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.

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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.
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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.

Partnerships are special relationships. It could be related to your personal life or to your business. No matter how great the partnership looks in the beginning, it will undergo trials. The best example is the partnership of marriage. Each person is a unique individual. No matter how happily married they are, there will be situations that will need real discussions, understanding and agreement. This is why there is an engagement period when they should be sharing their real personalities and discussing their individual joys and fears. When both have “stars in their eyes”, everything looks good and nobody believes anything can go wrong. Precisely, this is the time to agree on the issues where there could be differences in opinion, to understand how each reacts to certain sensitive issues and accepts each other’s point of view. After marriage and especially after the honeymoon, unfortunately, irritants can make either spouse less open to seeing the other’s point of view. No such thing as changing the spouse after marriage. If you can’t accept your fiancé/fiancée, as is, with warts and all, don’t get married.

Partnership is Leverage. Leverage is the pooling of resources (funds, talent or physical assets) to accomplish things with less resource and/or with less effort. As such, it is one of the most powerful tools to create and grow wealth. In its simplest form, any individual can avail of this power by entering into any form of partnership with one or more individuals. In this sense, any form of partnership is leverage.

Let’s now talk about business partnerships, which is the real focus of this article. Happily, aside from issues on integrity and honesty, you don’t have to accept everything about your partner. Of course, it is easier to like your partner completely but even if you don’t, you can work together if you have a very clear agreement. In fact, it is many times easier not to be involved emotionally with your business partner.

A business partnership should always be covered by written and formal agreement that defines the basis of the partnership in terms of its long-term vision or goal, the operating, financial and legal roles of each partner. As a minimum, these rules must address administrative, financial and operational matters related to form of organization, administrative and financial policies related to voting, capitalization, compensation policies, number and positions of employees, bank signatories and others. The agreement must also provide for rules and procedures for resolving possible conflicts between and among the partners up to and including buy-out or sell-out procedures. This is best prepared in consultation with a lawyer to ensure that the partnership agreement is indeed legal and enforceable. In business, it is important that everything is in writing because that defines the rationale and intent of each party in entering into the partnership agreement in the first place. This then forms the basis for determining the right judgment or decision in case conflicts arise. In the tragic event that legal cases are filed by any partner against the other, resolution becomes easier and more importantly, faster.

I’d like to share with you an email that is a good basis for this article.

Ms. MJ said: “My friend and I are planning to establish a computer shop business. At this time we have no plans yet and I will start to make the plan after you help me answer some questions regarding the business.

This business will be a partnership. My friend will invest 150,000 and I will invest 100,000. We plan to hire 2 working students to be our part time employees. The location is not yet planned.

At this moment my friend is working abroad and I will be the over all manager, planner, marketer, administrator of our business to be.”

Ms. MJ: From your email, it seems that you are concerned about potential issues in having a partner in a business you are thinking of establishing. You are on the right track because it is really quite serious to enter a business with a partner especially if he/she is a personal friend. So many friendships have been lost because of failed business partnerships brought about by personal (rather than professional or commercial) disagreements. As a general rule, you have to talk about the details carefully on the assumption that you are not friends. If you get into problems that you cannot resolve, you will really not be friends anyway so it is better to think objectively from the beginning.

The key to any partnership is for the two of you to have what is called an “INVESTORS’ OR PARTNERSHIP AGREEMENT” or an I/PA. Under this document, you have to anticipate all problems and the mutually agreed solutions before you start the business. It is easy to get along when the business is good but the real test of a partnership is when the business goes bad. For sure, at some time in the future you will encounter serious problems due to so many things, some or most of which are beyond your control. How do you propose to handle those problems when they happen? These have to be anticipated and a solution must be agreed now before you start.

Ms. MJ. had seven questions

1. If the business will earn net profit of 5,000+ monthly how will it be divided between us if she will invest more than me?

Profits can be divided as the partners choose to. Distributed profits are called dividends. Most of the time it is proportionate to the money invested by each but it could be in any way by mutual consent. If either of you feel that you have a special contribution to the partnership, that person could be compensated in a way that is more than just salary or dividends.

2. Do I need to ask for a salary for myself since she will only receive money and I will be the one working for the business?

