Professional Documents
Culture Documents
Teaching Slides
Personal Financial Management (PFM) is a Financial Education Project of AKPK (26 hours)
TALKING POINTS
BACKGROUND ON PERSONAL FINANCIAL (PFM) MODULE
Why the need for PFM Research and focus group study was conducted by AKPK Many youngsters currently face financial problems because Personal Financial Education(PFE) was lacking early in their lives. This problem is compounded when they get into their 30s and above evidenced by the large number of people coming to us for assistance.
TALKING POINTS
BACKGROUND ON PERSONAL FINANCIAL (PFM) MODULE
Focus Finding The findings - most graduates have dreams of financial freedom, without realizing the financial commitments attached to their working lives
ASPIRATION
To ensure all young adults leaving the university have the confidence and skills in financial matters to contribute to the economy.
To assist them to better understand their financial situations and lead financially prudent lifestyle.
To provide guidance by instilling preventive measures to be taken before the young adults find themselves embroiled in financial difficulties.
STATISTICS
72.57% OF PEOPLE HAVE ONLY ONE SOURCE OF INCOME
Fact 1 70.22% of all respondents will not have sufficient financial resources if they do not go to work tomorrow 72.57% of them do not have any other additional sources of income
Fact 2 -
Money Mastery carried out the financial survey in 2010 with 683 respondents Malaysian working adults
Need
Use
Financial Planning
Assess where you are financially right now Define your financial goals Develop a plan of action
Lifestyle Conditions
Planning is the key to achieving all goals especially financial goals. Life-cycle planning is the phrase that suggests that financial planning is a lifelong process. Divorce Career Changes Children leave
Marriage
Children
Old Age
RM
20
30
40 50 60 Years of Age
70
80
Wealth Distribution
Zainal
Started saving later (30 yrs old) Contributed RM3000/yr Contributed for 26years
Fixed
Examine your current financial situation Identify your active and passive income
Identify fixed, variable and discretionary expenses Determine net worth: (Asset Liabilities = Net Worth)
Short term goals (within a year) Mid-term goals (2-5 years) Long term goals (5-10 years or more)
Financial Goals
Specific Measurable
State exactly what is to be done with the money involved. Write the exact dollar amount. Determine how it can be reached, which is often determined by the individuals budget.
Attainable Realistic
Time Bound
Do not set the goal for something unattainable or unrealistic. Specifically state when the goal needs to be reached.
Prepare a spending plan or budget to estimate monthly income and expenses Keep it simple
Involve all affected parties in process
Involves:
WHAT IS A BUDGET ?
HOW DO I SET A BUDGET? 1. List down all your sources of income 2. List down your expenses
Requires Effort
Be Flexible
1. Live Within Your Means 2. Cultivate a Saving Habit 3. Save for Financial Emergencies 4. Enhance Your Net Worth
Delay gratification
Spending wisely
Need = RM5
Want = RM 25
Repairs
Nature disaster
Death
= Net Worth
Increase savings
Reduce spending Pay off debts Dispose non-income generating assets
Over the counter ATM Deposits Machines Interbank Giro Internet Banking
Things to remember!!! Keep your account numb and PINs confidential; Keep your account statements, passbook & ATM card in a safe & secure place ; Destroy or shred cancelled cheques
ISLAMIC BANKING
Follow Shariah Principles;
Prohibits riba (interest), usury (trading in financial risk) and haram (unlawful business ventures); Follow Islamic concepts like profit sharing (mudharabah), safekeeping (wadiah), joint ventures (musharakah), cost plus (murabahah) and Leasing (ijarah). Islamic Banking is for all regardless of religious beliefs
BANKING INTERNET
Secure banking
i. Keep print out of transactions ii. Keep Login ID confidential iii. Change password regularly iv. Do not store Login ID and password in PC v. Make sure login at correct website vi. Do not leave computer unattended vii. Have anti virus protection viii. Always log out after each session ix. Dont open other web browser while banking online
TYPES OF INVESTMENT
Cash and Fixed Interest Investment Shares Unit Trust Funds Property Bonds REITs
FINANCIAL SCAMS
Promise high return with little or no risk The offer is for limited period and asked you to sign up immediately Scheme is in another country (cannot check on its status) Asked to provide confidential information, e.g. bank account number
%
3-5 10-15
Real Estate
FD, ASB, ASN and/or Unit Trust Savings and/or FD
20-40
50-70
20-30
3. Transfer: Passing the risk on to an insurance company, e.g. paying a premium fee for an insurance policy and expecting the insurance company to protect your assets.
