Money Rehab with Nicole Lapin - Misunderstanding These Financial Terms Can Hurt You with Joe Saul-Sehy

Episode Date: February 17, 2022

As you know Money Rehab is a no-jargon zone. But the fact is, some financial jargon makes bad money moves sound like good ones (overdraft protection, anyone)? Today, Nicole demystifies these terms with Joe Saul-Sehy, host of The Stacking Benjamins Show. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. As you know, I am not down with financial jargon.

But I am down with demystifying financial jargon, especially if said jargon is super duper misleading. So that's what I'll be tackling today. But I won't be doing it alone. I'll be doing it with my pal Joe Salsehi. He's the host of the Stacking Benjamins show. Joe, I'm so excited to have you. Welcome to Money Rehab. Thank you so much, Nicole. I'm so happy to be here. So talk to me about some of these words that are generally used by the media and can be super confusing. So can we kick it off with

overdraft protection? Yeah, let's do it. Overdraft protection, you know this. Overdraft protection means the bank's protecting themselves, right? It's protecting them and any fees that they might incur. So when you have overdraft protection, they're actually going to hit you up for a nice fee every time so that you preserve your dignity. Actually, in some cases, you don't really preserve your dignity and you still get charged the money. So yeah, overdraft protection is pretty flipping ugly. There's some good news there, Nicole, though. Some good news is you see-

Oh, do tell. What we're seeing big banks are backing down the fee finally. That's true. Like I feel like Bank of America is finally getting the message that maybe we got to be somebody's friend. Wells Fargo? I don't know. So they're getting better, but still, overdraft is not your buddy.

No, it's not. And it could be embarrassing in the line for Starbucks when you don't have the money to pay for it, but it's not cute to pay $35 or whatever it was for overdraft protection. I would way rather, and I'm sure you would too, have the person at Starbucks go, oh, your card's not accepted. Then have $35 out of my wallet, and I've got the $8 latte. Yeah. I've had this conversation with a lot of folks who think that they're doing something good for themselves because that's what it sounds like. But sounds on Wall Street can be deceiving.

Banking, yeah. So what about load? I don't know if that sounds good, but it doesn't sound like what it is. No, no. I mean, it is a load. It's a load of something. It's a load of fees. So, you know what? So a load is what you're paying the commission-based salesperson to sell you a

mutual fund. And sometimes they will hide the load. And that also sounds different, doesn't it? I'm going to hide the load. Yes. And they'll hide it in this alphabet soup called B shares, which means there is no upfront fee, but they're going to charge you usually 1% higher fee on an ongoing basis. And then if you get out of it in the first six years, they will charge you a fee on the backend to get out. And all the load really is, is a commission. Why they don't call it commission. If they call it commission, it would be great, But no, it's just, you know, it's this 5% load. It's no big deal. Just a little 5%. Well, think about it. 5% could be a ton of money. Totally. I'm all about spraying fee fertilizer because it becomes like a fee factory,

like farm factory style where the fees on top of fees add up. And you think a little bit of a percentage here, a few basis points. Now we know on the show what basis points are here and there, and they definitely add up. So I think load, while it sounds not ideal, is a euphemism still for fees, commissions. Yeah. And here's actually, I'm going to play the other side of that for just a second because as a guy that was a financial planner for 16 years and then join you over on the dark side of financial media, Nicole, after that- We're on the dark side. That's true. Good point. But anyway, what I feel like is a lot of people talk a lot about fees, but they don't ask first, what am I going to get?

Because I feel like some people are so fee adverse that they're never going to get anywhere. And I want to be, I want to make sure that I have the right help in my corner, that I'm using the right stuff. And so sometimes having no help at all can be awfully expensive, can be really expensive. But it's this problem, this jargon that you and I are talking about that makes it so hard to figure out like, well, what is the right help? Well, start off with Nicole's book and you're good. Start off with your book, first off, stacked, if you want to get stacks on stacks. But that also brings me to another term, which is paper. So paper has a lot of different meanings in finance.

Are you talking about paper losses? Like it's just a paper loss, Nicole. Sure. Or paper losses or paper can also be used to refer to debt, but it's not a piece of paper. It's not like a stationary from paper source. Unfortunately, because wouldn't it be better if we just got some cool stuff from, I don't know, I'm a stationary. I love stationery. I totally do. Like papyrus. It's like my favorite, but just everything costs a bajillion dollars, but it's beautiful. It is beautiful. And those little like hummingbird stickers.

