Covering Personal Finance: An IntroductionOctober 7, 2020
By Dorianne Perrucci
Jane Bryant Quinn thought for a moment before answering my question.
“Exactly what is personal finance?”
Quinn was the journalist whose Washington Post column on personal finance launched the beat and brought Wall Street to Main Street to hundreds of thousands of U.S. readers for more than three decades.
Personal finance is saving, managing, and investing your money, Quinn replied, but money isn’t one topic: “It’s three dozen or more topics—and there are multiple topics within those topics,” she said, pointing to the rows of metal filing cabinets in her home office. She pulled out a file in one of those drawers. “ Take insurance, for example,’ she said,” using the fingers on one hand as she began ticking off a few of the types: auto, home, life, health, business. But she needed both hands—twice—to sum up the files on investing, which filled several of those imposing cabinets: annuities (deferred, equity-indexed, fixed-rate, immediate-pay, inherited, junk, life); bonds (taxable, tax-free, municipal, Treasury, short- and long-term, junk); and stocks (individual stocks, mutual funds, and her personal investing choice: index funds).
When I reported for Quinn from 1998 to 2001, financial technology was still in its infancy. Today, online banking, e-commerce websites, retail brokerages, Exchange-Traded Funds (ETFs), and mobile trading “apps” to buy and sell investments have changed and, in some ways, improved, the personal finance habits and behavior of investors and consumers. But these and other changes also have made financial life more complicated for investors and consumers.
That is your challenge, too, as you think about how to explain the information that flows at warp speed through this ever-changing and fluid beat. I would like to pass along advice I heard from Quinn that day. “You’ll need three years to master this beat,” she said. Her words still echo in my ear, which may explain why I am still writing about personal finance after more than two decades.
You will never be bored covering personal finance, so immerse yourself in the following information, and start building your file. I intended to start with the challenges of reporting personal finance today, but that was before COVID-19 began spreading and triggered a financial pandemic that may have a longer lasting impact than the Great Recession of 2008. So, we will start there:
Changes That Will Shape Personal Finance Coverage in 2021 and Beyond
In recent years, technological and other changes will continue to expand personal finance coverage, but we will start with the one that nobody saw coming:
COVID-19. In 2020, the global impact of the coronavirus pandemic shook the four pillars of family finance in U.S. households: income, spending, saving, and investing. For a fortunate few who were laid off, or furloughed from good jobs they expect to return to, the extra $600 a week in unemployment benefits, along with spending less on commuting and eating out, was a boost that they contributed to emergency or retirement savings.
For many others, however, it was a disaster of unmitigated proportions that will not become “old news” anytime soon.
Record numbers of low- and moderate-income workers who work in mainstay occupations lost their jobs, or had their hours reduced. The temporary workers who fill so many of the mainstay American jobs the rest of us do not want to do were severely disadvantaged.
But especially hard hit are Millennials, those young Americans from 24 to 39 years old. According to the Federal Reserve Bank of St. Louis, 4.8 million of them have lost work since COVID-19 triggered a recession, and many now have had their finances and career tracks wiped out twice in the years since the Great Recession of 2008. As a result, they are now behind the previous two generations of GenXers, and Baby Boomers.
Like the last recession, the current health crisis may motivate some of your readers to change their financial habits and behavior as they downsize budgets, build emergency savings, and invest in their 401(k) and 403(b) plans. Others, however, need actionable and immediate advice on how they can feed their families, keep their homes, and find good jobs. Personal finance typically overlooks these marginalized consumers. Please do not overlook them in your reporting.
In addition to COVID-19, the following challenges that have been expanding personal finance coverage in recent years will be familiar to you:
Financial Technology. Occasionally, you will see a customer standing at the grocery checkout or store counter writing out a check by hand, but that is a rare sight these days. In just a few years, technology has ushered different ways to pay bills, and to get paid: online deposits and bill pay, debit cards, cash advances on a credit cards, PayPal, and a host of apps. Increasingly, many of your younger readers pay their bills, save, and invest money, and shop and track their expenses with an app on their ever-present smartphone.
Digital Shopping. Brick-and-mortar stores will still exist, but e-commerce stores and websites—led by Amazon, AliExpress, and eBay—have exploded over the last decade and changed how consumers shop for gifts and buy everything from automobiles to lawnmowers to wireless routers.
