Rechargeable torchlight with locator light

Here is a photo of the rechargeable torchlight with the locator light turned on.

It is easy to locate the torchlight at night to visit the bathroom or kitchen for a drink of water.

You do not need to turn on the main lights and waste electricity.

In an emergency or power failure, you can find the torchlight easily.

It takes 12 hours to charge the battery and can last for about two weeks, based on light usage.

This special feature of a locator light was designed by me and produced to my specification.

The torchlight sells for $6.50 and can be bought from my office ($5.50 for purchase of 5 or more pieces). Office open Mondays to Fridays, 9 am to 6 pm. (The price will be revised to $8 from 2010 when this is made available at the retail outlets).

Delivery can be made to your address for a delivery charge of $7. You can get several friends to buy the torchlight together and share the delivery cost. 

Poor return on special funds

A customer was advised to invest a large single premium in an investment linked product in 2007. He was not clear about the investment. The cash value is now only 55% of the invested sum. I was surprised that the value is so low, as the stock market must have dropped only 20% during this period. I learned later that he was advised to invest in a some special funds.

The public should be careful about these types of special funds, which have high charges and low transparency, and generally perform worse than the broad market. It is better to take the market risk and invest in the STI exchange traded fund.

Lock up for 2 years at low return

Someone asked for my views about a 2 year insurance product that offers a return of  1.5% per annum. I felt that this return was rather low for the investment to be locked up. My preference is to keep the money in cash (earn 0.5% per annum) and wait for better investment opportunities.

Use of Medisave for health screening

Minister for Health Khaw Boon Wan said that the Government is considering to allow Medisave to be used for health screening, but needs some safeguards to be in place to prevent abuses.

A good safeguard is to set a cap on the amount that can be withdrawn for health screening, to be used once every three years. Within this cap, the medical facilities will compete to provide the best packages that is available. Independent experts can comment on the usefulness of these packages. Consumers who wish to spend more can still use their own money, and not draw down on Medisave.

Temasek 20 and 30 year bonds

Temasek Holdings has issued 20 and 30 year bonds paying a coupon rate of 4% and 4.2% respectively. Based on the issue price (which is slightly below par), the bonds offer a slightly higher yield of 4.149% and 4.37% respectively.

Temasek Holdings has a AAA rating from S&P and Aaa rating from Moody's. These are the highest rating available for bonds. The credit risk is as low as government bonds.

However, there is the risk of a change in interest rate. If a 20 year bond yields 4% and the interest rate for this duration increases to 5%, the prices of the bonds will drop by 8.4%  If the interest rate increases to 7% (due to high inflation), the price of the bonds will drop by 28%. When you invest in a long term bond, your return is locked up for this period. You only suffer a capital risk if you decide to sell off the bonds prematurely on the market.

The bonds will refund the principal in full at the maturity date, i.e. the end of the period.
For retirees who wish to have an regular income of a higher yield over 20 and 30 years, this is a good choice. Many insurance companies invest in these type of bonds, but they take away 2% from their policyholders, giving a net yield that is much lower. It is better for the retiree to invest directly in these bonds.

I have asked my bank and stockbroker to tell me how these bonds can be purchased. I will post the findings later.

Tan Kin Lian

Poor yield on life insurance policy

A policyholder paid premium for 21 years under a whole life policy and obtained a surrender value that represented a yield of less than 2%. The insurance had advertised an actual yield of more than 5% for other products of similar durations.

The policyholder was unhappy with the poor yield on his policy and asked for an explanation. He was told that it was due to the specific type of product, which provided high coverage. In my view, this should not account for the large difference in the yield.

It is likely that this policy was given a lower yield due to the restructuring of the bonus. As the bonus varies for each policy, it was difficult for the policyholder to know if he had been given a fair rate of return.

Profit of health insurers

A senator in the US wants to cap the profit of health insurers. Read this article.

John Bogel' website

John Bogle's website.

Overhaul of the retirement savings system.

Indexing and asset allocation.

Lehman Note Arbitration in USA

Investor win arbitration case.

Tour of Jiuzhaigou, China

I will be leaving for a 8 day tour of Jiuzhaigou in Sichuan, China from Wednesday.

Security measures went absurd

Read my experience.

Least corrupt countries

Singapore scores well in the ranking of least corrupt countries.

Foreign shares listed in SGX

Be careful when investing in these shares. Read this article.

Over-investing in mortgages

This article explains why banks over-invest in mortgages and cause the global financial crisis.

Denying insurance claims

Mortgage insurers are now following the practice of health insurers in denying claims. Read this article.

Bus owner practices risk management

I know of a private bus owner who evaluates the following options to insure his bus:
a) Third party only
b) Third party fire and theft
c) Comprehensive.

His old bus has a current market value of $40,000 and the difference in premium needed to cover fire and theft is $200. This works out to a rate of 0.5%. He decided to pay this premium, as he could not afford to take a total loss through theft or fire.

He decided not to buy the comprehensive cover as the difference in premium is too high. He decided to retain the risk and to pay for repairs to his bus on his own. In most cases, this can be funded by the savings in the premium.

This is an example of applying the principles of risk management. Insure the large losses with low frequency, and retain the small losses with high frequency.

I advise consumers to get the relevant facts and decide on the best risk management strategy, instead of relying blindly on the advice of the agent (who has a conflict of interest) or other people (e.g TKL) to decide for them.

