Dementia (also called senility)

Dementia is a word for a group of symptoms caused by disorders that affect the brain. It is not a specific disease. 

People with dementia may not be able to think well enough to do normal activities, such as getting dressed or eating. They may lose their ability to solve problems or control their emotions. Their personalities may change. They may become agitated or see things that are not there.

Memory loss is a common symptom of dementia. However, memory loss by itself does not mean you have dementia. People with dementia have serious problems with two or more brain functions, such as memory and language.

Many different diseases can cause dementia, including Alzheimer's disease and stroke. Drugs are available to treat some of these diseases. While these drugs cannot cure dementia or repair brain damage, they may improve symptoms or slow down the disease.

Many people say that the best way to prevent dementia is to exercise your mind regularly, with games such as Sudoku or other puzzles. I have written puzzle books, which contain tips on how to solve these puzzles. After you learn the technique, you can go through the puzzles as a form of daily exercise.

You can view free copies of these puzzles here. For our seniors, you should invest time and a few dollar to keep dementia away.

Challenging Sudoku

I have published 2 volumes of my book containing challenging Sudoku puzzles. They are published for the Sudoku experts and have similar level of difficulty as the puzzles published in Weekend Today and in The Sunday Times. I enjoy working on these weekend puzzles - as a test of my mental agility.

I also work on the puzzles in my Sudoku books. If I am alert or lucky, I can complete a puzzle within 5 minutes. Sometimes, I take 10 minutes, if I get stuck. I write down the time taken to solve each puzzle in the book. I am also able to check the solution at the back of the book, although this is usually not necessary.

You can order Challenging Sudoku here. You can develop your own skill in solving difficult puzzles through practice. You can also buy this book as a gift to a friend or a relative who is hooked on Sudoku. The pocket book version (suitable to play in the train, bus and plane) is called Logic9.

Affordable housing

What is "affordable housing"? The minister for national development said in Parliament that new HDB flats are still affordable and has produced studies to prove his point. Critics have brought up arguments from the other side to show that HDB flats are expensive for the working people. I shall be writing to give my views of this point within the next few days.

In the meantime, I invite you to share your comments.

Productivity and related issues

Singapore is now embarking on a strategic thrust to improve productivity and reduce reliance on low cost foreign workers. A few people has asked, "What is productivity? How do we measure it?"

In its simplest form, productivity means to do a given quantity of work in less time, or to do more work in a given time. in both cases while maintaining the same quality of work.

We need to go to the next level and define, "If workers are more productive, should they earn more for their time and how much of the gain should go to the worker?". To answer this question, we have to recognize that the productivity comes from all factors of production - labor, capital, entrepreneurship and property. If the labor content is say 50%, then it is fair that 50% of the productivity gain should go to the workers.

We have to address another social question. If the productivity increases 100% and one worker can do the work previously done by two workers, who will provide the work for the displaced worker? The classic answer is "leave it to the free market". The displaced worker can find other suitable jobs in the market.

But this classic answer has proved to be false. During the past decade, the global economy was able to provide a lot of good paying jobs in the financial services sector, especially in creating "innovative" products. These innovative products are used to create bubbles in real estate, stock market, foreign exchange market and in other forms of financial speculation.  The bubbles have deflated during the past two years, causing massive loss of jobs. While  new bubbles can be created in other markets, history has shown that they will eventually lead to disaster. In the meantime, many countries will find it difficult to create new jobs in the real economy. This is why many economists hold the view that the recession in America will take a long time  to recover.

Here is my perspective. Each person needs only a certain amount of goods and services. The global demand will be limited by the population size and the time available to enjoy the goods that have been produced.  If people are working too hard, they do not have the time to enjoy the products, while unemployed people do not have the income to spend on these products. This is why the disparity of income in the past two decades have brought disaster to the global economy.

The answer to higher productivity is straight forward. With improved productivity, we should reduce the hours of work for each working person so that the total demand and necessary work is shared fairly by all available workers.This could mean a 35 or 30 hour week. The incomes do not need to be equal, but the disparity should not be so wide.

Tan Kin Lian

Buying a life annuity for a parent

Dear Mr Tan,
My father is going 58 and has  only $30,000 in his retirement account. I was thinking of helping him to purchase either the NTUC Income Classic Annuity or the Growth Plan.

Since both plans require a SRS account, I thought of buying a Growth Plan for my Dad using his retirement account to earn a get a greater return, by registering with one of the SRS operators and subsequently use this SRS account of $29K to buy Growth Plan.

Can I do that? I am not sure because I understand that there is a so called minimum sum required in RA and RA cannot be used to buy anything except annuity.

REPLY
The money in the CPF Special Account (or Retirement Account) now earns interest at 4% plus a bonus. The return from the Growth plan is likely to be 3% or less. The agent who made this recommendation is probably giving bad advice, either intentionally or by mistake.

Please ask the agent to give you a benefit illustration for the Growth plan and send it to me at kinlian@gmail.com.

It is better for you to help your father by topping up his CPF Special Account. You will enjoy tax savings on the contribution and allow him to earn a higher rate of return of 4%. When he reach age 62, it is better for your father to buy the CPF Life, instead of a life annuity from an insurance company.

You can read a chapter on life annuity and CPF Life from my book, Practical Guide on Financial Planning, which can be ordered here:

Robert Kennedy on GDP

Robert Kennedy was assassinated in 1968 while running for nomination as the US President. Someone sent to me the following quotation (which I am not able to verify) from him about GNP:

QUOTE
... Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
UNQUOTE

In our drive to increase the GDP of Singapore, we may be making the same mistake mentioned by Robert Kennedy, that we are degrading the quality of life for the people.

Tan Kin Lian

Contact person for Kirby McInerney

Dear Mr. Tan,

Of late, I have received calls from a few investors (who have read your blog about me) that they have been approached by an unknown person  saying that he also represents Kirby McInerney interests and that he could also help to facilitate.  

For all intent and purpose, perhaps you could inform all investors in your blog to direct their queries and address their concerns only to me.  They should not be talking to anyone else in Singapore who may mislead them.   Thank you

Teo Guan Hock

email: tguanhoc@singnet.com.sg 

Earthquakes are now quite frequent

I saw these news reports in Channel News Asia:

a. Taiwan quake causes millions of dollars in damage. A powerful earthquake that rocked southern Taiwan caused millions of dollars in damage to infrastructure and business operations, officials and companies said Friday.

b. Strong earthquake strikes off Indonesia. A 6.5-magnitude quake struck late Friday off the coast of Sumatra in Indonesia, seismologists said, but no tsunami alert was issued and there were no reports of damage or injuries.

We seem to have many earthquakes in recent years - starting form the earthquake that caused the Asian Tsunami in 2005 followed the big earthquakes in Sichuan, Haiti and Chile.

Any comments?

More grads join jobless queues

Read this article by Seah Cheang Nee published in The Star, Malaysia.

Investment tips for retirees

I write this article to help retirees, who are not savvy in investing, to decide on how to invest their savings to get a monthly income for a lifetime and leave behind some balance for their children and grand children. Should they buy a life annuity? If not, how should they invest their money?

Calculate the total amount of your assets, excluding the flat or house that you now live in. Estimate the monthly income that you need to live comfortably. If your total assets is more than 300 times of your monthly income, you are quite comfortable. For example, if you need $1,000 a month, you need more than $300,000 in savings (i.e. personal savings and CPF).

Another way to look at this matter is to take your total assets and divide by 300 to get the monthly income. Will this be sufficient to meet your living expenses?

