The challenges faced by parents raising children in an expatriate environment are vast. Teaching money management from a young age is essential.

By Jacqui Rankin.

“I don’t like Jetstar, why can’t we fly Singapore Airlines?” I don’t want to go to Bali again, I’m bored with Bali!” With more people than ever moving overseas, there is a whole generation of expatriate children being raised. They are living a very different childhood to the one most of their parents had – one of first class flights, overseas school trips, holidays to luxury villas and live-in maids. It begs the questions: do expat children know how lucky they are? Whether parents move overseas or remain at home, all parents want is what is best for their children. However, many expat children may not realize their lifestyle is anything but normal. It’s critical to teach children to keep things in perspective,  in order to give them the best chance for the future. Finding a balance is key; educating children to understand they are fortunate and to appreciate what they have will help to avoid the ‘brat factor’.

Money Matter

Adjustment is often a problem. What happens when parents move back to their home country and their children have to re-adjust to a very different way of life? Or later in life when they go to university, are they equipped to manage their own finances? There are many stories of families having to move back overseas because their children are finding it too hard to adjust at ‘home’. It is commonly thought that talking about money is taboo, when in reality this is exactly what should happen. Parents should encourage discussions with their children about money and actively teach good money principles from a young age, in order to form habits to last a lifetime. In my job, I come across adults, young and old, who have inadequate money management skills and suffer financially as a result. I often discover good money management skills are due to the teachings of their parents. It is never too young to start teaching your children about money. I recommend the book Money Champ by Daphne Fan, which teaches the basic principles of money management and is suitable for children aged three to 10 years. This book stresses the importance of starting early and introducing a system for forming, changing and reinforcing good money habits.

It doesn’t grow on trees

One Singapore-based client realized he needed to start educating his children about money when, in response to being told he couldn’t have a toy, his youngest son replied, “but all you need to do is go to that machine in the wall, Daddy”. Now all three of his children have a ‘chore chart’ to earn themselves pocket money. Shopping is now a family activity and another opportunity to teach the value of money and the children are set challenges to work out if special offers really are good value. The children love it and he can honestly say they know the cost of milk and butter – something many expat adults could not tell you! Another expat mother and her husband have started teaching their two children about money and worth through a series of games and scenarios. One challenge is to organise weekly family dinners out, which must cost no more than $80 for all four of them. Any money left over is saved for a special dinner out. The children also come up with options for family holidays at various costs, e.g. for $2500 or $10,000, which must include flights, hotels and spending money. This helps teach them the real cost of holidays. Finally, both the children have their own bank accounts. Children’s bank accounts are available in selected Singapore banks.

Allowance

A common way to teach children about money is using an allowance system. It’s a good learning process as well, as most children spend their allowance in an instant, and they soon realise money is not infinite. It’s important to set a sensible amount for allowance; it should be enough to allow children to experiment, but not too little that they need to ask for extra. As children get older, the amount should be raised to give a realistic setting for the future, much like pay rises. The world is changing at a rapid pace and it’s important the next generation is prepared. Every parent wants their children to be happy and teaching them how to manage money will help them have the best chance in the future. As long as they manage their finances, they can do whatever they want. Now that’s real financial freedom.

Jacqui Rankin (MAS License No. JMR100072725)
is an Appointed Representative of AAM Advisory
Pte Ltd (MAS License No. FA100032).

AAM Advisory Pte Ltd is a dynamic Company, committed to excellence and to the promotion of a positive and proactive team environment for all of our employees.

We are always looking for experienced candidates with a successful track record in the following areas:

Senior Financial Planner

Telemarketing Executive

Interested? Please send your CV to: info@financialadvice.com.sg

Rest Insured – Choosing Insurance – Men’s Health – August 2010

Working in the boom town – International Adviser – September 2010

AAM Advisory was formed by six individuals with specialist backgrounds in:

• Financial planning
• Fund management

The company was developed with a passion to offer the best in its field, committed to exceeding expectations and industry norms.

We pride ourselves on being a progressive , successful company with a fresh new approach.

We strive to be the best financial planning organisation in Singapore both for our clients and for our valued team.

We currently offer the following added value services:

Active Portfolio Management

• In-house Investment Commitee
• Weekly conference calls /  Monthly data analysis / Quarterly meetings

High levels of ongoing service

• In-house Paraplanning Team
• To produce ongoing bespoke client reports

Marketing and Events Service

• To help organise bespoke events and partnerships with companies

During the course of your life you will need to protect yourself, your family and your assets through the right combination of insurances.

