Part no.Consumer

Money Management TipsCash-Flow ManagementCredit Management1. I have a financial record-keeping system in5. I compare offers from credit card companiesplace to track income and expenses.before applying for credit.One of the best ways to begin taking control of yourIf you have and use a credit card, make sure thefinancial future is to organize your personal card company is not taking you to theGet your financial house in order by locating andcleaners with high interest rates and fees. Someorganizing all of your financial documents, thencards offer low introductory interest rates, andcreating a filing system for them. Include informationsome do not have an annual fee. To get the beston bank and investment accounts, insurance policydeal on credit cards, shop around to compare creditnumbers, and key legal documents such as your willcard companies’ interest rates and fees. You can goor stock certificates. Storing the documents in oneto or toplace will help you keep tabs on your records andfind the best credit card deals.make it easier for you—and loved ones—to respondto financial matters in an emergency.6. I pay more than the monthly minimum on mycredit card bill each month.2. I have a household spending plan or budgetand use it.Taking control of your financial future requiresyou to manage your credit wisely. WhileAn important way to gain control over yourborrowing can help you realize some of your long-financial future is to develop a household budget.term goals, borrowing for day-to-day needs canIf you have a spending plan, you are more likelyresult in financial troubles. If you pay off yourto avoid the temptation and pitfalls of livingbalance each month, congratulations—you arebeyond your means. Several online tools can helpahead of the game in taking control of youryou create a household budget and track yourfinancial future. If, however, you carry a revolvingexpenditures—for example, www.dallasfed.orgbalance on your credit card, you may be settingand up for financial troubles and should:spending/spending plan.asp. pay more than the minimum payment,3. I reconcile my checks and ATM withdrawals on set a monthly limit on your credit card charges,a regular basis.Knowing how much money you have on hand after avoid making spur-of-the-moment purchases, and cut your credit card up or simply do not use it.paying monthly expenses can help you stick to yourhousehold budget. Keep your ATM receipts andbalance your checkbook each month. Keeping tabson your monthly and annual cash flows can alsohelp you identify areas where you can save money.We cannot overstate the importance of payingmore than the minimum payment on your creditcard bill. High interest rates and revolving balancescan snowball, making it increasingly difficult to makepayments and, in some cases, adding thousands4. I pay my bills on time.Making a habit of paying bills on time will help youof dollars in interest to your credit card balance.If you find that you are having trouble makingbecome a more confident and savvy money manager.payments, consider getting help through aJust as important, paying bills in a timely mannerreputable, nonprofit credit-counseling organizationwill help you avoid late fees, negative marks on yoursuch as Consumer Credit Counseling Service. Becredit report, and possible conflicts with creditsure to avoid outfits that promise to “fix” your creditcard companies and credit reporting bureaus. Forproblems—usually for a large fee.convenience, you may wish to use a secure Internetbill-paying program through your bank’s Web site.No.106Beyond 50.04: A Report to the Nation on Consumers in the Marketplace

