consolidation product, some discontinued the borrower benefits they had offered prior, some removed all 'meaningful' borrower benefits); ultimately, the law change made it no longer profitable for them to offer these products. The good news was that State programs (that had offered good benefits all along) continued to do so - programs like North Carolina and New Hampshire [most notably] offered programs open to individuals outside of their state and offered rate benefits ranging to as much as a 2.25% reduction in interest ... You may [or may not] be aware, but during the past couple of weeks, North Carolina reduced their benefit from 2.25% to .3%, New Hampshire reduced their benefit to the current benefit norm (.25%), and others like South Carolina that had been above average have discontinued their federal program altogether. It's hard to believe that the program that for years has been one of the worst financial programs available (The Department of Education) is now in the same boat (.25% benefit) that the majority of other benefit-offering programs provide.

So, if you're graduating, seeking to consolidate your federal loans, here are a couple things to keep in mind ...

- You will still want to review your state consolidation program (there are programs like Utah [although Utah has residency restrictions] which still offer meaningful borrower benefits). This number is shrinking.

- Shop around ... the law does allow you to choose the company you consolidate with (even if all of your loans are only with one lender); do what makes the most sense financially for your situation.

- Lastly, if you have unconsolidated loans that date pre-June 2006 (back before Stafford loans came with a fixed 6.8% rate), you will want to hold off on consolidating your loans until the rate change that will take effect on July 1st. They will definitely be dropping significantly from their current 6 5/8% level ...

PROPOSED CREDIT CARD CHANGES

The Federal Reserve, in conjunction with the U.S. Treasury's Office of Thrift Supervision and the National Credit Union Administration discussed today a proposal to crack down on "unfair and deceptive" credit card industry practices. While specific details have yet to be released, it appears [based on major media reports - New York Times, Washington Post, etc.] the changes would address many widespread card abuses. Some issues the proposed new rules would curb ...

- Directing payments to a lower rate when a card carries multiple rates.
- Placing unfair time constraints on payments (payment would not be deemed late unless the borrower is given a reasonable period of time to pay, such as 21 days).
- Retroactively raising the APR on pre-existing balances.
- Unfairly computing balances (i.e., double-cycle billing).
- Making deceptive offers of credit.
- Charging fees for phone payments.

Not surprisingly, the banking industry is less than thrilled and will fight the proposals ...

BUILDING WEALTH

Three key components are often mentioned when discussing the accumulation of wealth: savings consistency, time horizon, and cost control. For young savers, the rate of return (what most people focus on) is much less important than developing a consistent savings plan. Investing regularly in a prudent selection of mutual funds will build wealth faster than any other strategy. With time on your side, you can afford to make some mistakes without much long-term damage. The biggest mistake made early on [which you can't afford to make] is simply not to save.

Behavioral finance is the academic field studying how psychology influences an investor's decision-making process. Some interesting findings have surfaced ...

- People tend to be more optimistic about stocks after the market goes up and more pessimistic after it goes down (opposite the fear/greed sentiment Warren Buffett and others suggest).

- Investors give too much weight to recent information and too little weight to long-term fundamentals.

- People tend to chase recent performance (over 80% of new mutual fund purchases go into the funds that have the best one-year return); consistently shown to be a faulty approach.

- Investors typically consider the loss of $1 twice as painful as the pleasure from a $1 gain.

- People are reluctant to admit mistakes in judgment. For some, this means hanging on to stocks or funds that should be sold; for others, it leads to paying high commissions and fees to brokers and advisors so they have someone else to blame.

- Women tend to have a longer term view of the markets than men. They maintain an investment plan longer, and as a result they generally perform better.


Ultimately, the key to building wealth is making rational decisions and having the discipline to maintain those decisions. Unfortunately, we tend to become quite irrational when it comes to financial decisions. Successful investors understand the limitations of the markets as well as their own personal limitations and develop a plan that accommodates both.

A plethora of behavioral finance information and studies can be found at: http://www.behaviouralfinance.net.