Credit Card Network vs Issuer: What Is the Difference?

While credit card networks and card issuers both play a role when you use your credit card to make a purchase, they do different things. Credit card networks facilitate transactions between merchants and credit card issuers. Meanwhile, credit card issuers are the ones that provide credit cards to consumers and pay for transactions on the cardholder’s behalf when they use their card.

Where it can get confusing is that some credit card networks are also card issuers. To get a better understanding, keep reading for a closer look at the differences between a credit card network vs. issuer.

What Is a Credit Card Network?

Credit card networks are the party that creates a digital infrastructure that makes it possible for merchants to facilitate transactions between merchants and the credit card issuers — meaning they’re key to how credit cards work. In order to facilitate these transactions, the credit card networks charge the merchants an interchange fee, also known as a swipe fee.

Here’s an example of how this works: Let’s say someone walks into a clothing store and uses their credit card to buy a pair of pants. They swipe or tap their credit card to make the purchase. At this point, the store’s payment system will send the details of this transaction to the cardholder’s credit card network, which then relays the information to the credit card issuer. The credit card issuer decides whether or not to approve the transaction. Finally, the clothing store is alerted as to whether or not the transition was approved.

Essentially, credit card networks make it possible for businesses to accept credit cards as a form of payment, making them integral to what a credit card is. Credit card networks are also responsible for determining where certain credit cards are accepted, as not every merchant may accept all networks.

The Four Major Card Networks

The four major credit card networks that consumers are most likely to come across are:

•   American Express

•   Discover

•   Mastercard

•   Visa

All of these credit card networks have created their own digital infrastructure to facilitate transactions between credit card issuers and merchants. These four credit card networks are so commonly used that generally anywhere in the U.S. it’s possible to find a business that accepts one or more of the payment methods supported by these merchants. When traveling abroad, it’s more common to come across Visa and Mastercard networks.

Two of these popular payment networks — American Express and Discover — are also credit card issuers. However, their offerings as a credit card network are separate from their credit card offerings as an issuer.

Does It Matter Which Card Network You Use?

Which credit card network someone can use depends on the type of credit card they have and whether the credit card network that supports that card is available through the merchant where they want to make a purchase. Most merchants in the U.S. work with all of the major networks who support the most popular credit cards, so it shouldn’t matter too much which credit card network you have when shopping domestically. When traveling abroad, however, it’s important to have cash on hand in case the credit card network options are more limited.

Merchants are the ones who are more likely to be affected by the credit card networks that they use. This is due to the fact that credit card networks determine how much the merchant will pay in fees in order to use their processing system.

Recommended: Charge Cards Advantages and Disadvantages

What Are Credit Card Issuers?

Credit card issuers are the financial institutions that create and manage credit cards. They’re responsible for approving applicants, determining cardholder rewards and fees, and setting credit limits and the APR on a credit card.

Essentially, credit card issuers manage the entire experience of using a credit card. Cardholders work with their credit card issuer when they need to get a new card after losing one, when they have to make their credit card minimum payment, or when they want to check their current card balance.

Credit card issuers can be banks, credit unions, fintech companies, or other types of financial institutions. Some of the biggest credit card issuers in the U.S. are:

•   American Express

•   Bank of America

•   Barclays

•   Capital One

•   Chase

•   Citi

•   Discover

•   Synchrony Bank

•   U.S. Bank

•   Wells Fargo

Credit Card Network vs Issuer: What Is the Difference?

Credit card issuers and credit card payment networks are easy to confuse. The main difference is that credit card networks facilitate payments between merchants and credit card issuers whereas credit card issuers create and manage credit cards for consumers. If you have an issue with your credit card — like in the instance you want to dispute a credit card charge or request a credit card chargeback — it’s the issuer you’d go to.

These are the main differences to be aware of when it comes to credit card networks vs. issuers:

Credit Card Issuer Credit Card Payment Network

•   Creates credit cards

•   Manages credit cards

•   Accepts or declines applicants

•   Sets credit card fees

•   Determines interest rates and credit limits

•   Creates rewards offerings

•   Approves and declines transactions

•   Processes transactions between credit card companies and merchants

•   Creates the digital infrastructure that facilitates these transactions

•   Charges an interchange fee to merchants

•   Determines which credit cards can be used at which merchants

How Credit Card Networks and Issuers Work Together

Credit card networks and issuers need each other to function. Without a credit card network, consumers wouldn’t be able to use their card to shop with any merchants, and the credit card issuer’s product would go unused. Credit card networks create the infrastructure that allows merchants to accept credit cards as payment.

However, it’s up to the credit card issuers to approve or decline the transaction. The credit card issuer is also the one responsible for getting credit cards into consumers’ hands when they’re eligible and old enough to get a credit card, thus creating a need for the credit card networks’ services.

Recommended: When Are Credit Card Payments Due

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Credit cards can be a useful financial tool, but it’s important to understand their ins and outs before swiping — including the difference between a credit card network vs. card issuer. Both are critical to credit card transactions, with the credit card network facilitating the transaction between the issuer and the merchant, and the credit card network approving or denying the transaction.

While the major credit card networks are available at most merchants in the U.S., this may not be the case abroad, which is why it’s important to be aware of when choosing a credit card. This among many other considerations, of course, such as searching for a good APR for a credit card and assessing the fees involved.

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FAQ

What is a credit card network?

A credit card network is the party that creates the necessary infrastructure to process transactions between a credit card issuer and a merchant. Whenever someone makes a purchase with a credit card, it is processed by a credit card network. In return for processing the transaction, the merchant pays the credit card network an interchange fee, which is how the credit card networks make money.

How do I know my credit card issuer?

To find out a credit card’s issuer, simply look at your credit card. There will be a string of numbers on the credit card, and the first six to eight digits represent the Bank Identification Number (BIN) or the Issuer Identification Number (IIN). The Issuer identification number identifies who the credit card issuer is.

Who is the largest credit card issuer?

The four largest credit card networks are American Express, Discover, Mastercard, and Visa. Most merchants in the U.S. work with all four credit card networks. When traveling abroad, it’s more common to come across Visa and Mastercard networks.


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Third-Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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Source: sofi.com

Is Recession Coming? Watch These Signs

recession market scare crash downturn stock business men
By Andrey Burmakin / Shutterstock.com

There’s no time stamp on when recessions pop up, or how long they last. Our last recession was two months long at the onset of the COVID-19 pandemic in 2020, making it the shortest on record.

The one before that was the Great Recession starting in 2007 and lasting 18 months, the longest downturn since World War II.

If the stock market and economy are keeping you on the edge of your seat, you can look for signs of a recession before it hits. That can help you determine whether you should start preparing for a recession, and the act of getting your finances ready for a possible downturn should give you some peace of mind.

An inexact science

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Stock-Asso / Shutterstock.com

Before we dive into the possible warning signs of a recession, it’s worth noting that predicting a recession is not an exact science.

So, while the following warning signs historically have served as indicators that a recession might be on the horizon, that doesn’t mean they are foolproof. The economy is dynamic, and there is no list of indicators that have preceded every past recession.

Still, the following indicators tend to be a good place to start looking if you’re worried about whether a recession lies ahead.

Sign No. 1: The yield curve inverts

Positive yield curve
hafakot / Shutterstock.com

Typically, long-term bonds pay more than short-term bonds, as illustrated above. This makes sense: If you agree to tie up your money for longer periods, you should be paid more for your trouble. This is why a five-year certificate of deposit (CD) pays more than a one-year CD.

Rarely, however, the reverse is true: Long-term bonds start paying less than short-term bonds. When that happens, a recession often follows. In fact, this situation, known as an inverted or negative yield curve, has proven a highly accurate recession predictor.

Why would long-term bonds ever pay less than short-term bonds? The nation’s central bank, the Federal Reserve — or “the Fed” for short — controls short-term rates, but the market controls the rates on longer-term securities.

The Fed can raise short-term rates, which is exactly what they started doing in March 2022, for the first time since 2018. But if investors start thinking things don’t look so good in the economy, they keep their powder dry by buying long-term bonds. The more they buy and bid up the price, the lower the rates on these securities go.