If you have more than this ratio of assets that can be invested, you can manage your own investments. The best choice is to invest in a low cost investment fund, such as the STI exchange traded fund that is available from the Singapore Exchange (SGX). This fund is invested in the top 30 shares listed in SGX. It is well diversified and has a low expense ratio of less than 0.5% per annum.  It will earn a market rate of return, which is likely to average more than 5% over the long term, net of expenses.

If you invest all of your savings in the ETF, you can sell 1,000 shares to realize money to spend at regular intervals. If you need $1,500 a month, the sale of 1,000 shares will provide about $2,800 which can last nearly two months.

If your  ratio of assets to monthly income is less than 300 times, you may have to consider investing in a life annuity. The best annuity is provided by CPF Life. It provides an investment yield of about 4% and has low expense ratio. It operates on a mutual basis and shares the actual experience of the fund fairly among all the annuitants, i.e. it is not taken away as profits for shareholders.

Some people are uncertain about the choice of the four options. Look at the amount that you will get under each option and choose the option that suits your need. Do not try to calculate which option gives you the best value, as you really do not know how long your future lifespan is.

If your health is poor, relative to your age, you should avoid CPF Life and keep your money under the Retirement Account to be withdrawn monthly.  If you are in fairly good health for your age,  you can choose any of the option under CPF Life and leave the worry about future life expectancy and investments to CPF, instead of trying to manage the money yourself.

If you have to buy a life annuity from an insurance company, you have to consider the following - how much of the annuity payout is guaranteed and how much is variable? What is the amount taken away by the insurance company to pay its expenses, distribution cost and profit for shareholders?  If the answers to these questions are vague, or if the amount that is taken away is more than 0.2% per annum of your invested sum,  the annuity is likely to give poor value.

There is a chapter on selecting a life annuity in my book, Practical Guide on Financial Planning. It is available in the major bookstores and can be ordered online here.

Tan Kin Lian

China must reverse inequalities

By Michael Bristow

BBC News, Beijing


Chinese Premier Wen Jiabao has said China must reverse its widening income gap between rich and poor.
He said benefits of a growing economy - expected to expand by 8% this year - should be distributed more fairly.
In a major speech at the start of China's annual parliamentary session, the premier also said the economy needed restructuring.
He wants Chinese firms to improve their ability to innovate, producing high-tech and high-quality products.

The premier's comments came in a wide-ranging speech delivered in Beijing's Great Hall of the People, where the largely ceremonial parliamentary session is being held.
In the keynote speech, Mr Wen reviewed the government's work over the past 12 months and set out its policy goals for the coming year.


Registration reform
The speech touched on many issues, but on a number of occasions the premier spoke about the need to make China a fairer society.
"We will not only make the 'pie' of social wealth bigger by developing the economy, but also distribute it well," Mr Wen told about 3,000 delegates, returning to a theme that he has often spoken about during his premiership.
"[We will] resolutely reverse the widening income gap," he added later, in a speech that lasted more than two hours.
As part of that project, the premier said China would reform the household registration system that classifies people as either city or rural dwellers.
This controversial system means many migrant workers - farmers who travel to towns and cities to find better-paid work - are unable to get proper services.
"[We will] gradually ensure that they receive the same treatment as urban residents in areas such as pay, children's education, healthcare, housing and social security," he said.
But Mr Wen did not outline what policies would be introduced to achieve that aim, and when they would come into force.
And, importantly, he said reforms would only be carried out in towns and smaller cities, suggesting the system would remain in place in big urban centres such as Beijing and Shanghai.
Mr Wen also addressed what he called a "complex situation" facing the economy, which he said should expand by 8% this year.


Fuelled by innovation
Last year China was desperate to keep the economy growing following a global downturn that left many Chinese people without jobs.
But now, having weathered the worst of that crisis, Premier Wen said China needed to concentrate on restructuring the economy.
"This is a crucial year for…accelerating the transformation of the pattern of economic development," he said.
He wants future growth to be fuelled by innovation.
China should also expand consumer demand by getting people to spend on such things as tourism, fitness and other services.
Delegates to the Chinese parliament are selected, not elected, but in his speech Premier Wen indicated that he does listen to those outside the government.
Many people across China are currently concerned about rising house prices that mean many cannot afford a home.Mr Wen said China would do something about it.

eGovernment adds to stress and cost

As a director of a small company, I am required to submit application forms for Ministry of Manpower, Inland Revenue and other agencies. They expect me to log into their website using my Sing Pass, and to enter the details in the application form.

In the real world, the paper forms are completed by an office staff and submitted to a director for signature. In the e-Government, they expect the director to complete the form by entering all the details, just like an office staff. This is a big waste of time for the director and is likely to lead to many mistakes.

The e-Government environment should follow the real world and allow a staff to complete the details in the form and then submit it electronically to a director to "e-sign" the form, which can be done by entering the Sing Pass ID and password.

I have given this suggestion to the Infocomm Development Authority (IDA) but was told that these specific applications are under the control of the agency and is outside of the influence of IDA. This is typical of the "turf" mentality of Singapore organisations.

I know that for some applications, it is possible for the director to authorise a staff to submit the forms on behalf of the director. However, this is not practical in many situations and is tentamount to giving the check book and check signing authority to the staff!

The private sector has to work under stress and waste a lot of valuable time complying with the requirements of government agencies. With this type of waste, it is no wonder that the cost of doing business is so high and life is so stressful in Singapore!

Tan Kin Lian

Books by Tan Kin Lian

My books on financial planning and intelligence quiz are sold at the following bookstores:

1. Harris

2. MPH

3. Kinokuniya 

4. Times bookstores

5. Popular

They can also be ordered from my internet shop.

Wasteful security measures

To visit an office in Suntec City, I had to register with the security counter to get an access card and to fill in my particulars. On leaving the building, I had to return the access card. Both activity took me an additional 20 minutes, including time waiting in the long queue.  I had to carry two bags containing materials for my talk, so the security measures and waiting time is a big hassle. Nobody bother to look at the contents of my bag - to see if I was carrying a bomb.

Security is important, but are we overdoing it? Is there more effective ways to have security instead of asking visitors to spend a lot of time unnecessarily? All these hassles add to wasted time and higher cost of doing business. If there is a terrorist visiting any large office in Singapore, it is easy to bypass the security measures as the security guards are too busy doing paperwork and recording particulars of genuine visitors.

To be effective, it is better to employ more security guards (i.e. create more employment) to watch the strategic locations, such as lift lobbies or lift cars, and to watch people moving around the office. Security is watching people and not doing paperwork.

You can multiply the wasted time in all of the big office buildings in Singapore to get an idea of the scale of wastefulness. Anyway, Singapore is a wasteful society. We spend a lot of time and money on things that are look good but are not effective.

To be productive, we should be adopting practical measures that reduce our cost and achieve our goals. We have to cut down wastefulness.

Tan Kin Lian

High cost of driving

I went to Suntec City to deliver a talk. I had to drive there, as I had to carry the materials needed for the talk. I left home at 7.45 a.m. hoping to avoid the ERP charges at Central Expressway. I did not realise that the ERP charges start from 7.30 a.m. I paid a total of $6 for the ERP charges along the expressway and to enter the Central Business District. Parking at Suntec city for slightly longer than 4 hours cost $11. This reminded me of the high cost of driving in Singapore.

Promoting Singapore as a Financial Center

Dear Mr. Tan

From 2005, the MAS has been aggressive in promoting Singapore as a financial centre. Singapore gave tax incentives of all sorts to attract financial institutions to relocate their biz to Singapore.