7. I have requested and reviewed a copy of my creditreport from at least one credit reporting agency.from each paycheck you bring home. In this way,you are actually paying yourself before spending itHaving a good credit record is key to navigating inon other things. You can get excellent savings tipstoday’s financial marketplace. If you have beenfrom the American Savings Educations Council atdenied credit or believe that your credit record or from “America Saves” atinaccurate, request a copy of your credit the three major Consumer Reporting Agencies(CRAs) listed below. As of January 2004, residents inall states are entitled to one free credit report fromeach agency, each year. Request a report from eachagency, as your record may differ from one creditreporting agency to another. If you discover anymistakes in your credit record or suspect that youmay be a victim of identity theft, immediatelycontact each CRA to rectify the situation.10. I have an emergency fund that covers three tosix months of my living expenses.Do you have enough money in case of anemergency? Life is unpredictable-your car maybreak down, you could lose your job, or you couldhave a medical emergency. Experts suggest thatyou keep enough money aside to cover basicexpenses for three to six months. Place this moneyin an account from which you can withdraw funds Equifax: 800-685-1111immediately and without Experian: 888-397-374211. I put my money in low-risk savings productswww.experian.comsuch as savings accounts, money market Trans Union Corporation: 800-888-4213www.transunion.comSavings8. I have identified immediate and long-termsavings goals.Setting goals is a vital part of gaining control overyour finances. Your goals might include buying ahouse, setting up a college fund for a child, ortaking exotic vacations every year. And do notforget the goal that everyone shares: saving forretirement. Try to assign a dollar amount to eachgoal and a target date for achieving it (for example,paying off a 10,000 car loan in three years). TheFederal Reserve Bank’s Money Smart programprovides a good planning worksheet ataccounts, or certificates of deposit (CDs).As one component of your financial plan, considerusing low-risk options for saving money such assavings accounts, money market accounts andfunds, certificates of deposit (CDs), and savingsbonds. The federal government insures mostsavings accounts in banks up to 100,000. You canoften get higher yields from CDs in return for tyingyour money up for a fixed amount of time. Inaddition, by holding savings bonds you can gethigher returns and avoid paying state and localtaxes. Go to a comprehensive discussion of conservativesavings vehicles.12. I shop for the best interest rates for my tion/Compound interest is a powerful tool for buildingbudgeting and saving.cfm.wealth and financial security. Over time, it can9. I save money on a regular basis.Saving money is key to building a secure financialfuture. Thanks to the power of compounding, youearn interest not only on what you save, but alsoon the interest those savings generate. The earlieryou start to save, the more dramatically yourmoney can grow. With an automatic transferaccount, you can systematically save a set amountmake your money grow dramatically. Finding thehighest interest rates for your savings can help youachieve your financial goals more quickly. Toillustrate this point, consider that a 5,000, five-yearterm CD at four percent interest will generate abalance of 6,105, versus 6,417 for the same CD atfive percent. To compare interest rates on differentsavings products, go to Consumer

16. I contribute regularly to an employer-sponsoredInvestmentretirement savings plan, such as a 401(k).13. I review my annual Personal Earnings andBenefit Estimate Statement (PEBES) from theSave as much money as you can if your employerSocial Security Administration.offers a defined contribution or 401(k) plan. ManyEach year, around your birthday, the Social Securitycompanies match some or all of your contributionsAdministration (SSA) sends you a Personal Earningsto these tax-sheltered savings plans. While thereand Benefit Estimate Statement (PEBES) estimatingare limits on how much you can contribute, if youhow much you will receive in benefits when youare age 50 or over you can make “catch up”retire. This is a good time to review and make anycontributions of up to 3,000 each year if yourchanges to your retirement plan. Remember thatcompany permits this option. With these plans itSocial Security is not intended to meet all yourpays to be a knowledgeable investor, as you willfinancial needs when you retire. The age to receivehave to choose among the investment optionsthe full Social Security benefit is gradually movingoffered by your employer.up from 65 to 67 by the year 2022, although you areeligible for a reduced benefit beginning at age 62.The most stable part of most people’s retirementincome, Social Security provides inflation-protectedbenefits that will continue for as long as you live.For more information, call Social Security at17. I save money in a tax-advantaged IndividualRetirement Account (IRA).You can save for retirement by contributing toan Individual Retirement Account (IRA). Currently,only 26 percent of people age 45 and older have anIRA. An IRA is a personal savings plan that allows800-772-1213 or go to to contribute up to 3,000 a year. If you are 5014. I have calculated how much money I will needor over, you can save up to 500 more with a“catch-up” contribution. There are two types ofto retire comfortably.According to the 2004 Retirement Confidence Survey,IRAs: the traditional IRA and the Roth IRA. Eachhalf of workers aged 55 and older have nothas its own rules and tax advantages. Go tocalculated how much money they will need forretire comfortably. Financial experts generallyfurther information.171recommend that you will need at least 70 percent ofyour preretirement income. A number of retirementcalculators are available on the Internet. Examplescan be found at the CNNMoney Web site,, and I put my money in different types ofinvestments to boost returns and reduce risk.Different investments have different levels of risk.You can reduce risk by spreading your money over avariety of investments. As a result, you minimizethe impact that any one investment has on your15. I am vested in an employer-funded pension plan.overall portfolio. For example, while you may have aIf you are covered under a defined benefit plan,bond mutual fund that is losing money, you maycommonly referred to as a pension, your employeralso have a stock mutual fund and a CD that areguarantees that you will receive a specific amountmaking money. Typically, you may want to considerof money when you retire. The amount of yourmixing your investments among stocks, bonds, andpension will depend on your wages and years ofcash. For a good overview of diversification, go toservice. Usually you have to work a of years before you “vest” or becomeeligible for a pension. Most pension programs willsend you a monthly check, although other optionsmay be available such as a lump-sum payment.Pensions are insured by the federal government.For more information, visit I have a mutual fund.Mutual funds pool money from many individualswith a specific investment objective and invest themoney in a range of stocks or bonds. You benefitnot only from automatic diversification, but alsoNo.108Beyond 50.04: A Report to the Nation on Consumers in the Marketplace

