The reality is that financial and economic terms are confusing—and not just to non-finance types. Plus, new financial terms crop up all the time to label or explain a new product or strategy (QE2 anyone?). It’s enough to make anyone’s head spin.

Since the news is particularly ripe with financial terms right now (due to the dismal state of the U.S. economy), I’ll take a stab at explaining some commonly used examples of “Finglish.” Hopefully, this will increase your financial knowledge, or, at the very least, prevent your eyes from glazing over the next time you read “yield curve.”

Federal budget deficit: This term is in the news constantly and for good reason—the federal deficit is huge at $1.4 trillion. This means that the federal government is spending $1.4 trillion more than it is earning in revenues over a year. Why? Because entitlement spending, interest paid on the national debt and defense spending are much greater than revenue from taxes. And when the economy is weak, as it is now, tax collections are down.

Entitlement spending: Another ubiquitous concept, entitlement spending refers to Social Security, Medicare and Medicaid outlays by the government. Even though we pay into this system during our working years, with rising costs of healthcare and longer lives, much more goes out than comes in. Our country’s leaders know that entitlement spending has got to be cut to fix the debt problem, but it’s a political minefield, and things will probably not change much until after the elections of 2012.

National debt: The amount of gross federal debt outstanding is an unable-to-imagine $14 trillion. The national debt increases or decreases based on the annual federal budget deficit or surplus. But a surplus has not been seen since 2003 and the deficit is now growing at a rate of $1 trillion a year. Together with the budget deficit, this debt was one of the reasons Standard & Poor’s gave when downgrading the United States’ credit outlook to “negative” on April 18, 2011.

Debt ceiling: The federal government is limited by law as to the total amount of debt it can issue. This limit is known as the debt ceiling. Currently the debt ceiling is $14.3 trillion, an amount that was technically exceeded on May 17. Fortunately, the government can continue to operate and pay its obligations through various accounting mechanisms and Congress will mostly likely vote to increase it.

And finally, quantitative easing (QE). This is a tool in the Fed’s arsenal to help the country out of a recession when all else fails. This is also referred to as “printing money.” The Fed tends to use QE when interest rates have already been lowered to near 0% levels (as they are now) and the economy doesn’t improve. Quantitative easing increases the money supply by flooding banks and other financial institutions with capital in an effort to promote increased lending and liquidity. The downside is that this could lead to inflation as there is still a fixed amount of goods for sale (too much money chasing too few goods leads to higher prices and inflation). The Fed will complete QE2 in June. There is much controversy over what effect this will have on interest rates, Many economists expect them to rise, causing another set of issues for the economic recovery.

This would be a good time to explain “yield curve” because when the Fed expands the money supply it also has the effect of lowering interest rates further out on the yield curve.  But I think this is enough of a Finglish tutorial for one blog post—I just know your eyes are glazing over. Stay tuned for the next Finglish lesson. I plan to write at least one blog post a month on the topic!

Sound familiar? Rest assured that you’re not alone. When leaving an employer many people opt to take the easy way out and check the box next to “no change, leave funds in current 401(k).” Then they go on to their next job and forget about it. For some, this may be the best option, but for many, it’s not.

When is it a good idea to leave your 401(k) with your old employer?

• If you have a small balance (usually less than $20,000–$25,000), otherwise you’ll pay a custodian (bank or brokerage) an annual maintenance fee to hold the account.

• If you like the investment options available to you and don’t have the time or inclination to investigate the best place to invest outside the 401(k).

In other situations, it makes more financial sense to choose one of the other options available to you:

1.   Rollover the 401(k) to a self-directed IRA (either a traditional IRA or a Roth IRA) in an account at a new custodian. You can then manage it yourself or with the help of a financial advisor.

2.   Rollover the 401(k) into your new employer’s 401(k) if there are decent investment options available, you have a small balance, or you don’t want to manage it yourself.

There is a fourth option: cash out and pay tax and penalties (with some exceptions) on the balance. However, this is just not a smart choice for most people.