Many banks relocate their FX, fixed income, structured products biz to Singapore. Also, Singapore has attracted many hedge funds to set up offices here. While the effort did boost Singapore's GDP, it might have also led to the following:
i. inflated real estate prices in commercial offices, residental
ii. more structured products being structured and sold here to unsuspecting retail customers.


HCM

Unemployment in Singapore

Hi Mr Tan,
I am a keen reader of your blog and I remember previously you were keeping track of employment and retrenchment statistics.

Just want to highlight that MOM recently updated their stats, and also included a new one: Re-Employment i.e. what percentage of retrenched workers were able to find another job within 6 months.

The numbers are not as nice as reported in the news:
1. For 2009, the overall unemployment rate is 3% while the unemployment rate for residents (incl. PRs) is 4.3%. This is higher than in 2001 and just slightly lower than for year 2002. If just looking just at citizens, the unemployment rate may be 5% or higher.

2. The total workers retrenched in 2009 is 19,500. This is similar to year 2002. If combined with 2008, the total number retrenched is 33,420. This is higher than in 1998.

3. Looking at the Re-Employment stats, the percentage of retrenched workers in 2009 who found another job within 6 months is only about 50% or less. This is worse than during the last long recession from 2001 to 2003.

Below is URL for MOM's main statistics page:
ttp://www.mom.gov.sg/publish/momportal/en/communities/others/mrsd/statistics.html

Ex-Con

Shape Quiz for a class

I gave the Shape Quiz Minipak to a business associate for his daughter. He likes it so much (or maybe his daughter likes it) that he decided to buy 40 paks to give to all of her classmates in a primary school.  Order here.

Free Gift - Shape Quiz Minipak ($2)

This is valid from 2 March 2010 until further notice. When you buy the Intelligence Quiz Vol 3 ($7.90) or the Practical Guide on Financial Planning ($12) from Internet Shop, you will get the Shape Quiz Mini-pak (usual price: $2) free.

Order here.

New Asia Republic

I introduce you to a new website, New Asia Republic. Visit it. There is a link on the right panel. I have written an article on taxation here.

Puzzleman

REVISED LINK:

Here are some interesting puzzles for you and your family. Download the PDF and print it out. You can do the puzzles in your free time. You can also pass them to your family members and friends. They can test their problem solving skills.

Many people were surprised that it was possible to make 100 shapes from the 4 plastic pieces. Many of the shapes are challenging and could not be done easily. When they learned the solution, there were surprised that it was simple and ingenuous. They also learn to have a flexible mind and see "out of the box". The Shape Quiz book is available at $6 and the mini-pak at $2. Each comes with 4 plastic pieces in a zip lock bag.

Click here

Increasing productivity in Singapore

There is now a strategic thrust to improve productivity in Singapore, to become less dependent on low cost foreign workers.  Some people are sceptical. They say that this slogan is nice to say, but difficult to achieve. In some respect, they are right. The productivity campaign was first launched in Singapore three decades ago. Why has it not made much progress during this time?

I want to give a honest view, although some people may not like to hear it. We have a culture in Singapore of saying nice things, but not addressing the root of the problem. This is why we were not able to improve the birth rate, in spite of top level priority and massive effort expended for more than two decades. Improving productivity is another challenge that has not been overcome.

What is the root of the problem? We tend to take a theoretically approach towards solving our problems. We can say nice things and adopt strategies crafted by consultants, who do not really know the problem. Their solutions come from the text books, but are not practical. Some people say that this is the price to pay for letting scholars run the country.

We need to look at the root of the problem, before we can understand and find lasting solution. To improve productivity, we have to overcome the risk adverse mindset of Singaporeans.

Many people feel safe in keeping the status quo and are quite good in identifying reasons to keep the status quo. They will not make a change, unless the decision is made by someone at the top. Singaporeans are generally good at identify problems, including imaginary problems, rather than implementing change and improvements .

Singapore is also a wasteful society. We spend a lot of money on technology and management consultants, instead of implementing simple and practical improvements. Many people do not want to take the responsibility, so they pass the buck to the consultants, who take the big fees and also do not find any solution.

Can this mindset be changed? Yes, it can. The best way is to require a change to be done and to give a small budget for the change. You will be surprised how resourceful people can be, if they have limited budget and the responsible to solve the problem. i.e. no excuse accepted.

Tan Kin Lian

Financial planning - reaching out to young people

Hi Mr. Tan,
I have your book "Practical Guide on Financial Planning". I find the stories and experiences of other people to be most beneficial. Because of my past experience e.g. Minibond, insurance, capital gurranteed products, I am able to appreciate your opinions and suggestions.

If I were an undergrad or secondary student, I would not be interested to read. This is a problem as financial education should not be learned from trial and error of a new worker. It should be taught in schools before they start drawing their first cheque.

Banks and FIs will continue to attract, promote, market products based on margin, profit or commission. The new workers continue to be bombard with the theme "credit is good for you" while "live within your means" is ignored by most people.

REPLY
I find that many undergraduates are also interested in financial planning. When I talk to them, they also find my views to be useful. They realised the importance of knowing what are good products to buy and bad products to avoid. I intend to hold many talks for young people so that they can benefit from my suggestions as well.

AIA and Prudential

Dear Mr. Tan
Does the purchase of AIA by Prudential result in less choice for consumers?

REPLY
Most insurance companies offer different products which are difficult for consumers to compare. Nearly all of them have charges and give a poor return to consumers. The reduction in yield is about 3% in most cases. This could reduce the payout on maturity by more than 40%. If your premium can accumulate to $500,000 over the next 30 years, the insurance policy pays you only $300,000 - with 40% being taken away.

Consumers have a choice to invest in a low cost investment fund, such as the STI ETF available on the SGX. It offers diversification and an attractive return over the long term (by averaging out the good and bad years of the market). They can buy term insurance, decreasing term insurance or personal accident insurance to cover the risk of premature death.

This is explained in my book, Practical Guide on Financial Planning ($12). It is available in most bookstores or can be purchased from my Internet Shop. It comes with a free Shape Quiz minipack (worth $2).

Work near your home

There are many advantages of working near your home. You reduce the travelling cost, which can be quite expensive. You reduce the travelling time and have more time to spend with your family and neighbors and have a community life.

We have to changes our recruitment practices to make this possible. We should make it easier for people to search for a job near their homes. Advertisements for jobs should state their location of their workplaces. HR managers should give preference to people who live near the place of work. It is an advantage to the business as well, as these workers are likely to stay longer with the employer.

For most jobs, it should be possible to find a suitable candidate who lives near the place of work. We only need to improve our ability to search for these workers, or for the workers to search for these jobs.

Businesses should also be encouraged to set up their workplaces near the residential estates. This will allow them to tap into a pool of suitable workers in that estate.

Reducing commuting and traffic congestion will also promote a green environment.

Tan Kin Lian

Home ownership

There is a general belief that owners will take care of their home better than tenants. This was the reasons given to promote home ownership.

This may be true to some extent. But, it should not be exaggerated. The care that is given to the home and environment depends not so much on ownership, but on the behavior of the person. A higher income person is likely to take care of the home better than a person struggling to make a living at a low income.

Most people in Switzerland rent, rather than own their homes. I believe that they do take care of the property as well as home owners. This is just a belief, as I do not have the chance to verify it.

The poor people who lives in slums in some countries cannot afford to take care of their own living, so they are not likely to take care of their homes either.

I believe that it is better to treat home owners and renters equally, rather than to promote home ownership on a wrong belief that it leads to a better society. If more people rent their homes, they will be able to move closer to their place of work and reduce the travelling time and expense. This will reduce traffic congestion and improve quality of life.

Some people will argue that it is not possible for everyone to live near their place of work. I agree. We only need to have (say) 30% to live near their place of work to reduce traffic congestion by 30% - which is a lot.

