Smart Money Podcast: Financial Stability and Identity Theft

Sean Pyles: Welcome to the NerdWallet SmartMoney podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I'm Sean Pyles.

Liz Weston: And I'm Liz Weston. To have your money questions answered in a future episode, call or text us on the Nerd hotline at 901-730-6373, that's 901-730-NERD. Or email us at [email protected].

Sean: It is such a joy to hear from all of you. So please keep your questions coming.

Liz: And hit that subscribe button to get new episodes delivered to your devices every Monday. If you like what you hear, please leave us a review and tell your friends. OK, one last plug before we get into the episode. We want to know, what has the pandemic taught you about money? How has the way you've handled your money changed in 2020? We're working on a special episode about all the money lessons we've learned this year, but to make this happen, we've got to hear from you.

Sean: That's right. Hit us up on the Nerd hotline to share your stories. You can always write us over email or text us whenever you want, but I'd really love to include as many of your actual voices in this as possible. So please leave us a voicemail or email us a voice memo so we can really bring this thing to life.

Liz: We really can't wait to hear from you. OK, let's get onto the episode. This week Sean and I answer a listener's questions about what they can do to protect themselves against identity theft, with the help of Bev O'Shea, our go-to Nerd on the subject.

Sean: Firstly, though, in our This Week in Your Money segment, Liz and I are talking about how to find financial stability when the world feels anything but stable.

Liz: Oh boy, I think this is going to hit a chord with a lot of people.

Sean: It's been quite a year to say the least, from the pandemic to the various natural disasters that we've had, to the wild and tumultuous election season that is almost over somehow — I can't even believe it. So that's what got me thinking about the subject, which was actually something that I wrote about in a recent column. It was about how to find stability in your finances when everything else can feel like it's out of your control. It's really about focusing on what you can control. There are so many different ways that you can approach this. I really view financial stability as a state of money and as a state of mind.

Liz: Mm-hmm. And what did you tell people?

Sean: A lot of different things. I love to tell people things to do. But let's start by talking about the state of mind. I think this involves first, finding your own personal definition of what financial stability might mean. It obviously requires some self-reflection — spend some time thinking, and talking with your partner if you have one, about what stability means to you. Or maybe you want to know that you're on track for a comfortable retirement, or maybe you just want to be able to check your bank account without feeling a certain pang of anxiety that I've felt before.

Liz: Yeah.

Sean: It really is so subjective.

Liz: I like the idea that you're focusing on emotions, because that really gets to the core of what you think financial stability is and what the benefit is — why it's worth all this hassle to learn about money and change your behavior and all that. It's having that feeling of control. It's having that feeling of calm.

Sean: And one thing that I found really helpful in this process is if you think through all the various aspects of your finances, your spending, your retirement, your investments. If there's any area where, as you think through them, that you begin to get a little nervous and you have any kind of temptation to bury your head in the sand, that is actually a sign that you should be digging into that subject further, because that's an area where you feel unstable. And if you can address that, it will help you feel a little bit less anxiety when everything else is already so anxiety-inducing.

I should say, this is generally geared toward folks who still have a steady income or are pretty financially sound. Because a lot of people right now aren't in a steady place financially because they've lost their job. And for people like that, there's a lot of aid that we've discussed on previous episodes of the podcast that they should tap. But in general, for people who still have a somewhat stable sense of their finances, a steady income, this is what you should be doing. If you have a more dire situation, you can take more extreme steps.

Liz: And as we've mentioned before, 211.org is a wonderful resource if you're in that situation where financial stability just seems like a mirage on the horizon.

Sean: I talked with a financial therapist, and this woman I spoke with was discussing if people are feeling like they're in a pretty rough financial place right now because of the pandemic, maybe they aren't on track to retire, they've had a loss of income, whatever it may be. She suggested that people try to reframe the situation. Try to think about what could be the worst possible thing that could happen because of their current situation. Maybe they need to move back in with their parents or get a roommate, and think about where that might lead. I think that can help people stop catastrophizing their current situation and think about how they can actually move past this. Maybe they're not on their ideal path at the moment, but they can move forward in some productive way.

Liz: This is amazingly helpful because you take that catastrophic thinking and you just take it to this absurd end, or you realize that you have more resources than you think. If you worry about losing your house, OK, you do lose your house, what do you do then? Well, I could move in with the sisters-in-law. Here we go. But no, seriously, it's a way to walk through all the possibilities. Another thing I've found has been really helpful is to think about what we're grateful for, what I'm grateful for. I heard somebody say once you can't be fearful and feel gratitude at the same time. I think you can. But in general, I think that is a really good thing to think about is what you focus on can really help dictate your thought patterns and how you feel about the world.