from the expertise of professional money managers.wills and other legal issues, visit for funds that have low fees and do not chargeYou can find an attorney who can assist you witha commission or “load.” You can diversify even moredrawing up a will through the American Collegeby investing in funds with different investmentof Trust and Estate Counsel ( orgoals. For instance, you can buy funds that investAARP’s Legal Services Network at large or small companies or government orcorporate bonds. Check www.morningstar.comfor additional information.23. I have adequate disability insurance.Persons between the ages of 35 and 65 are atgreatest risk of suffering a disability that prevents20. I do not dip into my retirement savings tocover other expenses.them from working. If you are working, protectyourself and your family with disability insuranceDipping into your retirement savings to pay yourto assure that you have a source of income in thebills is not a good idea. Remember: the purposeevent that you suffer a serious impairment. Checkof your retirement savings is “retirement.” Oftenwith your employer to see whether you havethere are financial penalties for withdrawingdisability insurance and what benefit the policymoney early from a retirement account. If you takeprovides. You may want to enhance yourmoney out of your 401(k) or IRA accounts beforeemployer-provided policy with a “gap policy” toage591/2,you will pay a 10 percent penalty on topensure that your disability insurance mirrors yourof the taxes you’ll owe. If you decide to take anormal take-home pay as much as possible. Thelump-sum payment for your company pensionWeb site has good information onwhen you retire, try to avoid diverting the money todisability for current expenses.24. I have adequate life insurance.HousingPurchasing life insurance can be a critical way to21. I have searched to find the lowest interest ratesprotect your family. Life insurance policies areand fees on a home mortgage.numerous and complex, so be sure to researchSearching for the lowest rates and fees on a homeyour policy options and shop around for themortgage can save you bundles of money. If youpolicies that best suit your needs. Before buyingshop around, you can often find a good deal. Youcoverage, become familiar with both “term” andcan reduce costs by considering a shorter-term“permanent” life insurance options. If you havemortgage or by paying off your loan faster by makingdependents, you need coverage equal to betweenadditional payments. It generally pays to refinancesix to ten times your annual income or, as someif you can lower your interest rates by at least twofinancial advisors recommend, enough to coverpercentage points. For more information on hometen years of your family’s living expenses.mortgages, check out financial experts do not recommend lifeProtecting Assets22. I have a if you have no dependents. To explorelife insurance, go to o protect your family and your assets, it is criticalto have a will. A will is a legal document that25. I have adequate health insurance.transfers your property to your beneficiaries whenHealth insurance ensures that you and youryou die. You may also want to consider having afamily get the medical care you need when youPower of Attorney written, a document that grantsget sick. If you do not have health insuranceauthority to a designated other to make decisionsthrough your employer, get the best individualon your behalf, should you become ill or unablehealth insurance you can afford and compareto make decisions. For additional information onquotes for various policies. If you are about to loseNo.109Appendices: Consumer

