STI: Can you AFFORD to retire?

Dec 18, 2004
Can you AFFORD to retire?
by Leong Chan Teik and Maria Almenoar

A LONG time ago, Mrs Lucy Lim and her husband dreamt of retiring in a terrace house they bought in Johor in 1995.

They pictured a languid lifestyle, affordable health care, occasional regional vacations and frequent visits across the Causeway to see their grandchildren, funded by an instant doubling of their savings when converted into ringgit.

But no more.

Their expectations and circumstances are greatly diminished today. All they hope for is to get by.

A catering business Mr Lim ventured into eight years ago upon retiring from his civil service job drained their savings.

Because of his age, he could not secure another job.

Their finances were dealt another brutal blow when the terrace house in Changi which they upgraded to in Singapore from a Simei HDB flat in 1995 tumbled in value.

Mrs Lim's 55th, and then 60th, birthday came and went, with no retirement celebrations in sight.

Today, at 62, with fast dwindling energy, she still stoically works as a personal assistant in a financial services company and plans to continue 'till I can't or am no longer wanted'.

She is part of a growing group of Singaporeans who are literally greying at the grindstone. They tap away at their keyboards with arthritic fingers and squint at their computer screens through bi-focals because they can ill afford to stop working.

As of June last year, 35,727 Singaporeans aged 65 and over were still employed, up from 22,699 a decade ago (1993), according to Ministry of Manpower statistics.

Of this lot, the June 2003 survey also showed up three trends:

The majority, or 35.7 per cent, worked as cleaners and in other related menial jobs. This means that their incomes will fade with their strength.

About 21 per cent held jobs in the service and sales industry, which means jobs such as salesmen and waiters, that, sadly, place a premium on youthful vigour.

Another 15 per cent were proprietors, managers and senior officials. This came as a surprise because this higher-earning group was most likely to have the financial means to retire. The survey, however, did not canvass information on their motivations for working.

But a fair guess, say financial planners and analysts, is that many of them were caught off-guard by an unrelentingly vicious spate of financial storms over the past seven years.

First, the Asian financial crisis in 1997 sparked a rout of the stock market and plunged the region into recession. Then the Nasdaq tanked with the bursting of the dot.com bubble in 2000. Shortly after came the Sept 11 terrorist attacks in 2001, which sent shock waves through stock markets worldwide.

Before things had a chance to look up, the Sars outbreak in early 2003 caused another recessionary relapse. Throughout these troubled times, people lost long-held jobs, had their wages sliced, diced and frozen, and personal bankruptcies climbed to record levels.

More woes struck as the value of homes - Singaporeans' all-time favourite investment tool - fell relentlessly. Today, they are still down by about a third from their 1996 historical peak.

These dire straits explain the dismal findings of a survey by Ngee Ann Polytechnic's School of Business | Accountancy in March last year.

Its survey of 1,140 people aged 40 to 59 years showed that only one in three felt they had enough to retire on. Another one in three planned to downgrade to a smaller home to make up for their looming shortfall in retirement funds.

Frighteningly, almost four in 10 said they were counting on luck, in the form of a Toto or 4D windfall, to bankroll their retirement.

Basically, they had no idea what they will live on in old age, just like security guard David Chung, 56.

Ten years ago, his electronics trading business at Sim Lim Square was booming.

'When the money was pouring in, I didn't really think about saving for retirement. I thought things wouldn't change,' confesses the bachelor, who lives with his sister in a four-room HDB flat in Sims Drive.

Today, working 12-hour days guarding a condominium for less than $1,000 a month leaves him 'hardly anything' to put away.

'I have to see how to get by day by day. Retirement? Can't afford even to think about it,' he sighs.

CPF not enough

ANOTHER indication of the nation's preparedness - or lack of - for old age can be found by a peek at their Central Provident Fund (CPF) balances.

These days, turning 55 is no longer cause for celebration for most. Gone are the handsome pay-outs as, according to the CPF Board, most Singaporeans have difficulty even meeting the minimum sum requirement of $84,500 when they turn 55.

That is the base level of CPF savings that has to be set aside to provide them with a very basic monthly income from age 62 onwards. Only savings in excess of that sum can be withdrawn at 55.

As of last year, only about 40 per cent of active CPF members who turned 55 met the minimum sum. Of these, slightly more than half had set aside no more than $40,000 and had to pledge their properties to make up the shortfall.

All in, it's a pretty grim picture.

Faced with mounting evidence that Singaporeans are setting themselves up for gloomy rather than golden years, the Government has decided to raise the $84,500 minimum sum bar in several steps.

By 2013, this will be raised to the tune of $120,000 (in 2003 dollars, which means it will be further adjusted upwards for inflation).

The bottomline message it is sending to Singaporeans is stark: Save more, spend less or retire poor.

But besides starting to save earlier, financial planners say that Singaporeans desperately need to know how to invest their money so it grows at a faster clip than just parking it in a 1 per cent per annum savings account.

Most have no clue. Unfortunately, Singapore Management University Associate Professor Benedict Koh notes the concept of financial planning caught on here only in recent years when organisations such as the Central Provident Fund Board, Monetary Authority of Singapore and the media began launching educational campaigns.

The co-author of Personal Financial Planning (Prentice Hall, 2000), who started a course on the topic in National University of Singapore (NUS) in 1995 because he saw many floundering at managing their money, says much more should be done to teach financial literacy in schools, universities and polytechnics.

Indeed, a survey of 1,000 Singaporeans who earn more than $2,000 a month done five years ago by the NUS and commissioned by Citibank found that most Singaporeans do not plan for their future simply because they don't know how.

Prof Koh laments: 'Many people work extremely hard to create wealth for their employers but neglect their own personal finances. They tend to just leave their money in savings account and struggle to keep up with inflation.'

But with more enlightenment and a little luck, he says they could pack up their jobs earlier with comfortable nest eggs, beefed up by stocks, unit trusts and insurance policies.

Even then, most Singaporeans badly need to revise their typically unreal expectations of retirement living. Ms Anne Tay, vice-president of wealth management at OCBC Bank, notes that most professionals 'refuse to believe' they will need at least $1 million to keep up their current lifestyles.

'For most, it's a case of forget $1 million - I don't even have $100,000. They ask you: How many people would have $1 million to retire on?' she recounts.

But the sobering reality is that $1 million in the bank only works out to $4,000 a month, or $2,000 each if shared by a couple, over 20 years of retirement, without even factoring in inflation. That is by no means extravagant, especially with rising medical costs today.

Grinding halt

AS SUCH, working well beyond the mandatory retirement age of 62 looks set to become the new norm.

Minister Mentor Lee Kuan Yew, for one, champions this trend because he feels that with a life expectancy of 82 today, 62 is too early to grind to a halt.

He revealed that the Cabinet had discussed this issue during a meeting last month and is now working out a scheme to enable more to work past 62, possibly at lower pay, so their skills and experience remain in circulation.

What was left unsaid is that besides benefiting one's psychological health, delaying retirement is also good for the pocket, as it will hopefully help raise tens or hundreds of thousands of dollars more for retirement.

That is why Mr Liaw Beng Teck, a university professor in Brunei for eight years and National Institute of Education teacher trainer for 16 years, continues writing educational books at 63.

'It's boring to stay home everyday. I like keeping busy. The extra money is also a bonus,' says the father of two who enjoys gardening, cooking and cycling.

In most developed Asian countries, gerontologists say Mr Liaw would be typical.

In South Korea, 53 per cent of the people in the 60 to 64 age category still hold jobs. Among Koreans above 65, about 29 per cent are employed.

In Japan, the figures are 55 per cent and 20 per cent, respectively. But in Singapore, it is just 25 per cent and 18 per cent, respectively.

Having to beaver away in one's doddering years is still viewed here as a pitiable exercise, which hints at earlier financial negligence. Many Singaporeans yelp with pain, rather than delight, at the prospect of working past 62, preferring to devote their dotage to doing something else, or nothing.

But that mindset has to change because staying at work is one positive way of ensuring active ageing.

At the least, it buys Singaporeans badly needed time to get their finances in order. Because, as Mr Chung knows, there is nothing worse than being near broke as retirement dawns, when it is too late to start life over again and save all those spent dollars.

 

What you need to do to avoid greying at the grind

START EARLY, LIKE NOW

The earlier you start, preferably as early as you join the workforce, the less you need to set aside every month.

For example, if the plan is to accumulate $1 million by age 65, you need only invest $846 a month from age 25. If you wait till 45, you need to put aside $2,726 a month.

In both cases, the investments are assumed to grow at 4 per cent a year - a rate of return which can be achieved by investing in, say, bonds and Real Estate Investment Trusts (Reits), according to financial planners.