Sean: And help you feel, again, a little more stable because that's what this is about, is getting rid of some of the million panicky feelings that you might feel rising up inside of you and focusing on what you can change and what is good in your life right now.

Liz: And I always like to take action too. Putting something into action makes you feel like you do have control, whether bumping up your savings rate or your 401(k) contribution, something like that.

Sean: You have absolutely read my mind. So we talked about the first part of this, which is the state of mind of financial stability. Now let's talk about the state-of-money aspect of this. There are certain things that you can dig into. The first one being, getting a grasp on your spending if you haven't done that already. We talk a lot about the 50-30-20 budgeting tool — super helpful, really easy way to lay out your spending.

That's one great option for people. Think about other areas of your finances where you can make improvements so that you feel more financially sound. If you have debt, maybe it's a mortgage or a private student loan and you can refinance them to get a lower interest rate. Or, even if you have credit card debt, try to get a 0% APR card and transfer that over if you have a higher credit score. There are some steps that you can take to make it so that your finances are at a better and more sound position than they were at the beginning of the pandemic, even.

Liz: I like all those suggestions. And I would add one more is, if you aren't already, donating to a cause that can help people with the pandemic. I think that does a lot toward reminding yourself that there are people who are worse off. There are people that you can help. And I think that can help you deal with the anxiety as well.

Sean: Even a small amount, monthly. I've set up regular $50-a-month donations to a local food bank for exactly that reason. Because I know so many people are having a hard time right now. $50 may not seem like a lot of money, but it can go very far. And thinking about the people that you know that need help right now, and the steps that you can take to help them can make you feel more financially sound, and also help people who aren't financially sound feel a little bit better about their life. So those are a few areas that I think people should focus on to shore up their finances and make them a little bit more sound. Liz, do you have any other suggestions for where people can focus?

Liz: Well, if the pandemic has taught us anything, it's about the importance of having an emergency fund, or at least some financial flexibility. It's not always possible to save this fat emergency fund. You hear people say, "Oh, you should have three to six months’ expenses." You know, the average family would take about two years to accumulate one months' worth of expenses. We've talked about that before. But having access to credit can help be a backfill as you're saving money for the future. If you are able to save, if you can put aside money, obviously that's a really good idea. If you can work on your credit score and get better access to credit, that also can be helpful.

Sean: And for folks who are in a position to build up their emergency funds, we know a lot of people have been saving more because they're not going out, they're not traveling as much. ... When I was talking with a financial planner for that column that I wrote, he actually recommended including maximum out-of-pocket health care expenses in your emergency fund — in that three to six months of nondiscretionary expenses amount that people should, ideally in the magical world, have saved up. That way you can cover any medical expenses you may incur, which during a pandemic, could pop up.

Liz: That's a great idea. If you can do it, definitely try.

Sean: Let's move on to this episode's money question, which comes from David in Florida. He says, "I've been very concerned about identity theft these days. So what can we do to protect our identities and accounts? What should we do if we find our identity and/or accounts are compromised? Thanks."

Liz: Yeah. This is a question that affects just about everybody, because just about everybody's been compromised.

Sean: Right. There were over 650,000 reports of identity theft in 2019, according to the [Federal Trade Commission]. And I'm sure that there are many more that weren't even reported. So this is something that we all need to be concerned about.

Liz: Yeah, absolutely.

Sean: And to help us answer David's question and give us some information about how we can protect ourselves, on this episode of the podcast, we're talking once again with Bev O'Shea, our go-to identity theft writer at NerdWallet.

Liz: Yay. Hey Bev, welcome back to the podcast.

Bev O'Shea: Thanks, Liz. I'm happy to be here.

Sean: We're happy to have you. It's always good to talk with you, Bev. So first off, David, our listener, is concerned about identity theft, which is great to hear because many people, I don't think, are as concerned as they maybe should be. So to start off, he's wondering what he can do to protect his accounts and identity. Where do you think he should start?

Bev: The first thing I would do is to freeze my credit. Even if you're not worried about credit per se, if somebody has those digits for your Social Security number, they can use it to open credit in your name. They can use your child's Social Security number even before it's assigned to open credit. What they do is they form what Eva Velasquez at the Identity Theft Resource Center calls a "Frankenstein monster of identity." They put it together with one number, a name, an address, and they may have that for years before you find out.

