Happy New Year to all!

At the end and at the beginning of the year, people are more aware of the need to change our ways. This email will require three parts so I hope you will follow the replies in the next issues.

“I got to read your article in the GMA news TV blogger section... I have been searching for a financial adviser for some time now...I believe I need one because I can't seem to really get a grip on my money.

I spend so much that I have maxed out my credit cards (there's two of them) and I have a personal loan. I've gotten myself out of my financial mess before and just when all was doing fine, I'm back in this messy game of debts.

I am a fan of some US financial advisers and I try to do what they say which is why I got myself out of debt also before. I have started saving automatically via our company's coop that automatically deducts my advised amount every payday. I've set up a checking account and a savings account as well.

Unfortunately, it's only the coop savings that is intact right now and I now believe I know the answer...If money is easily accessible to me, I tend to find ways to spend withdraw and spend them. That is why the coop money is hard to spend – it takes time and a lot of paper work to withdraw it so I lose heart to do so.

With this realization, I know that if I am to save, I should do it automatically and it must be in a place that is not as accessible as a savings or even checking account. And that someone whom I can trust so that I don’t backslide must monitor me.

I am drowning in credit card and personal loan mistakes I have made which affect my daily expenses, my daughter's education college plan and my life insurance payments and all these are starting to affect my relationship with my husband...I want to fix my financial mess and save and even invest later on...but I need someone to help me...

I am a manager in a top company and I earn a good salary but it still doesn't seem enough. I hope you could help me (or refer someone who could help me with step 1 all the way to financial wellness) because I am seriously in need of it...”

My reply:

Thank you for trusting us enough to explain your situation. You have gotten out of debt before so obviously, you can be a determined and disciplined person, if you want to be.

As with many other persons, success probably made it is easy for you to find excuses and backslide believing that you can get out of problems should these crop up again.

Your favorite US financial advisers are very good financial advisers and following their advice got you started on the right path.
When you read and listen to them today, they do not say anything different from the first time that you encountered them because their principles are solid and will not change.

You need to review what you did before and what has changed that made you forget the principles that you were following.

You mentioned that automatic deductions to be invested in your company coop prevent you from spending because it is not easily accessible. This seems to show that the items you were spending for were not really that important. If the expenses were so important, then, no matter how difficult, you would get your coop money.

A personal loan of P90k also requires documentation and yet you availed of it. There must have been a special reason unless that was done through a credit card as well which made it so easy.

You know the principles and yet you seemed to have forgotten them when you were not longer in debt. While you could have a financial adviser, a real one will not/should not hold your money for you.

Perhaps, it is best to solve your problem with your whole family involved including your child if possible so she can understand the need to cut down on expenses.

We suggest that you sit down with your husband and put everything down in writing. As we always remind people, money is a family matter. And when the family is involved, solutions to money problems readily present themselves and become relatively doable.

Review all your "mistakes" by examining exactly where the money went and then seriously begin to establish financial goals with specific time lines. It's time to really execute your own purpose-driven saving & investing.

It is imperative though that you first prepare your latest family Statement of Assets and Liabilities and your Personal Income and Expense Statement. These will be your baseline for moving forward to instituting your own wealth generation program.

For now, consider “investing in debt” right away. You should start preparing yourself to the possibility of selling all your assets that are not really that important to generate the cash and pay off all your debts starting with the credit cards.

When you finally are able to grow out of debt, you will have that much more free cash to invest for your future.

Write down your new budget. Follow the principle: Income minus Savings equals Expenses.

At the moment your “Savings” are paying off your debts but when these are paid off, you should really actually save the amounts.

Live within the balance by cutting down on your WANTS and strictly spending only on NEEDs until your debts are fully paid.

If you do not know how to make these Statement of Assets and Liabilities (SAL) and Personal Income and Expense Statements (PIES) budget, you can study our publications, which teach you step by step how to do these.

Besides your US financial advisers, you might want to check on my books that give the same principles but for the Filipino audience and our website, www.colaycofoundation.com.

In the final analysis, you can get out of your financial problems again. However, do not make this a habit.

What you are losing in the process is the time to be able to prepare for your future. You are giving yourself very temporary “pleasures.”

In fact, just after a few weeks after spending, you already have pain and worry because you are unable to pay for your credit card bill.
You have a very good job but you will not have it forever. Use the time you have left to save for your future because you will need it.

In the end, your success is really all up to you.

I would like to add my comment to other emails with similar requests for financial advice.

When you look for a Financial Advisor, I will always ask you to study, not just read, my books first.

For the amount of information you will get, the books are well worth the price. In addition, if you write or visit Colayco Foundation for Education (CFE), we offer you all the options that we know to be good and provide you the names and websites you can visit and study.

Our books, in particular "Making Your Money Work" will be really helpful for choosing the options.

It is not only a matter of knowing how to compute, it is important to understand the principles that go into personal financial planning. You need to understand the principles that are important to move forward.

Remember that when you talk to a Financial Adviser, you will also need to openly show all your SAL and PIES details for them to help you. There will also be a fee unless you go to one who is actually an agent of an insurance or investment company trying to sell you his options.

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By all accounts, 2010 promises to be a better year than 2009. Most economists see it as the beginning of an economic recovery although the recovery curve is not seen steep as have been in past periods of economic recovery.

In other words, it will be better but do not expect anything dramatic. Interest rates will improve a little for those with money in fixed securities.

Banks will be more eager to lend but will not really bring down interest rates that significantly. Inflation will still be low and single digit. For ordinary people, financial life will continue to be a struggle.

For those with an open mind, whatever the condition of the economy, opportunities abound for an “active income” entrepreneur.

Goods and services that offer convenience to the buying public will always be in great demand.

Most households today run on multiple income earners. Anything that will provide them time to devote for additional income or spend for much needed rest will have a ready market.

Look for these opportunities right in your own communities.

In particular, the election brings a lot of additional business opportunities in services and products to be used for the elections.

The entrepreneur must always focus on proper execution, meaning performing according to expectation.

Unfortunately, though proper execution is essential, it is not enough.

The further challenge is to execute within budget. Unless, capital is readily available, going for market share at all costs is not sustainable.

There is no point in continuously producing at a loss particularly when capital is scarce. After this is achieved, the next biggest hurdle is being able to collect.

Our markets, particularly the seasonal ones (e.g. Christmas or election-related businesses) are notoriously bad payors.

Buyers here get away with not paying because there are just too many eager beavers to sell. Keep in mind that selling is not the same as doing business. Doing business means producing, selling, and collecting at a profit year in and year out.

Cash generation and positive cash flow is the most important factor for success. This is particularly true for start-ups when the businesses still have no cash or asset reserves to draw from.

Businesses, even when unprofitable in accounting terms, are able to survive for as long as cash flows are available to fund day-to-day expenses for production and sales.

This is where the entrepreneur’s reputation as reliable and trustworthy comes into play.

For example, getting your supplies on long credit terms and being able to collect sooner on your sales provide the best guarantee for survival and an eventual turn-around.

The ability to ensure positive cash flow stems from real knowledge about the business, i.e., having a product or service that is regularly bought by a sufficiently large and paying market, and, the entrepreneur’s capability to maintain quality and price of his product.


For a “passive” income entrepreneur, there will be similar opportunities. I always encourage every Filipino to be a passive entrepreneur.

Make your money work for you. You need to save but your savings that you do not grow may not be of great help to you.

The opportunities in the past have always been limited for those with small savings.

In 2010 however, we can look forward to options with less risk for as little as P500 savings for investment. We are working on making these financial products available to the growing small investors community of the One Wealthy Nation (OWN).

OWN is a community of savers and investors dedicated to grow their wealth. OWN is dedicated to provide its members two critical aspects in growing wealth, namely, information and fulfillment systems.

Relevant and accurate information on current and new investment products as well as tips on how to cut expenses and how to save and invest will be provided.

Through text-messaging and the internet, OWN members can invest surprisingly affordable amounts in various pooled funds (i.e. mutual funds, UITFs, etc.) and other legitimate investment products.

OWN is effectively each member’s own Specialty Mall to reach his financial goals.

OWN envisions a Philippines and Filipinos Wealthy in Spirit, Money, Intellect, Life (Health) and the Environment (Smile).

For more information, please visit www.onewealthynation.com.

As an OWN member, you will receive information to deepen your understanding of personal finance and more options to invest even small amounts, as we grow the OWN community.

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A BLESSED CHRISTMAS TO ALL!

We celebrate another remembrance of the birth of our Lord Jesus Christ. He is truly the reason for this season. For those of us who can, let us celebrate His birthday together with family. For those who are obligated by responsibility to be away from home, let us be grateful for the opportunity to provide for our future. Let us focus on creating the options to celebrate future Christmases with our loved ones. This is what we, at the Colayco Foundation, want for all of us.

Spiritual and inspirational articles abound to lift up our lives. What I noticed though is that we tend to compartmentalize our lives.

In particular, our financial lives are considered by most as separate from their spiritual and intellectual activities. The fact is that all of these are intertwined.

Since I have focused my advocacy on teaching personal financial management, I frequently interpret these inspirational principles in the light of our financial lives.

Borrowed from Mac Anderson’s “The Nature of Success,” Mr. Anderson talks about a lesson he learned from a friend’s grandmother.

Mac was having such a rough week and his friend shared with him what his grandmother told him to always remember: ‘Inch by inch, life's a cinch. Yard by yard, life is hard.’”

Mac took the line to heart and took out a piece of paper and listed all the things he had to do in the next three days.

As he finished each task, he crossed it out from the list. Three days later, he crossed out the last task left on the list. He felt great!

As Mac explains, “…Success doesn't come cascading like Niagara Falls; it comes one drop at a time through short-term, realistic goals. If you believe you can do something (the goals are realistic), you're likely to be highly motivated. If, however, you think you can't (because the goals are unrealistic) your motivation level falls greatly…”

The same principle applies in each one’s personal financial life.

I keep emphasizing the same principle as explained in “Making Your Money Work”. THE QUICKEST WAY TO GET RICH QUICK IS TO GET RICH SLOW.

Unfortunately, more people prefer to get rich the easy way and as fast as possible.

They want to enjoy the money they believe they will be getting very quickly. This is why scams continue to proliferate and fool so many people.

Scams give promises of bigger than normal income every month or even everyday, in some cases.

It is so easy to want to believe when the first thought that should come to mind is if the promise is even realistic. If it is not, then why even be motivated to believe in it.

This is when the next part of the scam comes in. They give the names of people who have already invested and are already receiving the returns.

When you check with these people if the claim is true and they confirm, the inevitable follows. You end up investing and sad to say, the “Get Rick Quick” becomes “Lose Everything.”

In some cases, at the start, the money does come in as expected. As the money comes in though, it is almost automatic that the money is spent in frivolous WANTS.

After all, more money is expected to come in regularly so why not enjoy.

Some scams last for years and at the end of it all, the scammer tells the investor that the investor got his money back anyway through the regular interest paid.

That is true but it has all been spent. At the end, the Investment is all gone and even the WANTS purchased are no longer important.
In a real investment with realistic long-term goals, the returns come in, reinvested (compounding principle) and kept intact. At the end of the period, both the investment and the earnings are kept safe.

Now, while you are doing the foregoing, remember what author Swami Avadhutananda says about Two Days We Should Not Worry.

It is really very important to understand not only for the actual lesson stated but also for the implications in one’s financial life. It goes this way.

“There are two days in every week about which we should not worry, two days which should be kept free from fear and apprehension.

One of these days is Yesterday with all its mistakes and cares, its faults and blunders, its aches and pains.

Yesterday has passed forever beyond our control.