The yield curve did dip into negative territory in late March 2022. It quickly recovered, but it’s worth noting that it was the first time the yield curve turned negative since 2019 and, before that, 2006.

What to watch: You can find Treasury yields on the U.S. Treasury Department’s website. CNBC also tracks in real time the spread, or difference, between the yields on two-year and 10-year Treasurys.

Sign No. 2: The Leading Economic Index slips

Jenga game at risk of slipping
88studio / Shutterstock.com

The Conference Board’s Leading Economic Index (LEI) is one predictor of global economic health. The Conference Board, a nonprofit research group, describes the index as one of “the key elements in an early warning system to signal peaks and troughs in the global business cycle,” with the LEI specifically anticipating turning points in the business cycle.

Monthly dips in the Leading Economic Index aren’t alarming. However, year-over-year drops in the benchmark have been followed by recessions in the past.

The LEI increased by 0.3% from February to March, and by 1.9% over the six months leading up to March, so there’s no reason for concern based on this indicator right now.

What to watch: Keep an eye on Conference Board press releases or media coverage of the index.

Sign No. 3: Interest rates rise

Federal Reserve
Orhan Cam / Shutterstock.com

Government monetary policy can be another economic bellwether. We’ll explain what to watch, but first, a quick refresher on how it works.

The Federal Reserve influences the economy by using a couple of tools. One of those tools is control over short-term interest rates via the target federal funds rate. If the economy is in the doldrums, it can lower the federal funds rate to encourage consumers and businesses to borrow, buy and invest, which stimulates the economy. That’s why this rate was kept near zero for years following the Great Recession that began in December 2007.

On the other hand, if the economy is growing too fast, that can lead to rising prices, otherwise known as inflation. To cool things down, the Fed raises the federal funds rate, which serves to put the brakes on the economy by discouraging both consumers and businesses from borrowing and spending as much.

While interest rates don’t directly affect the stock market, if businesses have to pay more in interest, that hurts their profits, which will ultimately be reflected in a lower stock price.

Also, as rates rise, investors often sell stocks, driving prices lower. Why do they sell? Think about it: If you can earn high interest from insured bank accounts or guaranteed Treasury bonds, why take a chance on stocks?

Again, the Fed resumed raising the federal funds rate in March 2022, marking the first rate hike since 2018. The hike in May — a half-point — was the largest increase since 2000.

What to watch: The Federal Reserve’s Federal Open Market Committee posts statements, which include any votes to change the federal funds rate, after each of its regularly scheduled meetings. The meetings are also widely covered by the financial media.

Sign No. 4: Consumer sentiment falls

Upset shopper at a grocery store
C.Snooprock / Shutterstock.com

Another economic indicator published by the Conference Board, the Consumer Confidence Survey, monitors everything from Americans’ buying intentions and vacation plans to their expectations for inflation, stock prices and interest rates.

After an uptick in March, consumer confidence fell slightly in April. The Consumer Confidence Index was at 107.3 for the month, down from 107.6. During the recession at the beginning of the COVID-19 pandemic, the index was less than 90.

Fluctuation is normal, especially as economic conditions shift. The pandemic, the rising costs of products and the war in Ukraine can change how people feel about the economy from month to month. But if consumer confidence continues to drop, that could be a sign of a looming recession.

What to watch: The Consumer Confidence Survey is updated monthly. Track press releases for it on the Conference Board’s website. The survey is also widely covered in the media.

Sign No. 5: Business confidence cools

Upset businessman holding his head at his computer
Rido / Shutterstock.com

Like consumer confidence, business confidence can shed light on the direction of the economy.

The Conference Board’s Measure of CEO Confidence remained in positive territory — 57 — in the first quarter of 2022. (The board considers measures of more than 50 points as positive, and lower readings as negative.) But this measure marked the third consecutive quarter of decline.

CEOs’ assessment of the current general economic conditions, and their expectations for the near future, also declined.

The outlook of small-business owners isn’t any rosier, according to the National Federation of Independent Business’ Small Business Optimism Index.

In March, inflation overtook labor quality as the top problem among small businesses. In fact, the share of owners raising their average selling prices reached its highest level in the survey’s 48-year history.

Moreover, the share of owners who expect better business conditions over the next six months fell to its lowest level in the survey’s history.

What to watch: Business confidence gauges like the Measure of CEO Confidence and CFO Survey are updated quarterly. The Small Business Optimism Index is updated monthly.

Sign No. 6: Vanguard’s risk forecast worsens

Vangaurd
Casimiro PT / Shutterstock.com

Vanguard is one of the biggest asset management firms in the world, so its economic outlooks can help paint a picture of how to monitor fluctuation in the economy.

Before the recession that started in late 2007, Vanguard’s six-month forecast had said the probability of a recession in six months was greater than 40%, according to The New York Times.

The firm’s forecast for 2022 — subtitled “Striking a better balance” — was overall optimistic, if cautiously so:

“While the economic recovery is expected to continue through 2022, the easy gains in growth from rebounding activity are behind us. We expect growth in both the U.S. and the euro area to slow down to 4% in 2022.”

In March, however, Vanguard downgraded its 2022 estimated growth for the U.S. from 4% to 3.5% — which is where it remained going into May.

What to watch: Vanguard posts its monthly market perspectives on its “Our Insights” webpage and issues press releases about its annual outlooks.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

How Much Does It Cost to Adopt a Child?

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Adoption is a life-changing journey. Whether the choice to adopt comes after years of expensive infertility treatments or is a route you’ve always wanted to take, the choice to welcome a new family member is rarely a financial one, but rather a decision of the heart.

But at some point, prospective adoptive parents have to consider the costs. It’s unlikely your decision to adopt will boil down to numbers. But it helps to know what to expect. 

The figures can vary depending on your adoption journey, from almost nothing to upward of $70,000. But you can use them as a baseline to help you financially prepare for starting a family and to make an informed decision about which type of adoption makes the most sense for you.


How Much Does It Cost to Adopt a Child?

There are three basic types of adoption: domestic infant adoption (sometimes called private adoption), international adoption, and public adoption. 


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But if you’re looking to adopt a baby, private and international adoption are the only two real options. Because of the way the foster care system operates, it’s exceedingly rare to be able to adopt an infant through public adoption. Their primary goal is reunifying families whenever possible, which can take years.     

But regardless of your adopted child’s age, some costs are common to all three, such as the expense of a home study, which involves visits by a social worker and background and financial checks. Other costs are unique to the adoption route you choose, such as the travel expenses involved with international adoption.

And the costs vary wildly, so it’s crucial you understand the ins and outs of each adoption type.


Domestic Infant Adoption

When adopting a baby in the United States, you have two options: adopting through an agency or independent adoption.

Costs of Adopting an Infant Through an Agency: $25,000 – $70,000 

Adopting through an agency is more expensive, but there’s also a higher success rate. Also, some agencies offer a sliding scale for those who need help affording adoption, which can potentially save you a few thousand dollars, depending on your income. However, each state has its own laws that regulate adoption fees, including sliding scale fee structures. 

Average Costs of Domestic Agency Adoption

Agency Fees $15,000 – $45,000
Legal Fees $2,500 – $6,000
Birth Mother Expenses $4,000 – $16,250
Home Study Fee $2,750

Adoption agencies are typically full-service operations. Thus, their fees generally include everything involved in the adoption process, which can be complex. The journey to bring a child home involves many parties, including attorneys, social workers, physicians, counselors, government administrators, and adoption specialists. 

There are also costs associated with matching birth parents and adoptive parents. For example, there are advertising expenses to find expectant mothers. And then there are medical expenses and court costs to ensure the health of the mother and child during pregnancy as well as the safety and security of the child after placement.

When you adopt through an agency, it typically completes the entire process from beginning to end, hence the expense. 

Adoption agencies that charge more include more services. For example, if you find an agency with fees at the lower end, it’s likely because their fee doesn’t include the costs of hiring an attorney, unlimited advertising for birth parents, certain birth mother expenses, or adoption disruption insurance (a guarantee you won’t lose your money if the birth mother changes her mind).

So always ask for a written, line-by-line breakdown of the agency’s costs to see what services its rate covers before signing with it. 

