mon·ey
Check our New Trivia Contest “Buzz Word” Page 5!
[muhn-ee] n·ies, adjective noun, plural mon·eys, mo –noun including exchange, any circulating medium of and deposits. coins, paper money, and dem
paper money.
ed as a medium ny article or substance us a alth, or means of exchange, measure of we and deposit or of payment, as checks on dem cowrie.
mination of a particular form or deno currency.
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capital to be borrowed, loan oney. invested: mortgage min terms of money
Money Matters
in pieces of wealth considered old, silver, or other metal g by public auconvenient form stamped dium of exthority and issued as a me e. change and measure of valu The Quarterly Financial Newsletter from Fleet and Family Support Centers Mid-Atlantic Region
Financial Trends ››››››››››
In this Issue Financial Trends ››››››››››
› Holiday shopping tips and tidbits › Actively managed or index mutual funds › Usage-based insurance seems likely to change the industry › I ncome trends are ringing a warning bell › Financial Literacy Quiz
Holiday shopping tips and tidbits
Resources ››››››››››
› Experian kicks off new personal credit consultation service › BUZZ WORD Trivia legal News ››››››››››
› $10 minimum now part of the law Bits and Pieces of Interest ›››››››››› CFS Bookshelf ››››››››››
› The Gone Fishin’ Portfolio: Get wise, get wealthy…and get on with your life
Last Issue
Buzz Word Trivia Answer!
Question:
This European company was hoping to bring its undersized and peculiar looking product to the U.S. market in a big way and accomplished this goal with one of the most successful ad campaigns of all time With the tagline, “Think Small” this product became an American icon. What product was the subject of the “Think Small” marketing campaign?
Answer:
Dec.| Jan.| Feb. 2011/2012
Think you know the answer??
n
swage The Volk Beetle
Not quite done yet? Reading over the following may help you keep your spending in check.
adding a more expensive model made the medium-priced version look more attractive and boosted overall sales.
Bring the Earplugs - Studies have shown that if you like the music being played in the store you are more likely to enter the store and like the products. Also, the slower the tempo of the music, the slower you will walk through the aisles and the more you buy.
Holiday Decorating – The earlier a person decorates their home or lawn the earlier they are likely to start their shopping and the more they are likely to buy. This is why the first Christmas related sales are for lawn and home ornaments.
More psychology – In a consumer behavior experiment, shoppers were offered two microwave ovens: one costing $110, another costing $180. Most chose the less expensive oven. However, when the choices were expanded to a third oven costing $200, the overwhelming choice became the $180 oven. Just
Five Trips – On average, it takes five trips to the mall to complete all holiday shopping. In general, the more trips, the more spent. “WHat Next” continuednext next pG. “your Holiday Shopping” continued page
“The most expensive vehicle to operate per mile is the shopping cart” ~Anonymous
CFS Material Website http://www.cnic.navy.mil/norfolksta
This website contains the electronic Financial Planning Worksheet and other training materials. Reproduction of this publication in whole or part is authorized and encouraged in PODs and unit bulletin boards.
A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic Money Matters | 1
Financial trends ››››››› Actively Managed or Index Mutual Funds a mutual fund. It seems sensible to have When investing, it’s a picking a practiced financial analyst steering the ship. matter of stacking the Index Funds odds in your favor America’s designation as the land of plenty may be best exemplified in the mutual fund industry. According to the Investment Company Institute, a national association of investment companies, there were 7,600 mutual funds at the end of 2010. If that doesn’t seem like a large number, consider this: at the end of 1980 there were only 564 mutual funds. The explosion of funds has coincided with a similar spike in the number of employers shifting workers to defined-contribution pensions (401k’s). While mutual funds can represent investments in money markets, bonds, stocks, real estate, and commodities, the majority are invested in the stock market. So, what’s an investor to do? How does a person pare this field of thousands to the one fund that is best for them? For starters, all funds fall into one of two categories: actively managed or index funds.