LIFE IN PLASTIC IS NOT FANTASTIC

As American personal finance guru and debt hawk Suze Orman always says, every money-spending decision you make today has a huge impact on your future finances.

Yet, many people are 'flirting with financial suicide' by chalking up huge debts on their credit cards.

Credit card debt here has shot up from $662 million in August 1994 to $2.6 billion a decade later. Ditto the number of credit cards in the average Singaporean's wallet. The number of cards issued over that period has more than doubled from 1.4 million to 3.8 million.

LIVE LIKE THERE IS A TOMORROW

Settle for a modest home and car and fight the urge to upgrade incessantly.

Let's say you buy a three-room HDB flat at the age of 28. Seven years later, you upgrade to a five-roomer, about 40 sq m bigger.

The total mortgage you will pay - first for the three-room flat and then for the five-roomer - works out to about $399,000, including interest.

That means the cost of upgrading - the extra you forked out for more space - is, gasp, about $226,000, thanks to the higher purchase price of a bigger home and the interest costs on a bigger loan.

CHILDREN ARE NOT YOUR ATMs

Those counting on their offspring to maintain them financially in their retirement are headed for disappointment.

Singapore has one of the fastest ageing populations in Asia. Increased life expectancy is expected to impose undue financial strain on even the most filial and capable of children.

Children may find their resources stretched under the strain of supporting two generations of elders - their parents and grandparents.

The Central Provident Fund Board estimates that 10 economically active persons are supporting one elderly person.

By 2030, only 3.5 persons will be supporting one elderly person.

STI: Mastering the basics of financial planning

Oct 26, 2004

Mastering the basics of financial planning

IN CONJUNCTION with Family Festival 2004, MoneySENSE and various financial industry associations will bring you a series of educational messages about money management and personal finance to families.

In the first of a four-part series here, we share some practical tips on how you can embark on financial planning.

But first, is financial planning only for the rich?

Many people have the misconception that financial planning is solely about buying insurance policies and investments.

To put it simply, financial planning is about each of us making an effort to meet our life goals, through the proper management of our personal finances.

It is about solving financial problems and achieving financial goals by carefully developing and implementing a plan that takes into account a person or family's current situation and future goals.

Financial planning consists of six areas:

Cash flow management: This deals with how you allocate your income to meet daily expenses, and how you set aside money and other assets to meet future financial goals.

Risk management: It means making sure that you have enough family income to handle unforeseen circumstances such as premature death, disability or illness.

Investment planning: This involves putting your assets in a combination of different financial instruments that help you to meet your investment goals and allow you to grow your wealth.

Retirement planning: This focuses on building up wealth during your working years to achieve financial independence when you retire.

Tax planning: This deals with minimising your taxes through the use of various tax benefits and incentives.

Estate planning: This allows you to plan for the transfer of your assets to your beneficiaries with minimal hassle and estate taxes.

The first step in financial planning involves identifying your financial objectives and goals.

At different stages of your life, you will have different needs and face different challenges.

It is important to identify your priorities so as to set realistic goals and use your financial resources efficiently.

Make sure you review your priorities regularly, especially at key stages of your life, and every time your family circumstances change.

These include starting work, getting married, buying a home, making an investment, having children or reaching retirement.

In our next article in a fortnight's time, we will zoom in on a specific area: how to calculate the insurance coverage you would need to protect your family income.

To find out more, visit www.mas.gov.sg

This article is provided by the Monetary Authority of Singapore as part of the MoneySENSE national financial education programme.

STI: Investing your CPF: How it can go wrong

Sep 6, 2004 
Investing your CPF: How it can go wrong
by Leong Chan Teik

IF YOU are like most Singaporeans, you probably think that $1 in your Central Provident Fund (CPF) account is not the same as $1 in your pocket.

You view the CPF money as being locked away, only to be consumed during some far-off period, while cash in hand can let you do things right here and now.

That sort of mindset can do big-time damage to your retirement nest-egg.

It contributes towards a less rigorous approach to investments in many cases, say financial experts.

The managing editor of Asia Financial Planning Journal, Mr Andy Ong, says: 'Someone I know, who would be very careful about not spending too much on lunch, invested nearly $200,000 of his CPF savings in unit trusts without much thought.

'He didn't know what he was doing, and I think he was just being nice to the female financial adviser. Within a few months, his investments had lost 10 per cent.'

According to Mr Ong, this investor was none too sorry about his paper loss. 'He said: 'I don't see the money, so I don't feel the pain.' '

Experts and readers cite various ways you can do wrong by your CPF savings, or run into difficulties:

RISKING SPECIAL ACCOUNT

YOUR CPF Special Account is truly special in these days of ultra-low interest rates when, for example, savings accounts earn 0.1 per cent a year.

The Special Account pays 4 per cent a year, a return that few investment products approved for investment using money from your Special Account can beat comfortably and with any certainty.

Recognising that, Mr Ong, who is also a certified financial planner, declares: 'I'll never ever touch my Special Account.' He treats it as part of his bond portfolio, which is the safe part of his overall investment portfolio.

Mr Jeffrey Silva, chief executive of Optimus Financial, an independent financial adviser, cautions against using your Special Account to invest in balanced funds with a 60-40 mix of bonds and equities.

To start with, many of such funds can hardly achieve 8 per cent a year, he says.

When the expected annual return is, say, 5 per cent, this gain is equal to or less than a compounded return of 4 per cent when the investment period is long - such as over 15 years.

'What this means is that the opportunity cost of using the Special Account is higher than most people think,' says Mr Silva.

The only products that Optimus currently recommends for Special Account money are deferred annuities, for which compounded returns can be much higher than 4 per cent even after deducting charges, he adds.

BIG WITHDRAWALS

IN THEIR desire to have a home that is mortgage-free, schoolteacher Tham Siang Wah, 31, and her husband have withdrawn a total of $48,000 from their CPF savings since 2000 to pay off chunks of their loan.

But that led to a shock for them when they received a letter from the CPF Board. It said they would soon reach the allowed limit on CPF withdrawals for their three-room flat on Mei Ling Street.

As a result, in three months' time, Ms Tham will no longer be able to use her CPF savings to pay her monthly mortgage instalment of $280. She will have to pay cash.

'If we had not made the lump-sum payments, we would not have reached the withdrawal limit so fast. I now figure that I would have 14 more years before reaching the limit,' she says.

After speaking with HDB officers, she believes hers is not an uncommon case.

Chartered financial consultant Leong Sze Hian warns that most people will have a hard time calculating the so-called Available Housing Withdrawal Limit (AHWL), which is a recent introduction.

'When I do seminars where the audience includes experts like real-estate agents, I can see they don't know how to calculate the AHWL, and they don't know the implications of it,' he says.

OVER-COMMITMENT

AS WITH cash, you can inadvertently over-commit yourself to long-term payments for an asset bought with CPF savings.

A reader tells of how he signed up in 1997 for an endowment insurance policy that matures in 10 years' time. The annual premium of $12,000 would be paid out of his CPF savings.

Last year, he lost his job and his CPF savings were running low, after he had paid seven years' worth of premiums.

He subsequently stopped paying his premiums, resulting in the policy becoming a 'paid-up' policy - that is, his insurance cover remains in place, but the sum insured is lower than if he could pay his premiums in full.

Worse, when the policy matures in three years' time, his CPF account will receive a smaller sum than he had planned on, reflecting the hefty cut in the rate of return on the policy.

LOW RETURNS FROM PRODUCTS

CONSIDERING that the CPF Ordinary Account pays you 2.5 per cent a year, it makes little sense to take out the money and buy into a product that actually yields less, or just a little more.

Given current interest rates, it's a definite no-no to take out your CPF savings and put them into fixed deposits, for example. The rate on fixed deposits ranges from 0.175 to 1.4 per cent, depending on the tenure and the sum involved.

Consider also the popular endowment policy called G22, which was distributed by DBS Bank and which had a eye-catching durian logo. Its return is guaranteed at 22 per cent over eight years. That works out to 2.52 per cent a year compounded.

It will be eroded after your CPF agent bank deducts $2 a quarter as a service fee over the next eight years.

And don't forget, during the next eight years, the CPF Ordinary Account interest rate could be raised in a rising interest-rate environment, note observers.

TRANSACTION COSTS

USING your CPF money to trade in shares can also be costly if the shares are penny stocks, points out veteran stock investor Kenneth Pang.

The cost of transaction and other fees will eat into your profits, if any.

The CPF agent bank charges between $2 and $2.50 for each lot of 1,000 shares, subject to a maximum of $20 or $25 per transaction.

So if you buy 10 lots of BreadTalk at 21 cents a share (for a total of $2,100), your CPF agent bank can charge you up to $25.

