JENNIFER WINSTEL: Welcome. I'm Jennifer Winstel, Private Client Advisor for Bank of America Private Bank. Thank you so much for joining us today on a conversation around credit and banking as part of our financial education series. The Private Bank created a Financial Empowerment program that is rich in content designed to address a variety of financial topics including banking and credit, investing, retirement, cybersecurity and protection, and estate planning. The Empowerment program is designed to help educate and empower our families to achieve both their short and long-term financial goals. Most of our clients plan to pass their wealth to the next generation, and half of those feel not very confident that that money will be used responsibly. And, a quarter of inheritors don't feel they have the adequate financial knowledge to be good stewards of their money. We customize this content to address individual and family needs. We are thrilled to kick off our financial education video on banking and credit. I am joined by two of my colleagues, Jennifer Williams, Managing Director and Senior Trust Officer, and Hasan Oberoi, who leads our Better Money Habits and a preferred banking executive. Let's first hear from Jennifer.
JENNIFER WILLIAMS: Thank you so much. It's such a pleasure to be here. I've been using the Financial Empowerment program since we began and it has been an amazing foundational resource for our young adults and the next generation.
JENNIFER WINSTEL: Thank you, Jennifer. I have so enjoyed working with you. And, it's been exciting to see the positive impact we've had on many families. Let's turn it to Hasan. Hasan, can you share a little bit more about how you got started in your role at the bank?
HASAN OBEROI: Thanks, Jennifer. I'm very excited to be here. For the Better Money Habits program, I've been part of that program since its inception. And this program is a financial literacy program where you've got toolkit and resources to help empower anybody who's using that resource to have more control over their finances and make better financial decisions. You asked what got me into it, and I vividly remember my first basketball game in college, and I was inundated with so many vendors, different credit cards that were being offered in shirts and different types of giveaways that I signed up for a card and it was just a downhill thing for me where I ended up getting cards that I really didn't need. But part of that was I really didn't understand how and when to get a credit card. So, that really got me into understanding the importance behind financial education and being an advocate for it.
JENNIFER WINSTEL: Hasan, I had the same experience in college. When I arrived on campus, I was introduced to a variety of credit cards, getting instant credit, and found myself very deep in debt quickly. So, having strong credit is important. So, Jennifer, let me turn to you. One of the frequent questions we receive is, "How do you establish your own credit so you can buy your first car or purchase your first home?" Can you share a little more about that?
JENNIFER WILLIAMS: Absolutely. Yes, really, it starts with the foundation of the goal being not to spend more money than you have coming in. And, in order to establish strong credit, you really need to understand credit, right? So, let's talk about your credit score, which is also known as a FICO score. And, it's really a score, it's a range of numbers that's used by the lenders to determine whether or not a person is creditworthy. And, that credit score determines so much, it determines what kind of rates you might receive, what the terms would be. So, it's really important to understand. So, how is that credit score calculated? Well, a variety of things go into it. For example, how long you've had credit extended to you? What is your payment history? What types of credit do you have extended to you? And so, understanding that score is really going to be able to allow you to have those really good rates to be able to buy the things that you want to buy and have really good terms. It's really great because on the mobile banking app, you can actually see your credit score every time you log in. So, you can really keep track of what that score is so that you can really manage it to the best of your abilities.
JENNIFER WINSTEL: Love it. The goal is not to spend more money than is coming in. So true. So, I was reading a Better Money Habits data that only a third of Gen Z and millennials actually plan a budget. And, of that number, a third actually stick to it. So, Jennifer, can you share how we've worked with clients to help them manage monthly cash flow and budgeting?
JENNIFER WILLIAMS: Absolutely. This is something that we do every single day. Let me give you a quick story to really bring it to life. I was meeting with a family and they had a child who was off at college, and that child was having a lot of trouble not overdrawing their account, and it was having really frequently. So, I met with this child and we talked about what was happening. And, I gave him some tips and tricks. For example, look at your account twice a week. My suggestion is Thursday so that you have an additional business day in case any transfers need to be made. And then, look again on Monday to make sure that all of the transactions that were done over the weekend are yours and there's no fraud issues. And, you can really do this in a variety of ways. And, one of the quick and easy ways is through your mobile banking app. You can set up alerts for anything that you can imagine. Those alerts are completely customized for you, so you can have an alert when money is deposited. You can have alerts for any kind of expenses that you may have, whether it's a dollar amount, a particular vendor. So, it's a really great way for somebody to maybe they're not creating a very formal budget. However, they have the ability and the tools right at their disposal to know approximately what's coming in, what's going out, and making sure that all of those transactions are theirs and that they've made.
HASAN OBEROI: Jennifer, that's such a great example. And, we see that more often than not where there is a low adoption with budget, if there is one. And, usually, it's because there is a lack of knowledge around how to create a budget, how to stick to it. And, it can be intimidating, especially if you're starting off with fewer resources. But, to your point, there's so many different resources out there, especially for our students, and the digital tools that can help you really stay within the guidelines you've set for yourselves. So, for example, with your debit card, you can lock your debit card to avoid making expenditures that you hadn't planned for, so it forces you to go into the app, to unlock it to be able to use it. That's another tip to self-regulate that. If you're out with friends, at the movies or dinner and you're splitting a bill, using things such as electronic transfer so you get the funds if you spent them or you're able to pay them back as well. And then, finally, as you mentioned, you're reviewing your account, being very mindful of protecting your account, your information from fraud, and being mindful of all the cybersecurity risks that are there to ensuring your accounts are protected.
