Financial IQ: Is playing lotto okay?

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Financial IQ Philippines Quick Hit(s):

Lotto betting is okay.  Though chances of winning is like getting struck by lightning twice... :)


Is playing the lotto okay or not? How should someone invest P730 million in lotto winnings? I appreciate your columns about saving money and hard work to get rich, but I think the majority of people in our society still prefer faster ways to get rich like playing the lotto, with a record prize money of P730 million. My questions: Is it okay to try government-sanctioned games of chance like the lotto? Is it credible or possibly tainted by fraud, too? Are you yourself buying lotto tickets? Should middle-class people like me buy lotto chances also and continue to hope? Last question: just in case I win the lotto prize of P730 million, where would you recommend that I invest that money (please share several options) and how much should I be free to spend?


Angela Paz Rosario, 37 years old, housewife, part-time entrepreneur, Cavite


Answer


Personally, I think there is nothing wrong with people playing the lotto and hoping to become overnight zillionaires for as long as they realize that the probability of them winning is one in 29 million — this is about the same probability as a person being hit by lightning twice standing exactly on the same spot, as my mentor Rex Ma. A. Mendoza used to say.


To answer your question on how to invest P730 million, please allow me to walk you through the dynamics of investing:


Investment result is usually a function of three components: 1) the amount of money invested; 2) the time the money is invested; and 3) the rate of return. The challenge is to find the ideal combination of all three to achieve the investment result that we desire. For example, if I am aiming for P1 million to fund a child college education seven years from now, to accomplish this, I need to invest 1) P9,967.24 per month; 2) do this religiously for seven years; and 3) earn no less than 5% net per year.


Winning a P730 million bonanza will give you the luxury of completely ignoring the last two components (time invested and rate of return); placing that amount in an ordinary time deposit earning 2% per year will already give you P14.6 million a year or about P1.2 million/month, enough for a very comfortable lifestyle for most people.

http://www.philstar.com/Article.aspx?articleId=636460&publicationSubCategoryId=82

Financial IQ: Can OFWs purchase life insurance?

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Financial IQ Philippines Quick Hit(s):

Yes, but OFW has to return to Philippines (even only while he/she is transacting the insurance) if he/she wants to buy life insurance in Philippines.


Can OFWs avail of life insurance protection? How? My two uncles are overseas Filipino workers and a cousin is a seaman. Are there special requirements for OFWs to buy life insurance and health insurance depending on what countries they’re based in or the nature of their work, etc.? I hope to become an engineer and also work abroad because our government leaders do not create the environment for a good economy here so hardworking people need to work overseas.- I suggest that since a lot of people read The Philippine Star, you write in your column to ask the government and life insurers to give special discounted insurance plans for OFWs. How can OFWs abroad buy life insurance from Philippine companies? Do they have agents overseas?


Renato M. Mendoza, 17 years old, student, Mandaluyong City


Answer


The good news is the Philippine government, by virtue of Republic Act 10022, Section 23, requires recruitment and manning agencies provide insurance coverage for each worker whom they deploy overseas. Included in this compulsory insurance coverage are: life insurance for natural and accidental death, total permanent disability as well as non-life insurance that covers repatriation cost, subsistence allowance benefit, compassionate visit, medical repatriation and medical evaluation. This is a good starting point for workers who are venturing overseas for the first time.


As for your personal life and career progress, you have to continuously assess your financial needs and plan accordingly. Life insurance agents can work with you in developing and implementing your financial plan.


Generally, life insurance companies and their agents can only do business in the country where they are licensed to operate. Further, our insurance law requires that a person buying life insurance must sign the application form in the presence of his/her agent. Therefore, the best time for an OFW to purchase an insurance policy from a Philippines-based company is while he/she is here, during vacation or training.


The country and nature of work are important considerations in life insurance. Premium rates (cost of insurance) vary according to the risk associated with one’s occupation. An office employee, for instance, pays less for the same type of insurance, than a construction worker. In terms of workplace, insurance companies usually refer to POEA advisories on travel bans and apply the same restrictions to life insurance applications.

http://www.philstar.com/Article.aspx?articleId=636460&publicationSubCategoryId=82

Financial IQ: Pacquiao on how to improve Philippine Economy

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Financial IQ Philippines Quick Hit(s):

Maybe boxers can be better than actors/actresses in politics. :)


BDO Universal Bank Chairman Teresita “Tessie” Sy-Coson remarked upon seeing the popular boxer Manny Pacquiao wearing a dark suit and tie: “I’m not used to seeing Pacquiao wearing a suit. He’s very popular.”