Actively Managed The actively managed approach involves a single manager or a team of professionals constantly seeking out the best stocks and/or bonds to put in the mutual fund. The fund management is actively trying to pick winners and losers among the thousands of publicly traded companies that issue stocks or bonds. These managers typically come highly educated, experienced and driven to find the best companies in which to invest. Most investors opt for this approach when
The alternative to actively managed mutual funds is the index or passively managed fund. As the name would suggest, there is little or no ongoing research to decide what stocks to put into the fund. An index fund simply picks a particular index, buys the same stocks or bonds that appear in the index and occasionally rebalances the mix as the index changes. For example, an S & P 500 Index mutual fund would buy the same stocks that are tracked by the S & P 500 – in this case the 500 largest US companies – and hold them. The C fund in TSP takes this approach. There are a lot of different indexes out there. The Wilshire 5000 is an index of the entire stock market. The Russell 2000 represents the 2000 smallest companies. The EAFE Index represents a basket of large overseas (non-American) companies.
The key aspect of index funds is they do not aspire to beat the market, only to mirror the market. Historically, index funds have out-performed actively managed funds about 70 percent of the time. Consider the advice of a few well-known investors: John Bogle, founder of Vanguard Funds and author of nine books on investing advises, “Long-term investors who have chosen an index fund strategy are unlikely to be disappointed.” William Bernstein is the author of five personal finance books and principle owner of Efficient Frontiers, a financial advisory company. His advice is, “In the long run, the advantages of the indexed approach over traditional active
stock-picking are nearly insurmountable.” From legendary investor Warren Buffett, “Most investors will find that the best way to own common stocks is through an index fund….those following this path are sure to beat the results delivered by the majority of investment professionals.” “your Holiday Shopping” continued
Jewelry Sales – Jewelry stores typically produce about 30 percent of their profits around the holidays. People tend to get carried away with romance around Christmas. Black Saturday – Most years, the Saturday prior to Christmas is the busiest shopping day of the year, not the Friday after Thanksgiving. Only when the Saturday before Christmas occurs one or two days before the 25th is the day after Thanksgiving the busiest. The Pinnacle – Typically December 15th to 24th is the height of the shopping frenzy and accounts for 40 percent of all purchases. Two key things – Shopping with a list and paying in cash cuts the amount spent by 20 to 35 percent. Various sources: National Retailers Federation, SmartMoney, CNNMoney, Psychology Today “The only value of stock forecasters is to make fortune tellers look good.”
2 | Money Matters A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic
~Warren Buffett
Financial trends ››››››› Income trends are ringing a warning bell Researchers for the US Census bureau have reached some stark conclusions about income trends in the national economy that may have impact on certain service members. In the two years during the recession (December 2007 to June 2009) median income fell 3.2 percent.
Usage-based insurance seems likely to change the industry It would seem usage-based insurance (UBI) is coming on strong. UBI is the auto insurance industry’s latest and most precise way of rating a particular driver’s risk. It is still fairly new in the U.S. at least, not allowed in certain states and controversial with some. In the past, auto insurers would use information such as age, sex, location and driving record to decide how to price a driver’s auto insurance premiums. More recently, insurance companies have added credit reports to the mix. Credit reports added a lot more data, but were not immediately related to how a person would drive, they were based on ‘correlations’ to driving habits. Finally with UBI, insurers feel they have found a way to know exactly how a person drives. The key is a technology referred to as telematics. This involves an electronic device installed in cars that transmits actual driving behavior. Devices such as GM’s Onstar, Ford’s Sync, and more recently, Progressive Insurance’s Snapshot offer technology that can detect driving characteristics such as how many miles you drive, what time of day, how fast you go and how hard you step on the brakes. The use of this technology is widespread
in Europe and only beginning to catch on in America. Presently, the technology is allowed in only 27 states for use in insurance pricing. At this point a driver’s decision to plug in a device for a month and demonstrate actual driving habits in hopes for a lower insurance premium is voluntary. It is predicted that the approach will gain in popularity, acceptance in all 50 states and soon change the manner in which the insurance industry prices its product. Progressive Insurance has been the first American insurance company to use the devices in mass, but other insurance companies such as Allstate, State Farm and Nationwide are right behind them.
“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Only a handful see it for what it really is…the strong horse that pulls the whole cart.” ~Winston Churchill
The drop was not a surprise since the economic downturn was so sudden and severe. The big shock came when they looked at income levels since the recession officially ended in June 2009. During the two years ending in June 2011 the median income fell an additional 6.7 percent. So, since the beginning of the recession, national median income has dropped almost 10 percent to $49,900. If that isn’t enough, consider that since 1999 the median income of families headed by a college graduate fell 9% from 1999 to 2010. The continued fall is attributable to persistently high unemployment and an increased willingness for jobseekers to accept reduced wages in exchange for a job. The significance should not be lost on service members. During the same period of time, military pay has risen at an average annual rate of 2.5%. It all adds up to a potential financial shock for anyone separating from the military as they try to replace military pay with civilian pay. These circumstances make it all the more important for a separating service member to place themselves in the most advantageous financial position possible (beef up savings, pay down debt) since the increasing likelihood is that monthly income will drop.
