Read other editions of the "It's Your Turn" eNewsletter
|
| Credit Where Credit Is Due | |
 |
George Loewenstein has never been tortured, but like the rest of us he's seen plenty of movies in which people are offered the option of being interrogated the "easy way" ('Tell us everything we want to know and nobody gets hurt') or the "hard way" ('We have ways of making you talk.'). He suggests that people who use credit cards unwisely think they're taking the easy way out but end up getting hit the hardest. That's because paying for stuff with credit cards feels painless-until you get the bill, and then the pain is much, much worse. "For people struggling to save or to keep within budgets, credit cards undermine one of the main mechanisms for regulating spending: the pain of paying," Loewenstein says. "But that pain comes back with a vengeance when the credit card bill comes due." Racking up debt has become a way of life for many Americans. (The government is pretty good at it, too!) According to the money and investing site The Motley Fool, American families carry an average credit card debt of $8,562. Stricter bankruptcy laws now make it much more difficult to simply declare bankruptcy and walk away from debts when you get in over your head. But it's still so easy to get credit. Three billion credit card solicitations are sent out each year; that's roughly ten offers for each of the 300 million or so men, women and children in the country. Loewenstein, a professor in the Department of Social & Decision Sciences at Carnegie Mellon University in Pittsburgh, argues that inflicting a little short-term pain (by using credit cards less often) can result in a lot of long-term gain (less debt and fewer interest payments). There is nothing inherently wrong with credit cards, of course. They can be convenient and useful financial tools. Problems only arise when credit card use leads to unmanageable debt. The appeal of credit lies in our insatiable appetite for free lunches. Using a credit card gives us immediate gratification and postpones the day of reckoning when we finally have to pay up. In short, it lets us believe-for a brief time, at least-that we're getting something for nothing. "The pain of paying is often associated with paying in cash," Loewenstein says, "so credit cards can make it feel like you're getting a good or service for free." There's no such thing as a free lunch, of course, and by mixing up the cost of many different purchases on a single bill, credit cards can make the pain of paying feel a lot worse. "When you go out to dinner and pay cash, for example, you've enjoyed the meal and you know what you're paying for, so you don't feel so bad about paying," Loewenstein says. "If you put it on your credit card, though, the cost of the meal is lumped together with other purchases when the bill comes a month later and it's not clear anymore what you paid for. Plus, you're paying interest, and that often feels like paying for nothing. So paying for that meal feels a lot worse." So what's a consumer to do? Loewenstein suggests going on a credit diet. "Willpower is not a good method of self-control," he says, "because it becomes depleted very quickly. It requires tremendous willpower to diet in a house full of food. It requires a lot less willpower if you're dieting while on a camping trip, because there is a lot less food around-and therefore a lot less temptation. It's better to avoid situations in which you will be tempted than to try to resist the temptation through willpower." One sure way to go on the financial equivalent of a camping trip is to leave the credit cards at home, or not apply for them in the first place. Another useful tactic is to use debit cards, which have all the convenience of credit cards with far less risk of temptation-because you know that the cash comes right out of your bank account whenever you use it. The Motley Fool's Credit Center has other useful tips on credit management. It can be difficult to avoid the lure of credit when so many cultural and economic forces are urging us to spend, spend, spend. And, let's admit it, we're just not that good at inflicting immediate pain on ourselves in order to secure some long-term gain. There's one rule of thumb that Loewenstein suggests might be helpful to keep in mind, though: "If you can't afford it without a credit card," he says, "you can afford it even less with a credit card." -- James Geary
|
| Smart Ways to Pay for College | |
|
So, you're gearing up for college: researching schools, filling out application forms, feeling slightly queasy every time you think about how much the next few years are going to cost. A little fear and trembling are certainly understandable. The average cost of attending a public in-state school for a year is about $9,500 (add $5,000 if you're going out-of-state). A private school can cost an average of about $21,500. Those price tags have risen 28% for public colleges and 25% for private colleges since 1993, according to the U.S. Department of Education's National Center for Education Statistics. Where's the money going to come from? Don't panic, says Martha Holler of Sallie Mae, a leading provider of student loans: "There's lots of free money out there, if you know where to look." Are you an avid skateboarder? If so, the Patrick Kerr Skateboard Scholarship might be for you. All you have to do is write a 300-word essay on how skateboarding has positively influenced your life. The people at Patrick Kerr make four scholarship awards-one for $5,000 and three for $1,000-for the best submissions. Or maybe you're into duck calling. The Chick and Sophie Major Memorial Duck Calling Scholarship also presents four awards-ranging between $200 and $1,500-to high school seniors who can make the most persuasive duck calls. Be warned, though: one of the required quacks is a mating call! Or perhaps poker is your thing. If you're 18 years or older, you can enter the College Poker Championship and compete in an online tournament. The prizes are 1,000 scholarships, worth anywhere from $500 to $40,000. I am not making any of this up. All of these scholarships, and roughly two-and-a-half million more, are available on the Sallie Mae College Answer Web site. College Answer is a comprehensive site