What is Insurance?
Insurance is a legal contract that transfers risk from a policyholder to an insurance provider
No one can predict the future. Being prepared is the best defence you can have to guard against unforeseen uncertainties
Protection against loss due to hazard and unexpected events Compensation for damages for personal belongings Increased Medical Bills Living expenses in disability or serious illness
Premiums
Insurance company sells policies to many people and pool the premium collected into a common fund. The common fund helps to share risks
Insurance Provider
Claims
TYPES OF INSURANCE
Insurance is classified into Life and General
LIFE INSURANCE
Insures against premature death, illness, disability and hospitalization Risk Factors: Age/Gender/Height & Weight/Medical record/Personal habits (smoker, drinker etc)/Occupation **Amount of coverage required**
GENERAL INSURANCE
Any insurance other than human lives comes under the scope of General Insurance It is preferable to call this as General Insurance instead of non-life insurance Motor House Travel Personal belonging
Death
Disability Critical Illness
Life insurance
Life insurance Dread diseases insurance Health insurance General insurance
Whole Life
-combines permanent protection with a savings component. continue to pay the premiums, able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. -As the policy gains value, you may be able to borrow up to 90% of your policy's cash value tax-free. -The proceeds of this plan are payable when premature death occurs or the policy maturity date is reached.
Investment linked: Combines investment and protection. Under this policy, you get to choose the type of investment fund stock, bond or money market funding options and the amount of life insurance coverage.
Medical & heath cover the cost of medical treatment hospitalization & surgery
Takaful was initially undertaken in Sudan 1979 and Malaysia in 1984. Takaful operations open up in many countries in the past two decades especially in large Muslim community.
The takaful industry is estimated to grow at 20% per annum.
Development of Takaful Malaysia Case Study Takaful Act 1984 was introduced to supervise the takaful activities since Insurance Act could not be applied to the takaful business in Malaysia. Takaful Malaysia Sdn. Bhd. was established in 1984 with paid-up capital of RM10 Million and there are four takaful operators in Malaysia.
Why Conventional Insurance does not conform with the requirement of the Syariah?
Al-Gharar refers to unknown or uncertain factors in a conventional insurance contract. Al-Maisir refers to gambling element and is said to derive from the gharar element. Riba refers to the interest factor present in the investment activities of conventional insurance companies.
Why Conventional Insurance does not conform with the requirement of the Syariah?
1. Al-Gharar refers to unknown or uncertain factors in a conventional insurance contract. In conventional insurance, it is not made known to the policyholders on how profits are distributed and in what the funds are invested in. In a takaful operations which is based on the Mudharabah concept, the distribution of profits to the operations and the participants in the contract are clearly outlined.
Why Conventional Insurance does not conform with the requirement of the Syariah?
2. Al-Maisir refers to gambling element and is said to derive from the gharar element. In conventional insurance, the policyholders stands to lose all the premiums paid if the risk does not occur. On the other hand, he stands to get more should a misfortune happens whilst paying small amount of premium. In takaful, even though the risk does not occur, the participant is entitled to get back the contributions that he has paid. Should the risk occurs, he will paid from his amount of premium fund plus the pool of funds from the donation of other participants.
Why Conventional Insurance does not conform with the requirement of the Syariah?
3. Riba refers to the interest factor present in the investment activities of conventional insurance companies. The policy loan in conventional life insurance is in fact a Riba based transaction. Islam prohibits any investment activities which is interest based, in alcoholic beverage and non-halal products.