“Make money your god and it will plague you like the devil.” ~Henry Field-
A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic Money Matters | 3
Financial trends ››››››› Financial Literacy Quiz
2. To reduce the total finance costs paid over the life of an auto loan, you should choose a loan with the:
a. Lowest monthly payment b. Longest repayment term c. Shortest repayment ter m 3. If you always pay the full balance on your credit card, which of the following is least important?
a. Annual interest rate b. Annual fees c. Line of credit 4. Which type of mortgage would allow a first-time home buyer to qualify for the highest loan amount?
a. Fixed-rate mortgage b. Adjustable-rate mortgage c. Reverse mortgage 5. The benefit of owning investments that are diversified is that it:
a. Reduces risk b. Increases return c. Reduces tax liability 6. A young investor willing to take moderate risk for aboveaverage growth would be most interested in:
a. Treasury bills b. Money-market mutual funds c. Balanced stock funds
7. The main advantage of a 401(k) plan is that it:
a. Provides a high rate of return with little risk b. Allows you to shelter retirement savings from taxation c. Provides a well-diversified mix of investment assets 8. To ensure that some of your retirement savings will not be subject to income tax upon withdrawal, you would contribute to:
a. A Traditional IRA or Individual Retirement Account b. A Roth IRA c. A 401(k) plan 9. If you have an insurance policy with a higher deductible, the premiums will be:
a. Higher b. Lower c. The same 10. Which of the following types of insurance is most important for single workers without children?
a. Life insurance b. Disability income insurance c. Dental insurance
p u p e e K ! Great Job ! k r o w d o the Go
Answers: 1-B,2-C,3-A,4-B,5-A,6-C,7-B,8-B,9-B,10-B
1. S avings accounts and money market accounts are most appropriate for: a. Long-term investments like retirement b. Emergency funds and short-term goals c. Earning a high rate of return
“Money is something we choose to trade our life energy for”
4 | Money Matters A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic
~Vicki Robin
Resources ››››››› Experian kicks off new personal credit consultation service If you’ve got the money, they’ve got the time. Ever felt frustrated about knowing what is on your credit report, understanding what is on your credit report or how certain actions may affect your credit score? Well, Experian has an offer for you. The credit reporting agency is rolling out its new Credit Educator service. Here is how it works: For a fee of $30 you get a personal phone appointment with an Experian agent, a copy of your Experian credit report and your credit score. Rather than the more popular FICO score,
the customer learns their Vantage Score, which is a separate scoring model.
appointment, a financial counselor is available to answer credit related questions.
Experian is marketing the service as an educational tool so that consumers can better understand their report and especially how credit scoring is used. Most of the inquiries they have received revolve around the scoring system.
Presently, Experian is not part of the credit report and score offer available at Fleet and Family Support Center.
Before calling, service members and their spouses should know they are able to see the Equifax or Transunion credit report and FICO score by making an appointment at the nearest Fleet and Family Support Center. As part of the
“Advertising is the art of convincing people to spend money they don’t have, to buy things they don’t need, to impress people they don’t like.” ~Will Rogers
Think you know {BuzzzW } } d oorrodr } d the answer? {Buzz WW
{Buz
Trivia
As an assignment for a large retail store, author Robert May created a children’s coloring book featuring a “ninth reindeer” leading Santa’s team. The idea was to find a way to keep the kids occupied while the parents shopped for presents. The fictional character caught on and was later to become the subject of a bestselling song recorded by Bing Crosby and a mainstay of the holiday season.
What was this once huge, but now-defunct, depression-era retailer that commissioned Rudolph the Red-Nosed Reindeer? Think you know the answer? Enter our contest for an FFSC Gift Basket give away. LOTS OF FUN STUFF! Submit a correct response no later than December 15, 2011 and you are in the running to win.* Please email responses to wally.barstow.ctr@navy.mil *If you win, you will need to come by the Norfolk FFSC to pick up the gift basket. Good Luck!
