Case Analysis - Basic Finance.docx

YOUNG FILIPINOS ARE KEEN ON SAVING MONEY, SAYS SURVEY MANILA, Philippines— Young Filipinos are keen on saving money and are interested in the banking sector, a report on the country’s Banking, Financial, Services and Insurance (BFSI) industry showed. This was revealed after ThoughtBuzz, a web page application that provides social media monitoring, carried out a research and examined social media chatter in its “Young Filipinos and Finance” report that revolved around the banking sector. The report was based on public chatter on all popular social media platforms in the Philippines including Facebook, Twitter, blogs, forums, bulletin boards, among others. The report revealed that the discussion on social media channels and networks centered heavily on banking topics (70%). Conversations also circled around other topics such as remittance and investments in properties, gold, etc. (19%), and stocks (8%) with insurance (3%) generating the lowest amount of buzz. The report revealed that buzz on banking was fueled by New Year resolutions to save money for the year ahead, and news on Bangko Sentral ng Pilipinas (BSP) particularly on the growth of the Philippine peso. “Through the BFSI study, we saw netizens reveal how they assess various insurance companies, based on performance, services and reputation,” said Ashok Patro, chief operating officer of ThoughtBuzz. Patro said consumers highlighted the companies’ stability as a major deciding factor when selecting the right insurance company. According to him, the study also showed the importance of tapping into social media to learn more about the company’s products and services and to listen to customers’ concerns. “If companies are not already actively listening, now is definitely the time to start. Companies would then also be able to effectively engage consumers and provide real-time solutions via the various social media sites,” he said. Financial literacy affects spending, saving habits Making enough money to cover basic expenses counts a lot in allowing people to have leftover cash at the end of each month. However, results of a new World Bank survey suggest education may have a significant effect in household financial security. The World Bank this week said its recent baseline survey on financial inclusion in the Philippines showed most Filipino families’ incomes were eaten up by basic necessities every month. As expected, this represents a significant hurdle in the amount of savings Filipino families can set aside. About 55 percent of families said the money they were making every month barely covered expenses. Of the families that report saving money, only half keep their cash in banks. Results of the World Bank survey on financial inclusion for the Philippines mirrored the outcome of a similar assessment made by the central bank this year. But the World Bank report takes its results further, noting that respondents who say they save regularly are more likely to have money left at the end of every month, less likely to borrow, and less prone to overspending. Results cut across income levels. “We’re not claiming causality, but there’s a strong correlation,” World Bank senior financial sector specialist Nataliya Mylenko said at a press conference. To measure financial literacy, respondents were asked if they were familiar with basic terms concerning money such as interest rates, the purpose of insurance, compound interest and risk diversification.

Respondents who knew more about financial terms were found to be more responsible with their finances, the World Bank said. Respondents who passed the World Bank test were 24 percent less likely to buy things they could not afford, 11 percent less prone to overborrowing, and 20 percent more likely to having money left after paying for basic necessitates. Similar results were found for respondents who said their finances were planned out. The World Bank asked families if they followed plans on how their money would be used. Nearly half or 45 percent of respondents said they didn’t plan their monthly finances, while the rest regularly or occasionally had plans. Respondents who budgeted their money regularly or occasionally were 12 percent less likely to overspend, 5 percent less likely to borrow money they couldn’t afford to pay, and 9 percent more likely to having savings at the end of every month. World Bank’s Mylenko said the survey results meant policymakers should focus on financial literacy education. Interventions may include getting financial literacy into the basic education curriculum. “The area of financial education came into light after the global financial crisis. It became really clear that a lot of the reasons for the malfunction came from lack of awareness of risks,” she said.