All the money in the world cannot bring back Yesterday.

We cannot undo a single act we performed; we cannot erase a single word we said.

Yesterday is gone forever.

The other day we should not worry about is Tomorrow with all its possible adversities, its burdens, its large promise and its poor performance;

Tomorrow is also beyond our immediate control. Tomorrow's sun will rise, either in splendor or behind a mask of clouds, but it will rise.

Until it does, we have no stake in Tomorrow, for it is yet to be born.

This leaves only one day, Today.

Any person can fight the battle of just one day.

It is when you and I add the burdens of those two awful eternities

Yesterday and Tomorrow that we break down.

It is not the experience of Today that drives a person mad, it is the remorse or bitterness of something which happened Yesterday and the dread of what Tomorrow may bring.

Let us, therefore, Live but one day at a time.”

This should not be interpreted to mean that we should live day to day without planning for tomorrow.

On the contrary, the author simply says that though we cannot change the past, we should and do learn from it.

With these lessons, we can plan for our future but act without worrying. Failure should not be feared for it is merely a temporary event.

If we are to analyze it, living one day at a time simply means make the most of today. This supports my basic principle that each person should be preparing for his retirement every day.

Otherwise, as he grows older, he will precisely be dreading Tomorrow if he did not prepare.

And as he starts worrying that he is not prepared, he will feel all the regret that he did not make use of the time when he was younger.

All it takes is an amount set aside daily and invested on a long-term basis without touching the earnings.

Even during these difficult times, keep saving 20 percent of your income. Live within the 80 percent.

Invest your savings regularly in well-managed funds for at least 5 years.

But in doing so, make sure that you set an absolute amount as your goal for specific time periods.

This way, you will have a clear basis for determining how much your investments must yield every year (annual rate of return).

This then will be your guide in deciding when to liquefy part or all of your investments in the process of monitoring the progress of your investments.

It is easy enough to get into an investment. But the real challenge is knowing when to get out.

The typical mistake is to invest with no specific money goal except to maximize growth. They invest based on unreasonable expectations and not on achieving a specific amount for a specific purpose at a certain future date.

These are the investors who are able to buy low but end up selling lower because they panic when prices dive unexpectedly.

More often than not, they could have sold high but did not, because they assumed that they there is still room for additional gain.

The day right after Ondoy, I was interviewed on television and radio and one of the questions asked was “How do you start from nothing?”

For those who never had anything, this is a common question. My answer has been and will always be that you first have to find a job.

We were all born with nothing but our parents provided us with the food, love, shelter, and education that allowed us to grow through our childhood.

As grown-ups, we cannot depend on anyone but ourselves.

We need to find a job that will allow us to provide for all the necessities. Only when we have some kind of salary can we start from nothing.

Many of those hit by Ondoy and then Pepeng still have jobs.

It is just that they lost part of their savings. Houses, furniture, equipment, car etc. are savings if these do not cause them to spend.

If they kept cash and jewelry in their house, the cash and jewelry could have been swept away by the floods. If they had invested in special décor, cars and other items believing these could be resold and considered savings, they lost those too.

If they had unused clothes and other items, those were all lost too.

The lesson learned here is to be always mindful of what we buy. Buy only those things (real assets) that we need and will use.

There are loans available from Social Security System (SSS) and the Government Service Insurance System (GSIS).

Having these special benefits are real reasons why each Filipino should be a member of either organization.

However, perhaps the loans available from SSS and GSIS will not be enough for those who lost so much.

Those who have credit cards will be very much tempted to use their cards because they will have very real needs immediately.

It is therefore a good time to remind all credit card users that your credit card statements will surely come on time even if there are floods and typhoons.

If you do not pay on due date, you will be charged with interest and penalties and your card could be cancelled.

If you pay only the minimum amount so that your credit card is not cancelled, you will also be charged for interest and penalties.

If you continue to use your credit card after having paid the minimum, you will be charged interest and penalties on the new amounts that you charge to your credit card. You might think this is unfair but it is the rule so it is better to know it.

Therefore, my advise to you is:

1) Use your credit card only if you can pay for your entire balance on due date.

2) If you know you cannot pay for the entire balance, it is better to borrow from your family, friends and bosses before your use your credit card. Or use what you borrowed to pay off the entire balance of your card.

3) If those you borrowed from charge you interest, just negotiate that the interest is not higher than what the credit card will charge which is anywhere from 3-4 percent per month. Hopefully, they will give due consideration to the uncontrollable catastrophe that has hurt everyone and reduce your cost of borrowing.

4) If you used your credit card and cannot borrow to pay for your balance, it is better to cut the card and immediately return it to the credit card company. Do not be tempted to use it at all. Better still, as you surrender your credit card, negotiate with the credit card company for a reduced interest rate and fixed amortization schedule. When you actually complete your amortization payments, you will have effectively invested in debt, earning the interest rate that you would have paid had you continued using your credit card.

Even if you cannot think of saving at the moment, do yourself a favor and register as a member of One Wealthy Nation (www.onewealthynation.com).


You will receive many tips on how to reduce your expenses and how to eventually save.

It’s free and you have nothing to lose and everything to gain with information and mechanisms to make investing easier even with smaller amounts. You can do this wherever you are in the world. It is still under construction but there are activities that are already functional.

To start again requires the same procedure as I have always been teaching.

It will be more difficult for those who have enjoyed luxury in the past.

There will have to be a change in lifestyle. The greater you lost, the more drastic the change will have to be.

You have to make a new Statement of Assets and Liabilities (SAL) and Personal Income and Expense Statement (PIES) to understand where you are after this tragic setback.

From these SAL and PIES, you need to update your personal financial objective and plans.

In taking time to complete your inventory of assets and liabilities, you may be surprised to discover that you have assets that you do not use nor need that have value and can be sold. You may even end up with more capital than you ever imagined.

As they say, sometimes if you look hard enough, you may find gold in the rubble. You can check this out in www.colaycofoundation.com and my books.

The main principle remains “Pay Yourself First.”

This means that no matter how difficult, you need to set aside a percentage of your earnings – 10-20 percent – as savings. This may mean that you will really have to strictly limit your expenses to Needs and Wants.

Ondoy made sure that we accept the reality that we all will undergo emergencies and that we should set aside savings precisely to tide us over when such things hit us.

Next is the need to be able to invest this to grow over the years at an average rate of two to four percent over the long-term average inflation rate. You can do this a little at a time.

Finally, I am sure you are already sharing like most Filipinos are.

Continue sharing…if you don’t have money, share your time and your ideas on how to help others. Be involved.

Believe Ralph Waldo Emerson when he said “It is one of the most beautiful compensations of this life that no man can sincerely try to help another without helping himself.”

For questions or more information, please write info@colaycofoundation.com.

The floods of Typhoon Ondoy were extremely devastating. This time, Ondoy did not choose only the poor and marginalized. For the first time, even exclusive villages were flooded. In many cases, both personal and household items were swept away by the flood.

For most, even if the items are still there, they are no longer usable or cannot even be repaired. So many thought they were going to die and being alive seems to be the greatest blessing of the day.

The response to help each other was also overwhelming.

Neighbors opened their homes to strangers who needed a second or third floor or even a roof to evacuate to. The sharing of money and food is awesome as we see so many people in the supermarkets buying boxes and boxes of foodstuffs not for themselves but to give away.

Soon, the reality of having been caught unprepared for much needed expenses to repair homes, offices, buildings, factories, cars, etc. will settle in.

Nobody wants to suffer and certainly nobody wants to be caught unprepared when natural calamities strike our homes and communities. We know these things happen and that they happen with regularity. They are a fact of life and we must accept it and do something about it.

And yet, why do so many of us always get caught unprepared? We seem to think that when these calamities strike, we will be spared and that it is the others that will bear the brunt of the problem. It’s never us.

We grieve for the victims of Ondoy especially those who had family who lost their lives. Losing them is trial enough but for those who lost their breadwinner, moving forward will be so much more difficult. There are several financial reminders needed while the lessons are fresh in our minds.

Reminder on Insurance


Ondoy’s devastation should remind us to take a second look at the importance of insurance. Those who have family dependent on them should taking life insurance to somehow lessen the pain of their loss. Term insurance does not cost very much. Another is property insurance, specifically for our home, its contents and our cars.

For house insurance, the most common perils that you should cover are fire, typhoon, and earthquake.

Fire, in particular, can render one completely devastated because, most of the time, you can lose almost everything permanently including your memories (pictures and mementos). But the floods of Ondoy reminded us that floods can be just as devastating as fire. If you had insurance against typhoon, the losses you incurred with the floods would have been covered.

Whether or not you own your house, you can consider covering it with insurance. As always, you do not want to claim on insurance and it is difficult to spend on premium payments because you might feel that you are throwing away money for nothing. After all, you do not get any part of your premium payment back. These premium payments are one hundred percent expenses. However, if you can afford it, it is better to be protected.

If you don’t own your house, you can cover the contents of your house like furniture, equipment and personal effect. If you do own your house, you should be covered as well for the house itself.

Coverage means that if the items covered are damaged by the perils covered, the insurance company pays. While you do not really recover the real things that matter after a fire or typhoon or earthquake, at least the insurance payment will help you buy back some of it and replace to a great extent the physical assets damaged or lost.

Word of caution though, read the fine print in your insurance document to make sure you are really covered for what you want.

Car insurance has many types of coverage. The most common are for third party liability, theft, and own damage. Insurance coverage for the devastation type by Ondoy must specifically be defined in the policy acquired. As a minimum, it should cover the cost of restoring your car damaged by floods or typhoons.

Car accidents can be painful physically to the people involved. It also involves a lot of reporting, documentation with the police and other authorities. However, it becomes even more troublesome it you are not insured. If you own a car, insurance is one of the required costs of ownership.

Reminder: Set up cash reserves for personal emergencies


One of the very first rules about money management is to pay yourself first so that you can set aside at least six months salary or earnings precisely to cover emergencies. For most income earners, it takes years to build up a six-month cash reserves. If you save ten percent of your monthly earnings, it will take you five (5) years to accumulate six months cash reserves for emergencies.

Practically speaking though, there are faster ways to accumulate this goal.

For those who did not lose all their assets in the flood, one way is to dispose of some assets we may have acquired and which we do not really get to use today. I am sure, most of us have some idle assets that we can sell and convert to cash now. Look around you. Make an inventory of things like appliances we have more than what we need, e.g. an extra TV, radio, excess furniture, clothes, gadgets, electronic “toys”, etc.

Have a good look at these possessions and choose what you can afford to dispose of now. Chances are, losing some of these assets will not diminish or hurt your present lifestyle. Selling theses assets will most certainly contribute to building up cash reserves for emergencies right away.

Get started and build your personal cash reserve now! Do not procrastinate. One of these days, it may be too late and you will no longer be able to recover from your emergency losses.

Check our websites www.colaycofoundation.com and now www.onewealthynation.com to help you get started.

I received this comment from “Boy Kamote” on a previous blog when I wrote about how we should teach our children about money.

