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Showing posts with label Financial planners. Show all posts
Showing posts with label Financial planners. Show all posts

Monday 15 July 2013

The mind-set: how the rich get richer, the poor get poorer? You need more money ...

The rich may get richer while the poor may get poorer, but it doesn't have to be that way. It requires a change of mind-set.


I ONCE overheard someone lament that “the rich get richer and the poor get poorer”, which made me think if indeed that statement is true.

The rich do get richer only because they have sound financial concepts required to stay rich. They focus on their net worth, working on their appreciating rather than depreciating assets.

They know how much is required to keep their lifestyle. They don’t necessarily need to be debt-free because they know what good leveraging can do to enhance their wealth. They employ financial strategies which are contrarian to common ones - taking on investment opportunities when others would stay away and having the purpose driven portfolios.

They consciously inject capital into their portfolios rather than on an ad hoc or timing basis. They know the impact of inflation on their money and insurance coverage because they review their financial life regularly. Their financial data is maintained and accessible anytime they want.

The poor do get poorer only because they continue to adopt a poverty mind-set. They focus on their expenses too much either being overly frugal or overly spendthrift.

Frugality means overprotective of your money which prevents risk-taking while overspending means financial leakages and unnecessary bad debts.

Their financial life has no planning and they have never taken a conscious effort to straighten it out. Their finances are all lumped into a “pot” which is meant to be used for everything.

They do invest but usually due to either lack of knowledge or fear of losing their capital, the amount is too small to be financially significant. Their insurance coverage depletes as medical costs rise, unsure what and for how much they are insured for.

It really doesn’t have to be this way. There is a way to change your financial situation. The first step is to decide to be financially responsible yourself. Acquire the right financial knowledge and make that change. Find a financial buddy to help you get started.

- Financial Snacks by Joyce Chuah, CEO of Success Concepts Life Planners

So you need more money ... 

The problem always starts when you owe more than what you can earn, financial experts say.

When it comes to money, Adrienne Wong (not her real name) believes she is a reasonable spender.

An assistant communications manager, Wong, 31, earns about RM8,000 a month, but says her debts take up a sizeable chunk of her monthly income.

The two biggest items in her list, her housing and car loans, amount to about RM3,000.

“My credit card bills usually come up to another RM1,000 plus, so that’s more than half of my salary gone. With utility bills, that’s another RM600. The rest goes into savings, pocket money for my parents and a bit of shopping.

“With property and car prices as high as they are now, it’s no wonder our loan amounts are so big. But what choice do we have?” Wong asks.

Indeed, the rising rate of household debts is a pressing concern – as of March, this year, the Malaysian household debt ratio against the GDP reached an all-time high of 83%.

Last week, Bank Negara Malaysia (BNM) announced a three-prong approach to curb the rising trend of household debts:

> Maximum tenure of property financing is now fixed at 35 years;

> Maximum tenure of personal loans is fixed at 10 years;

> Prohibition on the offering of pre-approved personal financing products.

BNM Governor Tan Sri Dr Zeti Akhtar Aziz had said that Malaysia currently has the highest household debt to GDP for a developing country in the region. In comparison, Thailand’s household debt ratio stands at 30%, Indonesia at 15.8%, Hong Kong at 58%, Taiwan at 82%, Japan at 75% and Singapore at 67%.

Countries that have higher household debt to GDP are the United States at 91.7%, United Kingdom at 114%, Australia at 113%, New Zealand at 91%, and South Korea at 91%.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng says BNM’s move is a “prudent one”.

“A financial crisis can always be traced back to excessive borrowing or leveraging, and the problem is that we never know we are in a credit bubble until that bubble bursts.

“The higher this figure is, the more vulnerable the household sector will be to economic shocks, which can come in the form of an economic downturn,” he says.

The concern, he says, is when people owe more than what they can earn, which is not sustainable.

According to BNM figures, the three biggest contributors to Malaysian household debt are the housing, car and personal loans (refer to chart).

Personal loans can be used for a variety of reasons.

Teacher Siti Norsharmi Fateh Mohamad, 28, says she took a RM35,000 personal loan three years ago to fund her wedding.

“We wanted our wedding to be special, with everything done up nicely. It didn’t feel like much then, but now that we have more commitments (a daughter and a housing loan), it’s definitely an additional burden for us.

“On hindsight, we shouldn’t have taken the personal loan ... it wasn’t a necessity,” she says.