The next step is to abolish the stamp duty and legal fees for selling a home. This will reduce a financial obstacle and encourage some home owners to move closer to their place of work.

Tan Kin Lian

Integrity and honesty

Integrity is being honest. Some companies claim to serve customers, but they will find ways to make profits by overcharging customers or give them a poor deal.

It is acceptable for a company to make profit, but it has to be done in an honest and fair way. In the past, the standard of ethics and integrity was quite high. A trusted company would not destroy its reputation by telling lies or deceiving its customers.

In recent years, the standard of ethics had dropped significantly in the quest for profits or other commercial goals. This is what "being different" is now like.

Tan Kin Lian

Hassle to write many cheques

I bought a commercial property to be used as my office. The property is under development. I have to write two cheuqes for each progress payment. one cheque for the developer and another cheque for GST.

To make matters worse, the lawyer for the developer wanted the cheques to be made out in full, to "The Hongkong and Shanghai Banking Corporation account no XXX-YYYY-YYY for ABC Company Ltd". There is no space in the cheque to write this long name and the amount in words. It is so easy to make a mistake.

If I make a mistake, which is quite likely to happen, you can be sure that the bank will return the cheque and ask for a new cheque to be written. This will take time and hassle and give the bank, lawyers and the developers the opportuntity to charge a hefty interest on late payment and other charges for the mistake.

Why should our bankers and lawyers make life so difficult for consumers? Are they trying to find the excuse to levy more charges?

Why should the GST be written in a separate cheque? This is one more reason why I strongly dislike GST, as it is creating a lot of unnecessary work and burden.


Tan Kin Lian

Bonus on participating policyholders

During the past two years, many insurance companies had cut their bonus due to the global financial crisis. Although the investment markets had largely recoverd, these companies had still not restored their bonus. This has badly affected the policyholders whose policies had matured recently. They received payouts that are far less than what was originally projected, and less than what had actually been earned on their premiums.

I hope that the regulator (MAS) will look into this matter and ensure that policyholders of matured policies receive a fair payout, that reflect the investment return that has been earned on their premiums over the past years. The payout should not be reduced by the surplus that is retained in the insurance fund to fund the marketing expenses of the insurance companies, made at the expense of the maturing policyholders.

Tan Kin Lian

Prudential buys over AIA

Someone asked for my views about the impact to consumers, after Prudential buys over AIA. The policyholders should not be affected by the change of ownership. Their money is kept in a separate insurance fund. It does not matter who the owner is.

However, the change of management may affect the philosophy in the distribution of bonus. The new management may be more generous or less generous in distributing bonus to policyholders out of the surplus in the insurance fund, compared to the previous owners.

Tan Kin Lian

Hefty bank charges

Vincent Chan wrote to the Straits Times to complain about a hefty charge of $12 to pay for a budget air ticket of $50, using his credit card. I paid a bank charge of $75 to transfer $2,500 to a factory in China. My bank told me that if I pay late on my credit card, there is a fee of $50 in addition to the interest of 2% per month on the rollover.

It seems that the banks have gone overboard in levying exorbitant charges for essential banking services. The authority (MAS) sits on the side and allow them to charge what they like. The banks are able to make billions of dollars of profits from the interest spread and hefty charges. Are bank customers being fleeced?

Tan Kin Lian

Different functions of Government

REX has written about the macro and micro functions of politicians. They have to see the big picture and make macro policies. They have to attend to the nitty gritty of listening to their constituents. It is difficult to find people who have both skills.

In the USA, the elected members of Congress listen to their constituents and debate policies in Congress. Their primary role is to represent the people.

The heads of the different departments in Government (i.e. like our ministers) are appointed by the President, usually with the approval of Congress. They can be selected from anywhere in the country, i.e. from the business sector, academia, the people sector or from elected politicians. If they are appointed from elected politicians, they have to resign their elected seat to be in the Executive Branch of Government. Their seat is taken over by another person who can discharge the role of representing the people.

In UK, the ministers rely on the senior civil servants to administer the policies decided by the Government. They do not manage the administration. They remain largely policy making.

Singapore has a unique system where the Ministers play all three roles. They are over-stretched and do not have sufficient time and attention to discharge these roles properly. This is my humble view.

I prefer the system in USA followed by UK .

Tan Kin Lian

Missing the boat

Some people are worried that they have missed the boat and that property prices will continue to go higher.

They should not worry. Inflated prices will come down. Look at what has happened in Japan, USA and Europe. They went through their property bubbles and prices have dropped. It will remain low for one or two decades.

Singapore is not exempt from these forces. If prices are inflated and at unsustainable level, they will surely fall. In the meantime, be calm. Rent a flat or house. Wait for the prices to fall.

Tan Kin Lian

Train your mind

These puzzles will help to train your mind. It is fun, challenging and beneficial for children, adults and seniors. It helps you to develop a flexible mind and think "out of the box". This skill is important for Singaporeans, who tend to have a rigid mind and are fearful of trying something different. The puzzles are free and can be downloaded here.

If you are interested to have more puzzles, you can buy the books here. Share the books with members of your family. Invest a few dollars and help your family members to be innovative, creative and flexible. The books contain tips on how to solve the puzzles. Buy them as gifts for your children and grand children.

Survey: Elected Member of Parliament

I have now updated the report based on 92 replies here. The dislike for the current government is overwhelming. but this may be exaggerated due to the potentially biased sample. You can also read the detailed comments submitted by over 20 respondents.

Traffic after the Lunar New Year holidays

On the first few days after the Lunar New Year, the \re was reduced traffic on the roads as most workplaces were still closed. It was wonderful to drive along the roads, without the excessive congestion. How nice life would have been in Singapore, without the crowds and congestions. It was also easy to find a parking space.

Can Singapore afford to have the same roads and parking spaces, if it has a smaller population? The answer is "yes". There are many suburbs around big cities where there are ample roads and parking spaces. It is possible for a community to afford a higher ratio of roads and parking spaces and still be viable.

Businesses in Singapore are allowed to squeeze customers for the last ounce of profits. They pursue profit maximization without regard to other factors, such as the quality of service. This is the reason for the high cost of living and the poor quality of life in Singapore. This is why the MRT trains are crowded and fully packed, even late at night.

We need better regulation to ensure that businesses provide a standard of service that provides comfort and a better quality of life of the customers. They can still be allowed to make a reasonable profit after meeting these standards.

By allowing many foreigners to live and work in Singapore without expanding our public infrastructure and  facilities, the Government is also pursuing a similar goal of using our resources to the limit, and creating a poorer quality of life for the people. This type of bad policy should be avoided.

Tan Kin Lian

Staff quarters

A person needs a home to live in. The cost of the home should represent a fair proportion of the earnings. It should not take an excessive proportion. If you are buying a home that will last for a lifetime, you can set aside 25% of your earnings for the house. If you are renting, you should set aside 15% of the earnings.

In the olden days, a government employee (or servant) is provided with residence (also know as "staff quarters") by the government. While the government employee earns a lower salary compared to a private sector employee, the government employee does not have to worry about paying for the home. There is another advantage - the staff quarters are usually located near the place of work.

Government employees that earned a higher salary was able to afford a house in a private estate. In the old days, the price of houses were affordable and bear a reasonable proportion to the average earnings.

This situation changed during the past 25 years, when prices of houses were allowed to appreciate excessively. Initially, people thought that they were getting wealthier. Later, they realize that they were paying too much for a home and have to slog for a lifetime to pay the inflated prices. Most of the wealth went to the land owners, of which the state is the biggest.

