Author Archives: Melissa Hart

Jan 16 2016

Investor Alert: Securities-Backed Lines of Credit (SBLOC)

SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities.  They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact have to sell your holdings, which could have a significant impact on your long-term investment goals.

Set up as a revolving line of credit, an SBLOC allows you to borrow money using securities held in your investment accounts as collateral.  You can continue to trade and buy and sell securities in your pledged accounts.  An SBLOC requires you to make monthly interest-only payments, and the loan remains outstanding until you repay it.  You can repay some (or all) of the outstanding principal at any time, then borrow again later.  Some investors like the flexibility of an SBLOC as compared to a term loan, which has a stated maturity date and a fixed repayment schedule.  In some ways, SBLOC are reminiscent of home equity lines of credit, except of course that, among other things, they involve the use of your securities rather than your home as collateral.

The Financial Industry Regulatory Authority (FINRA) and the SEC’s Office of Investor Education and Advocacy (OIEA) have issued an investor alert to provide information about the basics of SBLOC, how they may be marketed to you, and what risks you should consider before posting your investment portfolio as collateral.  SBLOCs may seem like an attractive way to access extra capital when markets are producing positive returns, but market volatility can magnify you potential losses, placing your financial future at greater risks.

For more information, click here.

Teaching Suggestions

  • Ask students to prepare a list of possible advantages and disadvantages of securities-based loans.
  • How might market volatility magnify potential losses placing your financial future at a greater risk?

Discussion Questions

  1. How are securities-backed lines of credit different from home-equity lines of credit?
  2. Why some investors prefer SBLOC to a traditional short term loan?
Jan 9 2016

Chip Card Scams

Scammers are taking advantage of millions of consumers who haven’t yet received a chip card.  For example, scammers are e-mailing people, posing as their card issuer.  The scammers claim that in order to issue a new chip card, they need to update your account by confirming some personal information or clicking on a link to continue the process.  Information received can be used to commit identify theft.  If they click on the link, they may unknowingly install malware on your device.

How can you tell if the e-mail is from a scammer?

  • There is no reason your card issuer needs to contact you by e-mail or by phone to confirm personal information before sending you a new chip card number.
  • Still not sure if the e-mail is a scam? Contact your card issuers at phone numbers on your cards.
  • Don’t trust links in e-mails. Only provide personal information through a company’s website if you typed in the web address yourself and you see that the site is secure, like a URL that begins https (the “s” stands for secure).

For more information, click here.

Teaching Suggestions

  • Ask students to visit other identify theft websites, such as, consumer.gov/idtheft, to learn what to do if your identity is stolen.
  • Ask students to compile a list of what actions can they take to ensure that their credit/debit cards and other financial information are secure.

Discussion Questions

  1. How do you discover that someone has stolen your identity?
  2. What steps can you take to thwart identity thieves?
Jan 2 2016

Personal Finance Quizzes

Need a lecture launcher to start your Personal Finance course?

Here a few links for resources:

Kiplingers Personal Finance Quizzes

LearnVest Quizzes

Financial Football Game

Teaching Suggestions

You may want to use the links in this blog post:

  • as a lecture launcher for the first day of your Personal Finance course.
  • to preview important personal finance topics that will be covered in the course.
  • stress why everyday decisions can make a “big” difference in the quality of a person’s life over a long period of time.

Discussion Questions

  1. How many of the questions did you get right?
  2. Do you understand why your incorrect answers are wrong and why there is a better answer?
  3. How can the questions in this quiz help you improve your ability to manage your personal finances and improve the quality of your life now and in the future?
Dec 19 2015

New Credit and Debit Chip Cards

Banks and card issuers have been sending out new credit and debit chip cards, usually as existing cards expire or need replacement.  If you haven’t gotten your new cards, don’t worry.  The rollout will continue at least through 2016.  If you want to know when yours new chip cards will arrive, contact your card issuers at the phone numbers on your cards.

Your new cards look like your old cards with one exception.  New cards have a small square metallic chip on the front.  The chip holds your payment data—some of which is currently held on the magnetic stripe on your old cards—and provides a unique code for each purchase.  The metallic chip is designed to reduce fraud, including counterfeiting.

Here’s how it works: To buy something in a store, instead of swiping your card, you’ll put it into a reader for few seconds.  Then you might have to sign or enter a PIN.  With each transaction, the chip generates a unique code needed for approval.  The code is good only for that transaction.  Because the security is always changing, it’s more difficult for someone to steal and use.

There will be no change in how you use your card online or by phone.  That means chip cards won’t prevent crooks from using stolen card numbers to buy online or by phone.  So it’s a good idea to still guard your card information closely, and check statements for suspicious activity.  If there is a problem, your consumer protections remain the same.

