December 2008 Archives

"We make a living by what we get, but we build a life by what we give."

-- Anonymous

Below is one of my all-time favorite true stories, printed in a newspaper in the United States years ago, and quoted by religious leader Thomas S. Monson in his talk, The Profound Power of Gratitude. There's a personal finance lesson in it :-). Here's hoping that you all have a Merry Christmas, a bright year ahead come what may, and a heart full of gratitude for all that the year will bring.

The District of Columbia police auctioned off about 100 unclaimed bicycles Friday. “One dollar,” said an 11-year-old boy as the bidding opened on the first bike. The bidding, however, went much higher. “One dollar,” the boy repeated hopefully each time another bike came up. The auctioneer, who had been auctioning stolen or lost bikes for 43 years, noticed that the boy’s hopes seemed to soar higher whenever a racer-type bicycle was put up. Then there was just one racer left. The bidding went to eight dollars. “Sold to that boy over there for nine dollars!” said the auctioneer. He took eight dollars from his own pocket and asked the boy for his dollar. The youngster turned it over in pennies, nickels, dimes, and quarters—took his bike, and started to leave. But he went only a few feet. Carefully parking his new possession, he went back, gratefully threw his arms around the auctioneer’s neck, and cried.

We Filipinos traditionally blow away a huge chunk of our Christmas budgets on Noche Buena. We can cut back on gifts and decorations but not on Christmas dinner! Not even plates of lechon and sweet spaghetti can make us veer away from the traditional, lavish handaan. Filipino parents feel like they are lousy providers when they can’t at least provide hamon and queso de bola. So, what are you personal finance enthusiasts having for Noche Buena? Are you making do with less or is the dinner still a tradition that will remain untouched despite the gloomy forecasts? In the Duplito household where Christmas dinner is basically a simple family affair (no cousins, lolos and lolas because they live far away), adjusting is not a difficult thing because we have kept the traditions simple from the very beginning. The only adjustment that I have made is to replace the usual seafood crab dinner with shrimp, which is more accessible and less expensive. Otherwise, we will still have ham, lechon kawali, ice cream, and fruit salad. For five adults and two children, the expense is really not that high. How about you? What are you having? And here’s a challenge: how can you stretch a P500-budget for Noche Buena? What will you buy?

My apologies for not posting my news roundup last Saturday. Here it is, finally, including some developments today that point to trends in the economy. Personal Finance My sincerest thanks to you guys for making the Personal Finance section a hit among INQUIRER.net readers. I heard that some readers who would normally not read the Business Section at all do so because they find personal finance to be practical and useful. My editor-in-chief once asked me why I chose to write about personal finance and I replied with a laugh that I had been merely typecast. I realize though that it’s the chance to change lives that makes personal finance for me very fulfilling. Enough of the speech. Sniff. Hope you like my article “Top personal finance lessons for 2008” as a yearender sort of thing. There are also tips on how to “Buy a house amidst a crisis” and how those with cash should consider next year a good time to buy one. Our Take Charge of Your Money article has a timely “On shopping wisely” article for those still doing their Christmas shopping. There’s an 11-day holiday in the offing but if you need to work on some of those days, make sure your company pays you well. Here’s our guide: Pay rules for long holidays. Here’s an interesting crisis-related development. Divorce rates in the United States have gone down because couples realize its cheaper to stay together. Heh. Interesting? Read more here: Hitched to the economy. Macroeconomy Economic data that came in last week about the economy showed we weren’t pummeled (yet) by the crisis. The peso last week touched P46.90 to a dollar because of the Fed’s historic decision to cut rates to zero, and we know that there will always be winners and losers regarding peso fluctuations. The central bank responded by cutting rates by 50 basis points and that means you’ll see money getting cheaper and interest rates on loans going down even more. Next year, there might even be more rate cuts as the outlook for inflation gets rosier. The Bangko Sentral ng Pilipinas now expects price increases to be even tamer at 9.4 percent for the entire year or the lower end of its target range. If you are curious whether making money cheap will soften the economic landing for all of us, read Cielito F. Habito’s “Will easy money work.” It’s not clear whether NEDA director general Ralph Recto already inputted the central bank rate cuts in his 4.6 percent prediction for gross domestic product growth in the fourth quarter. He is also talking about a P300-billion sustainability plan to help the economy move along. He didn’t say if this is new money and how the government will raise the amount, or just a re-packaging of the budget. Other macroeconomic signs still point to a clear sky despite more gloomy talk about a total global economic meltdown, this time by Spain’s central bank governor Miguel Angel Fernandez Ordonez. Remittances as of October still grew 15 percent at P14 billion and while the month of October alone showed a sharp slowdown, the Bangko Sentral ng Pilipinas believes the growth will stay at 15 percent for the whole year given that Filipino expats send more during the Christmas holidays. Remember that last year, analysts said remittances will slow down because of the crisis and it didn’t? It appears that the Filipino culture surprised most of these foreign economists. Come what may, we find ways to send what our families need. We will see this time what happens with the possibilities of layoffs across the globe. Locally, however, the jobless rate was still at 6.8 percent in October and the balance of payments swung into a surplus in November of $19 million. No wonder one of the most respected businessmen in the Philippine economy, Jaime Augusto Zobel de Ayala remains bullish on Philippine prospects. Banking and Investing The saga of rural bank failures continued last week. BSP is investigating 9 rural banks for “unsafe and unsound” banking practices and now politicians, as always eager to get in on any chest-beating discussion, would like to investigate as well. Here is the list of the rural banks to be investigated: Dynamic Bank, Rural Bank of San Jose, San Pablo City Development Bank, Rural Bank of Paranaque, Rural Bank of Bais, First Interstate Bank, Pilipino Rural Bank, Bank of East Asia, and Philippine Countryside Rural Bank. Another corporate drama last week came to a head when PSE suspended trading of Meralco shares. Dig deeper through the legal brouhaha and you’ll find that this put a monkey wrench on government financial institutions’ plan to sell its Meralco shares to San Miguel Corp. Meanwhile, we have Gotianun’s East West Bank winning the bid for Philam Savings Bank. The bigger question, however, is who will bag the insurance business deal? The answer will all depend on the valuation of the company. I heard that Philamlife is too expensive for many of its suitors. Investing-wise, San Miguel Corp., the country's biggest food and beverage conglomerate, is preparing for a $1-billion preferred stock offer for next year for its acquisitions. Corporate news: For those who are constantly looking for air travel options, you might be interested to know that Dragonair has launched Manila-HK flights, but that the Texas Instruments plant has retired 400 people, listed firms’ third-quarter profits are down 20% and bank lending growth has slowed down in October. These storm clouds mar what appears to be a clear economic sky and give some signs of the difficult road ahead for everyone as the crisis takes a bigger toll on the economy. From the blogosphere: I found an interesting piece from Soul who is ranting about bad customer service here. I find that while we don’t have to be shrews when complaining (customer service representatives are people too!), too many Filipinos are too shy to complain even when we deserve to be heard.