Unfortunately, the high price of land and housing is now being used to "enslave" people to work hard for a lifetime.

Tan Kin Lian

Survey: Elected Member of Parliament

Here are the survey results, based on the first 50 responses. The results surprised me. Although my blog does attract a larger proportion of people who are disillusioned with the ruling party, I do not expect the results of the survey to show an overwhelming dislike of the current government.

Enslaving a person for life

When a working person buys a very expensive property, he is enslaved for life. He has to work hard and long  hours to earn sufficient income to meet the monthly payment over a period of 30 years - which is almost the entire working life. The worker cannot afford to be unemployed, as the monthly payment still has to be made, or the debt will mount, leading to high interest charges. Many people are highly stressed by this heavy burden and uncertainty.

There is a view that most people have bought their property earlier at lower prices, and the recent increase in price has enhanced the value of their assets. This is mostly an illusion. As they own only one property, they are not able to sell the property (to unlock its value) as they still need a place to stay. They also have to find someone to buy the property at the high price, and the next buyer will then be enslaved for life.

The people who benefit from the property bubble are the foreigners who are able to sell their property at the higher price, pocket the profits and return to their countries to buy a property at a modest price. The local Singaporeans have to carry the lifetime burden of the expensive property.

I hope that Singaporeans know the difference between a fair value and an inflated value from a property. They should not chase property prices at its inflated value, hoping to make a profit from its further inflation. The property bubble will burst and cause great financial hardship on them.

I also hope that our government leaders will take measures to bring property prices down to a reasonable multiple of the average earnings. As existing properties are over-priced, they have now to create a new market for a different type of "affordable" properties, which are not subject to the normal market forces. Let the consumers decide which market they wish to "invest" in.

Tan Kin Lian

Brave and sincere people

REX asked me to form a new political party as he thinks that the politicians from the alternative parties "lack credibility" and have baggage.

I have met many politicians from the alternative parties.  Most of them are brave and sincere people and have the interest of Singaporeans at heart. They come from humble backgrounds and are able to represent the views of the people on the ground well.

These politicians have not been fairly represented in the mainstream media, which explains the negative impression that many Singaporeans had of them. I hope that Singaporeans will get the chance to know these politicians and be willing to give them a chance to prove themselves. They are likely to perform as well as Low Thia Khiang and Chiam See Tong.

Tan Kin Lian

Blog promotion (15% discount) ends today

Today is the last day for the BLOG promotion (15% discount). There was a surge of order yesterday from many customers to catch the promotion. You can order now to enjoy the discount and pay next week. To order, click here.

Availability of elected MPs

At the SDP party, I met a guest who works in a family service center. She told me that in her constituency, the elected MP was too busy and could not attend the Meet the People session. This weekly session was handled  by the local chairman, who is an unpaid volunteer. But the constituents preferred to see the MP and was disappointed that the MP was not available for several weeks.

In my view, it is better to have elected MPs who can devote their full time to constituency work and to actively debate government policies in Parliament. Some MPs may also initiate legislation to improve the lives of the people.

Two MPs in Singapore are already working full time, to my knowledge. They are Low Thia Khiang and Chiam See Tong. I hope that the next general election will see more MPs being elected that can perform their duty on a full time basis. The monthly remuneration as an MP is quite generous and is sufficient for a MP to make a living.

I have watched the the members of the US congress expressing their views on legislative issues over Bloomberg and CNBC television. They are well informed of the issues at hand and of the views of their constituents.

Who will you vote in the next general election? Give your views in this survey.

Tan Kin Lian

30th anniversary of Singapore Democratic Party

I attended the 30th anniversary celebration party of the Singapore Democratic Party. Dr. Chee Soon Juan is the Secretary General. The event was fully attended by party members and guests.

I spoke to a few guests and asked about their occupation and views of Singapore. Several of them were not members of any political party but attended the event to show their support for change in the political system. They love Singapore but had been disappointed with the policies of the ruling party  in recent years. One of them, who has worked in China for six years said, "The PAP has betrayed the people of  Singapore". Two others made rude remarks about the top leaders of the Government.

Dangers of Personal Investing

I received a thick prospectus for a share that I invested in. The company is giving a rights issue to existing shareholders to subscribe for shares of another associated company. The deadline was about 1 week.

The prospectus was complicated. I have no idea about what the new shares were and if the amount to pay for the shares are at a fair value. I do not know if the rights issue had diluted the value of my existing shares.

I send an e-mail to ask my stockbroker to give me a summary of the rights issue, and also to tell me if I can sell my rights at the exchange. Fortunately, I have access to a stockbroker who is able to get his company's research department to answer my questions.

Many retail shareholders are placed at a disadvantage when a company has a rights issue. If they do not act on the rights, the value of their existing shares may be diluted. They should, at the least, sell the rights in the market and get a value that can cover the dilution in value of their "mother" shares.

Here is a real story. A retail investor bought the rights to subscribe to new shares and paid $60,000 to the owner of the rights. He is required to pay another $65,000 at the ATM to subscribe to the rights. As this is the first time that he is subscribing to the shares through the ATM, he entered the amount in the wrong field, i.e "apply for excess rights" rather than "apply for the subscribed rights". The company treated him as failing to subscribe for the new shares. He appealed to CDP and to the company to rectify this mistake but they told him that "nothing can be done". He lost $60,000 due to a small mistake.

There is a small chapter on personal investing in my book, Practical Guide on Financial Planning.  You can order here. There is a 15% discount if you order before 1 March 2010, two more days only.

USA has become a social democracy

Read this article. In my view, this is good and also inevitable. The world cannot continue to have widening gap in income levels - which is not sustainable. The free market capitalist model has, on balance, failed to produce a better future for the people of the world.

A social democracy is a new named coined to replace "democratic socialism". It is a society that is based on democracy and has social networks, such as unemployment, care for the elderly, health care, education and other activities that give security and a better life for the people.

A wasteful society

I receive many publications each month from my bank, stockbrokers, clubs, associations, investee companies and other organisations. Some of these publications are sent to several members of my family. The senders did not bother to remove the duplicates that are sent to the same addresses.

How wasteful. How many trees have to be cut down for the unncessary printing that is hardly read. These publications may be free to the consumer, but it is part of the cost of doing business. The businesses are able to levy high charges to cover these wasteful costs, and still make huge profits. How can we stop this wastefulness in Singapore?

Tan Kin Lian

Replace GST with a payroll tax

GST is a bad tax. It is very costly to administer and require a lot of work to keep track of countless transactions, including identifying transactions that should be exempt, zero-rated or taxable and the inputs that are allowed to be recovered. This wasteful cost is added to the cost of doing business in Singapore and make us less competitive internationally against countries that do not have this burden.

GST can be replaced by a flat rate tax on wages and investment income. To replace GST at 7%, it should be possible to levy a flat rate of 4% - based on the assumption that most workers will spend 4/7 of their wages on the items that are covered by GST.

Employers can be made to contribute a payroll tax of 4% on the wages. They can recover this amount from workers earning above a certain threshold, so that the low income workers are exempted (i.e. the payroll tax is borne by the employer).  This flat rate of 4% can also be levied on investment income. For income from property, this tax can be added to the tax based on annual value.

The government can collect an equivalent amount in taxation (to replace GST) and businesses can be relieved of the administrative cost of keeping a separate set of records and employing accountants to account for GST.

The accounting firms and tax officers will be unhappy to see GST disappear, as they make profits and earn good salaries with GST. But, we are already short of accounting staff to do the ordinary accounting work (other than GST) - so they can be redeployed for more useful purpose. 


