November 2008 Archives

"Want is the path to the Dark Side. Want leads to spending. Spending leads to debt. Debt leads to suffering."

-- Get Rich Slowly

"It's not want that's the problem, but the habit of constantly satisfying one's wants."

-- Get Rich Slowly's cousin's rebuttal

Personal finance word of the week: LEVERAGE For companies, to leverage is to borrow money to finance operations. A highly leveraged firm, for example, uses more debt than equity from shareholders. If it is leveraged P50 to P1, it has P50 borrowed for every P1 it has in cash. When considering a stock to buy, look at how leveraged it is because that indicates the kinds of risks it is taking. For investors, to be highly leveraged is to use financial instruments like options and futures so that the, say, P1 million you plan to invest will effectively be P100 million. This, however, means that if the market moves against you, your losses will be magnified. Yes, you could lose your shirt, as bankers say. Individuals that are highly leveraged are in deep debt. There are good debts and bad debts. A mortgage is generally considered good debt because it has the lowest interest rate that you can find out there in the market. Some experts, though, are now wary of this principle because of the housing bubble roots of the present crisis and it goes without saying that if you have the money, then buy in cash or if your income can take the pressure, go for the shorter-term loan. Another way out of this scenario is to raise your equity portion as much as you can. Bad debts are normally consumer loans that are left unpaid to gather interest. Stay away from them! That’s enough nerdish moment for the day. Enjoy your weekend and smile despite the traffic! Cheerfulness can lessen the pain from being deeply leveraged. ;-)

…gross domestic product grew 4.6% in the third quarter despite all the pessimism, talks of gloom and doom and actual recession in more advanced economies of the US, Japan and European countries. The figure is in the upper end of the government projection of 4.0% to 4.6%. Still, this is quite a drop from the 31-year peak of 7.2% in 2007. The fourth quarter, although seasonally a good quarter for the economy because of Christmas spending and stuff, might be gloomier if people keep postponing their spending to wait for prices to go lower (like that LCD television that was at P120,000 early this year but is now at P100,000, zero percent interest for 24 months. So, maybe I should change my tune a little bit and say: hey guys, if you have the money, go shopping to save the economy! Hehe.

***

…some analysts actually believe the bear market is over, stock prices have bottomed out, but that this does not mean the bull is ready to charge. So, as my editor-in-chief JV Rufino asked when I told him about the news, what do you call a market that is neither a bull nor a bear?

***

…if you have investments in the stock market, you belong to less than half of one percent of the total population of the Philippines that are into equities! Citiseconline.com only had 6,000 customers in 2007 and only 15% of them traded at least eight times in a month.

***

…I am starting to believe I am jinxed! Well, the good news is that a few minutes (yes, minutes) after I blogged about BPI’s online banking service, someone from the bank called me up at home (should I be scared or impressed? honestly, I'm more impressed than worried) and tried to help me with my problems. A few days after, he called me again as promised and told me the account linked to my online banking facility was inactive, hence the error messages. (the phone banker sounded as puzzled as I was by the explanation of their IT guys).  I took note of the instructions he gave and resolved to follow them religiously. Finally, yesterday, I was ready to look at my account. Lo and behold, I forgot my password and got locked out! (that was totally my fault). So, I called up the 89-100 hotline today and what message did I get? “Ma’am, we are having a problem with our system so can you please call us again in an hour?” Strangely, I am not really upset. But I think I am so totally jinxed. *** …when you call an OFW abroad through their phone with roaming capabilities, he pays through the nose just to receive your call and you pay IDD rates on your phone. Ouch! If you have Globe’s family sim pack, the best way to maximize the entire package is for the OFW to buy another sim with Globe’s telco partner in that country. You can send him a text message for P1, he can reply using text. The two sims used by relatives here can benefit from “unli text plans” but to call home, he should use his co-branded sim. OneAyala privilege card, by the way, was relaunched today with more benefits! It's a discount card that's also an ATM through which Filipino expats abroad (I like the sound of that more than OFW) can use to remit money to the Philippines. Check out some of the noteworthy discounts below (others I did not include were blah):

• "preferential rates" on international and domestic tickets and packages from Fiesta Tours and Travel and discounted rates on passporting and documentation,
• deluxe room at P6,200++ and the Club Room at P8,500++ at Hotel Intercontinental and complimentary one-way transfer from airport to hotel for a minimum of 3 nights stay and 20% discount on all food and beverage outlets
• 10% off on existing rates on Deluxe and Suite rooms at Marriott in Cebu City and 10% discount in all food and beverage outlets
• 5% discount on purchases at Fiesta Mall Duty Free
• Free Hanabishi Rice Cooker for every single-receipt purchase of P15,000 at Abenson
• P200 worth of load for only P160 in Timezone
• one free donut for every dozen bought at Mister Donut
• Free one-year personal accident insurance worth P100,000 for every Ayala Life policy purchased, and
• One free money transfer to the Philippines from anywhere in the world from Xoom.

When the stock market is raging like a bull, any monkey can make money trading stocks. It is when the market is tanking when, as they say, you can separate the men from the boys. I was listening to Citiseconline.com president Conrado Bate’s presentation at the CFA Society Prestige Night last week, and found it interesting that the company considers these six stocks their GEMSS. I didn’t get the meaning of the acronym, but based on my notes, the company considers these companies as leaders in their industry, can report stable earnings in good and bad times and grow when the economy is growing, have management that are transparent, churn out superior products and services and have strong balance sheets. These companies are: ALI – Ayala Land Inc. (Last trade at P5.90 per share, only a touch higher than its 52-week low of P5.10) BPI – Bank of the Philippine Islands (Last sale at P41 per share) JFC – Jollibee Foods Corp. (Last traded at P38) MWC – Manila Water Corp. (Last traded at P13.75) TEL – Philippine Long Distance Telephone Corp. (Last traded at P2,275) SMPH – SM Prime (Last traded at P6.60) I personally like five out of the six stocks (wink). They are in good industries and sell products that we all need to buy come hell or high water, and they practice corporate governance. One of these companies I hate with a passion because their service sucks. Can you guess what it is? How about you, what are you favorite stocks?

