Life Insurance Talk - 8 Oct 2011

I often get question from the public asking my views on the life insurance policy that is being sold to them, or for my views on whether they should continue their existing life policy. My answer is - attend my talk on life insurance. The next talk is organised for 8 Oct. You can register here.

You may be spending a lot of money on your life insurance policies - say 10% of your income or more. Surely, you want to know if you are getting a decent return on your savings, or being taken for a ride? Attend the talk and learn how to make the right decision.

This is most important for young people. so get your children to attend before their friend sell them a policy that gives a poor yield. If you remain ignorant, you will be wasting a large chunk of your money! Education is power!

Bike sharing around the world

Here are some successful schemes.
http://www.bbc.com/travel/blog/20110909-travelwise-bike-sharing-around-the-world

I hope that Singapore can start a similar scheme.

Private developers are now worried about over-supply

SINGAPORE: The Real Estate Developers' Association of Singapore (REDAS) has raised concerns over a potential oversupply of private homes in the near term, especially with the uncertain global outlook.

It is urging the government to review its land sales programme to ensure that new supply is introduced only when the market is confident of absorbing it.

With the possibility of demand for private homes dropping due to an economic downturn, developers are pointing to the need to rein in supply.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1152072/1/.html

Complex challenge facing world economy

MARSEILLE, France - G7 rich nations vowed tough measures Friday to get the global economy back on track but were short on detail and admitted the problems were so complex that a unified response was impossible.
http://www.channelnewsasia.com/stories/afp_world_business/view/1152211/1/.html

Conclusion - the world has to go through a very hard time. The US is trying a new stimulus package, but the American Jobs Act may not get the support of divided Congress. The European countries are not implementing any stimulus package.

TKL Election Posters

The contractor should have removed all the election posters. But he might have overlooked some of them. If you see any of my poster still not removed, please send an email to kinlian@gmail.com with the location of the poster. Thank you.

How to unify the people of Singapore

This article in TKL Facebook summarises the views of readers on "how to unify the people of Singapore. Do go to www.facebook.com/kinlian to participate in the active discussions.

How to increase the birth rate in Singapore

This is a summary of 75 contributions in my Facebook page on this topic. Do visit my Facebook daily and contribute to several topics that have been created each day.

Making HDB flats affordable

Most respondents to two surveys like to see the HDB flat prices lowered for first time buyers, even though it may cause a drop in the prices of existing flats. Read this article in Facebook.

If you wish to make your comments, you need to register your profile in www.facebook.com and go to "like" www.facebook.com/kinlian. After that, you can add your comments easily.

Facebook page for Tan Kin Lian

Many social issues are now being discussed actively in my Facebook page. You can also see the views of many readers there. My Facebook page is:  www.facebook.com/kinlian.

If you wish to contribute, you can register a Facebook profile on www.facebook.com, click on "like" in my page and post your comments.

Join now. It is a great place to discuss issues that concern your future, and that of your children.

Discount on TKL books

You can get a discount on TKL books from iShop, compared to the normal price in the bookstores. The popular books are Financial Planning, Life Insurance, Intelligence Quiz, Tangram, Shape Quiz. Order here.

Investing in life insurance policies

Some people asked for my advice about specific types of life insurance policies that is being sold to them. I suggest that they attend my talk on life insurance - as it gives examples of the yield on the popular insurance policies that are being sold in Singapore.

It cost only $30 to attend the talk and can save you $5,000 to $10,000 in lost premiums due to the commission that you have to pay to the agent. Do not expect to get advice for free, without effort - as it will lead to a big loss for you.

Click here.

Six investment scams to avoid

This article describes 6 investment scams to avoid in USA. I urge readers to learn the lesson and be aware that many similar scams can be found in Singapore. You should be careful of all types of shady investments and avoid them. The best bet is to invest in an indexed fund (or ETF based on a market index) for the long term. All other types of investments should be avoided, unless you are really an expert and able to carry out your own evaluation. Do not trust a financial intermediary who is interested to earn the commission by selling the investment to you. Some of them may not be aware that they are selling you a scam!

Greater inequality

My Facebook survey showed that 86% of the respondents prefer to have "modest income with greater income equality" instead of "high income with greater inequality".

In this Facebook note, I have made a few suggestions on how to achieve greater income equality - high marginal tax rate on the very rich, minimum wage policy and unemployment benefit.  Without these measures, like in Singapore, we will have a high Gini index. We have to implement these policies, like most advanced countries, to reduce the Gini index and to reduce the stress of living in Singapore.

Solving the housing problem in Singapore

I suggest the following approach to solve the housing problem in Singapore.

HDB should build a large number of flats for rental at affordable rentals that are lower than the current market rates. I suggest the rentals be set at the following level.