The person actually working should definitely receive a salary even if he/she is the owner. This is the usual big mistake of people who own businesses. Whether or not you have a partner, you need to pay yourself a salary. In your partnership, all the more you need to make sure that you understand your individual responsibilities. This should be clarified in the I/PA. In addition, you will want to agree on the limits of authority of the managing partner, specific responsibilities, decision processes on big expenses and especially on capital expenditure and definition of conflicts of interests among the investors.

3. Is there a difference between a partner and an investor when one cannot be present in the business? My possible partner is working abroad so she will have no direct participation in the business. She will just give the money for us to start the business.

Investors are those who put in their money as business owners. Partners are those who work together whether as pure investors or actively engaged in the business operations. If she is the investor and you are the one operating the business, you are still partners but she is what may be called a passive investor, as her only contribution is money. If you are not actually contributing any capital, you can be an “INDUSTRIAL PARTNER” OR “SWEAT EQUITY PARTNER”’ for which you could be entitled to some equity that you can pay for with whatever profits you may get in the future. In your present case, you are actually investing capital of PhP100,000. This makes you the managing partner though a minority investor. As the managing partner, you should be entitled to performance bonuses in case of good financial results. The actual formula must of course, be also acceptable to your partner/s.

4. Can I add some money to our investment in case I have the opportunity to do it?

Again, the possible need to infuse more capital in the future must be addressed in your I/PA. If your business needs the money, you should make sure that you and/or your partner can always add money in the future in the form of equity or in the form of advances. Advances are like loans to the business. Advances or Loans can have a specific interest rate and term. Advances or loans usually have to be paid off first before dividends or profits are shared.

5. How many shares will each of us have if she will invest 150K and I will invest 100K? How much will each share cost at our business start-up if our total capital is 250K?

You can price your shares the way you want to from PhP1/share or P10/share and up. The number of shares is the basis to determine the exact participation of each partner investor. The number of shares also determines the specific value of each share that you own in the business over time. This information is what is called the Net Asset Value Per Share in your business. Net Asset Value is the Total Assets minus the Total Liabilities. Divide this number into the number of shares and you get the Net Asset Value Per Share or NAV/Share. This is also sometimes called the book value per share.

6. How much do I need to buy each share if in case after one year I will buy some shares when our business has made an annual net profit of 60K? Do I need to buy it at the same price per share? If not how much do I need to buy it?

Buying of shares is very relative and personal. The NAV/ Share is important but how you personally value it for your own needs is just as important. You can also buy shares two ways, namely, a) buy new shares to be issued and b) buy shares already issued and owned by your partners. Your I/PA should anticipate a solution if one of you wants to get out of the business for any reason. You should agree on who may buy the shares and at what price. (Generally, the price of ownership in a business is determined by how much income is produced by the business.) You will also need to agree whether or not you will allow each partner to sell his share to anyone or are the partners limited to sell only to existing partners first. if you can only sell to each other, this needs to be clarified.

There are so many ways of investing and partnering but what is more important is that you truly understand your business and you are competent to run it. But that is another subject matter altogether. If you have any questions, do not hesitate to write at info@colaycofoundation.com.

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.

December and January are the most popular months for weddings in the Philippines. This is probably because the weather is cooler. It is nice to sing “Santa, make me his bride (make her my bride) for Christmas.” It is wonderful to start the New Year with your most beloved in the entire world!

I received an email about why the wedding ring is worn on the fourth finger. We have five fingers.

- The Thumb symbolizes our parents.

- The Forefinger symbolizes our siblings.

- The Middle Finger symbolizes ourselves.

- The Ring Finger symbolizes our spouse.

- The Little Pinky symbolizes our children

Put your hands and fingers together as in prayer. Then, fold your middle fingers inward so that the outside of each knuckle touches each other. Keep the tips of the other fingers touching each other. While making sure that the middle fingers continue to be folded touching, try moving the other fingers:

- You can move your thumbs showing that your parents can leave you.

- You can move your forefingers showing that your siblings can leave you.

- You can move your pinkies showing that your children can leave you.

- But try moving your ring fingers and you can’t.

Marriage is permanent but while you are not yet married, this article might prove useful for you.

We all know that the engagement period is the time to really get to know each other before marriage. But couples who become engaged seem to think that they cannot break the engagement, if necessary. Should the couple see “substantial differences” in thinking, this period is the time to understand those differences before they become “irreconcilable differences”, which become the reason for many separations and annulments. Do not believe that you can change your partner once you are married. For most, the marriage makes the partner even more fixed in his/her ways.