There are many advantages to rolling over to a self-directed IRA:

• Gives you more investment options, including exchange-traded funds and stocks.
• Possibly reduces record-keeping and other account maintenance fees.
• Reduces the number of investment statements you receive.
• Makes is easier to maintain an asset allocation and periodically rebalance the portfolio.
• Reduces the chances of duplication in your portfolio.
• Decreases the possibility that you will “forget” about your money.

Here are the steps you need to take to rollover your old 401(k) into an IRA:

• Contact the plan administrator at your previous employer company and ask to be sent an IRA rollover form. Be sure to check the boxes for no tax withholding; because you are planning to roll the funds over, there will be no tax consequences. Some companies will conduct a trustee-to-trustee transfer, which means you won’t have to handle the money, but most send checks.

• Open a new IRA account at your chosen custodian. If you can do a trustee-to-trustee transfer, you will fill in the new IRA account custodian and account number on the form. Otherwise, after you receive the check, it must be deposited in the new IRA account within 60 days so as not to trigger a taxable event.

Once the funds are in your new IRA, you will need to invest them. That’s when the next challenge begins.

For additional reading on this topic:

Did You Leave Your 401 (k) With Your Old Employer? From Kiplinger on-line

The recent Bay Bridge closure is a reminder that life is short and fragile. Photo by Michael Macor/San Francisco Chronicle

The moment I heard about the Bay Bridge near-catastrophe….I thought oh, my God, that could have been me, my husband, or any one of the many people I know and love who cross the Bridge regularly. As it turned out, I did know one of the people who was on the bridge that day.  Lucky for her – she walked away with 4 flat tires, a totaled car, and frazzled nerves – but she was alive.  We all admit that “life is short” but when we say this we are thinking of our normal life span and yes, it goes by too quickly. But life is also fragile and we have no control over so many things – including whether we’re driving on the Bay Bridge at the moment it collapses.

What we do have control over, is how we choose to live day by day, and also how we prepare for the inevitable day of our passing. There’s a reason why so many positive-thinking, self-help, spiritual guides suggest writing your own eulogy as a way to get inspired about how to live your life. This exercise forces you to think about how you want to be remembered….and if you are living that way now.  Many of us get caught up in the busyness of the day-to-day, and never step back to see if all that activity adds up to a life we are proud of.

Think for a second about those you’ll leave behind.  The kindest thing any of us can do for the people we love, who will inevitably be devastated by losing you,  is to plan and prepare. Execute a will and a trust. Decide who will be the best guardians of your children. Make sure the designated beneficiaries on your retirement accounts are up to date. See a financial advisor about life insurance- do you need it?  Let someone you trust know where the key to your safe deposit box is  and where to find the combination to your home safe ….store your important documents and make copies for a trusted friend or advisor.   Live lightly, when you buy stuff and store it, think about a loved one walking into a room or closet and having to decide whether to keep or toss, recycle or sell your belongings.

The Bay Bridge near catastrophe was scary and inconvenient but sometimes that’s what it takes to motivate us to make positive changes and to take care of business.

Take good care.

Money, unlike apples, doesn't grow on trees. Remember hearing that growing up? It's true.

A recent article in Barrons, “Boomer Consumer” got me thinking; first, about my own clients and their particular situations, and second, about a key point that rang true: “The recession has left the typical 18-to-49 year old far less flush than the average 50 plus consumer.”

My youngest client is 29 years old, the oldest is 70, with the average age 48 years old.

Cash Flow, Budgeting, Retirement
The primary reason my 20 and 30 year old clients hire me is to help them with debt management, cash flow and budgeting. While my boomer clients definitely have felt the pain of dropping portfolio and home values, most invested before the bubble years and hold less overpriced assets.  My boomer clients are concerned about retirement, but the younger generation is challenged with making ends meet every month and is disproportionately saddled with debt.

Gen X and Student Loans
So are my Gen X clients spoiled spendthrifts knowing that they can fall back on Mom and Dad if things get really tough?  Not from what I see. I see student loan debt (so called “good” debt) that won’t be paid off for 20-30 years, incomes that aren’t keeping up with inflation, jobs that are harder to find and keep, and credit card debt not due to excessive living, but to just living. The easy credit years certainly didn’t help this situation. Young people and students with no credit history were able to use credit indiscriminately, and they did.