• 4 room flat $1,200 per month
• 3 room flat $900 per month
• 2 room flat $600 per month

These flats are to be built in the new towns and have modest finishes. They are to be given for rental to Singaporeans, with priority for those who have served National Service. It is easier and faster to build flats for rental - as the tenant is less fussy on their requirements, compared to a family who has to spend a large sum of money to buy a flat. 

The rental rates can be adjusted yearly based on the change in median income.  The above rental rates are lower than the current market rates, and can be considered as a subsidy to make it easier for Singaporeans to provide affordable public housing.

Renting has its advantages. It gives flexibility to the family to choose a flat that is close to the place of work or to move to a new rental flat when they change their job. By living close to the workplace, the worker will educes the time and cost of travelling and traffic congestion.

Families who rent the flat can invest their spare savings in shares or real estate investment trusts or other suitable investments and do not need to tie their investments to the home that they occupy. 

When Singaporeans know that they can have a flat that is available at a reasonable rental, they do not need to panic and rush in to buy a property at its inflated price. This will help to stabilise the property market and preserve the value of the HDB flats that have been bought earlier, i.e. does not cause a drop in their values.

We also need to allow the use of CPF savings to pay towards the rental of the flat (up to certain limits), similar to the use of CPF to buy a flat. I do not know how to handle this tricky issue. I hope to get some views.

Tan Kin Lian

Financial issues affecting Singaporeans

You can read the key financial news affecting Singaporeans in the FISCA website, http://easyapps.sg/assn/Org/Information.aspx?id=5

You can attend the talks given by FISCA by registering here:
http://easyapps.sg/assn/Org/Event.aspx?id=5

Emergency Fund

Every person should build up an emergency fund of 6 months of earnings. If you earn $5,000 a month, the emergency fund should be $30,000. This fund should be invested in a liquid form, e.g. keep in the bank account, fixed deposit, money market fund or invested in short term bonds. The return is low, but it is more important to have the flexibility to withdraw the savings in an emergency, without any loss.

This emergency fund is needed to meet your cash needs during unemployment, unexpected medical bills or other emergencies. If you have an emergency fund, you will not have to borrow money on your credit card and incur 24% in interest charges.

This tip is important for young people. You should build up the emergency fund early. Do not spend all of your income away. Put aside savings for this emergency fund. It may mean that you should not buy your car or pay too much for your flat.

Tan Kin Lian

Gini index

The United Nations measure the Gini index as the ratio of the average income of the top 10% (richest) compared to the bottom 20% (poorest) in the country. A higher index shows a bigger inequality of income. Here are the findings:

High income countries
Japan            24.9
Germany       28.3
Canada         32.6
France          32.7
Australia       35.2
UK               36.0
Israel             39.2
USA             40.8
Singapore      42.5
Hong Kong   43.4

Low income countries
Indonesia       34.3
Russia            39.9
China             46.9

We have seen unrest in China and Israel about the high cost of living. Both countries have high Gini index. I have included Australia and Canada as these countries are rated to provide a good standard of life for their people.

America is considered to have high income inequality. Singapore is worse than America.

Source: http://en.wikipedia.org/wiki/List_of_countries_by_income_equality

Impact of Income Inequality

Let us look at two hypothetical countries, X and Y

X - 90% of the population earn an annual income of $40,000 while 10% earn an average of $120,000 (3 times).
Y - 90% of the population earn an annual income of $40,000 while 10% earn an average income of $240,000 (6 times).

In X, the top 10% earn 25% of the total income. In Y, the top 10% earn 40% of the total income.

Which country give a better life to its people? Most people would probably say that country Y is better - as 90% of the people l earn the same income as X, and it gives the opportunity for the remaining 10% to earn much more.

But this reasoning is wrong. The higher income earners of Y can afford to pay higher prices for property and other products and services and push up the cost of living - which creates a negative impact on the remaining 90%. This is why "the rich gets richer and the poor gets poorer".

A country with a greater income equality will allow more people to earn enough to meet the cost of living and raise a family. This is why a low income country with greater income equality gives a better life to the people, rather than a high income country with greater income inequality.

It is the inequality of income and the high unemployment rate (a main contributor to the inequality) that leads to unrest that has been seen in many countries during the past year.

Read this article about income inequality in America.

This article compares the Gini index of Singapore with other familiar countries.

Tan Kin Lian

Income inequality in USA

I wish to quote the following article from Wikipedia about income inequality in America, and explain in a separate article why it cause greater to people at the lower income level (compared to a society where the income distribution is more equal). I will also show the how Singapore fare in the Gini index, i.e. it is worse than America.