Claim payable under a hospital bill

When you submit a claim under a hospital bill, the insurance company will apply the following deductions on the amount that you have spent for medical treatment:

a) Pre-existing illness. You are usually not covered for medical conditions that exist before you purchase the insurance, including congential conditions.

b) Exclusion. Certain medical conditions are specifically excluded, e.g. HIV, self-inflicted injuries.

c) Sub-limit. You are allowed to claim up to a liit for each item, such as daily room and board, hospital expenses and surgery. Any expense above the sub-limit will not be claimable

d) Pro-ration. If you are insured for a lower class of ward, and you are treated in a higher class of ward, a pro-rated formula may apply. Only this pro-rated portion of the expenses will be counted.

e) Deductible. This is the amount that you have to bear first, before you can make a claim for the excess of the eligible bill.

f) Co-insurance. You have to pay a percentage of the eligible bill in excess of the deductible.

When you submit your hospital bill, the insurance company will apply the sub-limits, exclusions and pro-ration to get the eligible amount. It will then apply the deductible and co-insurance to determine the final amount that is payable.

Before you incur a large bill, it is advisable to get an estimate of the hospital bill from your doctor and to check with your insurance company on what proportion of the bill is payable under the insurance policy.

Tan Kin Lian

Microsoft .NET developer

I wish to employ a Microsoft .NET developer with at least one year's experience. The monthly salary is $1,500 to $2,000. Preference to a candidate who live in or near Ang Mo Kio. Interested candidate should send a resume to kinlian@gmail.com.

Signs and messages

Sent to me by a friend.


Advertisement in A Long Island Shop:
Guitar for sale....... Cheap....... ....no strings attached.

Ad In Hospital Waiting Room:
Smoking Helps You Lose Weight ... One Lung At A Time!

On a bulletin board:
Success Is Relative. The more The Success, The more The Relatives.

When I Read About The Evils Of Drinking, I give Up Reading

My Grandfather Is Eighty And Still Doesn't Need Glasses. He Drinks Straight Out Of The Bottle.

You Know Your kids Have Grown Up When: Your Daughter Begins To Put On Lipstick Or when your Son starts To wipe It Off

Sign In A Bar:
'Those Of You Who Are Drinking To Forget, Please Pay In Advance.'

Sign In Driving School:
If Your Wife Wants To Learn To Drive, Don't Stand In Her Way.

Behind Every Great Man, There Is A Surprised Woman.

The Reason Men Lie Is Because Women Ask too Many Questions.

Getting Caught Is The Mother Of Invention.

Laugh And The World Laughs With You, Snore And You sleep Alone

The Surest Sign That Intelligent Life Exists Elsewhere In The Universe
Is The Fact That It Has Never Tried To Contact Us.

Sign At A Barber's Saloon In Detroit :
We Need Your Heads To Run Our Business..

A Traffic Slogan:
Don't Let Your Kids Drive If They are Not Old Enough Or Else They Will Never Be.

Sign In A Restaurant:
All Drinking Water In This Establishment Has Been Personally Passed By The Manager.

Sign On A Famous Beauty Parlor Window:
Don't Whistle At The Girls Going Out From Here. She May Be Your Grandmother !

Messy IT systems used in banks

Read this article.

Insurance company need to hold more capital

Insurance companies will be required to hold more capital. Read this article.

Creating jobs in America

Here are some suggestions from the New York Times on creating jobs in America.

Low payout for medical claim

Hi Mr Tan,
I saw this article on the forum last week but till now I have not seen any reply from Income on it (Normally companies will be quick to respond to letters in the ST forum).


Can you comment on why an expected payout of $3,600 can end up to be only $240?
Maybe you can even share this in your blog.

Puzzled by insurer's payout for medical claim

RECENTLY, my wife was hospitalised at Mount Alvernia Hospital for four days. Her medical bill came up to $7,995.15.

She is insured under Income's IncomeShield Plan MA, but the total payout by Income was a shocking $240.
I called Income to find out how it arrived at that sum and was told that technically the $7,995.15 was classified as "room and board", hence limiting the claim.

The $7,995.15 included a renal screen, bed charges, clinical consumables and supply, diagnostic imaging services, equipment use, laboratory services, outside hospital services, pharmacy cost, resident medical officer fees, treatment fee and doctor attendance fee.

Given a deductible of $4,000 per policy year and 10 per cent co-insurance, any man in the street would expect an insurance payout of $3,595.63. But this is not the case.

My wife has faithfully paid her premium for the past 15 years without a single claim and this is what she gets in return. I am writing this so the public is made aware of such pitfalls in their medical insurance.

For big insurance companies to cite a technicality as an excuse not to make a decent payout is in no way fair. I urge the Consumers Association of Singapore and leaders in the insurance industry to look into this loose definition of "room and board".
In my opinion, given my wife's good record, Income should honour the $3,595.63 payout as a goodwill gesture.

Lastly, I would like to ask the Central Provident Fund Board why only $450 a day can be used from Medisave for hospitalisation.

Ong Kok Lam

The uninsured cannot afford health care

This article explains the problem of the uninsured in America. Medical care is very costly. Those who are employed can get health insurance, paid by their employer. The employer pays a group rate which is one third of the cost of individual insurance.