"The myth of wonderful capitalism is dead but not capitalism, just the nice warm fuzziness."

-- former International Monetary Fund chief economist Simon Johnson

Careers in the financial services industry seem to be especially vulnerable to economic downturns. Remember in 1997 when then highflying stockbrokers and analysts suddenly found themselves out of jobs? All of a sudden, their P100,000 sign-on bonuses gave way to depressing talks about who was getting laid off and who was losing his house. These days, those working in the sector are in the same boat especially in the United States. Some workers in the financial sector are finding a way to avoid this vulnerability. The International Association of Registered Financial Consultants (IARFC) recently observed more of their members going into independent financial planning services, setting up their own companies, and using their skills to create a unique career for themselves. It’s “unique” because when the economy is down, more people need help with their finances. Questions that before were ignored when the market was booming get to be more pressing when stocks tank. Ralph Liew, chairman of the IARFC, said financial planners aren’t merely concerned with selling a financial product. They have to make sure their client is in the pink of financial health. Learning how to provide financial planning services then improves one’s value to his clients. It’s sort of a recession-free career in that sense. But there’s still a lot to be done about how to educate Filipinos (who loves to get freebies) that its necessary to pay for financial advice. “You go to a doctor when you don’t feel well. You pay a carpenter to fix your house. But you don’t want to pay a fee to get financial plan,” says Liew.

It’s my pediatrician this time :-) .

“Hi Salve. You know what, I’m keeping my mutual fund investments. After all, I’m investing for the long-term naman eh. As long as the value of my shares don’t go down to zero!,” she said.

This appears to be a common concern among mutual fund investors, who have watched the net asset value per share (NAVPs) of their mutual fund holdings drop to precarious levels this year. Many have decided to stop checking the values every day as the movements make them nervous. Others have decided to withdraw their investments altogether even at a huge loss. Can NAVPs drop all the way to zero? What will it take for that to happen? I talked to two experts who used to manage different mutual fund companies, but who are now in different fields. They are no longer connected with the industry, but have intimate knowledge of how the industry works. One of them I cannot quote because of his sensitive position in a big financial institution and the other, Rex Ma. A. Mendoza, is now senior vice-president at Ayala Land, Inc., and is a well-respected teacher and practitioner of financial planning in the Philippines. Here are their replies:

“Most mutual fund companies’ holdings are in blue chips, government securities and bonds, For the NAVPs to go down to zero, all of these shares will have to be worthless. That has never happened before and I daresay it will take for the earth to stand still for that to happen. If a company folds up, it will still be required by law to pay its shareholders,” he said. “There is very low probability that that will happen, but it depends on the funds. The question that you have to answer is what are the chances of ALL held stocks being worthless or delisted? It will take all companies in the portfolio folding up. It’s queer but the chances may be higher now in bond funds, especially if all bond holdings will be unpaid. But even subprime loans and credit default swaps have discounted values. So there is still a redeemable base and not zero. With Philippine mutual fund holdings as they are now (blue chips and sovereign debt), it may be close to impossible to see this zero NAVPs happening. It will only happen because of fraud in management or the country becoming a communist state,” said Mendoza.

As usual, I’m just reporting to you what I have gathered so far and bringing you information straight from the source. No personal recommendations here. The usual disclaimers apply. Any thoughts?

The year is almost about to end. I’ve been thinking about the top personal finance lessons we can glean from 2008. Here are mine. If you want to share your own lessons, write via the comment section or email me at lightdream (at) gmail (dot) com. I will feature the best ones in my article for Business Monday at the Philippine Daily Inquirer.