that offers tips on everything from preparing financial aid applications to avoiding scholarship scams. The free scholarship search helps grant-hunters home in on potential scholarships. Just fill in a personal profile, and the database supplies you with a customized list of possible grant opportunities. Holler's advice to anyone wanting to fund a higher education is simple: "Exhaust the free money first." Databases like Sallie Mae's scholarship search can help. Holler says there are grant opportunities in the most surprising places, including federal and state governments, employers, professional associations, educational institutions, ethnic organizations and religious denominations. Some are based on financial need; others are awarded on merit or special interests. And don't shrug off scholarships because you think you won't qualify, perhaps because you're not a straight A student or you think your family income is too high. According to the American Council on Education, the coordinating body for the country's higher education institutions, 13 million people apply for financial aid every year. But another eight million do not apply, and of that number some 1.5 million would qualify for scholarships of one sort or another. "A little research can make a big difference," Holler says. The first step on the scholarship search is to complete the Free Application for Federal Student Aid (FAFSA) form. The FAFSA is the application that federal and state governments use to determine your eligibility for scholarships and grants. The FAFSA site also has a comprehensive guide to navigating the ins and outs of student financial aid. If you need help figuring out just how much money you will need, check out College Answer's school affordability analyzer. Enter your choice of schools, and the calculator returns information on the average cost of attending, the average financial aid awards offered, and how much you might be expected to pay out-of-pocket. After you've collected all the free money you can get, you may discover you still need some extra funds to bridge the gap. Savings from summer and part-time jobs are crucial, especially for incidental living expenses such as transportation-as well as essentials like textbooks and double mocha cappuccinos. But if you still need a bigger chunk of cash, the next step is to borrow money under federally guaranteed loan schemes. These loans, available through Sallie Mae and many other financial institutions, offer the best terms and lowest interest rates. Parents, as well as students, can borrow under these schemes. And again, the loans are not awarded on the basis of financial need. People of all income levels can qualify. "There's a lot of free money out there," Holler says, "and you don't have to be the quarterback of the high school football team or an academic scholar to get it." It helps if you're an expert skateboarder, master poker-player or champion duck caller, of course.
|
| Financial Planning Clinic | |
|
CFP Board held its 2006 Annual Meeting the first week of August in Los Angeles and Santa Monica, bringing together all of CFP Board's stakeholder groups for insights from notable speakers, educational sessions on a wide range of financial topics, and plenty of opportunities to network with CERTIFIED FINANCIAL PLANNER™ certificants and others whose lives benefit from financial planning. The Annual Meeting was CFP Board's first large-scale public meeting, with a financial planning and education event open to the public and all of CFP Board's constituents at the Los Angeles Convention Center on August 4, 2006. More than 75 media outlets, including ABC, CBS, Univision, NBC's Telemundo, The LA Times and The Daily Breeze, helped promote the event to consumers via television, radio and newspaper interviews, public service announcements, print and online articles, print and online community calendar placements, chat room postings and online banner placements. And the media outreach worked! The event drew thousands of consumers who learned about the benefits of financial planning. A free Financial Planning Clinic was an especially notable success! Nearly 1,000 consumers from the Los Angeles Metro area and beyond stopped by the Los Angeles Convention Center on Friday, August 4, 2006 to sit down and speak with volunteer CFP® professionals about their finance-related questions, concerns and curiosities. Before the Clinic opened, crowds of people waited eagerly in line at the entrances to the 8,530 square-foot meeting space, and as soon as the doors opened, the meeting hall was filled to capacity and remained full for the duration of the Clinic. Not a single person left the Clinic without consulting at least one volunteer, and many were able to consult several of the volunteers stationed at the 60 tables. While each table was assigned a different financial topic - such as retirement planning, investment strategies, tax planning and debt management - the volunteers all answered a broad range of questions and, needless to say, remained busy. Many of the volunteer CFP® certificants expressed how much they enjoyed participating in the Financial Planning Clinic and how much fun they had interacting at such a personal level with so many consumers. This feat would not have been possible without the generosity of the more than 100 CFP® professionals willing to spend their Friday afternoon helping and making a difference in the lives of so many people. CFP Board would like to express its heartfelt gratitude and appreciation to each of the volunteers for helping to make this event not only possible, but successful. CFP Board plans to continue its media outreach in the Los Angeles area and take advantage of the momentum built around the 2006 Annual Meeting to cultivate ongoing awareness of the importance of financial planning. We're also planning the 2007 Annual Meeting, with another Financial Planning Clinic, which we expect to hold in August 2007 in the greater Boston area. We welcome comments about the 2006 Annual Meeting and suggestions for improving future meetings. All those who registered for the 2006 meeting will soon be asked to complete an online survey. Those who were unable to attend the 2006 meeting are invited to send suggestions to mail@CFPBoard.org.