In Singapore, citizens can get treated in subsidized wards and enjoy a subsidy of up to 75%. They have to pay only 25% of the full cost. The cost in restructured hospital is lower than in private hospitals. The elderly, which are likely to need health care more, will be able to benefit from the subsidized wards.

Those who are well off or have insurance can go for the non-subsidized or private care.

Urgency to create jobs

Many educated Americans, who have lost their job for nearly a year, find that their unemployment benefit is running out. They are desperate to get a job. Some are willing to work for free, to show that they can contribution and wait for a chance to get a full time job later. Many are willing to work as day labor to get paid by the day.

In the past, during boom times, the free market was able to create jobs. Most of these jobs are created by small businesses. In difficult times, these businesses are not able to get credit, as banks are more cautious. Without credit, these small entrepreneurs cannot grow their business and employ the available labor.

Many people hope that the economic situation will improve. But, it could get worse - and this is the more likely outcome. There has been so much loss of trust in our business, financial institutions and even in the free market.

Many governments reduced interest rate to reduce business cost and encourage business owners to expand this business and create more jobs. This strategy does not seem to be working. It is now time for governments start to create jobs directly. It may be necessary to reduce the length of the work week so that the available jobs can be shared by more people.

The economic system has to change. We may have to go back to some form of central planning.

Tan Kin Lian

Avoid over insurance and moral hazard

There was a case of a person who bought personal accident insurance from many insurance companies, and had an accident where he lost an eye. The total amount claimed under the insurance companies amounted to more than $2 million.

The insurance companies suspected that the accident was intentional,i.e. moral hazard. But they were not able to prove their case in court. They lost the case and had to pay the claims.

To avoid moral hazard, some insurance company adopt the following approaches:

a) ask the applicant to declare the total amount that is insured under all existing policies
b) restrict the total amount that can be paid under a claim.

If the applicant declares a total insurance that is excessive, the insurance company is likely to reject the application to avoid moral hazard. If the applicant fails to disclose this material fact in the application, the insurance company has the grounds to reject the claim.

If an insurance company provides insurance for $500,000 and sets a limit of $1 million for all claims for the same event, and the insured has insured for a total of $2 million, the insurance company is required to pay only half of the insured sum, i.e. $250,000.

Tan Kin Lian

SCMP: Businessman sues Merill Lynch over loss on warrants

Read this article.

Policy loan

Most life insurance policies allow you to take a loan against the cash value of your policy. You have to pay an interest rate, which is usually 6% to 8% per annum.

The savings in your policy earn a yield of around 2%. You are therefore paying an additional interest of 4% to use your own money. This is a bad deal.

To give a fair deal to its policyholders, the insurance company has to reduce the interest rate on policy loan or give a higher yield on the savings. A fair spread should be 2%. You can find out if the insurance company is treating you fairly by asking about this spread.

How much life insurance to own?

One method that can be used is called the "human life value" approach. This is calculated as the present value of the family's share of the deceased breadwinner's future earnings. It is calculated as follows:

a) Estimate the individual's average annual earnings over his or her productive lifetime
b) Deduct taxes, insurance premiums and the cost of self-maintenance; the remainder is used to support the family
c) Determine the number of years from the present age to the retirement age
d) Use a reasonable discount rate the determine the present value

For example:
present age: 30
retirement age 65
annual earnings $50,000
self maintenance: $20,000
support family: $30,000
present value for 35 years at 4% discount: 19.41
amount to insurance needed: $582,000

This is slightly more than 10 years. For such a large sum, it is necessary to buy decreasing term insurance.

If the period is taken as 25 years (i.e. the children would have grown up), the factor is 16.24. The amount of insurance needed is $487,000. This is close to my rule of thumb of 10 years.

Optimism in Banda Aceh

My friend in Aceh told me the following:
a) Banda Aceh had a population of 250,000 before tsunami. Today, the population had increased to 400,000. More people came during the reconstruction. Some are likely to stay over the longer term.
b) The city is buzzing at night. The traffic is quite busy, although not as congested as large cities around the world.
c) Aceh is now peaceful, with the end of the insurgency and independence movement. The Governor of Aceh is a local person.

Holiday in Banda Aceh

I am travelling for a short holiday to Banda Aceh on 1 Decemeber and will return to Singapore on 5 December.

Risk Management

There are five ways to manage risk:

a) Avoidance
b) Loss control
c) Retention
d) Non-insurance transfer
e) Insurance

Insurance is just one method of risk management. It is appropriate only for the low frequency and high severity risks, such as premature death or serious disability. We only need to insure against the "premature" occurrence of these events, as everyone will have to die eventually and it cannot be prevented.

Most people use a combination of avoidance, loss control and retention to handle most risks of high frequency or low severity. There is no point in insuring against these risks as the cost of insurance is rather high and it is quite a hassle to make a claim.

Retention means that you set aside savings to pay for the losses that are likely to occur. It is better to have savings to pay for medical expenses and retirement income when one gets old, rather than depend on insurance to pay these benefits. Sometime, when you need insurance to pay your expenses, you may find that your claim is rejected due to some technical reason.

An example of "non-insurance transfer" is when your medical expenses are transferred to your employer through the contract of employment.

To summarize, having adequate savings is as important as having insurance. It is better to pay a small premium to cover the risk of premature death, accident or disability and to save the money separately for future needs.