1. Crisis-proof your finances. Don’t put too much money in one investment. Diversify. Invest only what you can afford to lose.
2. Plan for the long-term, but revisit your goals regularly.
3. Don’t be too greedy. Know what you’re getting into. If you don’t understand something, ask for plain English explanation and if that doesn’t work, just walk away from it.
4. Live within your means.
5. Money is not everything.

I watched with rapt attention in the last few days as Wall Street reported the arrest of former Nasdaq chairman and veteran money manager Bernard Madoff last Thursday, who has duped a wide range of investors—from a Jewish youth charity in Boston to major banks like HSBC and BNP Paribas, as reported by Associated Press. The extent of losses is still unknown. As of now, though, the figures are eye-popping. Banco Santander, Spain’s biggest bank, may have a $3-billion exposure. HSBC at $1 billion. Royal Bank of Scotland $98 million. France's Natixis investment bank, already brought low by subprime losses, $606 million. Japanese financial giant Nomura $303 million and officials in South Korea said financial institutions there a total exposure of some $95 million. How did he do it? Using the good ol’ Ponzi scheme, says US authorities. That means paying off his investors with unusually large returns, consistently, using money from new investors. As we have already discussed extensively in this blog, this form of scam always ends in tears. How did he pull it off? That would be one heck of a story if it gets completely unraveled. The list of alleged victims look like everyone who buys soap—from the ultra rich, to pensioners, to powerful financial institutions, to local charities, says AP. What are the lessons to be learned?

1. Say “No, thank you” to consistently high returns that are too good to be true. Here’s the interesting flip side to this: we need to then accept that economic cycles and crises would affect investment returns from time to time. Madoff’s returns were “abnormally smooth” from month to month and were impossible to replicate. No one on Wall Street could “see his footprints” although he was supposed to be moving $13 billion in and out of the market.
2. Always ask, “Who makes the investment decisions?” A team of highly qualified investment managers is always better than a “star fund manager” who makes decisions all by himself. It would be no surprise to find out that most of Madoff’s victims were lured by the fact that he was well known and respected on Wall Street and, preposterous as it may sound now, depended on this reputation instead of insist on what prudent investors normally do. And that is: pore over regular detailed reports of how their investments are doing.
3. Having a famous investment person on the board of directors or at the helm is not a foolproof strategy for safe investing. Filipinos are particularly vulnerable to the principle of “may kakilala ako dyan sa loob,” and “kilala naman yan,” a tendency to get easily star-struck with fame and fortune.

You don’t approach a “bank holiday” with anticipation; you think of it with trepidation. There are no party hats, treats and food. There’s confusion. Even anger and frustration. As bankers and the media use this expression, it refers to a regular banking day when a bank closes its doors and refuses to service depositors, normally because of liquidity (cash) problems. The Rural Bank of Subangdaku did not open its doors last December 11, leaving depositors “out in the cold” and yet the administrative officer didn’t want to call it a bank holiday. Whatever you want to call it, a bank holiday is a bank holiday is a bank holiday. The worst bank holiday I can remember is Banco Filipino’s self-imposed one on July 23, 1984. I can still remember the Sanrio passbooks brought by children to the branches. Any experiences you have had with bank holidays?

Our individual worth is already divinely established as “great”; it does not fluctuate like the stock market.

-- Neal A. Maxwell

It’s fun to see people in holiday mode. We all should have fun, despite the gloom-talk. We all should have a little bit of a break. We all should enjoy the Christmas parties and the delightful sounds and smells of Christmas. I love the festive spirit! However, we will enjoy them more when we don’t have a Christmas-party-and-forget-the-financial-responsibilities-of-next-year kind of thinking. So, do shop and enjoy, but know your limits! Here are the biggest stories of the week: Personal Finance Financial planning for the masses. Yes, a few banks are hunkering down and talking to those who are still on their way up. It only makes sense both business-wise and passion-wise, and this is exactly what the country needs. I still have many issues about how banks do business, but generally you come across some that actually help people. Stolen holiday joy. As you jostle and shop within a crowd, make sure you secure your credit cards, ATM or debit cards, and other valuables. Losing them at this time of the year is no picnic in the park! And if you do, make sure you report the loss immediately to the bank. A great tip after I read this article is to memorize the numbers of banks’ hotlines so that you can immediately notify them if there is any problem. There are more tips, so check out the article. How do you talk to your kids about financial difficulties? Do you feel comfortable telling them you’re broke? In this article, Parents talk money in recession-hit US, the author says kids have this sixth sense when something is wrong, thus there is no use hiding stuff from them. I agree. But I also suggest that you think carefully about how you are going to say things. Your children are NOT your therapists! In this crisis, cash isn’t just king, it’s god, says Ralph Liew of the International Association of Registered Financial Consultants. These 300 cash-rich Chinese visit US to buy houses seem to be showing just that. While the West is depressed, they went shopping! Some finds from the web that I found interesting this week. Tasha Gets Money Smart promised herself to move to a different company if she doesn’t get the raise she deserves. But she balances this off by making sure that she really deserves that raise. A huge part of personal finance for most of the world’s population is career planning. A lot of us will be making most of our wealth through our jobs, and it doesn’t make sense to get stuck in a dead-end one. But great pay and great jobs will not just happen to us, we have to plan them. Frugal Pinoy asks what are you going to do with your extra cash this Christmas, a fitting question during this season. This is a highly personal decision, but one that needs careful thought. Too many of us just go through that windfall even before we receive them! Right now, I have been moving towards increasing my emergency fund. Ready To Be Rich talks about how to survive a no spending day. Hey, I like this idea! How I wish I can do this, this holiday season. I would dare forecast, however, that a lot of us will be remembering Ready To Be Rich’s blog post come January when the bills come rushing in, heh. Macroeconomy No surprises again this week; we have all seen this in the headlines before. 2009 growth seen lowest in 8 years, say a couple of economists polled by Reuters.