Costs of an Independent Adoption With an Attorney Only:  $10,000 – $40,000

If agency adoption is too expensive but you’d still like to adopt a newborn, you can save a lot of money by hiring an attorney to facilitate an independent adoption. Independent adoption happens when prospective parents locate a birth parent on their own and use an attorney to process the necessary paperwork.

Average Costs of Independent (Attorney) Adoption

Legal Fees $3,000 – $6,000
Advertising Fees $0 – $1,000
Birth Mother Expenses $6,000 – $30,000
Home Study Fee $1,000 – $4,000

The cost of an independent adoption can range from $10,000 to $40,000, though it could go higher based on your circumstances. The final bill depends on how much you need to spend to find an expectant mother and how much you pay for medical and living expenses, which may be regulated by state law. 

Further, adopting independently is a bit like trying to sell a house without a realtor. You must find a birth mom on your own, which means advertising for and vetting birth moms without help. 

So, while it can be cheaper, you still have to go it alone. And if you have trouble finding a birth mother, your costs can quickly add up. Agencies give a flat rate no matter how much advertising it takes. If you have trouble finding someone, you could quickly blow past the $40,000 mark.

Another reason independent adoption costs can vary more widely than those through a private agency is because in most states, adoptive parents won’t have their costs reimbursed if a birth mother changes her mind, what’s commonly called a disrupted adoption. Most adoption agencies build disruption insurance into their fee structures. 


International Adoption: $26,500 – $73,000

Those unfamiliar with the adoption process often believe it’s less expensive to adopt a child from another country. But the reverse is more often true. 

Average Costs of International Adoption

Agency Fees $15,000 – $30,000
Legal Fees $500 – $6,000
Immigration Application Fee $1,000 – $2,000
Dossier Preparation and Clearance $1,000 – 2,000
Home Study Fee $1,000 – $4,000
In-Country Adoption Expenses $2,000 – $10,000
Travel Expenses $5,000 – $15,000
Child’s Passport, Visa, Medical Exam $1,000 – $4,000

The cost of an international adoption can range from just over $20,000 to more than $70,000. The wide variance is due to the different requirements of each country. 

International adoption (also called intercountry adoption) has some similarities to domestic adoption. But it has its own unique steps and expenses that can quickly escalate beyond the cost of domestic adoption.

The costs of international adoptions can include immigration processing and court costs (both in the foreign country and the U.S.), travel expenses, foreign and domestic legal fees, foreign agency fees, passport and visa fees, medical examinations, and in-country adoptions expenses (such as foster care for the child, donations to the orphanage, and payments for the in-country adoption liaisons).

The costs also depend on whether a government or private agency, orphanage, nonprofit organization, attorney, or a combination of entities is managing the adoption. 

Additionally, some international adoptions are finalized in the child’s country of origin, while others must be finalized in the U.S., depending on the laws of your state, further adding to the total cost. And depending on the country’s regulations, you may have to plan an extended stay, which means time off work and (potentially) lost wages.


Public Adoption: $0 – $2,500

The least expensive route to growing your family is unquestionably public adoption, or adopting through the foster care system. It’s very difficult to adopt a baby, though. So this option is best for those who wish to adopt an older child.

Public adoption costs next to nothing because the government subsidizes many associated fees and expenses. 

Average Costs of Public Adoption

Agency Fees Usually $0
Legal Fees $0 – $2,000
Home Study Fee $0 – $500

Federal and state financial adoption assistance programs exist to encourage the adoption of children with special needs that make them difficult to place, such as older children, sibling groups, or those with physical or mental disabilities. 

Thus, most prospective parents who are adopting through public agencies will find their state is often willing to waive most or all of the fees associated with adopting through the foster care system, including both the home study fee and attorney fees. 

Additionally, if you become a foster parent and apply to foster-to-adopt, the government subsidizes some of your future adopted child’s living expenses while you await finalization. 

But if you have your heart set on adopting a newborn, foster care adoption isn’t the route for you. It’s nearly impossible to adopt an infant that way. 

Some babies in the foster care system were abandoned by their biological parents or taken by the state due to abuse, neglect, or drug addiction. But no child in the system — infant or otherwise — is immediately available for adoption. 

The state’s No. 1 priority is to reunite children with their biological families. That includes extensive sessions with counselors and social workers. If that effort ultimately proves unsuccessful, the state next tries to place the child with a biological relative. 

Only after these efforts — which could take several years — are children placed for adoption. Thus, by the time babies in foster care become eligible for adoption, they’re no longer babies. But if they were placed with a foster family, that family gets the first chance at adoption. 
However, if you’re interested in adopting an older child and are prepared to help them work through the trauma, the rewards can be immense. My parents adopted my little brother from foster care at the age of 6, and his presence has enriched our family in myriad ways.

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Factors That Influence Adoption Costs

Every adoption is unique, and though adoption agencies typically try to work within your budget, unforeseen costs can occasionally raise the base projected cost. And that can have a significant impact on your overall family budget.


Birth Mother Expenses

Depending on your state’s adoption laws, a birth mother may be eligible for coverage of certain expenses. You may have to pay medical expenses related to the pregnancy, including insurance coverage if she’s not already covered or eligible for Medicaid.

If you work with an agency, they should take care of helping her find coverage. But you may still be responsible for some medical expenses, such as doctor copays. Once you’re matched with a birth mother, her medical expenses become your medical expenses. 

Adoption agencies typically work these into their overall fee structure but allow for variances that could affect your cost. For example, you may pay more or less depending on what stage of pregnancy the mother’s in when the agency matches you. If you’re matched in the ninth month, there will be fewer expenses.

And if you’re adopting independently, some or all of the medical costs the birth mother incurs as a result of the pregnancy may be your responsibility as defined by the laws of your state. Consult with an adoption lawyer for more information.  

Additionally, in some states, you may need to cover other birth mother expenses. Birth mother expenses are court-approved funds adoptive families provide to help prospective birth mothers with pregnancy-related expenses. In addition to medical care, costs could include living expenses like maternity clothing, groceries, rent, and transportation. 

Some states that allow birth mothers to request living expenses cap the total amount. For example, Ohio caps the amount birth mothers can be reimbursed for living expenses at $3,000 and Connecticut at $1,500. Other states have no cap but permit a judge to set one on an individual basis. 

Thus, these expenses can vary widely from one adoption to another.


Advertising

The longer you have to wait for a birth mother match, the more money an agency must pay toward advertising to find you one. Ask the adoption agency how they deal with this variable cost. Some charge one flat fee regardless of the amount of advertising required; others set a variable cost.

And if you’re doing an independent adoption, you’ll be covering this expense on your own. If you don’t already know a birth mother to adopt from, you’ll need to find one. That means drawing on your personal connections, using social networks or community organizations, utilizing adoptive family websites, posting print ads, or seeking referrals from adoption attorneys. 

It could take a long time to find a birth mother if you don’t have extensive networking options. And that can substantially drive up your adoption costs. Depending on how long it takes you to find someone, fees for print and online advertising can range from several hundred dollars to tens of thousands. 


Attorney Fees

Lawyers are necessary for dealing with the legal aspects of any adoption. These include the original consent to adoption and termination of parental rights as well as the court proceedings to finalize the arrangement. 

However, the fees can vary considerably based on the type of adoption you opt for. Attorney fees can also vary depending on other factors, including:

  • The Complexity of the Case. Will they need to represent you multiple times in court? All adoptions must eventually be finalized before a judge. But some adoptions — such as international adoptions or those in which birth mother expenses must be court-ordered — could require more paperwork or court appearances than others.
  • The Number of Hours the Attorney Works on the Case. Lawyers charge by the hour. Even if you don’t have to appear in court more than once, adoption can involve a lot of paperwork.
  • The Number of Additional Attorneys or Support Staff Needed. Depending on the complexity of your case or who you hire, you may be represented by a law firm rather than a single attorney. Additionally, your lawyer may use a support team to fulfill basic tasks like clerical work.

Depending on your case, rates are often negotiable. And while attorneys often charge by the hour, many offer a flat fee for certain types of cases. 