JENNIFER WINSTEL: Hasan, I think these insights are so helpful to all of us, so thank you. Jennifer, turning to you with another question that comes up so frequently. It's, "When does someone use a credit card versus using their debit card? And, how does that affect their overall credit score?"
JENNIFER WILLIAMS: Absolutely. You're right, we talk about this a lot with our clients. And, really, it's important to understand the difference between a credit card and a debit card. Right? So, a debit card is linked to your checking account. So, every time you use it when you're at a merchant and you're making a purchase, those funds are coming directly out of your checking account. With a credit card, those are actually funds that you're borrowing. So, as you use your credit card, you are borrowing money. So, not only are you borrowing money but you're likely earning rewards. And, that can be a really great thing too. So, let me give you another real-life example. I have a client who's getting married this fall and she had saved up money to buy her wedding dress. And, the last time we met with her, she asked me, "How should I pay for this?" And, I said, "Well, let's talk about it." And so, we talked about she was new with her credit history and she had just gotten her first credit card since she was really working on establishing that credit history and really working on her credit score. And so, what she ended up doing was using her credit card. So, she earned the rewards using her credit card. She was showing the lenders that she's able to use the credit that is extended to her and she already had the money saved to be able to pay off that credit card when her statement arrived. So, that was really a win-win for her and the fact that she was able to earn the rewards, and then she's using the credit that's extended to her and then being able to pay it off with no interest.
HASAN OBEROI: That's another great example and a very smart decision on her part, especially for such an important day coming up. Another thing to note, as you were speaking about that is the interest rate on your credit cards. Your credit cards generally have multiple interest rates, and they're dependent on how you conduct the transaction. And, the term you need to pay attention to is APR, annual percentage rate. So, if you're not going to pay off your card each month, you should pay attention to that interest rate, your APR, so that you're able to make payments and avoid accruing too much interest on the expenditures that you've already made.
JENNIFER WINSTEL: Hasan, I completely agree. Can you share a few more highlights on things regarding credit fundamentals?
HASAN OBEROI: Absolutely. Look, credit is really a tool. You can use this debt as a financial tool in your financial tool belt. Here are a couple of things I keep top of mind. Number one, manage your credit card with the utmost importance. We talked a little bit about your credit report and how that works. So, pay attention to it because if you're responsible, you're going to build a very strong credit report. And, credit cards are so much more than just a way to purchase things that borrower build credit. So, for example, you can actually use that to protect your own money. We talked about the debit card earlier, so if you had brought on your debit card, you out those funds until it's investigated and those funds can be brought back versus on a credit card, your lender is going to investigate, get those back, and your money is not at risk. Especially right now with the way fraud is rampant whether you're in a store or online, that can really give you some of that protection. On top of that, debt really is an instrument that's tied to so many major life events. It could be your first car that you're buying, your first house, or just other expenditures that you're making. And, depending on the type of credit that you're taking, you may have potential tax benefits as well. Another thing if you're talking about credit cards, every time you apply for a credit card or any type of credit, it impacts your credit score. And, having too many credit cards is not necessarily a good thing. You must pay the minimum amount each time. So, this is why it's important to look at your statements because that can fluctuate as well. If you pay less than the minimum amount, it impacts your credit as well. And, finally, a big myth out there, you do not need to carry a balance to build credit. If you have the means to pay it off each month, pay it off, that payment history and making those transaction in itself is good to help you build a good credit report.
JENNIFER WINSTEL: Hasan, you mentioned credit cards can protect from fraud. What else can we do to be protecting ourselves?
HASAN OBEROI: Oh, there is so much and the bank has a lot of resources that can help. So, the first most simple thing, do not click on any links that you get from people you do not know or companies that you do not know. And also, if you're getting an e-mail from a bank, pay attention to that to make sure it's not a socially engineered e-mail and truly from your bank. But, remember, financial institutions do not ask you about your bank information, your login information via text or e-mail, and certainly not your password. Always review your statements. If something seems odd, contact your bank or you go to your bank to take a look at that. Set up alerts. That's the best way to see if you have a certain amount set for deposit or debits that will keep you in the loop as well as to some things going on. And again, there's so many different types of scams out there. Go online, read about them, educate yourselves. And, this is one place where usually parents are the one or adults are the ones who teach their kids about financial education. But, here is where children can actually teach adults or their parents about all these digital scams because so much has evolved over the last 10 years, and these fraudsters are really getting smart in how they can get access to your information or your funds.
JENNIFER WILLIAMS: Hasan, I completely agree with you. Financial discussions are not just one direction, they really can go both ways between generations. And, we find that families are a little bit hesitant to talk about those things. But, starting with something like cybersecurity or credit card fraud can really get those conversations started. And, we encourage our families to have those kinds of conversations all the time, not just parent to child, but also grandparent to grandchild. That can really jumpstart the financial education for this next generation who will ultimately be the ones to inherit the wealth.
JENNIFER WINSTEL: Thank you Hasan and Jennifer for joining me in this very informational conversation on credit and banking. Here are a few key takeaways to wrap up today's conversation. Building credit is essential to key purchases such as your first home or purchasing your first car. Protect your information from credit fraud. And, watch your APR on your credit card as it increases your overall credit balance. Remember, financial education is dynamic and changing. Pursue continued learning to give you the tools to manage your financial goals. Most importantly, we are here to assist. Either contact your advisor or one of our teammates for additional information. And, check out the variety of topics in our Financial Empowerment program on our website to continue to drive your knowledge. Thank you again and let's keep the conversations going.
4751845 | 6/24/2023