Successfully calling the bottom in any crisis will give any “expert” bragging rights, but I wince whenever I see someone trying to make a prediction. After all, if there is anything we have learned lately, it’s that nothing is what it seems, and the best game plan is just like what your mother used to tell you in grade school: better be prepared. (What is it with quotable experts and the inability to say, “I don’t have a clue?”) Still, just like on that lengthy vacation drive when the kids start asking “Are we there yet?”, there are road signs that can indicate when we are already in the last leg of the trip. Last week, during the CFA Society of the Philippines’ 3rd Prestige Night (I never saw a more well-dressed group of super brainy people in my life), Michael Lee of Bloomberg indicated several early signs of a bottoming out and why (the list is not meant to be an exhaustive one). Being from Bloomberg, this guys lives and breathes economic indicators, and eats graphs for breakfast, heh.

1. Stock market reversal – the stock market, Lee says, is a discounting mechanism. When the stock market recovers, normally the economy will follow in six to nine months, so watch out for that. 2. US Industrial Production – the graph he showed that historically, this tracks almost the same path as US gross domestic product growth rates and is therefore a very good indication of when the recession is coming to an end. 3. Baltic Dry Index – Wiki explains that this measures the demand for shipping capacity versus the supply of dry bulk carriers. Recently, Lee says the index has been showing a “most disconcerting” trend indicating that world trade is coming to a halt as banks get cold feet in issuing letters of credit, with China, Japan and Korea suffering the most. 4. Bloomberg’s Financial Condition Index – if you have access to a Bloomberg terminal, you might want to track this propriety chart, which has been proven in recent quarters to indicate financial easing or freezing among global banks.

I caught a whiff of another interesting thing Lee pointed out and that is the significance of these Asian currency swaps happening in the region lately, as a response to the US and global financial crisis. These swaps initially sound like a good, proactive response, but Lee says they could have the unintended effect of drying up the supply of domestic currency for borrowers in Asian countries. That doesn’t sound good for any economy. The depth and length of this crisis will definitely put a toll on many (some we have already seen in this blog in a previous post), especially in developing nations. This New York Times article points out a very interesting possibility:

This recession will probably have its own social profile. In particular, it’s likely to produce a new social group: the formerly middle class. These are people who achieved middle-class status at the tail end of the long boom, and then lost it. To them, the gap between where they are and where they used to be will seem wide and daunting. The phenomenon is noticeable in developing nations. Over the past decade, millions of people in these societies have climbed out of poverty. But the global recession is pushing them back down. Many seem furious with democracy and capitalism, which they believe led to their shattered dreams. It’s possible that the downturn will produce a profusion of Hugo Chávezes. It’s possible that the Obama administration will spend much of its time battling a global protest movement that doesn’t even exist yet. In this country, there are also millions of people facing the psychological and social pressures of downward mobility. In the months ahead, the members of the formerly middle class will suffer career reversals. Paco Underhill, the retailing expert, tells me that 20 percent of the mall storefronts could soon be empty. That fact alone means that thousands of service-economy workers will experience the self-doubt that goes with unemployment. They will suffer lifestyle reversals. Over the past decade, millions of Americans have had unprecedented access to affordable luxuries, thanks to brands like Coach, Whole Foods, Tiffany and Starbucks. These indulgences were signs of upward mobility. But these affordable luxuries will no longer be so affordable. Suddenly, the door to the land of the upscale will slam shut for millions of Americans.

Having said that, I still say watch out for the signs, and in the meantime, enjoy the ride, even if it’s a bit bumpy. Life is too short for something like a Great Depression-like event to make us all grumpy! PS. Congratulations to the new CFA Level 3 charterholders! They have mastered three rigorous, six-hour exams covering topics that included ethics, financial statement analysis, valuation, derivatives, economics, and alternative investments and have gained at least four years hands-on experience. Kudos to Rose Christine Badillo, Anna Marie Bernardo, Kelanie Cabiltes, Luz Pilar Glinoga, Francis Goseco, Biao Huang, Jocelyn Labas, Ana Christina Pastelero, and Carl Stanly Sy. I forgot which one of them gave birth between reviewing and taking the exam, but to you girl, a major salute!

A Pulse Asia survey released today says 70 percent of Filipinos feel they are “worse off now” than three years ago and most expect that things are going to get even worse. Pulse Asia’s survey didn’t indicate why the respondents feel this growing pessimism: are they losing their jobs, eating less, suffering a loss of income, etc? Just that the quality of life is going downhill. I don’t see these yet in the people that I interview. Aside from the voluntary reduction in spending to prepare for the hard times ahead, like choosing to eat at home instead of having dinners in restaurants, or going potluck when organizing parties, and reducing gift budgets for Christmas, I haven’t seen any mass layoffs yet and the malls are still packed with people carrying all sorts of purchases. At least, so far. How about you? Are you feeling the crisis? How are you preparing your finances? Here are some suggestions:

1. Save more aggressively and shop more responsibly. If you used to save 20 percent of your salary every month, see if you can raise the notch up a little bit.
2. Postpone vacations. Make staying at home a little bit more exciting for spouse and kids with simple and creative activities.
3. Postpone big purchases.
4. Pay off credit card debt faster. Just by doing that, you let your finances breathe so much better.
5. Manage telecommunications cost. Texting and mobile phone usage can be a quiet financial termite, and so can Internet connection.

Any more tips you want to share?

Whether you’re a newbie to personal finance, or someone who is already well on your way to saving and investing, computing your net worth is a worthwhile exercise. Experts suggest doing it at least once a year most preferably with your spouse (and even with children, but make sure they understand that these are information meant to be kept within the family). What is that so-called net worth? It is a snapshot of where you are on the road to financial freedom. It has the potential of delighting you, or depressing you, depending on your current state of affairs. But remember that it is just that—a snapshot—and the way it will look a year from now will depend on how determined you are to improve your finances. It is a very, very personal document, and as these things go, you can either fudge it to make yourself feel better, or populate it only with brutally honest figures. It goes without saying the latter is better! :-) How to do it? Alijeffty Gonzales’ just-finished Pinoy Financial Planning Guide (he is giving it away for free. Email me for a copy at lightdream (at) gmail (dot) com) has details and examples.

1. List down your assets and liabilities. That basically means what you own and what you owe.
2. Categorize your assets into current assets (stuff you can sell or use in the next three months) and other assets (stuff you won’t or can’t easily sell). Examples of current assets are bank account balances, cash on hand, market value of marketable securities like bonds, stocks and mutual funds. Other assets may include your car, house, furniture and fixtures, the cash value of your insurance policies, interest in a business, jewelry, you get the picture.
3. Group your liabilities likewise. Current liabilities are what you owe within the next three months and recurring payments like credit card bills, loan and mortgage payments. In the “other liabilities” section, list down everything you need to pay three months from now.
4. Deduct your liabilities from your assets, and there you have your estimate of your own net worth.