Sean: And that's called synthetic identity theft, right? Where they make this mishmash of different bits of information to form some sort of new identity that can still affect multiple different people.

Bev: Right. And that can happen to anybody, but it won't happen to you if your credit's frozen.

Sean: But one important caveat that you like to get across to readers and listeners is that it's important to freeze your credit at all three bureaus. I think you've likened only freezing it at one bureau to locking your front door while leaving your back door unlocked. And anyone can just walk in there, right?

Bev: Right. Exactly right, Sean.

Liz: Do you think people don't freeze their credit because they don't know they can, or because they think it's going to be a hassle?

Bev: I think because they think it's going to be a hassle. The other thing that I hear pretty frequently is, "I don't want to freeze my credit because I still need my credit cards." And I think people confuse freezing credit with not being able to use credit anymore.

Liz: Yeah. And you're not cutting yourself off from credit. You're just making sure that nobody can open new accounts in your name.

Bev: Exactly right. And it's not going to protect your old accounts. That's your job. You've got to read your statements. What I do is I have alerts set up so that anytime my card is used, I get a message about it. And for me that works. That might annoy other people, but I like to know every time.

Sean: I like using those alerts as well to kind of shame myself when I've made a big purchase that's outside of what I usually do. Getting all of those alerts and having to verify it again, having the mere prospect of that can deter me, personally. But that's a whole different conversation. But around freezing credit and the hassle around it, I thought when I was first getting into this, that it would be a little bit of a pain. You have to get a PIN. And if you forget it, sometimes the credit bureaus want to mail it to you. And that seems like a big ordeal.

I will say that you actually don't need to get it mailed to you. There are ways that you can get someone on the phone and get that PIN if you do lose it. And that might make this a little bit less intimidating for folks who want to freeze their credit but don't want to worry about another thing that they have to memorize — another password, another PIN. So that's one way where even if you do forget what your PIN is, you can still get it pretty easily.

Bev: Uh-huh. And two out of three of the credit bureaus now have a password, so that you go to a website and you sign on that way. And it's just like losing any other password, you just reset it.

Liz: And I think in their early days it was a bit more of a hassle. It took longer to unfreeze your credit, to thaw your credit, and to get it frozen again. And now it seems like it's seconds or minutes and you're good to go.

Bev: It is. And it's a lot easier than it was before. And it's also free.

Liz: Have we made the point that freezing credit is not permanent?

Sean: No, but you just did. Can you elaborate on that a little bit?

Bev: Yeah. Freezing credit is not permanent. You can freeze and unfreeze your credit.

Sean: One thing I like to do whenever I am applying for a new line of credit is do a temporary unfreeze. Where you can have it unfrozen for maybe just a couple of weeks, just so you know that whoever's going to be pulling your file, has time to get it. And then once that's done, you don't even have to think about going back and refreezing it because after the short period of time that you put in there, it's automatically refrozen. And so that takes another step out of this process so that you can continue to have your credit frozen pretty easily.

But I want to talk about credit freezes versus credit locks. Because there is a pretty big difference. And credit locks, I think, may seem more appealing to consumers because they're even easier to do than a credit freeze. But they don't have the same security, right?

Bev: They're supposed to, but they're offered by the bureaus. And because they're offered by the bureaus, it's not federal law that's protecting you, it's the bureaus. And everybody has something that you have to sign that holds them harmless if it doesn't work.

Liz: So you're basically signing away your rights, in a way.

Bev: You're exactly signing away your rights.

Liz: OK.

Sean: Personally, I'm not willing to sign away my rights when all I can do is click a few more buttons, maybe write down what my PIN is, and make sure that I have that extra protection of having my frozen credit versus my locked credit.

Liz: Yeah.

Bev: Mm-hmm.

Liz: One thing I wanted to talk about a little bit has to do with passwords, because I've gotten some of those phishing emails. It was actually a blackmail email. So they put my password that had been compromised in some breach — they put that in the subject line — and basically said, "I have all your passwords. I'm going to expose you for whatever if you don't send money to this address." And I have heard of that particular scam, I knew it was baloney. They got more and more aggressive. "I'm going to do this. You're ignoring me." Blah, blah, blah. But I think people don't still take seriously enough the fact that everything that you have that you think is protecting you has been compromised. So you need to do that hygiene stuff like using complex and unique passwords, changing them frequently, all that sort of security hygiene stuff.

