Here Is What Your Parents & Financial Planners Did Not Teach You About Money

Monday, Oct 12 2015 12:53 PM

We learn much about life from the people around us. Growing up, our parents, teachers and friends influenced the kind of person we became. We picked up on what they tried to teach us, how they were behaving around us and what their priorities were in life.

As we grew older, we started picking up knowledge from subject matter experts. These include going to the doctor to take advise on health issues, going to personal trainers and gym instructor for fitness tips and chefs and moms for cooking recipes.

Likewise, when it comes to personal finance, we expect to pick up the best financial knowledge from the professional financial planners out there. However, we wonder if that is always the case.

The Difficulty With Personal Finance

One of the biggest challenges that most people face trying to understand personal finance is its constantly evolving environment and vast universe it encompasses. Unlike other life skills such as cooking, sewing or keeping fit, the financial world is constantly changing.

New and more complex products are consistently being introduced to the market for the average person to consider. Some products, such as Exchange Traded Funds (ETFs) and the Singaporean Saving Bonds, are helpful, as they cover existing investment gaps that people have.

At the same time, we also have our fair shares of dubious investment schemes floating around. These include investing in gold or wine and overseas land banking schemes.

The problem is that people who lack the right knowledge are not able to differentiate the quality of the product introduced to them by a financial planner. To the person, buying ETFs could be as foreign as buying wine.

The Limitation Of What Our Parents Know About Personal Finance

There are limitations to what our parents can teach us when it comes to personal finance. Our parents may be better than us when it comes to basic money management, mainly due to the fact that they are much older and hence, have been through many more tough phases (and probably made many more mistakes) than us to better appreciate the importance of proper money management.

However, when it comes to financial planning, our parents may have limited expertise. They grew up in an environment where the number of investment instruments available to them was far less than the options that we have today.

A simple example is ETFs. In the past, a savvy investor who appreciated the importance of diversification would have had to invest in a mutual fund (or unit trusts) to gain his desired portfolio diversification.

In today’s context, a retail investor can easily mimic the same strategy and achieve the same outcome by buying into an ETF, without incurring the high management fee charged by fund managers. These are options available to us that our parents never had to consider growing up.

The Role Of Financial Planners

If our parents can’t guide us, should we go to financial planners, the subject matter experts, instead?

The fact of the matter is that most financial planners have a conflict of interest in the situation due to the structure of their remuneration. A financial planner is remunerated based on the amount of sales they generate, and many times which particular product they sell you, rather than whether they provide good quality advice.

For example, if a client wants to accumulate long-term savings at little or no risk, we would expect the Singapore Saving Bonds to be a reasonable instrument to consider.

However, proposing the use of the Singapore Saving Bonds does not provide a financial planner with any sort of income. Thus, a planner may push forward an Endowment Plan offered by his company instead.

Until the day comes when Singaporeans are (finally) ready to pay financial planners for the advice that they provide, the role of the occupation would still remain primarily sales based.

Independent Learning From The Institute for Financial Literacy

“Outsourcing” your personal finance matters to a professional is not the solution for most Singaporeans. We believe that every Singaporean should have an adequate understanding of financial matters.

Fortunately, there are organizations out there that are set up to promote financial literacy and personal finance. They operate as entirely independent entities in their approach towards educating the masses here.

One such organization is the Institute for Financial Literacy (IFL). IFL is a collaboration between MoneySense and Singapore Polytechnic. Their mandate is simple – provide free andunbiased financial education programme to the public.

The best part about IFL (HR executives do take note) is that they will even conduct lunchtime talks and workshops at your company if you request for them to do so. And no, there is nothing they can sell you, even if you want to buy something from them.

IFL has developed resources to equip the average Singaporean to make smarter and more educated financial decisions for themselves. This includes an e-book, which you can download here. They also have a series of e-videos for those who prefer to watch, rather than read. Again, these resources are entirely free and serve only to educate.

BY  

The article was written in collaboration with the Institute for Financial Literacy. All views expressed in this article are the independent views of DollarsAndSense.sg

http://dollarsandsense.sg/here-is-what-your-parents-financial-planners-did-not-teach-you-about-money/

https://sg.finance.yahoo.com/news/parents-financial-planners-did-not-003046414.html