Saturday, October 8, 2016

31 Days of Financial Savvy: Who is the FDIC?

So I fell off the writing band wagon a bit, but I'm back today with another 31 days of financial savvy post. In case you missed the others, here's: 

Today's topic is yet another acronym. This time it's the FDIC or Federal Deposit Insurance Corporation. 

But first, a little history (no groaning!) of the Great Depression. October 24, 1929 is known as Black Thursday. It's the day the stock market plummeted, causing investors to panic sell their stock shares, exacerbating the market crash. 

After the stock market crashed, consumer spending and investment also declined markedly, which lead to a decrease in production and output. 

This economic instability caused people to become increasingly mistrustful of the banks. When we take our money to the bank, the bank doesn't actually keep our money there. Rather than acting as a store house, banks are lending institutions. This means they only hold a fraction of deposits in cash at any one time, with the rest being lent to borrowers or used to purchase interest-bearing assets like government securities. 

As the economy worsened, the banks began to fail. In 1929, more than 650 banks failed. In 1930, that number rose to over 1,300. This had the domino effect of causing "bank runs." During a bank run, a large number of depositors lose confidence in the bank and all request their money at once. Because the bank doesn't keep that much cash on hand, banks have to liquidate their assets, often selling them for less than they paid, affecting the bank's ability to remain solvent. 

These bank runs happened on a large scale four times from 1930-1933. Then, on March 6, 1933, President Franklin Roosevelt declared a bank holiday, closing all banks in the country and permitting their reopening only after their solvency was verified by government inspectors. 

On June 16, 1933, President Roosevelt signed the Banking Act into law, which included the creation of the FDIC. The FDIC is a U.S. government corporation that sells deposit insurance to banks.

The FDIC guarantees up to $250,000 per depositor, per insured bank, for each of the following ownership categories: 
  • Checking Accounts
  • Savings Accounts (both statement and passbook)
  • Money Market Deposit Accounts (MMDAs), and
  • Certificates of Deposit (CDs)
The FDIC does not insure the following: 
  • Mutual Funds
  • Stocks
  • Bonds
  • Annuities
Most banks are FDIC insured, although a few online banks are not. To determine if you bank is FDIC insured or to learn more about the FDIC, go here

Monday, October 3, 2016

31 Days to Financial Savvy: Understanding the Market Indexes

Newscasters often say things like "The Dow is up" or the "Nasdaq fell today." If you think that sounds a lot like alphabet soup, you're not alone. Let's figure out exactly what the letters means. 

The NYSE and Nasdaq
Stocks are traded on one of two New York exchanges: the New York Stock Exchange (NYSE) or the Nasdaq. The NYSE was founded in 1792 and is located at 11 Wall Street in Manhattan. It's an open auction style market and is the one we see on TV, with the flurry of activity taking place on the trading floor. The NYSE is open Monday through Friday from 9:30 a.m. to 4:00 p.m. EST. Its hours are marked by an opening and closing bell. 

The Nasdaq Stock Exchange was founded in 1971 and is an electronic market, with the orders and transactions being computer-based. Because it's electronic, it has longer hours. The Nasdaq has 4000+ stocks listed on it. 

Stocks are typically listed on either the NYSE or the Nasdaq, not both. Companies need to pay to be listed on the exchanges, with the entry fee for the NYSE being up to $500,000. Additionally to be on the NYSE, a company must have: more than 2200 shareholders; more than 100,000 shares must be traded on a monthly basis; a market valuation of over $100 million; and more than $75 million in revenues annually. Companies that don't meet this high threshold can be de-listed. Consequently, smaller companies, particularly start-up tech firms, list on the Nasdaq because it has a much smaller list fee and less stringent thresholds. 

Market indexes measure the value of groups of stocks. There are three main market indexes: the Dow, the S&P 500, and the Nasdaq. While all these indexes are measuring the stock market, they each do so in different ways.  (Note: both "indexes" and "indices" are acceptable plural forms for the word index, so you may see them used interchangeably in financial literature.)

The Dow 
The Dow Jones Industrial Average, known as the Dow or DJIA, is the oldest stock market index, having been established in 1896.  It averages the stock market value of 30 large, publicly-owned U.S. businesses. Members of the Dow are all well-recognized names: Bank of America, Chevron, Wal-mart and Walt Disney. The index is what's called a "price-weighted average," meaning that companies with a higher share price have a larger impact on the Dow's movements. Because the Dow focuses on large businesses, it's composed mainly of companies found on the NYSE, with only a new nasdaq stocks.  

The S&P 500
The Standard & Poor's 500 is considered a broader indicator of the markets because it looks at 500 companies, instead of 30. The S&P is the index for the 500 most widely traded stocks on both the NYSE and the Nasdaq. The companies on this index are weighted by market cap, and the market cap must be above $5 billion. "Market cap" or market capitalization refers to the total market value of all of a company's outstanding shares. 

