How Essential Are These Common Financial Products?
There are seemingly hundreds of different products available for those looking to improve, protect, or grow their financial status. As one would expect, all of these products are marketed as essential, as something you cannot possibly be without – a marketing spin that can make it rather difficult to ascertain what is actually essential, and what you can do without.
Due to this issue, below we’ve sought to detail a number of common financial products, and then tried to decide if they are as “essential” as the providers would have you believe. Starting with…
A standard Bank account
What is the product? Accounts that allow you to make payments – via debit card or by direct debit – and receive funds. Some bank accounts have overdraft facilities also, though these are usually dependent on a good credit score.
Is it essential? Yes, especially given the trends suggest the US is moving towards a cashless society.
A “reward” bank account
What is the product? An account that functions identically to the standard bank account, but pays “rewards” such as air miles or cashback.
Is it essential? No; reward bank accounts are nice to have, but they are not essential. Furthermore, if you do opt for a reward account, ensure you are not being charged a premium for the service; a reward account is only truly rewarding if the benefits are completely free.
A standard savings account
What is the product? An account that pays interest on any money that you save.
Is it essential? Not necessarily. Savings accounts are nice to have, but only if you have funds available to save. It’s also worth noting that interest rates remain relatively low, so you’ll need to shop around to ensure you find the best deal available.
Stocks and shares
What is the product? Investment products that allow you to invest in a company.
Is it essential? Absolutely not. Stocks and shares have often been seen as the traditional method of investing, but they are far from essential. Furthermore, stocks and shares are considered a risky way of investing, and people should only invest money that they can afford to lose.
Debt consolidation loans
What is the product? A loan that is provided for the specific purpose of consolidating other debts, such as credit cards or store cards.
Is it essential? No – and worse yet, some experts believe that debt consolidation loans are actually problematic. Debt consolidation loans do wipe out debt, but they do little to change behaviors that led to the debt being accrued, which means some people find themselves needing to consolidate more than once.
Home insurance
What is the product? A monthly payment is made in exchange for the insurer agreeing to cover the cost of expensive home-related issues people may experience; for example, if their home is burgled or suffers storm damage.
Is it essential? Yes, as the cost of self-funding recovery after a disaster can easily run into the thousands. Home insurance is, therefore, a long-term investment in financial security and the avoidance of debt.
Car insurance:
What is the product? The same principle above, but related to car accidents and damage.
Is it essential? Yes, for the same reasons as home insurance, but also because car insurance is a legal requirement in most jurisdictions.
Life insurance
What is the product? The same principle as for other forms of insurance; pay a premium and have the ability to make a large claim in future. Most forms of life insurance apply to an individual, with claims made following their death.
Is it essential? Yes; as this useful life insurance guide points out, life insurance can help maintain a family’s standard of living after the death of a loved one. In addition, many people find that life insurance provides invaluable peace of mind, as it allows them to relax, safe in the knowledge that their family’s future is secure.
Credit cards
What is the product? Credit cards allow the user to buy products and services without having the funds immediately available in their bank account. The card provider advances the initial cost, which is then repaid – with interest – over subsequent months.
Is it essential? No, credit cards are not essential, though they do fall into the “nice to have” category due to the benefits they offer.
In conclusion
Financial product providers will always tell you that their specific product is vital, but as we’ve seen, this isn’t always the case. By focusing only on the products that you truly need you should be all the more able to ensure your overall financial management is as simple and effective as it can be.