But it's not, if it was that kind of paper, it would be great, but it's not. Paper, let's talk, debt is debt is debt. It's not paper. You don't usually use a euphemism that it's just a little paper. It's no big deal. That is a big deal. And there are degrees of how bad debt can be. And I think you got to know that. You know, what's funny is that when I was young, I really messed up with money just because I didn't have a healthy respect for a dollar and what a dollar really meant. And I think it was once I started living just an all cash lifestyle for a while and having some respect for the individual dollars that I finally figured out that I can use some leverage sometimes, but I always have to have a plan ahead of time to know where I'm going. I used to take out, I would borrow from everybody when I used to get in trouble with money. I just to take out, I would borrow from everybody when I used to get

in trouble with money. I just borrow and I had zero plan. Someday I'm going to win the lottery. Something's going to happen. Maybe sell an NFT, make a tree, eight bit tree and I'll sell it for No. So, yes. So teaching your former self the value of paper in the sense of chasing paper. Here's the tricky part with paper. You can hear in a lot of songs, too, like this chasing paper idea. So chasing paper would be like chasing Benjamins. But also paper, if you can help us put it in a sentence like corporate paper, someone's giving you or issuing corporate paper is actually debt. So it can be used as cash or debt in finance. Well, yeah, it can be. And it can be a bond. If I'm buying corporate paper, I'm buying a bond, right?

Because I'm buying it and corporate paper means I'm buying basically a short-term bond. But if I'm borrowing, if I'm loaning anybody money, I want to know the same thing that they want to know from you and me. Like, what's the interest? Like, what is, how reliable is this company? Are they going to pay their bills? Are they, you know, it's, well, it is funny. Here's another euphemism. When you talk about paper, remember how we used to

call junk, but I feel like an old guy used to call, we used to call them junk bonds, right? Yeah. And we don't call them junk bonds anymore. You know, we know we call them high yield. Yeah. Cause kaboom, I can make a bunch of money if somebody gives me high yield, but what does high yield mean? It means they have trouble paying their debt. So the only people that will loan the money are people that demand a really high interest rate. And if you're that person, it's because of the fact that your credit score is pretty low. So these are companies with a very low credit score that you're loaning money to. Not good. Yeah. The reason that they give you a high yield is because it's a higher chance they're going to default. So that's why they have to give you more money or no one would lend them money.

But it sounds so awesome. It sounds much better than junk, but it did used to be called junk back in the day. One of my favorites is outstanding. Outstanding debt or outstanding bills. Not so outstanding. Outstanding debt means, of course, that I owe somebody money and they're waiting for it. And it's standing out by itself with a spotlight on it. When they tell you it's outstanding, Ms. Lappin, there is $1.50 outstanding on your bill. And if you could pay that soon, that would be fantastic.

Yeah, that would be outstanding. It would be outstanding if you paid your outstanding debt. When I said in the finance world, I caught myself because I noticed this when I went on your show. You say finance. My partner says finance because he used to work on Wall Street. I said finance, but lately I've been finding myself saying finance. What the heck? Why is that? Why do we sometimes hear finance or finance? Well, it can be financial, financial, finance. your finance or finance? Well, it can be financial, financial, finance. Finance. Finance, financial. It's not financial. Is it financial? I call it financial. I spend days worried about this, but literally seconds worried about it, like the last seven worried about this. I generally do whatever you don't do. So if you call it finance, I will call it finance just to create some, you know, Joe's do in my life. Yeah. That's our job. Hey, you're the one that decided to get embroiled with Joe's. So it's true. Yes. Whole life. So this, tell me more about this

because sometimes I do this when we colloquial say like, don't half-ass it. I'm like, what do you mean half-ass? Like versus full-ass? Like put your full-ass into something? And so whole life kind of reminds me of that. Like whole life versus term life insurance is what we're talking about. Yeah. And whole life sounds comforting, doesn't it?

Because we know that term life is going to go bye-bye. And if term life goes away to go bye-bye. And if term life goes away and we need the money, I mean, heck, I would rather be protected for my whole life, would you? Because now it's freedom from worry. And so I think whole life to people beginning, I'm like, yeah, absolutely. And then it's obviously the finance nerds out there that go, no, no, no, no, no. Here's the deal. You're going to pay money hand over fist for this thing that you probably won't need because you need insurance for stuff that protects you when you don't have enough money. And once you have enough money, unless it's for a state need or one of these weird applications that affect like one half of 1% of all people out there, hopefully if you've got enough money to retire, you won't need

anymore. So having a policy that goes bye-bye when you are ready to retire from work is probably a great one that's going to save you a bunch of money. And you know what? I do hear this though. People say that whole life insurance is a rip-off. And I don't think it's a rip-off. I just don't think that most people need it. And I think you pay for the comfort. Here's the reason it's not a rip-off. In a term life insurance policy, you know what percentage of those pay? Roughly about 3% of all term life policies actually pay a death benefit, meaning the insurance company wins 97% of the time. A whole life policy, Nicole, as you know, because it's designed to last your whole life, it has to pay. Nicole, as you know, because it's designed to last your whole life, it has to pay. And it's because of that, that guarantee that they have to sock it to you because they're in the business of

making sure that they get their money back. So a term life policy is cheap because of the fact that you probably won't use it, where a whole life policy you're going to overpay for. But when you think about it, do I really need it for my whole life? It sounds comforting, but I don't think so. For today's tip, you can take straight to the bank. Well, okay, maybe this is more of a shameless plug you can take straight to the bank. But in my books, I always include a dictionary of financial terms you may have heard of, but you have always been shy to ask or you think you know, but don't in the back of the book. And this latest book is the most ambitious yet with investing terms. So you can check it out at MissIndependentBook.com.

Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.