Through the years, I have found that having everything in black and white helps me keep my feet grounded. When you approach this exercise with an open mind, it allows you also to keep your eyes on that final goal of a happy golden age in retirement, despite all the distractions of the day. But always remember, while this little spreadsheet may feel like it summarizes your life, life is not all about money! It’s so much more than that, as I’m sure you all know :-)

I have been researching for three weeks now on the nature of members’ benefits from state pension funds Government Service Insurance System and the Social Security System. As you know, the times call for a more determined look into financial help people can tap in times of need, and state pension funds were created especially for that. I was expecting the article to unfold as a helpful “what to do” story on how to tap benefits more aggressively; an educational foray if you will on benefits that are there anyway for the average worker. A friend alerted me over the weekend, however, on a very disturbing matter. Many employees in the National Economic Development Authority (NEDA) who had applied for loans from the GSIS have been paying interest and principal far longer than the terms required under their loan. The reason? Computer records do not match. Their personal records of salary deductions to pay their loans do not match that of the GSIS. Some borrowers have been paying for more than 20 months for a loan that would have been paid in full for 12! Infuriating? You betcha. That’s money out of your pocket, and what should have been a helpful exercise of borrowing from money that workers have been pooling together their entire employed life has become a source of much hair-pulling stress. My friend said someone in the news had a heart attack at a GSIS office because she could not make sense of what went wrong with her loan. I have heard vaguely about public outcry from government retirees and there have been demonstrations left and right about GSIS benefits. Only now have I realized the depth of the problem. Any experiences out there you can share?

We received this email yesterday from a reader based in Purono Park, Queensland, Australia:

These people better be smiling when they say things like that. They must be joking. As if we don't have enough clowns in government. Our relatives in the Philippines are losing their jobs, so we have to send money to help them. Can't they offer solutions instead of false reassurances? Will they please stop treating us like idiots?