All I did was answer the question! You can too!
YN2 Chaidra Garcia September 2 011 Winner
Do you or someone you know want to be included on the email distribution list to receive this publication?
Then contact Wally Barstow at 444-2102 or by email wally.barstow.ctr@navy.mil and start receiving “Money Matters” today! A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic Money Matters | 5
Legal News ››››››› $10 minimum now part of the law However, the law afforded no such minimum for debit card purchases.
Have you ever walked into a store and seen a sign (usually handwritten) that says, “$10 minimum on credit card purchases”? It is a sign that credit card issuers loathe. So much so that it was routinely written into their credit card usage contracts that a merchant be required to accept a credit card purchase of any size. Some credit card companies went so far as to establish hotlines so customers who encountered merchants turning down small dollar-figure credit card transactions could be reported. For merchants small amount credit transactions can actually cost them money because of
So, if you are a consumer who still wants to report $10 minimums being required by merchants, it will have to be for debit cards only. If a credit card is all you ever use, it is probably a good idea to keep a $10 bill handy. their razor thin profit margins (especially on gas) and the swipe fees they must pay to the credit card issuer. But, the Dodd-Frank financial overhaul changed that. Now, it is perfectly legal for a store owner to require a $10 minimum on credit card purchases.
“Money can’t buy happiness, but neither can poverty” ~Leo Rosten
ArounD FFSC Become financiall y savvy!
Join us fo ra financial class today!
$
107
The average amount spent by each adult in America on themselves during the 2010 holiday shopping season.
Source: National Retailers Federation
6 | Money Matters A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic
bits and Pieces ›››››››
Consumer complaints
Consumer Federation of America, the National Association of Consumer Agency Administrators, and the North American Consumer Protection Investigators surveyed 31 agencies from 18 states to determine the top complaints of 2010. The results? All too predictable. The top three all stayed the same: #1 Cars (new/used sales, repairs, towing disputes); #2 Home improvement (shoddy work, not starting/ending on time); #3 Credit/Debt Collections.
New ID theft website The Consumer Federation of America unveiled a new website in September, www.idtheftinfo. org, which features best practices for ID theft services and other resources for consumers and businesses. Visitors can take quizzes and learn how to protect themselves.
Credit card satisfaction For the fifth year in a row American Express and Discover have topped the JD Power Satisfaction Survey for credit card holders. The ratings consider factors such as customer service, billing systems, rewards and problem resolution. Who were the least satisfied? Those who held credit cards issued by HSBC, Citicorp and Bank of America.
“Great minds discuss ideas; Average minds discuss events; Small minds discuss people” ~Eleanor Roosevelt
Are you a transactor or a revolver FINRA’s 2009 Financial Capability Study found that 54% of Americans were transactors, meaning they pay the balance in full each month. But, a more recent survey conducted by the Federal Reserve Bank of Boston found that 56% of consumers were revolvers (make payments of less than the balance in full) and that nearly one in three (29%) paid only the minimum. In general, three out of four transactors (77%) select their credit cards based on
rewards programs whereas people who carry balances from month to month (revolvers) are more focused on interest rates and fees (65 %).
Credit card APR hits 4 year high The average annual percentage rate on credit cards has hit a four year high of 15%. The rates on balance transfer cards and rewards cards is three to five percent lower, while cards for those with poor credit are about 10% higher. All this while interest rates on government bonds and mortgage rates are hitting alltime lows.
National home ownership rate slips The percentage of Americans that own homes is dropping, and is expected to continue to decline. From an all-time high of 67 percent in 2007, the current rate of 65 percent is still historically lofty. In 1950 the homeownership rate was only 55 percent. In Virginia, the rate is currently over 70 percent. The downward trend seems likely to continue as long as unemployment remains high and deflation exists in the housing market.
“The surest way to ruin a man who does not know how to handle money is to give him some.”
The hurricane rolled in and the money rolled out
When Hurricane Irene was threatening the Hampton Roads area in August, the Navy Marine Corps Relief Society began offering loans to service members who needed the extra cash to get out of the way. The $300 and $600 evacuation loans caught-on fast. In 4 days, NMCRS disbursed just under a quarter of a million dollars to about 1400 service members.
