Hi Mr. Tan,
I have your book "Practical Guide on Financial Planning". I find the stories and experiences of other people to be most beneficial. Because of my past experience e.g. Minibond, insurance, capital gurranteed products, I am able to appreciate your opinions and suggestions.
If I were an undergrad or secondary student, I would not be interested to read. This is a problem as financial education should not be learned from trial and error of a new worker. It should be taught in schools before they start drawing their first cheque.
Banks and FIs will continue to attract, promote, market products based on margin, profit or commission. The new workers continue to be bombard with the theme "credit is good for you" while "live within your means" is ignored by most people.
REPLY
I find that many undergraduates are also interested in financial planning. When I talk to them, they also find my views to be useful. They realised the importance of knowing what are good products to buy and bad products to avoid. I intend to hold many talks for young people so that they can benefit from my suggestions as well.
Tuesday, March 2, 2010
AIA and Prudential
Dear Mr. Tan
Does the purchase of AIA by Prudential result in less choice for consumers?
REPLY
Most insurance companies offer different products which are difficult for consumers to compare. Nearly all of them have charges and give a poor return to consumers. The reduction in yield is about 3% in most cases. This could reduce the payout on maturity by more than 40%. If your premium can accumulate to $500,000 over the next 30 years, the insurance policy pays you only $300,000 - with 40% being taken away.
Consumers have a choice to invest in a low cost investment fund, such as the STI ETF available on the SGX. It offers diversification and an attractive return over the long term (by averaging out the good and bad years of the market). They can buy term insurance, decreasing term insurance or personal accident insurance to cover the risk of premature death.
This is explained in my book, Practical Guide on Financial Planning ($12). It is available in most bookstores or can be purchased from my Internet Shop. It comes with a free Shape Quiz minipack (worth $2).
Does the purchase of AIA by Prudential result in less choice for consumers?
REPLY
Most insurance companies offer different products which are difficult for consumers to compare. Nearly all of them have charges and give a poor return to consumers. The reduction in yield is about 3% in most cases. This could reduce the payout on maturity by more than 40%. If your premium can accumulate to $500,000 over the next 30 years, the insurance policy pays you only $300,000 - with 40% being taken away.
Consumers have a choice to invest in a low cost investment fund, such as the STI ETF available on the SGX. It offers diversification and an attractive return over the long term (by averaging out the good and bad years of the market). They can buy term insurance, decreasing term insurance or personal accident insurance to cover the risk of premature death.
This is explained in my book, Practical Guide on Financial Planning ($12). It is available in most bookstores or can be purchased from my Internet Shop. It comes with a free Shape Quiz minipack (worth $2).
Work near your home
There are many advantages of working near your home. You reduce the travelling cost, which can be quite expensive. You reduce the travelling time and have more time to spend with your family and neighbors and have a community life.
We have to changes our recruitment practices to make this possible. We should make it easier for people to search for a job near their homes. Advertisements for jobs should state their location of their workplaces. HR managers should give preference to people who live near the place of work. It is an advantage to the business as well, as these workers are likely to stay longer with the employer.
For most jobs, it should be possible to find a suitable candidate who lives near the place of work. We only need to improve our ability to search for these workers, or for the workers to search for these jobs.
Businesses should also be encouraged to set up their workplaces near the residential estates. This will allow them to tap into a pool of suitable workers in that estate.
Reducing commuting and traffic congestion will also promote a green environment.
Tan Kin Lian
We have to changes our recruitment practices to make this possible. We should make it easier for people to search for a job near their homes. Advertisements for jobs should state their location of their workplaces. HR managers should give preference to people who live near the place of work. It is an advantage to the business as well, as these workers are likely to stay longer with the employer.
For most jobs, it should be possible to find a suitable candidate who lives near the place of work. We only need to improve our ability to search for these workers, or for the workers to search for these jobs.
Businesses should also be encouraged to set up their workplaces near the residential estates. This will allow them to tap into a pool of suitable workers in that estate.
Reducing commuting and traffic congestion will also promote a green environment.
Tan Kin Lian
Home ownership
There is a general belief that owners will take care of their home better than tenants. This was the reasons given to promote home ownership.
This may be true to some extent. But, it should not be exaggerated. The care that is given to the home and environment depends not so much on ownership, but on the behavior of the person. A higher income person is likely to take care of the home better than a person struggling to make a living at a low income.
Most people in Switzerland rent, rather than own their homes. I believe that they do take care of the property as well as home owners. This is just a belief, as I do not have the chance to verify it.
The poor people who lives in slums in some countries cannot afford to take care of their own living, so they are not likely to take care of their homes either.
I believe that it is better to treat home owners and renters equally, rather than to promote home ownership on a wrong belief that it leads to a better society. If more people rent their homes, they will be able to move closer to their place of work and reduce the travelling time and expense. This will reduce traffic congestion and improve quality of life.