So many engaged couples are embarrassed to discuss money matters before they get married. Based on my experience, if you cannot discuss financial matters with your loved one before you get married, it is almost inevitable that you will have problems related to financial matters during your married life. It is not the amount of money that you have that matters but what you intend to do with it and how you expect to manage it. You could be very lucky and have all the money you will ever need until you retire. However, nothing is sure in this world and all of that could easily be lost with wrong management of finances.

YOUR VIEWS ON MONEY

Many times, the family environment you grew in will dictate your reaction to money. One of you may be always saving or even downright stingy and the other might not care about money and may even be a spendthrift. During the courtship period, your real personalities may not be immediately obvious since you are trying to show your best side. I suggest that you tell each other frankly how you view money. Ask each other how you will view your success and the role of money in that success. If it turns out that your ideas about finances are not compatible, both of you will have a better understanding on how to accept each other for what you are or to agree on how you will both overcome the differences. There is also the option to postpone the marriage or cut the relationship if the issues are truly irreconcilable and you can see that love might not be enough, in the long run.

AGREE ON YOUR LIFESTYLE

Understand how much money and also how much debt each of you already have. If there is debt, you have to agree on how it will be paid. Be open about how much each of you earns and what you expect to be spending as a married couple. Do not leave the decision of what to spend on a day-to-day basis. This could lead to unnecessary misunderstandings on how much each should be spending on specific items. Having a budget will help you agree on the kind of lifestyle you should live to be able to reach certain goals. For example, you can aim to have a car within a year, a house within five years etc.

Having children is also another matter that has to be discussed in relation to finances. How you raise your children will depend on the time you will have. If both of you have to work for your chosen lifestyle, obviously, you will have to share the raising of your children with yayas or your parents.

HOW WELL DO YOU UNDERSTAND PERSONAL FINANCE

As I have seen time and again, parents and schools rarely teach personal finance. Even finance students and employees do not know how to manage their personal finances. They may be very good in their theoretical studies and in their actual jobs related to finance but that is not what personal finance is all about.
I have many friends who give my books as wedding presents. I am happy that the couple will have some guidance during their married life but it would have been better if they had been given the books before or when they became engaged. The books will help them understand how they can save and grow their savings. With these books, they can discuss and mutually agree on the type of investments they would choose both for the short-term and for the long-term. You can also join our Pera Palaguin Seminars that we hold regularly.

WHO WILL BE RESPONSIBLE FOR KEEPING THE MONEY

Even if financial wellbeing is a joint undertaking, one of you has to be responsible for:

- Staying within the agreed budgets. Informing the other when there is any possible deviation foreseen.

- Keeping track of all important documents and records such as your marriage license, passports, Income Tax Returns, insurance policies, investment certificates, etc. Decisions on Insurance, Investments and Income Tax Returns filing should always be done jointly in consultation with experts.

- Properly maintaining and balancing all bank accounts to prevent penalties and not allow cash idle without earning any interest. The matter of keeping joint or separate accounts or a combination of the two is a choice that the couple should agree to. They should be open with each other with their reasons.

Of course, these activities can move from one to the other, say one year each. This way, both of you learn and have a good understanding of your financial situation. This is especially important in case of emergencies where one is not available.

WHO WILL PAY FOR THE WEDDING

There used to be a rule where, in the Philippines, the groom’s family pays for everything and in the United States, the bride’s family pays for everything. Today, the best solution is for the couple to pay for everything. The families of both the groom and the bride can give whatever monetary gift they can afford. From the gift, the couple can decide on how much they want to spend for the wedding itself.

I always admonish couples not to spend too much on their wedding day. It is only one day and they have the rest of their life together to look forward to. The rest of their life together is definitely more important. They should not try to keep up with their friends who got married before them. Parents should respect the decision of their children.

COMMIT TO DISCUSS MONEY REGULARLY

Differences are inevitable. Work on a program of continuing discussion and communication with an open mind and sincere heart. Bring in an objective and experienced financial adviser if your differences seem to be major. This is key to your long-term financial compatibility.

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.

Subprime lending was developed in the late 1990s in the United States and became popular in the past five years. Subprime lending simply means lending to people who have questionable capability to repay the loan. Banks, generally, lend to prime clients or those who have a good credit rating. A good credit rating is earned by showing the capacity to pay back loans, no history of late or non-payments, acceptable property for mortgage etc. Those who do not pass the bank checklist are below prime or “Subprime”.