For example, a family law attorney might charge a flat fee for a straightforward adoption case that requires a simple filing of paperwork and one court appearance. But they might charge by the hour for a more complex case, such as an international adoption.

Regardless, most lawyers offer payment options so clients can find an arrangement that works for their budget. And all lawyers have fee agreements informing clients of costs upfront. So ensure you thoroughly read the agreement beforehand. 


Time Off

Unfortunately, in the U.S., paid parental leave isn’t guaranteed by law, and many workplaces don’t have this benefit. Even when they do, it may not apply to adoptive parents. So check with your human resources department about whether your workplace offers adoption benefits. 

Whether your employer offers paid time off, all adoptive parents are entitled to up to 12 weeks (three months) of leave through the Family Medical Leave Act. The act equally guarantees maternity and paternity leave for biological and adoptive parents.

But it only guarantees your job and health insurance. It doesn’t guarantee paid time off. If your company doesn’t provide paid parental leave, you need to plan for lost wages.


Final Word

The costs of adoption may feel formidable, especially if you have your heart set on adopting an infant through domestic or international adoption. But they don’t have to be insurmountable.

Many resources are available to help families afford to adopt, including options for post-placement reimbursement, like the adoption tax credit. Talk with adoption professionals to explore your options before completely ruling it out. 

Also, talk with other families who’ve adopted. Many are happy to share stories of how they were able to afford adoption, especially if it helps others fulfill their dreams of a family.

.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-content-wrappadding:30px 30px 30px 30px;background-color:#f9fafa;border-color:#cacaca;border-width:1px 1px 1px 1px;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-contents-titlefont-size:14px;line-height:18px;letter-spacing:0.06px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;text-transform:uppercase;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-content-wrap .kb-table-of-content-listcolor:#001c29;font-size:14px;line-height:21px;letter-spacing:0.01px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-content-wrap .kb-table-of-content-list .kb-table-of-contents__entry:hovercolor:#16928d;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-content-list limargin-bottom:7px;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-table-of-content-list li .kb-table-of-contents-list-submargin-top:7px;.kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_0d0fb5-39 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:beforebackground-color:#f9fafa;

GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Sarah Graves, Ph.D. is a freelance writer specializing in personal finance, parenting, education, and creative entrepreneurship. She’s also a college instructor of English and humanities. When not busy writing or teaching her students the proper use of a semicolon, you can find her hanging out with her awesome husband and adorable son watching way too many superhero movies.

Source: moneycrashers.com

What Is Inflation (Definition) – Causes & Effects of Rate on Prices & Interest

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Additional Resources

People have always grumbled that a dollar doesn’t go as far as it used to. But these days, that complaint is truer than ever. No matter where you go — the gas station, the grocery store, the movies — prices are higher than they were just a month or two ago.

What we’re seeing is the return of a familiar economic foe: inflation. Many Americans alive today have never seen price increases like these before. For the past three decades, inflation has never been above 4% per year. But as of March 2022, it’s at 8.5%, a level not seen since 1981.

Modest inflation, like what we had up through 2020, is normal and even healthy for an economy. But the rate of inflation we’re seeing now is neither normal nor healthy. It does more than just raise the cost of living. It can have a serious impact on the economy as a whole. 

Recent inflation-related news:


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  • In March 2022, the U.S. inflation rate hit a 40-year high of 8.5%. 
  • Prices for gasoline have increased nearly 50% over the past year.
  • Retail giant Amazon has added a 5% fuel and inflation surcharge for sellers.
  • The Federal Reserve is planning a series of interest rate hikes to cool the overheated economy.

What Is Inflation?

Inflation is more than just rising prices. Prices of specific things we buy, from a gallon of milk to a year of college tuition, rise and fall all the time. These price increases affect individual consumers’ lives, but they don’t have a big impact on the entire economy.

Inflation is a general increase in the prices of goods and services across the board. It drives up prices for everything you buy, from a haircut to a gallon of gas. Or, to put it another way, the purchasing power of every dollar in your pocket declines.

Most of the time, inflation doesn’t disrupt people’s lives too much, because prices rise for labor as well. If your household spending increases by 5% but your paycheck increases by 5% at the same time, you’re no worse off than before.

But when prices rise sharply, wages can’t always keep up. That makes it harder for consumers to make ends meet. It also drives them to change their spending behaviors in ways that often make the problem worse.


Causes of Inflation

Inflation depends on the twin forces of supply and demand. Supply is the amount of a particular good or service that’s available. Demand is the amount of that particular good or service that people want to buy. More demand drives prices up, while more supply drives them down. 

To see why, suppose you have 10 loaves of bread to sell. You have 10 buyers who want bread and are willing to pay $1 per loaf. So you can sell all 10 loaves at $1 each.

But if 10 more buyers suddenly enter the market, they will have to compete for your bread. To make sure they get some, they might be willing to pay as much as $2 per loaf. The higher demand has pushed the price up.

By contrast, if another seller shows up with 10 loaves of bread, the two of you will be competing for buyers. To sell your bread, you might have to lower the price to as little as $0.50 per loaf. The higher supply has pushed prices down.

Inflation results from demand outstripping supply. Economists often describe this as “too much money chasing too few goods.” There are several ways this kind of imbalance can happen.

Cost-Push Inflation

Cost-push inflation happens when it costs more to produce goods. To go back to the bread example, cost-push inflation might happen because a wheat shortage makes flour more expensive. It costs you more to make each loaf of bread, so you can’t afford to bake as much.

As a result, you bring only five loaves to the market. But there are still 10 customers who want to buy bread, so they must pay more to get their share. The higher cost of production drives down the supply and thus drives up the price.

In the real world, cost-push inflation can result from higher costs for anything that goes into making a product. This includes:

  • Raw Materials. The wheat that went into your bread is an example. Higher-cost wheat means higher-cost flour, which means higher-cost bread.
  • Transportation. In today’s global economy, materials and finished goods move around a lot. Transporting products requires fuel, which usually comes from oil. So whenever oil prices go up, the price of other goods rises as well. 
  • Labor. Another factor in production cost is labor. When schools closed during the COVID-19 pandemic, many parents had to stop working to care for their children. That created a worker shortage that drove prices up.

Demand-Pull Inflation

The opposite of cost-push inflation is demand-pull inflation. It occurs when consumers want to buy more than the market can supply, driving prices up.

Typically, demand-pull inflation results from economic growth. Rising wages and lower levels of unemployment put more money in people’s pockets, and people who have more money want to spend more. If the booming economy hasn’t produced enough goods and services to match this new demand, prices rise.

Other causes of demand-pull inflation include: 

  • Increased Money Supply. Another way people can end up with more money in their pockets is because the government has put more money in circulation. Governments often do this to stimulate a weak economy or to pay off past debts. But as the money supply increases, the purchasing power of each dollar shrinks. 
  • Rapid Population Growth. When the population grows rapidly, the demand for goods and services grows also. If the economy doesn’t produce more to compensate, prices rise. In Europe during the 1500s and 1600s, prices soared as the population grew so fast that agriculture couldn’t keep up with the new demand.
  • Panic Buying. Early in the COVID pandemic, consumers started buying extra groceries to fill their pantries in preparation for a lockdown. This led to shortages of many staple products, like milk and toilet paper. As a result, prices for those goods went up.
  • Pent-Up Demand. This occurs when people return to spending after a period of going without. This often happens in the wake of a recession. It also occurred as pandemic restrictions eased and people returned to enjoying movies, travel, and restaurant meals.

Built-In Inflation

When consumers expect prices to be higher in the future, they often respond by spending more now. If the purchasing power of their savings is only going to fall, it makes more sense to take that money out of the bank and use it on a major purchase, like a new car or a large appliance.

In this way, expectations of high inflation can themselves lead to inflation. This type of inflation is called built-in inflation because it builds on itself. 

When workers expect the cost of living to rise, they demand higher wages. But then they have more to spend, so they spend more, driving prices up. This, in turn, reinforces the belief that  prices will keep rising, leading to still higher wage demands. This cycle of rising wages and prices is called a wage-price spiral.


