Here’s a public MoneySmarts confession. I have a fully paid educational plan with College Assurance Plans, and it’s the open-ended type. Yeah, silly me. Even before CAP officially admitted to its problems, I had heard of the dangers. Some reporter friends who were covering Congress at that time had obtained documents that already indicated that the country’s largest pre-need company was in trouble. And yet I still paid every centavo under the plan.
I still remember the day I went to CAP’s Makati office to get the certificate that I thought would get my child into the best schools in the country. As I was waiting for my number to be called, I sat next to a family that opted to get their benefits way ahead of schedule. The father, obviously an overseas Filipino worker, said he knew he would get only around 60 percent or thereabouts of the maturity amount. He didn’t exactly say it, but I think he also heard the rumors.
I guess he got a better deal.
CAP and other pre-need firms that went bankrupt burned a lot of Filipinos and damaged the reputation of the industry tremendously. Does this mean all pre-need products are worthless?
Personally, I worry about writing off something based on fear, just as I worry about getting into an investment based on greed. As one of those who got burned, my first instinct is to lump all pre-need companies in a miserable little ball and consider them unfit for Filipino consumers. But to be fair, Filipino savers need to take a closer look at the industry to make a better judgment on whether all pre-need products are indeed worthless.
Philamlife Pres. Jesus G. Hofilena, in a presentation made for the Asian Institute of Management’s JBF Center for Banking and Finance, said only a fifth out of over five million plan holders are in trouble. (Excuse me while I nurse my broken pride, being one of those victims :p)
We are in trouble because we opted for traditional education plans that promised to pay the tuition fee whatever level it would be at the time of maturity. (Wouldn’t you think this was a very good deal?)
At the same time, poor management actions of these companies weakened their financial position like investing too much in real estate. The government deregulated tuition fees causing school expenses to skyrocket, adding more kindling to the fire. Investment yields were going down and cracks in the regulatory framework started to show.
However, Hofilena believes that the industry is confronting serious issues facing it, like solving trust fund deficiencies and educating and professionalizing their sales force among others. He believes the tougher regulatory rules will force the industry to consolidate. You know, survival of the fittest blah blah blah.
Speaking now in hindsight, I realize that because of my investor profile, I should never again buy an educational or pension plan because returns are too low for me. But such products also have a place in the life of many Filipinos, who need to be forced to save for such a big expense as education for their children.
Don’t be fooled into thinking you are “investing in your future” with pre-need products. You are in effect paying these companies to collect your money from you, so that you can get the same amount by the time you need the money, plus a little bit more earned in interest. But hey, if that’s how it works best for some people…better low returns than no savings at all, eh?
In its article today, Citibank answered a reader’s question on preparing for the high cost of children’s education. When considering educational plans, make sure you:
Check the stability of the company. Also, compare the plan with other plans offered by other pre-need companies. See if the monthly premiums are reasonable. Generally, the more time you have until your children go to college, the cheaper the premiums will be. If you have lesser time until your children go to college, such as when they are already in middle school or high school, consider shoring up money for your own fund and doing your own investing.”
The best tip from the article is to set up a separate account for education expenses and to add to it monthly with total commitment. Never dip into this sinking fund; consider it sacred. Just the action of setting up a separate account does wonders for discipline and commitment.
April 25th, 2008 at 11:43 am
HI, ANYBODY HERE WITH EDUPLAN PHILS AND PRUDENTIALIFE TRADITIONAL EDUPLAN. MY EDUPLAN CAN BE USE THIS YEAR BUT WE’RE IN CANADA NOW, AYAW NAMAN UMUWI ANG ANAK KO TO STUDY, ANYBODY KNOWS IF I CAN WITHDRAW THE MONEY AT THIS TIME.
December 15th, 2007 at 6:56 pm
TO EVERYBODY:
I had resumed my research on CAP and found that it is currently under rehabilitation under the order of Makati Judge Cesar Untalan.With all due respect to this judge, I doubt the feasibility of this rehabilitation because it hinges on the resumption of CAP’s core business which is selling educational plans. Which parent in his right mind would buy a plan from CAP considering the present financial position it is in.
I believe that rehabilitation will only be sucessful if their will be huge capital infusion and change of management.The best scenario is for the government through GSIS, SSS and OWWA to invest on CAP whose paid up capital is only 157 million pesos out of the authorized 300 million pesos.Many would ask why GSIS, SSS, and OWWA? Why not? These institutions invested a lot of peoples’s money on paintings, shares in Belle Corporation and other questionable deals
where they lost money. Aren’t the future of Filipino youth worth investing for? The government should also guarantee this investments to protect the members of GSIS,SSS and OWWA. Again many will ask why? Well if the government has guaranteed behest loans in the past and are still paying for them then why can’t it guarantee investments which involves the future of our youth.
I will send this idea to Sen Mar Roxas who has always remained sympathetic to
the cause of the pre-need victims. I hope all the senators and congressmen will also consider this idea so all the pre-need victims may finally get justice.
November 29th, 2007 at 6:28 pm
To Salve and others:
I have 2 fully paid educational plans valued close to 600 thousand pesos from CAP and had accepted the fate that I may never recover even a centavo of it.Back in Dec. 2004 I digged everything I could get about CAP’s financial statements for the preceding 3 years and I was shocked to find that CAP was losing billions of pesos of planholders money and no one not even SEC and other government agencies did anything to stop it.There were Senate and Congressional investigations but nothing positive came out of it. At one point dinuro pa ni Enrique Sobrepena si Sen. Osmena.If he can do this does it mean that someone higher than a senator is behind him?For now everyone seems to be in the dark about CAP.The last news I heard is that CAP was trying to sell the MRT bonds, its only high valued asset in its book worth billions of pesos.If they were able to do it then even the smallest hopes are gone for us planholders.
In my next comments I shall outline what the SEC other government agencies should have done to help and protect the planholders of CAP and other pre-need companies.
November 24th, 2007 at 3:23 pm
I agree that CAP should honor its obligations. What they have done is really a daylight bank robbery. Unfortunately, our laws are too weak to prosecute these people. CAP just takes advantage of the system.They are supposed to be under financial rehabilitation as ordered by the court. Until now, they cant pay a single centavo even for a fixed plan. There is a group called PEP coalition but they primarily represent Pacific plan holders. Is there any organized group that handles plan holders unpaid by CAP?
November 7th, 2007 at 12:01 pm
I disagree with Dennis Ladores. We cannot move on. They entered into a contract and they ought to honor that. We counted on them as our partners in our children’s future.
If somebody defaulted in paying the installments, they fined. Now that they did, they must also be fined. If they wont give the amount equivalent to our children’s tuition,then they must return the money with its corresponding interest income. That would not be burdensome to them. How I wish they would be like Zaccheus in last Sunday’s gospel–he promised to return 4x the amount he stole from the people after meeting Jesus. Paging Jesus Christ!! Come show yourself to these present-day Zaccheus.