You will also need to set money aside for some key life milestones or goals such as children’s education fees, retirement or that $1M you want to have as you turn 60!

As an  expatriate or local Singaporean you will have differing requirements and can benefit from various opportunities.

We offer a complete financial planning service designed to help you protect and support yourself, your family and your assets and grow your wealth.

We adopt a holistic approach to financial planning as every individual presents a different set of short, medium and long-term goals. Our work begins with an in-depth consultation on your finances and future objectives.

At a second meeting we present a detailed written plan outlining our recommendations and advice based on your needs. Our mission is to then work with you through regular reviews to ensure we stay on track to achieve your goals and objectives. Our areas of expertise include planning for your retirement and children’s education fees, helping you with insurance coverage and tax effective savings mechanisms.

We also offer investments especially tailored for expatriates working and living in Singapore.

We are committed to working with you to develop a personalised financial strategy tailored to meet your individual needs.

Our AAM Advisory Marketing and Events Team organises a number of events every year and enjoys working with partners in various industries.

February 2012

AAM Advisory Seminar: Retirement Destinations. Where will you retire?

November 2011

AAM Advisory sponsors Inaugural Singapore Cricket Club Premier Tennis Tournament

November 2011

AAM Advisory Networking Event at Don Quijote

September / October 2011

AAM Advisory sponsors Rugby World Cup at Bar 282

March 2011

AAM Advisory and Rolls Royce Motor Cars Client Event

December 2010

AAM Advisory Seminar: Pros and Cons of “Being a Singapore PR”

June 2010

AAM Advisory Seminar: Tax Efficiency for British Expats & QROPS explained

Investment Advisory Services

We provide advice on portfolios across a range of different investment styles. In each case
we believe our role is not to avoid risk, but rather to manage risk appropriately, relative
to the objectives of the portfolio. We avoid speculation and our processes ensure our
portfolios are appropriately diversified.

The Investor Profile

Your Investment profile will be based on:

Investment Philosophy

Our Investment Philosophy is that asset allocation is the most important factor in overall portfolio performance and that the global and individual country macroeconomic environment, (economic growth, money supply, growth, inflation, unemployment, interest rates, current account etc), determines the relative attractiveness of the various asset classes at any particular time.

Additionally…

• Every investor has a maximum amount of risk he/she is willing to tolerate in order to generate returns above the cash in bank rate – a ‘risk budget’
• We may want higher returns but we must be willing to pay the price i.e. risk
• The role of the investor/manager is to maximise the return within that
  ‘risk budget’
• Before any risky asset is added to a portfolio, its impact on the overall portfolio
  risk must be understood

How to afford to live happily ever after

Many people think retirement planning is something you do in later in life. On the contrary, the earlier we start planning, the better our life will be when we stop work. It doesn’t matter how much you are making now. Planning ensures that you can literally ‘live happily ever after’.

How much money do I need?

There is no fixed amount that you need to retire comfortably. “Financial planners use several ways to calculate how much a person needs, but the general rule is, you need about two-thirds of your last drawn salary to maintain the lifestyle you are accustomed to,” says Alan.

So it depends. Do you want to go thrifty (if taking a holiday in Malacca is your style)? Or live the yuppie dream (with shopping sprees in Sydney)? Or do you hanker for luxury (on a five-star cruise to Alaska)? No matter what you choose, you need to invest early and well.

And then there are the unexpected setbacks. For instance, if one or both of you lose your jobs. Be prepared that even the best plans can go awry.

Why it’s important to start becoming savvy about investing your savings.

Forced savings through the CPF Scheme is generally considered a good thing. One of the biggest problems in Australia is that Australians are not saving enough for retirement (current contribution rate is 9%). However, you can’t put all your investments savings into CPF because funds in CPF are effectively locked away until retirement. So to map out your ‘pre’ and ‘post’ retirement needs you first need to understand how to allocate your financial resources.

With regards to the amount that people need to save, the question is, how much do you need to live on comfortably per year in retirement that will satisfy both your immediate needs and personal goals? These personal goals can be yearly overseas holidays, car replacement, upgrading furniture, etc. This means that advisor’s need to base retirement needs on your dreams and not your expenses or budget.

To base your retirement goals on your expenses or budget has the potential to ‘perpetuate’ poverty.

Finally, understanding financial products and issues is very important to your financial success. The educational aspect of financial planning is critical so that you can make ‘INFORMED’ financial decisions.

