Online Banking – Keeping Accounts Secure

More than 63 million Americans bank online, and 78 percent are pleased with that way of transacting their business, reports the Pew Research Center. Given that momentum and high satisfaction rate, sooner rather than later, online banking will become standard. Within all demographics, including Baby Boomers, those accustomed to paper forms of checking and saving accounts are recognizing the benefits of maintaining them totally online.

For example, online banking programs frequently provide:

  • Real time, that is 24/7, access to payments, deposits, and withdrawals
  • Money saved from not having to snail-mail bill payments
  • E-mail alerts for when checks clear and if a balance is low, preventing overdrafts and the charges for those
  • The ability to link with personal finance software such as Quicken

But both those already online and those considering the shift from paper have concerns about security. The issue is what they can do to ensure that their checking and savings accounts are safe from con artists as well as snoopers invading their privacy.

What should reassure current customers and prospects for online banking is that banks have a great deal invested in their reputations for providing online customers security for both their funds and their confidential information. Therefore, as smart businesses, banks will always be state-of-the-art in terms of cyber security technology, policies, and procedures.

Unfortunately for consumers who want to know more about the bank’s online systems, those financial institutions keep most of that confidential, only sketching out the very basics of their approach on their websites. Too much information would, as the saying goes, “tip off the bad guys.” Users know the particular website is secure by the icon of a padlock or a key. If that icon isn’t there, then they should not proceed to register as an online customer.

Essentially there are two approaches to cyber security banks may use. One is known as the direct-modem way, which processes transactions without those being transmitted over the Internet. The other is known as encryption. During encryption, an algorithm is used to distort data so that the information only arrives in its right form to the designated recipient. Either of these systems tends to be reliable.

Most of the security breaches resulting in stolen funds or unauthorized release of information occur in ways which do not involve the bank’s systems. Instead, through scams called “phishing,” customers receive e-mails with logos and other graphics that simulate those of the bank. The message frequently has a tone of urgency. The text might be worded to warn the recipient that such-and-such information is needed to allow the accounts to continue to be maintained or, ironically, to prevent a breach of security. There might be a request for specific information such as a PIN or simply a link to click. The phone number provided will connect with the con, not the authentic bank, of course.

Given the prevalence of those kinds of scams, online customers should be wary of all e-mail communications. Unless they are certain what is being transmitted is actually from the bank, they should call their bank to inquire about the e-mail. They should not call the phone number provided on the e-mail.

Security can also be breached when the customer’s computer doesn’t have adequate anti-virus protection. That can leave the system vulnerable to hackers. The bad guys could download a virus that wreaks havoc with both funds and information. Another safety measure is to take the time to download all the updates onto the computer, both from the anti-virus protection company and other software providers such as Microsoft. There are some virulent viruses that only operate on outdated software.

Other precautions include reviewing online accounts regularly to detect any unauthorized activity. Persistent monitoring might not just turn up fraud but also mistakes such the direct deposit from the employer that hadn’t been made or an overcharge by a service provider. Another tip is to change PINs or passwords often.

Online banking could not have grown so rapidly had the financial institutions’ cyber security experts not anticipated the worst-case scenarios for fraud and privacy violations. Most of the threats come from scams targeted directly at users. Therefore, it’s in their self-interest to know and follow guidance for protecting themselves in general from being conned on the Internet or being victims of identity theft.

That caution can allow them to enjoy the convenience and lower transaction costs of online banking with peace of mind. In addition, although those paper monthly statements and copies of cancelled checks will always remain options, most consumers will be relieved not to be burdened with them on a regular basis.

The New Frugality: Habits Worth Keeping, Those Worth Forming

During The Great Recession, being frugal became downright cool, so found Booz & Company when it surveyed Americans. Consumers boasted about the bargains they were getting at consignment stores and fewer hostesses were embarrassed about serving private-label food, instead of the national brand names. In the Mintel Group survey, 75 percent said they wanted to reduce spending and 65 percent wanted to pay off credit card debt. From 2011 to 2012, income for credit card companies dropped 15.8 percent.

Now that the economy is in recovery, consumers will be deciding what habits of the New Frugality they want to keep. After all, America has a shot at becoming a nation which again can live within its means. There really had been a time when the family didn’t buy a television until it could be paid for in full with cash.

Behaviors that will probably continue include those which conserve gasoline. Even young people had cut miles driven annually about 23%, reports research from Pew. For them as well as their parents, that meant doing more online, including the way they bank. Pew notes that more than 63 million Americans maintain their checking and savings online. Some young people may never step into a brick-and-mortar bank.

Another habit that seems engrained is demanding bargains. Thanks to the smartphone, it’s easy to comparison shop. When the bargain isn’t enticing enough, consumers will likely continue to wait to buy until it is. Also, it’s unlikely those who switched to private label will return to paying premium prices. A walk through the big boxes such as Wal-Mart shows more and more shelf space for the house brands. The Booz & Company survey found that 55 percent opted for the best price, not the status of the brand.

A trend that began a half century ago – Do It Yourself (DIY) – accelerated during the two economic downturns in the 21st century. Way back then, it was Ikea who told consumers they could save money by assembling the furniture themselves. An unexpected side effect was the tremendous satisfaction coming from that kind of DIY, which became known as the “Ikea Effect.” Both to save and gain that sense of mastery, Americans will probably continue to improve their property themselves, handle some of their own financial planning, create their own wall hangings, and even manufacture on their own what they need for their small businesses. There, technology has helped.

