September meeting: Nuts & Bolts Beyond Money

At our September 16, 2009 meeting, Kip Child, Community Affairs Specialist with the New England Office of the Federal Deposit Insurance Corp (FDIC) spoke to the group about the functions of the FDIC, the Community Reinvestment Act, consumer finance issues, and asset protection.  His PowerPoint presentation, The Nuts & Bolts Beyond Money, can be found here.

Child advised us to be wary of predatory lenders and their scams and to beware of offers for free credit reports which may come with strings attached.  Individuals are entitled to one free credit report annually from each of the 3 major bureaus (Experian, TransUnion and Equifax).  He suggested ordering one report from one of the bureaus every 4 months as an effective way to monitor identity theft.  The site to use to order free reports is  www.annualcreditreport.com.

Child spoke of  FDIC’s  financial education curriculum called Money Smart which is designed to help individuals increase their financial intelligence.  Money Smart is available in two curricula (adult and young adult) and two formats: online or CD.

Ever wonder how much your deposits are insured for? EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts. EDIE lets you know in a printable report for each bank whether your deposits are within or exceed coverage limits.

What can one do to preserve a favorable FICO score?  Child suggested that unused credit card accounts not be closed.  The ratio of outstanding credit card balances to available balances is a factor in FICO.  Lenders like to see a higher available balance.  Other credit card advice:  if your  interest rate increases, it is worth calling the credit card company to let them know you may take your business elsewhere.  They may offer to keep the rate unchanged in order to keep your business.

Want to protect your savings and investments?  Child believes that by spreading our financial knowledge through volunteering our time with the lower income community, we all come out ahead.  Educating those most at risk to investment scams and predatory practices, reduces the reliance of the disadvantaged on government services and consequently our overall tax burden.  Consider becoming a EITC/VITA (Volunteer Income Tax Assistance Program) volunteer.   Past tax help sites include the Newton Senior Center,  the Boys & Girls Clubs and the West Suburban YMCA.

May meeting: The Federal Reserve

On May 20, Deb Bloomberg from the Federal Reserve Bank of Boston returned to give us an timely overview of  “The Federal Reserve and Monetary Policy,” explaining the Fed’s goals, structure, and functions, with an emphasis on recent monetary policy actions.

Deb first outlined the history and structure of the Federal Reserve, which was created in 1913 when–following the panic of 1907–Congress decided we needed a central bank.  Most of the Federal Reserve Banks are in the eastern U.S., reflecting the population and politics of the early 1900’s; if created today, this structure would probably look very different.

The Fed consists of a Board of Governors (7 members, appointed by the President and confirmed by the Senate), the Federal Reserve Banks, and straddling those two, the Fed’s Open Market Committee (12 voting members, including the Board of Governors, the president of the Federal Reserve Bank of New York, and four other Federal Reserve Bank presidents in rotating one-year terms).  The Federal Open Market Committee (FOMC) typically meets eight times a year in Washington, DC, and issues press releases stating the Fed’s target for the Federal Funds Rate (FFR), the rate of interest banks charge each other on overnight loans.  The FFR affects the prime rate, the discount rate (when banks borrow from the Fed), and then gradually filters down through the rest of the nation’s economy.  Meeting minutes, statements and other information about the FOMC is available online.

Deb outlined the major goals of monetary policy:  Long-term price stability (with small annual increases in inflation) and sustainable economic growth.  The Fed uses three main tools:

1. Open Market Operations: buying and selling government securities on the secondary market to “primary dealers” to reach the target Federal Funds Rate (FFR), purchasing securities if the economy is weak, and selling them if inflation is a threat.
2. Reserve requirements for banks: the percentage of deposits banks cannot lend or invest.
3. Loans from the Fed, as a “lender of last resort.”  These loans can be primary (usually overnight, at the discount rate), secondary (short-terms, with a higher interest rate), or seasonal.
   