your health insurance or plan to change jobs, bepurchasing long-term care (LTC) insurance. LTCsure to find out if you qualify for coverage underinsurance can be very expensive and complicated,the Consolidated Omnibus Budget Reconciliationso be sure to shop around for the best informationAct (COBRA) or the Health Insurance Portabilityand affordable policies. For more information,and Accountability Act (HIPAA). Under COBRA,visit can keep your group health insurance coveragefor up to 18 months if you lose or quit your job, orhave your work hours reduced. For information onCOBRA, visit the Web site, m. HIPAA lets youswitch from one job to another more easilywithout losing your health coverage due toserious or pre-existing medical conditions.Visit for additionalinformation on HIPAA. For general information27. I educate myself about financial issues.Understanding the basics of financial planning,saving, and investing is critical today. You’ll needto build on Social Security to ensure you haveenough money in your later years. Stay current byreading the financial section of your newspaperand financial magazines and by researching theInternet. Where possible, take advantage offinancial information your employer provides.on health insurance, go I have explored the pros and cons of long-termcare insurance.As you grow older, there is a chance that you’llneed a broad array of support services in yourhome or other living environment. Medicare doesnot pay for the bulk of long-term care services, soyou may want to explore the pros and cons ofNo.110Beyond 50.04: A Report to the Nation on Consumers in the Marketplace

Internet Resources for Consumers: Tip Sheet66 Ways to Save MoneyConsumerReports.orgCovering a wide variety of topics relevant toA Web site devoted to reports on products inconsumers, including transportation, insurance,several categories, including cars, electronics,banking/credit, housing and utilities, this freeappliances, and more. Reveals the results ofillustrated brochure provides 66 easy and practicalindependent product testing, and providessteps consumers can take to save money andproduct ratings and rankings. Free consumerprevent fraud. Taken from Consumer is ibrary/money mgt/1999 66WaysToSave/index.phpManage Your Money Wisely:Tracking Your ederal Trade Commission ConsumerInformation Web PageThis page (on the FTC’s Web site) provides accessThis free brochure includes money managementto consumer information through free publicationstechniques such as budgeting, checkbookwith advice on saving money, identifying superiorbalancing, and cutting back on expenses. It alsovalue, and avoiding scams and rip-offs.provides consumer tips on spending less whilesaving more. Taken from Consumer library/money mgt/2002 mer.htmFederal Citizen Information CenterThis online information center provides consumerswith purchasing guidelines for houses, cars,6 Steps to 6-Figure Savings:Start Building Your Wealth Todaycomputers, and food, among others. The site alsoThis free brochure details practical steps towardfederal and private consumer sites.accumulating financial wealth, including savingprovides health and employment news and links tohttp://www.pueblo.gsa.govmoney, making money-saving sacrifices such aspacking a lunch instead of purchasing fast food( 12/week savings), and paying down high-priceddebt. Taken from Consumer Federation of sumerWorld.comThis Web site provides information on health, travel,real estate, and shopping. The site lists several usefulconsumer resources, including directories; bookletsand buying information on a number of topics; anda directory of federal, state, and local consumeragencies, companies and their customer serviceand complaint telephone ces: Consumer

List of Expenditure CategoriesThe Consumer Expenditure Survey reports overHealth Care500 different categories of spending, most of whichHealth Insurance Commercial health insurance Blue Cross/Blue Shield Health maintenance plans (HMOs) Medicare payments Commercial Medicare supplements/otherhealth insuranceare included within fourteen major categories.This report designates food, housing, health care,transportation, and personal insurance and pensionsas “key categories” for older consumers. This sectionprovides a summary of the expenditures includedwithin the key categories. Additional subcategoriesmay be viewed at the Consumer ExpenditureSurvey website: Home Cereals and bakery products Meats, poultry, fish and eggs Dairy products Fruit and vegetables Other food at homeFood Away from Home Meals at restaurants, carry-outs, other Board (including at school) Catered affairs Food on out-of-town trips School lunches Meals as payHousingShelter Owned dwellings– Mortgage interest and charges– Property taxes– Maintenance, repairs, insurance,and other expenses Rented dwellings– Rent– Rent as pay– Maintenance, repairs, and insurance– Other lodgingUtilities, Fuels, and Public Services Natural gas Electricity Fuel oil and other fuels Telephone Water and other public servicesHousehold OperationsHousehold Furnishing and EquipmentNo.Medical Services Physician’s services Dental services Eye care services Nursing, therapy, other non-physicianmedical services Lab tests, x-rays Hospital room Hospital services other than room Care in convalescent or nursing home Other medical servicesDrugs Non-prescription drugs Prescription drugsMedical Supplies Eyeglasses and contact lenses Topicals and dressings Medical equipment for general use Supportive/convalescent medical equipmentTransportationVehicle Purchases (Net Outlay) Cars and trucks, new Cars and trucks, used MotorcyclesGasoline and Motor OilOther Vehicle Expenses Vehicle finance charges Motorcycles and other vehicles Maintenance and repairs Vehicle insurance Vehicle leasing, renting, licensing,and other chargesPublic TransportationPersonal Insurance and PensionsLife and Other Personal Insurances Except HealthRetirement, Pensions, Social Security Deductions for government retirement Deductions for railroad retirement Deductions for private pensions Non-payroll deposit to retirement plans Deductions for Social Security112Beyond 50.04: A Report to the Nation on Consumers in the Marketplace