Effects of Inflation

Inflation does more than just drive up the cost of living. It changes the economy in a variety of ways — some harmful, others helpful. The effects of inflation include:

  • Higher Wages. As prices rise with inflation, wages typically rise as well. This can create a wage-price spiral that drives inflation still higher.
  • Higher Interest Rates. When the dollar is declining in value, banks often respond by raising interest rates on loans. The Federal Reserve also typically raises interest rates to cool the economy and rein in inflation, as discussed below.
  • Cheaper Debt. Inflation is good for debtors because they can pay off their debts with cheaper dollars. This is most useful for loans with a fixed interest rate, such as fixed-rate mortgages and student loans.
  • More Consumption. Inflation encourages consumers to spend money because they know it will be worth less later. All this spending keeps the economy humming, but it can also drive prices even higher.
  • Lower Savings Rates. Just as inflation encourages spending, it discourages saving. Higher interest rates can counter this effect, but they often don’t rise enough to make a difference.
  • Less Valuable Benefits. High inflation is worse for people on a fixed income. They face higher prices without higher wages to make up for them. Benefits such as Social Security change each year to adjust for inflation, but higher benefits next year don’t help when prices are rising right now.
  • More Valuable Tangible Assets. Inflation reduces the purchasing power of the dollars you have in the bank. Tangible assets like real estate, however, gain in dollar value as prices rise.

Measuring Inflation

The most common measure of inflation is the Consumer Price Index, or CPI. The Bureau of Labor Statistics (BLS) determines the CPI based on the cost of an imaginary basket of goods and services. BLS workers painstakingly check prices on all these items each month and record how each price changes.

To calculate the annual rate of inflation, the BLS looks at how much all prices in its basket have changed since a year earlier. Then it “weights” the value of each item based on how much of it people buy. The weighted average of all items becomes the CPI.

The BLS then uses the CPI to calculate the annual rate of inflation. It divides this month’s CPI by the CPI from a year ago, then multiplies the result by 100. This shows how the purchasing power of a dollar has changed over the last year. The result is reported monthly.

Other measures of inflation include:

  • Personal Consumption Expenditures Price Index (PCE). This inflation measure is published by the Bureau of Economic Analysis. Like the CPI, it’s a measure of consumer costs, but it’s adjusted to account for changes in the products people buy. The Federal Reserve uses the PCE to guide its monetary policy, as discussed below. 
  • Producer Price Index (PPI). The PPI measures inflation from the seller’s perspective, not the buyer’s. It’s calculated by dividing the price sellers currently get for a basket of goods and services by its price in a base year, then multiplying the result by 100.

Historical Examples of Inflation

A little bit of inflation is normal. But sometimes inflation spirals out of control, with prices rising more than 50% per month. This is called hyperinflation, and it can be devastating for an economy.

Hyperinflation has occurred at various times and places throughout history. During the U.S. Civil War, both sides experienced soaring inflation. Other examples include Germany in the 1920s, Greece and Hungary after World War II, Yugoslavia and Peru in the 1990s, and Venezuela today. In most cases, the main cause was the government printing money to pay for debt. 

The last time the U.S. had prolonged, high rates of inflation was in the 1970s and early 1980s. The inflation rate was nowhere near hyperinflation levels, but it spiked above 10% twice. Eventually, the Fed hiked interest rates to double-digit levels to get it under control.

Although high inflation can be destructive, zero inflation isn’t a good thing, either. At that point, an economy is at risk of the opposite problem, deflation. 

When prices and wages fall across the board, consumers spend less. Sales of products and services fall, so companies cut back staff or go out of business. As a result, jobs are lost and spending drops still more, worsening the problem. The Great Depression was an example.


The Federal Reserve, or Fed, is the U.S. central bank — or more accurately, banks. It’s a group of 12 banks spread across the country under the control of a central board of governors. Its job is to keep the economy on track, reining in inflation while trying to avoid recessions. 

The Fed maintains this balance through monetary policy, or controlling the availability of money.

Its main tool for doing this is interest rates. When the economy is weak, the Fed lowers the federal funds rate. This makes it easier for people to borrow and spend. 

When the problem is inflation, it does the opposite, raising interest rates. This makes it more costly to borrow and more worthwhile to save. As a result, consumers spend less, slowing down the wage-price spiral.

The Fed has other tools for fighting inflation as well. One option is to change reserve requirements for banks, requiring them to hold more cash. That gives them less to lend out, which in turn reduces the amount consumers and businesses have to spend.

Finally, the Fed can reduce the money supply directly. The main way it does this is to increase the interest rate paid on government bonds. That encourages more people to buy bonds, which temporarily takes their money out of circulation and puts it in the hands of the government.


Inflation Frequently Asked Questions (FAQs)

If you keep seeing stories about inflation in the news, you may have some other questions about how it works. For instance, you may wonder:

What Is Hyperinflation?

Hyperinflation is more than just high inflation. It’s a wage-price spiral gone mad, sending prices soaring out of control. As noted above, the usual definition of hyperinflation is an inflation rate of at least 50% per month — more than 12,000% per year. However, some economists use the term to refer to an inflation rate of 1,000% or more per year.

What Is Disinflation?

Disinflation is a fall in the rate of inflation. This is what the Federal Reserve and other central banks try to achieve through their monetary policy, such as raising interest rates.

Disinflation is not the same as deflation, or falling prices. During a period of disinflation, prices are continuing to rise, but the rate at which they rise is slowing down.

What Is Transitory Inflation?

When the first signs of a post-COVID-19 inflation spike appeared, Federal Reserve chair Jerome Powell described it as “transitory.” By this, he meant that the rise in prices would be short-lived and would not do permanent damage to the economy. 

However, in November 2021, Powell declared it was “time to retire that word.” Based on the growth in prices, he had concluded that inflation was more of a long-term trend. The Federal Reserve responded by planning to fight inflation harder, buying more bonds and plotting out a series of interest rate hikes.

What Is Core Inflation?

Measuring inflation can be tricky because prices for some products fluctuate more than others. Food and energy prices, in particular, can shift a lot from month to month. Including these products in the CPI can lead to sharp, but temporary, spikes or dips in the inflation rate.

To adjust for this, the CPI and PCE have a separate “core” version that doesn’t include food or energy prices. This core inflation measure is more useful for predicting long-term trends. The  main versions of the CPI and PCE, known as the “headline” versions, give a more accurate picture of how prices are changing right now.

What Is the Consumer Price Index (CPI)?

As noted above, the Consumer Price Index, or CPI, is the main measure of inflation in the United States. The BLS calculates it based on how much prices have risen for an imaginary basket of goods and services that many Americans buy.


Final Word

A little inflation in an economy is normal. It can even be a good thing, because it’s a sign that consumers are spending and businesses are earning. The Fed generally considers an annual inflation rate of 2% to be healthy.

However, higher inflation can cause serious problems for an economy. It’s bad for savers whose nest eggs, including retirement savings, shrink in value. It’s even worse for seniors and others on fixed incomes whose purchasing power has fallen. And it often requires strong measures from the central bank to correct it — measures that risk driving the economy into a recession.

If you’re concerned about the effects of inflation, there are several ways to protect yourself. You can adjust your household budget, putting more dollars into the categories where prices are rising fastest. You can stock up on household basics now, before the purchasing power of your dollars falls too much. 

Finally, you can choose investments that do well during periods of inflation. Stock-based mutual funds and real estate investment trusts are both good choices. Just be careful with inflation hedges like gold and cryptocurrency, which carry risks of their own.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

Source: moneycrashers.com

Corporate Social Responsibility (CSR), Explained

Corporate social responsibility, or CSR, is a type of self-regulation that a business uses to enhance the well-being of communities and society through ethical, environmental, and social measures.

By investing in companies that practice CSR, investors have the opportunity to use their own wealth-building strategies to make a positive impact on the world.

What is Corporate Social Responsibility?

Corporate social responsibility (CSR) refers to a company’s dedication to establishing business decisions that positively impact society. Usually, these business decisions support socially responsible movements, like environmental sustainability, ethical labor practices, and social justice initiatives.

Ideally, CSR strategies work in tandem with the traditional business objectives of hitting revenue and profit goals, and other metrics investors may find on a financial statement.

