Financial Education

Financially fit students So many have asked me when we should start teaching children about financial literacy. The answer is: When they start asking for money! Financial literacy in very simple terms is”Keep more of the money you earn and do more with the money you keep.” This is my message to all Filipinos who have some money whether they earn it or it is given to them. Keeping more of the money you earn means learning how to SAVE. When we learn about savings, the usual equation given us is: INCOME MINUS EXPENSES EQUALS SAVINGS or INCOME – EXPENSES = SAVINGS THAT IS VERY WRONG! It should be INCOME MINUS SAVINGS EQUALS EXPENSES or INCOME – SAVINGS = EXPENSES As students, you probably do not have any income yet, so just change the word INCOME into ALLOWANCE or BAON. No matter how much your allowance is, you should put aside a part of it as your savings before you start spending anything. *** There are four different stages in a person’s financial life. 1. Start Up Stage: In simple terms, this is when all the money you have comes from your working actively. It means that you have to be involved in the job whether it be physically or long-distance. I define physical to mean that you have to actually be at your place of work. Long-distance would involve work that could be done anywhere with submission of the finished work on a certain deadline. However, you still have to actually personally work to be able to get your pay. You are definitely on START UP if you will not have any income if you do not work. NO WORK, NO PAY! START UP stage has nothing to do with your chronological age. You can be old but if you still have to work to earn to support your living expenses, you are financially in the same category as a new graduate who is getting a new job. You can be a grandfather but if you must continue to work to support your living expenses, you are in the same category as your grandchild who is getting his first job.

2. Build Up Stage: This is when you now have some income coming from savings and investments, which contribute about at least 20% of your total income. 3. Fine Tuning Stage: you have more savings and investments to work on for asset allocation and finetuning. At this stage, a good portion, about thirty to sixty percent (30-60%) of your income is being provided by your savings and investments. 4. Retirement Stage: There are 2 problems in life: (a) dying too young (b) living too short In the 1st problem of dying too young- the solution is having protection or insurance. For the 2nd problem of living too long, the solution is to build up your own retirement fund now. Accdg. To many surveys on people above the age 65: a. Around 40% have to keep on working to survive. I don’t mind working till I’m 90 yrs old- because I love working. But to have to keep working at 70, or 80, 90 so that you have something to eat? What if my health can’t keep up with my job? What will happen to me? b. Around 30% depend on their relatives to survive. I think every parent doesn’t want to be a burden to their children. Can you imagine calling up your kids every month to ask for money? c. Around 20% depend only on their SSS or GSIS pension fund to survive. The maximum pension in the Philippines for the retirees is about 4k a month. It isn’t enough for an herbal drink. d. 8% depend on charitable institutions to survive. If you go to the shelter for abandoned elderly it is no surprise to see retired laundry women, domestic helpers and retired farmers who grew old and penniless. But it is of great surprise to see retired teachers, principals, authors, mechanic, tv directors, and dentist too…after earning probably a million throughout their life, they founf themselves w/o a home and starving to death. e. 2% are financially independent. Friends, I want you to be totally committed to be part of this 2% when you reach 65.

I don’t care if you are 30 yrs old, 25 or 18…you’ve got to start building your retirement fund now, not tomorrow, not next week..

Building a solid financial foundation You have to know where you are financially ASSETS and LIABILITIES Assets- what you own I. Personal Property Example: house and lot, car, jewelry and furniture, gadgets II. Savings and Investment Savings: Cash on hand Savings-checks and time deposits Investment Receivables: government securities (bonds) UITF Mutual funds Stocks Cash surrender value of insurance Pre-need plans

Liabilities- what you owe I. Personal Debt *debts incurred in order to purchase personal property (housing loan, appliance installment loan, car loan and credit card payables) II. Investment Debt *Total amount payable for retirement savings Example: Pension fund premiums payable

III. Retirement Savings *All funds or savings set aside for your own retirement Example: Company or your own Pension Plan NET WORTH= Assets- Liabilities

LESSONS TO LEARN: 1. The State of Assets and Liabilities (SAL) is prepared as of as of specific date. Therefore, the value of assets and liabilities should be taken as of one date. 2. Include all assets that have value to others. Include assets even if you are still paying on it as long as it has value.

3. The amount that you should assign to your personal property should be based on what is called as market value- the amount which you could sell the property to someone who is not a relative. 4. A good and easy way to find the current price of your properties is to look on the classified ads. 5. If you own a house and lot, remember that land does not usually go down in value but your house will definitely will. Find out how much you can sell your house and lot by consulting a real estate broker 6. Life insurance, and pre-need educational plan, as well as memorial plan are recorded in SAL at Cash Surrender Value- it is the amount you can get if you terminate the policy or the plan before its maturity date. To know the cash surrender value ask your policy consultant or agent. 7. The treatment of life insurance and pre-need educational plans is different from that of pension fund investments because a pre-need plan involves money you have set aside for a particular purpose (i.e., the education of your child), while a life insurance policy provides security for your family if you die. Thus, life insurance and pre-need educational and memorial plans are for protection and specific future needs- they are not investments that are intended to be a source of wealth or retirement money for you. 8. Use the lowest value in preparing SAL, you should use the lowest value or depreciated value. To compute for depreciation: Cost of the asset /useful life= depreciation per yr. Example: Mrs. R brought a Mercedes SLR two years ago for P5, 000, 000. It will probably last for another 15 years and then Mrs. R will need to replace it. 5, 000, 000/15= 333, 333. 33 depreciation/yr Total dp after two years= 666, 666. 66 Depreciated value after 2 yrs. 5M- 666, 666. 66= 4, 333, 333. 33 9. The amount of your personal net worth is not cash that is available for you to invest. 10. The maturity value of your pension plans cannot be claimed as soon as you want.