By FPA member Leslie Beck CFP®

Last Updated: February 22, 2010

A big part of any financial plan involves protecting your assets, whether through investment or estate planning vehicles, or some type of insurance such as life, health and disability. But protecting what is arguably your most personal asset, your identity, is rarely formally addressed in most financial plans. And identity theft is a problem that is only growing.

Recent data from Javelin Strategy and Research shows that one in every 10 U.S. consumers have been victimized by identity theft. The U.S. Department of Justice estimates that the dollar amount lost per household averaged $1,620 as of 2005, and this does not include the time spent working to repair the damage. Consider: 47 percent of victims encounter problems qualifying for new credit after the theft, and 70 percent report having difficulty removing negative information due to identity theft from their credit reports. And credit reports are not just used to approve new credit — companies often use them to evaluate applications for things as diverse as a new job or auto insurance.

So what steps can you take to protect this important asset? The Federal Trade Commission recommends the following actions:

1. Protect your Social Security number. Don't carry your card in your wallet or write the number on a check. Wherever possible, do not use it as identification.
2. Treat your trash and mail carefully. According to Javelin, stolen wallets and physical paperwork account for nearly half of all identity thefts. Shred credit card receipts, insurance forms, physician statements, checks and bank statements, and other mail or forms that may contain personal information. Deposit outgoing mail in secure post office collection boxes or at your local post office. 
3. Be careful using the Internet. Internet use can leave you vulnerable to online scams, "phishing" schemes and more. Learn more information on preventing internet fraud, securing your computer and protecting your online information. 
4. Select intricate passwords. Use passwords for your credit card, bank and phone accounts. And make them strong passwords — a recent New York Times article pointed out that the most popular password in use is "123456", followed closely by "12345." Avoid using personal information, such as a mother's maiden name, as a password or security question. With the rise of social Web sites, much of this type of information is now easily attainable.
5. Verify a source before sharing information. Don't give out personal information over the phone, through the mail, or over the internet unless you have initiated the contact and know who you're dealing with. 
6. Safeguard your purse or wallet. See No. 2 above. Most identity thieves still work the old fashioned way — they steal it. So carry only the information you absolutely need in your purse or wallet.

One final suggestion — review your credit reports, at least on an annual basis, to determine that all transactions shown there are legitimate. By regularly monitoring your reports, you may be able to spot any unusual activity and take action before it spreads. You can order an annual free credit report online at AnnualCreditReport.com. Note that you are eligible for a free report from each of the three reporting agencies (Experian, TransUnion, and Equifax), so ordering one from a different agency in four month intervals will allow you to monitor your credit year-round for free. Just remember the reports can differ from each other, so this is not an absolutely fool-proof monitoring system.

FPA member Leslie Beck, CFP®, is vice president at Compass Wealth Management LLC.