Wisdom of Rich Dad

Transferring your credit card balance, or balances, to a lower interest rate card can save you money.

The process is a tricky one — there are a lot of possible fees, penalties and ‘catches’ to beware of lest this move actually end up costing you money.

It is also getting harder to do. Credit card companies are try to stop losing customers, and they are also trying not to gain customers who are only there to take advantage of introductory rates before they move on again.

This is one credit card move that absolutely demands you read — and understand — all of the fine print. Different card companies handle it in different ways and have a wide range of fine print containing a myriad of rules.

But just because hopping from one card company to another is harder than it used to be rates for balance transfers, but there are low fixed rates offered for balance transfers (that’s the card company’s way of getting you to bring your balance and stay).

Key numbers

If you do not transfer to a fixed rate (or even if you do because fixed — the rate you are getting, how long it lasts and what it jumps to when that rate is over. With a fixed rate you may not know when it will change, but there will at least be a guaranteed period before it can change.

After you have those numbers, check out all of the related costs:

• Does either company charge a fee for moving the balance?
• Is that fee a flat sum or a percentage?
• Does your old card company charge you another fee for terminating your account?
• What fees and rates does the new company charge for new customers?
• Will both card companies notify you when the transfer is done?
• Under what circumstances can the new company change the introductory rate it gives you for your balance transfer?

Beware of ‘tiered’ arrangements. These will let you transfer a balance and give you some sort of interest amnesty or super low rate for a period, and then there may be another rate or arrangement for some more time, then a third (or even a fourth) rate. The trap here is that you may start with a great arrangement and slowly find your deal getting worse and worse.

Different rates

There may also be different rates for purchases you make with your new card. For example you may transfer with no interest for three months on your transferred balance and any new purchases. Then for three months you may have different, but not too bad, rates for what’s left of the balance but a higher rate for new purchases In the third and sometimes fourth tiers both rates could rise to the point where you don’t have a good deal any more.

So make sure you know how you intend to pay off your transferred debt.

If you are sure you can pay it off during that interest payment holiday or super teaser rate it may be a good deal. If you’re not sure, think again. If you know it won’t happen, go to your calculator and work on different scenarios. You may find that if you haven’t paid off enough of the transferred balance in, say a year, you’re actually moving into a worse deal.

Some card company’s limit how much you can transfer or how many times you can transfer a balance. Make sure you use your calculator because the more complex the transfer arrangements the more chances the movement might not be as beneficial as your at first thought.

One thing is surprisingly commonly overlooked in balance transfers — are there fees? Not only might the new card company charge you, but your old one might charge you a fee for the transfer and even a penalty fee for closing the account. They may also charge you more money to manage any money you leave behind with them if you don’t transfer your total balance. Check it out, be sure!

Also be clear just how long the whole process will take, when you stop paying on the old card and start paying on the new. You don’t want to find you’re paying for a balance in two places at the same time, however briefly.

Make very sure too that you know under what circumstances your new card company can change the rate your transfer is being charged. Sometimes a late payment, or maybe some other obscure transgression, will automatically end your deal and bounce you into a stratospheric rate. Know every circumstance under which they can do this.

Zac Bissonnette

Suze Orman is in a federal court in Oakland defending herself against civil fraud, breach of fiduciary duty and conspiracy charges related to a long-term care insurance policy sold by her financial advisory business in 1999. It’s a convoluted case, but the gist of it is this: The Suze Orman Financial Group of Emeryville, California sold a long-term care insurance policy and there was confusion about what it covered and the policyholder sued.

The brochure specified that in order for the policy to pay out, the caregiver “cannot be a member of your immediate family living with you.” but the fine print in the actual contract specified that payments couldn’t be made to family members, regardless of where they lived.

When the policyholder got sick and her family cared for her, CNA Financial Group — the issuer of the policy — refused to pay up. Forbes reports that “The complaint, which seeks unspecified damages from CNA, Orman, her firm and others, quotes repeated advice in Orman books to buy long-term care coverage.” Orman’s lawyers say the case is without merit.