The Nasdaq Composite
Both the Nasdaq Stock Exchange and the Nasdaq Composite Index are commonly referred to as just the Nasdaq. Because many of the tech companies are traded on the Nasdaq Stock Exchange, the Nasdaq Composite is often known as the tech index; however, non-tech are companies traded on the Nasdaq Stock Exchange, too. They are just represent a smaller component of this index. Because the Nasdaq Stock Exchange includes smaller and more speculative companies, this index is more volatile than either the Dow or the S&P 500.

Sunday, October 2, 2016

31 Days to Financial Savvy: Who Invented Money??

Okay, so I know we were going to talk about finances. But first we need to talk about history. How many times have you uttered the phrase, "I wish I invented that." (Hello, post-it notes and drive-thru pharmacy.) Well, don't you wish you were the guy who had come up with the idea for money? 

How exactly did we get money? Here's a little timeline showing how it happened. 

Saturday, October 1, 2016

31 Days to Financial Savvy: The Stuff You Didn’t Learn in Money Class

I’m going to admit something a little bit embarrassing – I don’t really understand money. Sure, I know you‘ve got to make it, you’re going to spend it and you need to save it; but, I don’t really understand it.

Who actually is the FDIC? (It’s the Federal Deposit Insurance Corporation, by the way.) What’s the difference between mutual funds and a money market account? What does low yield versus high yield mean? I have a rudimentary understanding of what these things mean but that’s about it. And, I want to know more. I should know more.

I want to be able to open the envelope from my bank or financial institution and be able to decipher more than: did the numbers go up or down. Yes, there are financial planners that specialize in knowing what my statement means, but I want to know at least some of it, too.

Because let’s face it – money, not love – is what makes the world go round. And while, like the next guy, I would like a few more dollars in the bank, this isn’t about amassing money, it’s about finance and economics. It’s about learning the principles of surplus and scarcity and about how they affect our everyday lives, our nation, our world. Money is how you feed your family, turn on the lights, and have clean water. People go to war over money; people die from a lack of money for medical treatment.  Simply put: Money matters.

Right about now, you’ve either tuned me out like you did your economics professor or you’re sitting up a little straighter in your chair thinking: Me too! If you’re like me and are scratching your head saying, I have a mortgage and a retirement account, but I don’t actually know what all these things involve, then I think you’re really benefit from these next 30 days. Because we’re going to be doing a little Money 101.

So now let’s talk about what the next month isn’t. It isn’t about getting out of debt - although debt will be a topic discussed. This isn’t get rich advice or a recommendation of which stocks you should buy (or sell). It’s not even advice, really. I’m just a girl with questions and I’m hoping you’ll come along with me as we find the answers.  (And ask some of your own questions too please, so that we can learn together!)

While you shouldn’t expect to get a money makeover from the next 30 days, you should expect to become more financially savvy and consequently to be in a better financial situation because knowledge is power – when you act on it.

If you want more than the basic “You should have a budget” or “Pay cash; stay out of debt,” then this is the place for you. This is the stuff you didn’t learn in money class. Oh wait! There wasn’t a money class? Well, we’ll be discussing that too because isn’t money the real home economics?

I hope you’ll join me. See you tomorrow! 

P.S. - For this series, I'm joining up with other writers who are all writing for 31 days. You can see the other series here. Last year, I wrote about 31 Days of Living Loud. 

Friday, September 30, 2016

The Inadequacy of Clichés

"The problem with clichés is not that they contain false ideas, but rather that they are superficial articulations of very good ones. The sun is often on fire at sunset and the moon discreet, but if we keep saying this every time we encounter a sun or a moon, we will end up believing that this is the last rather than the first word to be said on the subject. Clichés are detrimental insofar as they inspire us to believe that they adequately describe a situation while merely grazing its surface. And if this matters, it is because the way we speak is ultimately linked to the way we feel, because how we describe the world must at some level reflect how we first experience it."
– Alain de Botton, How Proust Can Change Your Life

Wednesday, September 28, 2016

What I Learned In September

The weather in my neck of the woods is not fall-like. Instead we've had a resurgence of heat, the kind that makes you irritable and itchy - even with the AC cranked. September, nonetheless, is rapidly coming to a close. Linking up with Emily Freeman and her What I Learned series. 

Photo from a recent hike. 

1. There is something far, far better than shelf paper. When we moved into our house, I put shelf paper in the bathroom and kitchen cabinets and drawers. It was frustrating and the end result wasn't very pretty. No matter how hard I tried, there were wrinkles in the paper and everything looked a little wonky. A friend suggested using double stick tape instead of pulling off the sticky back, so I tried that. Still, no bueno. 