For more information, click here.

Teaching Suggestions

  • Ask students if they have received a new chip credit or debit card. Show how the new card differs from the old card.
  • Do you believe that new cards will help reduce fraud? Why or why not?

Discussion Questions

  1. How might scammers try to take advantage of the millions of consumers who have not yet received a chip card?
  2. How can you protect yourself from the scammers?
Dec 5 2015

Attention College Students: Student Loans, Debit and Prepaid Cards

College students often make financial decisions that can have consequences for years.  Getting a student loan or credit cards can influence long-term financial success.  Here are the ways to strengthen your decision-making skills:

  1. Do your research before applying for a student loan. If you have to borrow to pay for some or all of a college education, review the different types of student loans.  Choose one that’s low-cost and has a flexible repayment terms, which will generally be a federal student loan.
  2. Understand the pros, cons and costs of debit and prepaid cards. Debit cards enable you to withdraw money from your checking accounts for purchases or cash.  Prepaid cards are used to access money that has been loaded (added) onto the card, which is not connected to a bank account.
  3. Use credit cards responsibly: While credit cards are a convenient way to establish a credit history, they can make it easier to spend money. Purchases that cannot be paid in full by the due date will incur interest

For more information, click here.

Teaching Suggestions

  • Ask students if they have an outstanding student loan. Was the process of financing an education daunting and time consuming?
  • Ask students to visit the College Affordability and Transparency Center website (collegecost.ed.gov) for choosing the financial aid package that best suits their needs.

Discussion Questions

  1. Why is it important that you find the most affordable education that fits your budget, future career, and long-term financial goals?
  2. What might be the benefits of understanding the pros, cons, and costs of debit and prepaid cards?
  3. Are school-affiliated cards the best deal for all students? Why or why not?
Nov 28 2015

Low Gas Prices Are Set to Spur Holiday Spending

“Falling gas prices have put consumers in a good mood.”

According to a survey conducted by the National Association of Convenience Stores (NACS), more than 4 in 5 Americans indicate falling gas prices impact their feelings about the nation’s economy and as a result they will spend more during the upcoming holiday season.  In fact, more than one in four consumers (26 percent) expect to increase their spending during the 2015 holiday season–a 7-point jump over the past month and the highest percentage this year.  Also the survey finds that women are more optimistic than men.  For retailers, this statistic is even more encouraging because women do more holiday shopping when compared to men.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss how holiday spending impacts a family’s budget.
  • Describe methods that consumers can use to save the money and budget for holiday spending.

Discussion Questions

  1. Does the price of gasoline affect your spending on other items such as food, clothing, medicine, luxury items, and gifts?
  2. How can you avoid spending “too much” during the holiday season?
  3. What steps can you take to save the money needed for gifts and other holiday expenses?
Nov 21 2015

Investors Face Quagmire of Falling Earnings, Higher Rates

“Investors may wade into unknown territory next month as the Federal Reserve readies the first rate hike in nearly a decade amid a corporate earnings recession.”

In this Reuters article, Rodrigo Campos explores the following factors that can be used to predict what could happen in the financial markets in the near future.  Consider the following

  1. The Federal Reserve may raise interest rates in December–the first increase in nearly a decade.
  2. Earnings for the third quarter of 2015 for 90 percent of the corporations listed in the Standard & Poor 500 are lower than expected.
  3. The decline in corporate revenues has been steeper than the drop in earnings.

As pointed out in this article, rising interest rates are always a negative factor for stocks.  Since 2013, every time the Fed has indicated a rate hike is on the horizon, the stock market throws a tantrum, and the Fed decides not to raise rates.  At the time of this blog, it is impossible to know if the Fed will raise interest rates in December–especially with corporate earnings on the decline.  Even the experts are not sure what will happen between now and the end of the year.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the relationship between corporate revenues, earnings, and stock prices.
  • Explain the affect an increase in interest rates could have on the financial markets and consumers.
  • Explore possible investments for a down market and a market on the upswing.

Discussion Questions

  1. What is the relationship between corporate revenues, corporate earnings, and stock prices?
  2. What affect would a Fed decision to raise or lower interest rates have on the financial markets? On consumers?
  3. Assume you have $375,000 invested in a diversified retirement portfolio. Corporate stocks in your portfolio include utilities, technology, energy, and consumer stables–some of which have reported lower earnings for the last two quarters.  You also assume the Fed will raise interest rates in December.  Would you sell some or all of your holdings?  If you decide to sell, how would you determine which securities to sell?  Explain your answer.
Nov 18 2015

Income Tax Identity Theft Baffles IRS

“Income tax identity theft is a huge problem that is only getting worse.”

