Plan Well, Retire Well Saving and investing your money Sun, 15 May 2005 13:02:08 -0500 Investing 101: How many kinds of risk are there? Mon, 20 Nov 2017 02:17:00 +0000 This is the second in a series about the basics of investing. Last month, we met Aunt Jane and George. Their investing experience helped us learn about stocks and bonds. This month, they'll illustrate the risks that stockholders and bond owners face. Next month, they'll learn how to invest without having to buy individual stocks or bonds.

To find all the posts in this series, click on "investing" under the list of categories on the right side of the screen.


We invest because it gives us the chance to make our money grow. But we also face the risk of losing money. Different types of investments have different types of risk. What exactly are the ways that we could lose money? Let's look at Aunt Jane and George from last month's post to explain them.

To recap: Aunt Jane loaned Freddie $100,000 to help start his business, Freddie's Finest Furniture. His friend, George, also put in $100,000, but he bought part of the business instead of loaning it money. Aunt Jane received interest payments on the loan. George made money by selling his part of the company for a profit. But if the business failed, George could have lost all his money. If the company went out of business or filed bankruptcy, Aunt Jane might not get back the money that she loaned them. And if the business didn't have the cash, she might not have gotten her interest payments, either.

With Aunt Jane's loan, we can learn about the types of risk that bonds and other interest-bearing investments have, such as bank accounts and savings bonds. George's purchase of part of Freddie's Finest Furniture will help us understand the risks of investments that involve ownership, such as stocks and real estate.

Risks of ownership

Let's start with George. It's no surprise that, if the business does badly, George's share of the business is worth less than what he paid. When he sells it, he'll take a loss. But there are two causes of the business doing badly. One is business risk, meaning that it's something about that particular business or that industry that goes wrong. Maybe customers stopped coming because his suppliers were unreliable or they didn't like the styles of furniture he offered. Or, maybe the entire furniture industry is having problems because people just aren't buying furniture anymore. It's become trendy to hang onto what you have or buy used furniture. It's not just Freddie. It's affecting the whole furniture industry, but the rest of the economy is OK.

That's business risk. It has to do with something specific to the individual business or its industry.

But you also face market risk. It won't matter how good of a business plan Freddie has if the entire economy is in free fall. If people are losing jobs and the stock market drops 30%, it's likely that the value of Freddie's company will drop, too. Freddie didn't do anything wrong; he was just pulled along by the movement of the overall stock market.

Risks of "Loanership"

You face a different set of risks if you own bonds or other "loanership" investments. As we saw with Aunt Jane, if the company does so badly that it doesn't have the money to make the interest payments or pay back the amount of the debt, you lose. That's credit risk – the risk that the company doesn't have the cash flow to make the payments. It's the same thing as when you go to get a loan to buy a car. The lender is going to look at your income, your other debts, and your credit history (to see how reliable you've been on paying previous debts), and decide how likely it is that you will repay the car loan. The less likely that you'll be able to repay it, the higher the interest rate the lender will charge you. Similarly, businesses that might have a hard time repaying their debts will have to offer their bondholders a higher interest rate to compensate for the higher risk.

That's just one of the risks you face when you loan money. When the bond (or CD) matures and you get your investment back, you'll have to invest it somewhere else if you don't need the money. What if interest rates have dropped? Aunt Jane was getting 7%. What if new bonds are only paying 4% when her loan matures and Freddie gives her back the $100,000? That's reinvestment rate risk – the risk that you won't be able to get the same interest rate in the future.

What if Aunt Jane needs the money before her loan to Freddie matures? Freddie doesn't have to pay her back until the maturity date. She will have to look for someone who will buy the IOU from her. If interest rates have dropped since she loaned Freddie money, everyone will want to buy her loan because it's paying a higher interest rate. She'll be able to sell it at a profit! But if interest rates have increased, it will be hard to find a buyer. She'll have to sell the loan at a discount to what she actually loaned Freddie, and she will have a loss. That's interest rate risk.