Online Security. In 2005, there were 157 data breaches in the U.S.; by the end of 2019, that number has increased to 1,473 and hackers had compromised the records of nearly 165 million Americans. This personal finance trend hit the screen in 2017, when Equifax, one of the three credit reporting agencies, exposed the private information of 147 million Americans.
Personal Finance Bloggers. An increasing number of financial experts make their advice and information available online, and your readers are listening. These financial “experts” are bloggers who have learned hard lessons from their personal finance mistakes and are happy to share actionable information—the hallmark of personal finance reporting—with their online visitors.
No doubt there will be more changes to add with the next update of Beat Basics.
Personal Finance: A few of the Challenges Today
You’ll always write about the basics (budgeting, saving, and managing debt), but today these topics have expanded to “topics with topics”: the persistent lack of emergency savings among Americans; the retirement savings shortfall; and the increasing credit card and student loan debt that adds to the financial burden of many U.S. households.
What strategies will equip you to tackle these challenges?
Dave Kansas read every book on investing he could, which may explain why he edited The Wall Street Journal’s “Money & Investing” section in his twenties and the founded the digital-only site TheStreet.com. You may be fortunate to get hired to cover a beat within the personal finance universe when you start reporting—investing, credit cards, taxes, retirement, family finance, real estate, jobs—but likely, you will have to cover it all. But you can profit from Kansas’s example by reading the collective wisdom offered by personal finance experts. Later in your career, if you want to pursue this beat long-term, start thinking about the one topic that compels you and add that to your reading list, too. I have written a lot about retirement on businessjournalism.org, and obsessively read all the books I can on that topics.
So that is my message here: read and study. To get a basic grasp of financial terms, I read Investopedia, which offers detailed explanations that are an education to read. (Please avoid Wikipedia.) Every day, I read The Wall Street Journal and The New York Times, and every month, Kiplinger’s Personal Finance and AARP’s newsletter and magazine. I also check out a number of websites (MarketWatch is a must-read, followed by CNBC and TheStreet, for their Wall Street coverage) and blogs that have maintained, or are gaining, traction.
When I can, I also swipe my brother-in-law’s copy of The New York Post, for the sheer joy of reading its direct “in-your-face” style and solid business coverage. Read your competition, and study how they approach stories. Look at this year’s list of award-winners listed on the website of the Society for Advancing Business Editing & Writing (SABEW) and follow a few. Finally, if you can make the time, take a few classes at your community college, which will also introduce you to financial professionals, and a few of your readers, too.
Check the Facts
With the rise of “fake news” fueled by social media, this journalistic basic has become all the more important. A fact ain’t necessarily so, just because the Internet says so. Find a second source to confirm what you read online; more, if the comments posted on a particular topic all agree. And don’t limit your research to the Internet. Begin building primary source material from the government agencies and private companies that are part of the personal finance beat.
Find New and/or Local Angles
When I reported for Editor & Publisher, the editor studied the ads published on the pages of several newspapers a day. Another prize-winning business reporter I know studied the envelope stuffers that credit card companies began to send to cardholders. At times, the day’s headlines will give you a hook, and at other times, you will have to dig—but isn’t that what reporting is? Get to know your readers and their concerns. If you have a sizable number who are raising young families, or are near, or in, retirement, that should generate a steady stream of angles.
Explain the Numbers
If you do not understand the numbers in a story, your readers surely will not. If you are math-challenged like me, you will have to ask a friend, or a financial professional, to explain things to you. It is not a bad thing to struggle like many of your readers; in fact, I think it helps you empathize with them. Humility also provides a nice slap in the face, to rectify any “expert-speak” that may creep into your reporting.
Connect With Your Readers
Before the Internet, that meant getting out of the office and meeting readers face to face. Today, of course, you can do that online, and you should build followers through your news organization’s social media channels. But, in addition, visit the local investment club, or attend a meeting at a local church or library focused on saving and investing. Meeting face-to-face is a proven way to build sources and achieve the ultimate journalistic goal: trust. Tap departments in your news organization (the marketing, advertising, and subscription departments) that collect analytics about your newspaper or site’s readers.
Put a Face on Your Beat
That means meeting local financial planners, CPAs (Certified Public Accountants), brokers, consumer experts, and senior advocates. Also: attorneys specializing in representing consumers and investors; those in your local police department and the district attorney’s office who protect consumers; those at the state level responsible for regulating investments; and the Consumer Affairs Office of your state’s Attorney General. Do not forget nationally recognized experts, whose voices add weight to your local stories.