In any transaction, the higher the risk, the higher the rate. Subprime loans carry very high risks for the lender and thus, have very high interest rates.

The Subprime market was an opportunity for financial institutions to generate more profit by developing securities (tradable investment instruments) related to subprime loans. With aggressive global investment banking, these investment instruments with high returns reached financial markets all over the world and were snapped up all kinds of funds. As demand increased, the U.S. financial institutions granted more and more Subprime loans.

Over the past 10 years, the world saw massive inflow of capital to the USA. Savings from Asia and Europe were seeking investment venues to fund their social overhead and sustain positive economic growth. Only the USA had the capacity to absorb these funds. Housing-related investment instruments, subprime lending included, offered a unique opportunity to the entire world.

Meanwhile, the culture of credit spending was pushing the American public to consume more. With credit cards, liberal consumption and now liberal housing loans, America increased its importation thus sending its Dollars to China, Europe and Asia. Awash with US Dollars, these countries were snapping up US Treasury Bills and Bonds and mortgage notes. It was and continues to be a vicious cycle.

On the other hand, the USA housing sector, was going wild. Lenders having cheap funds from the world gave out loans right and left mostly based on perceived increasing value of houses. Mortgage brokers wanting to earn more commissions pushed borrowers to cash in on their “home equities” or to borrow more using their now higher valued homes as collateral. With additional loans, they could fund everything from consumer goods such as toys, plasma TVs (from China and Asia), cars, vacations, second and even third homes. Freddie Mac and Fannie Mae, two Government Supported Enterprises (GSEs) accelerated its massive purchases of mortgage papers from US domestic lenders and issuances of credit guarantees to US as well as global investors.

Investment Bankers and Insurers became more creative to fuel more credit.

More money was made available as investment bankers and insurers became even more creative issuing asset-backed securities and forms of complicated debt instruments. They are not restricted by strict capital requirements as commercial and savings banks. They bundled individual mortgage notes valued based on the increasing housing prices and sold them off to domestic and foreign investors as high yielding instruments. These are the securities referred to as Collateralized Debt Obligations (CDOs) and Collateralized Loan Obligations (CLOs) and other similar structured products.

No real attention was given to the fact that a good number of these mortgages were loans given to borrowers with no real capacity to pay. The commission-driven mortgage brokers aggressively sought out borrowers and arranged housing loans with banks. Banks were eager to lend since they could sell these same mortgages to Freddie Mac and Fannie Mae very quickly. There was just too much money available and too much money to be made in giving out housing loans.

These CDOs and CLOs became even more saleable when Wall Street players included something like an insurance policy in the package (Credit Default Swap or CDS). With the insurance guarantee, rating agencies (like Standard and Pours, and others) gave AAA ratings to these structured products. Thus, even top banks like UBS, and Citicorp invested substantial amounts. Eventually, Citicorp and UBS covered their huge losses of $62Billion and UBS $42Billion with new capital right away. Latest information from the IMF is that Subprime losses of banks have reached over $500Billion.

More and more investment instruments based on the value of other assets or financial instruments called Derivatives, took over the financial markets providing instant margins to traders, brokers, investment bankers and insurers. These Wall Street operations were producing sustained profits out of buy and sell transactions of CDOs and the growing liabilities were not reflected in formal records (kept off-books). All eyes were on the margins and profits as if there were no real risks and as if the increasing price of housing which was the fundamental basis for the asset value would never stop. The fact is, it did.

In summary…

1. What funded Subprime? Too much capital from foreign investors looking for yields higher than what their own countries could offer.
2. Where did these funds come from? In the case of China and Asia, their exports to the U.S. mostly made up of consumer goods. In the case of the Middle East, oil proceeds from global energy imports.
3. How did Subprime get to grow to such high levels? a) Wall street’s creativity in developing securities without adequate regulation; b) the failure of the established rating agencies to properly assess the true credit risks and c) the unmitigated insurance cover (CDS) on payment defaults sold over-the-counter. Neither the Insurance nor Securities Regulators regulated them.

The US Credit Crisis in Perspective

Here are a few statistics cited from the presentation of Mr. Helmut Schnabel, Chairman of the International Association of Financial Executives Institutes (IAFEI) in its summit last September 5, 2008.