“Sir sa mga nasabi o nabangit po ninyo ay sang ayon po ako..sa mga may kaya at panggitnang klasipikasyon na mga magulang ay maari nga nilang ipasunod sa kanilang mga anak... paano nakapagtatabi ang isang tao para sa ibang bagay kung hindi naman sasapat sa isa man lang....yun kalidad na bibilin sa palagay niyo po ba makapamili pa kung alin ang maganda at mura.matibay at may pangalan...paano magiging wise ang isang bata sa pamimili kung hindi niya nga kayang bilhin..o ang dungisin ay papasok sa isang mall nanglilimahid sa dumi at amoy siya bay papasukin hindi diba..alam ko poy kagalang galang at matalino, eh ito po lamang ay isang opinyon sa isang sabihin natin na di naman tayo pantay ng antas ng talino at pamumuhay…paano naman po ang mga magulang na ala man lang pera na maipapakitang ehemplo sa kanilang mga anak....yung mga anak na ala pa sa tamang edad ay naghahanapbuhay na para kumita. Kung ikaw na magulang ng ganun bata ano sasabihin mo pa ba o ipapaaral sa kanila ang mga sinasabi mo…baka sagutin ka ng wag mo akong pakialaman...buti sana kung sobra o sapat ang kinikita pero hindi eh salat na salat pa para sa sikmura...nakalungkot man pong isipin yan ay isang bantad na katotohanan…ano ba ang dapat na isaisip pag ikaw ay may pera para sa isang simple at mahirap na magulang...di ba’t ang mapakain mo ang iyong pamilya ng may lasa lasang pagkain…at pag sila’y nas hapag na ng kainan ang masilayan mo silang masaya habang ninanamnam ang konting biyaya na napagsasaluhan…ano ba ang pakiramdam di ba’t nakapagpagaan ng kalooban di bale ng ala kang naitabi at masasabi mo sa iyong sarili na bahala na bukas at sanay palarin na naman na makahanap ng pera para may maipangtustos sa pang araw-araw...”

Related to this same article is a comment from “Sam” who says: “The best lesson you’ll give your child is about sharing money. Command it, not money commanding you!”

Boy Kamote is right that the advice I give are really for people who are earning some money. This is my chosen advocacy because of my life experiences that I can share. It is what I know best so I choose to share this.

But more than this, my advocacy calls for the elimination of a “mindset of entitlement.” This is the attitude that makes people believe that they have the right to demand “help” from the government, their communities and their churches without having to work for it and thus deserve it. They grow up with the misplaced value that money is given, not earned.

What Sam said is also correct.

However, we can only share what we have. Otherwise, we will not be sharing anything worthwhile.

This is where I come from. We need to teach everyone about the need to earn, save, make your savings grow, and share the savings they have grown with others.

I teach that as long as we are earning some regular income, we can save.

The savings may be minimal but if we have the discipline and determination, we can aspire for greater savings over time.

After all, we have so many examples of people who rose from almost nothing into very successful people.

I agree that some people are so poor that they cannot even buy food for their children.

Such cases are very complex and there are people who choose to help in working on advocacies related to this. Let me just say that for those who have not enough, they still have their intellect and will.

Money and all things material are mere creation from ideas.

For as long as we are alive, we can think and create good things for us, provided we have the right mindset, the will to improve our lives.

I agree that it is natural that we want to be able to give the best food, shelter, clothing, and everything that our family needs.

I agree that if we have nothing, it is tempting to give them a moment of joy and forget about tomorrow.

But I don’t agree that we should give or spend without thinking of tomorrow. It is an obligation not only to provide but also to leave something for tomorrow.

“Bahala na” is the worst mindset to live by!

There are people who have risen from the poorest of the poor and made something of themselves.

If we go by the thinking of Boy Kamote, that is not possible. But it does happen so it is not just a matter of money; it is an attitude and mindset inculcated in the children.

I think that the parents or guardians of such children taught them good VALUES from the time they were small.

Values most important are respect, honesty, integrity, resourcefulness, sincerity, discipline, determination, decisiveness, sharing and others.

If my child were to reply to me in a manner like “wag mo akong pakialaman...buti sana kung sobra o sapat ang kinikita pero hindi eh salat na salat pa para sa sikmura,” I think I would consider myself a failure in teaching my child many of the said virtues.

Since Boy Kamote wrote in Tagalog, here is a Tagalog translation:

Tama si Boy Kamote na talaga namang para nga sa mga kumikita ng pera ang mga payo ko.

Ito ang pinili kong adbokasiya dahil na rin sa aking mga karanasan. Ito ang alam ko nang husto kaya’t ito ang pinili kong ibahagi.

Mas mahalaga ay ang aking adbokasiya na dapat ibasura natin ang pananaw na may utang sa atin ang ating gobiyerno at ating komunidad kung kaya dapat sila ay mag bigay ng tulong kung tayo ang may pangangailangan.

Itama natin itong pananaw na ito sa isang saloobin na ang tulong galing kaninoman ay dapat karapat-dapat sa tumatanggap.

Tumpak rin ang sinabi ni Sam.

Ngunit, maari lang nating ibahagi ang meron tayo. Kailangan nating turuan ang lahat tungkol sa pangangailangang kumita, mag-ipon, magpalago ng naipon, at magbahagi ng biyaya sa kapwa.

Lagi kong sinasabi na hangga’t kumikita tayo, maari tayong mag-ipon. Maaring maliit lamang ang ipon ngunit sa tulong ng disiplina at determinasyon, tiyak na lalago ang ipon. Sa katunayan, napakaraming tao na ang nagtagumpay bagama’t nagsimula sa wala.

Totoong may mga taong lubos ang karukhaan na kahit pagkain na lamang ay hindi nila maipagkaloob sa mga anak.

Masalimuot ang mga kasong ganito at may mga tao at ibang grupo na nagtataguyod ng mga adbokasiyang kaugnay dito.

Ngunit tandaan na bagama’t kapos sa pera, may taglay pa rin tayong karunungan at pagpapasya.

Ang pera at mga materyal na bagay ay pawang mga likha lamang ng karunungan at ideya. Hangga’t tayo’y nabubuhay, maari tayong mag-isip at lumikha ng mga bagay na ikabubuti natin, basta’t may tamang pag-iisip (mindset), at ang kagustuhan o pagpapasya (will) na paunlarin ang ating buhay.

Sumasang-ayon ako na likas lamang na maghangad ng pinakamainam na pagkain, tirahan, damit at iba pang pangangailangan para sa pamilya.

Nauunawaan ko rin na kapag tayo’y kapos, natutukso tayong piliin ang panandaliang ginhawa at kalimutan ang pangangailangan sa kinabukasan.

Ngunit hindi tayo dapat gumastos nang hindi iniisip ang ating kinabukasan. Obligasyon natin na mag-iwan para sa kinabukasan!

Wala tayong mararating kung ipinagkakatiwala ang ating kinabukasan sa “Bahala na”!

May mga taong nagtagumpay bagama’t nanggaling sa labis-labis na kahirapan.

Kung paparisan ang pag-iisip ni Boy Kamote, hindi posible ang ganitong tagumpay.

Dahil marami na ang umasenso mula sa kahirapan, masasabing hindi lamang pera ang kailangan, napakahalaga rin ng tamang pag-iisip (mindset) at pagpapasya (will) na naituro sa mga bata.

Sa tingin ko, ang mga umasenso mula sa kahirapan ay iyong mga naturuan ng tamang pagpapahalaga (values) habang sila’y bata pa. Ang mga mahahalagang maituturo sa mga bata ay ang: paggalang, katapatan, integridad, pagiging maparaan, sinseridad, disiplina, determinasyon, maagap na pagpapasya, pagbabahagi at iba pa.

Kapag sinagot ako ng aking anak ng “wag mo akong pakialaman...buti sana kung sobra o sapat ang kinikita pero hindi eh salat na salat pa para sa sikmura”, sa tingin ko’y nabigo akong ituro sa kaniya ang mga tamang pagpapahalaga.

Nagpapatuloy ng libreng seminar na itinataguyod ng CFE, SM Malls, PLDT, Universal Motors UrVan, KSK Coop at iba pa tuwing Sabado, 4-6pm, sa: Sept. 26 SM Marilao, Oct 3 – SMCity Pampanga; SM Lucena Oct 17; SM Baguio – Oct 24.

Sa mga nangangailangan ng mas malalim na pagsusuri ng kanilang kalagayang pinansyal at ng mga legal na retail investment options, mayroon kaming mga seminar para sa inyo. Mangyari lang tumawag kay Ms. Grace sa 637-3741 o 6373731.

In deference to a momentous event in our history, in behalf of my family and all Filipinos, I dedicate this blog solely to pay tribute to our Cory. She is indeed the moral president and leader of the Filipino people for all times.

Cory is no coincidence in our lives. A prayer written in an ancient language suggests that Cory was a promise from the ages.

Allow me to share this text message from Vicente Chuidian:

“These lines from an ancient prayer of a language spoken before Christ symbolizes Cory’s sacrifice:

“I put on yellow garments and moved from home into homelessness.”

“kasayani vathani acchadetva agarasma anagariyam pabbajim”

The color yellow of Cory indeed takes on an even deeper meaning for us all…

The Taoist philospher, Lao-tzu so aptly described Cory’s life and the lessons we ought to learn from her:

“I have three treasures. Guard and keep them:
The first is deep love,
The second is frugality,
And the third is not to dare to be ahead of the world.
Because of deep love, one is courageous.
Because of frugality, one is generous.
Because of not daring to be ahead of the world, one becomes the leader of the world.”

-- Lao-tzu, The Way of Lao-tzu

As we mourn and celebrate the Gift of Cory, let us pray that each of us finds these treasures that Cory showed us in her lifetime.

For to create a Filipino nation, we must first have a measure of these within ourselves.

Maraming, maraming salamat po, pangulong Cory!

When do you start teaching a child about money? As soon as they understand that they can use the money to buy the things they want. When they show some interest, you can start teaching them how to handle it wisely. The simple lessons you teach today will give your child a good base in financial literacy. Let’s start with lessons for the youngest children who are ready.

Lesson 1: Explain our monetary system

Very young children logically believe that metal is better than paper and more paper is better than less paper. Thus, they might think that a 10 peso coin is better than a P20 bill and that three P20 bills are better than one P100 bill. It would be good to practice their understanding as a game. It will be very interesting to them especially if there is a small simple prize for the winner.

Lesson 2: Give your child an allowance

An allowance gives your child the first idea about finance. With the allowance money, your child can begin saving and budgeting for the things he/she wants.

The amount you give depends on your budget. However, if your budget is unlimited, be sure you give an amount that is reasonable for his/her age and not too much. In fact, it seems that children who receive too much allowance end up being spoiled. In our case, we gave an amount based on the grade level of our children. I am told that more parents give an amount based on the age of the child, which sounds more logical, on hindsight.

Some parents pay extra money to their children to do special chores around the house. This is also a good idea provided these are chores that are not normally expected of children. For example, children are expected to fix at least their beds and their personal things so they should not be paid to do this. If you decide to pay for chores, try to estimate the amount that your child will be getting in one week with both the chores and the allowance.

To come up with the right amount, decide what your child has to pay out of his/her own money and add at least another 20 per cent that will go into savings.

For example, if you think that your 3-year-old child can handle an allowance of P30 per week (based on an arbitrary P10 per week per year of age), you could give the whole P30 outright or you could give only P15 per week (P5 per week per year of age) and offer chores that he/she can do daily at say P5 per chore. If the child does the chore daily, he/she could get P55 per week.

With the start of school, some parents may choose to reward good studying habits and/or good grades with money. There are different thoughts to whether this is good or bad. Each parent knows what is best for his/her child. You can adjust your budget accordingly if you include this parameter.

When you have decided on the amount to give and the way you want your child to get it, you have to do the following:

1) Sit down with your child

o Explain how he will get the money (allowance and chores)
o How you expect him/her to use the money
o How at least 20 per cent should go into savings that he/she cannot touch because you will invest it together to make it grow.
o If your child already understands written numbers, it is best to put everything in writing
o Agree on the date you will review with him/her what happened. Encircle the pertinent dates in his room calendar so he/she knows when each event happens.

2) Give your child his/her allowance and payment for chores on the same day each week.