To take just one piece of this story, let’s consider student loan debt. This is a huge problem and it has unfortunate echoes to another, familiar financial narrative taking place currently. In a special report in Business Week titled “Student Loans: A Bitter Financial Lesson”, journalist Emily Schmitt writes, “Mountains of student loan debt have an unsettling parallel to another one-time boom market: real estate.  Like those who took out big a mortgage to fund their “can’t miss” investments in pricey McMansions – only to find those homes suddenly dropping in value – those of us who took out student loans to pay for pricey degrees, now find our prospects of securing well-paying jobs with comfortable lifestyles, shrinking every day.”

It may seem like a good bet to go into debt to get a good education, but if the decent job with decent pay is not forthcoming, and the price of admission is tens of thousands of dollars in long term debt, then perhaps the initial proposition is flawed. The recession makes these kinds of decisions truly difficult.

Is Generation X Solvent Enough to be Marketed To?
The Barron’s article that inspired this blog post  is not directly about debt, it’s actually about advertising. (Of course, debt and advertising are very close cousins.) The piece – Boomer Consumer – points out that the advertising industry might be making a big mistake by continuing to focus on the youth market instead of the boomer market.  I have to agree, because until the younger generation is less saddled with debt, and able to repair their collective balance sheets, they’re not exactly an ideal target audience for advertisers. The good news here is that some of these Gen X’ers know they need help or they wouldn’t be hiring a financial planner.

So what’s my financial advice to a Gen X’er trying to make good financial decisions?

1.  The number one goal has to be to pay off your debt.

Start with the highest interest debt first – usually credit cards.
Deferring student loan payments seems like a good idea – but interest is not
deferred on private loans. Start paying these loans as soon as possible, even with
minimum payments.

If you have large amounts of student loan and credit card debt and are also
making a 401k or 403B contribution, consider temporarily discontinuing the
retirement contribution  – on the amount that is not being matched only. Always
contribute up to your employer match…it’s like free money.

2.  Consider your living arrangement.
Can you take on a roommate?
Can you live in a less expensive part of town?
Can you move to a city with a lower cost of living?

3. Watch your cash flow and work within a budget.

4. There are programs that can help grads pay student loans. Do some research, not everyone is
eligible:
Sponsorchange.org
Americorps
StudentLoanJustice.org

Also read:

Is a College Education Worth The Debt at NPR.org

Jeanne Kelly, Founder and CEO of The Kelly Group

As a financial planner, I know too well how important good credit is to the financial health of my clients. Excellent credit is a financial asset that can pay huge dividends across all areas of your financial life. But the world of credit bureaus and credit reports can be a little confusing to many people. Maybe even a lot confusing.

If you weren’t already aware, whenever you apply for credit, whether for a mortgage, an auto loan or a home equity loan, the lender is going to “pull your credit” and take a look at your FICO score. That score is a hugely important metric. Virtually every lender depends on the FICO score to measure your creditworthiness. A “great” score means you’re eligible for the best possible interest rates. A “good” score means you can get a decent, but not “lowest possible” interest rate and so on. But what is “great” and what is “good” and who decides?

The good news is, it’s possible to improve your score. The not so good news is that banks and other lenders, frequently adjust what a “best score” is depending on overall economic conditions.

Jeanne Kelly is founder and CEO of The Kelly Group, based in Danbury, CT. The Kelly Group is a credit repair firm that specifically works with their clients to improve their FICO scores. The company works with individuals directly and with mortgage brokers. Jeanne was kind enough to spend a few minutes discussing the nuts and bolts of FICO scores.

Q: So what exactly is a FICO score? What does it measure exactly?

Jeanne Kelly: It works like this. Thirty five per cent of your FICO score is derived from your payment history. Thirty per cent comes from amounts owed on revolving balances. That’s a huge number – and people should know that by lowering balances owed, that could really help your score. Length of credit history is 15%, new credit is 10% and types of credit used is 10%.

Q: So there are five categories that go into your FICO score?

Jeanne Kelly: Right. If you understand this, you can work with your FICO score and stay on top of it and hopefully improve on it.