Skip the Jargon
You need to master the information and understand the concepts; that means talking to financial experts—but do not write like them, for gosh sakes. I co-authored Asset Allocation For Dummies with a prominent wealth manager. Our task is to make the information on how to allocate, or “divvy up,” your investments to minimize risk clear, I said. “Oh, you want to ‘dummy down’ the language,” he replied. “No, I just want readers to understand the concept so they can use it to their benefit,” I replied. Understanding complex financial concepts clearly is hardly “dummying down” information. Your job is to make such information clear, and not confusing, so that the average investor and consumer can apply that information, along with advice from financial experts, to their particular financial situation. That leads to the next point:
It’s Not Your Job to Provide Financial Advice
This is a tricky point, because readers searching for answers to their personal finance questions will read what you report. In a story on credit scores, for example, you’ll clarify the information on why credit scores are important, the factors that can affect credit scores, and how readers can check and improve their scores, and a financial professional or two will weigh in with their advice. But giving advice is not your job: Your job is to clarify the information so readers can make their own decisions.
It’s Not Your Job to Promote Financial Products
Explain them, yes; promote them, absolutely not. The line between news and marketing has blurred in the news business. You may get a tip on an upcoming product from the sales or advertising staff, but be careful that you do not cross the line. That is what ‘advertorials’ are for—not the business news pages.
Personal Finance: Glossary of Terms and Concepts
Like your files, your glossary of personal finance terms and concepts will keep expanding. New to this list in 2020 are: data breaches, identity theft, online brokerages, retail trading, and trading apps; by the time you read 2030’s update of Beat Basics, there will be others to add.
If we have overlooked a term, please notify us, so that we can add it to this list.
Terms You Should Know
Adjusted Gross Income
AGI is a measure of income used to determine your taxable income. It is calculated as your gross income minus deductions, such as unreimbursed business expenses, medical expenses, and deductible retirement plan contributions.
Annual Percentage Rate
APR tells you the annual cost of a loan and is stated as a percentage. The APR consists of the base interest rate and loan fees and costs. With credit cards, the APR is charged on credit card balances each month that there is an outstanding balance.
An annuity is a contract between you and an insurance company designed to meet retirement and other long-range goals. You make a lump-sum payment or series of payments to the insurance company. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.
In a fixed annuity, the insurance company pays you a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
In a variable annuity, you typically invest your purchase payments in mutual funds. The rate of return and the amount the insurance company pays you will vary depending on the performance of the investment options you have selected.
Asset allocation is determining how to divvy up your money among various investments, such as stocks, bonds, or cash.
Once you determine what asset classes you want in your investment portfolio, you then determine how to mix those in the right proportions so you can reach your investment goals at the level of risk you’re comfortable with.
Bond prices and interest rates
Bonds are extremely sensitive to interest rates, so bond prices move inversely to interest rates. This means that when interest rates rise, bond prices fall. Conversely, when rates fall, bond prices rise. Many readers do not understand this concept, so it is important that you are able to explain it to them.
When interest rates rise, it depresses the prices of previously issued bonds because their interest rates are fixed. So, if you have a bond that is paying 6 percent interest and market rates rise to 8 percent, the only way you could sell your bond is to lower its price. If rates fall to 3 percent, your bond that’s paying 6 percent interest will be more valuable to investors and you could sell that bond at a premium over its face value because the 6 percent rate would be higher than the market rate.
This does not affect investors who hold a bond until it matures, because the value of the bond does not change because interest rates fluctuate; they still get back the full principal back at maturity. Those who buy and sell bonds must pay close attention to interest rates.
The profit you get from selling a stock over your original purchase price.
The loss you incur from selling a stock from your original purchase price.
The basis is the purchase price of an investment, including commissions and other expenses. The basis is also adjusted for stock splits, dividends and return of capital distributions. The basis is a critical figure because it is used to determine capital gains and losses for income tax.
Credit bureau: Also called a “credit reporting agency,” a credit bureau is a company that collects and sells information about a person’s creditworthiness. The three major credit bureaus are Experian, TransUnion, and Equifax.
Issued by a credit bureau, a credit report contains information on a person’s payment history, bankruptcies, loans, and recent inquiries to obtain credit. By federal law, consumers are entitled to one free credit report once every 12 months from each of the three credit bureaus. Consumers can get their free credit report by going to www.annualcreditreport.com.
