What is a discount broker?

A discount broker is somebody (typically a stock broker or brokerage firm) that charges a small fee on orders they carry out for you. An order is the process of submitting a request to buy or sell a stock. Below are the main pros and cons of a discount broker.

Pros

  • Small fee (typically less than $10 per transaction)
  • Simple

Cons

  • No additional services

As you can see, the disadvantage to a discount broker is that the only thing they do is carry out the order for you. On top of carrying out the order, a full-service broker offers investment advice, retirement planning, tax tips and more for their clients. But remember, those extra services come at a price. Depending on your needs, it may be in your best interest to consider a discount broker. They are simple and relatively inexpensive. Just be sure to research your investment choice!

 

Written by: JT Donahue, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017

Early In My Career: Is it necessary to understand the difference between a Traditional and a Roth IRA?

During our college years the thought of retirement is way down the road, so far down the road, a lot of college students and recent graduates don’t even bother thinking about it. There is a false notion that people do not need to start thinking about retirement until we are well into our careers. However, becoming aware of what retirement plans can offer and contributing to them early can make your retirement that much more enjoyable.

Many people are confused about the difference between a Traditional and a Roth IRA, or if a difference even exists between the two. An IRA is an abbreviation for Individual Retirement Account; it is available for any working Americans. The two most common IRA’s are the Traditional and the Roth IRA.

In a Traditional IRA, the account owner puts pre-tax dollars into their account. Once the owner withdraws their money from the account they then pay ordinary income tax on the withdrawals.

In a Roth IRA the individual pays tax on income, then puts after-tax dollars into their Roth account. If the money has been in the account for at least five years and the owner is 59 ½ years old the principle and earnings are both tax-free when they decide to withdraw from the account. Roth IRA’s are typically a good idea for young people because they have many years for earnings to grow tax-free. Roth IRA’s also appeal to those who believe their tax bracket is likely to be higher in the future.

For more details about the differences between the two, read Traditional and Roth IRA’s, https://www.irs.gov/retirement-plans/traditional-and-roth-iras

 

Written by: Brandon Wyeth, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017

IOUs: ‘There’s an app for that!’

It’s a common joke, but it seems to be holding true.  We use apps to share pictures, check e-mail, and chat with friends—now, we have the ability to transfer money to our friends and family, regardless of our location or which financial institution we belong to.  Cash may have been king in the past, but it’s looking more like our smartphones are king today.

Have you heard of Venmo? Squarecash? These are just a few of the apps that allow you to send money to anyone, anywhere, anytime.  From a convenience standpoint, these advances are amazing—but what are the costs of convenience?

You may still think of identity theft as the result of sneaky thieves rummaging through your trash, gathering bank statements and those annoying credit card offers you threw out last week.  While this method is still common, it’s only one of the ways that thieves steal financial information today.  Why go dumpster diving when you can use hacking to gather financial information and access money electronically?

Creepy.

It’s important to protect your sensitive information regardless of whether you have $20 in the bank or $2,000 in the bank. Identity theft can damage not only your liquid assets (cash in your checking or savings account), but your credit scores as well. Even your criminal record can be affected by identity theft. Sounds crazy, but you could be arrested for a crime someone else commits while pretending to be you.  Every time you link your personal information to a website or an app, there’s a chance that information can be accessed and abused, so it’s important that you protect yourself.

Here are some tips to assess security risks of peer-to-peer transfer apps:

The Federal Trade Commission recommends that you look for three factors to help make your account(s) less vulnerable:

  • Two-factor authentication: This requires you to enter a password plus something else — like a code sent to your phone —  to prove it’s really you.
  • Pin code: Look at creating a pin to send a payment — like a pin you might use at an ATM.
  • Social media permissions: If a payment service is linked to social media, it could broadcast your payment history to your network so make sure you check those permissions.

Additionally, think about the protections built into your financial accounts. For example, some apps may charge you for using a credit card, but if something goes wrong you have more protection under the law by using a credit card than if you use a debit card or link a checking account directly.  To learn more about protections under the law for credit and debit cards, watch the Staying on Good Terms: Credit & Debt Webinar HERE.  Take the quiz to work towards your Borrowing Badge!

Know what happens if something goes wrong–will you get an e-mail explaining a new recipient, access from a new location/device or if your account information, like your associated e-mail, is changed?

Learning more about security features may not be fun, but 5 minutes could save you from identity theft which can take months or years to recover from.  Remember, knowledge is power!

Sources:

FTC Tips, 2015: https://www.consumer.ftc.gov/blog/paying-your-friends-through-app-read-0

More Information: Citizens Utility Board, 2013 http://www.citizensutilityboard.org/pdfs/ConsumerInfo/P2P.pdf

Written by Carol Brobeck, University of Illinois USFSCO Student Money Management Center

How can I prepare financially for transitions while in school?

What’s up next for you?  A big move? An internship? Graduation? Marriage?

Unexpected costs can often be overwhelming and sometimes difficult to manage.  The busier we get, the easier it is to miss something or develop a bad habit.  It could be a bad eating habit or it could be a bad spending habit.  Both increase stress, which is the last thing you’ll want during that time.  So, take some time now to prepare so you don’t experience even more stress during what should be an exciting time!

Create or maintain savings.  Savings is often that last thing we add to our budget, if at all, but even setting aside $5 a week yields $260 after 1 year!  It can be hard to predict how much money we need during times of transition, which is why creating a habit of saving can reduce the burden if not eliminate it.  However, to prepare for a transition you can consider all the costs you know you’ll experience and use that amount, or a little more, to help set a goal.  Divide your total goal by the amount of time you have until your transition. For example, if you need $1,000 by September 2017 you’ll need to save $91 a month, or $3 a day.

You can use a savings account to separate that money and you’ll earn some interest!  Take a look at our blog post Why get a savings account? for more information about why savings accounts can be beneficial for you.

It’s easy to make split second decisions that can derail your savings goals.  If you don’t have a budget, this is a great time to make one.  If you feel comfortable and confident to make it on your own—great!  Stop by the Student Money Management Center’s website for tips and tricks to create a solid budget.

Written by Carol Brobeck, University of Illinois USFSCO Student Money Management Center.

How can I get help building a budget or spending plan?

Creating a budget and sticking to it is difficult for a lot of people, but there are so many tools you can use to both create a plan and track your spending that there’s no reason not to do it! Like with any other life skill, you just have to make it work with your own lifestyle, values and preferences.

Budget & Spending Plan Tools: Both the Student Money Management Center and University of Illinois Extension’s Financial Wellness for College Students have budgeting and expense-tracking resources for you to use.

Let us know if you have other questions about the best tools to use to build your budget and track expenses! You can even request an individual financial coaching session with the Student Money Management Center by completing this form or with the financial Wellness for College Students peer educators by emailing financial.wellnessuie@gmail.com to set up an appointment.

Be in the know. Stay updated on important events and activities at the University of Illinois to help build your financial future by subscribing to one of our e-newsletters. Each e-newsletter caters to your unique needs! Subscribe below:

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To learn even more about how to manage your finances while in college, including what to look for in a financial institution, you can watch another recorded webinar, Cash at College: Spending, Saving & Student Loans.

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