But can Singapore afford to waste scarce resources on doing wasteful work on GST, when there is a simpler and more efficient way to achieve the same goal?

Tan Kin Lian

A job for every person

It is possible for a community (or nation) to provide a job for every person suitable to his skill and training and at a fair rate of pay that is sufficient to make a living. In the rural community of olden days, every person can make a living provided that he (or she) is willing to work. Most choose to farm, but other occupations are also available - merchant, craftsman, doctors, teachers.

This type of situation is possible in the modern economy, but it requires a new economic system and better regulation. It is possible to use  modern technology to create an efficient and fair market to match the demand and supply for any occupation (e.g. teachers, nurses). A fair hourly rate of wage can be determined that can balance the supply and demand.

This is supposed to be the modus operandi of the free market, but currently the market does not work inefficiently due to gaps in information. If the information is made available in a transparent manner (and this is possible with the internet technology), it would be possible to determine a fair wage rate that will balance the supply and demand.

If there is a temporary glut (i.e. more supply than demand), the number of hours of work can be regulated, so that the available work is shared fairly among all the workers and unemployment is avoided. As each person is paid on an hourly rate, they will earn less for the reduced hours of work but they have more free time for family, friends, holidays or for other part time work.

In the rural community of olden days, each farmer may have some bumper and lean seasons and they adapt their lifestyle to this variation. There is no need for workers to have a fixed salary, when the demand for their service may vary. If workers have variable salary, they should not be making large fixed commitment, e.g. to buy an expensive home!

This type of arrangement may not apply to the economic sectors that are subject to global competition, e.g. manufacture of products that are sold in the global market. But, this arrangement can apply to the domestic economy (including tourism) which should provide occupation for at least two thirds of the people in the community.

How nice would it be, to live in a community where one is assured that there will be work that fits one's skill and training and will pay a fair rate that is sufficient to make a living (but not to accumulate large wealth). There will also be opportunities for some people to accumulate wealth, but the security of work and a decent living should be provided to every person.

Tan Kin Lian

Moderation in my blog

Somebody asked why one of his particular comment was blocked in my blog. I block the following comments:
- mischievous
- malicious
- personal attack
- defamatory

I also block some comments by mistake. When a comment is rejected, I do not have any record of it.

If you feel that you comments are sincere and do not fall in any of the blocked categories, you can submit them again.

Simplify taxation

A government needs to collect tax to pay for its expenses and social benefits. It should simplify the system of taxation and make it equitable. Those who earn more can pay higher taxes. The exemptions and reliefs should also be simplified.

Income should only be taxed once. As owners have to pay property tax, they should be exempted from paying income tax on the rental income. The rate of property tax can be adjusted for this loss of tax.

The worst type of taxation is GST. Apart from being inequitable and regressive, i.e. the lower income pay proportionately more tax, it imposes a heavy burden on the economy to account and collect the tax, and add to the cost of doing business. GST of 7% can be replaced by a flat rate of 4% deducted from the payroll and on investment income. The payroll tax of 4% should be paid by the employer and treated as the cost of doing business. This may be recovered from employees earning above a certain threshold.

Even a sales tax, used in USA, is better than a value added tax (like GST). The sales tax is simplier and less costly to administer. (The accounting firms love GST as it gives them business and profits.)

As we introduce new taxes and make changes, we must also take the opportunity to simplify and streamline our tax system. We need to take a bold step in this direction.

Some countries have introduced a flat rate tax system, for ease of administration. To relief the burden on the lower income, they provide generous deductions, so that the lower income do not need to pay tax. More details are provided here.

Tan Kin Lian

Relief from income tax

The earned income and wife relief for income tax had remained at $1,000 and $2,000 for the past forty years or longer. If this relief has been adjusted for inflation, it should be $5,000 and $10,000 respectively today.

Survey: The Stingy Nanny

Here are the results of the survey, based on 35 respondents.

The majority agree with 4 motherhood statements. However, for the statements that show tangible results, the majoirty disagree. The lowest level of agreement is for the statement that the poor in Singapore can live in dignity.

Here are the comments from the respondents.

Guide to Pro Investor

Here is a soft copy of my book, Guide to Pro-Investor. It has about 50 pages. You can download and print it and read the book  It will give an explanation of the logic behind the simulation game and some strategies that you can follow.

You can click here to play this simulation game.

Promotion (15% discount) will end on 28 Feb 2010

The Promotion (code - BLOG) to earn 15% discount on my books will end in 3 days time - 28 February 2009. Order now.

Temasek 15 year bond

My bank told me that Temasek 15 year bond is available in the secondary market at a yield of 3.65%. There is a commission of 0.5% payable to the bank. The minimum investment amount is $200,000.

Decreasing Term Insurance

I have been advising consumers to buy a Decreasing Term Insurance (DTA). This will cost less than half of a Level Term Insurance.

For example, a male aged 30 can insure for $300,000 for 25 years by paying an annual premium of (say) $500. If this person buys a DTA, the annual premium can reduce by at least half, i.e. $250. (Note: the actual premium is likely to be lower, if you ask for competitive quotes from several companies).

Under a DTA, the sum insured will reduce proportionately each year. In the above example, the sum insured is $300,000 during the fitst year, and will reduce by $12,000 each year (i.e. $300,000 divided by 25). In the final year, the sum insured will only be $12,000.

It make sense to buy a DTA as the consumer is likely to have savings each year that will cover the reduction in the sum insured. For example, the savings can be $12,000 a year in the above example.

In the event of premature death, the sum insured under the DTA can be added to the accumulated savings to make a total sum that is sufficient to take care of the needs of the dependents. The policy payout can be invested with the accumulated savings in a low cost investment fund to earn a market rate of return (perhaps 5% per annum, after averaging out the good and bad years). The family can make a monthly drawdown (say $1,500 a month) from the accumulated savings to meet their needs. The total amount can last for many years, depending on the amount that has been saved.

A good combination is to have a DTA to provide a large sum to be supplemented with monthly savings that are invested in a low cost, well diversified fund.

A DTA is similar to the cover provided by a life insurance policy. Although the policy provides a level sum insured, the amount that is being insured actually reduces over the years, as the cash values are built up from the investment of the net premiums.

Many of the insurance companies in Singapore do not offer attractive rates for DTA. It may be neccessary for consumers to buy DTA outside of Singapore. You can try to get quotes from websites in America that offer this type of policy. When consumers have a choice, the life companies in Singapore will be forced to offer this type of policy on competitive rates.

Tan Kin Lian

Transparency in life insurance

A life insurance policy provides two useful services:
a) insurance against premature death
b) investments of savings for the future.

For the first service, the consumer wants to pay a fair price. The consumer does not want to be overcharged,compared to similar insurance offered by other providers. For the second service, the consumer wants to get a fair yield, comparable to the yield that can be obtained from other investments with similar risk profile.

A good insurance policy is transparent and give good value to the consumer. Unfortunately, there are many life insurance products that are not transparent and give poor value to the consumers. It is difficult for the consumer to distinguish between the good and bad products.

The benefit illustration for the insurance product can give some indication about the fairness of the charges and the yield. Look at the distribution cost, which is the amount that is taken from your savings. If it is $1,000 or more, it seems to be excessive. Do you really want to pay such a high fee to the insurance agent, who may be someone that you do not know previously? This fee is taken away from your savings, which is the same as being paid directly.

You can also look at the "effect of deduction". This is the total amount that is taken away from your "accumulated premiums" during the lifetime of the policy. If this amounts to a high percentage of the accumulated premiums, then you are being offered a policy of poor value.