“All economists revised down their 2009 forecasts to account for the impact of the worst global financial crisis in decades on the export-driven country of 90 million people. Forecasts ranged from 0.7 percent to 4.1 percent in 2009.”

Financial crisis to deepen in 2009, says the IMF and the Asian Development Bank is saying that emerging Asia’s growth will slacken to 4.5 percent this year and 3.5 percent next year.

For the 10 countries in the Association of Southeast Asian Nations (ASEAN), it forecast growth averaging 3.5 percent. It said growth in emerging East Asia—comprising the ASEAN countries, China, Hong Kong, Taipei, and South—would slow down to 5.7 percent in 2009 from an estimated 6.9 percent this year. With the global economy facing a major downturn, the region’s economic resilience will be tested by weakening exports and a sharp slowdown in capital flows, the report said.”

Businessmen join Ayala rally but lie low. I’ve been wondering about whether we can really move forward just ignoring politics. Sigh. The peso fluctuated a little bit this week, the stock market was still erratic, gold and other commodities the same, and oil is still going down. At one point, the peso retreated to P48:$1, and then it gained on the back of strong remittances by the end of the week, going back to the P47 level. Italy in recession is an important story because we have a lot of overseas Filipinos living and working in Italy. I hope that they are coping well, despite the difficulties a recession might impose on them. BSP sets 2010 inflation target at 3.5%-5.5%. The average inflation target is now at 3.5 to 5.5 percent for 2010, lower than the forecast range of 6.0-8.0 percent average inflation for 2009 because of lower commodity prices. Banking Any depositor’s nightmare: to find that your bank is closed and you have no access to your deposits. This week, many depositors across the country are hurting this way. 4 rural banks closed; 4 declare bank holiday. These are: Rural Bank of Parañaque; Rural Bank of Bais (Negros Oriental); Pilipino Rural Bank (Cebu) and Rural Bank of San Jose (Batangas). The four banks that have declared a bank holiday were Philippine Countryside Bank (Cebu); Dynamic Bank (Rural Bank of Calatagan); San Pablo City Development Bank and Nation Bank (Bacolod City). RBS Bank suspends business. This bank is part of the Legacy group that is currently in a legal tussle with the BSP. The PDIC is proposing a “bridge banking solution for troubled banks”. PDIC president Jose Nograles said in a statement:

“This will protect depositors of a failed bank by ensuring that there will be no disruption in banking services,” PDIC president Jose Nograles said in a statement. “Hence, [it will] maintain depositor confidence in the Philippines.” He added that a bridge bank would “provide allowance in terms of time for a better and well-planned final resolution of a failed bank.”

HSBC’s Mark Watkinson was most likely eager to share some good news, and I don’t blame him. The gloom talk is not helping, although of course we need to be realistic about the economy. So this article was in our top 10 most-read: HSBC to hire 1,000 more in BPO. Unfortunately, head office doesn’t think it was a good story to tell the media, maybe because they are retrenching in other parts of the globe, so they sent out a denial about Watkinson’s statement (read this article: HSBC says no plans yet to expand BPO). INQUIRER.net, of course, stands by its story and that Doris Dumlao, the reporter, was not in error as proven by a voice file and transcript of the interview uploaded on the site. Lehman investors in HK urge refund is an interesting story, especially if the government will allow it. BDO sees lending slowdown in 2009, not surprisingly of course, what with the economy bound to slow down. In fact, Moodys has downgraded bank credit rating outlook to negative from “stable” saying the challenging global environment could dampen bank earnings and trigger a rise in loan delinquency. Corporate News Still, cash-rich SM group is not slowing down its spending. It has opened the 3rd biggest mall in the world and is planning a P5-billion borrowing to fund mall construction in the next three years. Cash really is king. That’s it for this week. Over and out.

How would you divvy up your at least P547 million windfall from pulverizing Oscar de la Hoya? What do you think you should watch out for? (if you are Manny Pacquiao) How should you NOT invest or spend that money? Let me hear those strategies :-) Then we will compare with some investment bankers and experts' recommendations.

I can not resist chuckling whenever I remember what a friend from Butuan City told me about how this guy who works for the local cinema tried to attract passersby to watch movies. In his overly excited voice, this guy named the leading actor as “Jean Claude og si Van Dam-me” (Jean Claude AND Van Dam-me). Whoops, manananggal! Was it a horror or an action movie? :-D Being a “probinsyana” myself, I love accents. I love learning how to speak “Bisaya”, “Ilokano” and other languages. I am also the first to make fun of myself whenever my own accent seeps into my Filipino or English conversations. In this day and age of call-center-English, speaking flawlessly in English has become an important part of doing well at work. How much premium do you think employers will give to hire someone with a good grasp of the English language? Do people who speak better and write better get paid more? If you are interviewing two prospective personal financial planners, will you eventually choose the one who can speak better? Would you trust a banker less if he exchanges his P’s with his F’s? (I know a bank president who speaks that way!) Text-speak doesn’t help. Younger generations, when they email, seem to be unable to do away with shortcuts. It drives me crazy. And yet, I sincerely believe it is still the inner confidence, the skills and quality of work that is more important (that is, unless you’re a writer!). Proper spelling and pronunciation will definitely not turn you into an overnight sensation at work if you come in late every day or turn in sloppy work. But it will surely make corporate life easier if you can speak its language with more spunk and confidence.