However, if the insurance policy provides a good return on your savings, compared to other types of investments, it is all right to save through an insurance policy. For this to happen, the expense and other charges for the insurance policy must be much lower than it is now. The "effect of deduction" should not exceed 15% of the accumulated regular premiums (compared to 40% that is taken away now by most insurance policies).

Sayings of Confucius

> The nature of man is fundamentally good inclined towards goodness.
> The princely man sticks to virtue, and the inferior man clings to material comfort.
> The princely man is just while the inferior man expects rewards and favours.
> The princely man is dignified, noble, magnanimous, and humble while the inferior man is mean, proud, crooked, and arrogant.
> The Ruler should be virtuous, just, honest and dutiful.

Emergency jobs program

It's time for an emergency jobs programme. Low interest rate will not create jobs. Here is a view from a renowned economist.

Location map - fast and easy

If you need to produce a location map for your home or office quickly, or to find the location of your distance, you can use the Directory function in the Real Estate Data portal (www.easysearch.sg)

You can enter the postal code, address or name of the building. It will display the location map easily. You can save it into a PDF or print it out.

Try it.
http://projects.easyapps.sg/propinfo/Map.aspx

I am able to use this map to print the location of places that I have visited during my last trip to UK and for my next trip to Banda Aceh. It is so easy to use and useful.

Keynesian Economics

Source: Wikipedia


Keynesian economics is a macroeconomic theory based on the ideas of 20th-century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936; the interpretations of Keynes are contentious, and several schools of thought claim his legacy.


Keynesian economics advocates a mixed economy—predominantly private sector, but with a large role of government and public sector—and served as the economic model during the latter part of the Great Depression, World War II, and the post-war Golden Age of Capitalism, 1945–1973, though it lost some influence following the stagflation of the 1970s. As a middle way between laissez-faire capitalism and socialism, it has been and continues to be attacked from both the right and the left.


The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. Keynesian economics has provided the theoretical underpinning for the plans of President Barack Obama, Prime Minister Gordon Brown and other global leaders to, allegedly, rescue the world economy.


COMMENT BY TAN KIN LIAN
Keynesian economics leads to deficit spending. It comprise of two strategies - low interest rate and government spending (to create demand). I prefer government spending (e.g. infrastructure and other useful projects) as it create jobs for people. I do not like low interest rate, as it leads to asset bubbles and benefit the asset owners.

False wealth

During the past two decades, many people thought that they were rich, as their properties and equities appreciate in value. This is false wealth on the back of an asset bubble.

They are the same assets but they were priced at inflated values due to low interest rate, financial engineering and leverage (i.e. high borrowings at low cost).

The global financial crisis of 2008 had brought the asset prices down to earth. Suddenly, many people realized that they were not so rich after all. The affluence brought about by financial innovation was an illusion.

We went through the collapse of the US housing bubble together with the associated asset backed securities, collateralized debt obligations, credit default swaps and other strange products. We will now face a second wave of problems with the default of Dubai World. What next?

Unfortunately, the people who suffer most will again be the ordinary people. They will face higher unemployment and still have to pay the heavy mortgage on their overpriced housing.

Those who think that the free market capitalism can create wealth should re-think again. Is it truth wealth or false wealth?

Tan Kin Lian

Get Ready for Half a Recovery

Small businesses are still finding it difficult to get credit and the jobless rate will continue to be high for at least a year. Read this report.

EPL matches for 2010

27 people who watch EPL matches responded to my survey. Their responses are:

a) switch to Singtel: 40%
b) watch in pub and friends home: 30%
c) give up watching EPL: 30%

80% said that Singtel should accept Starhub's offer to broadcast the EPL and that MDA should mandate that this sharing be done. The same proportion said that it is wasteful to have 2 set top matches to watch the channels.

Buy term insurance directly through internet portals

Someone asked if it is possible to buy term insurance and family income benefit directly from an insurance company through an internet portal.

So far, the insurance companies in Singapore have been reluctant to offer this channel, as they are afraid of upsetting their insurance agents. I hope that this will become possible in the near future. There are many websites in USA that offers term insurance at very competitive rates, much lower than in Singapore.

Termination of Living Policy

Dear Mr Tan,
In 1993, I bought the above policy for myself and family members. I believe at that time, you were in charge of NTUC. I read that you have bought the above too but have since redeemed it. Would you be able to share why and should I continue or redeem the policy like you did. I am now 60 years old.

REPLY
My reasons to give up the living policy are:
a) I am now retired and will not suffer any loss of income in the event of disability
b) I expect medical expenses to be covered under my Medishield plan
c) If I have to pay expenses not covered under Medishield, I can pay out of my accumulated savings
d) I do not like the restructuring of bonus introduced by the new management.

Life insurance can serve a useful purpose

Life insurance is inherently a good product. It provides protection and encourages savings for the long term.

It becomes bad when too much of the savings is taken away from the policyholder, leading to a poor return to the policyholder, compared to other types of investments. It becomes worse when it is sold dishonestly, without disclosing the true cost to the policyholder or by deceiving the policyholder using half truths or outright lies.

It is possible to design life insurance products to give good value for policyholders and still allow an adequate rate of commission to the insurance agent. It allows the agent to make a honest living and to earn more through hard work, without making the customer poorer.