1. Total Subprime mortgage loans in U.S. in 2007 was $1.2 Trillion.
2. Total private mortgage loans in U.S. today is about $12 Trillion
3. Total non-mortgage debt of private households (i.e. credit card, auto loans and other consumer credits) is $2.5 Trillion
4. Total U.S. private household debt is thus $14.5 Trillion
5. Net worth of private households in U.S. in 2007 (i.e. their total assets less their total debt) amounts to $58 Trillion.
6. Private household assets to their total debt ratio is a healthy 5:1
7. Actual losses of banks and intermediaries from Subprime loans are in the magnitude of $512 Billion. This represents approximately 3.5% of private debt and less than 1% of private household net worth.
8. In the last two weeks, new capital of almost $400 Billion was raised to offset the above losses of the affected financial institutions.

These numbers indicate that it is more fear and panic that is causing the present credit and thus llquidity crisis to further drive financial markets down. More than anything, it is clear that the U.S. consumer and the economy remain viable and nowhere near being in the brink of collapse.

What is the impact of this US credit crisis on our economy

The Philippines is a very small financial market. Our total market capitalization is just about US$133 Billion or US$.13 Trillion. On the other hand, according to IAFEI, “the market capitalization of the worldwide equity and bond markets, plus the worldwide assets of banks, at the end of 2007, amounted to a total volume of over 200 Trillion US $. (Source: IMF, German Central Bank). This puts the value of the Philippine financial markets at a miniscule percentage of .065 compared to that of the world.

From the very beginning, our markets were not really of much attraction to the global financial players. One could say that we simply are too small to spend too much time on. There is another reason why we could not have been a venue for these derivative investments. We do not have financial market infrastructure that would have allowed the kind of loose and free-wheeling over-the-counter trading that caused a lot of unregulated instruments and transactions to take place. In a sense, our “backwardness” kept us out of risk.

But given the extent that our economy is closely related to that of the U.S., significant repercussions could be anticipated in the coming periods. For one, remittances from the U.S., which accounts for a substantial(over 33%) portion of total inward remittances, could temporarily decline. For another, our merchandise exports to the U.S. would more likely also substantially decline. The purchasing power of the American consumers has been severely reduced by this credit crisis. It may take a while to turn that around.

But not all are negative. Outsourcing business from America has a good chance of even increasing, as American business must even now focus more on increasing its competitiveness. And, for reasons still to be studied and understood, oil prices appear to decline as the crisis continues. This can only help us as we face the oncoming (though hopefully) temporary slow down in our economy.

We also have a few aces in our sleeves. Government is accelerating agriculture and infrastructure spending. OFW mobilization continues to be on the rise in more and newer markets for a broader range of skills. Hopefully, these and more innovative developmental spending will not only offset the expected reduction in economic activities from the U.S. but also provide more domestic employment opportunities for our available work force,

The bottom line really is, it’s up to us. We have the power to turn this global crisis to an opportunity for growing our economy our own way.

IT HAS been my advocacy over the past five years to concentrate on teaching financial literacy to income-earning Filipinos. Fortunately or unfortunately, a great majority of Filipinos earning substantial regular income are the Overseas Filipino Workers or OFWs. I am quite blessed to be able to get to know them and their problems related to financial literacy up close. It gives me a real sense of accomplishment to be able to assist them in understanding the need to save and to grow their savings so that they may be financially independent when they come back for good in our country.

In the first place, the reasons why they go abroad is a combination of the following and not necessarily in order:

1) Lack of appropriate jobs for them locally. Sometimes, they have job opportunities in the Philippines but they know that they have technical capabilities that will give them better paying jobs abroad. The sense of accomplishment is also a very important part of life. When they lose that feeling, it can be very depressing and the nagging thought that they could have done better in life will haunt them till they grow old.

2) Want the experience and adventure abroad. There are some OFWs who are not really there for the sense of accomplishment but for the thrill of being alone abroad and living a different life. Granted that this might not be a great number of people but it is true especially for those who are young and single. Hopefully, they can combine their work and pleasure.

3) Want for better pay. I can’t say much more about this. Everybody wants better pay whether in the country or outside. Sometimes though, they need to carefully analyze their net pay. I know of some who thought they were getting higher pay in another country but cost of living and other expenses related to moving away actually gave them a net pay lower than what they would be receiving in the Philippines.