Will Aunt Jane's $100,00 have the same purchasing power at the end of the loan as it did when she loaned Freddie the money? Before she loaned him the money, Aunt Jane was thinking about using her $100,000 to buy a cute little house that was on the market. She loaned the money to Freddie instead. Ten years later when Freddie pays her back, that same house is for sale again. But now the price is $180,000. Aunt Jane had to pay taxes on the $70,000 interest she got, so she only has about $150,000 after Freddie pays her back. She can't buy as much with it now as she could have ten years ago, because inflation and taxes have eaten away at the purchasing power of the money. As you might guess, that is called purchasing power risk. It is especially a concern when you keep your money in interest bearing investments or savings accounts for a long period of time.

You might lose, but you might win!

So how many ways are there to lose money when you invest? It probably sounds like a lot, doesn't it? But in reality, risk doesn't mean losing. It's about uncertainty. With each of these types of risk, you might make money or you could lose money. The result is uncertain. The riskier the investment, the greater the range of possibilities: you could make a killing, or lose your shirt. A safer investment - one with less risk - means that you won't make a whole lot, nor are you likely to lose very much.

Test Your Knowledge about Health Insurance Tue, 07 Nov 2017 15:35:00 +0000 Just how well do you understand health insurance policies? It's a challenging topic! Kaiser Family Foundation surveyed people about health insurance terms and concepts; only 4% answered all of the 10 questions correctly. However, that quiz is from 2014. With the Health Insurance Marketplace (sometimes referred to as Obamacare) enrollment period now open, this seems like a good time for a new quiz. Let's see how you do with this five-statement, true-false quiz.

People can enroll for health insurance anytime during the year.

False. In general, people need to sign-up for health insurance (either at work or through the Marketplace) only on certain dates. The Marketplace enrollment is now through December 15, 2017. This is a significantly shorter period than last year. The plan is for the website to be down for maintenance for 12 hours during all but one Sunday. Plan accordingly.

However, there is a special enrollment period for some exceptions such as losing health insurance, having a baby, and a change income. If you qualify for Medicaid, then you can enroll at any time during the year. For more information about these exceptions, go to

Medicare open enrollment ends December 7th; go to for more information.

The law does not require me to have health insurance.

False. The law still requires everyone in the USA to have health insurance. If you don't, you are likely to be fined. Go to to enroll in a health insurance policy through the Marketplace.

At the Marketplace website, people in many parts of Illinois have several choices of health insurance policies.

True. While signing up for health insurance may take a short time, begin the process now so there's time to compare the different policies. Shoppers may also want to compare these policies to policies offered by their employer as well as those available directly from insurers.

When comparing different health insurance policies, there are different costs to keep in mind. Monthly health insurance premiums (the amount you pay each month for the insurance) is the first cost people typically consider.

However, be sure to pay attention to the deductible level – the amount you pay before your insurance begins paying for covered services. While higher deductibles typically lead to a lower monthly premium, it also requires that you can afford to pay the deductible if needed.

Also, consider the maximum out-of-pocket cost of the insurance plan. This is the most anyone has to pay for covered services in a plan year – not counting the premium costs. After this amount is spent, the health insurance plan pays 100% of covered benefits.

Last, but not least, look at which services are covered by the policy.

People's costs for health insurance policies have increased by double-digits every year since 2014.

False. According to research done by Kaiser Family Foundation, average annual increases in premiums for health insurance provided by an employer continues to hover slightly higher than inflation (1-2% higher) since 2014.

In addition, this year many Illinois residents who are eligible for premium subsidies (through the Marketplace) are likely to find their premiums are less for 2018 than they are currently paying. Yes, based on a household's income and size, subsidies are provided by the federal government to help pay for the insurance premiums.

People can receive in-person help to sign-up for Marketplace insurance.

True. Local organizations have trained and certified people available to help you through the process of enrolling for health insurance. You can find these sites by entering your zipcode online.

How did you do on the quiz questions above? Are you looking for a further challenge? Try the Health Insurance Quiz by Kaiser Family Foundation.

Investing 101: A story that will teach you about stocks and bonds Fri, 20 Oct 2017 14:29:00 +0000 Many of us choose investments for our IRAs or 401(k)s without really understanding what we're doing. So over the years that I've been teaching about personal finance, I started using a story that would help listeners understand stocks and bonds – without me ever using the words.

So sit back with a cup of coffee (or even better, hot chocolate) and meet Freddie.

Freddie wants to start a business. He's going to open a furniture store.

What does Freddie need to get this business started? You might be thinking that he needs a location, he needs inventory, etc.. But it all boils down to money. He needs money to get the business started.

