Securities Regulator Provides 10 Tips to Improve Financial Security

By James Eccleston

INRA's Investor Education Foundation has released a national survey underscoring that many individuals are ill-prepared financially for their future. The national survey concludes that "far too many people tend to engage in financial behaviors that generate excessive expenses and fees", that "few people seem to compare the terms of financial products or shop around before making financial decisions", and that "few are able to calculate basic interest or perform other math-oriented tasks." Such ineptitude comes at a bad time as the "financial landscape" has changed. That is because the burden of saving for retirement has been placed on individuals, the cost of a college education has risen dramatically, and financial products have become more complex.

As a starting point to improve financial fitness, FINRA and the FINRA Foundation have published 10 tips. Let's examine them.

First, determine how much you need to save for retirement. The national survey finds that nearly 3 out of 5 not yet retired have not calculated what they will need for retirement.

Second, rebalance your retirement savings. 401(k) plans, IRAs and other self-directed retirement accounts need to be rebalanced, especially after substantial increases or decreases in value. Yet the national survey finds that fewer than one-third of individuals have done so.

Third, take advantage of tax breaks for college savings. The cost has skyrocketed. Yet, the national survey finds that only 41% of parents with financially dependent children have set aside any money for college. And among those who have saved, only 33% have used a tax-advantaged savings account such as a 529 Plan or a Coverdell Education Savings Account.

Fourth, diversify your portfolio. FINRA states that diversification "is a time-tested method of managing risk by spreading your investments both among different asset classes - meaning stocks, bonds and cash - and within each asset class." However, the national survey finds that one-quarter of those who rated their financial knowledge as "very high" could not correctly answer a question about risk and diversification.

Fifth, check the background of your financial professionals. FINRA's BrokerCheck and other information sources are available for investors. Yet, the national survey finds that only 15% of those who have worked with a financial professional reported that they had checked the professional's background or credentials with a state or federal regulator.

Sixth, shop around for financial products. For investments, as well as loans, mortgages and credit cards, FINRA recommends comparison shopping. The survey finds, for example, that while two out of every three Americans have at least one credit card, 63% of them did not compare offers.

Seventh, create a rainy day fund. The national survey finds that 51% of Americans have not set aside emergency savings to cover expenses for three months. FINRA emphasizes how important it is to save for at least one month (and preferably three to six months) of your current salary in a federally insured savings account.

Eighth, check your credit report and score. Only 38% of the national survey respondents have done so. Make sure you check both your credit report and score.

Ninth, avoid overdrawing accounts, and incurring overdraft fees. The national survey finds that nearly one-quarter of Americans with checking accounts have reported overdrawing their accounts on occasion. And 73% of those overdrawing accounts also report having difficulty covering their monthly expenses and paying their bills.

Tenth, review your insurance coverage. Only one-half of national survey respondents who reported having at least one form of insurance (health, auto, homeowners or life) said that they reviewed their insurance coverage at least once per year. One in seven respondents never does so. FINRA recommends doing so annually to determine if you are under-insured or over-insured.

FINRA's 10 Tips make sense. There's no better time than now to start your financial fitness program!

_______________________________________________________________________
About the Author:
James J. Eccleston is the president of Eccleston Law Offices, P.C. The Chicago-based firm represents investors and advisers nationwide in securities and employment matters. 312-332-0000 www.EcclestonLaw.com.