CFP Board eNewsletter
September 2008
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CFP Board eNewsletter |
| How to Keep Score of Your Credit |
What would you rather discuss—your personal life or your credit history? In a recent poll sponsored by CreditCards.com, more people said they were willing to share details of their love lives, salaries, health problems and weight than they were about their credit card debt. In a separate survey, the Consumer Federation of America (CFA) found that almost a third of respondents did not know that their credit scores—a measure of credit-worthiness—are key factors lenders use to determine loan eligibility. It is always a good idea to maintain a healthy credit history, since banks and other financial institutions use this information to decide whether to lend you money and at what interest rate. It is even more crucial today, at a time when the credit crunch is making it harder to arrange everything from mortgages to home equity lines of credit to small business loans. Your credit score is a kind of financial report card: the higher your score, the better the terms of any loan you might apply for. Here are a few tips on how to keep score of your credit. Credit scores can be complicated and confusing, in part because different lenders may use different scoring methods. The FICO® score, for example, ranges from 300 to 850, while VantageScore uses a scale of 501 to 990. This lack of uniformity helps explain the CFA finding that 74% of respondents believed their incomes influenced their credit scores. In fact, your credit score is based on your total amount of debt, your payment record, and the length of your credit history, among other things, not your income. “Lack of consumer knowledge about credit scores not only increases the costs of their credit and insurance but also reduces the availability of these and other services,” the CFA’s executive director Stephen Brobeck said of the report. For a detailed overview of how credit reports are compiled and how credit scores are calculated, see Adding Up the Value of Your Credit in the December 2006 issue of It’s Your Turn. To boost your score, take these simple but effective steps:
For more detailed tips on how to improve your credit score, see The Credit Report Repair Kit in the December 2007 issue of It’s Your Turn. It’s a good idea to regularly review your credit report, too, in order to check for errors and to make sure everything is up to date. You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. You can do this for free once a year by visiting Annual Credit Report.com or by calling 1-877-322-8228. Your Credit Report: What It Says About You, from the Federal Reserve Bank of San Francisco, contains a helpful list of frequently asked questions about how credit reports and credit scores work. Why Care about Your Credit Score, from financial education site Mind Your Finances, explains the factors that determine your credit score and how different scores affect your borrowing eligibility. Know Your Score: Think Your Grade Point Average is Your Only Score That Matters?, a downloadable brochure from the CFA, contains tips for high school and college students on how practical expenses, like car repairs and credit card use, can impact credit scores. When playing the credit game for big-ticket items like a home or a college education, it’s crucial to know your score.
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| It’s Nifty to be Thrifty |
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It can be difficult to regularly put some money aside even during the best of economic times. Given the current credit crunch and the rising cost of everything from food to fuel to health care, sticking to a savings plan can be even harder. And the temptation to rely on credit cards or loans to make ends meet can be even greater. So the recent publication of the report For a New Thrift: Confronting the Debt Culture is a timely reminder of the importance of saving. The report, put together by a group of think tanks, cites a list of statistics that highlight the economic challenges facing many consumers: Debt payments account for some 15% of the average American family’s income; nearly half of all credit card holders have missed payments in the past year; 36% of respondents in one survey said they have at some point felt that their financial situations were out of control. Debt can be a particular concern for younger generations. In a separate report by Fidelity Consulting Group, about half the young people questioned said that saving for retirement was a goal but that other financial obligations—such as daily expenses, mortgages, school loans and credit card debt—took priority. “Younger generations are more likely to use credit than save for short-term purchases, which results in an ongoing struggle with debt management,” said Fidelity Consulting Group executive vice president Pamela Norley of the report. Since saving—whether for retirement, education, vacations, or other financial goals—never goes out of style, here are some strategies anyone can use to start saving now.