Of course, there has been some loosening up in spending. Again there are long waiting lines on weekends at moderately priced sit-down restaurants like Olive Garden. New car sales are up, as economic confidence leads to trade-ins on the clunkers. Families are looking at houses again. More conservative lending policies will ensure, though, they that don’t buy more house than they can afford.

But even the steepness of the downturn hadn’t changed some deeply rooted beliefs and values, such as students’ right to attend the college of their choice, no matter how expensive. According to Pew, the average loan debt for college graduates in 2011 was $26,600, a 5 percent increase from the year before, with no end in sight. That is one habit that could be changed through introducing the fundamentals of return on investment (ROI). Students planning to major in fields that provide in lifetime earnings low ROIs on tuition and fees could be encouraged to start their education at a low-cost community college and then transfer to a public state school. Student loan debt could vanish as a national and individual economic problem.

Another mindset that could change is the belief that “it’s impossible to save.” Currently for many, the preoccupation is on reducing debt and spending, not on a proactive plan to save. Before post-World War II affluence, America was a nation of savers. Can that value system ever again shape how Americans see their world? While the economists argue about that one, actual money can be saved – passively. Ways to do that include not claiming the maximum deductions on income tax withholding, authorizing automatic contributions to the company retirement program, and socking away all the funds from a windfall such as an inheritance, tax return, profit on the sale of a house, or winning the lottery.

The New Frugality habits acquired and the ones that are being presented as solid economic common sense demonstrate the importance personal finance has taken on in American life. In itself, that could lead to the creation of greater wealth for a greater number of people.

Photo credit: 401(K) 2013 / Foter / CC BY-SA

Baby Boomer Parents, Millennial Children – Preventing Financial Disaster

Baby Boomers, especially those in their late 40s and early 50s, could be heading into financial disaster. And, while they’re at it, they could be failing to teach their Millennial children the fundamentals of financial literacy, propelling yet another generation into economic insolvency. The good news is that this dark scenario can be prevented.

Clearly, for Baby Boomers now in their middle age, it’s the time for saving for retirement, especially since fewer organizations are providing pensions and many of those that do can’t adequately fund them. In addition, the odds are high for unemployment in a turbulent economy, therefore reserve funds are needed. Simultaneously, their assets, such as the value of their house and their 401K, likely have been reduced during the past several years. Yet, reports Ameriprise Financial, only 24 percent have been doing anything to ensure their financial security. A major reason why is that 93 percent continue to support their Millennial children after they are already adults.

That extended financial dependence is happening because Baby Boomers came of age when living standards kept going up. Factory workers in Detroit had not only a single-family house but also a cottage up north. Things got even better with the longest bull run in the stock market from 1982 until 2000. No surprise, Baby Boomers became used to spending how much they wanted, for what they wanted, and when they wanted. A priority in their spending has been their own children. That has taken the form of being the first generation in America to take on the responsibility of seeing to it that their children go to college and that they help pay for it. Currently, 71 percent are signing for thousands of dollars in student loans for their children.

Often Baby Boomers do this without shopping around for the most favorable terms and conditions, including interest rates. And that in itself eventually could lead to insolvency. For example, those “parent” loans called “Plus” have an origination fee of about 4 percent and charge 7.9 percent interest, which commences as soon as it is signed. Some parents could be paying nearly $1,000 monthly for many years, and if they default, their Social Security check will be docked. For some, Social Security will be their only income.

Had they investigated, they might have opted instead for a lower-interest equity line of credit, which is tax-deductible. Or, a much more financially self-protective initiative, for both themselves and their children, would have been to enlighten their offspring on how the expense of a college degree is primarily a financial problem that has many possible solutions.

For example, the cost could be downsized through first attending a community college and then transferring to a state school. Moreover, that total would be manageable through loans the children themselves sign, with federally subsidized ones at about 3.4 percent interest and unsubsidized ones at 6.8 percent interest. Another approach would be to apply the return on investment (ROI) model for enrolling in College X, with graduates in the humanities or math earning so many dollars for the first 10 years. The issue then becomes which college provides the best ROI.

The college cost, of course, is just one small piece of how Baby Boomers can be creating financial literacy among their children. There should be frequent lessons on that, ranging from what smartphone family plan is the best deal to the difference between good and bad debt. A teaching tool could be online banking for their children. Together Baby Boomers and Millennials could track what comes in and what goes out, analyze patterns, and then do course correction.

If the goal of financial literacy is achieved, then Millennial children likely will be taking more entry-level paid jobs with benefits in fast-food restaurants and big-box retail instead of chasing serial unpaid internships which don’t seem to be leading to any of those glamour jobs. In time, those college graduates who didn’t overpay for their degree would be downsizing their own student and car loans, maintaining bank checking and savings accounts, and contributing to the company retirement plan. Also, they would gain knowledge of the organization’s systems, which could lead to internal promotions and be leveraged to jobs elsewhere.

Financial literacy really represents a grown-up perspective about the value of money, how that money gets earned, and how it turns into wealth. This, not a college education per se, could be the best legacy Baby Boomers can give to their children. And it doesn’t cost a dime, only time.

Photo credit: Dave Traynor / Foter / CC BY-NC-ND