I have written a separate article about the the percentage that is fair, and the percentage that is excessive. If you are not sure, you can write to me at kinlian@gmail.com. I can answer you directly or refer you to FISCA, www.fisca.sg

A life insurance policy can represent a large part of your future savings for a lifetime. Make sure that you get a fair deal and a good yield. Make sure that you are being advised by a honest agent who takes care of your interest (and not his own personal gain). Do not make a bad investment that will penalise you for a lifetime.

Tan Kin Lian

Shape Quiz Minipak

I gave the shape quiz mini-pak to a few friends at a lunch. They were amazed at the challenge in forming the shapes. I showed them the approach and to solve some of the shapes using "out of the box" thinking. They also have to follow a systematic approach, i.e. to analyse the shape first, before trying to solve it. It helps to develop the thinking process. You can try the Shape Quiz here for free. The mini-pak sells for $2 and can be ordered here.

Renting and owning a property

Many decades ago, when properties were inexpensive, it was advantageous to buy a property to live in, rather than to rent a property.

The situation has changed. Property prices are high. It may be possible to find a rental property that cost much less than the installment payment to buy a home. In this situation, renting a property may be a more attractive option.

One big advantage of renting a property is the flexibility. You can rent a property that is close to your place of work and reduce the travelling time and expenses. If you change your workplace, you have the flexibility to move to a new rented property.

Many people still like to invest in properties to earn a rental income. This is not as attractive as in past years. It is a hassle to rent out a property and to meet the requests of tenants on repairs, maintenance and other issues. The tenant may not take care of your property or may delay paying the rental.  You also have to pay commission to get a tenant.

After deducting the expenses, the net yield on a property is between 2% to 3% (and not counting the hassle that you had to go through). You hope that the yield can be enhanced when you sell the property for a capital gain. But this is not certain, as the value of the property will drop due to age and a shorter lease period. While the price of new property may increase, the high rate of  increase does not apply to old properties.

It does not make sense to own a property for renting out. It make better sense to be a tenant. This situation is likely to persist until property prices drop to a more sensible level.

Tan Kin Lian

Mental training with Intellivence Quiz

The Intelligence Quiz looks difficult, but with some training (following the tips in the book), it becomes manageable. More important, it is a mental exercise that trains you to focus the mind and adopt a systematic approach. Even primary students find it challenging and fun.

You can download a PDF with this puzzle from this website free. If you wish to buy the book, click here. Enjoy a 15% discount up to for the rest of this month (promotion code - BLOG).

Class action in America - suggestion by Teo Guan Hock

Teo Guan Hock is the contact person for Kirby McInerney, the US law firm that is willing to organize a class action to seek compensation in the US on behalf of the investors. They need to have sufficient investors to make the effort viable.

KM needs to have some team leaders (of the investors) to come forward to approach the distributors, e.g., DBS Bank, ABN, Hong Leong Finance, Phillip Securities, UOB, OCBC Securities, CIMB GK, to get them to individually or collectively engage KM to review the cases quickly and if fraud could be substantiated, to file class action litigation cases at the US courts to recover the losses. This would be an ideal outcome.

Timing is of the essence. The faster KM is engaged to file the law suit in the US, the chances of success would be higher. The amount to be recovered would also be higher.

If you are interested to be involved and take the lead, you can contact Teo Guan Hock at:

Mobile Tel: +6596695578
Fax: +6563820421
Email: tguanhoc@singnet.com.sg

Tan Kin Lian

Popular items from i-Shop

The most popular items bought from i-Shop are:
Practical Guide on Financial Planning
Rechargeable torchlight
Shape Quiz Mini-pak

Order here.

Mobile Application

I wish to give a contract to develop an application on the iPhone, Windows Mobile and Android. If you have the experience and are interested, send an e-mail with your resume to kinlian@gmail.com.

IMF experts rethink long term ideas

Read this report. The experts think that inflation at 4% is better than 2% and that capital flow should be restricted. I agree with both ideas. Higher inflation will also mean that interest rate will be higher (i.e. good for retirees and savers) and that asset bubbles will be contained (i.e. stock and property prices will not run away). This will produce a more stable economic system.

Distribution cost

The benefit illustration for a life insurance policy has an item called "distribution cost". This is the amount taken away from your savings (i.e premiums) to pay the commission to the insurance agent and his agency manager. It is usually a large sum of money, representing more than 18 months of premium. If you save $500 a month, the amount that is taken away as distribution cost could be (say) $9,000.  A large part of this sum is taken away during the first year and the rest over the next four years.

You should ask, "Is it too much to give away (say) $9,000 to buy a life insurance policy? You have more attractive alternatives. You can buy term insurance to cover a larger sum (say $300,000) by paying less than $500 a year.  You can invest in a low cost fund, such as the Exchange Traded Fund in SGX, and pay only a small annual fee of 0.3% for the asset management service.

If more consumers are aware about the alternatives, there is no need for them to pay 18 months of their premium as "distribution cost". This will force insurance companies to reduce their distribution cost and find more efficient and low cost ways to market their products. Some countries plan to ban the payment of commission for the sale of insurance products, as the consumers had been given a bad deal for the past years.

After paying such a high distribution cost, you are not getting a superior product that gives superior return. Most life insurance policies give a yield of 2% to 3% over 30 years. This is too low. It should be higher, if the distribution cost and other charges are kept at a modest level.

However, if you find a life insurance policy that has a modest distribution cost, say $300 or less, it is all right to buy the product. Alternatively, you should be willing to pay a fee of $300 for advice, provided that the commission built into the life insurance policy is refunded to you.

Tan Kin Lian

Survey: The Stingy Nanny

The Singapore High Commissioner to the UK sent this letter to the Economist Magazine. Do you agree with the statements in this letter? Give your views in this survey.

Effect of Deduction

An agent who recommends a life insurance policy to you is required to provide a benefit illustration, which can take 10 pages or more.

You should ask the agent to show you the "effect of deduction" and calculate it as a percentage of the "value of premiums paid". The "effect of deduction" should not exceed the following percentage of the "value of premiums paid" in the case of a regular premium policy:

20 year policy - 15%
25 year policy - 18%
30 year policy - 22%
35 year policy - 25%

The above benchmark is my estimate of the fair amount to be deducted from your "value of premium paid" to cover the insurance protection and investment services provided by the insurance company. If the actual percentage is higher, the amount taken away is excessive.

The "value of premium paid" is the accumulated amount assuming that your premium has been invested to earn the assumed rate of return. The "effect of deduction" is the amount that is taken away from your accumulated amount to cover the charges by the insurance company.

Most insurance policies have an "effect of deduction" that takes away an additional 15% from the accumulated premiums (compared to the reasonable levels shown above). These insurance plans do not provide good value to consumers.

For an investment-linked policy, the "value of premiums paid" is not shown. You have to add the "projected net amount" plus "effect of deduction" to get the "value of premiums paid".

Tan Kin Lian

Shared bicycles

I posted a blog on the shared bicycles used in the University of Singapore. A few commentators like the idea while others felt that it will not work in Singapore. Here are some research about shared bicycles used in other countries:

http://en.wikipedia.org/wiki/Bicycle_sharing_system
http://www.veoliatransportation.com/transit/shared-bicycles
http://worksmancycles.com/shopsite_sc/store/html/page59.html
http://www.transalt.org/newsroom/media/1136

Tan Kin Lian

Prepare for high inflation

Dear Mr. Tan,
The deficit at Federal and state levels in USA seems to be the next big thing i.e. bigger than Greek crisis. California is already facing the problem of not enough money to pay their civil servants. Some other states are facing the same problem. There are articles written about it and it seems very serious.