But personal loans are popular lately and there’s a reason for it.

“Banks aggressively push personal loans because it’s one of the most profitable products for them. Interest rates for personal loans can be anywhere from 3% to 12%,” says a former local bank manager who declined to be named.

Spending trends have also changed, says Dr Yeah.

“Previously, people only spend what they can afford, but practices have changed. Today, many people don’t mind spending money they don’t have.

“Taking a personal loan is not necessarily a bad thing, but it depends on why you’re doing it. Taking a personal loan for education, for example, is fine, because you’re improving your skills ... or for medical purposes to enhance one’s health. But to take a loan for conspicuous consumption, or to make speculative ‘investments’... I think that should be discouraged,” he says.

Credit Counselling and Debt Management Agency (AKPK) chief executive officer Koid Swee Lian agrees.

“It is quite common now for people to take personal loans prior to a festivity because they want to buy new furniture, change their curtains, do a bit of renovation.

“Consumers must be discerning and responsible in their borrowings, just as credit providers must be responsible in their lending. Earn before you spend, not spend then earn! Use the debit card and not the credit card if you cannot pay in full each month,” she says.

Before taking a loan, Koid says consumers should ask themselves:

> Do you really need the personal loan?

> Is it for a productive purpose or can you forgo it?

> Can you afford to pay the loan instalments? If the interest rate increases, can you still pay the increased loan instalments?

> If the loan is for a productive purpose, would you generate enough income to repay the loan and leave some income for yourself?

If taking up a personal loan is absolutely necessary, Koid advises potential borrowers to do their homework and compare the different bank rates.

“Go to bankinginfo.com.my where you can make a comparison of all the rates. Don’t take a loan just because it’s offered. Also, understand what you’re signing up for. Find out whether the bank is charging you a flat rate, a reducing rate or a floating rate,” she says.

Koid gives an example of a loan with these terms – a RM10,000 loan to be paid over five years at 4% interest rate per annum.

“A flat rate of 4% for a five years may not sound like a lot, but what it actually means is that you’re essentially paying 20% interest for the five-year loan. The amount of interest you pay doesn’t change regardless of how much you’ve repaid,” she says.

“Compare this to a reducing rate. If you’ve paid RM1,000, that means the interest should only be on the remaining RM9,000.”

Those who have trouble managing their cashflow can also seek help at AKPK or call its toll-free line at 1800-88-2575.

“People who have a debt problem often feel very embarrassed, but I think they need to be realistic. You’re in that situation, you have to solve it. Come to us, we will do our best to help you,” Koid says.

Saturday 31 March 2012

Personal finance: what rich Asian women want for their money?


Starting today, StarBizWeek features a column on personal finance called Money & You, which will focus on money matters as they relate to YOU. Our two writers will take turns every fortnight to shed light on personal finance matters.

■ Yap Ming Hui is an independent financial advisor and author of five best-selling books on personal finance. He is the managing director of Whitman Independent Advisors, an independent financial advisory firm licensed by Securities Commission and Bank Negara Malaysia. Since 2000, Yap and his team of licensed independent financial advisors have successfully helped numerous clients achieve financial freedom. Yap believes that all Malaysians can fully optimise their wealth using a holistic wealth management approach.
 
Carol Yip, founder of Abacus For Money, believes that if people understand their money mindset, behaviour and money psychology, they can be financially happy and successful. She actively promotes financial literacy and intelligence within families and for women, youths and retirees.

MONEY & YOU By CAROL YIP

WOMEN in Asia are building and inheriting more wealth than ever before. According to Boston Consulting Group (BSG) 2010 report, the percentage of wealth controlled by women in Asia (ex Japan) is rising nearing 30% annually and total wealth controlled by women reached RM2.8 trillion in 2010. Their heightened visibility in financial circles can be traced to more women achieving success in the workforce and a greater number of women actively managing family finances. Kim Sung-Joo recently made her debut on the inaugural Forbes list of Asia's Power Businesswomen in celebration of International Women's Day recently. She is the youngest daughter of an energy conglomerate tycoon in South Korea and created her wealth from luxury fashion.

The increasing number of wealthy women is also partly because they are inheriting wealth due to their longevity. Puan Sri Lee Kim Hua, 81, widow of the late casino magnate Tan Sri Lim Goh Tong, is one of the 40 richest Malaysians on the 2012 Forbes Asia list.