The case itself is not that interesting, but Forbes’ decision to cover it is. Forbes writer William P. Barrett adds to the piece, somewhat clumsily, that “At the time, Orman, now 57, portrayed herself to the public as a practicing financial planner. But a contemporaneous Forbes story said she hadn’t done such paid work in years; her financial services earned income was coming mainly from selling insurance. Our story pointed out a number of other false statements in her published author’s bio, which was quickly changed.”

And that has precisely nothing to do with the lawsuit, but who cares about that? Barrett adds at the end that “The lengthy New York Times Magazine profile of Orman published Sunday calls her “the best-known financial adviser in the country” and “a trusted national adviser.” It makes no mention of this litigation, which has been pending in the courts against her for several months.”

It makes no mention of the lawsuit because the lawsuit has nothing to do with anything. People who run businesses that sell financial services like insurance end up in litigation from time to time. Who cares?

For a combination of reasons — jealousy, sexism, elitism, and arrogance come to mind — a number of financial journalists have made mini-careers out of Suze-bashing. Maxed Out director James Scurlock recently wrote a piece titled If You Knew Suze Like We Know Suze ,You wouldn’t listen to her advice — and then failed to explain what part of Suze’s advice is so bad, other than a trashing of dollar-cost averaging, a fairly generic investing strategy recommended by most financial advisers. He also complains that her emphasis on personal responsibility is flawed because “Although study after study has shown that personal bankruptcies are caused primarily by catastrophic events like divorce, job loss, and, above all, medical bills and that most of us are struggling with a gap between our income growth and the soaring cost of necessities like housing, Suze tends toward psychological causes that invariably blame the victim.”

Well no, Mr. Scurlock, it’s not that simple: Most personal bankruptcies are precipitated by “catastrophic events” — although job losses, illness, and divorce are pretty common — but might have been prevented by careful financial planning, frugality, and saving. That’s why Suze is such a big fan of emergency funds, something that Scurlock fails to mention. There are number of factors that lead to financial ruin, and poor financial planning is present in most cases, even if the straw that breaks the camel’s back is a job loss or illness.

In case you can’t tell by now, I love Suze Orman and here’s why: She gives solid, conservative and reasonable financial advice and delivers it in a format that appeals to people who otherwise wouldn’t want to hear it. Suze Orman is to finance what Yo Yo Ma is to music: Purists might be annoyed by the marketing and occasional pandering but the bottom line is it brings a wonderful thing to people who otherwise never would have heard it.

There are plenty of charlatans out there offering bad advice and charging outrageous sums for it. Suze isn’t one of them. Suze offers good advice at reasonable prices — You can watch her show for free and get her books at the library. She deserves praise. Save the hatchet jobs for people like Robert Kiyosaki.

At a conference on financial literacy on Apr. 20 in Chicago, Federal Reserve Chairman Ben Bernanke said it was time for Americans to learn to manage their money.

Ramit Sethi couldn’t agree more. The 26-year old personal finance guru has made it his mission to help Americans do just that and he tries to make it as simple as possible.

In his new book, I Will Teach You to Be Rich, and on his blog of the same name, Sethi shows twentysomethings how they can automate their financial decision-making and learn how not to overanalyze.

This is especially true when it comes to investing. He says money should be automatically diverted to investment accounts, then automatically invested and rebalanced, according to a set calendar.

Sethi met with BusinessWeek’s Ben Levisohn on Apr. 17 to discuss how fearful investors can get started in this vexing environment.

You’re only 26. How did you start investing?

When I was in high school, I applied for a number of scholarships because my parents told me we had to. The first scholarship, for $2,000, was written to me and I invested it in the stock market. This was back in 2000. I lost a lot of money. I still have some of those stocks. One is worth 90% in total. I probably lost 99% of that money. That was a great eye-opener. It made me realize that just because you see a stock on TV that does not mean you should invest in it. Just because you’re wearing clothes from Gap doesn’t mean it’s a good investment. That’s when my eyes started to open. But if you ask most people, “hey, what investments do you have,” they say, “you mean stocks?” Which causes me to throw my hands up in the air.

So you’re not a big believer in buying individual stocks. How should people invest?

I want to reduce choice and encourage people to invest. For most, a target date fund is perfect. That’s the 85% solution. It’s not perfect, but it’s good enough. There’s no need for people to rebalance by themselves. The fact that we have 60- to 70-year olds losing 50% of their money speaks volumes that just because you should rebalance your investments, it doesn’t mean you will. Just like you should practice safe sex does not mean you will.