|
| Ethics and Financial Planning | |
|
Financial planning has benefits for nearly every part of a person's life. Having clear, enforceable ethical standards for those who provide financial planning services is vital, and CFP Board is committed to maintaining high ethical standards for those to whom it grants CFP® certification. CFP Board's mission is to help people benefit from competent and ethical financial planning, and one way CFP Board accomplishes that mission is through the four E's required for CERTIFIED FINANCIAL PLANNER™ certification: Education, Examination, Experience and Ethics. The education, exam and experience requirements - including ongoing continuing education requirements - are all designed to ensure that CFP® professionals are able to provide the public with quality financial planning services. With all the work required to complete those three requirements, the ethics requirement sometimes gets overlooked. But ethics are an integral component of CFP® certification, and CFP Board takes very seriously its ethical standards and the enforcement of those standards. CFP Board requires that all those seeking to attain CFP® certification agree to abide by ethical standards. Those standards are defined in CFP Board's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards. Each time a person applies for CFP® certification or renews certification, that person must agree to adhere to those ethical standards and also to disclose certain matters that might indicate violations of CFP Board's ethical standards, such as lawsuits, arbitrations or investigations by regulatory bodies. CFP Board also encourages clients of CFP® certificants to notify us when a CFP® certificant does anything that might be considered unethical. If you encounter suspicious behavior by people who represent themselves as CFP® certificants, visit CFP Board's Web site at www.CFP.net and select the "REPORT A COMPLAINT" option to report your concerns. When potential violations are disclosed to or discovered by CFP Board, our Professional Review department initiates an investigation, requesting information from anyone who might have information about potentially unethical conduct. Although CFP Board has limited jurisdiction - we can only discipline those who hold CFP® certification and cannot impose fines or require compensation to victims - CFP Board is one of the few non-governmental organizations that routinely initiates disciplinary proceedings and publicizes disciplinary actions against individuals who might pose a threat to the public. When serious matters come to CFP Board's attention, the Board of Professional Review holds hearings to determine whether a CFP® certificant's certification should be permanently revoked, temporarily suspended, or subjected to a public letter of admonition. Details of CFP Board's complaint procedures are available online at www.CFP.net/learn/complaint.asp, and the names and locations of those who have been publicly disciplined by CFP Board are posted at www.CFP.net/learn/disciplineactions.asp. The best way to judge if your financial planner is providing ethical services is to familiarize yourself with the ethical standards. CFP Board's current ethical standards are available online: the Code of Ethics and Professional Responsibility is available online at www.CFP.net/learn/ethics.asp, and CFP Board's Financial Planning Practice Standards is available online at www.CFP.net/learn/standards.asp. Last month, CFP Board released an Exposure Draft of proposed revisions to its ethical standards for a period of public comment. CFP Board's Board of Governors has proposed the changes in an effort to strengthen CFP Board's ethical standards by making them more clear and concise, by strengthening important provisions related to disclosure requirements and duty of care, among others, and by making the standards applicable to all who hold CFP® certification, regardless of whether individual CFP® professionals classify their business activities as "financial planning." CFP Board's goal is to maintain the strength of its ethical standards while making them easier to understand for both CFP® professionals and the people they serve. The Exposure Draft of proposed changes is available for review at www.CFP.net/aboutus/Exposure_Draft.asp, and CFP Board's Board of Governors (Board) is accepting written comments on the proposed changes until September 25, 2006. In October, the Board will review the comments and determine what further action to take with regard to the Exposure Draft. CFP Board encourages everyone interested in financial planning to review the proposed changes and send written comments to mail@CFPBoard.org by the September 25, 2006, deadline. If you read the Exposure Draft and don't understand certain parts, let us know which parts you found unclear. If you read the Exposure Draft and feel like something is missing, please write and let us know what you missed. If you read the Exposure Draft and feel confident that it describes the type of ethical behavior you expect from a financial planning professional, we ask that you write to tell us you approve of the proposed revisions. We welcome your feedback on the proposed revisions.
|
| About This eNewsletter | |
|
Sign up to receive CFP Board's eNewsletter. Periodically, CFP Board will e-mail you "It's Your Turn," which includes information about financial planning, consumer alerts, financial planning tools and resources and much more. Don't miss a word - join today!
|
