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10 • Understanding Financial Literacy
the Federal Trade Commission and Internet Crime Complaint Center.
ANALYSIS QUESTION
Think about your account passwords and your habits related to your identity security. Identify mistakes you
have made in the past with your security. What can you start doing today to protect yourself from identity
theft or financial fraud?
ACTIVITY
Credit Report Review
Using the sample credit reports below, write an analysis of the person’s credit and how they are managing
and using debt. Go through the factors that affect credit, and determine how this person is doing with each
factor. What in the report is beneficial, and what is harmful? Carefully review each page for accuracy. Pay
particular attention to the personal information, negative credit, and any notes about the person or their
credit activity.
Access for free at openstax.org
10.6 • Defending against Attack: Securing Your Identity and Accounts
Figure 10.12 A sample credit report. (Credit: Based on information from Experian (https://openstax.org/l/experianreport).)
Creating Strong Alliances: Getting Help and Avoiding Scams
As a college student, you are a prime target for predatory practices designed to make the
adviser or company rich at your expense.
As you’ve read through this chapter, it may have dawned on you that this personal finance stuff is a lot more
complicated than it seems. There are people who have devoted their entire educations and careers to
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10 • Understanding Financial Literacy
mastering single areas of personal finance, such as taxes, investing, and estate planning. When you feel it’s
time to get professional help, there are many qualified professionals who can assist you. Not everyone who
calls themselves a financial adviser is actually looking out for your best interest, however.
The terms financial adviser, financial planner, wealth manager, and many other impressive-sounding job titles
are not regulated by the government. Anyone can put these job titles on their business cards. You need to be
able to differentiate between a qualified professional and those who are untrained product salespeople,
predatory financial businesses, or outright scams.
Predatory Practices Aimed at College Students
As a college student, you are a prime target for predatory practices designed to make the adviser or company
rich at your expense.
Annuities and Life Insurance
Annuities and life insurance products are often aggressively sold to college students. They are generally
inappropriate for college students and even most college graduates because they have high fees and lower
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returns than many other investment options, and the benefits are rarely needed by young people.
Investment Schemes
Regulators identify specialized investments, such as promissory notes, real estate, oil and gas, and gold, as a
major threat to investors. Investing systems, including stock picking and buying or selling strategies, are also a
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concern. Academic research has continually disproven these strategies.
If someone is pitching you on their special system or secret strategy, be extremely skeptical. Legitimate
investments are regulated by government agencies and are therefore never a secret.
Scam or
Scheme
“Cash Value”
Life Insurance
Often sold as
“7702 Plans”
Investment
Schemes
Characteristics or Promises
Issues and Reasons to Avoid
Cash value life insurance and similar
programs promise that a certain
amount of the insurance premiums
are set aside as a fund that can be
used for expenditures such as college.
If they are ever paid out, the consumer must
pay taxes and may also pay fees up to 50
percent, losing much of the built-up value.
These highly optimistic “sure thing” /
“can’t miss” opportunities are
specifically geared toward quick
rewards or paying for college. They are
often specialized investments such as
real estate, gold, or oil.
Sellers often rely on students’ lack of
resources and experience to prevent them
from thoroughly investigating the
opportunity or properly evaluating the
contract terms.
Table 10.11
25 North American Securities Administrators Association. Top Investor Threats. ttp://www.nasaa.org/top-investor-threats /