Are you able to share your opnion in your blog as well as letting us understand what is the impact to Singapore since we are very dependent on USA for our survival. Also what can we do to protect ourselves in the event the above happens e.g. buy gold and keep since US$ is going to crush.

REPLY
The USA is facing a large deficit as they are not collecting enough taxes to pay for their government expenditures (at Federal and State levels). Right now, they are issuing bonds to fund the deficit and pay a low rate of interest.

They have to raises taxes to balance the budget, but the politicians are reluctant to do so. They have to cut expenses, but that is also unpopular. At some point of time, they have to print money to fund the deficits. This will lead to higher rates of inflation. Many other countries face the same situation and may have to adopt the same solutions.

We have to prepare for high inflation in the future. In this environment, it will be bad to be invested in bonds that give a fixed rate of return. We have to invest in equities and properties that have a variable return that will increase with inflation. On the other hand, high inflation will burst the asset bubbles in equities and bonds. Maybe the safe asset classes will be gold and cash.

This situation may take many years before the correction occurs. In the meantime, many people continue to ignore the problem. Can I have your views on this matter also?

Seminar on class action in USA - April 14, Fullerton Hotel

I have received the following information on the seminar:

Date Wednesday 14 April 2010
Place: Fullerton Hotel
Time: Morning, actual time to be confirmed

This date is delayed due to lack of available hotels and availability of speakers from the US firm. The lawyer was not able to arrange it for a weekend due to the above constraints.

More details will be provided when available. The above should be taken as Tentative.

PARTICIPANTS TO BRING DOCUMENTS

Dear Mr. Tan,

There will also be a one-on-one meeting after the seminar with KM lawyers.  These meetings will start about 2 p.m.  Please request the investors to bring along photocopies of their investment documents, if this is possible.  Then the meetings will bear immediate fruits.

KM - Kirby McInerney - US legal firm specialising in class action on securities.

Singapore contact person - Teo Guan Hock (email: tguanhoc@singnet.com.sg, mobile: 96695578)
website: http://www.kmslaw.com/

RED Map

I wanted to go to Gain City in Ang Mo Kio. I went to the RED Map and type in "Gain City Singapore". It showed the address and postal code and a map of the vicinity. It is very easy to use and fast to respond.

Here is the URL: http://projects.easyapps.sg/propinfo/

Better regulation to ensure a fair market

I welcome the move by the Government to put curbs to prevent a bigger bubble on the property market. It is necessary and desirable.

The frequent speculation in the property market is an example of the failure of the market to produce the right results for consumers. It allows certain parties to take advantage of the ignorance of consumers to make excessive profits for their businesses. Another example is the market for financial products.

We need the market to be better regulated to work better in producing fair outcome for all parties. Excessive profiteering, through deceptive means and abuse of pricing power, should be stopped. The regulator has to act to protect the interest of consumers, rather than to expect consumers to find redress through legal means - as they not have the financial resources to engage lawyers.

We have similar problems with public transport and the telecommunication services. They also need to be better regulated to ensure the interest of consumers and businesses are better balanced.

The government policy to allow matters to be decided by the market has boosted the profits of businesses but has caused hardship to consumers. It is time for the policy to be reviewed and for better regulation to be introduced.

Tan Kin Lian

The Stingy Nanny

The Economist magazine had an article entitled "the stingy nanny". Here is the reply from the Singapore High Commission to the magazine.

SIR 

I refer to your article “The stingy nanny” of Feb 13th.

Each society has to decide for itself the appropriate balance between unconditional welfare and self-reliance. Singapore has concluded that we cannot afford European-style state welfare, not because of dogma, but because our circumstances are different. We face competition from some of the most vibrant economies in the world, we have no hinterland or natural resources of our own to fall back on, and our future depends on being a dynamic and self-reliant people who strive our utmost to excel and create wealth for ourselves, our families and our society. Each generation must earn and save enough for its entire life cycle.

Our approach is based on time-tested values of hard work, self-reliance, family responsibility and community support for those in need. While we avoid over-generous welfare handouts, we have substantial state subsidies for education, health care and public housing. These are major investments that uplift the skills, promote the health and increase the assets of all Singaporeans. The result has been high growth, low unemployment, high savings and the highest home-ownership rates in the world.

No society has ever succeeded in totally eradicating poverty, nor in eliminating inequality of incomes, not even Communist systems. A generous welfare state, despite its theoretical attractiveness, is not a panacea. Singapore’s system is by no means perfect, but it has produced real results for the vast majority of Singaporeans, and enabled even the poor to live with dignity and hope. The burden of proof is on its critics to demonstrate that their proposals will in fact work, and improve on what Singapore has achieved, given our socio-cultural fabric and economic circumstances.

Michael Eng Cheng Teo

High Commissioner for Singapore
London

Home prices and average salaries

Some readers have commented that the benchmark of 3 years income to pay for a home is outdated. I agree.

In my book on financial planning, I have used the benchmark of 4 to 5 years. I consider 5 years to be on the higher end of the scale. Some people have commented that they are not able to buy a decent home using this benchmark, as prices are high, even for HDB flats.

My advice is not to go beyond 5 years. It may mean that you have to consider other options, such as renting your home or buying a smaller flat.

Some people pay 6 to 8 years of income for their home. They calculate that they can afford the monthly repayment. But, they forget to take the following factors into account:

a) Interest rate may increase in the future, from the current low levels. The higher interest rate will increase the amount of repayment.
b) Jobs are uncertain. If they lose their current job, they may not be able to find another job that pays the same salary.

If more people take this advice and act prudently, the property price will not continue to escalate, as it had in the past years. Do not chase a property bubble. Do not think that you are making a good investment. An overpriced property can drop in value by 30% and leave you with a large financial burden. This has happened in USA and Europe. It can happen in Asia. The low price may be stuck for a decade or longer, as it has happened in Japan.

 My book on Financial Planning can be purchased here.

Tan Kin Lian

Intelligence Quiz Vol 3

Two nieces visited my home. They asked for my Intelligence Quiz book. The younger girl, who is now in primary 2, was able to complete the beginner quiz within 10 minutes. They competed with each other and enjoyed solving the quiz tremendously. I was surprised that they found it interesting, at their young age.

You can get your children to be interested in this quiz. It trains their mind to be analytical and also to approach the puzzle in a systematic way. The book contains 72 puzzles at three levels - beginner, intermediate and advanced. They can do the puzzle first, because they have done the earlier volumes. The book also contains instructions on how to solve this type of puzzle.

Volume 3 is available in the bookstores at $7.90. The earlier volumes 1 and 2 have been sold out. You can enjoy a 15% discount (net $6.72) if you order through the internet during this month (promotion code - BLOG). The discount is also available for the other books.

Click here.

Talks on Financial Planning at Company Premises

I am available to give talks on Financial Planning at the premises of organisations. Details as follows:

Title: Financial Planning - for Good and Bad Times
Speaker: Tan Kin Lian, Author, Practical Guide on Financial Planning
Duration: 2 hours, including Q&A
Audience - at least 20 people
Fee - to be discussed
Requirements - seminar room with projector.

If your company or organisation is interested, send an e-mail to kinlian@gmail.com

Talks on Financial Planning

I held two talks at Yishan and Pasir Ris Library. They were successful. The contents were suitable for the public.The interaction with the audience was fun and great.

I hope to be able to hold monthly talks at the National Library in Bras Bash Road and at Singapore Exchange in Shenton Way. This will be arranged under FISCA (Financial Services Consumer Association) with NLB and SGX.  Each talk will be for 2 hours and include Q&A.

FISCA also intend to organise a 12 hour course (4 sessions of 3 hours during weekends, to cover 8 topics in more detail).