Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Posts Tagged ‘managing windfalls’

Can a windfall really change people’s lives?

Monday, February 18th, 2008

I remember reading in Readers Digest quite some time ago, that should all the money in the world be equally divided amongst everyone, in less than 3 years, the wealth would go back to the earlier distribution.

RacerX wrote about the “buy out packages” being offered by Chrysler to some of its employees. By taking a sum of money, maybe equivalent to about 2 - 3 years of salaries, the workers were expected to walk away and begin life anew. Without the safety net of the Chrysler salaries.

I am not sure if this offer has been completed or how many workers accepted the offer.

I believe most people used to receiving a monthly salary and spending it, attain a certain mind set. A mindset of spending what they have. To be sure, some of the money will go towards savings / investments. However, I dare say that a large amount will go off towards some sort of consumption or another.

And sooner rather than later, they will be left with no job, and no money.

The same has been demonstrated in Malaysia.

a) We have a Government regulated compulsory savings scheme. The employer pays 12% and the employee pays 11% into the Employee Provident Fund (EPF) which manages the funds and pays dividends yearly. The contributions are tax deductible.

EPF officials have been quoted saying that their studies indicate that the people who withdraw their savings in a lump sum upon reaching the age of 55, tend to spend their savings off in 3 years!

b) We also have a Federal Land Development Authority(FELDA). Set up in 1956, it was part of an ambitious plan by our country’s then leaders to create income opportunities for a vast number of underprivileged people. The Government parcelled off huge chunks of land in 5 acre parcels to families who wanted to grow cash crops, mainly rubber and palm oil.

See Wikipedia’s write up on FELDA.

The Government also made large investments in palm oil mills which provided a ready market to the farmers producing the palm oil fruits.

Over the years, some of these land parcels were seen by property companies as having development potential and enticing offers were made to the FELDA settlers. Not surprisingly, a number of the settlers took up the offers and became instant millionaires.

Our tabloids were full of stories of a number of these instant millionaires buying cars, building mansions, swimming pools, taking on second wives and the like. Basically squandering away the funds.

Those of us who are used to receiving regular payments as salaries and use that to manage our financial lives have to be very very careful, when we receive lump sums or windfalls. No matter how we may have planned the utilisation, a little by little the amounts may be frittered away

It would be good and very useful to revisit Mighty Bargain Hunter’s write up on piggy banks and choose the very best model available.

I am also expecting a significant part of my retirement to come from EPF. I must, must remember to follow this advice!!!

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