Takaful Models
Non-Profit Model - Social governmental owned enterprises and programme operating on a non-profit basis. The contributions paid by the participants are wholly for tabarru (donation) to unfortunate members.
Al-Mudharabah Model - The co-operative risk sharing where participants and operators share in the distribution profit. Al-Wakala Model - In this model, the co-operative risk sharing occur among the participants with a takaful operator whereby a fee is agreed to be paid to the operators for the services rendered. The operator shall not participant in the underwriting results.
General Takaful
Home Motor Personal accident
Family Takaful
The plans available is quite similar to the endowment policy in conventional life insurance practice where participants may choose a fixed period of coverage. Installment payment can be in Participants Account (PA) and Participant Special Account (PSA).
CREDIT AND DEBT Credit - facility to borrow Debt - money that you have borrowed
CREDIT is used to get DEBT and DEBT can affect your CREDIT
RULES OF BORROWING
SOURCES OF BORROWING
Licensed Financial Institution Co-operatives
Browse website of BNM at www.bnm.gov.my for a complete listing of licensed financial institutions
SECURED LOANS
Backed by assets Lender will take possession/auction, in event of default Lower interest rates
Easier to obtain
UNSECURED LOANS
Not backed by any assets Relies on ability to repay and credit background Characteristics: Smaller in amount Shorter in tenure Higher interest rates Stricter criteria
2.
3.
Housing: Maximum mortgage payments should be less than 30% of your gross monthly salary.
Maximum mortgage payments should be less than 30% of your gross monthly salary.
Automobile:
Buy used and drive it for at least 10 years. If you must borrow to buy a car, follow the 20/4/10 rule.
Which means: Make a 20% down payment, don't borrow for more than 4 years and don't agree to a monthly payment that's more than 10% of your income.
BEING A GUARANTOR
To guarantee a high risk loan Guarantor is still responsible for the unpaid
COMPOUND INTEREST
Interest on interest on investments or debts
Compounding can be daily, monthly or annually Like a double-edged sword, it has advantages and disadvantages: More return on your investments More interest if delay/defaults in repaying loan
BNM GUIDELINES
BNM Guidelines on Product Transparency and Disclosure BNM requires Financial Service Providers to disclose retail financial product features to consumers to support informed decision making You are advised to understand the product features before deciding to accept the loan facilities
CREDIT CARD
What is a Credit Card? Electronic payment tool without using cash Generally, you are given between 20 to 50 days
Attractive schemes: - Zero-interest installment plan and flexible - Balance transfer Loyalty points enables you to redeem goods and services
The maximum credit limit shall not exceed two times their monthly income per issuer Existing who hold from more than 2 issuers are given till Dec 31, 2011 to select their preferred issuers Existing cardholders, whose credit card outstanding balance exceeds the maximum credit limit is given 2 years to settle
CHARGE CARD
Similar to credit card
Interactive Exercise 1
Credit card outstanding balance (RM)
Interest Your Choice
=
= =
10,000.00
17.5% 10.0%
MINIMUM PAYMENT
5%
88
? ?
? ?
? ?
? ?
Interactive Exercise 1
Credit card outstanding balance (RM)
Interest Your Choice
=
= =
10,000.00
17.5% 10.0%
MINIMUM PAYMENT
FULL SETTLEMENT
MONTHS YEARS 7.3 3.8 3.6
PAYMENT (RM)
INTEREST 3,897.00 1,666.00 2,231.00 TOTAL 13,897.00 11,666.00 2,231.00
88 45 43
Your Career Living your life is essentially about making smart choices, whether it is choosing a career, buying a car or house.
Planning your career Your career is going to take up the most part of your adult life so do take it seriously. Plan your career properly. Each time you change jobs, i.e. make a career move, aim to increase your income-earning capability or prospects for greater things.
Your student loan A student loan is an obligation and should not be taken lightly. Once you start working, begin paying back your student loan, if you have one.
The student loan is a loan, not a gift. It is a legal as well as a moral obligation to pay it back so that others can enjoy the same benefit that you did.