(Other costs incurred in similar transactions involving cash, such as stockbroker's commissions, also apply.)

'If you frequently go in and come out, the costs you are paying come up to a lot. How to make a profit then?' asks Mr Pang, 49.

That's not all: The agent bank levies a service charge of $2 per counter per quarter. This applies to unit trusts too.

If you have a tiny holding of SingTel shares or other shares or unit trusts, the bank charges would add up to quite a bit in the long run relative to the value of your investment, says Mr Pang.

OVER-INVESTING IN PROPERTY

SAYS Mr Pang, who is also a senior associate manager of a realty company: 'Many people have over-invested their future income - which includes their CPF money - in property.'

For those thinking of using their CPF money to buy an investment property, he points out that the gross rental yield in Singapore is reportedly 2 to 4 per cent a year. After costs and expenses, the net yield is barely equal to, or lower than, the CPF interest rate.

'If they are thinking of capital gains, they are being too optimistic,' says Mr Pang.

Agrees Mr Leong: 'You shouldn't over-invest in one sector - just in case it crashes. Nobody knows which is the best asset to invest in over the next 20, 30, 40 years, so you just have to diversify in terms of assets and geography.'

STI: Safe options for your savings

Aug 1, 2004

Safe options for your savings
by Leong Chan Teik

I'M A 30-year-old woman. After working for eight years, I have $25,000 in savings, all sitting idly in fixed and savings deposits.

I know the importance and benefits of financial planning, and would very much like to invest my money, but do not know where to start or what to do.

How can I grow my savings fruitfully, given my small appetite for risk?

The e-mail message above arrived recently at The Sunday Times, and is similar to others we get from time to time from other readers.

These people come from a wide range of ages and backgrounds, but they share at least one common trait: They want to be safe rather than sorry with their money.

They don't want wild vacillations in their investments.

What they do want is a better return than the 0.1 per cent a year they get from their savings accounts, or the 0.5 per cent, on average, from fixed deposit accounts.

Financial experts point out that low-risk investments almost invariably yield relatively low returns.

And what if the investors are young folk in, say, their 30s? Financial planners universally insist that they should opt for a less conservative portfolio of investments.

Young folk have a long time-horizon to ride out fluctuations in riskier instruments.

Over time, they could find that equities, for example, give a handsome return.

In any case, a new investor may start off with conservative investments and move on to higher-risk ones when he feels ready for them.

At the moment, there are five types of broadly conservative investments with varying risk-reward ratios that financial experts hold up for consideration:

REITs

What they are: The acronym stands for real estate investment trusts.

Reits own commercial or industrial properties, and pay out the rental income they collect to investors on a regular basis - usually half-yearly.

Returns: At current prices, Reits such as Ascendas Reit and CapitaMall Trust will give you a return of around 5 per cent, tax-free.

'I have about a third of my investments in Reits. They are quite a no-brainer,' says Mr Michael Loo, an investor consultant who is also a certified financial analyst.

Reits have an inherent risk - their prices dip and rise in day-to-day trading.

How to invest:  Open a trading account with a brokerage, and buy Reit units on the stock market, just like shares.

INSURANCE

What: NTUC Income Capital Plus policy; UOB Guaranteed Rewards Plan
Returns: NTUC's policy guarantees a return of 3.37 per cent a year while the UOB policy gives you 3.6 per cent a year if you stay invested for 10 years. You get lower returns if you cash out prematurely.

If you buy these policies through your Special Retirement Scheme account, the purchase amount will be deducted from your taxable income for the year, which means you enjoy tax savings.

Aside from that, both plans come with insurance coverage for death as well as total and permanent disability.

How to invest: Call NTUC or UOB Life Assurance.

BONDS and STOCKS

What: NTUC Income recommends its Combined Fund, which is invested equally in stocks and bonds.

Fundsupermart, an online distributor of unit trusts, recommends a portfolio with an equal mix of the following:

Fidelity US High Yield Bond Fund;
Fidelity European High Yield Bond Fund;
N502100H; coupon 2.625% (SGS Bond);
NY03100A; coupon 4% (SGS Bond); and
Schroder Asian Growth Fund.

Returns:  Bonds are issued by governments or firms as a way to borrow money. Bondholders are paid a fixed interest, and get back their capital at a predetermined maturity date.

Bonds get a little risky if they are issued by companies or governments that do not have strong balance sheets or political stability, respectively. But such risky bonds promise to pay out more to investors, hence their name: high-yield bonds.

For its fund, NTUC says you should expect a return of between 5 and 6 per cent a year over 10 years.

That means every $10,000 invested could grow to between $17,100 and $17,900.

As for the Fundsupermart recommendation, you can expect to receive a tax-free dividend return of 3.5 per cent a year from the bond portion.

The Schroder fund gives you exposure to shares of Asian growth companies.

How to invest:  Open an account with Fundsupermart, or any bank distributor.

You can ask for advice on a different mix of bond-equity investments.

SGS BONDS

What: These are Singapore Government Securities (SGS) issued and guaranteed by the Singapore Government.

Returns: SGS bonds have tenures of up to 15 years.

 

They pay interest every six months, and you get back the face value of the bond when it matures. For example, if an SGS bond has a coupon rate of 3.8 per cent, then for every $1,000 in face value, the investor will get two tax-free payments of $19 every six months until the bond matures. When the bond matures, the investor will receive the original $1,000 back.

The yields for SGS bonds vary with the maturity date. For an SGS bond that matures in three years, the yield currently is about 1.5 per cent a year.

Clearly, this is not sexy, but it outperforms savings and fixed deposit rates.

Says Mr Lim Chung Chun, chairman of Fundsupermart.com: 'Singaporeans are generally under-invested in bonds. There is an estimated $150 billion in savings and fixed deposits in the banks in Singapore. A good part of that should really find its way into the bond market.'

How to invest: Open an SGS trading account with a bank or Fundsupermart.

UNIT TRUSTS

What: OCBC Bank recommends the OCBC Map and The Accumulator unit trusts, which are globally invested and well-diversified.

Returns: With diversification, you put your eggs in several baskets, so your overall investment enjoys some stability.

One way to diversify is to spread your investments over assets that move in opposite directions, such as equities and bonds, says Ms Anne Tay, vice-president of wealth management at OCBC Bank.

How to invest: Diversified unit trusts can be bought from almost any bank.The list of investments is by no means exhaustive. Seek comprehensive advice before investing. 

STI: How to safeguard your home and investment

May 24, 2004

How to safeguard your home and investment

Keep your loan term short

AIM for the shortest possible repayment period, taking into account your ability to pay. The shorter the loan term, the better interest rates are likely to be. Choosing a shorter repayment period, therefore, could result in significant savings.

Ultimately though, you should tailor the repayment term to your housing plans. If you aim to be an owner-occupier, a longer mortgage period with fixed interest rates could still be an attractive option. However, if you plan to upgrade within a few years, or to sell the property in the near term, a shorter period would still be the way to go.

To gauge your 'ability to pay', financial advisers say your monthly repayments should not exceed 20 to 25 per cent of your income, inclusive of CPF.

Don't drain your CPF

IF YOU put the bulk of your CPF monthly contributions towards repaying your mortgage, you may find that you have little left over for retirement or to pay off that same loan when money is tight.

This problem is especially relevant as CPF contributions have fallen over the years.

Stay in the know

HOUSING regulations and legislation change. Be aware of the latest policies, to avoid nasty shocks.

Take, for example, the 'first charge' issue. Previously, the CPF Board had first claim on your property in the event that you defaulted on your home loan. Now, this first charge has shifted to the banks - unless they do not object to it remaining with the CPF Board.

If you cannot pay off your home loan - say, in the case of bankruptcy - and your property is sold, the bank has the first claim to the sale proceeds. The CPF Board is paid if there is money left over.

While this helps you get more competitive mortgage packages from banks, you could also lose all the CPF money you invested in that home if the bank forecloses on it.

With this in mind, you might consider requesting that the CPF Board retain first charge.

Fixed or floating rates?

WHETHER you choose a fixed or variable rate is a personal choice. For long-term mortgages, fixed rates tend to produce greater savings because rates usually go up in the long term.

If you think rates will fall, or if you don't plan to hold on to your property for long, variable or 'floating' rates could be better, as they tend to be easier on the pocket than fixed ones. Also, consider how vulnerable you are to interest rate fluctuations. If your cash flow is tight, you might not want to risk a rate hike under a floating system.

Theoretically, starting out with a low floating rate and then switching to a fixed-rate scheme if a hike takes place would maximise your savings, but this scenario, which looks pleasing on paper, doesn't take into account refinancing penalties, which could offset whatever interest rate gains you hope to receive.