He was reacting to the Philippine Daily Inquirer article “Slowdown, not recession” where cabinet officials explained that the Philippines is likely to show a slowdown in economic growth next year, and not a recession as most top businessmen who took the Makati Business Club survey believe. Are we, or aren’t we going to have a recession? Is the government merely trying to manage expectations? Or is there reason to believe that we won’t be hit as hard as we all think we would be? What do you think? Perception plays a big part in business and the economy, but sometimes economic-speak can be confusing. Should we spend more to avoid a recession (and therefore spur business activity), or should we save more to prepare for tough times? Forecasts as provided by economists, government crunchers and banks are taken from their economic models and gut feel. To a certain extent, their predictions also fuel perception, right? I have collated here all the predictions and forecasts worth studying (and salient excerpts), to help you make sense of what is being said in the news: “Slowdown, not recession” “What you mean by economic slowdown is when your neighbor loses his job. By recession, it’s you who lose your job,” Finance Secretary Margarito Teves said, explaining the difference between a recession and a slowdown. Also… The DBCC now expects the economy to grow at a slower pace of 4.1-4.8 percent this year after a slowdown in exports and farm output in the first nine months. The economy is expected to grow 3.7-4.7 percent next year. It was earlier projected that domestic growth would be within 5.5-6.4 percent this year and 6.1-7.1 percent next year. The new targets, the government’s second revision, were aligned with external developments “that may generate a knock-on impact on our overall economic activity,” Budget Secretary Rolando Andaya said in a statement. Top businessmen see recession in 2009 Eighty-seven percent of the businessmen polled by MBC said they believed the Philippine economy would fall into recession next year, while 60 percent said their company’s workforce “will contract.” The MBC groups the country’s biggest conglomerates and companies, and the survey was conducted among its members’ top management. Seventy-six percent of those surveyed agreed that obtaining bank loans would be more difficult, while 75 percent said “access to trade credits will be more difficult.” The “most alarming concern” is an expected spike in layoffs projected toward the end of the first quarter of the year, according to the survey. Deutsche Bank sees no recession for RP The Philippines is not in danger of falling into a recession. In fact, it is the only country in Southeast Asia that has so far escaped the harsh impact of the global financial turmoil, European banking giant Deutsche Bank said Wednesday. In an equity research note, the German bank said the Association of Southeast Asian Nations as a bloc was far more resilient today than during the Asian crisis of the late 1990s, when the sharp economic slowdown and unprecedented currency devaluation triggered a wave of corporate defaults that in turn soured banks' assets. “While the collapse in commodity prices and the anticipation of weaker exports should hurt economic growth, DB is not expecting a recession in Indonesia, Malaysia, Thailand or the Philippines,” the report said. The article also stated: “Financial prudence, deposit guarantees by central banks and the general lack of exuberance in the mass residential property market has left the Asean bloc in far better shape today than before the Asian crisis,” DB said. HSBC sees Asia staying resilient BRITISH banking giant HSBC sees developing countries in Asia in a much better position to withstand the current global financial turmoil than during the 1997-98 regional currency crisis. While emerging Asia would slow down alongside the global downturn triggered by the US credit crunch, the region--the world's fastest growing in the last few years--would likely remain resilient, HSBC group chief operations officer Michael Geoghegan said in an international teleconference late Monday. He said Asia outside Japan would still sustain a respectable growth of 7 percent this year. "If the world economy slows, Asia will be impacted, but unlike the Asian crisis, the Asian economies are strong. They have strong reserves, current account reserves and each country is capable of stimulating domestic demand," Geoghegan said. RP economy to grow amid recession MANILA, Philippines -- The Philippine economy will slow down due to the worldwide recession but it will still grow, with some sectors even showing surprising strength, an economist forecast Tuesday. Victor Abola, program director of the School of Economics of the University of Asia and the Pacific, projected gross domestic product growth in 2008 at 4.5 percent with 4.0-percent growth next year. This will be a sharp slowdown from the 7.2-percent growth posted last year but will be far better than the minimal or even negative growth projected for developed countries, Abola said. The likely effects of the world financial crisis on the Philippines will be a decline or even withdrawal of foreign investments in the stock market. Philippine financial institutions are not too exposed to the financial turmoil and those that have been affected have already made this public, Abola added. "We won't have a credit crunch as banks have plenty of money," he forecast. Philippine recession seen as unlikely The Philippines may be headed for a slowdown next year, a spillover effect of the ongoing US financial crisis, but the domestic economy is far from plunging into a recession, two experts said. University of the Philippines economist Raul Fabella and former secretary of finance Ernest Leung spoke at a forum organized by the nongovernmental organization Action for Economic Reforms. “The Philippines will definitely feel the impact of the US crisis—lots of jobs may be lost and the country’s capacity to borrow will suffer—but I don’t think we will go into a recession,” Fabella said, noting that recession is technically defined as two consecutive quarters of year-on-year contraction of a country’s gross domestic product. Fabella has projected that growth of the Philippine economy would slow down further to 3.5 percent next year from a projected 4.4-4.9 percent this year as the local business environment feels the adverse effects of the financial turmoil in the United States. His growth forecast for 2009 is less optimistic than the official projection of between 4.1 and 5.1 percent set by the Arroyo administration’s economic team. Global recession, local crisis Broadly speaking, recession refers to the fall in economic activity. It is a phase often technically measured as two or more consecutive quarters when the growth rate of the gross domestic product (GDP)—the total production of goods and services of an economy—is negative. Recession is the contraction phase or the “downtime” in the business cycle. Thus, it is often reflected not only in declines in industrial production and sales but also in employment and real income (or the income relative to the increase in the prices of basic commodities). Will we import a US recession? No Free Lunch/Cielito Habito Before going any further, what does it mean for the US economy to go into recession? Recession has come to be commonly defined as a contraction—that is, negative growth—in a country’s economic activity for two consecutive quarters or more. “Economic activity” here is measured as gross domestic product (GDP), which also reflects incomes received in the economy. In short, then, recession implies a prolonged drop in aggregate income. This is not to be confused with an economic slowdown, which implies a lower rate of growth, but continuing (positive) growth nonetheless. He also said: Will the Philippine economy go into recession if the US economy does? I could most confidently say no. A slowdown is almost certain—but by saying “almost,” I would still not rule out the possibility of sustained or even accelerated growth, as I will explain later. But a downturn for us is most unlikely, and can happen only if the entire global economy is somehow led into a downturn. A lively debate is ongoing worldwide, both politically and technically motivated, about the expected repercussions of a US recession, but there appears to be no disagreement that the world economy will slow down. It is the magnitude of the impact that is widely debated, with some arguing that the contagion will be severe, while others contend that the world economies have undergone a “decoupling” (translation: cut the link or dependence) from the US economy. I will set aside the question on the global impact, and focus here on the particular impact on the Philippine economy, and the lives of Filipinos. On this, our best basis for analysis is to look at the hard numbers. Export prominence How prominent is the US in our overall economic linkages, especially trade? If we count China and Hong Kong as one country (even though the trade statistics still separate the two), the US has already been dislodged as our largest export market, whose 17-percent share of our exports is now just second to China-Hong Kong’s 23 percent. Contrast this to only 10 years ago, when the US took more than one-third (35 percent), while China-Hong Kong took less than one-twentieth (5 percent). Our vulnerability to a US recession via an export slowdown is therefore far less than what it would have been 10 years ago. But let’s look more deeply into the details, particularly the destinations of our top exports. Electronic products, which account for two-thirds of all our export earnings, are now well distributed among our top four buyers for these products, with the US taking only 14 percent. China-Hong Kong takes 23 percent, Japan takes 15 percent, Western Europe takes 14 percent, and even Singapore and Malaysia take sizable shares of about 8 percent each. On the other hand, the US takes up the bulk (79 percent) of our garments exports, our second (but a far second) largest export. Mineral exports to the US hardly matter, with most going to our neighbors. Woodcraft and furniture, another top export earner, mostly go to Japan, with only 20 percent going to the US. JP Morgan expects RP to weather the crisis THE PHILIPPINES HAS “SIGNIFICANT” exposure to an emerging global recession but has built up internal buffers to cushion against external shocks, American banking giant JP Morgan said. In its latest emerging market research dated Oct. 16, JP Morgan held the view that local monetary and fiscal policymakers were well-positioned to act, if needed, to help perk up domestic output given the uncertainties in the global economy. JP Morgan estimated that every percentage point drop in US growth would shave 0.4-0.5 percentage point from the growth in the Philippines’ gross domestic product (GDP), or the sum of all goods and services produced by the local economy in a given period. Remittances are also directly exposed since more than 30 percent of overseas Filipino workers (OFWs) are based in the United States, the research said. But JP Morgan noted that there had been minimal bond financing by Philippine corporations. It added that real estate and stock market prices have previously moved up but still lagged many of their regional peers, thus dismissing concerns that they were nearing “bubble” type levels. “Bank foreign funding both as a percent of GDP and as a share of total bank liabilities is manageable and derivatives licenses had been given out prudently, so there has been no excessive activity there,” it said. From MoneySmarts: Prepare for the worst but hope for the best. ☺ What about you? Is it going to be a recession or a slowdown in 09?

So, we make money mistakes. Big deal. What matters is what we do to recover and learn from them. One MoneySmart reader, I will call him Danny, made a credit card mistake in the past enough to put him on banks’ negative list. The misdeed technically was his brother’s, who used his credit card to buy a computer and promised to pay him monthly. You probably guessed what came next. His brother failed to pay, and the P18,000 debt ballooned to P30,000 within a year. Danny paid everything by 2004, but by that time, his name was already hot listed. Fast forward four years. Now, Danny feels that after 11 years of financial stability and having paid his debt in full, he deserves the benefits of a credit card. He applied with HSBC, Bank of the Philippine Islands and Banco De Oro but got rejected. He sent an email to the Bangko Sentral ng Pilipinas’ Financial and Consumer Affairs Group, asking about what he can do to clear his name. With the help of Bangko Sentral Managing Director Johnny Noe Ravalo and FCAG head Elvira Ditching-Lorico, Danny’s case was forwarded to the banks concerned. Turned out that the bank that issued his first credit card failed to update his records even after full payment, that is why his name—up until early November this year—was still on the negative list. But Danny feels that all’s well that ends well. On November 5, he got his newly minted credit card. He got his name cleared and I’m sure that felt good. Now, don’t go burning that card, Danny, ok? Enjoy your new credit, but be responsible :-).

