Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Yet another reason why it pays to be financially literate

Wednesday, November 19th, 2008

dy/dx Ben was the nick name given to a good friend Ben from my campus days. Ben was an Arts or Economics student, I think. (He is now a proud holder of a Masters Degree in Law). I still remember vividly Ben telling us about some exam he had sat for, where his brains just fried, emitted smoke and froze when he saw questions like x + 3x – 4 x = ?  

I think that was when I first realised that not all of us are wired the same way. Having attended Science stream in school, questions like these would have been no problem for me or any of my classmates.  

Apparently it was not the same for those of us from non numerate backgrounds.  

This fact struck home again a few weeks ago. 

I saw an advertisement in the local papers about a 3 hour seminar designed to teach us the secrets of tremendously reducing the interest we pay on our mortgages and at the same time shortening the time.  

The first thing that came to my mind was that these guys will probably tell us to pay over and above the minimum payment which would reduce the interest and the period of the loan.  Still my curiosity got the better of me and I signed up. The amount to be paid was very small and I thought the coffee break and the cookies that went with it would cover the cost anyway. 

There were almost 50 of us that day, all eager to find out about this secret. As expected the presenter showed some fancy charts, and finally came to the point that additional payments would reduce the interest and the period. He then struck some uncertainty in us by saying that since most of us would not have read the loan agreements in detail, just making the payment was not enough. And his company offered the service (for a small fee) of analysing the loan agreement and to ensure that the additional payments were properly allocated by the Bank. 

Then came the invitation for people to sign up, and many of the attendees did. 

I wondered as to why we could not read the loan agreements ourselves and settle this. Why should we need to pay for these services?  

The answer is that not all of us are wired the same way. 

Some would have figured this MR trick all by themselves. Others would need some prodding, and then they would be able to figure it out. And yet others would remain baffled despite the prodding and would need someone to sort it for them. 

I think this is yet another reason for us to be financially literate. And those of us from non financial educational backgrounds should for our own good, make a strong effort to get ourselves a little educated financially.    

The Financial Meltdown – What should we do?

Friday, October 17th, 2008

No one (unless he /she is living under a coconut shell) can say that they are unaware of the major brouhaha that is currently going on all over the financial world. Banks closing, banks being taken over, stocks plunging, commodities plunging, fortunes lost etc. are daily headline news in almost all newspapers and news portals. 

What should we do about our holdings in the stock market?  

The conventional wisdom seems to be to just sit this through. And history seems to be in favour of this. I think for this wisdom to work, two important assumptions should be in place. One is that we made our stock picks very wisely in the first place and the second is that we have a long term time horizon on our stock investments. 

See PTMoney’s posting of a video of Mr. John Bogle seeking to calm our nerves and to stay the course. 

Another equally compelling school of thought says that we should never go against the major trend. So if the major trend seems to be down down (like what it seems now), we should just get out and stay out till the coast is clear. After all, no matter how much we are losing now, we’ll lose more if the decline continues.

I am one of the luckier ones who does not face this predicament today. Not because of adroit investing skills but because I cut my losses (horrendous ones, if I may add) earlier in the year.

So I am presently free of any stockholdings, except for the investments in unit trusts that I continue to dollar cost average monthly (These are meant for the younger kids’ education, so there is a pretty long time horizon attached). 

I am continuing because as the chart in the link below shows, far worse has happened before and we rebounded. I also remember the dark days of October 1987 when we thought the end of the world had come….and it didn’t.  

 The Kuala Lumpur Composite Index So what should we do?

Only you can answer this.  

Insurance auto renewals may need insurance

Wednesday, February 27th, 2008

We have an investment property, a house which is tenanted by a really nice family. We have a mortgage on this house at rates that make me the prize financial chump of the year, and a few years back. But this prize chump title is not what this post is about.

The mortgage is from one of the biggest Malaysian banks, a bank which has had my custom for many years. We have also taken the mortgage decreasing policy as well as the fire policy from this Bank’s insurance arm.

The loan was taken when I was at my previous job, so the servicing branch was near my then office. This year we transferred the loan to a branch near our home. Though the instruction to transfer was given in March 07, the transfer took place in August 07.

I did not think about the insurance at all. After all, when the loan was taken there was an express condition that the property should be insured for RMXXX with an insurance company acceptable to the lender…blah, blah, blah.

When we took the insurance, we also gave instructions for auto renewal. Hence we could sleep easy. When the time came for renewal, the Bank and the insurance company’s computers would do their thing. A click here and a click there, a whirr here and a whirr here and presto, my account would be debited with the premiums.

Late last week, I was looking for some documentation on the renewal and found none. I thought I had misplaced it and called the insurance company’s customer service people for a copy.

They told me that per their records the policy had been cancelled. 