Watch those extra charges

APART from the cost of the property itself, buying a home brings with it other charges. Make sure you've taken all of them into account.

First, check if your bank charges any processing or valuation fees. Most banks bear these costs for their customers.

Second, note the late charges. If you are tardy with your monthly instalments, the bank might slap on an additional fee, so find out how long the grace period is and how much you will be penalised.

Third, mortgages usually require that you take out a fire insurance policy on your property. Banks generally provide this for free.

Fourth, ask if the loan package includes subsidised legal fees.

Finally, remember, stamp duty is payable when you buy a house. It is 1 per cent for the first $180,000; 2 per cent for the second $180,000; and 3 per cent for the remainder.         

STI: They put 20% of wages in insurance

Apr 27, 2004

They put 20% of wages in insurance
by Rachel Lin

WHEN it comes to insurance, the Chia family has certainly got it covered.

About a fifth of the household's annual salary of $144,000 goes to paying insurance premiums.

Dr James Chia and his wife Jackie - who have three children - are not just enthusiastic holders of policies.

Dr Chia, 49, is involved in the financial planning industry, being the associate director of a financial planning firm, IPP Financial Advisers, and Mrs Chia, 47, has worked for insurance giant Prudential as an agent.

Yet when the Chias first ventured into the world of insurance, they made the classic mistakes that most newbies do.

This was back when they had both landed their first jobs, and knew little about insurance.

They bought a hotchpotch of policies recommended by friends who had become insurance agents and may not have reflected the Chias' real needs.

Dr Chia was a site engineer with MRT Corporation then. Mrs Chia was a credit administration officer with DBS Bank.

Of those early days, he said: 'We bought insurance from people who just happened to come along and talk to us. I got my whole-life plan from someone who bumped into me and convinced me to buy insurance from him. As for the Great Eastern policy, my friend had just become an insurance agent and asked me to be his first client. I thought, 'why not?' '

Acting on the advice of friends, the Chias bought a whole-life plan for about $60,000 with annual premiums of $1,200 and a Great Eastern endowment plan of $50,000 for their children at $1,800 a year.

'If you've got no insurance at all, buying plans like that can't hurt,' said Dr Chia.

The mistake they made was that the cover from these policies was insufficient: It amounted to about $100,000 in total which wouldn't have met the family's needs in the event the main breadwinner was incapacitated.

'Fortunately, we managed to review it early enough, in our late 30s, when our health was still good,' he said.

Dr Chia recalled: 'We didn't buy anything more for the next five to six years, until someone came to do financial planning for us. He did a proper job of showing how little cover we had, and in that session alone, I laid down almost $8,000 to top up my insurance. I bought even more when we both became involved with financial planning and insurance.'

He became a financial planner and Mrs Chia entered the insurance industry. It was then that their eyes were opened to just how vital a carefully thought-out insurance plan is.

'Now, we're aware of the benefits of insurance. It's the first step in any investment plan, that's how important it is,' said Dr Chia.

And the Chias have planned their coverage according to this maxim. They bought more plans to make up for the gap in coverage, but held on to their old policies.

The lion's share of the family's insurance covers Dr Chia as the principal breadwinner. His personal plans amount to a total of $2.5 million in life insurance, split equally between term and whole-life plans, $350,000 worth of critical illness cover and $70,000 in annual disability cover.

Insurance for loved ones in the event of your death can be a rather grim topic, but he said with a chuckle: 'Two-and-a-half million dollars, if invested properly, could give my wife an income of $10,000 a month lasting for 20 to 30 years - that should bring her a smile at my funeral.'

Mrs Chia herself has life insurance cover of $1 million and $200,000 in critical illness cover.

Both of them - busy these days running a multi-level marketing distribution business with Nu Skin Enterprises - also subscribe to group hospitalisation and surgery plans through Dr Chia's financial planning firm as well as ElderShield.

As for their three children, aged 17, 15 and 13, they are insured for $100,000 each in whole-life policies.

But Dr Chia said that this protection is 'incidental', and part of an insurance-linked savings plan rather than an instrument wholly devoted to covering the children.

Aside from personal cover, the family has also insured its property, a 5,600 sq ft freehold semi-detached house in Seletar Hills, for its replacement construction costs in a fire policy worth $570,000.

With all their various plans and policies, do the family's premium payments weigh heavily on their shoulders?

'We should be happy to pay them,' Dr Chia declared. 'It covers my family, and that's what is most important.'

STI: Advice you can use!

Apr 27, 2004

Advice you can use!

Needs will dictate a change in focus

 

CHOOSING the right insurance coverage can be a daunting task. Here are five tips from Standard Chartered.

 

Don't rely solely on your company plan for coverage

 

Otherwise, you won't have any back-up policy when you leave or are retrenched.

 

Adapt your insurance to your needs

 

When you're just starting out, life insurance may not need to be the key focus, although some cover may be necessary in case of emergencies. Focus on disability plans, which will protect your savings and a loss of earning potential should you be unable to work.

 

If you have a family to support, however, life insurance is vital to protect your dependants against the loss of income should the breadwinner die. Disability policies become relatively less important as you build up your level of savings.

 

Finally, medical insurance is the top priority in your old age, whereas life insurance is less essential unless needed for estate planning purposes. Your insurance focus should therefore change according to your needs.

 

How to calculate the life protection cover you need

 

One of the most important things you must consider when buying life insurance is whether your dependants will be adequately covered.

 

Calculate the amount of cover you require by multiplying your yearly income by the number of years you will need to support your dependants. Subtract it by any existing protection you already have.

 

How to calculate the disability cover you need

 

Disability income plans replace around 60 to 75 per cent of your salary. This is different from the 'total and permanent disability' cover found in most life insurance plans. Disability income payments will usually stop when you have recovered, or by a specified age. They may, however, be reduced if you obtain additional cover from your employer.

 

To calculate how much disability income you need, take your total monthly salary and multiply it by 75 per cent. The result will be the monthly income you need replaced under your disability policy.

 

Apply for medical insurance in advance

 

With the rising cost of medical treatment, some insurance to cover this is necessary. Most plans, however, are for the 'healthy', and you may be disqualified from applying for a medical plan because of poor health.

 

So apply for medical insurance in a timely manner, to prevent poor health from making it difficult to find cover.

STI: Work out insurance needs as early as possible

Apr 27, 2004

Work out insurance needs as early as possible

Q  I'VE just started working and earning my own income, and although I understand that insurance is important, I don't want too much of my income to be spent paying the premiums.

As a general guide, how much should I be insured for, and how much should the premiums be?

A  START looking at your protection needs as early as possible. Some people make the mistake of putting it off. As with all insurance, it is best to start early as this is more cost-efficient.

Firstly, approach insurance planning as part of a holistic financial plan. It is important to review your finances in totality. Take into consideration your cash flow, protection, home ownership and planning, and cash and credit management, followed by investment.

As a general guide, you should consider an insured amount of five to 10 times annual expenses.

In your case, you should think of cover in three key areas:

Disability protection: protection and coverage to replace a loss of income as a result of a disability, be it due to an illness or an accident.

Medical protection: provides coverage for hospitalisation bills and medical expenses - critical, as you need to ensure that you have made plans if you need to cater for high medical costs.

Life protection: This provides protection for your dependents by paying a lump sum in the event of a death.

STI: Go for whole-life cover instead of term policies

Apr 27, 2004

Go for whole-life cover instead of term policies

WHOLE-LIFE insurance cover is a lot more expensive than term-life, but it is worth it, Dr James Chia believes.

Under a whole-life policy, your loved ones not only get a payout on your death, but the policy also accumulates cash value over time that the policyholder can redeem or borrow against.

Term-life policies do not rack up a cash value, but that means their premiums are much lower.

Dr Chia pointed out that term plans have their place but people should realise the cover usually expires when the policyholder reaches 60 to 65. So they are mostly useful for temporary, short-term needs: for example, if you are going to be posted overseas for a period of time.

Some financial planners advocate buying term plans and investing the difference in order to accumulate cash value that way.

That approach is suspect, Dr Chia said. 'In reality, people don't invest the difference, they spend it. Moreover, take my whole-life insurance of $1.25 million. You'd have to reap, maybe, $1 million in investment returns if you just rely on investing the difference. How many people can achieve that?'

Whole-life plans, on the other hand, make sure you have some insurance in place when you are older and past the period when companies give term insurance.

Nevertheless, term insurance does have its merits, says Dr Chia's wife, Jackie. 'If your salary is not so high, you can take more term plans, which are generally cheaper. When you can afford it, buy whole-life plans.'

He, meanwhile, suggests regular reviews of your insurance coverage. 'The future may not be an extension of the present. If you earn more, increase your insurance in the future.'