FILIPINO CHILDREN SAVE MONEY, BUT NOT FOR THE RAINY DAY – FOR THE LATEST GADGET OR TRENDY OUTFIT 7 November 2012/ Manila Thanks largely to their parents, Filipino children are generally not clueless about budgeting. They tend to obey what their parents tell them to do – save half of their allowances, and spend the rest. But for Filipino children, saving is a means to buy “wants” – big items such as gadgets, shoes, bags and clothes – rather than a way to grow and multiply money. According to a survey conducted by international independent research specialist Cimigo in August 2012 for Pru Life UK regional headquarters Prudential Corporation Asia (PCA), there is ample room for Filipino children to improve their money management skills. 211 children between seven and 12 years old participated in the survey which was conducted in Metro Manila and Cebu. The children, who came from various income classes, received an average of P157.60 in pocket money per week. The survey found that most Filipino children do not save the majority of their pocket money. 50% of them will spend and save about the same amount while 30% of them spend the majority of their pocket money. 66% of children rely on their parents or are “under parental supervision when it comes to (using) pocket money… and they (70%) tend to plan ahead in terms of how much to save and spend.” About two thirds or 67% of them save to buy things they want, while 24% will request their parents or grandparents to purchase the items for them. Most children (88%) are motivated to save so they can purchase computer-related products (24%), and shoes, clothes or bags (24%). “Although kids have the practice to save up in advance to buy things that they want, most perceived their parents to be affluent (69%) and stated that family members are likely to fulfill their requests when they want to buy certain things (79%),” according to Cimigo. Lack of understanding towards credit cards and investing The survey also found that Filipino children have little understanding of credit cards. About 63% do not know what happens after a credit card transaction is made and 30% do not know what a credit card is at all, although 80% of children interviewed have requested their parents to buy things for them using a credit card. Additionally, 73% of them were not able to name any investment tools, with some even having the false perception that buying lottery tickets (23%) and playing monopoly (19%) are investment tools. While 50% of the children have thought about making more money with their existing savings, Cimigo said half of them have no idea how to accomplish this. “In this age when money comes in many forms and may be used in different ways, it is important to make children understand at an early age the value of using money wisely – that budgeting, ‘invisible money’ or cashless transactions and investing all play a role in managing finances well,” said Pru Life UK President and CEO Antonio Manuel De Rosas. “Children today possess a higher purchasing power and it is vital to start training them about making smart decisions in terms of using their money, so that they will imbibe money-smart habits as they mature and become independent adults,” added Pru Life UK Senior Vice President and Chief Marketing Officer Belle Tiongco. The survey clearly reflected this as almost all of them (95%) expressed the desire to improve their financial skills.

HOW TO SAVE MONEY AS A COLLEGE STUDENT IN THE PHILIPPINES Whether you are a freshman or returning to study in college, you are possibly prepared for the fresh semester. Knowing smart money supervision and how to save money as a college student in the Philippines can assist you establish a firm foundation for your outlook. Here are several tips and techniques on budgeting, saving cash and money supervision for college students in the Philippines. 1. You’re a college learner therefore act like one. Do not try living the way of life of graduates with a stable job. 2. Initially, you are there for an education. Do not blow the chance by ignoring your studies, over mingling or getting into money trouble. 3. Aside from books and tuition fee, set a budget for your expending categories like rent, food, entertainment and so on. 4. Buy second hand books. Probably you will discover much cheaper price at surplus bookstore. Avoid purchasing new ones as much as possible. 5. Look for locations with two for one drink or appetizers which is free if you are going out on the city. 6. You don’t need going out always; invite some friend to your apartment habitually to save cash. 7. Open up a savings account with high interest if you have some cash stashed away. 8. Plan your money for the whole semester. At the start of class, calculate what is obtainable for using cash every week and bond to it. 9. Consider a temporary job provided that it does not obstruct your studies. 10. Start learning how to cook if you do not know how. It can be cheaper and healthier compared to fast food. 11. Decorate your dorm or apartment with second hand fixtures. You may check some garage sales or classifies that offer used stuff. 12. Manage your scholar loans systematically. Do not borrow too much and if you finish up borrowing lots of cash than you want, deposit it in a bank with a high interest rate. 13. Don’t attempt keeping up with the huge spenders. As some of your buddies might be living with the credit cards of their parents, which does not mean that you need to follow their lifestyle. 14. Do not join for the credit cards only for the free gifts. Eventually, it might end up costing you a lot more. 15. Consider cheap or free activities. Several college universities have many activities for students. Some of them are not priced or sometimes free. 16. Avoid ATM charges. Be sure you have enough money for purchase or employ your debit card. 17. Consider campus meal preparation. If one is obtainable, a meal preparation on school can be very cheap each meal. 18. Don’t bring a vehicle to school. If you are living near the school, probably, you don’t need a vehicle. Also, this will keep your associates from employing you as a cab service. Instead, get a bicycle and use it to and from school. 19. Join for grants and scholarships. 20. Live near to school. The nearer you live to school, the lesser you will have to drive. Various college schools have lots of nearby locations within walking distance for socializing, shopping and the like.