Based on my and CFE Team's personal experience in dealing with OFWs, it seems that at most, only 10-20% would know how to manage and grow their money. This same ratio probably applies as well to those who stay and work in the Philippines. Personal money management, or applied wealth management is not really taught in schools. It’s only now that we are seeing our advocacy in promoting financial literacy (personal finance) being brought to schools. A group, led by a prominent College in Parañaque and one of the largest (if not the largest) Investment Bank, has put together a Capital Markets Institute of the Philippines (CMIP) to precisely educate teachers who teach finance and economics in investments and personal finance. CFE is fortunate to be actively involved with this group. One of the key and immediate objectives is to reverse the prevailing counter-productive mindset among the earning classes, i.e., the mindset of the "here and now"- the seeming drive to live their chosen lifestyle immediately at any expense up to and including borrowing beyond their means.

Pre-Departure Fundamentals

Before they even leave the country, first and foremost, they should have a personal financial goal. They should know exactly:

1) How much they are worth. They need to make their Personal Statement of Assets and Liabilities and Personal Income & Expense Statements.

2) They should agree with their family left behind what their budget should be and be ready to send only that and no more. Their family should not be tempted to thinking that they can now spend as much as they want just because their OFW is earning in foreign currency.

3) Remember that in making that family budget, they should follow the formula INCOME-SAVINGS= EXPENSES. It is important that they not only keep some money for their personal expenses abroad but also the savings for themselves.

4) They should try their best to follow the 80-20 rule. They should save 20% of income for their future capital. If they can't save 20% they can start even with 1% but they have to get that winning experience.

5) Need to learn what options they have for saving both here and abroad. They should not just send everything to their family and relatives. In fact, it is better that they make arrangements for direct placements of their investments with financial institutions before they leave. In their working country, on the other hand, they should try to find out the safe methods of keeping their savings. If they feel confident about investing there over the long term with a reputable financial institution, they could do that.

The whole end goal of most OFWs is to come home “for good” with enough saved so that they can sustain a fairly comfortable financial life with their family.
These goals have to be quantified over specific time periods. They need to monitor their progress and thus should regularly update their personal financial plan.

Many times, OFWs become so homesick and start believing that they have enough saved and that they can easily find a job or business when they come home. They start believing that what they have saved will tide them over until they find the job or business. Unfortunately, many times this is not a realistic assumption.

If they still need a job, they should be relatively sure they have that job before coming home for good. For those who dream of getting into business, they should prepare for the business that they intend to get into. They should prepare themselves together with their family in identifying what business they will get into, thoroughly study the identified business and have a complete plan in how to set it up and start operations. Ideally, the business should already be running even before they give up their job abroad. They can start to prepare for this by working on their plans each time they come back for their vacation.

One of the better ways to do this is to look into franchise businesses that fit their goal. In some cases, Franchisors can provide active management of the business in the start-up year. This way, the OFW or his family member can be taught how to run the business on-the-job. There is no better way to prepare and train than going through this kind of hands-on training.

Typical Back-For-Good Situations

When they are finally home in the Philippines, some OFWs say they cannot adjust to the new life. Most of the time, it is because they realize that what they have saved is not enough. This is so because it usually is taking them longer to find a job or to think or put up a new business. In this case, their only choice really, is to cut down on their expenses drastically until they are able to settle down.

Those who have lived in the Philippines all their lives know that setting up businesses can lead to a lot of frustration especially since the choice of business should be dependent on the passion of the person, interest, size of market and sufficient funding. To all the OFWs out there, always remember the saying that “The grass is always greener on the other side.” Examine your options well whatever side you are in now before making important decisions to uproot yourselves and move overseas.

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.

Part I: The process of getting into business

There have been many Franchise-related Exhibitions and Symposia. In these various activities, the focus was on what business opportunities are available. In fact, in many instances of people wanting to enter business, the focus is on the type of business and not in the process.

I like giving the example of an OFW in Hong Kong whose lifelong goal was to put up her own business. She invested all her life savings in a balloon making business and lost all her capital in six months. She could not understand what had happened and wrote me for advice.

To help her, I asked her some questions. When I asked her what her real interests were and why she went into balloon making, she told me that she was really into cooking but that her auntie had strongly recommended balloon making because she had enough money to start such a business. Her auntie also told her that it is a good business because she has a friend that does well in that business.