The guy we asked to repaint a portion of our living room ceiling came in the other day after the hubby said he was not satisfied with the quality the first time he did his job. After I told him exactly what to do, I went up to my room/home office to work and checked back on him after an hour. He was on a break. Apparently, he was waiting for the first coating to dry before applying the next one. But upon close inspection, I saw that he did not follow directions. He painted only three sides and not the entire wood portion. “Can you please paint these portions too?” I asked. “Ah, okay mam,” he said. I then stayed for a few minutes to watch, then went up. When I came down again, I saw that he missed two more sides and asked him to repaint. Perhaps noticing that I will not settle for anything less than a well-done job, he asked me to inspect his work. Getting a flashlight to look at his work closely, I told him that I wasn’t happy with the way the white cornice molding had splotches of red paint which made it look like it was bleeding a little bit. “But mam, all the other cornice moldings I have painted, even upstairs, have some sort of red in them,” he said. Can you understand why at that point I wanted to tear at my hair and choke him with my bare hands? “That doesn’t make this okay. Can you please fix it?” I said. So, he applied paint thinner to the cornice molding. After I looked at his final output, I let him go. Take this: he even had the temerity to ask me for referrals if I had friends who needed to repaint their homes. Good thing we didn’t have to pay for his services. Since we bought the house only two months ago, the owners are paying for all the repairs we requested, as well as some that well, go beyond the usual after-sales service. I count myself and my husband lucky, even with some of the headaches we are experiencing now. Other homeowners that I interviewed had to deal with leaks, toilet problems, seepages, door lock issues—just some of the hundred-and-one things that could go wrong even in a new home. Those who bought foreclosed homes are especially vulnerable because these are often sold on an as-is-where-is basis. So it makes sense to plan for these hidden costs, because the financial drain doesn’t end after you’ve paid your down payment and settled your budget for the monthly mortgage. Here are other hidden costs you should get ready for:

1. Taxes, fees and charges, insurance and other incidental expenses. In our case, we had to shell out more than P50,000 even before our home loan was released.
2. New furnishings. When you move in, you’ll want to replace your old refrigerator, oven, living room set, beds—the temptation to replace everything you have with something new will be so great. Set aside a budget for this or condition your mind to keep the refurbishing at a minimum if you want to be more careful with your budget.
3. Repairs and maintenance. It would be a big plus if the owners or the developer guarantee that there will be no major repairs and if there are, they will shoulder it. If not, you have to set aside a budget for this as well.
4. Homeowner’s fees and utilities. If you are moving to a subdivision or condominium, make sure you know how much you need to cough up for homeowner’s fees, garbage disposal, fees for guards, etc. You will also pay a premium for water and electricity in some of these  developments.

Inflation used to be a simple word to understand even for non-economists. After the initial fumble with “consumer price index”, anyone with one year in high school will immediately see why its one of those economic indicators you can’t afford to ignore. It affects your personal bank account. It’s what Johnny Noe Ravalo so colorfully described as your nest egg’s silent assassin. It makes you think twice about how you spend, how you save and how you invest your money. Since 2004, in the Philippines, the National Statistics Office decided our lives will be simpler with two kinds of inflation reported in the news: headline inflation (the one we have been used to: the price changes of a basket of goods consumed by most Filipino families) and core inflation.

Core inflation, the NSO and the Bangko Sentral ng Pilipinas explains, strips away some volatile food and energy items. The BSP said in this article that core inflation in November showed that its losing steam.

The idea behind the figure is that there are often temporary shocks in prices of food and energy prices that cannot be controlled. Think typhoons for Philippine food prices and Hurricane Katrina for oil prices.

These temporary shocks cause headline inflation to jump erratically, but it eventually goes back to its trend. That’s why monetary and economic policymakers say core inflation rate is more effective in figuring out where inflation will go in the long-term. (For those who want a more technical definition, you may want to read the NSO’s primer on core inflation and Mark Thoma’s explanation for RGE Monitor). Now, what if you want to figure out how much you need to set aside for retirement? Retirement costs include food and energy. You’ll need to eat and by retirement you’ll want to eat well after having slaved all those years. You’ll want to travel, most likely to the houses of your children scattered all over the globe. Is it wise to strip out food and energy prices just because they are volatile? For now, the figures show it is better to stick with core inflation because they are more accurate in determining long-term trends in prices. But I would suggest that our treatment of inflation should go beyond the headlines, and the kind of measure that you want still depend on the kind of question you are going to ask. As for me, I’ll keep watching both. Noe also suggests that they may be used as starting point for planning, but the whole long-term plan needs to be anchored on the kind of lifestyle you want to live upon retirement (if there is a choice). That suggests that for those who find themselves in a bind, scaling back may be a good idea. Here are some tips to make sure inflation becomes your friend:

1. Your annual increase in salary should be higher than headline inflation.
2. Returns on savings and investments should also be much higher than inflation.
3. Diversify your investments and add well-known hedges against inflation like real estate.