How Do You Start? One crucial lesson about saving is that everyone can do it, no matter how limited their income. A case in point is Earn, a San Francisco non-profit that works with low-income individuals to help them build assets and create wealth. A typical Earn client has an annual income of about $18,000, yet still manages to put some money into an Individual Development Account (IDA) every month. For every dollar saved by the client, Earn contributes another two dollars. So if a saver manages to set aside $2,000 over the course of a year, for example, Earn tops up that amount with another $4,000, for a total of $6,000. So, how can you save money even when you’re on a tight budget? Start small. Seemingly insignificant savings can make a big difference over time. Bringing your coffee from home every morning instead of buying that $3 latte on the way to work could save you around $15 a week—or $780 a year! Another simple technique is “to pay yourself first, just as though you were paying a monthly bill. After a few months, this routine becomes a habit,” says Scott A. McCaskill, CFP® of Voso Financial Advisers. An important element of paying yourself first is to make sure you put the money in an account that you can’t access easily. “That means no checkbook and no bank card. Money that you can’t see is money that you can’t spend,” he says. The Choose to Save Web site, a project of the Employee Benefit Research Institute, has a list of Practical Savings Tips for Every Day Saving that can help you on your way. The savings strategies include, among other things:
Choose to Save also offers How to Stay Disciplined with Your Savings, which includes advice on how to keep focused on savings goals. An effective savings plans consists of both short- and longer-term goals. America Saves, a nationwide campaign to help individuals and families build wealth, offers Five Strategies to Saving to help you secure your economic future, such as:
To help you get started on the road to saving, the Federal Reserve Bank of Dallas has created the downloadable booklet Building Wealth: A Beginner's Guide to Securing Your Financial Future. The booklet contains everything you need to know to start saving right away, from setting goals and budgeting to managing debt and investing. Creating a savings plan, and sticking to it, can seem like a daunting task. But once you get into the savings habit, you’ll be surprised at how natural it becomes. And the rewards—financial security and peace of mind—are well worth the effort.
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| Don’t Be Rushed Into Switching Insurance Providers |
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The Federal Reserve recently sent American International Group (AIG) an $85 billion lifeline to help prevent the insurance giant from going under. For any consumer with an insurance policy, whether through AIG or another company, the events of recent weeks have probably been a little unsettling. In the wake of the AIG developments, state insurance regulators have been hearing reports of agents and brokers trying to talk people to switch out of their AIG policies and buy a new policy with another company. But sometimes this move is more beneficial to the agent—who could receive a new commission—than to the consumer. In fact, New York's insurance superintendent, Eric Dinallo, recently issued a strong warning about some of these sales pitches: "If someone tells you to replace any policy because AIG insurance company is in trouble and may not be able to pay your claim, that is not only untrue, it is against the law," he said. "Don't worry and don't make any rash decisions if you have a policy issued by an AIG insurance company. All your covered claims will be paid and all your annuity checks will come." Before you make any change, consider the potential drawbacks to switching out of an AIG—or any—policy, says Dan Candura, CFP® of PennyTree Advisers. Among them:
A lot could happen in the next few weeks. AIG is developing a plan to sell some assets, which could include some of its insurance subsidiaries. If that is the case, your policy could end up with another insurer that is in even stronger financial shape—which has happened to some troubled insurers in the past. If your policy is acquired by another insurer, the terms of the contract cannot change. The premiums you pay and any guarantees you've been promised will continue for the term of the policy. Don’t overlook the value of professional assistance. Adding a CERTIFIED FINANCIAL PLANNER™ professional to your support team can be an important part of reaching financial goals. A CFP® professional will not only help you set specific and realistic goals, but will also be able to provide an objective view of how your goals work with the other aspects of your financial situation, whether investing, insurance or tax planning. And you’ll have expert support on your side to help keep you on track to reach your goals.