3) If you can afford it, you may want to give a prize such as money bonus to reward your child for handling his/her allowance well. An agreement in writing from the start will certainly help the child understand his/her success or failure.

4) Be sure to follow your calendar of events strictly but at the same time, don’t make a big issue of it. Make it a fun learning process. Your child might either become a miser or too scared if you overdo it either way.


Lesson 3: Start with a Piggy bank

Choose a piggy bank that makes it exciting to save. There are so many gimmicks in this area available in toy stores. Keep the piggy bank in an area where your child can see it but cannot play with it to prevent accidental losses. At the same time, it is good that you have an idea of how much has already been deposited in the piggy bank. When the amount reaches an amount, say P1,000 you can make an event of opening it and counting the money with a lot of fanfare.

Lesson 4: Open a bank account

If your child knows how to count and add, you can actually, bring him/her to the bank to open an account. This may be the right time to let him/her know that his/her Ninong or Ninang or some relative gave him/her some money as a baptism gift. Let him/her learn how savings accounts work, and he/she will enjoy trips to the bank to make deposits.

Choose a bank that has programs providing activities and incentives designed to help children learn financial basics. Here are some ways to give more savings tips to your child.

1) Show him how the interest compounds by explaining the “free money” that goes into the account.
2) If you can afford it, offer to match the interest that he/she earns every month.
3) If your child has a special want that can be covered by his/her savings, withdraw the amount from the account before actually buying it. This way he/she knows that the money is there anytime he/she wants it. Make sure though that he/she realizes the reduction in interest and savings because of that withdrawal.
4) Withdraw some money every month to give to charity to teach your child the value of sharing. Explain that in this situation, the loss of interest income is not important because of the help he/she is giving.

Lesson 5: Set some targets

It is very difficult for children to set targets especially for savings. This is particularly true for families who are obviously not wanting for money. There should still be budgets made whether you need it or not if you want to teach your child the value of saving. You need not show your child the entire budget, just show him/her the limits of what you can spend for his/her needs and wants, Explain to him/her that the other amounts will have to come from his/her savings.

When your child receives money gifts, you want him/her to save it, but he/she would rather spend it. Here are some suggestions:

1) Discuss with your child what he/she wants to do with the money and give suggestions always including the benefit of savings for the future. But the final decision should be truly acceptable to him/her.

2) Show how he/she can divide up the money gift for different purposes. Always include a small amount for charity and a small amount to spend right away depending on your child’s personality.

3) Agree on his/her targets to be saved each day, week or month to reach the target/s. This is a good time to teach your older child the difference between short-term and long-term goals. However, you should not expect your young child to set long-term goals.
4) Have a picture of the item that your child wants in his/her target chart or on his/her piggybank. Clearly show how long it will take to reach the target based on the agreed daily, or weekly or monthly savings.

5) If your child does not reach his goal, don’t lose hope. Just keep trying. Children are very smart. Even when you think they are not listening or absorbing anything, they are. You will just be surprised one day that your child has learned to become a disciplined saver.

Lesson 6: Children have to learn from example

There are temptations everywhere…advertisements, pressure from friends, offers in malls/playgrounds. Our children are constantly tempted to spend money but unfortunately, they do not have any ability to know how to spend wisely. Your child is completely dependent on you to make good buying decisions.

Of course, unfortunately, there are parents who themselves do not know how to save and/or are not wise spenders. If you are this type of parent, it would be best if you first learn to save by reading my two books and workbook, “Wealth Within Your Reach”, “Making Your Money Work” and Pera Palaguin Workbook” before attempting to teach your child.

Here are ways to help your child more conscious of saving/spending:

1) Try not to make a habit of going malling/shopping as a weekend past time. This just opens your child to more temptation. Try to make it just as exciting to stay at home to play games, go to the park, swim, etc.

2) If possible, set only one day a month for malling/shopping with your child. Make sure you always include the bookstore for this event. Have your child plan for this event a week before the event. Hopefully, you can encourage your child to keep within the budget and to save up for something h/she really wants rather than buy something on impulse.

3) Many times, a child becomes very insistent on buying something not wise or unplanned for. You must learn to say no. Warn him/her beforehand that he/she will not get what he/she wants each time. Also, going shopping/malling does not mean that he/she has to buy something.

4) If your child really wants an item that he/she cannot afford, let him/her try it on and put it on a wish list for gifts that you can ask your friends/relatives to give for special occasions.

5) Make it fun to compare items based on price and quality. Teach him/her how to find the prices of items. Show him/her how you decide to buy one brand over the other.

6) Don’t always demand perfection from your child. If he/she insists on buying something that you know will break quickly or is not like what it says in the advertisement, let him learn his lesson.

Finally, keep this entire exercise light. It sounds so scary because it is condensed in a few pages. It will be even more difficult for your child if you are uptight. Remember, you have many years to do all these. Lighten up! Both you and your child will be happy with this shared experience.

For those in the Philippines, microfinance is available to help you start or grow your business.

Microfinance helps in the growth of “small or micro enterprises” because it lends relatively small amounts to small businessmen. In truth, an important way to grow a business is to use leverage properly. Thanks to the support of the Bangko Sentral ng Pilipinas (BSP), your small business now has a source for borrowing to support your cash flow needs.

The key rules and features in using microfinance are:

1) You should clearly understand and accept that a loan is actually using other people’s money. Therefore, it is important to pay back in accordance with the loan agreement.

2) Properly analyze your business’ capability to pay back the loan principal and interest.

3) Carefully study and manage your business cash flow to ensure that your cash inflow can really cover your loan repayment schedule and still leave some cash for your other operational needs.

4) When you meet the terms of agreement on your loan by paying on time, you establish good credit standing. This allows you to be able to borrow more in the future should you need to grow your business further.

5) In the very successful microfinance operations, borrowers in good standing are able to accumulate forced savings and earn insurance coverage, all coming from their loan repayments.

Microfinancing does not require collateral. However, in most cases, aside from your signature, you need the endorsement and guarantee of four of your friends. In this way, the loan is really not just yours alone but your guarantors as well. If you cannot pay, your guarantors will have to answer for your debt. Thus, your guarantors will be sure to support you and pressure you to ensure payment.

According to Monetary Board Resolution No. 40, microfinancing loans are small unsecured loans with no need for collateral. The amounts are normally Php2,000 to Php5,000 and could be more but not higher than Php 150,000. The loan can be paid daily, weekly, bi-monthly or monthly. The interest cannot be lower than market rate and should be fair. This is unlike the “five-six” lenders where the interest rate is exorbitantly high. Thus, Microfinancing can really help you if you are starting a business or if you need more capital. You just have to be able to repay the loan with your regular earnings.

The microfinance loan can be used as the start-up capital for different businesses. It can be used as equity for sari-sari stores, different “buy and sell” businesses, handicrafts or small manufacturing (rug-making, basket-making, etc.); services like tricycle operation, barber/parlor shop, repair shop; or food production/processing like meat processing, candy-making, bakery and any other types of small business. You could say in fact that it can apply to any kind of business you can think of.

How to start on microfinance

The first decision you have to make before even thinking of microfinancing is the business that you will put up. Remember, your business should be dependent on what your “passion” is, meaning something that you are have the expertise for and enjoy doing. It should be an activity that, as you work, you are actually having fun. Your business should be something that fits your environment. It must clearly address a regular need in the community you are in. For example, if your community does not have a place for having a haircut and you know how to give haircuts, you could put up a barber/parlor shop. Or if your village does not have a “convenience store”, you might consider putting one up.

Once your have your business, you need to understand the various conditions for borrowing from a microfinancing institution. Study the terms and analyze if these can support the operational and financial needs of the business and more importantly, if the loan can be paid back by your business.

• loan amount (for example: Php 3,000 or Php 15,000)
• program beneficiaries (for example: housing, small trading/buy and sell, agri-business, services; existing business over one year or group of businessmen)
• interest rate and fees terms of payment (how long? 4 months or 6 months. when payable: weekly o or monthly)
• collateral/security (to be guaranteed by a friend, associate, relative or contract of payment commitment, etc)
Because of microfinance, small businesses are given the opportunity to start. Used properly, it can make your business grow and provide livelihood to many.

If you think about it, microfinancing is not new. There have been many people and companies in the past who went out of their way to lend small businesses and yet, most of them failed to collect and ended up closing down the lending window. So why is microfinancing successful today? What changed?

There are three main changes as I see it and not necessarily in this order.

1) There is always at least one co-borrower involved in any microfinance loan. There is pressure on the borrower to make good on his re-payment because his co-borrower will be penalized just as much as he will be if he doesn’t. The co-borrower will also exert all his effort to make sure the main borrower pays so that he will not be financially affected. This co-borrower approach capitalizes on “peer pressure” such that there is that additional “moral” or relationship pressure on the borrower to make good in paying his debt obligation. In the Asian setting, particularly among underdeveloped economies, “face value” is a very strong influence on individuals to live up to their responsibilities.

2) The seminar on values formation before the funds are released is a very important factor too. It is normal for a borrower to think that borrowed money is his money. Thus the motivation to pay is somewhat negated. Others have a worse mindset. They rationalize that the lender is rich precisely because he can afford to lend. The thinking extends further that if he is rich, he can also afford not to be paid. Values formation makes the borrower realize that regardless of the financial situation of the lender, paying back a loan according to the agreement is an obligation that must be fulfilled. Otherwise, the lender may not be able to continue lending and thus no longer able to help many others.

3) The involvement of the Bangko Sentral ng Pilipinas helps to increase the number of lenders and thus increase the funds available for microfinance loans.
Because of these developments, billions of pesos have been made available to all regions of our society. The experience has been outstanding! Collection rate has registered to almost 98%, proving that, given ample planning and training, the ordinary Filipino is a responsible entrepreneur.
Come to our free seminars from 4-6pm on Saturdays sponsored by CFE, SM Malls, PLDT, Universal Motors UrVan, KSK Coop and others. The participation and feedback are impressive. For July:

July 4 – SM Batangas City
July 18 – SM Molino
July 25 – SM Dasmariñas

Mr. J.M. (I am not sure he wants to have his name published) was kind enough to write me on info@colaycofoundation with his findings. And his email said:

“I am very fond of Mr. Colayco's Blog at GMANews.TV, and I was reading this particular topic "Financial Literacy is not about Numbers" posted last May 13, 2008. And I would like to bring your attention to Paragraph 17 of the said article that reads:

"But let us just say for the sake of argument that you are not able to get 20% per annum and that you are not disciplined enough to save monthly for 40 years. If you still saved your P10 per day (something you normally throw away for unnecessary expenses) for 17 months until it your savings reaches P5,000, invested at say 15% p.a. and added P1,000 every 3 months (the time it takes you to save the amount at P10 per day) you will still end up with around P7.6 Million at the end of 20 years. You might not find this amount exciting but it certainly beats nothing. Note too that the amount you actually put aside in 40 years is only P159,100."

I did my own computation to better understand what Mr. Colayco meant about "Time and Compounding. Let's put it to good use", and I did not get the 7.6 million at the end of 20 years. Wondering where I went wrong, I investigated further, re-reading the article for the n time and came to the conclusion that it should not have read "at the end of 20 years", but rather "at the end of 40 years". On the other hand, when I computed for 40 years, I did not get 7.6 million at the end of 40 years, instead 12.04 million. Even if I deducted the mandatory 20% Withholding tax from the 12.04 million, it's still not 7.6 million. Below are my computations for your perusal. I would appreciate if you can take a look at it and send me your thoughts and feedback. I would like to know where I did wrong in my computation.

Furthermore, the actual amount place aside in 40 years should have been 164,000 as the 159,100 did not consider the initial 5,000 investment.