My husband and I went crazy at the DIY Handyman shop over the weekend to buy stuff for the house, so we had quite a stack of things to pay for at the cashier. I knew we probably overspent, but the bill still surprised me when it reached P9,000 plus.

 

I paid for the bill and then asked for the tape receipt. Rugs, check. Two different sizes of hooks, check. Car cleaning stuff, check.

“What’s this item that costs P4,200?” I thought my voice sounded really calm.

The cashier and her bagger checked each item and found that it really cost P99 but the scanner somehow made P4,200 appear on-screen. Great.

 

They voided the charge to my credit card and counted everything all over again, while my son complained of a missed meal and general tiredness at the things that adults worry about. I paid P5,121.23 instead of P9,291.48.

 

I was lucky it was a big item, that I spotted it and double-checked the tape receipt before I left the store. But what if these automatic scanners have been taking money from us without us knowing it? What if these are in increments of P50, or P100? Would we notice? What if they are already taking over the world?!! (kidding)

 

I once scoffed at my brother-in-law who checked each item in the tape receipt every time they went to the grocery. He may have a point after all. I just hate having to feel like I can’t trust something as simple as a scanner or barcode.

“Everything’s going to be OK.” -- Nick Vujicic

Such simple words have never been uttered with so much impact as when they came from Nick. Watch the video and see why. Nick graduated with a bachelor’s degree in Financial Planning and Accounting, and is a stock market and real estate investor, and a philanthropist.But his greatest asset is his sense of humor.

Consumers needed a little break, what with the tense September to October months and worries about whether the sky is falling down and whether jobs will still be there next year. Thankfully, there have been a lot of good news this week and Christmas seems a lot less gloomy. Here's your weekly roundup, to help those who feel like they have missed out on some news items this week. Personal Finance: Principles the crisis hasn’t changed INQUIRER.net columnist Johnny Noe Ravalo points out that investors and savers have to understand that crises are part of life and that there is simply no way to perfectly see the future.

“Lehman was after all an AA-rated credit so who would have imagined what would become of such a venerable Wall Street name. This human limitation is the best reason why we should be saving. We should save because it is the only way we can transfer purchasing power from when we have a surplus to when we may suddenly need more of it. In other words, saving during normal times helps us manage the difficult times. When difficult times kick in, our financial plans often shift to prioritizing liquidity over profitability. Unless we have a fool-proof way of either marrying into or inheriting liquidity just at the right time, we simply cannot maximize liquidity when we have no saving to speak of in the first place.”

The other point that you should not miss in Ravalo’s latest column is to remember always that financial values are relative.

“A trader, for example, would have a different mindset from an investor. This matters because ultimately the portfolio of a trader should be different from the portfolio of an investor. There is always that natural urge for any investor to get a bit more but without realizing it, some of us cross over and mimic a trading position and get consumed in the day-to-day changes in market values.”

So what are you? Investor or a trader? Most of the trends you see in the news of the stock market going up and down on a daily basis is because of traders’ movements, and if we are hoping to be an investor, rather than a trader, why do we often get too affected? A reader also wanted to know whether she should invest in stocks or in mutual funds? , a common question we receive here at INQUIRER.net. The answer depends on your risk aversion and cash flow. One way to boost savings is to consider limiting Christmas spending by putting your 13th month pay into your investment or savings portfolio. Read this article for more ideas. If you need help with how to manage your finances, this article tells you how to Find a reliable financial planner that won’t disappear when bad times roll along. Is the insurance industry in trouble?, asks PDI columnist Honesto General. The long and short of it, he says, is that while they are not in bad shape, insurance companies here must be prepared to put in more capital. Investing: It’s not true that investments in art are immune from the ups and downs of financial markets. Financial crisis puts chill in Asian art says why. The 3-year Treasury bond rate also plunged almost one percentage point to 7.6 percent Macroeconomy: Good news for consumers! Things are looking at least a little bit good for consumers this week, no wonder they are upbeat about the economy despite the crisis, according to the latest Nielsen consumer confidence survey. Good news for retailers. Oil in foreign markets flirted with the $60-level this week, and you have the US recession to thank for that! Remember when it was at $140? How long ago was that? The Department of Energy is seeking a P191 cut in liquefied petroleum gas prices and if the suppliers do that, the already dropping cost of staple food like rice, fish, chicken and sugar should move even lower in the coming months. Meralco has also started its deposit refund. October inflation (the rate by which prices of major consumer goods go up) is already down to 11.2 percent and will likely drop to single-digit levels come 2009. Yey! Will mortgage interest rates follow? I hope so for those that have fixed interest rates for only a year. The peso has also strengthened this week. Elsewhere in the world, top economies are already “in the belly of the recession beast” and the IMF has also lowered its growth projection for the ASEAN 5 economies but NEDA Director General Ralph Recto expects the Philippines to grow faster than expected in 2009. Naturally, Recession fears continued to stalk financial markets. Nothing new there. And the Obama victory added a little bit more excitement in traders’ lives by sparking profit taking on Wednesday. Again, nothing new there. Traders will trade for any reason. Banks and the financial sector: There have been plenty of pessimism about banks and the financial sector, lately, and that’s very understandable. It’s hard nowadays to know which opinions about them are to be trusted or not. I’ve been very selective about whose opinion to publish in MoneySmarts, and whenever I do, I focus on the figures and let the figures tell the story. It was gratifying to see Moodys confirm what these two guys said (though I am not really a fan of credit rating agencies), saying Philippine banks, as well as Asian banks, will not be immune from the crisis but they are likely to maintain these credit ratings. Nevertheless, the first half report showed that rising interest rates, the weakening peso and risk aversion caused banks’ income to drop 26 percent in the first half. However, they continue to be well-capitalized at an average 15.5 percent capital adequacy ratio and bank lending continued to grow 25.1 percent in the first half. Banks also got an early Christmas gift this week from the central bank when it cut reserve requirements by two percentage points, which should hopefully urge banks to continue to lend more. From PF Bloggers: Frugal Pinoy has a great tip on how to get Ivy Leage lectures for free by accessing them via the Internet. I used to just buy Business Harvard Review books from A Different Bookstore so that I can speak like I went to Harvard, nyahaha. Now I can watch them for free! All About Financial Planning talks about the investing wisdom of the world’s wealthiest including Warren Buffett and sums them up in nice little quotes you can repeat again and again when you’re nervous about your mutual fund holdings, heh. The Serious Nuts finished her Excel worksheet for Household Finance Workbook, congratulations! I guess you aren’t happy with Quicken and other free applications already out there . Great job! Have a great weekend!