Some insurance companies practiced fair treatment of policyholder in the past, and even give a good rate of bonus based on what they have earned. This allowed the customer to earn a good rate of return, even after allowing for expenses and profit margin. It is possible to achieve this outcome in the future, if the principles of fair treatment of customers are observed.

Tan Kin Lian

Payout under CPF Life

Dear Mr Tan
In the CPF-Life form they ask two questions (which I feel is irrevelant):
- annual assessable income
-annual value of house.

I am doing some part-time job with provides an irregular income and may downgrade to a smaller flat later on. I do not know if the CPF will pay me more, less or the same amount in the future, due to my change of circumstances.

I intend to put $75000.00 into my retirement account to join this scheme. Should I go ahead or put my money here or go elsewhere?

REPLY
The CPF ask you for the annual assessible income and the annual value of your house to determine if you quality for the full amount of the L-Bonus of $4,000, or a partial bonus or none at all. Apart from the L-Bonus, the monthly payout from the CPF Life will not be affected by your income or housing.

In my view, the CPF Life is attractive to the members as it is run operated as a non-profit and on mutual principles (i.e. all the members share the experience of the scheme fairly), has low expense ratio and earns an attractive interest rate of around 4%.

The annuity plan offered by the insurance companies, will not be able to offer this attractive payout.

Family Income Benefit

A family income benefit is a life insurance policy that pays a monthly income to the family following the death of the life assured. The income is payable for the remainder of the term.

I consider this type of insurance to be the most suitable policy for a person to take care of the financial needs of the family. It is more suitable than a term insurance policy.

Take the example of a male aged 30 with a monthly income of $3,000 and young children. He can buy a term insurance policy to cover $300,000 for 25 years and pay an annual premium of $720. For the same premium, he can buy a family income benefit to pay $3,000 a month from death until the end of 25 years.

If death occurs during the first year, the total payout is $3,000 X 12 X 25 = $900,000, but paid monthly over 25 years. This is 3 times the amount payable under level term insurance. If death occurs at end of year 15, the total payout is $3,000 X 12 X 10 years = $360,000, which is still more than the payout under the level term.

The monthly payout is better to meet the family needs, as the spouse does not need to worry about how to invest the lump sum.

Unfortunately, the insurance companies in Singapore are not keen to sell the family income benefit. Most of their sales are made through the agent, who wants to sell other life insurance policies that pays a higher commission to them. The agent will try to convince the customer to buy a policy that gives a return on the premiums, although the return is rather poor and is usually less than 2% per annum.

Some companies offer family income benefit, but they loaded up the premium to a much higher rate, to give a high profit and expense margin. The premium could be two times of what it should be.

To get a competitive rate, the customer should ask a few insurance companies to quote for a family income benefit to pay $X a month for a term of 25 years. If several companies are willing to quote the rate, they are likely to offer a more competitive rate, that reflects the actual cost of claims plus a fair margin for expenses and profit.

I hope that life insurance companies will offer this plan to be sold directly to customer through the internet.

Tan Kin Lian

Keep cash, and be safe

Someone asked for my views on how to invest money at this time. It is a difficult question.

I think that it is better to keep cash, i.e. put in a bank to earn 0.5% per annum. This may be a poor return, and does not cover inflation, but it is safer. I do not like the stock market as it has been inflated due to cheap money from the government stimulus packages around the world.

The underlying problems of the global economy has not been solved, as there is still high unemployment and lower consumer demand. People will be unwilling to spend, if they are not sure about the security of their jobs and incomes. When people spend less, more people will become unemployed. This leads to a depression.

While the global economy remains gloomy, and the underlying problems are not solved, it is better to keep cash. Some people rushed into gold and commodities, but their prices may be too high now.

I would be more confident when the governments around the world start to adopt Keynesian principles, i.e inflate the global economy by creating more jobs funded by the state. This will cause inflation a few years later, but will have the impact of reviving the global economy. At that time, I will start to invest in the stock markets. If the bond markets gives a higher yield (better than inflation), I may invest in bonds also.

Tan Kin Lian

New immigrant's loyalty to Singapore

Dr. Wong Wee Nam disagrees with Mr. Goh Chok Tong. Read this article here.

Someone ask, "Who is Dr. Wong Wee Nam?" You can learn more about him here.

An alternative to the free market economy

Many people dream of being a multi-millionaire. They love the free market economy, as it gives them the opportunity to pursue their dream. Let us stop chasing this dream for a while and reflect on what this issue is all about.

At any time, there is a limited number of assets in the world. These assets have to be shared by the people. If some people are multi-millionaires, other people have to be poorer to allow the rich to own more of the limited assets. This leads to income and wealth inequality.

It is possible for the world to produce more assets to be owned by more people. However, the over-production has lead to a depletion of the natural resources, damaging the environment and leaving less resources behind for the future generation. Is this what we really want? Do we really want to work hard to accumulate more assets than is really necessary? What about spending more time for family and friends?

Many people do not have the choice. They have to work hard to keep a job. Other people gets unemployed, so they have to offer their labor at lower rates to compete for the same jobs. This allows the business owners to make more profit and be richer.

This is what has been happening during the past two decades with global competition and the free market. It has lead to wide disparity of income and poorer living conditions for many people, while a few becomes super rich.