But what if investors want a little more control?

If you really want to tweak it, if you’re a type-A nerd and you’re reading about all different asset allocations, then let me show you how to do this. Here’s a recommendation: the Swensen model, by Yale’s Chief Investment Officer David Swenson. Take this and tweak it as needed. (The Swensen Model allocates 30% to domestic equities, 15% to developed world international equities, 5% to emerging-market equities, 20% to real estate funds, 15% to government bonds, and 15% to TIPs.)

But we need to build systems around automating rebalancing so people are not depending on more will power. Investing and personal finance — we’ve shown that it’s not about more will power. It’s about creating systems that do this by default for us.

So you wouldn’t recommend trying to time the market?

There are people now who pulled their money out. And when the market comes up, they will be some of the last that get in. It drives me crazy. They think this is binary. You either put money in the market or pull it out. That’s not how investing works. There are so many gradations and nuances. You can change asset allocation, you can diversify differently, you can change your time horizon. There are a million things you can do. If you try to time the market, then you are a fool. I’m trying to focus on the long term. I really believe in investing for the long term.

Have you changed your outlook because of the bear market?

I was given the opportunity to completely revamp the book in light of the crisis, but the material stands on its merits. What I tell people is that what’s in the newspaper today and what President Obama decided to do today has very little to do with your personal finances. Personal finances are personal. You can turn off your TV, close down all the Web sites for the next six weeks, and your finances, if you optimize them, would get much better regardless of what happens.

Young investors have watched their parents lose a good chunk of their retirement savings. What do you say to them to coax them into the market when they may feel like socking away their cash in a mattress?

Although it seems catastrophic, we’re in our twenties and thirties and essentially the market is on sale. If I told you one year ago that the market would be 50% off for the same equities you’re buying now, what would you have said? The answer, of course, is I would have been ecstatic. Now there’s a lot of psychology and uncertainty involved and that’s changing things.

How have your investments done in this environment?

I’m roughly indexed, so I was basically in line with the market.

Did you expect these kinds of losses?

I was surprised. The models don’t predict this loss typically. We know there are a lot of problems with models. But as a young person, I’m comfortable knowing I can afford that kind of risk. I was consciously invested and am still consciously invested in a risk seeking way. My readers in their twenties and thirties who are invested are interested in the same. They understand this is a long-term play. They understand there are trade-offs. I’m comfortable knowing that not only do I have a long-term perspective, I’m comfortable managing money, earning more, so it can flow back into my infrastructure.

Financial Reform: A Framework for Financial Stability addresses flaws in the global financial system and provides 18 specific recommendations to: improve supervisory systems by redefining the scope, boundaries, and structure of prudential regulation; enhance the role of the central banks; improve governance practices and risk management; address pro-cyclicality via capital and liquidity standards; enhance accounting practices; strengthen the financial infrastructure; and increase coordination internationally.

FORWARD
In July 2008, the Group of Thirty (G30) launched a project on financial reform under the leadership of a Steering Committee chaired by Paul A. Volcker, with Tommaso Padoa-Schioppa and Arminio Fraga Neto as its Vice Chairmen. They were supported by other G30 members who participated in an informal working group.

All members (apart from those with current and prospective national official responsibilities) have had the opportunity to review and discuss preliminary drafts.

The Report is the responsibility of the Steering Committee and reflects broad areas of agreement among the participating G30 members, who participated in their individual capacities. The Report does not reflect the official views of those in policymaking positions or in leadership roles in the private sector. Where there are substantial differences in emphasis and substance, they are noted in the text. …

INTRODUCTION
Market economies require robust and competitive financial systems, national and international, to intermediate between those with financial resources and those with productive and innovative uses for those resources. That intermediation necessarily poses risks—risk with respect to bridging maturity preferences of savers and borrowers and risk with respect to creditworthiness.

The process, to be effective, depends on mutual trust—trust based on confidence in the integrity of institutions and the continuity of markets. That confidence, taken for granted in well-functioning financial systems, has been lost in the present crisis, in substantial part due to its recent complexity and opacity. …

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