Endnotes1 Francese, Peter. Big Spenders. Factiva: American6 “Other” includes the following categories:Demographics, September 2001; Morgan, Carol M.,alcoholic beverages, apparel and services,and Levy, Doran J. The Boomer Attitude. Factiva:entertainment, personal care and products,American Demographics, October 2002; Francese,reading, education, tobacco products and smokingPeter. Older Baby Boomers a Big, Growing Market,supplies, miscellaneous cash contributions, andMay 2001, taxes. To avoid any confusion, this reportArchive/2001/05 2001/05062001pf.htmuses the same titles as the BLS when reporting(accessed October 14, 2003).expenditures. In all, the CEX reports over 5002 Published tables were the source of data useddifferent categories of spending, although most arein this analysis whenever possible. However,included in the 14 major categories and relatedin many instances, the analysis could only besubcategories in the BLS-published tables. For adone using data from the interview surveyfull list of universal classification code (UCCs) titlesalone. As a result, totals may not match thosesee published tables.3 Since public access to the complete set of data7 Consumer Expenditure Survey, 2001.8 By definition, nonearners do not have wagesfiles for the interview survey was not availableand salaries; consequently, they relied on Socialbefore 1990, the analysis of expenditures bySecurity and pensions for 82 percent of theirincome, race, and single consumer unitstotal annual income in 2001.included in this report extends from 1990 to9 Brobeck, S. (ed.). Encyclopedia of the Consumer2001 and relies on data from the earliest surveyMovement. ABC-CLIO, Inc., 1997, p. 158; see alsowherever possible. Similarly, the CEX only beganMaynes, E. Scott. “Marketing-One Consumercollecting expenditure data by ethnicity in 1994.Disaster.” The Journal of Consumer Affairs 37Therefore, the analysis of expenditures by the(2) (2003).ethnicity of older consumer units extends from1994 to 2001.4 Compatibility with BLS published tables alsofacilitated data analysis.5 The BLS defines consumer units as: 1) members10 Ibid.; see Maynes for a concise summary ofempirical research on “informationallyimperfect consumer markets” and weak pricequality correlation.11 See a household who are related by blood,famcases/sutton/sutton.html (accessedmarriage, adoption, or other legal arrangements;October 14, 2003); see also Cocheo, S. “The2) a person living alone or sharing a householdBank Robber, The Quote and the Final Irony.”with others or living as a roomer in a privateABA Banking Journal Online, March 1997,home or lodging house or in permanent living in a hotel or motel, but who is financially0397.html (accessed October 14, 2003).independent; or 3) two or more persons livingtogether who pool their income to make jointexpenditure decisions. The BLS defines financial12 Brobeck, 1997, p. 158.13 Golden, L., and Jorgensen, H. “Time After Time:independence in terms of the three majorMandatory Overtime in the U.S. Economy.”expenses categories: housing, food, and otherWashington, DC: Economic Policy Institute,living expenses. A respondent is considered to beJanuary 2002.financially independent if he or she provides at14 Mishel, L., Bernstein, J., Bernstein, J., andleast two of the three major expense categories.Boushey, H. The State of Working AmericaNo.113Appendices: Consumer