My observation is not new. It has happened in history. I am bringing the great philosophers of earlier times, such as Confucius and Karl Marx. Spend time to read about their teachings.

These philosophers tell us that there is an alternative system to the free market and competitive business environment. Do not be misled that the free market environment, that we are used to in recent years, is the only way or the best way to prosperity and a happier life.

Tan Kin Lian

Confucianism

Source: http://www.religion-cults.com/Eastern/Confucianism/confuci.htm

Confucianism is a "code of conduct" to live this life, and it has had a tremendous impact on how the Chinese live their lives... with a great influence in Chinese government, education, and attitudes toward correct personal behavior and the individual duties to society.

Confucius wanted to be a politician, even a Prime Minister, but he failed... and dedicated to preach good moral conduct... after his death he is the Chinese most influential in the history of China, and had all the honors he never had in life: The Government ordered the "worship of Confucius", and named him the "Co-Assessor with the deities of Heaven and Earth". His precepts and principles were incorporated into the Chinese Law in 210 BC.

His way to please God or the gods is through a "good conduct" with your family, neighbors, and society... if you are a good person, God is going to like you.

Some say that Confucianism is no religion in reality, because Confucius is a philosopher, moralist, statesman and educationist, but no religionist. They say that the thoughts and teachings of Confucius are ethical philosophy, political and educational principle, but not religious philosophy.

The "Jen": The essence of all his teachings may be summed up under this one word ‘Jen’. The nearest equivalent to this difficult word is "social virtue". All those virtues which help to maintain social harmony and peace like benevolence, charity, magnanimity, sincerity, respectfulness, altruism, diligence, loving kindness, goodness are included in Jen.

His "Golden Rule" is: "What you do not want done to yourself, do not do unto others". "The injuries done to you by an enemy should be returned with a combination of love and justice".

The "universal virtues" are: Wisdom, Benevolence, and Fortitude... Asked about what is "Benevolence", he answered: "It is to love all men"; what is "knowledge?: "It is to know all men"... The "perfect virtue": "Gravity, generosity of soul, sincerity, earnestness, and kindness".

Confucius laid great stress on the cultivation of character, purity of heart and conduct. He exhorted the people to develop a good character first, which is a priceless jewel and which is the best of all virtues.

The nature of man, according to Confucius, is fundamentally good inclined towards goodness. Perfection of goodness can be found in sages and saints. Every man should attempt to reach the ideal by leading a virtuous life, by possessing a very noble character, and by doing his duty unselfishly with sincerity and truthfulness. He who is endowed with a good character and divine virtue is a princely type of man. The princely man sticks to virtue, and the inferior man clings to material comfort. The princely man is just while the inferior man expects rewards and favours. The princely man is dignified, noble, magnanimous, and humble while the inferior man is mean, proud, crooked, and arrogant.

His teaching was largely concerned with the problems of good government. He said, "The Ruler himself should be virtuous, just, honest and dutiful. A virtuous ruler is like the Pole-star which, by keeping its place, makes all other stars to evolve round it. As is the Ruler, so will be the subjects."

Confucianism is lived in syncretism with any other religion in China... any Confucianist would be very happy to become a Christian!.

Pension planning

Here are some tips for the retirees.

Economic problems of Ireland

Read this article about Ireland. Is there a lesson for Singapore?

Dubai is unable to repay its debts

Someone posted a blog about the speech made by Mr. Lee Kuan Yew concerning Dubai. It is reported here.

Dubai is now facing difficult in repaying its large borrowings that were used to develop its visionary facilities.

I first went to Dubai in 2006 and was also impressed with the bold and visionary steps that were taken to develop Dubai. Few could have foreseen the collapse of the global economy at that time. I did not.

Tan Kin Lian

Ideals of communism

I like the theory of communist as taught by Karl Marx. I believe that the people in a society should take care of each other, rather than compete fiercely for selfish ends. I also like the concept of common ownership of property that are made available for use by the people. Many limited resources are actually owned by the state, and they can be put to better use.

I saw a history documentary in TV about China. I was surprised to learn the Confucius taught the people to live in harmony, rather than to compete against each other. This lead to a harmonious society, which did not make much progress, but give a happy life to its people. This concept of community purpose, rather than selfish purpose, actually occurs before Karl Marx.

I asked a Russian couple whether life was better in Russia under Communism or the free market. The woman, who was a school teacher, preferred the previous Communist era, as life was more predictable. The man, who was a small entrepreneur, prefer the present free market era.

In recent history, Communist states failed because the leaders worked only for their own ends, and were oppressive in seeking to retain power. This desire to retain power occurs in democratic societies as well. The leaders changed the election boundaries (i.e. gerrymandering) and the election rules to ensure that they can be re-elected. This practice occurs even in America, a society that aims to champion the cause of democracy.

In some "democratic" countries, the political leaders assassinate their rivals. In other countries, they find other ways to fix their rivals.

We should not associate communism with oppression. According to Karl Marx theory, the decisions on the priorities for society has to be carried out by democratic means. The members of society decide what they want.

Tan Kin Lian

Communism - theory and practice

Source: Wikipedia

Communism is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general.

Karl Marx posited that communism would be the final stage in human society, which would be achieved through a proletarian revolution and only becoming possible only after a socialist stage develops the productive forces, leading to a superabundance of goods and services.

