Welcome to Episode 1 of Season 1 of Moneysplained.
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In this episode you’ll get a bird’s eye view of what I’m trying to do on this podcast. In short, it’s provide a practical financial education for anyone on any economic situation. In future episodes we’ll cover credit cards, investing, freelancing, health insurance, buying a home, and so much more*.
In episode one, I’m starting with a few seemingly random terms that I personally wanted to know more about. I’ve got interviews with my very own uncle Shel, Michael Mattone of the Municipal Credit Union and Certified Financial Planner Kristen Euretig, to help answer a listener’s burning finance question.
Low Risk Investing
Exciting stuff here!
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Here’s what’s covered in episode one.
Did you know that Moneysplained is the result of a highly successful Kickstarter campaign? On August 29th the campaign was funded at 454%, which is completely insane.
I didn’t learn ANYTHING in school about personal finance, did you?
Printing Money and Interest Rates
We talked about how the US government has the authority to generate money (it’s called the coinage clause in Article I, Section 8 of the constitution), but the concept of the dollar first appeared during the Civil War. A currency backed by a government (not by something of value like gold) is called “fiat currency.”
The federal reserve loans money to banks, who then loan it to people like you and me. The fed loans money to banks at the “fed rate” which hovers around zero. The rate was put down to zero at the end of 2008 to stimulate the economy in the wake of the financial crisis.
Then there’s the prime rate, which is the interest rate charged by the bank to their most credit-worthy customers. You’d be hard-pressed to find a bank who will loan you money at this exact rate but the rate definitely effects the interest rate on your credit card. Bank Rate has up to date info on these rates.
Low-Risk Investing, Is That a Thing?
Kristen Euretig, a Certified Financial Planner from Brooklyn Plans, helps me answer a question from a Kickstarter backer.
The question is: What are the best options for investing money that are relatively safe but get decent return? (Given that bank savings and CD’s currently do not keep pace with inflation.)
The answer is: Remember that savings accounts and CDs (that’s a certificate of deposit with a fixed term and interest rate) ARE insured by the FDIC so there’s no way you can lose your money, that’s why the return is so low. To get greater reward, you need to be willing to assume more risk. A diversified portfolio with a mix of stocks and bonds is the best way to approach moderate risk. Kristen likes Vanguard’s STAR fund.
Bonds are not the sexiest financial product. There are treasury bonds from the federal government, municipal bonds from city and state governments and corporate bonds from companies.
You can also buy bonds directly from the US Government at treasurydirect.gov.
Credit Unions and Alternatives to Banking
Michael Mattone of New York City’s Municipal Credit Union tells us about the advantages of a credit union.
Credit unions, because they are member owned, are able to pass on the savings to the community they serve through better interest rates—lower loan rates and slightly higher interest on savings accounts. I just checked my own savings account and I’m getting 0.01% which is extremely disappointing but not surprising at all. Nerdwallet’s savings account comparison tool is helpful when shopping for a high-yield savings account.
Michael warns us about the “Schumer Box,” which is the pesky chart of fine print on the back of a credit card offer. Pay attention to the fine print. In episode 2, we’ll go through each line in detail.
Aspiration Bank is pretty cool with 1% interest rate on savings accounts and a no fee checking account.
Want to know your worth? You can use an app like Mint.com or Personal Capital (my favorite), but actually entering everything manually into a spreadsheet is a humbling exercise that I highly recommend you try at least once. Look! I made a template for you: Moneysplained Net Worth Calculator.
*Moneysplained is for educational purposes only and should not be considered investment advice.