Sean: Two-factor authentication.

Liz: Yes.

Bev: Yeah.

Liz: Yes.

Sean: Right.

Bev: Yeah, two-step identification is good. Also, be careful of easily guessable passwords. If you post pictures of your dog on Facebook, and you've said his name, people are going to guess that. Your mother's maiden name — if, when she died, you posted her obituary, they know that too. Don't use something really simple and guessable. If it's easy for you to remember, it may be easy to guess.

Liz: So, Bev, what are good practices for social media?

Bev: Social media is dangerous because if you post almost anything personal, it can get into the wrong hands. Something that a lot of people do and a lot of people enjoy is post their birthdays on Facebook. You're giving pretty much everybody your birthdate. If you're cool with that, OK. And I know I've got friends who think that they're not really doing it because they're only posting the month and day, but it's not that hard to guess. You've got friends from high school.

Liz: Yeah.

Sean: Friends from high school that maybe have nothing better to do than look into your information and try to make a buck off of you.

Liz: Yeah, and unfortunately a lot of financial services and other companies are still using security questions, which aren't secure at all. But they do use, typically, information that's easily found if you're on social media and you've been posting anything personal.

Bev: And be careful about those quizzes. You know, the “I want to get to know you better” quizzes. Don't take them.

Sean: Mm-hmm. Well, there are often companies behind those quizzes that are just gathering all of your information and then doing whatever they want with it. That's often selling it to other companies that are doing whatever they want with it. And it's pretty risky to do anything like that. Even though it seems totally innocuous, you have to weigh the pros and cons of what you're giving out there, how specific you're being. And I don't know, I guess, keeping your guard up if something does come back to bite you.

Bev: And I've heard it said that if something is free, you're the product. Something to think about.

Sean: Facebook.

Liz: Yep.

Sean: I want to turn now to the other part of David's question, which was, what should he do if he finds that his identity or accounts were compromised? What do you think should be the first step they take?

Bev: Go to IdentityTheft.gov. It's a website set up by the government, and it has directions on what to do regardless of how your identity has been compromised. If somebody has filed a tax return with your name on it, it tells you what to do. If somebody has used your credit card, it tells you what to do. If you just saw that you were part of a breach and you're just worried, it tells you what to do. So, that's my favorite place to go.

Liz: That's a great resource.

Sean: And so far as an account, say someone charged something on your credit card, those are pretty easy to dispute. You can just call your company and say, "Hey, I didn't actually make this charge." And they'll get rid of that very easily. But what about for more complex compromised accounts? Are there any instances of that that you think people should be aware of?

Bev: Well, what I would do with something like a 401(k), and what I have done, is use every layer of protection that they offer. The more of a hassle it is for me, the safer it is. So anytime that you're looking at something that's quicker and more convenient, think about that.

Sean: Right.

Bev: One type of identity theft that is particularly dangerous is health insurance identity theft. And just before the show, I was preparing and I was determined to find something stupid that I was doing that I should stop doing. And the stupid thing that I was doing is carrying my health insurance card in my wallet. And my logic was, if something happens to me, I need this at the hospital. Actually, I already had it in my Apple Wallet. I also already had it in the app that my health insurance has. There was no reason at all for me to have the paper card, but I had it. And so I've taken that out.

Sean: Well, thank you for the reminder, because I have it in my wallet as well.

Liz: Yeah.

Sean: Even though I took a photo of my card so I could have it on my phone for insurance, for my insurance, basically. And there's no need for me to carry that around with me. Not that I'm leaving the house much nowadays anyway, but that's a really smart one. And I think so many people have that same line of thought where they think an emergency could happen at any time, it needs to be accessible. But that's not really the case. It's accessible in other ways, besides the physical card.

Bev: Yeah. And I've done the same thing now with my auto insurance. And if you have a card that there's no way that you can put it in your wallet — and there are a few like that — all you really need to do is take a photograph of it. And if you've got Google Docs on your phone, just use that, as an illustration. And that way you've got it and other people don't.

Sean: Well, your mention of medical cards got me thinking about COVID-specific identity theft risks, because that's been surging since the pandemic hit. There was a recent event held by the Consumer Financial Protection Bureau about COVID-related scams. And they mentioned that since the pandemic began, complaints to the CFPB had gone up 86%, which is enormous.