A credit score is a three-digit number that is designed to predict the likelihood of your repaying a loan. The score is based on a snapshot of your credit report at a particular point in time. The most widely used scores are FICO scores. Lenders can buy FICO scores from all three major credit bureaus.
A hacker—an online thief—steals sensitive, proprietary, or confidential information, such as a credit card or Social Security number from a consumer, or a trade or national security secret from a business or government. Data breaches can lead to identity theft. In the first half of 2020, eight of the 10 largest data breaches occurred at medical and health-care facilities.
Discount (or Online) Brokerage
An online brokerage allows individual investors to buy and sell stocks and other investments over the Internet. This increasingly popular type of brokerage lowers costs by eliminating brokers for these investors, who self-manage their own accounts. Unlike traditional brokerages, discount or online brokerages do not provide individual investment advisory services. In 2020, the top-rated online brokerages included: Charles Schwab, Fidelity Investments, Interactive Brokers, tastyworks, and TD Ameritrade.
This reduces the risk in your investment portfolio by including a variety of investments, such as U.S. stocks and stocks from other countries, as well as bonds and cash. The rationale behind this technique is that different types of investments will pose a lower risk than any one investment that you hold. Diversification differs from asset allocation in that in asset allocation, you decide what percentage of your money you want to go to stocks, bonds, and cash.
This is income that a company pays its shareholders and is distributed from a portion of the company’s earnings. It is typically quoted as a dollar amount per share.
Like a mutual fund, an ETF is a “pool” or a collection of stocks, bonds, or other securities that track an underlying market index. Unlike a mutual fund, an ETF is listed on stock exchanges and can trade shares throughout the day, like ordinary stock.
Identity theft (ID) is a growing consumer issue because of the rise of online thieves. This insidious type of online theft occurs when a thief steals personal information, such as a credit card or Social Security number, and applies for credit in the consumer’s name, steals their tax refund, or pays for medical services. ID theft can damage a consumer’s credit status for years and cost them a lot of time and money to resolve.
An index fund is a type of mutual fund or ETF that tracks a financial market index, such as the Standard & Poor’s 500 Index (S&P 500). Instead of buying an individual stock, bond, money market fund, or other asset, the mutual fund investor buys a “slice” of all the companies represented on the underlying index. The low cost and low turnover of these funds makes them a core holding in retirement portfolios.
This type of fund has professional money managers who give small or individual investors access to managed portfolios of stocks, bonds, money market instruments, and other assets.
Also known as the P/E ratio, the term signifies a stock’s current price divided by the earnings per share. It is a widely used tool of stock analysis and gives you an idea of how expensive or cheap a stock is.
Adjusting your investment portfolio to bring it back to your original asset allocation mix. Movements in the stock market can throw your asset allocation out of kilter. For example, if you originally wanted 50 percent stocks and 50 percent bonds in your portfolio, strong performance of your stocks can lift the stock portion of your portfolio to 70 percent. To bring that portion back to 50 percent, you “rebalance” by selling some of your stocks and buying bonds to bring the allocation back to 50/50.
Retail traders buy or sell securities for personal accounts. Do not confuse them with institutional traders, who buy and sell securities for accounts they manage for a group or institution.
An investor’s ability to tolerate declines in the value of his or her investment portfolio.
An expense that is subtracted from your adjusted gross income and reduces your taxable income. An example is the home mortgage interest deduction. A deduction differs from a tax credit, which is a direct dollar-for-dollar reduction of your tax liability. Examples are the child tax credit and Earned Income Tax Credit.
Term life insurance
Term life insurance pays off only if the policyholder dies within a specified time period or “term.” This differs from “whole life insurance,” which provides coverage for your whole life instead of a specified term. A whole life policy also has a savings component called cash value, which builds over time.
The length of time you expect to invest your money before you cash out.
A trading app is a mobile application of a computer program or software application that allows investors to buy and sell stocks, bonds, ETFs, and other types of investments on a mobile device, such as a phone, a tablet, or a watch.
A legal vehicle you set up in estate planning that enables you to transfer legal title to an asset to another party, the trustee, who has the duty to hold and manage the asset for the benefit of a beneficiary or beneficiaries. You can use a trust to pass assets to your children, disabled adults, heirs who are not good at managing money and any others you believe lack management skills and judgment.