Q. Where does FICO get the information?

Jeanne Kelly: From all three credit bureaus – Experian, Equifax and Trans Union. A simple way to think about this is that FICO looks at your credit report and gives it a grade. So in order for the grade to change, you are really dealing with the credit bureaus, not FICO.

Q: How often is the information updated?

Jeanne Kelly: It could be updated every day. It depends on when your creditors decide to report your balances.

Q: Where does a person get their FICO score?

Jeanne Kelly: The thing to watch for are those offers where someone will give you your “credit score”. I’d stay away from that. Since most lenders are using FICO scores, then that’s what you want. Go to www.myfico.com — that’s exactly where you want to go.

Q: If a young person is just getting out of college, do they have a FICO score?

Jeanne Kelly: Well, you have a score if you’re using credit. You have to have two to three accounts to get a score. So whether it’s an automobile, a major credit card, a store card, a student loan – as long as you have three things reporting, you’ll get a score.

Q: How do you feel about young people and credit?

Jeanne Kelly: I suggest using credit in a healthy way and I also suggest trying to start young. I know people get afraid because college kids get these credit card offers and some of them go wild. But if you start young, by the time you’re 25, you will have learned how to use credit correctly and you’ll have a great score and get better interest rates.

Q. What’s a good score?

Jeanne Kelly: You know things change all the time; if you asked me that question last year I would have told you 680 was “A” credit. Now it’s 740.

Q. What changed?

Jeanne Kelly: Well, look around you. The banks have tightened credit, they’re being more cautious. People are talking more than ever about credit because of what’s going on in the economy and I’m glad — being aware is a good thing. If people are informed, then they can figure things out and improve their scores. But right now this is what banks are doing and people should be cognizant of that.

Q. Should people continue to use credit?

Jeanne Kelly: I do see people being afraid of it now. I’ve heard people say, “I’m going to use my debit card.” That’s a mistake. It’s perfectly okay to use credit, just do it in a healthy manner.

Q: Is it possible that your score is one point below what the lender needs to give you the best possible rate?

Jeanne Kelly: That does happen, sure. It’s like being in school – you might have to get a 90 or above to get an A. If you get an 89, you’re getting a B+. In that situation, you wait a little bit, you pay down some balances and try to move your score a bit.

Q. Is the FICO score a fair measure of a person creditworthiness?

Jeanne Kelly: I think it is. For the banks that are issuing credit, it simplifies the process quite a bit. Rather than trying to evaluate all the information in a credit report, or three credit reports, they have a grade. I think it’s a fair system.

Q. If someone believes that their score is inaccurate or isn’t a fair representation of creditworthiness, what should they do?

Jeanne Kelly: I would look at whether all your bills are being paid on time. And look at your balances. Remember earlier I said that 30% of the FICO score comes from revolving balances? Well here’s a great tip. If you keep your available balance to 20% or less of your credit limit, you’ll maximize your score for that particular portion of the FICO score.

Q: How long does it take for your FICO score to change?

Jeanne Kelly: It could take up to 90 days. So if you’re planning to go house hunting, be aware. You should start looking at your score months and months in advance.

Q: How does the Kelly Group help its clients improve their score?

Jeanne Kelly: We work directly with the creditors reporting the derogatory information on our clients’ credit reports. We’re the middle person. We know who to talk with to get the best, fastest results. We’re going to make sure that your creditors report accurately and we’re going to educate you at the same time. We’ll suggest what accounts to pay down, we might suggest opening a different account or closing an account.

Q: How much improvement can you achieve?

Jeanne Kelly: Well, every case is different. Some people might get a ten-point spike; others might see a 100-point gain. On average, our clients see a 50-point increase.

Q: That’s a big jump.

Jeanne Kelly: When you’re talking about a 30-year mortgage, it’s very dramatic.

There’s so much money riding on your FICO score. If you look at the interest on a thirty-year mortgage and the difference a better score could make, it’s just incredible. Think about it – when we do our taxes, we hire an accountant, when we go into a court of law, we hire a lawyer to protect our interests. With something as big as this, we really need someplace to go. That’s what we’re doing – we’re a small company trying to do the right thing.

Q: This has been fantastic. Really very helpful and informative, thanks so much.

Jeanne Kelly: I loved it! Thank you!