HfW : Teaching Kids About Money

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Experts suggest that students lose more than two months-worth of knowledge over the summer break. Many parents fill the downtime with outdoor activities and trips to keep kids busy and motivated, and of course, there’s always that mandatory reading list.

I think a great way to keep kids’ minds sharp, regardless of the holiday length, is to teach them about money. If you haven’t started having those conversations yet, you can take advantage of upcoming spring break to get things moving. It’s never too early to start. In fact, when it comes to teaching kids about money, the sooner the better.

Below are my recommendations on ways parents can get children involved in learning and understanding the value of money, so they are better prepared for their future:

Open a bank account. A bank account is the foundation of financial education. Helping your child open their first account creates an opportunity to begin teaching them about saving, fees, and interest. Rather than just opening an account at your current bank, ask them to help you do research on finding the right bank for them.

One suggestion is to choose a bank with a physical location that you can bring your child to. It might not seem important but it can make a big impact on the lessons you are trying to enforce. Taking a special trip to the bank to deposit their money creates a memorable and rewarding experience.

Develop a savings plan. Saving money can often be as difficult as earning it. Consider offering a matching program for every dollar deposited to help incentivize your children to start funding their account. Additionally, you might make saving a condition of their allowance and mutually agree on a percentage that will be saved each month.

Teach them about investing. Prospective retirees are now forced to plan for 20-30 years of retirement. Waiting for that first full-time job to start investing for retirement isn’t enough anymore.

For teens, discuss opening a custodial account or Roth IRA (if applicable). This is a great opportunity to talk to them about taxes, investments, and compounding returns. For an initial investment, consider a broadly diversified, low cost index fund.

For younger children, online games or websites can be useful in teaching kids the basic concepts of investing. Consider Warren Buffet’s recent business venture, Secret Millionaires Club. The online program teaches valuable lessons about money management through a fun, animated series that kids can relate to.

Discuss giving. We don’t just save, spend, and invest money. For varying reasons, sometimes we choose to give it away. Don’t hesitate to include your children in this process and teach them about the concepts of charitable giving. Consider having them research charities on charitynavigator.org, America’s largest independent charity evaluator, and provide you with their suggestions.

It’s never too early to begin. Kids are exposed to the concept of money at a young age. Helping them to understand it and develop good habits early on can be very beneficial to their financial future.

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HfW : EPF to cover country’s financing gaps?

This was made public in The Sun Daily (here)

PETALING JAYA: Bank of America Merrill Lynch Global Research said there have been concerns whether the Employee Provident Fund (EPF) will be called upon to cover financing gaps due to a wider fiscal deficit, lower Petroliam Nasional Bhd (Petronas) dividends and a cash-strapped 1Malaysia Development Bhd (1MDB).

"Concerns are nevertheless mounting that with a wider fiscal deficit, potentially lower Petronas dividends and a cash-strapped 1MDB, the EPF will be called upon to forsake returns, cease its foreign diversification and cover the financing gaps of government-linked entities," its Asean economist Chua Hak Bin said in a report yesterday.

"That would be a huge setback for the EPF's commendable track record," he added.

Chua highlighted the EPF's omnipresence with funds of RM637 billion (US$174 billion) and accounting for 50% of MGS and 13% of the stock markets.

Rule changes are moreover in favour of increasing contributions and reducing withdrawals.

EPF inflows are a sufficiently large magnitude to provide some support to both the domestic bond and equity market, as foreign portfolio inflows dwindle.

EPF net contribution flow was about RM23 billion in 2014. Total foreign portfolio investment registered a net outflow of RM9.6 billion in 2014, although most of the portfolio outflows were concentrated in Q4 (RM20.6 billion). This was when oil prices collapsed, raising concerns over the impact on the fiscal and current account balances.

Foreign holdings of Malaysian Government Securities (MGS) have however been relatively resilient. While foreign holdings fell RM8.7 billion over July to Dec last year, they have risen some RM6.1 bilion in Jan-Mar this year.

However Chua said, there have also been concerns whether the EPF's heavy presence will depress yields on MGS and boost stock market valuations.

"Despite underperforming, the Kuala Lumpur Composite Index's (KLCI) still trades at about 17 times price-to-earnings ratio, higher than valuations on Singapore, Hong Kong, Thailand or Korea stocks," he said, adding the EPF's captive holding has also reduced the KLCI velocity.

Chua said poor liquidity in turn has hurt trading and investment interest, adding that Malaysia will issue RM5.5 billion of its 5.5-year bonds.

With total investment funds of RM637 billion at the end 2014, EPF is ranked seventh in the world when measured against the size of Malaysia's economy, in which EPF is ranked below Japan, Korea, China and Singapore, but above India and Taiwan.

Meanwhile, as a share of gross domestic product (GDP), Malaysia's EPF is the third largest after Norway and Singapore.

The research house expects EPF's fund inflows will remain large, reflecting both favourable demographics with a rising labor force and wages.