Aunt Jane says that she will loan Freddie $100,000. The loan will be for 10 years. She asks for 7% interest, but says that Freddie can make interest-only payments and then pay the full $100,000 back at the end of the 10 years, like a balloon payment. Freddie  thanks her with a big hug.

Freddie approaches his friend George about loaning him money for the business, but George isn't interested in loaning money. If he puts money into the business, he wants to be part owner. Freddie agrees, and George buys 25% of the business by putting in $100,000.

Freddie's Finest Furniture holds its grand opening. It turns out that Freddie is a master businessman. Plus, it was a good time to be in the furniture business. The economy is good. Lots of young adults are moving out of Mom and Dad's house into their own place. Home building is booming, and everyone seems to need furniture.

Each year, Freddie faithfully sends Aunt Jane two checks for $3500 each, to pay her the $7000 interest he owes her. At the end of 10 years, he's paid her a total of $70,000 in interest. He writes her a check for $100,00 and happily pays off the loan as agreed.

Around the same time, George decides that he wants out. The business has done really well, and he and Freddie have gotten along fine. They've opened new stores all over the Midwest and built an excellent reputation. But he's ready to move on to other things.

The business is now worth $2,000,000. That means that George's 25% share is worth $500,000, and he finds a buyer who's willing to pay that price.

George is thrilled. He tells everyone about his $400,000 profit.

Word gets back to Aunt Jane, and she's NOT very happy. She marches over to the store and confronts Freddie. "How come George deserves to make $400,000 profit, when all I got was $70,000?" she fumes.

Freddie keeps his cool and explains it this way:

"Aunt Jane, what if the business hadn't done well? Say that after five years, business was so bad that I had to close the store. By the time I settled the lease, sold off what was left of the stock, and laid off the employees, what if $50,000 was all that was left?

"Lenders get paid before owners. So you would have gotten paid before George. You would have gotten the whole $50,000. Of course, that means you would have lost the other $50,000.

"But George would have lost his entire $100,000, because there was nothing left; 25% of nothing is nothing!"

Aunt Jane's face relaxes as she understands Freddie's point. "What you're saying is that George took a lot more risk and that's why he was entitled to the reward, is that it?"

"Exactly," says Freddie.

But Aunt Jane has the last word: "Well, I KNEW you would be a success. So there wasn't really any risk." She turns on her heel and walks away.

If you understand how Aunt Jane's loan to Freddie's Finest Furniture worked, you understand bonds. Bonds are loans that businesses or government entities issue to raise money. They have a fixed interest rate and a maturity date. Until the bond matures, the bond owner gets interest payments. At maturity, the bond owner gets back the original investment – assuming the business has the financial ability to meet those obligations.

George's investment, on the other hand, is like a stock. He owned a part of the business. If you own a stock, you own a part of that business. If the business does well, you will be able to sell your stock at a profit. If the business doesn't do well, you might end up having to sell the stock for less than what you paid for it and take a loss. If the business fails, you could even lose all your money.

There's more to know about stocks and bonds, of course. But now you have the basics.

This is the first in a series where I'll be explaining some of the basics of investing. Next month, we'll use Aunt Jane and George's experience to learn more about the different risks that stockholders and bond owners face, plus additional ways that they might make money on their investments.

You can also listen to Freddie's story in a recording of a Money Smart Week webinar I presented for the Federal Reserve Bank of Chicago.


How to Protect Yourself When Your Social Security Number is Public Information Tue, 10 Oct 2017 12:26:00 +0000 In the last few years, we've had data breaches at the IRS, grocery stores, retail stores and now a major credit bureau. After much thought, I've come to accept that my Social Security number is no longer private, and won't be for the rest of my life. In addition, because I care more about someone using my identity for financial gain than anyone else, it's up to me to monitor my financial accounts.

While I can't stop identity theft, I can take steps to minimize damage. Many strategies are available and each person must decide which strategies are best for them.

Monitor Your Credit Report

One of the best tools we have to spot identity theft is to check our credit reports. You need to check your report from each of the three credit bureaus for it to be effective. You can check them free once a year at

However, you may want to pay to see them more often. Each time you check, it will cost between $10 and $15. If you checked all three, three times a year, it would cost you about $100.