There is no codified set of standards that explain corporate social responsibility. Companies choose to enact CSR policies on their own initiative. It can take many forms depending on a company or an industry, but generally, CSR policies promote economic, social, and environmental sustainability.

However, the International Organization for Standardization (ISO) released guidelines for corporate social responsibility in 2010. Known as ISO 26000:2010 , these guidelines are suggestions, not requirements, that can help put companies on track to further CSR principles.

Why CSR Is Important

Corporate social responsibility is important because companies can use their financial position and operations to build more ethical business models and a better world. When the companies enact socially responsible policies prosper, those practices become more commonplace and widespread.

Additionally, investors increasingly focus on more than traditional business valuation methods when making investment decisions. Investors want to put money into companies that support socially responsible movements, so they may be attracted to companies with CSR policies.

In other words, investing in companies that practice corporate social responsibility gives investors the chance to vote with their wallets on how they want the companies around them to behave.

Recommended: What is ESG Investing?

4 Types of Corporate Social Responsibility

Corporate social responsibility is an umbrella term that captures a wide array of policies that a company can enact. CSR-focused companies may target their efforts on one or more specific social, economic, or environmental areas of concern. The following are some of the most common areas of CSR:

1. Environmental Sustainability

Companies are increasingly focusing on environmental sustainability when making business decisions. With climate change threatening to cause severe impacts worldwide, companies are committing to creating sustainable production methods, distribution, and overall business practices to reduce carbon footprints.

For investors, sustainable investing could mean seeking out companies that promise to hold to sustainable business practices—and doing the research to ensure they’re keeping that promise in real life. Additionally, it could mean focusing on companies that are specifically involved in creating the products that allow for environmental sustainability in the long term, such as renewable energy, biofuels, or hybrid cars.

Recommended: How to Invest in EV Stocks

2. Philanthropy

One of the ways large companies might align themselves with CSR values is by supporting philanthropic efforts. By donating money, products, or services to nonprofit organizations and social causes, a company can show the public what it values and how its furthering causes.

Recommended: How to Make End-of-Year Donations

3. Ethical Labor Practices

Corporations that commit to ethical labor practices, such as focusing on diversity and inclusion or having a zero-tolerance policy on sexual harassment, may garner more favor among investors looking to support a socially responsible company.

Recommended: How to Combine Financial Well-Being and Diversity and Inclusion Initiatives

4. Volunteering

Another way almost any business can get in on CSR might be to support local volunteering efforts by sending out their representatives or fundraising for other volunteering organizations and movements.

Companies might also support volunteerism by offering their employees paid time off specifically for that activity. Some companies provide employees several days off per year, which they can use to participate in any volunteering effort they choose.

Recommended: 34 Charities To Support This Year

Examples of CSR

Many companies have enacted corporate social responsibility initiatives, and the trend is growing. According to one study, 92% of companies in the S&P 500 published sustainability in 2020, up from 20% in 2011. Here are a few examples of CSR policies at large corporations:

•   Starbucks (SBUX): The coffee giant has committed to hiring a diversified workforce, including hiring thousands of veterans, refugees, and disadvantaged youth.

•   Levi Strauss (LEVI): The apparel maker launched the Levi’s® Music Project, an initiative that looks to provide young people with music education and community resources.

•   Ford Motor Company (F): The carmaker is pushing to have 50% of its global sales be electric vehicles (EV) by 2030 to help address climate change.

•   Salesforce (CRM): The software company says it has given about $240 million in grants, 3.5 million hours of community service, and provided donations to more than 39,000 nonprofits and education institutions.

•   The Coca-Cola Company (KO): The beverage company is focusing on water conservation, saying it will push to responsibly use water in its production process and advocate for smart water policies.

Benefits of Corporate Social Responsibility

There are many reasons for a company to adopt and execute corporate social responsibility policies. First and foremost, CSR practices help promote a relatively better society and environment. By following socially responsible protocols, companies could have the opportunity to make significant social, economic, and ecological changes. As noted above, investors are increasingly looking to put money into companies that adhere to CSR.

Beyond these direct positives, CSR policies can also boost a company’s competitiveness by benefiting the firm in the following ways:

•   Stronger brand image: Corporate social responsibility policies can help create a positive image for a company, attracting consumers, employees, and other stakeholders.

•   Employee retention: Talented employees may stay with a company longer when they feel they are working for a business that has strong CSR policies. Additionally, this reputation can help attract new employees.

•   Reduced regulatory burden: A comprehensive CSR policy can help a company navigate relationships with regulatory bodies, especially as governments establish more rules around sustainability.

The Takeaway

Corporate social responsibility is one of several business models companies are using to navigate a changing world. By investing in companies that support those practices, investors could have the opportunity to positively impact the world while also potentially building their nest eggs.

However, it can take a lot of work for investors to determine what companies have the best CSR policies and what companies are truly adhering to their initiatives. So if you want to invest in companies that support CSR policies, it may be best to start small rather than build a whole portfolio around CSR stocks.

SoFi Invest® allows you to start investing today and build a portfolio with whatever strategy you desire. With active investing, you can trade stocks of brands you know and believe in and discover new opportunities based on your interests along the way.

Get started today with SoFi Invest.


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3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
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Should I File a Home Insurance Claim? Pros, Cons, When It Makes Sense

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Additional Resources

You love the big cherry tree in your home’s front yard. Each spring, it explodes in a riot of bright pink flowers. Each summer, it drops sour fruit that perks up nicely in a sugary pie. 

Until it doesn’t. One summer day, your family comes home to find one of the cherry tree’s limbs in your living room, felled by a strong thunderstorm. The damage is extensive: two broken windows, a caved-in window sill, and serious water and impact damage to the living room floor and furniture.  

Once the initial shock wears off, you prepare to file a home insurance claim. But then, you start to ask questions. What if your insurance company denies the water damage portion of the claim? What if my home insurance premiums spike? How much will I have to pay out of pocket due to your policy’s high deductible? Should I even file this claim? 


Should I File a Home Insurance Claim?

The fact that a seemingly serious event like a tree falling through your house is such a close call teaches us an important lesson about homeowners insurance: It’s not always in your best interest to file a claim. Even when they cause short-term financial pain, some incidents aren’t worth filing over. 


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Plus, standard homeowners insurance policies exclude certain types of incidents that can cause serious financial stress for homeowners, such as floods and earthquakes. You need separate insurance policies if your home is at risk of these uncovered perils.

Pros & Cons of Filing a Homeowners Insurance Claim

If you’re considering filing a homeowners insurance claim, you’re probably facing a hefty bill for cleanup and repairs or a long list of damaged items to replace. Or perhaps you’re staring down a lawsuit brought by a guest or worker who sustained serious injuries on your property.  

In any case, you need to figure out whether it makes sense to go through with your claim — and fast. That means objectively assessing the pros and cons of doing so.

Pros of Filing a Home Insurance Claim

Depending on the circumstances, filing a home insurance claim has significant financial benefits.

  1. It Helps You Pay for Repairs. If your claim is approved, you can use the payout to offset the cost of repairs and restore your home to its previous condition. Without this financial assistance, you might find yourself cutting corners or making ill-advised financial moves to cover the cost, such as dipping into your 401(k). 
  2. It Helps You Replace Damaged or Stolen Goods. Your homeowners insurance policy could help offset the cost of replacing possessions damaged in a naturally occurring incident like a storm or fire. If your home was burglarized or vandalized, the proceeds could cover the cost of replacing stolen property as well. Depending on your policy, you could receive the items’ actual cash value or replacement cost, which is the cost of buying them new.
  3. Repairs Help Maintain Your Home’s Value. Homebuyers don’t pay top dollar for properties with fire-damaged siding, broken windows, or gaping holes in the roof. Your home insurance payout helps restore your home’s value with minimal out-of-pocket cost.

Cons of Filing a Home Insurance Claim

Filing a claim on your homeowners insurance policy isn’t always a slam dunk. The claims process has some hidden and not-so-hidden pitfalls that could leave you worse off than when you began.