Then, I was at a friend's house and saw this stuff. Eureka! It's non-adhesive, so you don't have to worry about wrinkles or air bubbles. It's also clear, which means aesthetically preferable to the regular shelf paper patterns. The label says it's "premium," which of course means it's more expensive than regular shelf paper, but trust me - it's worth it. (Also, have you seen the price of regular contact paper recently? Egads!)

2. The Target near Disneyland has great Disney souvenirs. The other day I was in Target returning something when I overheard this exchange between the cashier and a customer. The customer said she was going to Disneyland and the employee chimed in that she should buy her souvenirs at the nearby Target. The employee said that because of it's location, that particular Target has a wide selection of Disney items for a price far below what's offered at the park itself. Makes sense! I'm not headed to Disneyland, but, this seems like a good tip to keep in your back pocket. Eavesdropping has benefits!

3. It's about perspective, not bricks. I had heard this story before, but recently ran across it again and it bears repeating. There were three bricklayers. They were each asked, “What are you doing?” The first answered, “I’m laying bricks.” The second said, “I’m building a wall.” The third said, “I’m raising the house of God.” The first bricklayer had a job. The second had a career. The third had a calling. What are you building with your bricks today?

Happy last few days of September, friends. 

Friday, September 23, 2016

6 Ways to Make a Difference in the World Today (Without Spending a Dime)

Raise your hand if listening to the news makes your head and heart hurt. Hand raised over here. But here’s the thing, we are the ones who get to decide what tomorrow looks like - not anyone else.

I'm all for financially supporting worthwhile organizations and causes. But I also know that money isn't always the solution. We are. 

Abraham Lincoln said, “The best way to predict your future is to create it.” So let’s take steps today to create the kind of world that we want to live in tomorrow.  

Here are six simple ways to make a difference without spending a dime:
  1.  Smile. Yes, seriously. Show your pearly whites. Smiling is a simple but powerful act.  Do you need proof of its effectiveness? A lieutenant colonel used it as a strategy for victory during wartime. On the morning of April 3, 2003, U.S. soldiers from the 101st Airborne Division stood outside the holiest Shia mosque in Iraq when hundreds of Iraqis turned on the troops. While the soldiers were there to liberate the city, word had inaccurately spread the troops were there to take the mosque and arrest the cleric.

    The scene quickly became tense and someone in the crowd lobbed rocks at the soldiers. The commanding officer yelled for his men to “Smile, relax.” He further ordered everyone to take a knee and point their weapons to the ground. This action not only prevented bloodshed, but it also ultimately caused one of Iraq’s leading holy men to issue a decree that the people of that area should welcome the soldiers.  W
    hat’s your reason for not smiling today?
  2. Be kind to a parent. The one thing that people get scrutinized for even more than their politics or their faith is: their parenting. Recently, we were at the park when one of my children committed the grave offense of taking another child’s stick. I asked the offending party if he had taken his sister’s stick. It was a rhetorical question because I’d seen the whole thing, but I wanted to give him the opportunity to come clean. Instead, a passerby offered an unsolicited “Yes, he did!” Let’s just say, that didn’t help the situation. At all.

    We all know what it feels like to be the parent whose kid starts crying even before the at-capacity airplane takes off or whose toddler tantrums full volume in the restaurant while waiting for the food to arrive. Offer another parent these four little words of encouragement and reassurance: “We’ve all been there.
  3.      Do something unexpected. Once when we were going to an aquarium, I ended up with a few extra coupons. After I realized that I didn’t need them, I passed them out to the people in line behind me, all of whom were immensely appreciative. (No wonder. Have you seen the price of aquarium tickets?)  A few days ago, my neighbor let me know about a sale she knew I would be interested in. These are tiny acts, but, even small ripples build a mighty current.   
  4. Be courteous.  We’ve all heard manicurists, cashiers and others in service-related industries talk about how they get treated as non-entities. Let’s act like customers, not Klingons. It doesn’t cost anything to be kind.
  5. Write a note.  It doesn’t have to be a handwritten note, although those are certainly nice to receive. Just take the time to tell someone you care about them in writing. Now is always a good time to receive a tangible reminder that you’re loved and appreciated.

    6.    Follow the rules. Recently I was sitting at an airport gate located near a Starbucks. I heard a customer tell the barista that she was still waiting for her order. The barista said that someone else had probably picked up her order and that they would remake it. “It happens all the time,” the employee said. 
    Because the coffee shop is in an airport terminal, one might assume that people simply grab the wrong coffee as they run to catch their flight  - except that Starbucks puts people’s names on the cups. No matter how big a hurry you’re in, it’s pretty hard to mistake your own name. What seems more likely is that given the crowded and transitory nature of the pickup area, people simply swipe the coffee. That’s shameful and inexcusable. Do you know what else is inexcusable? Parking in the handicapped spot or cutting in the school pick-up line “just this once.” Once is one time too many.