10 per day
17 months
5000 initial savings
15% annual interest rate

Add'l Invest Begin Bal Interest Ending Bal Add'l Invest Begin Bal Interest Ending Bal
1 5,000.00 62.50 5,062.50 1 113,935.37 1,424.19 115,359.56
2 5,062.50 63.28 5,125.78 2 115,359.56 1,441.99 116,801.55
3 1000 6,125.78 76.57 6,202.35 3 1000 117,801.55 1,472.52 119,274.07
4 6,202.35 77.53 6,279.88 4 119,274.07 1,490.93 120,765.00
5 6,279.88 78.50 6,358.38 5 120,765.00 1,509.56 122,274.56
6 1000 7,358.38 91.98 7,450.36 6 1000 123,274.56 1,540.93 124,815.49
7 7,450.36 93.13 7,543.49 7 124,815.49 1,560.19 126,375.69
8 7,543.49 94.29 7,637.78 8 126,375.69 1,579.70 127,955.38
9 1000 8,637.78 107.97 8,745.76 9 1000 128,955.38 1,611.94 130,567.33
10 8,745.76 109.32 8,855.08 10 130,567.33 1,632.09 132,199.42
11 8,855.08 110.69 8,965.77 11 132,199.42 1,652.49 133,851.91
12 1000 9,965.77 124.57 10,090.34 12 1000 134,851.91 1,685.65 136,537.56
1 10,090.34 126.13 10,216.47 1 136,537.56 1,706.72 138,244.28
2 10,216.47 127.71 10,344.17 2 138,244.28 1,728.05 139,972.33
3 1000 11,344.17 141.80 11,485.98 3 1000 140,972.33 1,762.15 142,734.49
4 11,485.98 143.57 11,629.55 4 142,734.49 1,784.18 144,518.67
5 11,629.55 145.37 11,774.92 5 144,518.67 1,806.48 146,325.15
6 1000 12,774.92 159.69 12,934.61 6 1000 147,325.15 1,841.56 149,166.71
7 12,934.61 161.68 13,096.29 7 149,166.71 1,864.58 151,031.30
8 13,096.29 163.70 13,259.99 8 151,031.30 1,887.89 152,919.19
9 1000 14,259.99 178.25 14,438.24 9 1000 153,919.19 1,923.99 155,843.18
10 14,438.24 180.48 14,618.72 10 155,843.18 1,948.04 157,791.22
11 14,618.72 182.73 14,801.46 11 157,791.22 1,972.39 159,763.61
12 1000 15,801.46 197.52 15,998.97 12 1000 160,763.61 2,009.55 162,773.15
1 15,998.97 199.99 16,198.96 1 162,773.15 2,034.66 164,807.82
2 16,198.96 202.49 16,401.45 2 164,807.82 2,060.10 166,867.92
3 1000 17,401.45 217.52 17,618.97 3 1000 167,867.92 2,098.35 169,966.27
4 17,618.97 220.24 17,839.20 4 169,966.27 2,124.58 172,090.84
5 17,839.20 222.99 18,062.19 5 172,090.84 2,151.14 174,241.98
6 1000 19,062.19 238.28 19,300.47 6 1000 175,241.98 2,190.52 177,432.50
7 19,300.47 241.26 19,541.73 7 177,432.50 2,217.91 179,650.41
8 19,541.73 244.27 19,786.00 8 179,650.41 2,245.63 181,896.04
9 1000 20,786.00 259.82 21,045.82 9 1000 182,896.04 2,286.20 185,182.24
10 21,045.82 263.07 21,308.90 10 185,182.24 2,314.78 187,497.02
11 21,308.90 266.36 21,575.26 11 187,497.02 2,343.71 189,840.73
12 1000 22,575.26 282.19 22,857.45 12 1000 190,840.73 2,385.51 193,226.24
1 22,857.45 285.72 23,143.17 1 193,226.24 2,415.33 195,641.57
2 23,143.17 289.29 23,432.46 2 195,641.57 2,445.52 198,087.09
3 1000 24,432.46 305.41 24,737.86 3 1000 199,087.09 2,488.59 201,575.68
4 24,737.86 309.22 25,047.08 4 201,575.68 2,519.70 204,095.37
5 25,047.08 313.09 25,360.17 5 204,095.37 2,551.19 206,646.57
6 1000 26,360.17 329.50 26,689.67 6 1000 207,646.57 2,595.58 210,242.15
7 26,689.67 333.62 27,023.30 7 210,242.15 2,628.03 212,870.17
8 27,023.30 337.79 27,361.09 8 212,870.17 2,660.88 215,531.05
9 1000 28,361.09 354.51 28,715.60 9 1000 216,531.05 2,706.64 219,237.69
10 28,715.60 358.95 29,074.55 10 219,237.69 2,740.47 221,978.16
11 29,074.55 363.43 29,437.98 11 221,978.16 2,774.73 224,752.89
12 1000 30,437.98 380.47 30,818.45 12 1000 225,752.89 2,821.91 228,574.80
1 30,818.45 385.23 31,203.68 1 228,574.80 2,857.18 231,431.98
2 31,203.68 390.05 31,593.73 2 231,431.98 2,892.90 234,324.88
3 1000 32,593.73 407.42 33,001.15 3 1000 235,324.88 2,941.56 238,266.44
4 33,001.15 412.51 33,413.66 4 238,266.44 2,978.33 241,244.78
5 33,413.66 417.67 33,831.34 5 241,244.78 3,015.56 244,260.33
6 1000 34,831.34 435.39 35,266.73 6 1000 245,260.33 3,065.75 248,326.09
7 35,266.73 440.83 35,707.56 7 248,326.09 3,104.08 251,430.16
8 35,707.56 446.34 36,153.91 8 251,430.16 3,142.88 254,573.04
9 1000 37,153.91 464.42 37,618.33 9 1000 255,573.04 3,194.66 258,767.71
10 37,618.33 470.23 38,088.56 10 258,767.71 3,234.60 262,002.30
11 38,088.56 476.11 38,564.67 11 262,002.30 3,275.03 265,277.33
12 1000 39,564.67 494.56 40,059.22 12 1000 266,277.33 3,328.47 269,605.80
1 40,059.22 500.74 40,559.96 1 269,605.80 3,370.07 272,975.87
2 40,559.96 507.00 41,066.96 2 272,975.87 3,412.20 276,388.07
3 1000 42,066.96 525.84 42,592.80 3 1000 277,388.07 3,467.35 280,855.42
4 42,592.80 532.41 43,125.21 4 280,855.42 3,510.69 284,366.11
5 43,125.21 539.07 43,664.28 5 284,366.11 3,554.58 287,920.69
6 1000 44,664.28 558.30 45,222.58 6 1000 288,920.69 3,611.51 292,532.20
7 45,222.58 565.28 45,787.86 7 292,532.20 3,656.65 296,188.85
8 45,787.86 572.35 46,360.21 8 296,188.85 3,702.36 299,891.21
9 1000 47,360.21 592.00 47,952.21 9 1000 300,891.21 3,761.14 304,652.35
10 47,952.21 599.40 48,551.62 10 304,652.35 3,808.15 308,460.50
11 48,551.62 606.90 49,158.51 11 308,460.50 3,855.76 312,316.26
12 1000 50,158.51 626.98 50,785.49 12 1000 313,316.26 3,916.45 317,232.71
1 50,785.49 634.82 51,420.31 1 317,232.71 3,965.41 321,198.12
2 51,420.31 642.75 52,063.06 2 321,198.12 4,014.98 325,213.10
3 1000 53,063.06 663.29 53,726.35 3 1000 326,213.10 4,077.66 330,290.76
4 53,726.35 671.58 54,397.93 4 330,290.76 4,128.63 334,419.40
5 54,397.93 679.97 55,077.91 5 334,419.40 4,180.24 338,599.64
6 1000 56,077.91 700.97 56,778.88 6 1000 339,599.64 4,245.00 343,844.63
7 56,778.88 709.74 57,488.62 7 343,844.63 4,298.06 348,142.69
8 57,488.62 718.61 58,207.22 8 348,142.69 4,351.78 352,494.48
9 1000 59,207.22 740.09 59,947.31 9 1000 353,494.48 4,418.68 357,913.16
10 59,947.31 749.34 60,696.66 10 357,913.16 4,473.91 362,387.07
11 60,696.66 758.71 61,455.36 11 362,387.07 4,529.84 366,916.91
12 1000 62,455.36 780.69 63,236.06 12 1000 367,916.91 4,598.96 372,515.87
1 63,236.06 790.45 64,026.51 1 372,515.87 4,656.45 377,172.32
2 64,026.51 800.33 64,826.84 2 377,172.32 4,714.65 381,886.97
3 1000 65,826.84 822.84 66,649.67 3 1000 382,886.97 4,786.09 387,673.06
4 66,649.67 833.12 67,482.79 4 387,673.06 4,845.91 392,518.97
5 67,482.79 843.53 68,326.33 5 392,518.97 4,906.49 397,425.46
6 1000 69,326.33 866.58 70,192.91 6 1000 398,425.46 4,980.32 403,405.78
7 70,192.91 877.41 71,070.32 7 403,405.78 5,042.57 408,448.35
8 71,070.32 888.38 71,958.70 8 408,448.35 5,105.60 413,553.96
9 1000 72,958.70 911.98 73,870.68 9 1000 414,553.96 5,181.92 419,735.88
10 73,870.68 923.38 74,794.07 10 419,735.88 5,246.70 424,982.58
11 74,794.07 934.93 75,728.99 11 424,982.58 5,312.28 430,294.86
12 1000 76,728.99 959.11 77,688.10 12 1000 431,294.86 5,391.19 436,686.05
1 77,688.10 971.10 78,659.21 1 436,686.05 5,458.58 442,144.62
2 78,659.21 983.24 79,642.45 2 442,144.62 5,526.81 447,671.43
3 1000 80,642.45 1,008.03 81,650.48 3 1000 448,671.43 5,608.39 454,279.82
4 81,650.48 1,020.63 82,671.11 4 454,279.82 5,678.50 459,958.32
5 82,671.11 1,033.39 83,704.50 5 459,958.32 5,749.48 465,707.80
6 1000 84,704.50 1,058.81 85,763.30 6 1000 466,707.80 5,833.85 472,541.65
7 85,763.30 1,072.04 86,835.34 7 472,541.65 5,906.77 478,448.42
8 86,835.34 1,085.44 87,920.78 8 478,448.42 5,980.61 484,429.02
9 1000 88,920.78 1,111.51 90,032.29 9 1000 485,429.02 6,067.86 491,496.89
10 90,032.29 1,125.40 91,157.70 10 491,496.89 6,143.71 497,640.60
11 91,157.70 1,139.47 92,297.17 11 497,640.60 6,220.51 503,861.11
12 1000 93,297.17 1,166.21 94,463.38 12 1000 504,861.11 6,310.76 511,171.87
1 94,463.38 1,180.79 95,644.18 1 511,171.87 6,389.65 517,561.52
2 95,644.18 1,195.55 96,839.73 2 517,561.52 6,469.52 524,031.04
3 1000 97,839.73 1,223.00 99,062.73 3 1000 525,031.04 6,562.89 531,593.92
4 99,062.73 1,238.28 100,301.01 4 531,593.92 6,644.92 538,238.85
5 100,301.01 1,253.76 101,554.77 5 538,238.85 6,727.99 544,966.83
6 1000 102,554.77 1,281.93 103,836.71 6 1000 545,966.83 6,824.59 552,791.42
7 103,836.71 1,297.96 105,134.67 7 552,791.42 6,909.89 559,701.31
8 105,134.67 1,314.18 106,448.85 8 559,701.31 6,996.27 566,697.58
9 1000 107,448.85 1,343.11 108,791.96 9 1000 567,697.58 7,096.22 574,793.80
10 108,791.96 1,359.90 110,151.86 10 574,793.80 7,184.92 581,978.72
11 110,151.86 1,376.90 111,528.76 11 581,978.72 7,274.73 589,253.46
12 1000 112,528.76 1,406.61 113,935.37 12 1000 590,253.46 7,378.17 597,631.62


Dear Mr. J.M.