  1. Your Insurance Premium May Go Up. Although this isn’t guaranteed, your homeowners insurance rates could rise after you file your claim. Exactly how much depends on the type of claim you file, the size of the claim, and your previous claims history. Generally, liability claims bump premiums more than claims related to fire, vandalism, or natural disasters.
  2. Too Many Claims Mean Your Policy May Not Be Renewed. A rate increase is unwelcome but manageable. A canceled policy is far more serious. If insurers see you as riskier than the typical homeowner, you could have trouble getting coverage on your own. Your lender might need to step in and take out a policy on your behalf — often at a much higher premium than your old policy.
  3. If You Get a Claim-Free Discount, You Could Lose It. Once you file a home insurance claim, your claims history is no longer spotless. That matters because many home insurance companies offer claim-free discounts for homeowners who never file claims.

When You SHOULD File a Home Insurance Claim

So, you’re thinking about filing a home insurance claim. How can you be sure you’re making the right call?

Use these tests to assess your would-be claim. The more that apply to you, the stronger your position.

Repair or Replacement Costs More Than Your Deductible

This is the first test your would-be claim must pass. If it doesn’t, there’s no point in filing a claim.

Your deductible is the amount you must pay out of pocket before your home insurance kicks in. Your policy documents should clearly specify this amount. It’s either expressed as a flat dollar amount or a percentage of the policy’s total coverage amount.

Dollar amount deductibles typically range from $500 to $2,500, with $1,000 being a common value. Some policies have more than one deductible, depending on the type of property damage. Separate “wind and hail” deductibles are common, for example — and often higher than the standard deductible.

If your home sustained significant damage or loss, your claim value should easily exceed your deductible. For example, if you expect repairs to cost $20,000 and your deductible is $2,000, your insurance company covers $18,000 — 90% of the total cost.

On the other hand, if you expect repairs to cost $3,000, your insurance company only covers $1,000 — 33% of the total cost. That’s a closer call because filing a claim could result in higher home insurance premiums that eventually offset your payout. 

The Event Is Covered by Your Policy

Your homeowners insurance company isn’t obligated to provide reimbursement for every type of damage or loss to your home. In fact, while your policy covers a lot, it probably excludes specific events, known as exclusions.

Common exclusions include but aren’t limited to:

  • Earthquake
  • Flood
  • Damage and liability issues caused by poor maintenance 
  • Insect infestations
  • Mold
  • Personal property losses and liability issues caused by power outages or power surges
  • Intentional damage caused by a resident
  • Damage caused by war or nuclear fallout
  • Injuries caused by aggressive dogs
  • Issues related to or caused by home-based businesses
  • Costs related to building code violations

You may need to purchase separate insurance policies to cover some of these perils. For example, your lender may require you to carry flood insurance if you live in a recognized flood zone. 

Other add-on policies are optional but often a good idea. For example, if you run a business out of your home, you should consider carrying business insurance to protect against inventory or equipment losses or damage to your workspace.

You’ve Suffered Significant Loss or Damage

Often, it’s not a close call. If your home is seriously damaged or destroyed in an event that’s covered by your policy, you absolutely should file a homeowners insurance claim. Otherwise, you’ll be on the hook for tens or hundreds of thousands of dollars in repair or replacement costs.

If you have any doubts about the extent of the damage to your home, get a few repair quotes from building contractors in your area. You can also talk to your insurance agent or ask your home insurance company to send out an insurance claims adjuster before you file.

You Haven’t Made a Claim in the Past 5 Years

Approved homeowners insurance claims typically remain on your insurance record for five years after they’re made. 

This record is known as the Comprehensive Loss Underwriting Exchange (CLUE) database. When you make a claim, your insurer checks its own records and the CLUE database to see whether you’ve made any other claims in the past five years.

If you have made a claim in the past five years, expect your insurance premiums to spike after your second claim is approved. 

For fire, theft, and general liability claims, the increase could amount to 50% or more of your previous premium. A weather-related claim won’t increase your premium quite as much, but you’ll still notice a jump.


When You Should NOT File a Home Insurance Claim

It’s not always worth it to file a home insurance claim. 

Certain situations, such as minor damage that costs less to repair than your insurance deductible, all but rule out a claim. Others, such as an active claim history, bring an elevated risk of a denied claim.

If any of these situations apply to you, think twice about filing a home insurance claim.

Repair or Replacement Costs Less Than Your Deductible

If the damage or loss is relatively minor, your deductible could be too high to bother filing a claim. There’s no point in filing a claim — and potentially increasing your policy premiums — if you won’t even receive a payout.

Even if it’s a close call, be mindful of the potential for your premiums to go up after a successful claim. A claim worth $20,000 probably makes sense, but a claim worth $3,000 or $4,000 might actually set you back.

Damage Was Caused by Lack of Maintenance or Normal Wear & Tear

An event that appears to be covered by your policy might not be if the insurance adjuster can argue that it was caused by neglect, poor maintenance, or even normal wear and tear.

For example, let’s say your home loses heat during the winter, causing a water pipe to burst in your ceiling. Homeowners insurance policies generally cover this type of event — if the burst pipe was in good condition to begin with. If the pipe was already heavily corroded, your insurer might blame you for not replacing it sooner. They could deny the claim altogether.

The Event Isn’t Covered by Your Policy

It’s often quite easy to figure out whether a particular event is eligible for home insurance coverage. If your home collapses in an earthquake and your policy specifically rules out claims for earthquake damage, you’re out of luck. Hopefully, you have earthquake insurance.

But closer calls are more common than you’d think. If your resident termite colony worsens an existing foundation issue that eventually spurs a costly repair, your insurer could argue that the entire claim falls under the insect damage exclusion. 

When in doubt, it’s worthwhile to begin the claims process anyway. If you don’t like what the insurance adjuster has to say, you can drop the claim without increasing your insurance rates. 

Or you can hire a public adjuster — an independent insurance adjuster who can make a stronger case to your insurance company. Public adjusters usually work on contingency, so they only get paid if your claim is successful.

You’ve Made Multiple Claims in the Past 5 Years

The more homeowners insurance claims you make in a five-year period, the more your insurance rates increase after a successful new claim. 

Make too many claims in too short a period, and your insurance company could drop you altogether. If you’re unable to find replacement coverage, your lender could take out a policy on your behalf. Expect this lender policy to cost a lot more than your old policy.

All that said, you shouldn’t automatically rule out a new homeowners insurance claim just because you recently got an insurance payout or two. If your home is seriously damaged or destroyed by a covered event, it’s probably still worth it to file. Just be ready to pay higher premiums on the back end.


Final Word

Some say the best way to save money on homeowners insurance is not to file a claim at all. There’s a grain of truth to that, but don’t take it too literally. 

If your home is seriously damaged in an event that’s covered by your policy, a home insurance claim is absolutely warranted. Taking the time to file could save you tens or hundreds of thousands of dollars in out-of-pocket expenses, keeping you on track to reach your long-term financial goals.

Still, it’s always a good idea to take stock of the situation before filing a claim. If your home sustains damage due to an event not covered by your policy or the cost of repairs doesn’t exceed your policy’s deductible, a claim isn’t in the cards. And even if filing a claim would be profitable on paper, it’s worth considering the long-term costs — in the form of higher premiums for years to come.

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

What Is the MACD Indicator (Moving Average Convergence Divergence)?

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Traders use a wide range of technical indicators to generate trading signals when making their moves in financial markets. These indicators help traders analyze price action to determine price trends, the momentum of those trends, the best time to buy, and the best time to sell financial assets. 

The moving average convergence divergence indicator (MACD indicator) is one of the most popular tools in a trader’s toolbox. 

The tool is a momentum indicator built under the idea that momentum changes happen ahead of price changes. The idea is that traders can track and analyze the momentum of price movements to determine where the value of the asset is likely headed in the future. 


What Is the Moving Average Convergence Divergence (MACD) Indicator?

The MACD is a momentum oscillator that shows the relationship between two moving averages of a financial asset’s price. Those moving averages include the 26-day exponential moving average (EMA) and the 12-day EMA. Traders also use a signal line with this indicator which is plotted using a 9-day EMA of the MACD. Gerald Appel, founder of the Systems and Forecasts newsletter, developed the indicator in the late 1970s. 