Learning to save money during the college days is one of the best personal finance lessons you can take with you for life. You can use that financial wisdom after your graduation, when you get employed, once you build your own family, or even when you start your own business. To your success!

FILIPINO ATTITUDES ON SAVING AND HOW TO GET OVER THEM Senior citizens are counted as one of the poorest groups in the Philippines. According to statistics, only 2% of Filipino seniors are living independently. The other 98% are dependent on family, charity or are forced to work to earn a living. This is a sad reality that many of us must think about now if we want to live a healthy and comfortable life in the future. Fortunately for us, we can do something now to reverse this trend, and it all starts with a simple phrase we have to think about every day: save money. But how do we start saving money right now? First off, we need to look at attitudes we have about saving that we should change: Filipino attitudes on saving Filipinos are often confident with how they manage their money. There is also a sense of entitlement that pushes us to buy things. In truth, misinformation or, wrong lifestyles and attitudes reveal that most of us are prone to ‘blind spending’ and have poor financial literacy. Because of wrong choices, most of us are grossly unprepared to meet financial problems in the future. The Bangko Sentral ng Pilipinas said in a 2013 study only one out of four households has savings. Families who have savings also save around 20% of their monthly salary. This may debunk the myth that money for Filipinos flows like water from our hands. But then again, comparing this figure to regional countries, we can see that we are still way below average. Our neighbours in Asia (China, Singapore, Malaysia, Thailand) are setting aside around 30% of their income. According to financial consultant Randell Tiongson, saving 30% of our income will bring us financial stability and even make us rich! Why aren’t there more of us who are saving? Why we don’t save, why we do Findings suggest that cultural attitudes like the Mañana habit (Mamaya nalang) allows us to make excuses about saving. Another reason is that, because some of us earn just enough to meet the basic necessities or to pay off debts, there’s simply no more money left for savings. On the other hand, those who do consistently save money say their main purpose is to get out of debt and be financially independent. Others use the opportunity to start a business and generate more income. In other words the motivation to save also depends if we have a goal in mind in the first place. How to save Do not put off ‘til tomorrow what we can do today — this saying also applies to saving. The best thing about saving right now is that the earlier we start, the more money we save, making us live a more comfortable, secure and stable life in the future. But how do we save? Finance experts have made saving more visual for us, here are some formulas that are helpful for our savings plan:

1. There are those who follow the wrong saving formula that goes: Salary – Expenses = Savings. The correct saving formula should be: Salary – Savings and Investments = Expenses. This is the most basic formula for saving money. This way, money for savings will surely be left untouched. 2. You can try the 10/20/70 formula, or: 10% of income goes to emergency funds; 20% of income to savings and investments; 70% to debts, necessities and other expenses. This way, emergency situations won’t mean having to sacrifice your hard earned savings. 3. Another formula is the 50/20/30 that is broken down to: 50% basic necessities; 30% for ‘lifestyle choices’ (here we put in gadgets, travel plans, wants and other luho); and 20% for debts, investments, contributions and savings. This is geared toward people who want a bigger cut on lifestyle purchases. 4. Follow the recommended 30% savings amount. Thirty percent is already a very big amount and might be difficult to set aside in one go. One tip is to start with an amount that you can manage, say 6% of your income. Then increase this gradually every one to three months until you can consistently set aside 30% per month. When we want to use our savings wholly depends on its purpose. This is why we should also try to set a clear goal on why we are saving in the first place. Are we saving for retirement? Are we saving to start a business or to travel? This is a question that only you can answer. But even before finally setting a specific purpose to your savings, start setting aside an amount of cash right now = Savings. The correct saving formula should be: Salary – Savings and Investments = Expenses. This is the most basic formula for saving money. This way, money for savings will surely be left untouched. 2. You can try the 10/20/70 formula, or: 10% of income goes to emergency funds; 20% of income to savings and investments; 70% to debts, necessities and other expenses. This way, emergency situations won’t mean having to sacrifice your hard earned savings. 3. Another formula is the 50/20/30 that is broken down to: 50% basic necessities; 30% for ‘lifestyle choices’ (here we put in gadgets, travel plans, wants and other luho); and 20% for debts, investments, contributions and savings. This is geared toward people who want a bigger cut on lifestyle purchases. 4. Follow the recommended 30% savings amount. Thirty percent is already a very big amount and might be difficult to set aside in one go. One tip is to start with an amount that you can manage, say 6% of your income. Then increase this gradually every one to three months until you can consistently set aside 30% per month. When we want to use our savings wholly depends on its purpose. This is why we should also try to set a clear goal on why we are saving in the first place. Are we saving for retirement? Are we saving to start a business or to travel? This is a question that only you can answer. But even before finally setting a specific purpose to your savings, start setting aside an amount of cash right now

WHY FILIPINOS' IMPROVING SAVING BEHAVIOR IS STILL NOT GOOD ENOUGH Filipinos’ spending and saving behavior is improving in general. This is according to the latest data from the Bangko Sentral ng Pilipinas. Based on the central bank’s Consumer Expectations Survey (CES) results for the first quarter of 2015, the number of local households with savings rose to a record high of 31.6% from 25.7% in the fourth quarter of 2014. Interestingly, survey respondents cited five main reasons for saving money. They save a portion of their income so they can spend for: 1) emergencies; 2) education of children; 3) health and hospitalization; 4) retirement; and 5) investments and/or business capital. Almost 70% of household savers keep bank deposit accounts, while 39% prefer to keep their savings at home. About 25% of the respondents opt to invest their savings in cooperatives, credit/loan associations, and simple ‘paluwagan.’ However, the number of respondents who said they can save up to 10% of their regular income decreased to 36.2% from 38% in the previous quarter. Up to a record 41% of them said they can save but in a smaller amount. Not enough savings However, for financial consultant Randell Tiongson, the level of most Filipinos’ savings may not be considered as ideal. According to him, average consumers’ savings in China, Singapore, Thailand, and Malaysia are higher at about 30%. That compares to average savings of Filipino households that don’t even reach 10%. In a past speaking engagement, Tiongson said, “There’s a magic number for saving and spending—if you save about 30% of your income, you’re going to be financially stable. In fact, you could be rich.” He also recommends having an emergency fund amounting to three to six months of your monthly expenses in near cash like special deposit accounts. However, it is not advisable to overdo it and keep an emergency fund worth more than six months of your expenses. “You will lose out on low interest rates since it will be kept in near cash.” Spending beyond one’s means Tiongson identified two common money pitfalls that most Filipino consumers succumb to: debt and not saving. He thinks that many of us still tend to borrow money as an easy way out without thinking about how we will be able to pay the debt. Thus, some of us are not able to save any money. He explains, “You cannot track your savings if you do not track your spending. Habits and behavior may lead to financial problems.” Tiongson recommends having forced savings as it can be a good habit to foster. “Once you build up your savings, you can learn to diversify your investments and let it grow over time.”