The cause of failure was quite obvious. First, she took the advice of one who was clearly not a capable business advisor. Second, she decided based on the amount of capital she had readily available. Third and the biggest mistake of all is that she went into a business which she did not know anything about and where she had no real personal interest in, and most likely, had no technical capability to contribute. It was clearly a wrong decision for this lady entrepreneur “wannabee”.

There are also those who want to know what their business options are. One such enterprising lady had the opportunity to set aside PhP5,000 cash every month from the household and personal expense budget that her husband would give her. She had an accounting background and some work experience with an appliance sales and service company. In that company, she worked as part-time bookkeeper and customer service supervisor for more than three years. She really enjoyed the customer relations part of her experience. Today, she is a full-time housewife and loves food-related activities.

Given this personal background, she would probably do well in food and/or service type businesses. The question is what type of business and will she have the necessary capital to do it? As much as possible, she also doesn’t want to bother her busy husband for frequent advice and she wants to experience setting up her own business.

This is a situation where getting into a Franchise business may be a viable alternative. Serious franchise businesses provide you tested business models along with market planning, technical support and logistics systems as well as personnel training, accounting procedures and financial controls. This allows you to learn the business at the soonest possible time with the least number of mistakes which you would otherwise incur if you started on your own without experience.

Part 2: How to choose a Franchisor and a Franchise Business:

There is a list of Filipino Franchisors and their broad range of small businesses available. Some are new but quite a number have proven track records. Let’s assume that you are the housewife who is competent in a food or service type of business and you choose a business that requires first year investments (including franchise fees) of around PhP200,000. Most good franchises demonstrate payback of about three (3) to five (5) years and impressive service support. Your most logical starting point is to seriously consider a food-stall business, particularly one with an available franchise near your home. As my partner Entrepguru Andy always says, most opportunities can be found just around your neighborhood. Look around you and observe what is it that your community badly needs? Don’t just follow what everybody is already doing.

Another good thing about Franchise businesses is the business training included in the package. Usually, the training period is three months but you would need to pay 10% or PhP20,000 (subject to negotiation with the Franchisor) as soon as you sign the franchise agreement. This type of a Franchise business might project minimum net cash earnings of PhP3,500 and possibly up to PhP6,000 per month.

Here are some tips on how you can move forward:

1. After determining your preferred line of business, make sure that your chosen Franchise business has a sufficient and sustainable market in your location. This is where successful and responsible Franchisors can provide you meaningful information and advice.

2. Validate the Franchisor’s legitimacy and claims through the Association of Filipino Franchisors, Inc., or through other Franchising Associations to which your chosen Franchisor may belong;

3. Validate the actual experience by directly interviewing the FIRST Franchisee and some other Franchisees to validate the truth or falsehood of the market and financial claims of the Franchisor. I am personally aware of situations where franchisors do not live up to their claims. Do not allow a franchisor to keep you from talking directly to his existing franchises for any reason. If the franchisees are happy, it is for the Franchisor’s and your best interests to learn all about it.

4. Find out if the Franchisor has any pending legal cases with any of the Franchisees, and if there is any, find out why.

5. Secure serious legal advice on the merits and demerits of the Franchise Agreement. Make sure that you are satisfied with all the provisions of the Franchise Agreement, particularly on your option to terminate your Franchise Agreement for good reason, without any difficulty.

6. Be aware that anything not written in the agreement, even if promised by the Franchisor, may not be fulfilled. That being said, in the final analysis, aside from the technical know-how, the sincerity and good heart of a Franchisor will be the deciding factors on your success;

7. Make sure that all the sources for funding are in place, before you even start investing your first peso.

Will this lady succeed in a franchise business? I always emphasize that in any business, there are no guarantees but there are ways to reduce the risks. If she at least follows the advice already given above, she has a good chance of success.

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."

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 conducts talks, seminars, and workshops. Attend “PISOBILITIES: MANAGING YOUR PESO DURING HARD TIMES" Seminar on August 30, Saturday, 1:00 to 5:00 PM at the 7th floor Social Hall, Citystate Centre Condominium, #709 Shaw Boulevard, Pasig City. For inquiries and registration, call 6373731, 6373741 or 6353247. Learn more about the advocacy at www.colaycofoundation.com, via email info@colaycofoundation.com or text +63917-8537333.