Some people will argue that it is not possible for everyone to live near their place of work. I agree. We only need to have (say) 30% to live near their place of work to reduce traffic congestion by 30% - which is a lot.
The next step is to abolish the stamp duty and legal fees for selling a home. This will reduce a financial obstacle and encourage some home owners to move closer to their place of work.
Tan Kin Lian
This may be true to some extent. But, it should not be exaggerated. The care that is given to the home and environment depends not so much on ownership, but on the behavior of the person. A higher income person is likely to take care of the home better than a person struggling to make a living at a low income.
Most people in Switzerland rent, rather than own their homes. I believe that they do take care of the property as well as home owners. This is just a belief, as I do not have the chance to verify it.
The poor people who lives in slums in some countries cannot afford to take care of their own living, so they are not likely to take care of their homes either.
I believe that it is better to treat home owners and renters equally, rather than to promote home ownership on a wrong belief that it leads to a better society. If more people rent their homes, they will be able to move closer to their place of work and reduce the travelling time and expense. This will reduce traffic congestion and improve quality of life.
Some people will argue that it is not possible for everyone to live near their place of work. I agree. We only need to have (say) 30% to live near their place of work to reduce traffic congestion by 30% - which is a lot.
The next step is to abolish the stamp duty and legal fees for selling a home. This will reduce a financial obstacle and encourage some home owners to move closer to their place of work.
Tan Kin Lian
Integrity and honesty
Integrity is being honest. Some companies claim to serve customers, but they will find ways to make profits by overcharging customers or give them a poor deal.
It is acceptable for a company to make profit, but it has to be done in an honest and fair way. In the past, the standard of ethics and integrity was quite high. A trusted company would not destroy its reputation by telling lies or deceiving its customers.
In recent years, the standard of ethics had dropped significantly in the quest for profits or other commercial goals. This is what "being different" is now like.
Tan Kin Lian
It is acceptable for a company to make profit, but it has to be done in an honest and fair way. In the past, the standard of ethics and integrity was quite high. A trusted company would not destroy its reputation by telling lies or deceiving its customers.
In recent years, the standard of ethics had dropped significantly in the quest for profits or other commercial goals. This is what "being different" is now like.
Tan Kin Lian
Monday, March 1, 2010
Hassle to write many cheques
I bought a commercial property to be used as my office. The property is under development. I have to write two cheuqes for each progress payment. one cheque for the developer and another cheque for GST.
To make matters worse, the lawyer for the developer wanted the cheques to be made out in full, to "The Hongkong and Shanghai Banking Corporation account no XXX-YYYY-YYY for ABC Company Ltd". There is no space in the cheque to write this long name and the amount in words. It is so easy to make a mistake.
If I make a mistake, which is quite likely to happen, you can be sure that the bank will return the cheque and ask for a new cheque to be written. This will take time and hassle and give the bank, lawyers and the developers the opportuntity to charge a hefty interest on late payment and other charges for the mistake.
Why should our bankers and lawyers make life so difficult for consumers? Are they trying to find the excuse to levy more charges?
Why should the GST be written in a separate cheque? This is one more reason why I strongly dislike GST, as it is creating a lot of unnecessary work and burden.
Tan Kin Lian
To make matters worse, the lawyer for the developer wanted the cheques to be made out in full, to "The Hongkong and Shanghai Banking Corporation account no XXX-YYYY-YYY for ABC Company Ltd". There is no space in the cheque to write this long name and the amount in words. It is so easy to make a mistake.
If I make a mistake, which is quite likely to happen, you can be sure that the bank will return the cheque and ask for a new cheque to be written. This will take time and hassle and give the bank, lawyers and the developers the opportuntity to charge a hefty interest on late payment and other charges for the mistake.
Why should our bankers and lawyers make life so difficult for consumers? Are they trying to find the excuse to levy more charges?
Why should the GST be written in a separate cheque? This is one more reason why I strongly dislike GST, as it is creating a lot of unnecessary work and burden.
Tan Kin Lian
Bonus on participating policyholders
During the past two years, many insurance companies had cut their bonus due to the global financial crisis. Although the investment markets had largely recoverd, these companies had still not restored their bonus. This has badly affected the policyholders whose policies had matured recently. They received payouts that are far less than what was originally projected, and less than what had actually been earned on their premiums.
I hope that the regulator (MAS) will look into this matter and ensure that policyholders of matured policies receive a fair payout, that reflect the investment return that has been earned on their premiums over the past years. The payout should not be reduced by the surplus that is retained in the insurance fund to fund the marketing expenses of the insurance companies, made at the expense of the maturing policyholders.
Tan Kin Lian
I hope that the regulator (MAS) will look into this matter and ensure that policyholders of matured policies receive a fair payout, that reflect the investment return that has been earned on their premiums over the past years. The payout should not be reduced by the surplus that is retained in the insurance fund to fund the marketing expenses of the insurance companies, made at the expense of the maturing policyholders.
Tan Kin Lian
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