Paying for a credit monitoring service is an option but these services have both pros and cons. Credit monitoring systems will alert you to a change in your credit report. For example, if there's a request for a new credit card, the system will notify you.

The disadvantages of credit monitoring is it can be expensive: typically $120-$200 a year. Also, when you sign-up for a credit monitoring service you are likely giving the company permission to use your information for marketing purposes. And, remember they don't typically fix problems for you -- they notify you when changes happen in your credit report.

Fraud Alert

If your Social Security number is part of a data breach, you can place a 90-day fraud alert on your credit report. Report this to one of the credit bureaus and it will apply to all three. When you have an alert on your report, a business must verify your identity before it issues credit, so it may try to contact you. Plus, you get a free credit report from each bureau.

Credit Freeze

A credit freeze stops the credit bureau company from releasing your credit report or any information from it, except in certain exceptions. Credit freezes have advantages and disadvantages. Read more about this at my blog post, To Freeze or Not Freeze My Credit Report?

Beyond Credit Identity Theft

The above strategies help minimize the risk of someone borrowing money in your name. However, not all identity theft relates to credit. Thus, monitor all your financial accounts regularly, including saving and investing accounts. If you have any concerns, contact your financial institution.

Another effective strategy is to use text alerts to monitor your financial accounts. For example, I am notified by a text alert whenever a withdrawal happens (over a certain amount) from my checking accounts. Ask your financial institution if they provide this service.

Overall, stay alert with your finances!

For more viewpoints on this topic, visit Data Breaches, Credit Freezes, and Vigilance where Cooperative Extension is collecting resources.

Cut Expenses While in College Thu, 28 Sep 2017 11:42:00 +0000 Clearly college is expensive. However, most of the cost is not tuition! According to the National Center for Education Statistics, public 4-year, in-state costs in 2015-16 for students totaled $19,189 and tuition and fees was only 46% of total costs; room and board was the remaining cost. Add in other costs, such as fun, clothing, and toiletries and tuition and fees is an even smaller percent.

You can save money on these "other" costs while in college. Let's look at three strategies used by college students that may work for you or someone in your family.

Small Items Add Up

We often pay attention to large purchases but may not notice when we spend small amounts of money. However, small purchases that we make regularly do add up, and it can make a big difference over time. Look how much these purchases add up over a year. Do any of the following expenses resonate with you?

  • One snack item a day, at $1.25 is $465.25 in a year
  • Parking meter for 8 hours a week ($8.00) is $416.
  • Pack a day of cigarettes ($7.50 per pack) costs $2,737.50.
  • Lunch out five times a week ($8.00 per lunch) costs $2,080.

Multiple these amounts times four years of college and the amount of student loans needed to cover these costs is significant. You don't have to completely cut out these costs to save money. Stepping down how often you incur these costs helps.

Big Expenses Matter

Rent, internet fees, insurance, and cell phone plans are common, big dollar items for college students. Before signing a contract for any of these items, take time to comparison shop.

For example, apartment leases vary significantly in college communities depending on where the apartment is located, amenities, size and more. Decide:

  • what you specifically need (versus want),
  • compare prices, and
  • consider alternatives before you sign a lease.

University of Illinois' Tenant Union's A Quick Guide to Renting Apartments has a housing cost comparison worksheet as well as an apartment-hunting checklist that are both excellent tools. Don't forget to also comparison shop for other big expenses such as internet fees, rental insurance and cell phone plans.

Plan Your Discretionary/Fun Spending

College is a wonderful opportunity to try new experiences and have fun. But, students need their summer earnings and financial aid to last all year. Plan how much money you can spend comfortably each week. Think about what might help you keep track of your spending. Here are some tried and true student strategies:

  • Decide how much you want to spend on Friday night (or for fun during the week) and carry cash for this amount. When the cash is gone, the spending stops.
  • Keep receipts in an envelope and add up the amount each week.
  • Use a budgeting app to track spending.

Here's a bonus saving strategy! Peer Educators from University of Illinois Extension's Financial Wellness for College Students program have compiled 55 Ways to Save Money from their own experiences. Take a look at this list and circle 10 or more tips that you can implement!

Whether you pay attention to small amounts, comparison shop for big items or plan your fun, you can spend less while in college and ultimately save money for yourself. Using these saving strategies will allow you to set aside money in a savings account for those unexpected costs and opportunities that are sure to arise. College is the perfect place to build your saving habits – you can do it and reap the benefits.