My questions for Pacquiao weren’t about the possibility of his boxing fights against elusive British champion Floyd Mayweather, Jr. or Mexican champion Juan Manuel Marquez, but about the most important fight of the Philippines: against massive poverty and underdevelopment and economic issues. I had to clarify that those weren’t trick questions, since I saw Pacquiao’s handler or assistant seated beside him looking surprised when I asked in Tagalog: “Congressman Pacquiao, what are your suggestions that we should focus on or reforms needed to improve the Philippine economy?”


Manny Pacquiao looked a bit surprised and paused to think for a while, then replied, also in Tagalog: “We should invite more people to come to the Philippines, and I’m willing to help there.”


This writer asked Pacman to clarify: “Are you referring to the need to welcome more tourists or foreign investors?”


Congressman Pacquiao smiled: “Yes, that’s what I meant, we really need to have more foreign tourists and foreign investors come to the Philippines.”


My follow-up question was: “What should we do or what reforms are needed for the Philippines to woo more foreign investors?” Before Congressman Pacquiao was able to answer, his somber-looking handler said he had to make a cell phone call and handed him a mobile phone which ended my exclusive interview as seemingly a hundred cameras clicked away at us. You have to give it to Manny Pacquiao: he hit the bull’s eye with his simple yet direct reply — yes, the way to modernize the Philippine economy and accelerate progress is to find ways to attract more tourists and investors.

http://www.philstar.com/Article.aspx?articleId=636460&publicationSubCategoryId=82

Financial IQ: How much should we save?

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Financial IQ Philippines Quick Hit(s):

Savings is a habit.  Once it becomes a habit, increase the amount of savings as you go.


How much money should a new credit card user save?


Your columns about money issues are thought-provoking. I’m a new credit card user and it’s so much fun to be able to spend even before my salary comes. I often also just pay the minimum required plus the interest. In your columns, you keep advising that saving money should be promoted in the Philippines. Can you quantify that with specifics like how much savings we should aim for in order to be safe?


On life insurance, I am still very young. Who should be my beneficiary and can I change that to my future kids when I eventually get married?


Nathaniel K. Velasco, 27 years old, Dumaguete City


Answer


Thank you for your interest in insurance, Nathaniel.  Being young should not deter you from acquiring life insurance; in fact, it should be an advantage because of the much lower premiums for younger ages.  In my particular case, I realized the necessity and beauty of life insurance in my early 20s when I first started working.  At that time my income was not enough to acquire properties or other material assets, so I decided to prioritize savings and insurance coverage.


Even if I wasn’t married then, my principal reasons for getting life insurance were (1) to preserve my financial independence (for example, if I get hospitalized I would have money to pay my medical costs and not have to rely on my parents to finance me), (2) to strengthen my desire to set aside money for the future — my bank savings account represented my liquidity savings while my insurance policies represented my forced savings, (3) to begin accumulating wealth by acquiring an asset I could afford — life insurance, and (4) in case something fatal would happen to me I could contribute to the future welfare of my parents or siblings.


The last reason also answers your question — you can initially designate your parents or siblings as your revocable beneficiaries and later make a beneficiary change to your fiancée, wife or children, which life insurance companies allow, when the appropriate time comes.

http://www.philstar.com/Article.aspx?articleId=632156&publicationSubCategoryId=82

Financial IQ: Why save money instead of enjoying life?

Financial IQ Philippines Quick Hit(s):

It is called planning for the future... :)


Why save money instead of enjoying life?


Why should we save so much money? Isn’t it better that we enjoy our lives since life is short and let the future generations work for their own money? We have a saying: hindi mo madadala yung pera after death di ba? Life insurance is also good for emergencies or tragedies, but if a family has more than enough to tide them over, maybe life insurance is not a necessity for some families?


Daphne Figueroa, 23 years old, call center agent, Quezon City


Answer


Daphne, there are many views to life and one such view is “to eat, drink and be merry.”  I agree with you that life should be enjoyed and it is precisely for this reason why I believe you need to secure it with life insurance.  Life is full of uncertainties and we are exposed to real risks every day.  These risks come in the form of accidents that may leave debilitating effects on our lives; or the risk of dying too soon, well before we set our children off in life or maybe the risk of outliving our fortunes in our old age. 