Wow, they had cooly cancelled the policy and not informed me. A policy that had been assigned to them, a policy that gave them as much protection as it gave me. A policy for which no marketing needed to be done.

And they  had just cancelled it. And this is the Bank that had been kind and thoughtful enough to send me a birthday card.

My wife is now following up with the branch to find out how this happened or whether we were just misinformed about the cancellation.

Yesterday, the staff concerned was on leave. Today she is busy and has to check with something or someone. I hope this issue is settled soon.

I have learnt a lesson, that may be worth repeating to those of us who are in a similar situation. An insurance renewal is easy to overlook. Assuming that the Bank, with all its fancy computers and programs would know what to do may not be that wise.

I shall have to update my timetable to check when the renewal time comes. No longer am I going to act smug, expecting the Bank to do my job for me.

I wonder what would have been the Bank’s stand should there have been an accident or mishap on the property during the months when the policy was dead. Secondly, would  the policy be issued from current date or backdated.

I hope I don’t have to find out about the former. On the latter, I shall know soon enough.

The 9 things I would like from my Bank does not include a birthday card.

Monday, December 3rd, 2007

The other day, I received a birthday card from my bank. Though it was the only card I received, (family wishes excluded), I did not exactly whoop with joy. 

I suppose this must be part of the Bank’s way of showing appreciation for the customer. (For the past almost 18 years, I have been a loyal customer of this Bank and almost all our loans and insurances are from them). 

This is the draft of the letter I am thinking of sending to my Bank. 

Dear Mr. Bank, 

Thank you for the birthday card that you sent. I am sure the preprinted, pre computer signed, and pre addressed (and possibly pre posted?) card must have taken a lot of time and trouble for you.

Since you are in a giving mood, let me list a few things that I would really, really want from you. 

1. I would like my Bank to reduce my interest rates on my loans, since you should know that I have never missed a payment in 18 years. Instead, you offer me a ridiculous rate on a car loan. I finally got financing at a much cheaper by another bank, with whom I had no credit history, in fact, no history of any kind at all. 

2. I would like my Bank to stop sending me all those unsolicited offers of “pre-approved loans”. The money you save on this mailing should help you reduce my rates. And save the world a lot more trees. 

3. I would like my Bank to have well trained and knowledgeable people mining your customer databases. These people should think hard about matching products with the right customer instead of mass mailing and hoping to strike some.  

4. I want my Bank to stop issuing out credit cards in a way that can be described as almost reckless abandon. You may have credit card agreements that bind the holder from head to toe. However this strewing of “financial loaded guns” all over the place has a large role to play in the misery resulting from our young finding out too late about the “other side” of credit cards. I have children about to join the workplace. I do not want them to be seduced by these offers. 

5. I would like my Bank to stop charging fees for machine transactions. ATM machines save money for the Bank. Why on earth you should charge people for saving you money, I am not sure.  

6. I would like my Bank to be open on holidays and weekends. You  should know that many of your customers have to work and the only time they can go to the Bank is on weekends and holidays. Surely, skeleton staffing on these days should not put the Bank into bankruptcy. 

7. I want my Bank to draw up agreements for retail customers on the principal of “say what you mean and mean what you say”. Instead we see advertisements for “fixed rate for 20 years”, but the loan agreements (drawn up by your lawyers, but paid for by us) will have clauses that allow you to increase the rates at your will. (But never to reduce rates, mind you).  

8. I want my Bank to be very careful about your big borrowers. Borrowers who occasionally take off part of country’s banking landscape when they fail. I want my Bank as well as my Bank’s  lawyers to think hard about how to make the people behind these borrowers (as usually the borrowers are companies) suffer the same fate personally as those of us individuals do when we are foreclosed by a Bank.  

9. I want my Bank to continuously review your systems and work on improving service to the customer. Look at banks outside our country, not just within our own backyard. 

Well, Mr. Bank,  

Whilst I am really grateful that you sent the birthday card, you can see that other things will make me a lot happier and make me “a walking ambassador and free advertising agent” for you.  

Please think about this. Most probably the birthday card will be forgotten before the week is over, but any one of the 9 items above will be remembered for a long, long time. 

Thank you. 

Yours truly, 

Fathersez 

cc: The children of Fathersez 

Dear children, 

I have learnt that loyalty to a profit motivated entity does not really pay. So pick your banks carefully. And feel free to change banks depending on the services you need.  

All the Banks will insist on agreements which will be completely lopsided in their favour. Unfortunately this is a fact of life. As long as you have done your financial planning well, and have no intentions of cheating the Bank, you should not have to worry too much. 

Hopefully, by the time you write letters like this to your children, Banks may have changed.  

Let us hope by then the consumers of the world would have made sure that at least some of Papa’s 9 wishes are granted. 

Love  

Papa

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