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Types of financial risks

There are many financial risks that people and families face, like losing a job, getting sick, having something stolen, or the value of money changing. Some risks are related to each other, while others are not, and some risks can be protected with insurance, but not all of them can be. Created by Sal Khan.

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Video transcript

- So let's talk about what I would consider a little bit of a downer topic, and then that's a financial risk. And I'll just tell you about the things that I worry about. First and foremost, what happens if I lose my job? And maybe it's a bad economy, and I have trouble getting a job, or I have trouble getting a job that's at the same level of income. What will I and my family then do to support ourselves? How will we pay our mortgage? How will we pay down other things that we need? How will we pay for food, et cetera. And in general, that type of risk. I think the best way to mitigate it if it happens is to have a nest egg to start saving money so that you can have several months to live off of it ideally, so that you have time to find a job, and you have a little bit of a cushion. If you need to downsize, it allows you to transition there. Another thing that I worry about is, well, what if something not losing my job, but what if I get injured in some way? What if I fall sick or what if someone I care about falls sick, and they need help with their medical bills? That could be a very, very, very significant expense. Now, things like illness or if I were to somehow get disabled somehow, so I can't work, there are sometimes insurances for that, especially things like disability insurance, but once again, probably the the best option. You might be able to get some insurance, but also to have a nest egg to save some money so that in case something were to happen, where the income gets interrupted either for yourself or your partner or others, that you have a cushion to support you in that. But there are many, many other types of risks. As I said, this is going to be a downer conversation. There's the risk of death. And I know what some of y'all are thinking. I thought this a little bit when I was young. Well, once I die, you know, why would I worry about finances at that that point? Well, there might be people who are dependent on you that you care about, that you want to still be in a good situation. And you know, I for example, once I had kids, I completely understood the point of life insurance. And so one, you can once again save money. Saving money is usually a good solution for many, many, many, many things. But on top of that, you know, I just recently extended my life insurance policy so that if anything were to happen to me, obviously our income would go away. My wife might need more help, help being able to raise the family. So I have a life insurance policy to help in that situation. So if I were to pass, the insurance company would pay my family money to help them out. And I will say that even savings, and investment come with some financial risk. You can lose money on your savings or especially on your investment. The stock market can go down. You might have a lot of your savings. In fact, most people do have a lot of their wealth in their house, and housing prices can sometimes go down. So that is a real risk. And even with savings, if there's a lot of inflation, and your money's just sitting in the bank getting less interest than the amount of inflation that there's there, then in actual ability to buy things with that money, it could be going down. So there's even a risk there. So generally speaking, it you know, I don't want you to get too anxious or paranoid about financial risk, but it's healthy to be aware of all of the risks that might be out there. I didn't list all of them. And the general mechanisms you're going to have to make sure that that you have some cushion in life is ideally saving and then you might be able to get insurance for certain things. And there's other types of risk. I mean the more I think about it, unfortunately, it's easy to think of other words. There's liability. If you got into a car accident and and you're in the wrong, and someone sues you, you could owe a lot of money to them. And once again, there's insurances for that. Liability insurance. But if it goes above and beyond the insurance cap, or if you didn't have insurance, people could go bankrupt over a liability or owing someone. You could have property damage. Let's say your house gets struck by lightning or burns down and you didn't have insurance on it, well that can really hurt you financially. So once again, think about the risks. Don't, don't have too many sleepless nights about them. I try not to. But best thing is to just think about where you can be insured and it's reasonable. Think about where you can save money, and then also be very careful so that some of these risks don't hap happen to you. Like you know, take precautions so that hopefully you don't have liability or take precautions so that someone can't steal your identity or steal your credit card, and take money from you. That's another financial risk. And that one is, well, there is some identity theft insurance, and things like that, but that you know, the best thing to do is just to be careful. So be careful out there. Save your money and you might wanna think about insurance where appropriate.