Deb then discussed some examples of liquidity measures authorized for the Fed, including Term Auction Facility (TAF) (auctioning term funds to depository institutions), Term Securities Lending Facility (TSLF) (banks can borrow U.S. Treasury securities for 28 days and offer mortgage-backed securities and the like as collateral), Term-Asset-Backed Securities Loan Facility (TALF–a new program), and Commercial Paper Funding Facility.  More information about all of these measures is available on the Fed’s Monetary Policy webpage, under “Policy Tools.”

For more on these topics, the Library has many books in its collection about the Federal Reserve and monetary policy.  The websites for the Federal Reserve and the Federal Reserve Bank of New York also have a wealth of information, including a complete book available for download, The Federal Reserve System: Purposes & Functions, and an interactive journey through the Fed called Fed101.

December meeting report

Snow and ice didn’t deter our Club (or thankfully, our speaker!) from ramping up our “consumer savvy” last night.  Deb Bloomberg from the Federal Reserve Bank of Boston tested our knowledge of banking, credit, money & identity theft using an entertaining quiz-show format with hand-held voting devices.  Top scorers received souvenir pens, and all of us (for unanimously getting one of the questions right), received currency from the Fed (alas, it was shredded).

Deb handed out two flyers:
Five Tips for Improving Your Credit Score 
Five Tips for Getting the Most from Your Credit Card

Among the things we learned:

• While banks and mutual funds that have to report to the IRS need your Social Security number, most places don’t, so don’t give it out or use it as a driver’s license number.
• For a free annual credit report (but not your credit score) from each of the three credit-reporting agencies, go only to https://www.annualcreditreport.com/cra/index.jsp 
  (other places may try to charge you)
• To take advantage of your rights under the Fair Credit Reporting Act, you must notify a creditor about a billing error in writing.
• If a credit card company practices “universal default,” if you are late on one credit card, the rate on the other can go up, too.  So look for a credit card issuer whose agreement does not include universal default.
• If you deposit a check and the bank tells you the “funds are available,” that means you can use the money (but if the check bounces, the money will be removed from your balance).
• For online purchases, some credit cards offer a service which changes your credit card number (the one supplied to the seller) with each purchase.  This can help prevent identity theft or unauthorized use of your credit card.
• Your maximum liability on a lost or stolen credit card is $50, but on a debit card it CAN be the entire balance in your account (some card issuers have lower limits, and liability is only $50 if you notify the company within the first two days; $500 if you notify them within 2 billing cycles).
• “phishing”–using a fraudulent a email or instant message to lure you into disclosing personal information
• “pharming”–a website designed to look like a legitimate site, again in order to get you to disclose personal information
• “vishing”–voice-mail phishing
• “pretexting”–when an identity thief poses as a legitimate representative to “verify” or get you to disclose personal information
• Most identity theft is perpetrated not by strangers, but by relatives and “friends”!

The Federal Reserve has lots of consumer information available here, and many great brochures available online here.

Another good source for information on identity theft is the Federal Trade Commission’s website.

Credit and Credibility

The most recent episode of PBS’s “NOW” program had an interesting examination of the role credit rating agencies played in the current economic crisis.  See the full program here, where you can also find selected emails and documents from “NOW”’s investigation, links to related news stories, and video of other NOW reports on the economy.

Warren Buffett on the economy

Charlie Rose had an hour-long interview with Warren Buffett yesterday, where he talked about the current economic problems and the Congressional bailout bill, in a very understandable manner.  Check it out!

Video
Transcript

The more you know, the safer your money

With banks in the news so much lately, many people are thinking more about the safety of their money. That’s why Personal Finance Expert Suze Orman and FDIC (Federal Deposit Insurance Corporation) Chairman Sheila C. Bair have teamed up to urge Americans to make sure their money is 100% FDIC-insured by using “EDIE The Estimator.”  EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts. EDIE lets you know in a printable report for each bank whether your deposits are within or exceed coverage limits. Go to the site and find out!

And for more information about the FDIC, including consumer resources, click here.