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| About CFP Board’s Revised Standards of Professional Conduct |
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The revised version of CFP Board’s Standards of Professional Conduct, which presents the ethical standards for CERTIFIED FINANCIAL PLANNER™ professionals has been in effect since July 1. The revised Standards, which has an enforcement date of January 1, 2009, apply to the more than 58,000 financial planners in the U.S. who are authorized by CFP Board to use the CFP® certification marks. What do these revised standards mean to consumers? In essence, the rules state that anyone calling themselves a CFP® certificant “shall at all times place the interest of the client ahead of his or her own.” When CFP® certificants offer planning services, including recommending investment products, they must offer them with the “duty of care of a fiduciary,” which CFP Board defines partly as acting in the best interest of the client. “These revised Standards are the latest effort by CFP Board and its Board of Directors to ensure that the CFP® mark is the gold standard for personal financial planning,” says Kevin R. Keller, CEO of CFP Board. More information on the revised Standards can be found at http://www.CFP.net/aboutus/Standards.asp.
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| CFP Board’s Washington, DC Financial Planning Clinic Attracts 500 Consumers |
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On September 13, 500 Washington, DC-area consumers connected with CERTIFIED FINANCIAL PLANNER™ professionals who provided guidance to a host of financial planning issues such as retirement and investment planning, debt management, tax planning, college funding, insurance and employee benefits at CFP Board’s Financial Planning Clinic. More than 100 CFP® professionals volunteered their time and expertise to educate consumers on the benefits of financial planning and the value of CFP® certification. What distinguishes CFP Board’s Financial Planning Clinics from most other financial seminars is that no products or services are sold at the event and volunteers are not permitted to hand out business cards or marketing materials. For many Washingtonians who attended the Clinic, the event was their first chance to learn about to the benefits of financial planning and to experience firsthand the expertise of CFP® professionals. The attendees’ response to the Clinic was overwhelmingly positive and echoed the feedback CFP Board received for past Clinics in Los Angeles and Boston. As CFP Board plans to extend the reach of its Financial Planning Clinic program to other parts of the country, including a Clinic in Miami, Fla., on November 15, the success of the Washington Clinic is indicative that the need for competent and ethical financial planning in today’s volatile economy has never been greater. The Miami Clinic will follow the same format as previous Clinics. Attendees will be able to sit down with a CFP® professional to receive a one-on-one consultation on any financial planning topic they want to discuss. The consumers also will have an opportunity to attend any of a dozen educational workshops on timely financial topics presented by CFP® professionals. Among the workshop topics will be Financial Planning for Special Needs, Estate Planning and Launching a Financial Plan for Young Professionals. Select presentations will also be offered in Spanish. The Miami Clinic will follow the same format as previous Clinics. Attendees will be able to sit down with a CFP® professional to receive a one-on-one consultation on any financial planning topic they want to discuss. The consumers also will have an opportunity to attend any of a dozen educational workshops on timely financial topics presented by CFP® professionals. Among the workshop topics will be Financial Planning for Special Needs, Estate Planning and Launching a Financial Plan for Young Professionals. Select presentations will also be offered in Spanish. With the event less than two months away, CFP Board has rolled out a promotional plan to inform local consumers of this great opportunity. Advertisements have started to appear in Miami’s metro system and local media outlets are already showing interest in promoting the Clinic to their audiences. If you would like to attend the Clinic, or know someone in the Miami area, you can get more information at www.CFP.net/clinic.
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| Financial Planning Week: October 6-12, 2008 |
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The seventh annual Financial Planning Week, organized by the Financial Planning Association® (FPA®), will take place October 6-12, 2008. During the week, FPA strives to create and build the public's awareness of the financial planning process to enable individuals to make prudent financial decisions to achieve their life goals and dreams. Events scheduled for the 2008 Financial Planning Week include audiocast and Virtual Learning Center sessions featuring CFP® professionals and a number of educational seminars, hotlines and other events organized in cities across the country by FPA's network of close to 100 chapters. To learn about Financial Planning Week activities in your area, and to obtain contact information for the FPA chapters organizing those activities, visit www.FinancialPlanningWeek.org/financialplanningweekactivities/
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| Financial Alerts |
Federal Reserve Offers Information For Those With Mortgage Woes
What Happens If your Brokerage Firm Closes Its Doors
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| About This eNewsletter |
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CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.
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