Best-selling finance author Suze Orman, however, begs to differ on the loading up of whole-life policies. She believes in term plans, she told The Business Times last year.

Her caustic take on whole-life? 'You're paying to be served a plate of garbage that if you eat, you'll have financial poisoning.'

First, the sales commissions are the highest among insurance products. Around 150 per cent of a year's premium goes to your adviser, she said, though her figures are based on her US experience.

Second, guaranteed cash values are low and even then, you usually do not break even on your premiums until the 18th year, she claimed - so any customer who wants to cash out halfway will emerge with not only an exit penalty, but also a loss.

STI: Ex-traffic cop's up to speed on his money

Apr 27, 2004

Ex-traffic cop's up to speed on his money
by Leong Chan Teik

YOU may say Mr Ab Majid, 57, was no ordinary traffic cop.

The retired staff sergeant has been as competent in managing his own money as he once was in handling an outsized police motorcycle at speeds of as high as 160kmh.

That despite having left school after Secondary 2.

Years later, he decided to go to night school to get his O-level passes so he would not remain a lowly cop for the rest of his career.

Talk to him about money and investing, and you won't hear him spout a single financial term such as price-earnings ratio, rental yield or return on capital.

No, he has made it the simple and old-fashioned way - through saving, prudent spending and long-term planning.

As a result, he became, last May, the proud owner of a lovely 2,500 sq ft terrace house in Bedok after living most of his life in Housing Board (HDB) flats.

He gladly shows you around - from the lush garden to the air-conditioned living room to the spacious bathroom on the ground floor - and points out details about them.

He declines to reveal the price he paid for the leasehold house but says part of the money came from the sale of two Johor Baru properties he had bought in the early 1990s.

One was a condominium unit and the other, a terrace house.

The condo was rented out to Japanese expatriates for around RM800 (S$359) a month, which translated into an attractive yield of 6 per cent per annum.

The terrace house was his weekend home.

When he sold both properties for RM480,000, he pocketed a profit of RM160,000.

He rode a property boom but don't think it's all luck.

Mr Majid, now a doting grandfather of five, strikes you as the sort who thinks ahead.

As a young man, he had quite a few girlfriends but chose his wife carefully.

'I looked for someone who was working in the government service, which is stable, so she can help support the family,' he remembers. He subsequently married a nurse named Noraini, who was three years his junior.

Over time, he grew keen on the idea of owning a landed property to enjoy his retirement years in.

So he worked at building up his reserves.

In the 1970s, he turned his love of cars into a part-time money-making passion.

Now and then, he would buy old cars, refurbish them, and sell them for a profit of between a few hundred dollars and a few thousand.

Through the years, he was prudent in his spending. For example, family holidays were inexpensive ones in Indonesia or Malaysia. Neither did he burn money smoking or drinking.

He also has his wife to thank for. 'She didn't spend on luxuries or jewellery. She's very thrifty and hardworking, and that's why I love her very much,' he says.

When he didn't know anything about share investments, he gave some money to his better-informed brother to invest.

Mr Majid never rolled over his credit card balance to avoid being crippled financially by its 24 per cent per annum interest charge.

Today, he holds two credit cards, and spurns unsolicited offers by banks to give him more.

All the years of careful spending and saving have led to an ample retirement nest egg.

The biggest chunk of that will come from the sale of their five-room HDB flat in Toa Payoh, which has a small mortgage outstanding. It is up for sale now.

He reckons it can fetch around $450,000 - which will mean a hefty profit as it cost him only slightly more than $300,000 in 1999.

The sharp appreciation in price is due to its location near the town centre, which has been redeveloped in recent times.

While Mr Majid can afford to stop working, he is keeping himself busy as the head of security in an international school here.

He earns around $4,000 a month and collects another $1,000 in pension from the Government.

A major perk as a pensioner is all medical bills incurred by him and his wife are paid for by the Government.

If his financial circumstances have worked out very well, so have his children.

His three daughters are teachers. The eldest, Diana, 30, is pursuing a PhD degree while the youngest, Norhaida, 24, will be starting on a master's degree course. His second daughter is Nazlina, 27.

'All my dreams have come true, thanks to God,' he says.

Since the day many years ago when he walked away unhurt after his police motorcycle crashed into a lorry, he has believed that Someone up there is looking out for him.

STI: HDB home owners caught in sale trap

Apr 26, 2004

HDB home owners caught in sale trap
by Leong Chan Teik

IF YOU don't know how sluggish the property market has become these days, try moving house - it could deal an unexpectedly painful blow to your finances.

You buy your dream home and try to sell your existing one, but you soon find yourself saddled with two mortgages to service for many months.

If the two homes are Housing Board (HDB) flats, you face an HDB requirement to sell the existing one within six months of taking possession of the next.

This requirement has tripped up many home owners.

'We are not talking about one or two cases but many, many such cases,' says Mr Mohamed Ismail, the chief executive officer of PropNex, the largest realtor in Singapore.

When contacted, the HDB told The Sunday Times that in the past six months, 298 home owners had bought a second HDB flat but had not been able to dispose of their existing one within the six-month grace period.

Such people can obtain an extension if they can provide proof that they have made an effort to sell their flat, say real estate agents.

Many more people are edging closer to the six-month deadline.

Says Mr Eric Cheng, group director of PropNex: 'Some clients have become desperate. They call us every single day to inquire if there are any buyers.'

On why people tend to buy their next home first, Mr James Lee, a senior associate sales director of ERA Realty, says: 'The most common question people ask themselves is: 'If I sell first, then where do I live if I can't find a house I like?'

Chances are they would change their approach if they knew that the property market is swamped with sellers with relatively few buyers in sight.

Statistics reflecting the sluggishness of the market include the following:

HDB resale applications totalled 33,586 last year - about half the 65,000 received in 1998; and

Slightly fewer than 4,500 uncompleted private homes were sold by developers last year - the lowest in a decade since detailed data was made available.

Compounding their problem, many sellers unrealistically expect that their homes can fetch prices way above market levels.

In their minds, it was not so long ago that their properties were worth sky-high prices.

Says Mr Lee: 'There are a lot of such cases. If they sell too low, they feel heartbroken.'

When they finally get around to cutting their selling price, they may still not get a buyer.

Mr Cheng says: 'Some owners of executive flats in areas like Tampines and Sengkang are ready to go $50,000 below valuation but there are no buyers.'

Don't be surprised if it takes six or more months to find a buyer, say agents.

If you are selling a semi-detached house or bungalow, you may have to wait for more than a year.

Given the harsh reality, buying your next home first and then trying to sell your existing one can create cashflow problems, aside from you having to service two mortgages.

Mr Sazali Sarwan, a senior associate director of PropNex, tells of a client who has bought a four-room flat and will soon move into that home.

But he has yet to find a buyer for his three-roomer in West Coast.

'He is anxious as he needs the money from the sale to renovate his new home. He keeps calling me, asking if there are any viewers,' says Mr Sazali.

The more desperate cases are those whose existing homes are on the verge of tipping into negative equity - a common condition recently.

A home is in negative equity when its market price is less than its outstanding loan. The owner has to fork out cash to make up for the difference if he sells it.

Mr Lee of ERA says he knows someone who needs to sell his five-room flat at no less than a certain price.

'He has to have the money to pay personal debts as well as the real estate agent's commission. So he is holding on and on until he finds a buyer at his price.'

The home owner is using his Central Provident Fund savings to service the mortgage on both flats.

He cannot back out of his purchase without suffering a financial loss.

The seller will forfeit the deposit and may even sue him, especially if he cannot find a buyer for his flat at the same or higher price.

The seller can sue to recover his loss.

Such risks and troubles can be avoided if home owners sell their present home before committing to the next property.

It is a bit like marriage. You are asking for serious trouble if you fall for a member of the opposite sex and commit to him or her while you are still married to someone else.

 

They're stuck with two mortgages

'We thought it could sell fast...We have now lowered our expectations a lot. We are prepared to sell below valuation, which means we won't get back what we put into the renovation.'

HER rueful comments above reflect the harsh reality discovered by housewife Patricia Chia, 39, who was all joy late last year when she and her husband Victor, 46, fell for a private apartment in East Coast.

They put money down on it, and then tried to sell their Housing Board (HDB) executive maisonette in Sengkang.

'We thought it could sell fast,' she says.

'Our house is very nice, as we had renovated it for almost $80,000.'

Weeks and months passed. A few people came and viewed their flat, which is only six years old.

The best offer was $428,000, well below the $440,000 the Chias had expected. Until their agent, Mr Eric Cheng of PropNex, finds a suitable buyer for them, the Chias will have to stretch their finances to service the mortgages on two properties.