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It’s important that you understand moving averages before going further, because they are the building blocks that form the MACD and the signals it generates. 

Moving averages reveal average prices over time. At the close of every trading session, the new closing price is added into the calculation and the oldest is removed, helping smooth the volatility of price movement in the trading chart.

The MACD uses exponential moving averages (EMAs). EMAs are time-weighted averages, meaning the newest data is given more importance than older data. This makes them more sensitive to the most recent price movements. 


What the MACD Measures

The MACD is a momentum oscillator, meaning it measures the veracity of price movements in the market. 

The concept behind the indicator is that price changes happen as a result of investor movements. When investor demand for an asset climbs, the price of that asset follows, and when demand declines, the price falls. 

Because all investors don’t make their moves at the same time, tracking the speed of price movements, or speeding and slowing of demand, indicates when reversals are likely to occur. Traders see these coming reversals as buy and sell signals. 


How to Calculate MACD

To calculate the MACD, subtract the long-term, 26-period EMA from the short-term, 12-period EMA:

MACD = 12-Day EMA – 26-Day EMA

Most charting platforms do this calculation for you and plot the results alongside an asset’s price chart.

Example Calculation

Let’s say ABC stock has a 12-Day EMA of $25.12 and a 26-Day EMA of $24.93. The moving average convergence divergence formula using the data in the example would look like this: 

MACD = $25.12 – $24.93 = $0.19 

The value of the MACD is plotted on the graph over time. Investors watch as the value increases and decreases, creating buy and sell signals. 

Signals are also created by comparing the movement of a signal line in relation to the MACD line. The signal line is calculated by taking a nine-day EMA of the MACD. 


How to Read the MACD

There are three important lines to watch when reading MACD data:

  1. MACD Line. The MACD line is plotted on the chart based on MACD values over time. When the MACD line crosses above zero, the trend is considered bullish, and the trend is bearish when the MACD line crosses below zero. 
  2. Signal Line. The signal line — the line created by taking a nine-day EMA of the MACD — is also plotted on the chart. Traders pay close attention to the relationship between the MACD line and the signal line, specifically looking for points at which the two lines cross for trading signals. 
  3. MACD Histogram. The MACD histogram is a visualization tool that helps traders measure the difference between the MACD line and the signal line. Investors read these two lines converging or diverging as buy and sell signals. 

Ways to Interpret the MACD

The MACD generates trading signals in multiple ways. Some of the most common ways to interpret the indicator include:

MACD Crossovers

MACD crossovers happen when the MACD line crosses over the signal line on a trading chart, generating signals to buy and sell the asset being analyzed. Here’s how they work:

  • Bullish Crossover. A bullish crossover happens when the MACD line crosses over the signal line. When this happens, it acts as a signal that the stock is headed for an uptrend. 
  • Bearish Crossover. A bearish crossover happens when the MACD line crosses below the signal line. When this occurs, it’s a signal that the stock price is headed for a downtrend. 

Crossovers can also happen without a signal line:

  • Bullish Crossover. When the MACD line crosses over zero, the move is considered to be bullish, signaling upward movement ahead. 
  • Bearish Crossover. When the MACD line crosses below zero, the move is considered bearish, signaling downward movement ahead. 

See the chart below for an example. The chart shows Apple’s daily stock price and the MACD over a six-month period ending April 7, 2022.

At the bottom of the image, you’ll notice a sub-chart with a red line, a black line, and a blue histogram. This section charts the MACD. The black line is the MACD line, and the red line is the signal line. 

Around November 15, 2021, a bullish crossover took place, preceding a sharp rise in Apple’s stock price. In mid-December, a bearish crossover took place, followed by significant downward movement. 

There are two more bullish crossovers and one more bearish crossover on the chart that occured in 2022. Take a moment to see if you can spot them. 

If you spotted the bullish crossovers in late January 2022 and mid-March 2022, and the bearish crossover in mid-February 2022, you’re on the right track. 

MACD Histogram

The MACD histogram is a series of bars plotted in the center of the MACD chart. The bars seem to grow above and fall below the zero line, creating easy-to-spot bullish and bearish signals. 

  • Bullish Histogram Signals. When the MACD line crosses above zero, a bar in the histogram will start a series of bars that climb above the zero line. This event indicates that momentum is moving in the upward direction and an uptrend is on the horizon. 
  • Bearish Histogram Signals. When the oscillator’s line crosses below zero, a bar in the histogram will start a series of bars that fall below the zero line. This event indicates that momentum is moving in the downward direction and signals a downtrend. 

Let’s refer again to Apple’s stock chart for an example:

You’ll notice a series of blue lines in the MACD section at the bottom of Apple’s stock chart. 

In mid-November, a series of blue bars emerged in an upward direction from the center of the chart, suggesting that prices would rise. In mid-December, the bars reversed direction, falling below the zero line, suggesting prices would decline. Following these events, Apple’s stock price did exactly what the signals suggested would happen. 

Bullish signals were also created in late January and mid-March of 2022, and another bearish signal can be spotted in mid-February 2022. Take a moment to study the chart and note how the price of Apple’s stock reacted following these events. 

MACD Divergences

Finally, MACD divergences are used to determine which direction an asset is likely to move in. A divergence takes place when the MACD doesn’t agree with the asset’s price movement. 

For example, if the asset closes the day at a higher high but the MACD moves lower, the move is known as a divergence. Here’s what divergences tell you:

  • Bullish Divergence. When a stock closes the day lower, but the MACD moves into the positive territory, this is known as a bullish divergence. The signal suggests that bearish momentum is slowing and buyers are flooding into the asset. As a result, the price of the asset should head in the upward direction. 
  • Bearish Divergence. When a stock closes the day at a new high, but the MACD moves into negative territory, it’s considered a bearish divergence. This move suggests bullish momentum is slowing and the bears are about to take control. As a result, declines are likely ahead. 

Let’s return to Apple’s stock chart to see what this looks like:

The MACD line started moving downward in mid-December. While the histogram showed bearish momentum, the price of Apple continued to move upward for a few trading sessions. As the divergence between the price of Apple and its MACD grew, a clear reversal began to emerge, leading up to dramatic declines in the price of the stock in the sessions to follow. 

Toward the end of the chart, there’s a bullish divergence, with Apple’s 50-day moving average moving downward while the histogram moved into positive territory. Can you spot it? When you do, you’ll see the stock made a strong move for the top shortly following the divergence. 


Relative Strength Index (RSI) vs. the MACD Indicator

The relative strength index (RSI) is a momentum indicator, just like the MACD. However, the two are calculated in different ways, which can lead to different results from time to time. 

The RSI is also an oscillator, but it’s centered around price gains or losses over time, focusing on extreme highs and extreme lows to determine if an asset is overbought or oversold. This differs from the MACD because it doesn’t use moving averages to determine momentum and momentum direction. 

No single momentum oscillator is perfect. Many traders use both the RSI and the MACD when making their trades, using one to verify the results of the other. 


Limitations of the MACD Indicator

The MACD indicator is an impressive tool, but like most other technical analysis tools, it’s not perfect. Some limitations to consider when taking advantage of the MACD include:

  • Failure to Signal. Although the indicator is great at showing when some reversals are likely to occur, it doesn’t catch them all. In some cases, momentum and price movements occur at just about the same time, and the MACD doesn’t have time to alert traders to the coming reversal before it’s already happened. 
  • False Positives. In some cases, momentum will shift directions for a short period and reverse quickly, while the price stays relatively flat. As a result, traders may act on a signal, and a reversal may not actually happen. 

In short, the indicator doesn’t catch all reversals, and some of the signals it does provide won’t come to fruition. 

Most indicators have their limitations, which is why it’s important for traders to have multiple tools in their toolboxes. 


Final Word

The MACD is an important piece of many successful traders’ trading strategies. The metric helps to determine when prices will rise and fall, but it isn’t perfect. Make sure you couple it with a few other technical indicators to get a full picture when making your moves in the market. 

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GME is so 2021. Fine art is forever. And its 5-year returns are a heck of a lot better than this week’s meme stock. Invest in something real. Invest with Masterworks.

Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.

Source: moneycrashers.com