Without a doubt, Asian women are creating significant financial visibility. But are bankers and wealth advisors paying sufficient attention to this alluring segment of the market?

Women of wealth

Based on research conducted in 2011 by the Family Wealth Advisors Council, a network of US-based, independent fee-only wealth management firms, the financial services industry has a long way to go if it wishes to provide the kind of service wealthy women say they want. The title of the study of high net-worth American women says it all: “Women of Wealth: Why Does the Financial Services Industry Still Not Hear Them?”

Involving 551 women across the United States with a net worth of US$1mil or more, the study collected survey questionnaire data across marital status, employment status, age and net worth. The research looked at what worries wealthy women:

About 86% of working women surveyed consider obsolete careers and eroding earning power as risks to their financial success;

Married women believe health challenges present a greater risk to their financial security than the death of a spouse;

About 96% of women want their unique circumstances and their entire life picture understood by their financial advisor;

About 80% of women (either married or divorced) believe that they will be called on at some point to help one or more of their children in a crisis;

About 81% of retirees see a potential decline in the economy as a major risk, versus 45% of full-time working women; and

About 57% of married women feel that divorce poses a significant risk to their financial well-being.

With women's economic clout in the workplace and purchasing power in all consumer and commercial markets increasing, their dissatisfaction with the financial services industry is also growing. The study clearly showed that women do not like to be considered a monolithic group, but want services tailored to their specific circumstances. Evidence suggests that wealthy women in Asia Pacific are also having similar experiences.

Different women different needs 

As more women call the shots on money, they also want their wealth advisors to do a better job of meeting their needs. They want the same attention, advice, terms and deals that men get with advisers who provide investment recommendations. But, at the same time, women want advisors to tailor services to them because they have very different needs and expectations than men.

In the BSG survey, women said advisors tend to assume they have a lower risk tolerance than men, so advisors provide only a narrow range of investment alternatives. Some women claimed that advisors for women are too quick to focus on strategies that don't emphasise on performance, assuming that women are more inclined to make investment decisions based on social issues. With these and other study insights, wealth advisors who service female clients should foremostly recognise that women want to be treated differently. Some suggestions come from the findings:

Women want to be understood as unique individuals. They want an advisor who listens to their needs and is trustworthy. A fiduciary advisor who knows how to create strategic investment allocations based on a women's situation, goals and risk appetite will stand a better chance of securing their business.

Women are looking for advisors who can provide advance planning, relationship management and investment advice a one-stop boutique financial centre.

The wealth advisor's gender plays an important part of the financial planning process for wealthy ladies. Female wealth advisors will be able to relate better to their situations and challenges than men.

Women's investment attitude

It's no surprise that women's behaviour as earners, investors and savers is the subject of a large and growing body of behavioural economic research, which has yielded important findings. Women prefer to focus on long-term investment goals and seek holistic advice. When women invest, they tend to look for informed advice and better rate of return than men. Women can be too conservative in their approach, especially given the fact that they tend to live longer than men. Ultimately, from the way they seek financial information and advice, to their understanding of the long term, women's financial behaviour holds crucial lessons for all financial advisors.

Women may also tend to limit their trading far more than men do. They prioritise by protecting principal rather than taking risks to grow their assets. A study by the University of Michigan's Retirement Research Center finds that men frequently and unnecessarily trade their holdings. All other things being equal, the male participants trade 56% more than their female counterparts, and the more they trade, the worse their performance becomes “a result of a too-rosy estimation of their own investment skills,” the researchers write.

The landmark study on gender differences in stock investing also finds that men tend to sell too early, or to swap assets for new ones that underperformed what they havve sold. By contrast, women are more inclined to take the long-term view and understand that performance in many cases are best measured over time.

Huge potential 

Women's financial behaviour and preferences across varied situations show major differences from men's. Women's financial strengths are significant. So are their challenges.

The provision of tailored wealth management services for wealthy women is much needed. There is a unique opportunity for the financial services industry to design investment, insurance, trust and estate planning products and services that better address women's needs, psychological preferences, life values and different life stages.

Wealth is a “means of life planning rather than a goal in itself” for women. The one-size-fits-all concept is no longer appropriate. Customised fitting is always the preferred choice to make wealthy female clients happy. Wealthy female clients will be loyal customers when wealth advisors deliver the results they want. A long-term trusting client-advisor relationship will be the result.

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