According to a 2015 report of the General Accountability Office (GAO), the IRS paid out $5.8 billion in bogus refunds to identity thieves for the 2013 tax year–the latest year that complete data are available.  To make matters worse, the actual dollar amount is probably higher because of the difficulty of knowing the amount of undetected fraud.

To combat the problem, the IRS announced a new cooperative effort between the IRS, state tax administrators, and private tax preparation services to fight income tax identity theft.  A number of specific steps are outlined in this article.  Unfortunately, the experts admit there are additional problems to stopping identity thieves that are not addressed in the new program.  In fact, most experts agree that additional regulations are required to coordinate employer reporting of employee wages with Social Security reporting requirements.

For individual taxpayers, bogus tax returns become a very real and personal problem if their social security number is stolen and their personal tax return is flagged by the IRS as suspicious.  To help resolve disputed tax returns, the office of the National Taxpayer Advocate, which is an internal watchdog for consumers at the IRS, suggests that you file a police report and then mail a paper tax return with an attached Form 14039–Identity Theft Affidavit with a copy of the police report.  In addition to additional documentation, expect that it may take on average 278 days to resolve a claim if you become a victim of income tax identity theft.

For more information, click here.

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the importance of protecting your personal identity and especially your social security number.
  • Stress the importance of monitoring your credit report and all financial documents that could indicate your personal identity has been stolen.

Discussion Questions

  1. What steps can you take to protect your personal identity?
  2. There are a number of credit monitoring services that will help protect your identity. Most charge $75 to $100 or more a year to monitor your financial and personal information.  Do you feel this  service is worth the cost?
Nov 14 2015

Review a Copy of Your Free Credit Report

Credit reports, produced by credit bureaus, detail your financial history, and are used to develop credit scores.  Under federal law, you can get at least one free report from each of the nationwide credit bureaus every 12 months.  If you find an error, contact the credit bureau directly and correct the record.

If you cannot qualify for a regular credit card, consider a no-fee or low-fee secured credit card.  This is a credit card for which you would keep money (as collateral) in a deposit account at the financial institution issuing the card.  For example, if you want a card with $1,000 limit, you might deposit that amount into a savings account at the bank offering you the card.  The lender would report how you manage the card to one or more of the credit bureaus, and often it will provide you the opportunity to obtain an unsecured credit card after a certain period of on-time payments.  Secured cards may have fees attached to them and may have a higher interest rate, so be sure to do your homework before signing up.

To order your free annual report from the three major credit bureaus—Equifax, Experian, and TransUnion visit www.AnnualCreditReport.com or call toll free 1-877-322-8228.

You have the right to see and correct reports from “specialty” credit bureaus that, for example, track a person’s history of handling a checking account.

For more information, go to:

Building a better credit report

Specialty consumer reports

Teaching Suggestions

  • Ask students to visit several websites that may provide current information about credit files.
  • Bring to class examples of credit related problems of individuals or families. Suggest ways in which these problems may be solved.
  • Ask students to talk to a person who has discovered an error on his or her credit report. What was their experience to get it corrected?

Discussion Questions

  1. What steps can you take to improve your credit score?
  2. Which federal laws protect your rights if your credit application is denied?

 

Nov 11 2015

Tips on Choosing and Using Bank “Rewards”

Bank reward programs tied to credit or debit cards or other products can provide you with appealing offers for things such as points to be used for travel and shopping or cash added to your account.  But finding great deals is only half of the equation.  Before jumping into any rewards program, consider these tips for maximizing the potential benefits and minimizing mistakes:

  • Comparison shop different rewards programs, including their fees and other costs, before deciding to apply for one.
  • Choose a rewards program that fits your lifestyle. The best way to maximize benefits and avoid spending problems is to choose a program that rewards you for purchases or deposits you would make even without the gifts.
  • Remember what it takes to earn rewards. Many credit cards provide rewards when you use them to make purchases, but it’s important to know exactly how much you can earn.

For more information, click here.

Teaching Suggestions

  • Why is it important for consumers to understand that to make the most of any rewards program, they need to make sure that they do not overlook other, more important account features in addition to the rewards?
  • Ask students to comment on the statement: “While rewards can be beneficial, don’t spend just to earn rewards.”

Discussion Questions

  1. Where should you look for credit cards and other bank products that provide rewards tailored to your particular needs?
  2. What are some of the perks that credit cards allow for their customers?
  3. Does overall spending and debt accumulation increase among consumers who use a rewards credit card?