To Freeze or Not Freeze My Credit Report? Thu, 14 Sep 2017 07:33:00 +0000 With the recent data breach at Equifax, a credit bureau company, you may be wondering whether you should freeze your credit report. I am one of the people Equifax has identified as "potentially impacted" by the data breach so I've been pondering my actions.

First, what is a credit freeze?

A credit freeze stops the credit bureau from releasing your credit report or any information from it, except in certain exceptions. For example, companies you currently have loans with and collection agencies can still receive your report.

This means that someone who wants to use your identity to borrow money – even if they have your name and Social Security number, probably won't be able to obtain credit in your name.

What are the advantages of a credit freeze?

  • Makes identity theft, which involves borrowing money, much less likely.
  • Will not lower your credit score.
  • You can still request and see your credit report.

What are the disadvantage?

It may cost you $10 to place the freeze. If you're a victim of identity theft (requires a police report or other documentation) or at least 65 years old, it's free. (These costs may be different in places other than Illinois.)

If you want to borrow money (for example, apply for a new credit card) you have to lift the freeze first. In addition, because credit reports are used by businesses other than lenders, the credit freeze may interfere with other things such as

  • changing insurance policies,
  • renting housing, and
  • signing up for new utilities or phone service.

It will cost you $10 to lift the freeze temporarily or permanently.

It may take up to three business days to lift the freeze.

How do you freeze your credit report?

You must request a freeze at each of the three credit bureaus. Each will charge a fee.

If you're married, you need to freeze both your and your spouse's credit reports to protect your identity.

For detailed information about how to place a credit freeze, go to the Illinois Attorney General's resource, Placing a Freeze on a Credit Report.

What to do?

That's the facts of a credit freeze. Whether or not you want a credit freeze is a personal decision. I'll be writing more about identity theft and how it has affected my family in future posts -- so stay tuned in!

The FTC has issued this statement about the Equifax data breach, and their recommendations, The Equifax Data Breach: What to Do. Take time to read this and consider what you want to do.

2-day training for agencies working with limited resource audiences on financial management Mon, 11 Sep 2017 16:45:00 +0000 Does your agency work with low to moderate income clients on debt management, budgeting, or understanding financial products like payday loans and prepaid debit card? University of Illinois Extension's All My Money: Change for the Better curriculum was created for you!

All My Money: Change for the Better is designed so that social workers, counselors, instructors and others can teach financial literacy topics even if they do not personally have expertise in financial management.

On October 12 & 13, we will be offering a train-the-trainer class at the Federal Reserve Bank in downtown Chicago for agencies who would like to use this program with their clientele. Another training will be offered on Dec. 5 & 6 in Champaign, IL.

This 2-day training is hands-on. You will experience all of the core activities of the program, and you will teach portions of it to your peers in the training. You'll be fully prepared to teach any of the lessons at the end of the two days. The training fee includes all of the materials you would receive if you purchased the curriculum separately (Resource Box filled with activity materials, plus PDF files of all lessons, handouts, and other materials on a USB drive), plus you'll get a full-color hard copy of the curriculum in a 3-ring binder. The cost of the training, including all materials, is $230.

For more details or to register:

Ways to save:

  • Bring a 2nd person from your organization or site, share a single copy of the curriculum, and pay just $115 for the 2nd person. Contact the instructor for your training to get the discount code.
  • If you have already purchased the 2016 edition of All My Money: Change for the Better, you pay just $80 for the training. We discount your training by the amount you paid for the curriculum.

Can't make the either of these trainings?

What makes All My Money special?

All My Money: Change for the Better is:

  • A train-the-trainer financial management program designed specifically for persons working with limited-resource audiences.
  • A program that's ready to go, right out of the box.
  • Written at a reading level clients can understand.
  • Hands-on and experiential learning such as discussion, games, case examples, and demonstrations that allows participants to learn from the activities and from each other.
  • Customizable. Use the suggested 60 or 30 minute lesson plans, or choose individual activities and handouts.
  • Complete with a Resource box full of re-usable and reproducible activity materials.

To learn more about All My Money, visit our website at

Feel free to share this information with colleagues or other agencies who may be interested.