The only bright spot in this difficult situation is that their new home is not an HDB flat.

Otherwise, they would have faced an HDB requirement to sell the current home within six months of taking possession of the next one.

How to avoid the double whammy

IF YOU are planning to move to another home, sell it first, then go shopping for your next home, advise real estate agents.

'When you want to buy, we can show you 10 houses every weekend, if you want,' says Mr Mohamed Ismail, chief executive officer of PropNex, the largest realtor in Singapore.

'But I can't force buyers to see your house.

'I can advertise and advertise but if there are no buyers, there are no buyers,' he adds.

But what if you cannot find a house that you like before you have to move out? Then just rent, say property agents.

A slight variation of their advice: Put your current home on the market while you shop around for your next home, says Mr Eric Cheng, a group director of PropNex.

Shortlist a few units that you like. Return to these units to check if they have been sold after you have found a buyer for your current home.

Alternatively, when you sell your home, you can ask the buyer to agree to stretch the time in which the legal paperwork is completed by, say, an extra month.

This gives you time to search for your next home.

Or, you can agree to the paperwork being completed in the usual three months or so, but you ask the buyer to let you rent your former home for a month or more.

If you cannot find your dream home soon enough, just ship out and rent a home elsewhere, and resume your search.

It is a buyers' market today.

STI: Downgrading: For richer or for poorer?

Apr 19, 2004

Downgrading: For richer or for poorer?
by Tan Hui Yee

THE Yips were getting on in years. Mr Yip's wife struggled up the stairs in their maisonette flat because her worn knees made the trip excruciating. Mr Yip, who has a heart problem, struggled to keep the flat clean.

So the couple, both 58, decided to sell their home last month and move to a four-room Housing Board flat.

Retirees like them make up about 5 per cent of homebuyers on the HDB flat resale market, experts estimate, a figure that has stayed roughly constant over the years.

These people usually downgrade because they don't need that much space after their children grow up and move out.

The Yips, for example, have two grown-up children, a son aged 32 and a daughter aged 24.

Only their daughter is living with them. Their son is married and lives in his own home.

Said Mr Philip Yip, who retired from full-time teaching six years ago: 'I don't want to impose the condition on my daughter that she has to live with us.'

Three property firms interviewed say some retiree downgraders also use the money from selling their homes to pay for their children's or grandchildren's education.

Most, however, use the proceeds to cover their retirement expenses.

But this can be tough nowadays, when bigger flats have fallen out of favour compared to smaller ones.

Last year, for example, the price of a resale three-room flat went up 17.6 per cent, while that of a four-room flat went up 8.8 per cent.

The price of a resale five-room flat, meanwhile, rose by only 1.8 per cent, while that of an executive flat dipped 1.2 per cent.

All this means that the retiree downgrader has to keep a closer watch on his bottom line, and figure out if it is better to downgrade, or to keep his home.

For example, those who bought their homes when prices were at their peak in 1996 and will face a loss if they sell, shouldn't consider downgrading, said Mr Sazali Sarwan, associate director of Propnex.

Their options: Rent out rooms in the flat instead and live with the children, or rent a smaller home while waiting for the flat's price to go up.

If downgrading makes sense, there are several issues to consider: Cost of moving

Mr Joseph Chong, chief executive of financial advisory firm New Independent, estimates it could cost up to $50,000 if you add up the cost of hiring a property agent and movers, the cost of renovating the new home, and the value of furniture that cannot be moved to the smaller place.

Resale levy

Those downgrading from flats bought directly from HDB or from resale flats bought with a housing grant will have to pay a resale levy.

This ranges from 15 to 25 per cent of the declared resale price, or 15 to 25 per cent of 90 per cent of the flat's valuation, whichever is higher.

Cost of the smaller flat

Even if they are cash-rich after selling off their private homes, downgraders should not pay more for an HDB flat than what it is currently worth, said real estate agency ERA.

It said: 'Think about the day you may need to sell off your three-room flat - the higher price you paid for it, the higher your break-even point.'

The mortgage

Those who have to take a loan to buy the smaller flat will face difficulty, because banks are wary of lending to people who have no source of income, say housing agents and financial advisers.

And, at end of the day, downgraders have to make sure they have enough money to live on.

Mr Daryl Liew, an investment consultant with financial advice firm Providend, estimates that a retired couple would need about $2,000 a month for expenses. That would work out to $480,000 in 20 years.

Mr Yip has done his sums and intends to move just down the road from his Bishan maisonette.

He said the decision to move was 'painful' to make because the maisonette was his dream home. But he added: 'It is worth it. It will give us peace of mind.'

STI: In this household, she gives the cue for investing

Apr 12, 2004

In this household, she gives the cue for investing
by Leong Chan Teik

IT IS safe to say that in many families, it is the man who controls the purse strings and invests the surplus savings.

But that is not entirely so with one young go-getting wife, Ms Mah Ching Cheng.

The savvy 24-year-old not only invests her own money, but also her husband's - as well as a sum of money belonging to her mother-in-law.

The brainy Ms Mah - who balances her high-achieving career by chilling out with a game of pool and by learning kick-boxing - is certainly in a position to be in charge.

As an analyst with Fundsupermart, an online distributor of unit trusts, she delves into investment opportunities day in, day out.

She writes about them for Fundsupermart's bimonthly magazine and for its website www.fundsupermart.com

She joined Fundsupermart last year after graduating with a first-class honours degree in banking and finance from the Nanyang Technological University.

It's not just unit trusts that she examines but stocks as well. 'I look out for good stocks and advise my husband on their potential.'

But when it comes to deciding on matters such as holidays and home renovation, it is her husband, Mr Edwin Teo, who makes the final decision.

After all, he is the one with more money and is paying for most of the expenses, she says. An insurance adviser, he started work three years ahead of her after graduating from Ngee Ann Polytechnic.

In investing, he recognises that she is driven to excel. It stems from a passion and need to be financially independent that began as far back as her student days in Commonwealth Secondary School.

'I wanted to free my parents from some financial burden,' she recalls. Her father was a taxi driver and her mother a housewife. They have another child, a boy now aged 10.

Ms Mah, who had virtually zero savings in her student days, began taking on temporary jobs from the age of 16. Her first such job, right after her O-level exams, was as a cashier at an NTUC FairPrice supermarket.

While studying at Ngee Ann Polytechnic, she gave part-time tuition. During vacations, she also worked in places such as Fu Yu Manufacturing and Standard Chartered Bank.

Still, money was seldom enough. 'I felt worried at times, especially during the end of the month when I needed $50 to buy a monthly bus stamp and my bank account was near empty.

'I tried to scrimp during hard times and managed to make ends meet,' she says.

'I felt envious of friends who were able to save quite a lot of money from the allowance that their parents gave them.'

However, the tough times helped forge her character.

'Being self-supporting at an early age made me grow up very fast. I was constantly thinking of ways to manage my time to excel in all that I was involved in - that meant studying, working and dating.'

In the polytechnic, one of the best things in her life happened: She met her future husband.

And she discarded her ambition to become a lawyer, chosing instead to study banking and financial services.

Subsequently, she emerged among a handful of students with results sterling enough to qualify for a place in university.

Her boyfriend and one of her aunts chipped in some money to supplement bursaries she had obtained to see her through university.

Learning about financial markets and investing became a passion. 'I learnt to look at numbers and make something out of them and to apply the theories to real life,' she says.

Beginning from about six months ago, she invested a total of $13,700 in the following unit trusts and the results are:

Aberdeen China Opportunities: Up 22 per cent;

Aberdeen Pacific Equity: Up 7 per cent;

HSBC Indian Growth: Up 7 per cent;

DBS Shenton Thrift: Up 14 per cent; and

OCBC Savers Thailand: Down 4 per cent.

The results look good, partly because she was lucky in her timing. Stock markets rebounded in the second half of last year.

She also invested $10,000 of her husband's money and reaped $2,500 in profit in just four months.

Early this year, she sold off half of the unit trusts that she manages for her husband in order to help pay for their new home. It is a $415,000 condominium of 1,250 sq ft near Paya Lebar MRT Station - a long way from the three-room Housing Board flat she grew up in.

And as she steps up her efforts to become a more savvy investor - she is on the way to achieving Chartered Financial Analyst certification - she will put far behind her those miserable days when she didn't have enough money for a bus stamp.

STI: Family secret: Let the money do the work

Apr 12, 2004

Family secret: Let the money do the work
by Rachel Lin

FOR the Changs, it was a book that changed their financial lives.

Previously, their surplus income went into a relatively low-risk structured fund which locked their money in for more than four years, an investment they were not too happy with because of the meagre returns.