Quote from Wikipedia:
Income inequality is the extent to which income, most commonly measured by household or individual, is distributed in an uneven manner. While there seems to be consensus among social scientists that some degree of income inequality is needed, the extent of income inequality and its implications on society continue to be a subject of great debate, as they have been for over a century.

A study by the Southern Economic Journal found that "71 percent of American economists believe the distribution of income in the US should be more equal, and 81 percent feel that the redistribution of income is a legitimate role for government." 

Data from official sources indicate that income inequality has been increasing since the 1970s. As of 2006, the United States had one of the highest levels of income inequality, as measured through the Gini index, among the high income countries.

In 2010, the top 20% of Americans earned 49.4% of the nation’s income, compared with the 3.4% earned by the roughly 15% of the population living below the poverty line. This earnings ratio of 14.5 to 1 was an increase from the 13.6 to 1 ratio in 2008 and a significant rise from the historic low of 7.69 to 1 in 1968. 

Looking back even further to 1915, an era in which the Rockefellers and Carnegies dominated American industry, the richest 1% of Americans earned roughly 18% of all income. Today, the top 1% account for 24% of all income.

Tips on life insurance

Someone wanted to know about  asked about life insurance. Here are the options:

Live streaming,
FISCA Talk

Low interest rate is harmful

America, Japan and Europe have low interest rate for many years. It was thought that low interest rate would reduce cost to business and encourage more businesses to be created to create jobs for the people. It did not seem to work well.

The low interest rate has caused asset prices to increase, especially property prices. It has made housing more expensive and out of reach to ordinary citizens - although the low interest rate helps to remove the pain of paying the mortgages.

At a certain point in the future, the housing prices will collapse. It happened in Japan, USA and Europe. This is why the banks are shaky, as they have lent too much on the inflated housing prices. There seem to be no escape from the disaster down the road.

There is actually a solution - and that is to get away from the concept of marking to market of property prices. I shall not go into much discussion here - as it requires a totally different approach. It may be necesary to avoid the global disaster.

A more fundamental question is - could the developed economies have adopted a different approach (instead of low interest rate) to grow the economy and create sufficient jobs for everyone? The answer is "yes" - and that is to get everybody to work less, so that the available work can be distributed to all those who are willing to work. There will be more time for social life. Life is not just work alone.

How can work be better distributed? This is another interesting question and requires a more detailed discussion. At this juncture, I only wish to bring out this concept. Maybe, some economists have already written about it, and we can share their thinking.

Tan Kin Lian

Financial issues affecting Singaporeans

You can read the key financial news affecting Singaporeans in the FISCA website, http://easyapps.sg/assn/Org/Information.aspx?id=5

You can attend the talks given by FISCA by registering here:
http://easyapps.sg/assn/Org/Event.aspx?id=5

High dividend shares

Due to the recent correction of the stock market, some blue chips shares are giving a high dividend yield. A telco, Starhub now gives a yield of 7%. The media company SPH pays 6.1%. This is the dividend paid during the past 12 months, expressed as a percentage of the current share price.

The stock market has corrected during the past month due to uncertainty in the global economic environment. When the global economy turns bad, the profit of companies are expected to drop. In a bad situation where the profit profit drop by 50%, the dividend yield will still be more than 3%, which is quite attractive compared to bank deposits and bonds.

The share price may drop sharply during a very bad market. But, if you are investing for the long term and does not have borrowings, you can afford to wait for the stock market to recover. There is no need to sell the shares in a bad market.

Investing in high dividend shares make sense in this uncertain market. Before you invest, you should study the borrowings of the companies. If they do not have large borrowings, you will be quite safe. If there have large borrowings, i.e. high leverage, they may be badly affected by a downturn in the economy.

You should still diversify your investments by spreading the total invested amount into 5 to 10 blue chip shares. If you do not have sufficient funds to diversify in this manner, you should invest in the Straits Times Index ETF managed by SPDR or DBS.

Calculating the yield on existing life policy

Here is how you can calculate the yield on an existing life insurance policy for the next 5 years. It helps you to decide on whether to continue or terminate the policy.
http://tankinlian.com/admin/file.aspx?id=557

US regulator files suit against big banks

The US regulator is filing legal suits against several big banks for the subprime mortgages that were sold to Fannie Mae and Freddie Mac. More details here:
http://slatest.slate.com/posts/2011/09/02/mortage_lawsuits_big_banks_to_be_sued_by_federal_regulator_over_.html

I expect that the legal fallout can be quite serious for the global economy.

Tips on critical illness insurance

A critical illness policy is one of the most popular policy, but is not well understood. The insurance agent tells the consumers about the cost of critical illness and the need to buy life insurance to protect against this event. Everybody will have to suffer a critical illness one day, and that will lead to death. But, is insurance the best answer? Read this article to learn about how to make the right decision.