U of Ideas in Science -- June 1999
Contact: Jim Barlow, Life Sciences Editor
(217) 333-5802; [email protected]
FAMILY ECONOMICS Web site provides user with analysis of financial risks and strategies
CHAMPAIGN, Ill. -- Wanting to protect the family's financial health, but unsure what to do? A big chunk of the puzzle is identifying and managing risks, and many middle-of-the-road wage earners don't understand the game, says a University of Illinois Extension educator.
"Most of us have never sat down and asked, 'What are all the risks that I face, and which ones are the scariest?' " says Karen Chan, a family economist at the U. of I. Chicago Extension Center.
To that end, Chan has developed an interactive Web site (www.urbanext.uiuc.edu/risk) that anyone can use to evaluate his or her financial risks and consider potential risk-management strategies, many of which involve the complex world of insurance.
In about 30 minutes, a user can identify risks, learn about the four basic methods of managing them and determine what methods are already being used. The user begins by ignoring any insurance he or she currently has while rating the potential financial impact and likelihood of each of several common events. Among the events are death or disability of the family breadwinner, major surgery or hospitalization, burglary, car accident, divorce, marriage, a child's college education and job loss.
After the user identifies how each event's risk is currently being handled, the responses are instantly analyzed for gaps in current risk-management strategies. While simplistic in its operation, the final analysis helps a person think about where he or she stands.
"This site is about risk management, and about choosing appropriate strategies, of which insurance is a major one," Chan said. "There are others that can be equally important, such as action that reduces the likelihood of an event, controlling the damage of an event if it occurs and removing the possibility of an event occurring."
Some risks might raise some eyebrows. "Divorce really is a bit of an oddball to include, but I felt I would be remiss if it wasn't in there," Chan said. Taking out insurance against divorce probably isn't an option, but thinking about possible strategies is. "You can reduce the likelihood of divorce by maintaining good communication with your spouse," she said. "You could reduce the financial impact of divorce, if you are a non-working spouse or the lower-income earner, by re-entering the work force or improving your job skills to get higher pay."
While solutions are not spelled out for each event, the identification of gaps in management strategies can get people thinking. "The first thing I want people to look for is any gap that indicates a risk for an event that a person cannot afford to bear," Chan said. "A good example is a working person who has no disability insurance. Being disabled for more than a few months could be financially devastating. People need to ask: What risks am I exposed to that I've done nothing about?"
Chan is a certified financial planner and is a member of the Association for Financial Counseling and Planning Education and of the American Council on Consumer Interests.
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