"Pure communism" in the Marxian sense refers to a classless, stateless and oppression-free society where decisions on what to produce and what policies to pursue are made democratically, allowing every member of society to participate in the decision-making process in both the political and economic spheres of life.

In modern usage, communism is often used to refer to Bolshevism or Marxism-Leninism and the policies of the various communist states which had government ownership of all the means of production and centrally planned economies. Communist regimes have historically been authoritarian, repressive, and coercive governments concerned primarily with preserving their own power.

As a political ideology, communism is usually considered to be a branch of socialism; a broad group of economic and political philosophies that draw on the various political and intellectual movements with origins in the work of theorists of the Industrial Revolution and the French Revolution.[6] Communism attempts to offer an alternative to the problems with the capitalist market economy and the legacy of imperialism and nationalism.

Marx states that the only way to solve these problems is for the working class (proletariat), who according to Marx are the main producers of wealth in society and are exploited by the Capitalist-class (bourgeoisie), to replace the bourgeoisie as the ruling class in order to establish a free society, without class or racial divisions. The dominant forms of communism, such as Leninism, Stalinism, Maoism and Trotskyism are based on Marxism, but non-Marxist versions of communism (such as Christian communism and anarcho-communism) also exist.

Karl Marx never provided a detailed description as to how communism would function as an economic system, but it is understood that a communist economy would consist of common ownership of the means of production, culminating in the negation of the concept of private ownership of capital, which referred to the means of production in Marxian terminology.

Misleading arguments by life insurance agents

Life insurance agents are trained to present strong arguments to get the unsavvy public to buy life and investment-linked policies that pay high commission to the agents. Here are some of the arguments put forward by them against term insurance:

a) Term insurance is for a certain period. After the period is over, you will not have any more life insurance cover.

b) Term insurance covers a fixed sum, which does not keep up with inflation.

These arguments are misleading and do not present an honest picture. Here are the reasons:

a) You only need life insurance cover when your children still depend on you financially. After 25 years, they have grown up. During this period, you would have accumulated sufficient savings to surpass the sum insured and will not need life insurance any more.

b) If your term insurance covers a level sum, the accumulated savings will be more than adequate to compensate for the effect of inflation. Actually, a decreasing sum insured may be adequate for most people.

The greatest danger of inflation is not on the death benefit, but on the savings in a life insurance policy. A net yield of 2% provided by a life insurance policy is not sufficient to cover inflation. It is important for a policyholder to invest the savings more wisely to get a higher return (say 4% or more) to cover inflation. A life insurance policy does not provide a fair return, due to the high charges for commission and profit.

Many agents know the facts, but they are dishonest in presenting misleading arguments, in the chase for the lucrative commission.

Tan Kin Lian

Watch out for signs of a bad financial adviser

Dear Mr. Tan,

I am a fan of your blog. It is very informative and has tons of information.

Sometime this year,I started to watch a show on CNBC called "The Suze Orman Show".
Although it is targeted at American, I think some sections work for foreigners as well. Recently,she made a list of warning signs of a bad financial advisor and below is the website: http://www.cnbc.com/id/33914402?slide=1

Review of existing life policy

A young person sought my advice on her life insurance policy. Her father bought the policy for her many years ago and now wished to transfer the policy to her. The cash value is lower than the total premiums that were paid. She asked for my advice on whether to continue or terminate the policy. She asked the insurance company to give a projection of the future cash value, but they declined, citing that the future bonus is uncertain.

I advised her as follows:

a) Ask for the projected cash value for each of the next 10 years, based on the guidelines given in this FAQ.
b) Insist on getting a projection of the cash value, even though some part of the projected value is not guaranteed
c) To pass the projection to me, for a review.

It is the duty of the insurance company to give the requested information, so that the customer can review the existing policy and see if it is appropriate to continue the policy. I will ask a volunteer in FISCA to carry out the review for future cases, after the process has been establised.

SCMP:Objections to new rules on minibonds look flimsy

23 November 2009
Hong Kong's banks are preparing to fight back against new regulations proposed following the Lehman minibond fiasco.

But although the forces at their disposal are impressive, their tactical position looks weak.

Towards the end of September, the Securities and Futures Commission published its proposals for stricter rules to govern the sale of unlisted structured products to the investing public. Interested parties have until the end of next month to comment.

Most of the proposed rule changes look eminently sensible. For example, the SFC wants to tighten up advertising standards. It wants to ban banks from offering "free gifts" to their customers as inducements to invest. And it plans to force banks to let buyers know if the value of their investment subsequently plunges because of adverse market conditions.

That all sounds reasonable enough, as does the SFC's suggestion that banks should check to see if their customers understand the products they are buying.

But two of the SFC's proposals in particular have raised hackles among Hong Kong's smaller banks: that they should be required to disclose exactly how much commission they stand to earn from the sale of each product, and that they should grant customers a minimum "cooling off" period after buying an investment in which they can change their minds.

Although it is still early days for the consultation period, Hong Kong's banks are already pushing back against the proposed rule changes, complaining that they are unfair, overly complicated and too expensive to implement.

Resistance to commission disclosure is coming from three angles. First, some banks are complaining that full disclosure would enable investors to shop around for the best deal. That, they fear, could lead to unhealthy competition, with banks attempting to undercut each other in order to win business, which they say would erode profits and undermine the stability of the banking system.