If we do not neutralize these risks, we may not enjoy life at all.  Through life insurance, we can “transfer” these risks to financially sound institutions that, for a fraction of the cost, will be willing to mitigate a portion of the risk we may be exposed to.   This being said, it does not matter therefore if you are financially well off or not — we face the same uncertainties and risks.  In fact, when someone has more to protect, there is more reason to secure it with insurance. 

http://www.philstar.com/Article.aspx?articleId=632156&publicationSubCategoryId=82

Financial IQ: How to save money with high cost of living?

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Financial IQ Philippines Quick Hit(s):

We just need to shift our money management ways.  We need to set aside a fix savings amount per period regardless of our projected expenses.


How do you save money with the high cost of living?


Your columns on personal money questions are relevant and interesting, especially your advocacy for people to save money. I agree with you about saving money, but it is easier said than done in our society where the costs of living are so high like electricity, transportation, food costs, housing, education, medical and others. I think even life insurance is more costly here than in other countries, because my sister in New York told me that their life insurance there is cheaper. Why? How can we save?


Patricia J. Pastrana, 32 years old, businesswoman, Makati City


Answer


During one annual employee recognition program of my former company, I will never forget what one of our co-workers said when she spoke on behalf of the awardees.  She was receiving a salary just above minimum wage, but she told everyone that no matter how little one earns, one can still make ends meet.  I take inspiration from her words because while it is true that today’s higher living expenses pose an even greater challenge to saving money, we can still set aside part of what we earn if we are determined enough to do so. 


We can exercise our power of choice to decide on what we truly need to spend for.  Moreover, the other side of this higher-cost-of-living reality is that businesses compete more fiercely for a share of our income and this often results in their offering discounts and promos to lessen the cost of their products/services (like budget airfares, for example).  In order to save more effectively, make a paradigm shift. 


Most Filipinos spend first, then save what is left of their salary before the next payday.  This does not work most of the time.  What does work is to save first, then spend what is left.  For example, if you regularly deduct 10 percent  or more from your salary each time you are paid and immediately put it into your savings account, you will eventually develop the discipline of prioritizing your savings before any expense as well as adjust your spending habits to make the remaining 90 percent of your income fit your needs.  My wife does this for our house help, and you will be amazed at how much they have been able to save!


As for life insurance in the Philippines costing more than in other countries, if indeed it is so, it would be because (1) the more developed countries have a greater percentage of their population insured and can thus spread the cost of insurance to more people, (2) the tax treatment in other countries is much lighter for life insurance policies and this leads to lower premiums, (3) quality of life insofar as health services and overall safety standards is better, which then promotes longevity and lowers risk-management costs, and (4) stronger insurance penetration leads to a greater variety of insurance products available, which cater to a wide range of affordability.  As our country’s economy improves and more Filipinos are enlightened about insuring themselves, we are confident we can eventually achieve parity with these nations, but don’t let it stop you from insuring locally today.  

http://www.philstar.com/Article.aspx?articleId=632156&publicationSubCategoryId=82

Financial IQ: On investing by ourselves...

Financial IQ Philippines Quick Hit(s):

In order to rely on ourselves in investing, we need to learn the basics of that investment instrument.


Is it better to invest money ourselves or rely on hedge funds, etc.?


Many of us in Cebu read your column and Philippine STAR. My question: is it better that we personally study and invest our money, or should we rely on hedge funds or other entities to invest our money even if we don’t know about them? On insurance, my family is a victim of CAP; we lost money on two pre-need education plans we bought. What happened to this case? I believe in your advocacy of promoting life insurance with Insular Life and Philippine STAR, because our father died in 2001 of a heart attack at 60 years old, and the life insurance money we got helped our mother with funeral expenses and expanding our family businesses. 


Catherine Salimbangon, 26 years old, married, president of Organique Acai Drink, Cebu City


Answer


There is a certain minimum level of understanding that is required from investors in order to minimize the possibility of placing hard-earned money into questionable investment outlets. Basic finance concepts like the correlation of risk and rewards, time value of money and how investment returns are derived should be part and parcel of the decision making process whenever we consider making an investment. After we have satisfied the standards we have set for ourselves in terms of expected returns and the risk we are comfortable to assume, we can then pass on the implementation on these objectives to professional money managers or by choosing appropriate products/services provided by financial institutions.

http://www.philstar.com/Article.aspx?articleId=630091&publicationSubCategoryId=82