Liz: Wow, yeah.

Sean: And there are all sorts of scams that are popping up because of the pandemic. Scammers are very creative, and they also have to stay current with the times, apparently. So there are all these different things like miracle cure scams, vaccine scams. There are even scammers who are pretending to be contact tracers. So there are pretty scary things going on out there. I'm wondering if you can talk a bit about what you've seen and how people can continue to protect themselves.

Bev: The contact tracers is one because people will hear on the radio that it's important to cooperate with them. But a contact tracer should probably be giving you more information than they're asking for. Some do legitimately ask for your birth date. Somebody that I talked to with Health and Human Services said that you should respond with offering your birth year. They don't actually need your birth date, and they're not going to complain, and any information that you give them is more than they had before.

Sean: Mm-hmm.

Bev: But second, if somebody calls you and they want to "confirm information," they need to give you the information first. You don't need to be giving them information. The other thing about these people that are calling you is just, take a deep breath and think. If you stop and think, you will avoid the feeling at the end of the phone call going, "Oh, uh-oh, now what do I do because I gave information away?" Because almost anybody you can call back after you have independently confirmed the number or the email; people who are legit are not going to be troubled by this. But anybody who's offering you a COVID test, say, and needs your insurance information or needs your Medicare number ... they don't. You should hang up.

Sean: And they're not going to be asking for your credit card number if they're a contact tracer, right?

Bev: Never, never.

Liz: They're really good at inventing the sense that you have to do something right now. They're trying to override that more skeptical part of your brain and get you to operate out of fear, which a lot of people are quite willing to do anyway. And one of the most ironic things is that they will exploit your fear of identity theft to steal your identity. I'm thinking of one woman that I was recently talking to who fell for the Social Security scam — the one that your Social Security number has been blocked because of identity theft.

Bev: Mm-hmm.

Liz: She lost $50,000.

Sean: Oh, no.

Liz: Basically everything she had saved.

Sean: It's awful.

Liz: AARP actually has a really good fraud watch that most people should be signing up for, even if you're not AARP age. Because they stay on top of these evolving frauds and can alert you about the ones that are out there. And I think if she'd been on that list, she might've known what was happening and might have been able to avoid it.

Sean: It's always worth repeating the fact that these government agencies — the IRS, Social Security — they're not going to be calling you. If they want to get in touch with you, they'll send you mail. But they're not going to ring you up and say, "Hey, I just wanted to check, what is your Social Security number?" They're not going to be doing that. And always remember that. That's something that I have family members fall for all the time, because it's scary. As you said, Liz, they prey on that urgency, and they want you to give your information. Just don't.

Bev: Going back to something Liz said about the AARP. It is a misconception that this happens mostly to older people. It happens to people who think that they're too smart for this to happen to.

Liz: Yep, exactly.

Sean: Right. Because I think people have their guard down. They think, "Oh, I'm savvy. I know what a scam is like." But that's the thing, these scammers are continually refining their tactics to prey on people who do have their guard down.

Bev: It's not always preventable. I don't want to blame the victim in all of these.

Sean: Right.

Bev: There have been people who have gone to apply for unemployment and discovered that somebody else has already applied for unemployment in their name. And that's not one they could have prevented.

Liz: Yeah.

Sean: Do you have any final tips for David in Florida who is concerned about identity?

Bev: Nothing other than, do not underestimate the importance of freezing your credit. It's really easy to do, and it's easy to unfreeze when you need your credit. And it won't keep you from using your credit cards.

Sean: And it's free.

Bev: And it's free.

Sean: All right. Well, thank you so much for talking with us.

Bev: Sure. Anytime, Sean.

Sean: Now, let's get on to our takeaway tips. Liz, you want to kick us off?

Liz: It would be my pleasure. First and foremost, freeze your credit and freeze your kids' credit, if you have kids. That will make it harder for bad guys to open new accounts.

Sean: Next step, be skeptical. Phishing emails, attachments and the like are used frequently by scammers because they work. Avoid giving people access to your personal information if they don't need it.

Liz: Finally, know that scams are always evolving. Right now that means scammers are trying to leverage the pandemic to get your personal information. Don't fall for it.

Sean: And that is all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373, that's 901-730-NERD. You can also email us at [email protected]. And visit nerdwallet.com/podcast for more info on this episode. And be sure to subscribe, rate and review us wherever you're getting this podcast.

Liz: And here's our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes, and may not apply to your specific circumstances.