The second argument against disclosure is that it would unfairly tilt the investment playing field against banks and in favour of insurance companies, which are under no such obligation to come clean about their own commissions.

The final objection to commission disclosure is that it is simply too difficult. Where banks both structure and sell investment products, the banks claim it is impossible to separate income attributable to the structuring process from value added by the sales force. As a result, they say, they can't disclose their earnings from product sales.

Similarly, the banking sector is raising two major objections to the proposal for a cooling-off period, which is designed to protect impressionable investors against high-pressure sales techniques.

First the banks say the proposal would introduce a perilous element of moral hazard into investment decisions by allowing customers to back out of purchases if the market moves against them or if they decide they can get a better offer elsewhere.

Second, the banks argue that if they buy structured products back from their clients, they will be forced to unwind their hedges in the underlying instruments, which in illiquid markets is likely to be both a lengthy and prohibitively expensive process.

On examination, these objections look unconvincing. On commission disclosure, it is ludicrous to argue that improved transparency could cause unhealthy competition. Heightened competition would only benefit the customer, which is a very healthy thing.

Similarly, complaints that requiring banks to disclose their fees and commissions would unfairly penalise them relative to insurance companies don't stand up. Insurers will face the same requirement under the government's new regulator for the sector.

And contrary to what the banks say, deciding what proportion of income is attributable to origination and what to sales is straightforward. Banks should already do it internally on their departmental profit and loss accounts. If they don't, it is simple enough to determine, based on the commissions paid to third-party distributors.

Objections to the proposed cooling-off period look equally flimsy. If they want to back out, investors will have to pay an administration fee, so there will be little question of moral hazard. And complaints about the difficulty of unwinding hedges are nonsense.

Any cooling-off period is only going to be a matter of days, so it is highly unlikely the banks would actually invest the money raised from a structured product offer until the cooling-off window had closed.

In reality, the banks are opposed to greater transparency because it would reveal internal conflicts of interest.

If a bank salesman were pushing one investment product particularly aggressively compared with another, customers would only have to check which one would pay the more lucrative commission rate to find out whether the salesman was acting in their interest or solely in his own.

And the banks object to the cooling-off period idea simply because they are afraid that on sober reflection without a salesman breathing down their neck, customers may change their minds about buying structured products like minibonds and demand their money back. That would force the banks to surrender their commission income, something they are extremely reluctant to do.

As a result, the banks are preparing to fight back, mobilising their forces to resist the proposed rule changes. Whether they succeed or not will say a great deal about the state of investor protection in Hong Kong.

Over reliance on ratings

Over reliance on rating is a major cause of the financial meldown.

Tax burden around the world

Read this article.

Denmark 48.3%
Sweden 47.1%
Belgium 44.3%
Italy 43.2%
France 43.1%

UK 35.7%
Japan 28.3%
USA 26.9%

Singapore - not listed, but way below 20% (not counting ARF, COE, ERP and costly HDB flats).

Level the playing field

Life is difficult for young people. Jobs are hard to find and wages are low. The cost of living is high, especially the cost of housing. If they have studied in university, they have to repay a hefty study loan.

If they come from a poor family, they start life with $0. If they have to borrow, they pay a high interest rate, that goes towards the large profit of the banks. Those who come from wealthy families do not have to face this burden, as they can get the starting funds from their parents.

I have been toying with the idea of giving every young person a good start in life. Each person should be allowed to get access to credit, up to a certain limit, from the state at a low rate of interest, say 2.5% per annum. The credit should be for specific purposes, such as to meet living expenses during unemployment, unexpected medical bills, marriage or childbirth expenses. This limit can be set at one or two years of the average annual earnings.

The access to this credit will avoid the need for people to borrow money from loan sharks and pay exorbitant interest. Borrowing from the banks at 2% per month is not cheap either. Someone said that it is loan sharking by another name.

There are risks of abuse, but they can be managed and prevented. The benefits can outweigh the risks. Such a credit facility should only be given to citizens. This will give a level playing field to the people from poor families.

Tan Kin Lian

Survey: EPL matches on Pay TV

What are your plans to watch EPL matches on Pay TV next year? Participate in this survey.

Here are the survey results.

Quality of service

Someone sent to me a letter written by a 86 year woman complaining about the impersonal treatment provided by her bank. The sender asked for my comments.

I visited London, Paris and Canterbury recently and observed that the quality of service is generally better than Singapore. The situation is rather bad in Singapore due to the following:

a) Strong emphasis on keeping cost low, leading to overworked and highly stressed staff
b) Employment of foreign workers who are not familiar with the local setting
c) Low wages leading to high turnover and lack of accumulated experience
d) Complaints by customers are generally ignored

This observation applies to the business sectors and to the public service. There are some examples of excellent service in Singapore, but they tend to be occasional rather than systemic.

I dislike the automated system adopted in most large organisations in Singapore. They waste a lot of time for customers and makes it difficult for the customer to speak to a person. It does not reduce the cost for the organisation, as most customers need to speak to a person anyway, rather than get the reply from the pre-programmed automated responses. The people who designed these automated systems do not think about the needs of the customers. They only want to introduce expensive technology to "look good".

The quality of service can only improve if there is general respect for the customer or the public. Sadly, this lack of respect is quite systemic in Singapore, due to the elitist culture promoted by our leaders.

Tan Kin Lian