Later on this evening, you can catch me on Lucy Torres’ show, The Sweet Life (QTV 11), where we talked about how to live on a budget without going “losyang” as Lucy herself calls it. It was an interesting evening when we taped the show, as I had a front row seat watching fashionistas talk about how they have fallen prey to the urge to splurge (but have since learned their lessons). Giselle Sanchez, a schoolmate at UP Diliman, was as usual funny, smart and very much honest with her spending binges. She talked of how she ended up buying almost all of the bags in a Louis Vuitton shop in Italy (guess how much it cost her), because the snooty manager tried to boot her out of the store because he mistook her for a Filipina domestic helper. (You must watch the show to fully appreciate her effort—albeit costly—to defend Filipinas). This made me think about how much we spend on clothing (my weakness is clothing for my kids), bags, shoes, accessories, perfumes, mobile phones. Yes, the techie gadgets are as much a part of being in vogue these days, as clothes and shoes. Work places that require power dressing like media, show business, and anyone above vice-president level in a big company, needs suits, barongs, spiffy shoes—and these are all expensive. A New York Times article says there’s a new trend that allows fashionistas to respond to the call of the times by turning into “recessionistas” or recession-chic.

In an economic climate in which buying a handbag with a four- or five-digit price tag is starting to seem gauche, the free-spending style hounds formerly known as “fashionistas” are rebranding themselves. Consider the $1,235 patent-leather satchel with golden hardware designed by Anya Hindmarch. Mary Hall, a marketing manager at I.B.M. in Redondo Beach, Calif., heard its siren call. Then she went to Target to purchase a similarly shiny purse, made out of polyvinyl chloride, by the same designer. Price: $49.99. “In the current economy, I thought I would reform,” Ms. Hall said.”

Now, is this a money-smart move? Or is it falling prey to a marketing spin that makes you feel it is alright to spend because you’re after all spending just a portion of what you normally would? The article goes on to say:

In part, the word reflects the efforts of fashion and beauty publicists to spin the economic downturn as an attractive retail trend. For instance, Bourjois, a moderately priced makeup line from France, sent a recent press release by e-mail to reporters promoting the brand’s cheapest mascara and lip glosses as “the Recessionista Collection,” an antidote to gloom. An e-mail message sent last week on behalf of Salon Eliut Rivera in Manhattan promoted “Recessionista Beauty,” offering discounts on haircuts and eyebrow shaping.”

To me, there are no seasons for being money-smart. If you are used to buying what you need, looking for quality items that last long at a good price (hmm, just like Warren Buffett’s criteria for a good company to buy), whether you are in boom times or in a recession, you won’t have to adjust your spending habits. It’s when we are used to luxuries we cannot afford, perennially trying to keep up with someone that’s two notches above our income levels, when we find it hard to adjust to crunch times. Lately, I was going through my eldest sister’s office clothing she left with me when she and her family migrated to the United Kingdom earlier this year. I found suits and clothes she bought more than 10 years ago that still look good and haven’t gone out of style. Classic cut; good quality textile. They were pricey, I bet. Her taste dictated that. But for the items to last 10 years? That’s recession chic :-) If you feel like it’s time to try this new skill, here are some tips I found helpful:

1. Shop with friends who are like-minded. Frugality is now back in vogue! If it’s tough to schedule it, then phone-a-friend when you feel that you’re about to splurge!
2. Tune out advertising. Remember, what you see on television as “the good life” is almost always way out of line with reality.
3. Don’t give in to the siren song of easy credit. Swiping a card seems painless, but that’s just an illusion. You still have billing day to deal with.
4. You will NEVER run out of things to buy. Believe me! There will always be a sale, always be a pair of shoes, a bag or an outfit that’s jut perfect for you, your spouse or your children.
5. Always know how much you earn. It’s not bad to enjoy what you earn; what’s not right is wanting to spend what you haven’t yet earned.
6. If you feel that you can’t resist, don’t go inside malls or shops. In Makati, the best way to go to my office is through the Ayala mall walkways and buildings and buildings of eye candies. When I first walked through them without buying a single item, I was as pleased as a cat that has just finished a meal!

Photo courtesy of Aladdin Cordero I learned a few more things while preparing for my interview at ANC’s Shoptalk, as well during the show and would like to share them with you:

1. Use a budget. Makes you consciously think of what you put in your shopping carts. Write a shopping list.
2. If you must shop, go for frugal shopping hot spots. The psychological rewards of saying yes is the same whether you do it at Zara’s or Divisoria. (Read my previous post to to find a list of frugal shopping hotspots.)
3. Set aside a Christmas fund. In government finance, a sinking fund allows the government to set aside every month some money for future payments. We can do the same in our personal finances. A 12,000 budget for gifts and noche Buena every year for example will not be as heavy when you prepare for it by seting aside 1,000 a month from January to December.
4. Don’t forget the “hidden costs” of Christmas holidays, like contributions for company/church Christmas parties, Kris Kringles for children, etc.
5. The law of supply and demand in economics indicate that if you buy in January, you will get lower prices because demand is bound to drop. Not so, says Pia Hontiveros-Pagkalinawan, who is a self-confessed Divisoria shopper. She says apparently shop-owners have realized that children who get cash gifts during Christmas time go shopping in January!
6. Be a bulk customer: contact your company’s suppliers
7. Recycle gifts
8. Keep Christmas parties simple, go potluck!
9. Think of giving the gift of experience instead of toys
10. Don’t go overboard when buying toys. Some of the most expensive toys these days kill children’s imagination