Did they just forget? Each year after age 60, individuals’ understanding about investing, insurance and credit declines by about 2%, a recent Texas Tech University study suggests. The results indicate financial literacy peaks when people are in their 40’s and goes down from there. Financial literacy test scores topped out at 64% and dropped to 30% by the time the respondents reach their 80’s. Want to check your own knowledge? Check out a sample test on page 4.
Contribution limits going up TSP participants will be able to save more in 2012 than in the past. The current limit of $16,500 will increase next year to $17,000. This change applies to all employer-sponsored retirement plans. Anyone over age 50 can contribute an additional $5,500. The limits for IRA’s (Roth or Traditional) will remain the same.
No spare change? Is it something in the No problem! Among the most enduring holiday fixtures is the cheese? Salvation Army bell ringer camped out in front of ~George Bernard Shaw
In October, credit reporting agency Experian released the results of their State of Credit Study which, among other things, notes areas of the country where credit scores are the highest. Not only did Wisconson have the first place finisher (Wausau), but placed a total of four cities in the top ten nationally. All had average credit scores over 775.
your local retailer. This year your donation can be made via plastic: debit or credit. The transaction only takes about 5 seconds, but comes with a swipe fee. So, if you’re feeling generous and decide to make a $100 donation, the Salvation Army will receive only $97.50.
“I want a man who`s kind and understanding. Is that too much to ask of a millionaire?” ~Zsa Zsa Gabor
A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic Money Matters | 7
Financial Bookshelf›››› The
Gone Fishin’
Portfolio
Get wise, get wealthy…and get on with your life By Alexander Green
“If financial independence is your goal,” author Alexander Green writes, “savings is the fuel, and the Gone Fishin’ Portfolio is the vehicle to get you there.”
metals. Once the percentages are established, “rebalancing” to maintain this allocation is strongly emphasized as a simple “20 minute a year” chore.
So starts yet another plan of how anyone can get rich slowly by following simple advice. The book bears many similarities, but also some distinct differences, to the many volumes of wealth-building advice published in recent decades.
While it is rare that a financial advice book lays out a detailed asset allocation portfolio, it gives the reader a chance to rate its success. “Gone Fishin’” was written in 2008 before the crash. The rate of return in years prior and since has always beaten the S & P 500 by an average of about five percent.
Start with a budget, live frugally, save your money and minimize debt. These messages all appear in the initial “Get Wise” section.
Mr. Green considers asset allocation the single most important decision an investor can make.
Where this book differs is in the “Get Wealthy” section, which goes into specifics as to how to construct your portfolio, right down to the investment company (Vanguard), the funds, and the percentage allocation of each. Mr. Green insists his strategy is one you can do on your own without any high priced investment professionals to help you along. The author borrows liberally from John Bogle and William Bernstein with endorsements for the almost exclusive use of low cost, index funds. The asset allocation includes 30% American stocks, 30% international, 30% various bonds and a small amount in REIT’s and precious
While it is recommended that an investor’s “serious money” be held in a tax-advantaged environment, he offers no guidance on whether it should be the traditional or Roth option. The book is especially recommended for anyone who has been persistent about contributing to TSP or other retirement funds, but hasn’t yet hit on a comfortable asset allocation.
“The greatest enemy of a good plan is the dream of a perfect plan. Stick to the good plan.”
~Carl von Clausewitz
FFSC Financial Classes • The Art of Money Management • Banking and Financial Services • The Basics of Retirement Planning • Car Buying Strategies • Consumer Awareness • Command Financial Specialist Training • Command Financial Specialist Forum • Command Financial Specialist Refresher • Credit Management • Developing Your Spending Plan • Division Officer Financial Leadership Seminar • Don’t Bet Your Life On It • Financial Responsibility in the Military • Homeownership • How to Survive the Holidays Financially • Identity Theft Protection • Insurance • Million Dollar Sailor • Savings and Investing • Smart Start Finances for Newlyweds • TSP-Your Key to Financial Independence For class schedules and to register for classes, call an FFSC near you, visit our website or scan this mobile code with your smart phone.
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www.cnic.navy.mil/navylifema Do you have comments about this publication, a topic you would like to see covered or a book to be reviewed? Contact Wally Barstow at (757)444-2102 or wally.barstow.ctr@navy.mil
8 | Money Matters A Quarterly Financial newsletter From Fleet and Family Support Centers Mid-Atlantic