Use it up, wear it out, make it do, or do without.

-- a common adage during the Great Depression, says this Washington Post article.

IS THE PHILIPPINES truly a sea of economic calm amid so much pain from the global recession? It’s either that or we are experiencing the calm before the storm. Here are my selected readings for this week for those who want to be in the know, but had little time to read the business pages. Personal Finance If there is one thing that we all must truly undersand by now is that economic storms will come and they will go, as I have always said. They are a fact of life, so make sure your personal finances are protected against these storms. Making sure your online financial details are protected from fraudsters were a major theme in INQUIRER.net this week. Stolen credit cards sold online—I didn’t realize just how pervasive this crime is until this article came out. Beware and guard your credit card details! Guide to safe online shopping—Find out how to shop online safely. Food and immune boosters—I love the suggestions here. Losing your health is a sure way to have a personal financial shake-up, so stock up on common local vegetables like ampalaya and malunggay, which are immune boosters. I cook malunggay like I cook laing and my kids love it! Let me know if you want a recipe. 10 most common money mistakes—This has been in INQUIRER.net’s most-read and most-emailed list for one whole week, which tells me just how interested people are in what they might be doing wrong with their personal financial management. Economic News This week’s economic news indicate the possible storm clouds in the horizon, but several news still point to a softer landing for the Philippines compared with the rest of the world. Crisis dampens interest in home loans—BPI and PSBank have reported 15% to 20% drop in mortgage lending especially to Filipinos working or living overseas. That means people are either already losing their jobs and are postponing major purchases or are afraid they will do so. The interest rate scenario looks promising, though, for those who believe they have secure cash flows in the coming years. Look at the next article why. Inflation eases, rate cut eyed—Inflation is now at 9.9%, already at single-digit levels and better than the overall forecast, as food and oil prices continue to slide. Really good news for the depressed times. Central bank hints at rate cut—The central bank did indeed say there’s “greater monetary policy space” for the Monetary Board (econo-speak for “yeah, we might lower overnight rates in the next meeting”). Since the government is in “economic expansion” mode and inflation is no longer a problem, every economist in town is expecting rates to get cut. I suspect that banks will only be too eager to reduce their lending rates for mortgages and business loans as they run after those who have the financial capability to make good on their loans. Oil falls $3 to lowest in nearly 4 years—I don’t care much for the oil cartels so as far as I’m concerned, oil prices can go down all the way to $30 per barrel so that consumers will be happy. I do hope, however, that people will not go back to bad driving habits or companies will lose the urgency to develop better alternatives to oil as a source of power just because the commodity is getting cheap again. Oil is dirty. It pollutes the environment and it is not sustainable. PCCI: P100-B infra fund ready soon—interesting pieces of news, these two articles. PCCI talking about a P100-billion infrastructure fund? Last I checked, it wasn’t a government agency! But PCCI businessmen do see a weakening in the economy next year to 3% and possible job losses or corporate failures. BPOs plan to hire more agents—fast and furious are the only two words I use to describe how the business process outsourcing industry has grown in the last decade, and they have become another major source of foreign currency for the country, not to mention jobs. With the global financial upheaval, there has been a lot of talk on whether or not it can weather this storm. Big industry players last week have repeated they will hire more agents, and some are even expanding operations. Cross your fingers! Construction still a big growth driver—if the government will pump-prime the economy, then construction will push growth up. The only problem with construction is the poor quality of jobs in the industry. How long, how deep is the US recession?—a question on everyone’s minds—and nobody knows the answer. Investing News 10-month pre-need plan sales down 21%--no surprise here. First, corporate failures in the industry have turned off customers big-time, and second, the cleaning up you would expect in the industry just isn’t happening! Peso rallies versus the dollar—great news for expat Filipinos out there, especially with Christmas season coming! Who would have thought it would be at P49.08 against the dollar by now? Sige nga 20-year T-bond rate hits 9.5%--long-term yields of government securities, which you can use as benchmark for loans or debt with the same maturity, slide when the economic outlook is good and rise when the economy appears to be shaky. These rates are set when the government auctions government securities (the schedule is found in the Bureau of Treasury website). 20-year Treasury bond rates used to be at 13.88% back in the 2002 but has gone down through the years. Inflation projection for long-term retirement planning is normally at 8%, so a 9.5% rate offers only 1.5 percentage point difference. Not much, if you ask me, but they also offer a stability of return. Corporate News Corporate news also dished out more Meralco boardroom drama as if as a parallel story for the De la hoya and Pacquiao fight. This one, however, is no “dream match”, but as you can see, it has become a highly charged topic for corporate watchers and some shareholders are already trying to take advantage of it by snapping up Meralco shares in anticipation of trading gains. Some good reads below: Battle for control of Meralco looms Lopezes strengthen hold on power unit BPI expects bigger profit in ‘09 Century Properties to invest P15B in ‘09 From the web: Three new articles from my readings around the web: How to salvage your retirement from CNNMoney shows Walter Updegrave at his best. Making you realize that the news is bad but somehow turning everything into a doable strategy. One is to scale back the retirement lifestyle which is only logical but hard to do for many folks. Maybe it’s time to buy that first house illustrates why people who have great credit scores can sail through crises and more. We’re going to party like it’s 1929 is an article I wish I could have written. It’s fun to read.