Is there anything wrong with enjoying the spirit of the season that’s fast approaching? Of course not. We wouldn’t want people to think we are misers who are only concerned with the glint of money. There is nothing wrong with enjoying what we earn. But therein is the key—the words “what we have already earned.” We should be enjoying in moderation past income with some set aside for the future. But Filipinos have to stop enjoying future income, future bonuses, future salary increases. After all, what if these don’t come in? Then we have to live with the reality of bounced checks in January or missed credit card payments when the new year rolls in. Break the cycle by refusing to mindlessly spend. The psychology of spending is a topic that I have been studying for quite some time. Unless we face the deeper reasons why we get into debt come Christmas season—and even after—we cannot really get rid of these urges to splurge. The psychology of spending Drazen Prelec (associate professor of marketing at the Sloan School of Management) says that “people’s complex attitudes towards money defy economic theory.” For example, some buy lotto tickets and insurance at the same time. Buying lotto is risky behavior while insurance shows risk-averse behavior. I also find Prelec’s findings to be “fascinating glimpses into our own complex relationships with money.” He says we all have personal rules when it comes to money, rules that we think will keep us out of money trouble. For example “I never take a taxi unless in an emergency.” When we don’t live by the rules, we feel guilty. That’s what he calls a moral tax on consumption that interferes with the pleasures that we get from doing what we do. Marketers take advantage of these findings by offering freebies or bundled pricing, for example. At a cosmetic shop, for example, you get a free item if your purchases reach, say 5,000. So if your total purchase so far is 4,500, and the next item you like is 700, you add to your basket so you can get the free item. Makes you feel good about adding that extra item. Credit cards, he says, are “insidious” because they remove the pain of that moral tax, or make it appear that the pain is not there. That’s why when you pay with plastic, you tend to spend more than you budgeted for. Money and happiness In one study, a psychologist named Miriam Tatzel, PhD, of Empire State College, State University of New York, compared peoples' spending habits with their sense of well-being. Her study of 329 students examined what types of spenders are the happiest. She observed that there are generally four groups of people with different combinations of the trait frugality and materialistic.

1. First group: frugal and materialistic. They look for sales on high-price items.
2. Second group: not frugal and materialistic. Big spenders who rack up credit card debt to buy, buy, buy, and are the least happy.
3. Third group: frugal and not materialistic. Financial planner Melvin Esteban of Motivating Minds would most likely call people in this group “Ilokanong Intsik”, which is what he calls himself proudly ☺
4. Fourth group: Not frugal and not materialistic. People who pay little attention to prices and don’t care what others have. They are the happiest.

Any violent reactions? How “successful” are you? The psychology of spending can also revolve on how we define success. Jennifer Cuddy in this article makes a very important point:

From the mid 80's to the 21st century, consumers have fallen prey to cues created by socioeconomic standards of living by measuring what is deemed 'normal' against those whose incomes are far beyond their socioeconomic statuses. We measure ourselves by what we own, what we wear, where we live, how we spend our vacations, our choice of automobiles, and other material measures of success. And yet, the majority of us are still unsatisfied with what we have. When our income increases, we inevitably spend more money in order to match those whose income brackets are yet again, one, if not two, levels higher than our own. This creates a society consumed with materialism, and sets the stage for dangerous vulnerabilities associated with consumer debt. Constant, mounting debt forces the consumer to work longer hours, sacrificing their freedoms to a sort of enslavement to money. Meanwhile, corporations merge, monopolies are created, and profit margins that drive capitalists determine what is culture, simply by measuring what sells. This is further complicated if you are a parent, because not only does your self esteem rely on where you fit in the social strata, but your children measure their self esteems in similar ways. " If my friend, Johnny, has a cell phone, a computer, and attends private schools, why can't I?" Middle class parents send their children to unaffordable private schools out of fear that their children will not succeed. What results is enormous debt and related stressors due to debt. And it is debt that enslaves society to the mercy of their employers.

Understanding how or why we spend also means we have to look into how we react to advertisements and whether we fall prey to the contrived psychological triggers that marketers cook up to remove the rationality in our spending. These triggers don’t even have to be “materialistic” in nature. They may include such noble desires as wanting to please our children, our spouse, our relatives and friends. At the end of the day, there’s always a reason to spend if you want to find that reason. Taking control of your money will not happen by magic; it will require conscious choice, and an understanding of the complex relationships we have with money.

ADVISORY: Catch me live today on ANC’s Shoptalk with Pia Hontiveros-Pagkalinawan at 3 p.m. to 4 p.m. to talk about the psychology of spending (one of my uber-favorite topic) and how to hammer down your Christmas budget. We all know the urge to splurge bites everyone strongest during the Christmas holidays or as the colder months come near. But we also get little scratches and bites all year round! Just look at all the stuff (most of which are useless after a month) that we accumulate through the years! The best thing would be to control the urge, of course. The next best thing would be to shop in the right places. Lately, I have discovered new frugal shopping secrets in Metro Manila, but to my delight, somebody else has been thinking about the exact same thing. Blogger Paetechie/Tutubi, who owns the blog Budget Travel Philippines (among other blogs), practically read my mind when he emailed me yesterday about his blog post “Manila Shopping Guide and Tips: Divisoria, Malls, Markets and the Art of Haggling”. Drool, drool, drool! You’ll know where to find me most weekends from November 2008 to November 2009! :-D So here are some of the frugal shopping “secrets” I have discovered lately (thanks to my friend and shopping maven Kharoll Tobias), in addition to Tutubi’s list: Native, wooden, ceramic, porcelain gift items for Christmas, and even sushi platters – Dapitan St. in Manila. You won’t be able to find little gift items good enough for whole departments or a whole clan for P20 per piece in the malls and still be proud to give them away! But you’ll find them in this little stretch of street near the Dapitan market. There’s also a new “mall-type” enclave that you should also check out for items with better quality (but just a little bit pricier). Plus, if you like simple and cheap sushi platters to serve your guests, walk over to the Dapitan wet market. The rice used is not yummy Japanese rice, but for P60 per small pack and round P350 for a big platter, you can already impress your guest with your sushi creations. Quality wood furniture—Silang, Cavite on the way to Tagaytay. I have been asking around where to buy good quality furniture for my new home and found a series of little workshops on Silang, Cavite where you can buy solid Kamagong consoles, Acacia or Mahogany beds (and you can be sure the bottom will not break even if kids jump on the mattress), tables, chairs, quaint garden swings, you name it, for around ¼ of the price in malls. No reconstructed wood here, buddy! Pure furniture heaven. Beef—Tagaytay’s famous beef can be found at the Tagaytay wet market. At one point, my friend said they bought meat so fresh the flesh was still moving. Grab some pineapples while you are there because you will really find them cheap for P25 per piece, (these sell in Metro Manila for P35 to P40 per piece). Baby rompers, booties, flannel pieces for wrapping etc.—Tutuban mall. Prices here are surprisingly lower than 168 mall or Ylaya St. in Divisoria. There are more options, too, in terms of design and quality. Good quality rompers for P40 apiece beat Zara infant rompers that sell for P1,000+ per, and will be worn by the baby for only one or two months. (I admit, I was very tempted, but he, money-smarts has to be money-smarts!). Related blog posts:

1. Christmas shopping in September
2. Get your kikay fix without spending a fortune
3. Hidalgo: Gadget haven for the money-smart and fearless
4. Money-smart holiday gifts
5. Where to put your Christmas bonus?
6. Book shopper’s heaven
7. 15 tips to reduce Christmas debt hangovers

If you have more frugal shopping secret destinations, even in other cities, why don’t you let other money-smart readers know! :-)

Photo courtesy of Red Monkey (To the tune of “My Way” karaoke-style) And now, the end is near, And so I face my final buying. My friend, I’ll say it clear, The bounce will come, oh who am I fooling. I’ve lived a life in greed. And now it’s time to live in fear. And more, much more than this, I did it my way. Regrets, I’ve had a few; Just like when I did not sell Petron I sold, all that I owned And bet it all, all on Omico. I read technical charts; And listened to my fund adviser But more, much more than this, I did it my way. Yes, there were times, I’m sure you knew When I borrowed money from you But through it all, when I would lose, I ate lugaw or Lucky Me. I faced it all, and I stood tall, And did it my way. I’ve loved, I’ve laughed, I’ve cried. I’ve had too big a share of losing. And now, as tears subside, I will commit my suicide. To think, I did all that; And may I say – not in a bright way, No, oh no not me, I did it my way. For what is a man, what has he got? If prices dive, then he has naught. To say the things he truly feel; And yes, the words of one who kneels. The record shows I took the blows And did it my way. --original verses, written in the spirit of fun, by a financial planner friend who asks not to be identified. Dyandyararandandan! Score: 100 shares in Omico

If you haven’t had time to read the business papers this week, at least read the articles below so you can catch up My recommended readings for the week still have the tang of the US financial crisis and market upheavals, but indicate that even after screams of dismay due to the crisis, life goes on. People still have to figure out the answers to the usual concerns of someone trying to go on with life like whether it is smart to invest in a memorial plan, or how much insurance is really needed. The government and the private sector are, as always, trying to find ways together to insulate Filipinos from the crosis (or at least make it appear they care :p ). Some of the items you will find in the news portion are positives for the Philippine economy, some are not. Hope these help you make informed decisions in the coming months. Personal Finance Is it smart to invest in a memorial plan? In a largely happy-go-lucky country, talk of death still spook Filipinos, and most try to avoid planning—and even just thinking—about kicking the bucket. Do you really need insurance? Many Filipinos have been burned by one too many pre-need, and even insurance, companies. Since both industries thrive on trust and integrity, it is difficult for many to reconcile both promise and reality. In fact, even the world’s largest insurance company has not been exempt from financial mishaps that have recently tainted its golden image. Should I guarantee my friend’s loan? A friend from work asked me if I can sign on her loan document as guarantor. She will use the money to buy a small home in their province. Although we’re very close and I know her to be honest and responsible, I am having second thoughts about signing on the document. What really happens when a person signs as guarantor to a loan? – Marcy Financial crisis for dummies IN RECENT WEEKS, business stories have been catapulted to the front pages because of the global financial crisis, bringing with them a lexicon of terms unfamiliar even to the average newspaper reader. Features Impact of financial crisis on consumers The economic advisor to MasterCard Worldwide in Asia-Pacific believes mature markets such as China, Singapore and Malaysia will remain sturdy while the likes of Korea, Indonesia, Thailand and the Philippines will experience a slowdown in growth. Not everybody’s doing bad these days THIS NOTION IS NOT new -- when times are bad consumers downscale. Millionaire gives even during bad times Talk of a prolonged recession in the United States, and consequently the rest of the world, has yielded a flurry of advice to cut back on spending, pay off debt and stock up on cash. While these may help in days of difficulties, they work best when started during good times. These principles have helped an American-Japanese millionaire to give even during hard times, and search Asia for diamonds in the rough that he can help financially even when the rest of the world is cutting back. Columns Stretchable credit ratings (Raul Palabrica) Amid the present world financial crisis, the credibility of three major credit rating companies—Standard & Poor’s, Moody’s and Fitch—is at its lowest in years. Greenspan shocks global markets (Ron Nathan) In his testimony before the US House of Representatives, former Federal Reserve chairman Alan Greenspan said: “We are in the midst of a once-in-a-century credit tsunami.” He denied responsibility for the current global meltdown in equities and commodities and predicted that the United States would emerge from the current credit crisis with “a far sounder financial system.” News Bankers ratify steps versus global crisis Members of the Bankers Association of the Philippines, the group of commercial bank heads, on Friday ratified three “unprecedented, self-restraint” measures endorsed by their leaders to support the central bank’s efforts to protect the domestic economy from escalating external shocks. BSP says Fed cut gives policy leeway The country will have greater leeway in setting its monetary and fiscal policies after the Federal Reserve's latest rate cut, the central bank said on Thurday, but economists do not expect authorities to cut rates immediately. Read: interest rates may go down next year, good for people who have mortgage and business loans. IFC bullish, promises more help The visiting chief of International Finance Corp., the World Bank group’s private-sector investment arm, said Wednesday the Philippines was in a good position to hurdle the worst global financial shakeout seen in 80 years. Banks agree to limit dollar holdings MANILA, Philippines -- The country’s most influential banking lobby confirmed that its members would voluntarily halve the amount of US dollars they hold in a bid to keep dollars available in the market rather than on banks' books. Worst of crisis is over—Nobel laureate SEOUL -- Nobel economics laureate Robert Mundell said Thursday the worst of the world economic crisis is over and the US economy is in the recovery phase. BSP acts to help ease pressure on the peso Bracing for an escalating global financial turbulence, the central bank, Bangko Sentral ng Pilipinas (BSP), announced new measures to ease pressure on the sharply weakening peso as well as to help temper banks’ losses from depressed asset values. RP builders learn from past crashes MANILA, Philippines -- In Manila's upscale business district of Makati, luxury flats are still fetching record prices, but the country's property barons are getting nervous as the financial crisis takes hold. Big question: will OFWs be affected by the crisis? Abangan. Have a great All Saints/Souls Day weekend, everyone! Drive safely!