2002/2003. Ithaca, NY: Cornell UniversityO’Harrow, R. “Getting a Handle on Privacy’sPress, 2003.Fine Print; Financial Firms Policy Notices15 May, R. N., and Brady, J. T. “The ConsumerAren’t Always ‘Clear and Conspicuous’ as LawInformation Research Burden: OpportunitiesRequires.” Washington Post (June 17, 2001);and Recommendations for Lightening theDugas, C. “Financial Firms Privacy Notices BaffleLoad.” Washington, DC: AARP Public PolicySome Strict Adherence to Law Blamed for ‘LegalInstitute, December 1994; Maynes, Winter 2003.Gobbledygook.’” USA Today (April 20, 2001).16 The Mercury News Mortgage Guide,23 Thornton, Emily, and Michael Arndt. “Fees! 02c.htmFees! Fees!” Business Week (September 29,(accessed February 9, 2004).2003): 98.17 Hermanson, S. K. Older Online Investors: Trading24 Kim-Sung, K. K. and Hermanson, S. K.Activity, Information Sources, Online TradingExperiences of Older Refinance Mortgage LoanExperiences, and Privacy Issues. AARP PublicBorrowers: Broker- and Lender-OriginatedPolicy Institute Data Digest 50, August 2000.Loans. AARP Public Policy Institute Data Digest18 Mayer and Brady, December 1994.19 Joint Center for Housing Studies of HarvardUniversity. The State of the Nation’s Housing 2002;Securities and Exchange Commission. Report ofthe Committee on Compensation Practices (Tully83, January 2003.25 See, for example, Jump tart Coalition forPersonal Financial Literacy. “From Bad toWorse: Financial Literacy Drops Further among12th Graders.” Press release, April 23, 2002.Report), April 10, 1995; AARP. Investor Awareness of26 To address the questions of interest, theBroker Compensation Practices: Findings from anFederal Reserve Board commissionedAARP Survey, April 1998; Levitt, A. The State of theadditional questions regarding a household’sBrokerage Profession: Remarks before the Securitiesfinancial knowledge, experience, behaviors,Industry Association’s Legal and Compliancelearning experiences, and learning preferencesSeminar, April 20, 1998; General Accountingon the monthly Surveys of ConsumersOffice (GAO). SEC Operations: Increased Workloadconducted by the University of Michigan.Creates Challenges, March 2002; GAO. Mutual27 AARP. 2003 Consumer Experience Survey:Fund Fees: Additional Disclosure Could EncourageInsights on Consumer Credit Behavior, FraudPrice Competition, June 2000; GAO. Mutual Funds:and Financial Planning, 2003, http://research.Greater Transparency Needed in Disclosures exp.html (accessedInvestors, June 2003; Hillman, R. J. MutualFebruary 10, 2004).Funds: Additional Disclosures Could Increase28 Maynes, E. S. “Price Discrimination: LessonsTransparency of Fees and Other Practices,for Consumers.” Advancing the ConsumerJanuary 27, 2004.Interest 2 (1) (1990).20 White, A. M., and Mansfield, C. L. “Literacy29 Ibid; price discrimination occurs when a singleand Contract.” The Consumer Advocate 9 (3)seller charges different prices to different(July/August/September 2003).customers for the same product.21 U.S. Department of Housing and Urban30 Ibid; see also Maynes, E. Scott. “Marketing—Development and U.S. Department ofOne Consumer Disaster.” The Journal ofTreasury. Curbing Predatory Home MortgageConsumer Affairs 37 (2) (2003).Lending: A Joint Report, June 2000, p. 63.22 Nader, R., et al. Petition for Rulemaking to theFederal Trade Commission, July 26, 2001;31 Consumer Federation of America. “ConsumersUnderestimate the Value of ComparisonShopping,” April 2003.No.114Beyond 50.04: A Report to the Nation on Consumers in the Marketplace

32 Ibid.41 Alwitt, L. F., and Donley, T. D. The Low-Income33 Ibid.Consumer: Adjusting the Balance of Exchange.34 Individuals can also save pretax income inretirement savings accounts such as IRAs andThousand Oaks, CA: Sage Publications, 1996.42 Hermanson, S. K., and Gaberlavage, G. J. The401(k) plans. One may withdraw funds inAlternative Financial Services Industry. AARPretirement savings accounts under limitedPublic Policy Institute Issue Brief 51, August 2001.

an Individual Retirement Account (IRA). Currently, only 26 percent of people age 45 and older have an IRA. An IRA is a personal savings plan that allows you to contribute up to 3,000 a year. If you are 50 or over, you can save up to 500 more with a "catch-up" contribution. There are two types of IRAs: the traditional IRA and the Roth IRA .