Thank you very much for bringing up the error and I really appreciate your feedback.

1. The error was in that, instead of the P5,000 initial investment, I used P1,700. For some reason, I multiplied 17 months with 100 (must be one of those senior moments). No explanation except pure sloppy computing. I also computed based on 40 years not 20. That "20 years" is pure typo. I must have done it late at night when I was sort of sleepy. My deepest apologies.
2. You were also right about the P159,100 number. Again, I missed out on the first P5,000 investment.
3. Re investment that yield 15%to 20%: Phil Equity Mutual Fund up to 2007 averaged 22% annual compounded rate. This was good for a 15-year period (1993 thru 2007). If you include 2008, average annual compounded rate dropped to 13.5% due to extraordinary losses of about 37% in 2008.
4. 15% to 20% is an achievable target for mutual funds provided you invest for at least 10 years and employ cost-averaging technique in investing. Note that there is no guarantee. However, with proper investment, goal setting and planning, one would know when to buy and/or sell his investments so that he could average out anywhere from 12 to 20%.

In summary, again I apologize for my mistake and really thank you for keeping us on our toes. Its readers like you who keep us going and further sharpen our skills in the long term.

In another email, we sent you a list of investment options that you might want to investigate.

Prosperous regards,
FJC

I received an email asking if there are any schools or special courses that need be taken when one wants to be a Financial Adviser/Planner. The writer would like to help friends, family and other people in becoming financially independent. He has a mathematics degree, is an active saver and investor.
Wikipedia defines a financial advisor as follows:

“A financial advisor is a professional who renders investment advice and financial planning services to individuals and businesses. Ideally, the financial advisor helps the client maintain the desired balance of investment income, capital gains, and acceptable level of risk by using proper asset allocation. Financial advisers use stocks, bonds, mutual funds, REITS, options, futures, notes and insurance products to meet the needs of their clients. Many financial advisers receive a commission payment for the various financial products that they broker, although "fee-based" planning is becoming increasingly popular in the financial services industry.”

In advanced countries, there are courses and/or degrees to earn a title that pertains to being a “Financial Adviser/Planner or Wealth Manager”. In fact, a number of universities and specialized colleges in Europe, North America and Singapore offer specialized degree courses in Wealth Management. In most cases, they have working arrangements with established financial institutions that offer private banking services.

In the Philippines, there are no such degrees or formal diplomas offered. To be sure, there are lawyers and accountants who specialize in tax, securities and estate management. These experts do provide specific technical and legal advice to high net worth individuals as well as companies. Technically, these fields of expertise are part of wealth management. But they are not, as the above Wikipedia definition goes on what constitutes financial advisory services.

Thus, in our current environment, one who has the necessary background and experience to give advice on financial matters based on his formal degree, financial management expertise and investing experience is generally accepted as a financial adviser. In most cases he is capable of providing good information and assistance on how to grow one’s wealth. In truth though, a Financial Adviser’s role can be more complicated depending on the level of wealth the person asking advice has.

Most financial advisers/planners here do not have sufficient background to give advice on all aspects of financial matters. Furthermore, a good number of these advisers/planners represent specific financial institutions with their own financial products. Real financial advisory service has to be value-based, that is, taking into account personal values first before financial strategies get defined.

I believe that taking seminars and special courses available in good schools are good in giving one some basic background. However, what counts most is real emersion in various aspects of finance/economics/entrepreneurship and knowing the various investment options (as well as their tax and legal implications) available at any one time to give proper advice. Taking tests to give one a certificate is not bad but getting a certificate does not automatically make one the advisory expert that the certificate may claim. Learning the principles without the actual practice and experience is certainly not enough.

Other important matters are to know who and where to ask for reliable up-to-date information and advice on different aspects of finance. One gains this through networking and experience. This is particularly true today as we find ourselves in the midst of an unprecedented global financial crisis. Old and current investing parameters seem to have been overhauled overnight. In the management of one’s personal financial plan, the personal condition, such as age, social standing, lifestyle, financial condition and risk-taking ability of the person can be quite diverse.

Generally, all legitimate investment instruments are good and based on sound financial principles. What is really needed though is for the individual to know what is suitable to him given his particular financial situation. Thus, financial advice will only be meaningful if it is unique to a particular person. Each person will need to define and articulate his financial goals in all short, medium and long term investing horizons. He will need to structure his own personal finance and investment strategy based on his defined goals. The role of the financial adviser is to assist his client precisely to draw up his own personal financial goals and strategies. He must also be available to guide his client along regular reviews and again assist him, as changes may need to be made.

The responsibility of a financial adviser is not to be taken lightly. To do his clients right, he must be thoroughly prepared and updated at all times. The challenge to the financial adviser is how to do provide independent quality advisory services and be appropriately financially compensated. How should a financial adviser charge his clients? Through professional fees plus commission, or through pure fees only?

Here is the last word from Wikipedia:

A further distinction should be made between "fee-based", i.e., they charge fees and collect commissions, and "fee-only" advisers. “Fee-only advisors” receive 100% of their compensation directly from their clients and have no conflicts between their own interests and those of clients created by commissions or referral fees paid by other product or service providers.

At the Colayco Foundation, we are trying to teach income earners to be financially literate and not to depend solely on financial consultants who could be pushing financial products they may represent. We are also always evaluating specialized courses for would-be independent financial advisors. You can always contact us if you have questions regarding this at info@colaycofoundation.com.

I have received many inquiries about cooperatives leading me to believe that there is some interest to know more about it on a technical basis. By the very word, we already know that a cooperative involves the cooperation of people towards a common goal. But as we also know, many join groups without fully understanding what they are joining. They are just brought in by friends and relatives who, most of the time do not also know the most important matters regarding the cooperative.

In my view, “cooperativism” is one of the highest forms of effective leverage. Cooperatives provide their members strength in numbers. They pool resources of their varied memberships and they provide a ready venue for exchange of ideas and skills. More importantly, in coming together for a common cause, cooperatives increase the intellectual capital of the members thus providing opportunities where none existed. Opportunities are indeed created when cooperatives perform and live up to their real mission. In short, the cooperative as a movement is truly the only practical tool to achieve unit of purpose and thus secure the “Power of One”

“The Power Of One can lead to changes for the benefit of the many.
But these changes come from the many, only if they come together, to form
that which is invincible, the Power Of One…”
Anonymous

It is one of the blessings that we can enjoy. Recently, the new Cooperative Code was enacted. From all indications, it is even better than the present code in force. The rules for regulation are presently “work in progress” and should be released very shortly. For now , here is a primer on the existing Cooperative Code governing cooperatives in the Philippines.

The Cooperative Development Authority (CDA) is a government body that supervises cooperatives. Their official definition is: “A cooperative is a duly registered association of persons, with a common bond of interest who have voluntarily joined together to achieve a lawful common social or economic and making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally acceptable cooperative principles.”

Cooperatives may fall under any of the following types:

1. Credit Cooperative – promotes thrift and savings among its members and creates fund in order to grant loans for productive and provident purposes.

2. Consumer Cooperative – procures and distributes commodities to members and non-members.

3. Producers Cooperative – undertakes joint production, whether agricultural or industrial.

4. Marketing Cooperative – engages in the supply of production inputs to members, markets their products.

5. Service Cooperative – engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services.

6. Multi-purpose Cooperative – combines two or more of the business activities of these different types of cooperatives.


The following principles govern Cooperatives:

1. Membership in a cooperative is voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.


2. Cooperatives are democratic organizations administered by persons elected or appointed in a manner agreed upon by members.

3. Members contribute equitably to and control the capital of their cooperative. At least part of that capital is usually common property of the cooperative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes:

- developing their cooperative, possibly by setting up reserves, part of which at least would be divisible and benefiting members in proportion to their transactions with the cooperative,
- supporting other activities as approved by the membership.

4. Cooperatives are autonomous, self-help organizations controlled by its members. If they enter into agreements with other organizations (including government) or raise capital from external sources, they do so on terms that ensure democratic control by the members and maintain their cooperative independence.

5. Cooperatives provide training and education for their members, elected representatives, managers and employees so they can contribute effectively to the development of their cooperatives. They inform the general public, particularly young people and opinion leaders about the nature and benefits of cooperation.

6. Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, national, regional and international structures.

7. Cooperatives work for the sustainable development of their communities through policies approved by their members.

It might interest you to know that there is a Kapatiran sa Kasaganaan Service and Multipurpose Cooperative (KsK Coop). KsK Coop’s Investment Strategy:

• Achieve critical mass of members, initially 2,000 to 4,000 members

• Continuous trainings and seminars on the fundamentals of financial independence

• Acquire established and profitable businesses that, aside from dividends that can be earned by the members, can also be a source of employment as long as the coop member or his/her family (sibling) is qualified for employment

• Put up a KsK Coop Bank for the service and benefit of the coop members for their deposits, loans, remittances and micro-financing needs.

• Collective investment of the coop in financial instruments for better yield or returns not available if pursued individually at smaller amounts


• Provide seed funding for coop members with sound businesses or projects


FOR MORE INFORMATION VISIT: http://www.kskcoop.com or write us at info@colaycofoundation.com

Most parents assume that the best education is the most expensive one. Going to the higher tuition schools is almost always equated to high quality education. Graduating from such expensive institutions is taken as a guarantee for a good career and personal financial success. Indeed, education is an investment for one’s own future.

But what if we were to look at education as strictly a financial investment decision? Though clearly, it is not all about money, determining the most appropriate type of education for our children boils down to affordability. Here is where the pitfall lies. Most of us will kill ourselves to give our children the most expensive education (at the expense of other just as pressing needs) we can afford. Why? This is because we have been conditioned to believe that the higher the investment in education, the higher the return. Worse, some of us may even believe society will judge our stature by where and what category of school our children go to. NOTHING COULD BE MORE IRRELEVANT TO OUR LIVES THAN THIS!

Purely on a return on investment perspective, we must evaluate the cost of formal schooling versus the lifetime cash return to the graduate. Presently, even graduates of the so-called high-end schools are having a hard time finding jobs. This was happening even before the present global economic crisis.

Today, life is more complicated, much more competitive and expensive. Few can have the luxury of wasting time, effort and money in an education that was not really fit to the personality of a child/person. Thus, we should encourage “dreams” in the minds of our children much earlier in life on what they want to be when they grow up. As parents and teachers, we must observe them more and guide them towards the field/s in which they seem to have the most capability to enjoy and succeed. They have to be preparing for their “personal career” as soon as they step into high school.

There is now clearly a large-scale mis-match between what our economy needs and what schools are turning out. We continue to send our children to take courses with no long term economic potential other than perhaps getting employed with a reasonable salary. Getting college degrees are no longer as imperative in securing gainful economic activity after graduation. Being creative and logical with a facility for communication seems to be the order of the day. Learning (to speak and write) another foreign language like mandarin or some other European language should now be considered very seriously. With the global economic focus on Asia, knowing a major Asian language can give our children the best head start in availing of a broad range of entrepreneurial and employment opportunities. Being multi-lingual is an enormous asset in such industries as tourism, business process outsourcing (BPOs), consulting and advisory services and many others where international businesses are involved.