Fear and investing can be like oil and water. Shake ‘em, turn ‘em over and under, bring ‘em to a boil, and you’ll still have oil and water—apart—in the end. Most Filipinos are extremely risk-averse. That’s why we like PDIC’s deposit insurance. That’s why we have most of our money in time deposits or special deposit accounts growing at a snail’s pace. That’s why most of our grandparents hid money in bauls. Some personal finance books and experts say, at some point, we have to learn to accept some risk especially if we want our money to grow in the long-term. But with the scary events of recent months, who’s going to think embracing risk will be a walk in the park? I read an article by Val Araneta in the latest issue of the Financial Executives of the Philippines (FINEX) magazine which is very informative. It’s not meant as an entertaining piece, but what he says is important:  knowing and understanding possible risks is a huge part of managing personal investments. Take the following test based on his article to see if you know the kinds of risks that you face when you save and invest. 1.    Default risk refers to the kind of risk that… a.    means risk by default. b.    means you won’t get paid. c.    is de fault of the borrower. d.    None of the above. 2.    Business risk is a type of default risk that… a.    has to do with the business going pfft. b.    can affect both business owners of companies or investors in listed companies. c.    is very important for those who expect to finance their children’s education with stock investments. d.    all of the above. 3.    Credit risk is another type of default risk which… a.    can only affect a corporation and not an individual. b.    can affect only individuals and not corporations. c.    can affect both corporations and individuals. d.    can affect only the government. 4.    Notes that are not secured are naturally riskier than those that are secured. “Secured” here means… a.    collateralized. b.    placed in a safety deposit box. c.    backed up by legal documents. d.    it is insured. 5.    The riskier and the longer the tenor of a debt security, the higher would be the expected return for the holder. a.    True b.    False 6.    Sovereign risk has to do with… a.    the country where you invest. b.    the possibility that a country or the companies in that country will not honor its or their debts. c.    can affect holders of government bonds d.    all of the above 7.    Cross border risk… a.    has become a major consideration now because of the globalization of investments and the lower costs of transaction of these global investments. b.    should be a lookout of every Filipino who invest in different countries c.    happens when a government imposes a ban on foreign currency flows from its country. d.    All of the above. 8.    Filipinos are afraid of price risk because we… a.    like to make sure our investments are guaranteed. b.    don’t have the financial education necessary to track the factors that affect it like economic fundamentals, the fortunes of companies, interest rates, etc. c.    are afraid of fluctuations and want our savings and investments to be always accessible for withdrawals. d.    All of the above. 9.    Liquidity risk is a major problem now in the US financial market because… a.    of the greenhouse effect on Wall Street. b.    it has stopped raining in Los Angeles. c.    home buyers in the US who can’t pay their mortgages cannot sell their homes at values that will allow them to pay their debts. d.    A and B. 10.    Filipinos are vulnerable to the risk of frauds and scams because… a.    They chase after returns b.    They follow their best friend/relative/PTA member’s ‘expert’ advice and don’t research on their own. c.    Don’t have financial education. d.    All of the above. 11.    The worst kind of risk in personal finance is the risk of inaction because… a.    inflation and currency movements can eat into everyone’s savings. b.    jobs and health can disappear without warning. c.    The gap between retirement and life expectancy keeps growing d.    all of the above. Click this link for the answers. 9-11 -- you're the risk guru of sorts! 5-9 -- you still have to do some legwork but you're ok. 0-4 -- read more before you invest!

I grew up loving the outdoors. I prefer untamed trees to those that are pruned. Watching constellations at night relaxes me like nothing else can. When I saw the smiley in the sky the other night, it was a real treat! (Photo courtesy of Willenwenf) Back when I was younger, I used to go up and down mountains in Camalig, Albay to help my family bring fruits, firewood, and other supplies from our small farm to our house in the city. We didn’t call it “hiking” back then. It was just an enjoyable chore. But my best experience so far was when we went up Mt. Mayon. Sometimes, we had to climb steep boulders as big as houses. Although it was a long, tiring hike, it didn’t feel like we had gone very far. It was only when we rested at night, when I realized how high up we were in the mountain! From where I sat, I could see the small, twinkling lights of Legazpi City within a small clearing of clouds. From up there, the city was breathtaking. Down in the city, life was more or less unremarkable. While interviewing Ralph Liew, chairman for the Philippines, of the International Association of Registered Financial Planners (IARFC), I had a similar change in perspective. Liew is past retirement age, but still has several business interests in the country. His work as the premier educator for financial planning in the Philippines is part of his volunteer work. Perhaps it was his age that made me think hard about what he said

“From the time you are born until you are 20 years old, you are a consumer. From 20 to 40, you are a producer. After 40, you start to decline. When you reach 60, your economic value as a human being has dropped. After you turn 60, you become a consumer again,” he said.

(Strictly speaking, we only have 20 years to be a “producer”???

“The prime of life is 40. After that, it is very hard to generate wealth. That’s the time when you are hit by a double whammy: your children need to go to university and your parents are falling ill. That’s why they say that at age 40, you have a midlife crisis. You begin to spend more than you earn,” he said.