The turning point came last year, when they met a relationship manager with Standard Chartered Bank who introduced them to the best-selling book Rich Dad, Poor Dad by Robert Kiyosaki.

This book talks about how one should conduct one's investment life and states that one doesn't need to have a high income to get rich.

'It gave us some insight into the basis for investing, like a philosophy and a strategy for investments,' said 48-year-old Nathanel Chang, an agent who sells international direct dialling plans.

He was so enthused by the book that he urged his wife and daughter to read it.

Said Mrs Amy Chang, 45, a freelance travel consultant: 'The book really taught us how to live our financial lives.'

The Changs decided to make their money work harder for them. Partly on the advice of the relationship manager, the family now has a finger in every pie - from country-specific funds invested in Malaysia and China to shares.

Most importantly, they're satisfied with the returns.

The average gains the Changs have enjoyed from the funds they have redeemed were 10 per cent.

In fact, they're considering making the plunge into one of the riskiest classes of investment: foreign currencies.

'What's important here is patience,' said Mrs Chang. 'Our philosophy is: Do not over-invest, have sufficient funds for your daily expenditure. Only invest your surplus.'

Added Mr Chang: 'Whenever we consider investing, we have to understand fully what the salesman says, weigh the possible gains against the risks and decide which is more probable.'

When it came to their biggest investment, however, the Changs had a strategy of their own.

They recognised the key questions: How much to borrow for a home loan, how long the tenure should be and the extent to which they should draw on their Central Provident Fund (CPF).

The home they now live in, a 1,000-sq-ft three-room executive condominium in Simei Green, cost around $500,000.

The Changs did not borrow a single cent to pay for it.

Instead, they used their CPF savings and proceeds from the sale of their previous home, a Housing Board (HDB) flat in Tampines, to fund their purchase.

They had bought the HDB flat with a loan that was paid off in five years - an unusually short period.

'We don't believe in over-borrowing,' declared Mr Chang. 'We wanted to take the smallest and the shortest loan that we could manage.'

Savings-wise, the family aims to put aside 30 per cent of their monthly income to tide them over their retirement, perhaps in Malaysia.

The Changs have started saving $500 a month for their daughter's education at a local university under a Prudential Assurance plan that they took up last year.

On top of it, they bought a foundation insurance which promises to pay $40,000 for 16-year-old Gillian when she reaches the age of 21.

The plan attracts yearly premiums of about $700.

Nevertheless, the Changs are not taking their comfortable position - with total assets of more than $800,000 - for granted.

Mr Chang said that the family has life, personal accident and health insurance plans - a total value of $250,000.

The premiums come to about $4,000 per annum.

'Life is unpredictable, after all,' he said.

Furthermore, they have set aside six months' worth of emergency funds to provide a cushion for their normal expenses should any unforeseen circumstances arise.

There is no perfect formula, but the Changs appear to have done well handling the five key areas of planning their personal finance: emergency funds, protection, home ownership, cash management and savings, and investment.

Mr Wilson Chia, head of consumer banking at Standard Chartered, said you should get these basics right.

'This will build a solid foundation upon which your personal savings and investment strategies can succeed and support your financial goals.'

To allocate your income in these five areas, first come up with a personal income statement.

Tabulating your income and expenditure will help you manage both inflows and outflows more effectively.

Equally important is a personal balance sheet, which lists all your assets, including insurance policies, investments, property, home and personal loans.

This balance sheet should be managed such that you do not borrow substantially more than what you can pay.

And finally, it's important to get the whole family involved, said Mr Leong Sze Hian, a board member of the Society of Financial Services Professionals.

'It's hard to manage your expenses if you don't get all your family members involved in tracking inflows and especially outflows.

'You need to get everybody involved so you know where your money is going,' he said.

STI: Stretching your home loan just doesn't pay

Apr 6, 2004

Stretching your home loan just doesn't pay
by Leong Chan Teik

WHEN you are 20- or 30-something, it's hard to imagine being 60-something.

You can't be sure of your health, wealth and employment over the decades leading to that point in time.

But banks will let you borrow a big sum of money to be repaid in monthly instalments until you are 60-something.

OCBC Bank, for example, will lend you money for up to 40 years to pay off your HDB flat.

At DBS Bank, you can stretch your mortgage till you turn 70 - or over a period of 35 years, whichever is earlier.

All this is a far cry from when home loans usually ranged between 10 years and 20 years back in the 1980s.

Surging property prices, among other changes, have since created a consumer demand for longer mortgages, and banks have responded.

Whatever your age is, long repayment periods coupled with the current low, low interest rates can seduce you into taking up a big home loan you may be better off not having.

Mr Choy Kum Yuen, 46, tells of his amazement when a 20-something friend recently mentioned she had just saddled herself with a 35-year home loan.

This was for a condominium unit whose downpayment her parents had helped her with.

The duration of her loan contrasts sharply with the 15-year one which Mr Choy, a vice-president in a transport company, took in 1992 when he bought his present home, a private apartment.

'I remember my main consideration then was to pay off the loan by the time I reached my 40s,' he says. 'The idea was to save over the next 10 years or so for retirement.'

Mr Choy and his wife paid off their last instalment in December 2002. That was nearly five years ahead of schedule, because along the way they accumulated extra savings and regularly channelled part of that to repay the loan in addition to the monthly instalments.

'After the last instalment, in celebration, we went to South Korea for a skiing holiday,' remembers Mrs Darrell Choy, a senior executive in a financial institution.

'It sure feels liberating not to have a housing loan over our heads anymore,' she adds.

The Choys have not calculated it but there were significant savings in interest payments from their shortened mortgage.

Associate Professor Benedict Koh, who teaches personal finance at the Singapore Management University, worked out an example.

Suppose you took up a 35-year monthly-rest housing loan of $600,000. (Monthly-rest refers to the basis of calculating interest on a loan, where the principal is reduced every month.)

The interest you would have paid after 35 years adds up to $671,813, based on a long-term average interest rate of 5 per cent. Note that the total interest payment is higher than the loan you took.

If the loan period was 20 years instead, you pay total interest of only $350,336.

That is a significant reduction of $321,477.

'I often joke with my students that many Singaporeans are potential millionaires. But they don't become one because they hand most of their money to the bank,' says Prof Koh.

There is no magic number in response to the question of how long an ideal housing loan is.

As a general principle, do not use more than 40 per cent of your monthly disposable income for servicing of all types of loans, says Prof Koh.

This includes mortgage payments, instalments for renovation loans and car loans as well as credit card payments.

Also, consider making partial repayments of the loan principal whenever you have surplus savings, he says.

When you do so on a loan with a 5 per cent interest rate, that is equivalent to earning a guaranteed investment return of 5 per cent on your money, he says.

Mr B.J. Ooi, director of KPMG Tax Services and head of KPMG's personal financial services unit, says: 'Most of my clients try to pay off their housing loans early. And they are savvy people.'

If the interest rate on your housing loan is as low as 1.5 per cent, you would not find it as attractive to repay your principal, he says.

But for many people, the rates are higher.

Real estate agent Raymond Ho, a senior associate director of HSR International Realtors, offers some reasons a long mortgage can be attractive and beneficial, especially to first-time home owners.

By opting for a long loan, young people - or anyone else for that matter - can get to buy their dream home earlier, he says.

They don't have to cough up a lot of cash every month to service the loan.

And they can depend on their Central Provident Fund savings to service a big chunk, if not all, of the monthly mortgage.

But Prof Koh asks: Why not settle for a more 'humble' dwelling which you can buy with a reduced loan tenure?

Instead of a fancy condominium unit, why not an HDB flat? Or have you raised your expectations so high that only, say, a Pasadena condominium (at Novena) or Water Place (East Coast) will do as a first home?

Tough economic times that you may run into along the way can make you regret you over-committed to a housing loan.

Mr Choy says: 'I know of at least two persons who wished they had finished off paying their housing loans, given the uncertain economic times, shortening employability and high costs of living.'

If you stretch the loan period to the maximum, you have little breathing space, moneywise, when interest rates rise from their present record low.

The spectre of your house being repossessed by the bank will haunt you.

Prof Koh says: 'Making a housing loan decision based on current interest rates is myopic. It is also clearly a case of poor financial planning.'

Just about every expert says that there is no way that interest rates will stay where they are now for very long.

And that's a far greater certainty than what your financial circumstances might be when you approach 60-something.

Set aside money for other pleasures

THE Choys believe that if you don't over-commit your finances to a home, you will have room for other meaningful pleasures in life.

For them, one of these pleasures is a family holiday every year to places such as Australia, South Korea and Japan.

'We can't enjoy these holidays if we commit every cent to our home. That would be depressing,' says Mr Choy Kum Yuen, 46, a vice-president of a transport company.