The Slow and Steady Way to Build a Better Portfolio

An adviser’s job is not to get you the highest returns, but to help you achieve a decent consistent returns based on the risk that you wish to take and the goals that you have set.

This means that purchasing the best performing funds may not be the best choice. In a study at the University of Virginia by Ronald Wilcox a marketing professor fund that most investor place twice as much emphasis on past returns then any other factor. Investors must be reminded that past returns is no guarantee for future returns. Most performance figures as shown as 1-6 month average or 1-5 year averages. All these performance figures show is what happened in the past and my not necessary be indicator for the future.

A US study by the Brandes Institute which is a research division of the Brandes Investment Partners found that funds that are consistently placed in the 43rd percentile (beating 57% of similar funds) would have moved into the top quarter after only five years. This result was conducted by looking at the results of many of the big funds from 1992 to 2003. However, the sad reality is that no funds will beat 57% of its peers consistently.

What this means is that moderate results could become great results over a period of time. The reason for this is that it is better to have a funds that is more consistent than a funds that is ranked 1st this year, last next year and in the middle in the 3 rd year. However, when a fund is sold based on performance it tends to attract a lot of investors and the fund then may find it hard to obtain all the right type of stock or assets immediately. This would mean that the funds will a more consistent inflow could catch up in terms of it relative performance.

We have seen many recent examples where investors have investor based on the hottest funds or sector, Asian boom and technology boom immediate come to mind. The other side of this story is the Asian crisis and technology bubble burst. Chasing the hot fund or sector can get investors into a lot hot water. Currently many investors are looking to invest into the energy sector as oil price reaches records highs. The only problem in buying into this sector at the moment is that the investors may have missed the boat and have brought the investment at the high price. Buying into energy is good for the speculator who has a high risk appetite but most investors should invest for the medium to long term.

Another aspect that most investor neglect is to understand is the fund managers’ objective. Just because the fund is an Asian Fund, this information doesn’t tell you anything. This name of the fund doesn’t tell you where the investment is mainly situated like an overweight in China or Indonesia. The title also doesn’t explain is the fund manager is only looking for value, top down, big cap, or small cap stocks, etc. Understanding the fund managers’ process will also give you the information needed to reduce the risk of the investment.

As the best performing fund may not tell you that all the investments were placed in medium to small capital stocks that carries a high level of risk. While middle ranks funds may have a process to look at the value of the stock or specifically target stock that pay good dividend. These funds may not be sexy but they may have a lower risk rating for their investment process.

Therefore to avoid or minimizing building an investment portfolio based on hot or average performance figures follow this check list:

• Understand that the “average” return can be inflated by a short hot streak. The best way to see if there is a short hot streak is to look at how a fund performed over time. Examining the performance graph since the inception of the fund can help.
• Look for a fund that has a yearly ranking usually in the top half and don’t necessarily look for the top fund. Consistency is the name of the game.
• Read the fund prospectus and report to see if you can understand what the fund manager’s objective.
• Finally good fund managers will own up to their mistakes. They will tell the good, warn investors if they have concerns and tell them what their strategy will be during uncertain times.
• Investors should be consistent with their investment strategies and have a plan. Investing into a hot fund or sector for less than 12 months is not a plan.

Remember the race between the tortoise and the hare. The hare may be fast but he soon ran out or steam while the slow and steady tortoise won the race.

Quick Overview & Considerations

Medical Insurance, or Health Insurance as it is commonly known, is the most basic form of protection in our daily life. It prevents you and your family from suffering a financial loss as a result of an accident, illness or disability. It can provide an income while you are disabled or in hospital, or cover the cost of your medical treatment or nursing care.

The type of health insurance product you would need depends on what you want protection against.

Questions You Need To Ask Before Taking Up Health Insurance

• What will my health insurance policy cover?
• Am I already covered for the same thing under another health insurance policy?
• What doesn’t the health insurance policy cover and when will I not be covered?
• How much will I be paying for my health insurance and will I be able to afford the premiums over the long term?
• How often will the premium be charged and will it be a fixed or variable sum?
• Will my policy automatically be renewed and what is the penalty if I do not pay any premium on time?
• When or in what circumstances will my health insurance policy end?
• How do I make a claim?
• Are there any limits to the benefits that can be paid out from my policy?
• How will my future premiums be affected after I have made a claim?
• Will I be covered for medical treatment performed outside your resident country?
• How is my health insurance policy affected by other schemes that pay for healthcare?
• If I am covered by my employer’s group policy, what am I cover exactly for?