Entrepreneurial education founded on liberal arts is, today, the key to personal economic success. Liberal arts teach us to how to think and assess, to define problems and arrive at solutions, to create and add value. More importantly, it develops a mindset that forms the seed of our intellectual capital, which for most of us, is our only true capital in this life.


If we accept this premise, securing “profitable” education need not be concentrated on expensive formal schooling. We can then even have the option of combining formal and non-formal schooling at very low cost. Two-year communication arts courses augmented by languages and/or practical vocational and small business training can reduce your educational investment by as much as 50%. Though your children may not initially have impressive degrees, they can nonetheless plan to secure formal degrees and/or certificates of a recognized educational attainment at their chosen time in the future. We should open our minds to the practical norm of taking more time in formal learning but getting more practical experience “on-the-job”. Such combination of formal and non-formal schooling would actually impart more real learning and develop a more serious entrepreneurial aptitude. The big advantage in this approach is that our children will be able to use their time with “hands-on” education. Learning could then really be not only profitable but also enjoyable and fun!


FRANCISCO J. COLAYCO is an entrepreneur, a venture developer and a financial advisor. He has over 40 years of experience that covers service contracting in the Middle East, manufacturing, trading construction, shipbuilding, management consulting, banking and financial services. He is the Chairman of the Colayco Foundation for Education (CFE) and the author of the bestsellers: Wealth Within Your Reach (2004 National Book Award for Business and Economics), Making Your Money Work (Nominated in 2005, National Book Awards Business and Economics), Pera Palaguin Workbook and Money for Kids. Mr. Colayco’s financial education is also in video format, the “PISObilities DVD Series”. The first of a series is entitled “Pisobilities 1: Bak Por Gud”. His educational materials are available at National Bookstore, Powerbooks, Pandayan and other bookstores. He joins our website blog to share with ordinary income earners, Overseas Filipino Workers and students the simple principles to "Save what you earn and grow what you save.”


CFE conducts talks, seminars, and workshops. CFE presents “Money Matters for Women”, a money-management learning series at 14 SM Supermalls from March to July 2009. March 7, Saturday 4:00 to 6:00 pm at SM Megamall Atrium at the Bridgeway, March 14 at SM North Edsa and March 28 at SM Manila. Admission is FREE. For more information, please visit www.colaycofoundation.com, email info@colaycofoundation.com, SMS +63917-8537333 or call (632)6373731 or 6373741.

A comment in my article “Back to Basics” reminded me of something our CFE Team has wanted to do for a long time but other activities simply overwhelm us to forgetfulness.

“#19 ravioli on 2008-12-24 00:30 (Reply)
hi, mr colayco
your posts are truly helpful and i hope many filipino expatriates get to read your articles before they sink their money in any investment. i recently made an investment decision (http:// condoko.blogspot.com/2008/11/cheque-for-4-million-pesos.html) and although i prefer not to entertain any regret at this time, i wish i had learned about your blog and visited it before i made the plunge.

it'd be useful if the government, or better still a reliable non-profit organisation, came up with a list of websites that filipino expats (ofw, as we've come to label them) can visit to learn more about how to make the most out of their earnings. of course, there are a lot of sites that market themselves as the authority on things filipino expats are interested in, but it's better to get a reliable group that helps us identify sites that are really experts at about what they're talking.”

In my book “Wealth Within Your Reach”, there is a detailed primer on SCAMS that actually come from the Securities and Exchange Commission, which I show below.

The Internet is both a boon and a bane. It is a very useful tool for gathering information to help us increase our knowledge and provide blessings. Unfortunately, the same Internet can cause problems and misery. This is the situation when scams are perpetuated through websites.

It is so easy especially for dishonest people to spread wrong information and encourage others to follow their lead. It is so much easier to fall to the glamour and marketing of “get rich quick” schemes than to take the long steady but slow path to accumulating wealth.

But precisely because of the special capability of wrong doers to “sugarcoat” their schemes, it becomes very difficult to realize that a scheme is a scam until much later. This is especially true when the perpetuator is a very renowned and respected person like Bernard Madoff. (http://en.wikipedia.org/wiki/Bernard_Madoff).

It is truly unbelievable that he was able to fool so many people all over the world for such a long time. Many of those he fooled were knowledgeable and reputable people who trusted him completely with almost everything they had. He combined his real professional expertise and good reputation with his evil manipulation of those who could have caught him earlier on.

This example shows that there can be no “fool-proof” way to discover scams that are well crafted. In my mind, the principles to follow are:

1. To surely get rich, follow the slow path. Steady investments in instruments with reasonable returns when left alone to compound will get you to your goal.
   
2. Make sure you periodically review and analyze the entire documentation supporting your investments. Make sure the financial statements are validated by respectable and established third parties. Note that in Maddock’s case, his so-called investment funds were not subject to third-party external audits.
   
3. Study the primer on scams. When an investment looks too good to be true, it is probably not true.
   
4. Spread your risks. No matter how good the investment is, don’t put everything you have in it. The economy has cycles that cannot be controlled. You will have to roll with the punches. For equity investments, only put in money that you can keep invested on a long term basis. In case you are caught on a low cycle, you can wait it out until the cycle improves.
   

The comment of Ravioli suggests that we have a website to inform others of scams. We can add a “Scam Watch” to our website www.colaycofoundation.com. Initially however, we will have to rely on direct inquiries from the public. These inquiries will form the basis for our research and investigation. Eventually, we will publish information about upcoming scams which may already be discovered or perhaps even prosecuted in other countries.

While we can personally advise you of what we consider well-managed companies and individuals, as the case of Madoff clearly shows, everybody has to do their part in researching and following the warnings.

Do not hesitate to write us at info@colaycofoundation.com if you would like a direct reply to your question or comment.

A PRIMER ON SCAMS
Source: Philippine Securities and Exchange Commission (SEC)

How to spot a financial scam

In the past years, so many have lost a huge substantial amount of money to financial scams.

• Will you be the next victim?
  
• Do you know how to spot the clues?
  

It looks real
Scams that catch people often look realistic and are presented professionally. “Scamsters” often go to a lot trouble to:

• print attractive documents and set up a business-like website
  
• choose names that sound like reputable companies
  
• tell a persuasive story using the right jargon
  
• drop the names of people you know to build your trust
  

Five clues for spotting scams

1. Bigger and faster profits than real investments
Scams always offer a higher return than genuine investments. Some offer 20% a year, others go for 300% a year or even more. It's too good to be true. By comparison, Australian shares are some of the most successful investments, and their value has grown about 7-9% p.a. over the long term.

2. Less risk and less effort than real investments
Most scams say that financial success is easy and risk isn't a problem. But real wealth demands planning, hard work and guts. Even the best investors make mistakes and have to weather storms like market busts and economic recessions.

3. Something special that genuine investments don't offer
It could be a 'secret' offer, 'inside information' or 'new techniques'. There's always some feature to make you feel like you've got an edge over other people. But chances are it's a fairytale and it won't have a happy ending.

4. More urgent than the real thing
Every scam gets dressed up as an opportunity, so scamsters often say 'don't miss out' and 'act quickly' to make you hurry 'before it's too late'. They're really just trying to grab your money before you have a chance to check properly.
5. Offered by a stranger
Many scams come from overseas, through unsolicited email or surprise phone calls. Others get sold through ‘wealth creation’ seminars or on the grapevine. While the people can sound genuine, they rarely have any real credentials, such as an Australian Securities & Investment Commission (ASIC) license to give advice or sell financial products.

Ponzi schemes

One of the simplest, yet most effective scams perpetrated on unsuspecting investors for many years have been Ponzi schemes.
In these schemes the promoter promises investors a very high return on their investment and says it is secure.

Part of the money deposited by early investors is then used to pay their first dividend checks or interest. The victims are more than happy to get high dividends. These schemes only require a few people in their early stages to be successful.

The swindler continues paying them dividends for a couple of months until they are more comfortable with their investments, and decide to invest more.

They then begin to urge their friends and relatives to invest as well. Soon, there is a steady flow of funds into the scheme, and the number of investors grows.

If the swindler is disciplined about how much money is left in the account to pay "dividends", the scam can go on for many years. Theoretically, if the scheme continues to draw in new investors, it could go on indefinitely. In practice such schemes usually fall over because the promoter starts to spend the money too quickly, or the pool of investors starts to dry up.

Ponzi schemes

10% per month (120% per year) - Where do you get it?

A family friend was offered an “investment opportunity” returning 10% per month (120% per year) by someone in his church. Fortunately, the friend, who runs a successful mechanics' business, knows a bit about finance and refused.

Sadly, the person who tried to get him interested had already forked out PhP 100,000.

At 10% per month, the rate of return is so suspiciously high that this person will probably lose a great deal of money. It smells like a classic Ponzi scheme.

How Ponzi schemes operate

Let's call the victim Joe Blow. The crooks can pay Joe PhP 10,000 a month using his own money. They can pay Joe for seven months, if they steal only PhP 30,000 of his original PhP 100,000. That way they keep Joe happy and encourage him to recruit other people.

If Joe recruits Joanne Blow for the scheme at PhP 100,000, then the crooks can keep up his payments and give her some money as well. Joe and Joanne will be praising the scheme to the skies, and will be able to show all their friends their blossoming bank statements.

Maybe more people join. So long as the money keeps flowing into the scheme, payments can still come out. However, the burden of future payments also keeps growing. The scheme inevitably collapses once people stop joining.

A Ponzi scheme's cash flow month by month

Here's a worked example, assuming that the swindlers steal only 30% of everyone's money. (We have made them far too kind.)



What's the bottom line?

The scheme runs out of money and collapses with nothing left to pay the investors by the end of December.

Joe, the first to join, got PhP 110,000 over the life of the scheme, which works out at 10% per year, not the 120% promised. The rest of the people all lost money.

David, the last one to join, suffered most. He put in PhP 100,000 and received only PhP 40,000 before the scheme collapsed, so he lost PhP 60,000. And the crooks? They got PhP 180,000 for nothing.

Danger awaits the inexperienced

Your church group may offer you many wonderful things, but it is not the place to hunt around for investments. Fraudsters and operators of unlawful investment schemes sometimes target church groups to find their victims.

Victims tend to be people who do not know much about investing, and so turn to others whom they know and trust. In some cases, church members have innocently encouraged each other to put money into fraudulent or unlawful schemes.

When the schemes collapse, then we see first hand the financial ruin, personal distress and breakdown of relationships among family, friends, neighbors and members of their church.

Pyramid schemes

In a nutshell, pyramid schemes promise to make you money. You pay the person who recruits you for the right to go out and recruit your new members to the scheme. In turn, they must pay you for their right to recruit their own new members.

Pyramid selling involves two payments:

• What you pay
  
  There is an up-front participation payment that new members must pay to join the scheme. Generally this payment will entitle you to some goods or services. However, unlike a normal business deal, you do not get real value for money. The goods or services will be overpriced, and the only way you can recover your up front payment is by getting new recruits to pay you to join the scheme.
  
  
• What gets paid to you
  
  You get a recruitment payment for getting other people to join. This is a substantial part of the reason for joining.
  
  Pyramid selling schemes have involved almost all the goods and services you could possibly imagine. Sometimes they have sold nothing more than the 'right' to recruit other people into the scheme.
  

How schemes build and then collapse

The scheme builds up layer upon layer of recruits, forming a pyramid. Every pyramid collapses.

People give up because they cannot sell enough to recover the money they originally paid to participate. They find it much harder than they think to sell overpriced goods or services, especially to friends and social contacts.

