Social and Environmental Investing Impact

Social Investing 2Impact Investing is a growing trend for a number of reasons. One of them is to increase awareness of the environmental movement. TreeHugger, Grist, Dot Earth, EcoGeek, AutoblogGreen, Mother Nature Network – these are just a handful of the top green websites that have million of readers altogether. Today people are more informed about environmental and social issues than ever and many of them are committed to being careful about their consumer decisions to reduce negative impact and to do some good in the world.

Impact investing is exactly what these more-informed investors are doing, because as the term indicates, this investment approach focuses on supporting companies that are trying to respect the natural world and help workers be safe and healthy. In environmental terms, the effects of climate change are one of the main concerns. For an impact investor, certain breakthrough or disruptive technologies that are not fossil-fuel based would be obvious places to look for investment opportunities.

The first supporters of the electric car manufacturer Tesla would be examples of green impact investors, though some of them were probably looking first at return on investment. (Double Bottom Line was an early investor in Tesla.) Another example of this kind of investing is venture capital leader Khosla Ventures supporting energy storage start-up Liquid Metal Battery Corp.

So, what does this information have to do with individual investors who want to be impactful with their investments?  It gets a little confusing because there is a new financial tool that is being touted as a potential strategy for solving societal problems called the social impact bond. The idea is that investors with very large amounts of money – like Goldman Sachs – will invest in socially beneficial programs, and if these programs are successful, an entity like a city government that started the program will pay back the investment capital and a small return. Then all parties that participated in the social experiment will be satisfied, at least in theory.

So this type of impact investing is for very large institutions with potentially huge amounts of capital, but what is the individual investor to do? First, simply starting searching online and finding out about all the different opportunities can provide a great foundation. For example, there are peer-to-peer lending platforms – also called social loans – where you can loan someone in need a specific amount of money with an agreed upon interest rate. In this case, you would be functioning like a one-person lending institution. To make your loan socially impactful, you would choose to make the loan based on funding someone whose life would benefit most from it.

Secondly, there are investment opportunities like mutual funds like those offered by Green Century Funds. These funds invest only in companies with environmentally aware policies. Companies participating in weapons manufacturing, tobacco processing, paper pulping companies or ones that chop down huge swaths of forest are not included in these types of mutual funds.

Another example of such a mutual fund is managed by Calvert Investments. You can find them by Googling socially responsible mutual funds. There is also a website called SocialFunds.com, for more examples.

The Parnassus Workplace Fund is another example, because it only invests in companies that take care of their employees. The result of treating their employees well typically is less turnover, better employee performance and steady profits.

Impact investing can take a number of different forms. Capital is often thought as a single, large source of money usually owned by a bank, investment firm or government agency. However, each individual in society has a relatively small amount of her or his own capital, that when applied together, can produce large-scale results.

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Starting College – Financial Tips

college 2Parents hope for a better life for their kids and it starts with helping after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.