Nothing works like a recession to spur enthusiasm for financial literacy. In a tough economy, Americans appear more willing to save, pare debts, learn about finances and make other responsible money moves.
With that in mind, here's a look at several common myths on money issues - not an exhaustive list, but a sampling of the misconceptions out there.
Myth: Free credit reports are free.
That isn't always the case. The only place to obtain free reports, under federal law, is at annual creditreport.com. You can get one report every 12 months from each of the three national credit bureaus (Experian, Equifax, and TransUnion). You also can access no-cost reports by calling 1-877-322-8228.
Other sites, such as freecredit report.com, have funny commercials and catchy jingles, but don't offer the same free service. The Federal Trade Commission has received complaints from consumers confused about the various credit-report sites.
• Myth: Annuities are annuities.
These insurance/investment products are many things to many people. Some investors buy them to defer taxes, receive a guaranteed yield, switch tax-free among funds or for other reasons. Yet most annuity buyers don't exercise the right to lock in a yearly income stream for life, presumably because it means giving up control of the account to their insurance company.
This ability to lock in a yearly income stream is a key element that makes annuities different. It's also the literal meaning of the term "annuity." But most annuity buyers don't use annuities in this way.
• Myth: Short-term moves will boost your credit score.
You might be tempted to boost your FICO or other credit scores by closing accounts, applying for new loans or taking other short-term action.
Some moves can help a bit while others can hurt. But the point is that credit scores mainly reflect a long-term ability and willingness to pay bills on time, get and stay current and keep credit balances low. Scores, in other words, measure your money-management skills over time, not over a few weeks or months.
For credit scoring tips, visit myfico.com.
• Myth: The IRS is your e-mail buddy.
Some taxpayers apparently are responding to phishing scams whereby identity thieves posing as Internal Revenue Service agents seek sensitive personal information such as bank-account and Social Security numbers.
The IRS has repeatedly said it doesn't initiate contacts with taxpayers via e-mail, so be wary of any messages you get.
• Myth: Stock portfolios drop to zero.
A particular stock can keep falling until it's worthless. But losses of this magnitude are nearly impossible with diversified portfolios of stocks.
Yet during the depths of the market's retreat earlier this year, how many people talked as if they feared losing everything? Plenty.
Historically, most serious bear markets have ended after peak-to-trough slides of 35 to 55 percent. That's certainly bad enough, but it's a far cry from worthless.
• Myth: You can't qualify for an individual retirement account.
The rules governing IRAs are complex, and it's easy to lose eligibility for one reason or another. For starters, you need earned income to invest in an IRA, which eliminates some people. Also, relatively high income can disqualify you from a Roth IRA, and high income plus retirement coverage at work can prevent you from deducting contributions to a traditional IRA.
But almost anyone, regardless of income, can open a non-deductible IRA. Why would you want to? Because starting in 2010, non-deductible IRAs can be converted to Roths (upon payment of any applicable tax) and thereafter qualify for tax-free withdrawals.
• Myth: You need private mortgage insurance to buy a home.
Whether new buyers must add this insurance depends on the lender and size of the down payment. Usually it can be avoided if you put down 20 percent or more. Hence the wisdom of making large down payments if you can.
Yet only 19 percent of respondents correctly answered a question about PMI requirements in a recent survey by the National Association of Insurance Commissioners.
The quiz points out several misconceptions about insurance.
You can take it at www.insureuonline.org.
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