It is your responsibility to declare all your sources of income to the IRB and pay the appropriate amount of tax.
Factors to consider:
Check your affordability, otherwise
consider a used car first A new car could also have drawbacks There are advantages and
Find that meets your needs Consider the resale/trade-in value Look for the best package
Interest rate on a car loan is normally on a flat rate basis Under Hire Purchase Act, 1967, the term charges or interest rate should not exceed 10% per annum.
HP INSTALLMENT CALCULATION
MONTHLY
INCOME
COMPUTATION
EARLY SETTLEMENT
Check your redemption amount
of final installment
In the case where the hirer is deceased, defaults in 4
successive installments
To pay all relevant charges in order to reclaim the car To settle any shortfall (loss after of sale/auction)
Car Price (RM) Interest Rate Deposit Tenure (Years) Computation: Down Payment (RM) Loan Eligibility (RM) Interest Cost (RM) Total Financing (Principal + Interest)
Monthly Installment (RM)
55,000.00 5% 10% 5
55,000.00 5% 10% 7
55,000.00 5% 30% 5
55,000.00 5% 30% 7
5,500.00 49,500.00
? ? ?
16,500.00 38,500.00
? ? ?
16,500.00 38,500.00
? ? ?
55,000.00 5%
55,000.00 5%
55,000.00 5%
55,000.00 5%
Deposit
Tenure (Years) Computation: Down Payment (RM) Loan Eligibility (RM) Interest Cost (RM) Total Financing (Principal + Interest)
Monthly Installment (RM)
10%
5
10%
7
30%
5
30%
7
BUYING A HOUSE
Most crucial financial decision.
(high cost)
Non financial decision (a home) Need to understand the steps involved in securing a housing loan:
Save time and money Avoid uncertainties
TO BUY OR RENT
Owning your own gives a sense of pride and security of having a permanent home When you buy, you increase your net worth as you pay down the loan There many commitments that may come with the purchase of a house
2. Type of Property
5. Reputation of Developer
3. Type of Ownership
FINANCIAL FACTORS
1. Assess Your Affordability Check your cash flow and net worth position Two main affordability issues:
FINANCIAL FACTORS
2. Eligibility for a Loan Facility
TYPES OF LOAN
Two banking systems:
Conventional Loan
Islamic Financing
Comes in various packages: Fixed rate or floating rate Term loan or flexi loan Level payment or graduated payment
The wedding Be realistic about your wedding expenses. You will be surprised at how much the gifts, ceremonies, dinners, clothes and shoes, and wedding photos can add up to your expenses. Like in other aspects of your life, have a budget. List the things that are necessary for the wedding.
The wedding
Discuss with your spouse-to-be on how much money you both can afford to spend. Get tips and advice from those whove been through it all on how to spend wisely for this important occasion.
Financial debts
This may sound harsh but do discuss with your intended spouse the debts that both of you will bring into the marriage, if any. You and your spouse should not hide from each other this topic of debt. Some marriages are reported to fail due to financial debts incurred by spouses.
Financial check-up
It is a healthy practice for a couple to prepare a monthly budget and spending plan, and track the spending of money at least once a week using a family cash flow statement.
Your Retirement Youre never too young or too old to plan for retirement.
The earlier the better, but its also better late than never. Its desirable to inculcate the saving habit at a young age.
In fact, saving should be part of your lifestyle.
Your Retirement
Its wise not to rely on your EPF as your retirement fund because you may not have enough in your account to provide you with a comfortable lifestyle.
Dont make it the sole reason for what you do in your life.
Health, family and spiritual well being are important elements that contribute to happiness. It is very important to create a balance in your life.
Hold any public office Leave the country Carry out own business or management of any company Obtain a credit of RM1,000 without informing status
* Except with the approval of the Director General of Insolvency Department of Malaysia
WHAT IS THE
FIRST STEP
THAT YOU SHOULD TAKE WHEN FACING A DEBT PROBLEM?
sector
www.bnm.gov.my/bnmlink/index.htm
THANK YOU
Make Prudent Financial Management A Way of Life