Schemes also inevitably run out of new recruits, although this may take some time to happen.

To show how this occurs, let's assume a tightly controlled scheme where everyone recruits only five people. The founder of the scheme sits at the top of the pyramid. The first five people pay the founder to be able to join.

These five people must now go out and find a second layer of five people each to pay them. By the time you get to the third layer, you need 126 people in the scheme. At the sixth layer, that number jumps to 15,626. Just two more layers, and you've outstripped the population of Canberra with 390,626. One more layer reaches 1.9 million people. If that's when the scheme falls over, then 1.5 million people lose their money.

Pyramid selling is illegal

Trade and Industry laws ban pyramid selling. If a pyramid scheme claims to sell financial products, then it's illegal under Securities & Exchange Commission Rules & Regulations. Financial products include shares, managed funds, superannuation, insurance, and credit.

Is it pyramid selling or marketing?

Sometimes it can be tricky telling the difference between a pyramid scheme and other schemes that may be perfectly legal. Essentially, it boils down to whether recruitment payments form a substantial part of the reason for you to join.

Here are two useful questions to help check if a scheme is legitimate.

• Does your participation payment bear a reasonable relationship to the value of the goods or services that you get under the scheme?
  
  If not, it's probably a pyramid scheme.
  
  Here's an example of how you might spot a pyramid scheme about selling car insurance.
  
  You must pay PhP 1000 up front to participate. That entitles you to a discount of PhP 40 off your PhP 1,500 comprehensive car insurance.
  
  You get promised PhP 100 for recruiting new people to the scheme.
  
  Since the PhP 40 discount goes nowhere near recovering your PhP 1,000 up front payment, you only reason to join would be the recruitment payments. To come out ahead, you must recruit more than nine people into the scheme. This is an illegal pyramid scheme.
  
  
  
• How much does the scheme emphasize the products compared with the recruitment payments?
  
  If recruitments payments get heavily emphasized, it's probably a pyramid scheme.
  
  Here's an example of how you might spot a pyramid scheme about selling shares in a new internet business.
  
  You must pay PhP 1000 up front to participate. That entitles you to 1,000 shares. The shares can only be sold back to the company or to other participants after 12 months. So you don't really have any idea what they may be worth.
  
  You get promised PhP 100 in cash if you immediately recruit new people to the scheme.
  
  You attend a promotional seminar for this scheme. The 90-minute seminar spends 70 minutes on how to recruit new investors and 20 minutes on the internet business. Since your shares are frozen for 12 months, and the scheme obviously pushes recruitment really hard, the recruitment payments form a substantial part of the reason for joining, making this another pyramid scheme.
  

Four safety checks to protect your money

• Take your time before investing your money.
  
  
• Research any investment. Only get involved if you understand the offer.
  
  
• Make sure you're comfortable with the risks, especially if you're borrowing to invest.
  
  
• Get information and advice from reputable people.
  

Avoid seminars that make these claims:

• 'You can become a millionaire in three years'
  
  
• 'Traditional investments are too slow and lack excitement'
  
  
• 'You can turn your financial dreams into reality'
  
  
• 'Amazing, fabulous, unbelievable strategies for building massive wealth'
  

Avoid sales people who:

• Pressure you into investing and/or borrowing money
  
• Promise you high returns with no explanation of risk
  
  
• Promise you access to 'secret' or 'exclusive' techniques for building wealth
  
  
• Lure you with free seminars only to hit you later with high fees
  

Don't get sucked in by:

• glossy brochures
  
  
• over-the-top testimonies from past customers
  
  
• pictures of people punching their hands in the air in triumph
  
  
• pictures of the promoter relaxing on his yacht
  

We are just now feeling the effects of the global downturn of financial markets. The situation is unprecedented and nobody really knows how soon or how long the recovery will take. More importantly, nobody knows how the financial markets will look like after the dust settles. The only fact we can be sure of is that investment banking will no longer wield the financial clout it used to have. Most players in the industry will have probably de-leveraged and be more strongly capitalized. We will have more stable financial institutions.

Unfortunately, this could also mean less velocity of money and less credit being made available even to qualified borrowers. The bottom line is we must all be more conservative and assume that our own economic prospects may not yet be as bright the coming year. These times call for belt tightening and aggressive pursuit of new income generating activities. These times also call for making sure that investments and loans are made only when the right fundamentals are there. When you invest, make sure you know what return to expect, how much risk is involved in the investment and how long you must be prepared to keep your money invested. When you are borrowing, you must also make sure that your use of the funds will generate income sufficient to pay for the loan interest and principal. If your loan is of an emergency character, you must still make sure that you have cash flow from other sources that can pay for loan.

Temporarily spared

The Philippines, at least in the world of finance and investments infrastructure may be considered a “backward” country. Because of this, we were “by-passed” in most of the sub-prime and other creative investments that the big global investment bankers and other financial institutions like Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros., AIG, etc. concocted. We are a “borrower country” and happily we were spared of the direct hit of the debacles caused by sub-prime problem.

Sadly, this blessing could be temporary. If some institutions in the U.S. and Europe were not hit directly, these will nevertheless suffer losses sooner or later because of the “domino effect.” Banks all have business relations with each other. The smaller banks will eventually be affected by the failure of the bigger ones. The Philippine economy, as well, is tied up to most of these financial institutions and particularly to the U.S. economy. As we hear time and again, “When the United States catches a cold, the Philippines catches pneumonia.” Thus, we need to be prepared.

Less credit available

To ensure their stability, banks will be very careful about the loans they give out. Banks need to make all their assets earn in order to be profitable and stable. When loans that have been granted by the bank are unpaid, the banks’ assets become non-performing and thus non-earning. Clearly, banks cannot afford to have further non-earning assets*. Thus, while the collateral for loans will be a major requirement by banks, each borrower’s capacity to pay will be more important.

* Note that high levels of non-performing loan accounts hit our banking industry in the recent years. In fact because of the alarming rate of loan defaults, our government created the SPAV law which allowed banks which sell their non-performing assets to amortize their losses on such sales over a deferred period of some five or 10 years. This effectively ‘saved” our banking industry from possible collapse as the troubled banks did not have to book their losses at one time. They were effectively given new leases in life as they did not have to immediately raise massive new equity funds to maintain their capital adequacy ratios.

Companies and individuals grow their assets through prudent borrowings. Through this kind of leverage, they effectively increase their investible funds. In this way, their growth is not limited only to their real capital. With less credit available, the growth of industry and the entire economy will be dampened.

There is much construction ongoing especially for housing units targeted for the OFWs and the retirement communities. The sale of these units was premised on the availability of loans based on sustained valuation of the real estate assets. Without those loans, it will be more difficult to dispose of the units.

Where to invest now

In the midst of these difficulties, the concerns of most savers are where to invest what is being saved now? The answer is really quite obvious. First be clear on what your purpose is in investing. Your purpose will automatically define your financial goals in terms of the three basic parameters, namely: a) how much return to expect; b) what level of risk can be assumed and c) how much time should the investment be kept.

In all cases, given today’s uncertainties, capital preservation will most likely be the overriding consideration in most investments. This means that avoiding losses is the number one criterion in choosing the investment.

Short term vs long term

Time is the greatest mitigator of risk. The longer the investment period, the lower the risk and the higher the potential return. As an investor generally is not able to control the actual returns of an investment, it is best to have time manage the risks. This is why for long-term investors, it is very important that they leave their money alone once they have invested it. Allow the investment to compound over time, preferably five (5) years, to weather the economic fluctuations and thus stabilize investment returns.

For retirees whose need for funds is fairly short to medium term, the way to go is Government securities and fundamentally sound corporate bond issues. Here the end game is regularity of income and safety of capital. One could also consider solid income earning real estate properties as a good hedge against inflation and volatility of the financial markets.

And finally, when investing, spread the risks through diversification. As they say, don’t put all your eggs in one basket. Strategic asset allocation is one other powerful tool that manages risks and stabilizes earnings.

There is hope and opportunity

But in spite of all these, we should not lose hope. A most important principle, in the investment markets, “What goes down will eventually go up again.” It is a matter of having the strength and courage to weather this storm. In purely financial terms, if you have investible funds, you must continue to invest regularly. This way you average your cost and stand to achieve much better returns in the future when markets will have stabilized. Market valuation today is at an all time low. Share prices of triple A companies do not do justice to their real worth. This is bound to correct itself sooner or later. This is really the time to invest in these solid companies.

Comments on the US dollar

Where goes the US Dollar (USD)? It’s strengthening in the midst of the current global financial crisis. Will it last?

To be sure, the USD is still the currency of choice for international trade. Over 60% of the world’s currency is still the USD. Reserves of most countries are still in USD. These facts leave the world very little choice but to keep the USD. In fact, experts estimate that it will take about a decade to replace the USD as the international currency, assuming the world collectively decide to do so. In addition to this reality, there could be three more reasons why the USD will remain strong, at least for the medium term.

More interest rate cuts 


European and other governments have come to realize the need to stimulate growth in their own economies. For too long they kept their interest rates high hoping that they could decouple their respective economies from that of the US. Well that was proven wrong and now it’s catch up time for them. Growth is now their first priority and that means they have to narrow the interest gap with US interest rates. We can therefore expect further interest rates cuts by these foreign governments in the coming months.

Massive deleveraging

Mark Astley, CEO of Millennium Global Investments, a U.K.-based currency manager notes, "there is a pyramid of leverage in the financial markets that will take considerable time to unwind. The half-frozen credit markets are only slowing down the process. As they thaw out completely, expect hedge funds and foreign banks to keep buying up dollars”.



Fear and uncertainty

The condition of fear and uncertainty is not expected to abate for some time. For as long it holds, people will shy away from any risks. Thus we saw the flight to the USD since the subprime crisis began to boil. In a recent research UniCredit noted.” We do not expect global recession fears to wane considerably." Today, even after the US elections, uncertainty reigns in the capital markets. Idle funds continue to seek the USD, which is perceived to be the safe haven of currencies. As history shows, during times of fear and risk aversion, the dollar tends to outperform all others. The more critical issue is how long can the USD sustain its strength? For now, the best intelligent “guess” is at least for the most part of 2009.

Please email info@colaycofoundation.com if you have any questions or comments.

SEASON’S GREETINGS

We can turn adversity into prosperity. It is a matter of attitude and perspective.

I’d like to take this opportunity to greet all of you a Blessed Christmas and a Happy and Prosperous 2009.

FRANCISCO J. COLAYCO is an entrepreneur, a venture developer and financial advisor. He has over 40 years of experience that covers service contracting in the Middle East, manufacturing, trading construction, shipbuilding, management consulting, banking and financial services. He is the Chairman of the Colayco Foundation for Education (CFE), a prime mover of the financial literacy movement. He joins our website blog to share with ordinary income earners, Overseas Filipino Workers (OFW) and students the simple principles to "Save what you earn and grow what you save." For questions, you may email Mr. Colayco at info@colaycofoundation.com or text +63917-8537333.

CFE is the publisher of Mr. Colayco's bestsellers: Wealth Within Your Reach (2004 National Book Award for Business and Economics), Making Your Money Work (Nominated in 2005, National Book Awards Business and Economics), Pera Palaguin Workbook and Money for Kids. The books are available at National Bookstore, Powerbooks, Fully Booked, Pandayan or directly from CFE. CFE is also the producer of the PISOBILITIES DVD series, available at all SM record bars, National Bookstore, Odyssey, Astrovision, Astroplus and other major audio-video stores nationwide. CFE also conducts personal finance management talks, seminars, and workshops. For more information on CFE programs, visit www.colaycofoundation.com or call (632) 637-3731 or 637-3741.