It noted that net EPF contributions increased 28.5% to RM23.3 billion in 2014, about RM1.9 billion per month, while active membership grew 2% last year, over 10% since 2010.

"We expect EPF fund inflows to remain high over the next decade given the growing working-age population and favorable demographics."

EPF's assets grew by 7.9% in 2014, in which it has increased the proportion of risky assets to sustain returns.

Compared to a decade ago, EPF has increased its portfolio share of equities to 42%, while reducing the share of MGS to 26% and money market instruments.

EPF also has increased its foreign allocation significantly to 23%, raising overall returns and reducing over-concentration risk on domestic assets.

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HfW : Here's What I Learned Working For Self-Made Millionaires

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I spent years working in small business accounting, so I've had a chance to know a number of self-made millionaires.

As a result, I also got an insider's view of their financial positions and behavior — both business and personal. It's kind of like being a doctor and giving physicals — you see people for who they really are, minus their magnificent external wardrobes.

So, what are typical self-made millionaires like, how did they come into their fortunes and what do they do with it once they have it? The answers represent a wealth of direction to those of us who hope to join them:

They're fiercely independent. 

I think this quality drives them more than anything, including the quest for money. Money doesn't rule over them, but they're quiet mavericks, working to build their businesses and avoid any complications that might weaken their independence.

They're survivors. 

The millionaires I knew weren't MBAs. They may have college degrees, but most graduated from the school of hard knocks. They usually come from modest beginnings and bring those philosophies to their businesses. Having been through hard times they know their financial survival requires:

• Full control of their business
• A full bank account
• A frugal lifestyle, and
• A debt free position

They're self-employed. 

Because they're so independent, they're not organizational types. In fact, I doubt many of them could even survive in the corporate world, let alone in government or academia.

They're principled. 

Generally speaking, I found legitimate millionaires more pleasant to be around than the imitation wannabes. There's a surprising humility about them; a practicality that's disarming. You can't play mind games with them; they can sniff out b.s. from a mile away.

You won't see them driving around in one of these.

They're NOT high rollers. 

A debt free business is the holy grail. An independent business is an unencumbered one, and these people are keenly aware of that. They know that taking on business debt puts them in an unwanted partnership with banks. So any debt incurred early in life was paid off as soon as possible. They don't buy stock on margin, don't borrow against retirement plans, and mortgages for investment property — if taken at all — are taken for ten years or less and paid off early.

They save money. 

A fat bankroll is their ace in the hole and it's increased constantly by a conservative lifestyle that expands ever more slowly than their wealth and income. When they need to expand their businesses, they do it in cash.

They usually have basic product lines. 

In popular culture millionaires are often portrayed as being inherited money, dot.com entrepreneurs, shady money shufflers, stock market wizards, entertainers, athletes, and the occasional Jed Clampett who strikes oil in his backyard. The few I came across who actually fit that description seemed better at dissipating money than building it.

I knew one guy who took a flier on a stock with $25,000 that exploded into about $2.5 million within a few years. He expanded his lifestyle, quit his job, and made a career out of finding the next longshot. Ten years later, he was still looking for it. He was also down to his last million and falling fast. There's a reasonable chance he'll retire on social security alone.

What businesses were the real wealth builders in? To name a few: hardware, corrugated boxes, building products, food supply, and medical products.

They're discreet. 

Real self-made millionaires don't stand out in a crowd —they may even be your neighbor. Overalls or business casual are a more typical wardrobe than business suits. Armani suits and gold watches are for people trying to prove a point; a multi-million dollar portfolio means they don't need to prove anything to anybody.

They don't talk about big money. 

Most don't discuss what they've got; often they actually don't have much in the way of stuff anyway, preferring to have their money tied up in their business or in income preserving/producing assets.

They're patient.

"Patient capital" best describes the investment philosophy of most millionaires. Entrepreneurial millionaires are careful to expand their investments slowly and generally to do so without incurring debt. There's a pronounced preference for income-producing investments such as dividend paying stocks, bonds, certificates of deposit, treasury securities, and unleveraged investment real estate with positive cash flows.

They generally avoid raw speculation, although they may devote a very small amount of money to mutual funds or to the occasional penny stock. They’ll leave the potential of a quick score in order to avoid a wealth-destroying bear market.

For us non-millionaires, the risk is that we'll become tempted to pattern ourselves off the stereotype rather than on reality. We may fake it until we make it by "investing" our money in material goods and a lifestyle rather than in capital assets like businesses and income-producing investments. But that only feeds our ego and drains our finances.

From what I've seen, becoming a millionaire is a boring process: You work hard, you plan to work forever, and you relentlessly save money. You don't speculate, you don't "make a killing," and you don't live life in the fast lane. As for the self-made millionaires who do have some luxury in their lives — it usually followed many years of deferred gratification.

I suspect that most self-made millionaires don't have a problem with the masses believing the typical stereotype. They're happy to watch us speculate and spend our money on things that are likely to leave us broke because, when we do, there are fewer of us competing with them.

Is there a message in that for us?

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