(Man, I only have six more years to produce!!!) Makes you think twice about why you do the things you do. And how hard you are pushing yourself to live within your means and prepare more aggressively for the time when you can hardly put a slice of mango in your mouth. Of course, this is a generalization. And as with all generalizations, there will be exceptions to the rule—Liew being one of them. There are others: I have seen some people who started at 40 and still managed to generate wealth. It has been done. Having said that, of course, it would be easier to start early. We can all work till we drop dead, of course, as long as we remain healthy. But that’s a big if these days. Sure, people live longer, but the quality of life of those remaining years may not be as good as 30 years ago, what with pollution, preservatives in our food, and so on. Frugal Pinoy said in this comment that the teller in the bank laughed at her for squirreling money away for retirement at such a young age. Yes, you would be the one laughing in the end. Time stops for no one, not even the Pope.

In this day and age of innovation and creativity, I have learned that some criminals have found amazing use for rulers and even the humble Scotch tape. By simply inserting these inside the cash dispenser of old-style ATM machines, a person without scruples can get money from the next unsuspecting bank client. Here’s how it works: The guy without scruples pretends to use the ATM, but actually inserts a ruler, Scotch tape or some other item to capture the money that comes out of old-style ATM machines. I’m talking about the ones where your bills fall from the dispenser. Then the next client, you for example, steps in and withdraws money. The machine says transaction is finished successfully, you hear the whirr of the machine as it counts your bills but you don’t see any moolah come out of the machine. You leave in consternation and calls the bank. The robber comes back to remove the ruler or tape and gets away with your money. This would be solved by two simple things: for banks to invest in more modern machines and for banks to comply with Bangko Sentral ng Pilipinas requirements to have a CCTV camera attending to each ATM. That would at least give the bank a face to run after and prove to them that your claim is legitimate. Unfortunately, not all banks comply with the central bank directive, I was told. As the Christmas season draws near and you find yourself in need of cash, transact using ATMs that are well lighted, choose banks that invest in modern equipment and comply with central bank regulations. The bank may, in the end, still pay you the amount lost through these heists, but who would like the hassle of going after money that’s actually yours?

I was in my doctor’s office last Saturday in one of the major hospitals in Metro Manila for a check-up, when she looked at me and asked if I appeared in The Sweet Life, Lucy Torres’ show on QTV11. Turns out that my dear doctor caught the tail end of the show, and looked at me with renewed interest. “How come you know about personal finance?” she asked. “I have been writing about it for almost 15 years,” I said. “You know, there is not a day that I worry about retirement. I have seen many of my colleagues who have been earning so much but left with little or none when they retire. Now, they need money for their health care and they have nothing!” my doctor said. She didn’t look a day over 50, but I found out that she was 51. Her husband is a lawyer but works for the academe so you could say she is the main breadwinner in the family. She has investments in several properties, two condominiums of which she is still paying for and the way she described her finances, it seemed that she had some amount of cash in the bank and even asked for advice how she is going to invest it. (At the end of my check-up, she had asked me more questions about finances than about my medical condition, but I didn’t mind ☺) I believe it is not yet too late for her, but at 51, she now has less than 10 years to prepare for retirement. She needs to set aside money for health care, perhaps for her children (I have no idea about their ages), and for retirement. She needs to work out her estate planning needs. She says she needs to find someone she can trust to help her with the family finances. Her number one priority should be this: she needs to save aggressively in the next nine years, if possible even up to 50% of total income should now be set aside, but that her investments can no longer be placed on high-risk instruments. What’s comforting is that she is at least trying to reach her savings goals faster, that the family is not fond of expensive travel and shopping sorties. She and her husband, however, are fond of eating good food and that can take a big bite out of a savings program. This is not a unique situation. Truly, it is not so much what you earn but what you keep that matters most. Also, do you remember the story of the ant? The rest of the bug kingdom partied all throughout the summer, but the ant was slowly and quietly setting aside money for the winter. Only when the snow started falling did the others realize their folly. I would rather be the ant in the story, though I would like to party modestly from time to time ☺. Any thoughts out there for my dear doctor?

We have known for a long time that consumerism will take its toll on the world’s societies, but death by shopping? Jdimypai Damour, 34, stood between around 2,000 Walmart shoppers on Long Island and the bargains they stood in line for -- in the cold -- for hours. He paid for it with his life. Probably looking back now, anyone who was there is now probably in shock and likely considering that day the grimmest moment of his or her entire life. Anybody has to agree that there is no rhyme or reason for one man to die because of what? The rush to lay your hands on a cheap flat-screen television? David Carr of the New York Times aptly called the urge the “ungovernable mix of thrift and greediness” that has infected America during the course of this financial crisis. International Herald Tribune’s Peter Goodman recalled the bread lines after the Great Depression and the gasoline station lines after the oil shocks of the 1970s. Consumerism, however, has been decades in the making. America has made the world wealthy because of its penchant for shopping. On the other hand, Asia’s thrifty societies are known for the region’s ability to save more and spend less—except the Philippines, half of which wants to be American. Thus, you see malls continue drawing in crowds despite talks of recession. Hopefully, there is still in us the distinct Asian values of being polite, waiting in line, giving way to the elderly and taking care of the young. I want to believe that. Hopefully, too, this Christmas season, this crisis will bring us back to our senses and help us shed the “we are what we buy” syndrome, so that we can truly enjoy the real meaning of the Yuletide season.