There are other big goals too, such as ensuring that their retirement nest egg and their children's tertiary education are well taken care of.

To achieve the goals faster, Mr Choy has invested some money in stocks that pay good dividends, such as Singapore Post.

Having paid off the loan on his home in December 2002, he has more money for investing.

He and his wife bought their 1,335-sq-ft freehold apartment in Balestier, which has three bedrooms, for about $455,000 after their first child, Jessica, was born in 1991.

They subsequently had a son, Nigel, who is now 10.

'A happy home is not about how big or opulent the house is but about the people living in it,' says Mrs Darrell Choy, a senior executive in a financial institution.

And as the plunge in property prices over the past seven years has shown, a home is not an investment you can count on to fund your retirement.

Says Mr Choy: 'The myth of ever increasing property prices has been shattered, so don't think that you can downgrade your property to 'free up' its value when it's time to retire.'

STI: Are they nuts?

Apr 6, 2004

Are they nuts?
by Leong Chan Teik

WHEN Mr Winston Tan left the safety and security of a Ministry of Finance post to run a health-food business, friends said: 'Are you nuts?'

He was an assistant director for financial policies, involved in policies such as those relating to how government ministries spent their budgets.

He swopped that heady career for a business selling mainly nuts and dried fruits with a friend from their Nanyang Technological University (NTU) days.

Even their capital was peanuts - just $50,000.

Astonished bosses at the finance ministry told their departing colleague that if it came to the crunch: 'There's always a job here for you.'

But four years down the track finds an upbeat Mr Tan, 33, who says: 'Instead of putting money into stocks and bonds, we invested in a business that is not high-risk. It's steady and we are confident of the returns.'

His wife, Rossina, was shocked at his decision to quit the ministry but expressed her support for his move anyway.

They did not have pressing money commitments to worry about - just a mortgage on their five-room Housing Board flat in Ang Mo Kio.

And they could get by on the income of Mrs Tan, a finance manager with a media company.

'We figured we would just live more frugally,' recalls Mr Tan.

His partner, Mr Nicholas Lee, 32, who is single, remembers that friends and colleagues raised their eyebrows when they heard of the business.

'They said: 'After all the years of studying, and you are going to sell kacang puteh?' '

Mr Lee, a business graduate, got his inspiration as a project executive with Spring Singapore, helping to upgrade small businesses.

'I met successful businessmen, and was inspired to try something on my own while I'm still young and have minimal commitments.'

Today, the pair operate out of the new Hudson Technocentre in Paya Lebar, which they moved into just last month.

At 1,500 sq ft, their office is spacious and shared with two start-ups run by friends from school days.

It is air-conditioned - a convenience they did not have at their first office which was an oh-so- tiny 80 sq ft, in Woodlands. They were there for about 1 1/2 years.

Their new office is a strong sign of how far their business, Fave, has come.

Their progress reinforces their early conviction that the health-food business is one with a glowing future.

They had done their research for over a year while they were still in their old jobs. The pair surfed the Web, and they asked friends who were living overseas for help and information.

Says Mr Tan: 'Our business concept is a lifestyle concept that will grow with each generation.

'It's unlikely that people will cut back on wellness as they get richer.

'Instead, they will spend more on exercise and on health food.'

Mr Lee chimes in: 'Singaporeans love to snack, why not snack healthily, minus the preservatives, salt, oil and harmful agents?'

Holding up a packet of pistachio nuts, you get curious about their 'unclean' appearance and the label which says 'Unbleached pistachios'.

Mr Tan explains: 'Unbleached means it's 100 per cent natural - what you see on the tree.'

In contrast, pistachios are normally bleached to remove stains on the shells. But some customers are sensitive to the bleaching agent, he says.

The nuts and dried fruit such as apricots, cranberries and flax seeds are sourced from traders in Singapore and overseas.

Fave sells 36 items which come from countries such as Australia, the Middle East and the United States.

A key selling point is its below-market rates. For example, Fave sells cranberries for $3.50 per 150g compared to $4.50 per 100g in health-food outlets.

Still, the initial one or two years were tough for Mr Tan and Mr Lee.

They worked from 7am or 8am until late in the evening, and sometimes over the weekends. They still do.

Being a small start-up, the pair were often treated shabbily. They tried to hold promotional events at department stores and supermarkets but were ignored.

Initially, they sometimes paid themselves $1,000 a month, sometimes nothing. But they doggedly kept selling the nuts and fruits and organising workshops on wellness and nutrition.

They can custom-pack as many as hundreds or thousands of goodie bags of health food for corporate clients during events such as health-promotion days or walk-a-jogs. They also do private labels for health-food retailers.

Clients have included schools, the Immigration and Checkpoints Authority, NTU, Economic Development Board and Singapore Press Holdings.

Sales now reach between $30,000 and $50,000 a month. In a year or so, they hope to break the million-dollar mark in annual sales, says Mr Tan.

It doesn't look likely that his former bosses at the Ministry of Finance will be getting him back.

STI: Bring up baby

Mar 31, 2004

Bring up baby
by Leong Chan Teik

RAISING children is expensive, but how expensive?

A check with several financial industry sources and academics finds no study done on the brutal economics here - at least not in recent memory.

So we asked Ms Anne Tay, vice-president of wealth management at OCBC Bank, to crunch some numbers.

The result would be interesting and relevant to a hot topic - why Singapore is facing a falling birth rate and what can be done to arrest the downtrend.

Ms Tay's calculations, details of which are in the graphic above, suggest that many families fork out $950 a month, or $275,000 over 22 years, per child. That is what it will cost to raise a child from birth through to a local undergraduate education estimated at $22,600.

Ms Tay says the figure, which does not factor in inflation, applies to a rather basic lifestyle.

If we are talking about a more indulgent lifestyle, which means among other things hiring a maid, the figure rises to $1,800 a month, or $500,000 over 22 years, she calculates.

The Sunday Times approached three families to do similarly straightforward estimates for their own children.

They were asked to ignore possible costs such as no-pay leave, a spouse opting for part-time work, and buying a bigger home or car for an expanding family.

These parents were picked from the same age category - the early 30s - so that their estimates can be compared based on a similar number of years of future expenses.

The families came up with the following figures: $200,000, $326,000 and $375,000. These reflect what they are willing and/or able to spend on their children.

For simplicity, the figures do not take into account inflation.

If inflation is to be assumed, then so must income growth. Chances are they could end up negating each other, which means that people's level of affordability would not change over time.

Generally speaking, the figures are not out of line with those in the United States, where government surveys in 2000 show that a middle-income family spent about US$165,630 (S$281,000) to raise a child to age 18.

For details, go to: www.usda.gov

In Singapore, the three families who estimated their children's expenses were surprised at their own findings.

Did they then wish they did not have children and have, instead, hundreds of thousands of dollars more to spend on themselves?

Replies Ms Angel Chan, 32, a senior executive in a statutory board and mother of a four-year-old son: 'No! I'd rather have the kid!'

She adds, though: 'But to have another one, we'll have to think very carefully. Money is not the issue. Bringing up children well is tougher than any job. It's trial and error because no one taught us how to bring up children. We try our best and it requires a lot of commitment.'

Her philosophy is similar to that of former US First Lady Jacqueline Kennedy, who once said: 'If you bungle in raising your children, I don't think whatever else you do matters.'

To Mr Ernest Teng, 33, who runs an information technology business, the sum of $200,000 to raise each of his children can be translated to mean a lost opportunity to own a BMW car. But no matter, he says. 'It's not so much the dollars and cents. It's the intrinsic joy of having children.' (By the way, he drives a Toyota Picnic, a multi-purpose vehicle that costs half as much as a BMW.)

Mr Leong Sze Hian, a board member of the Society of Financial Services Professionals, disagrees that the cost of raising children is high.

'I used to work at the airport and there were labourers who had as many as six children each. And they got by. Relatives, instead of maids, helped look after the children.

'At the end of the day, it's not a question of whether children are expensive or cheap to raise. It's a question of lifestyle.'

That is to say, what is a near-necessity to one may be a frill to another.

Mr Teng tells of a clear example of a frill. 'I have a rich friend who has given his four-year-old son a mobile phone. Yes, four years old!

'The phone is for the child to call his parents to let them know when granny fetches him from play school.'

Another example: a $250-a-month course on the so-called Shichida Method, whose advertisements make the incredible claim that it can 'turn your child into a genius'.

Some parents like insurance adviser Sam Chee Yee, 35, are all for it. Mr Sam's four-year-old son has started on the course.

What can you do to provide for your children, especially their university education?

OCBC's Ms Tay suggests that you take some risks by investing in unit trusts and equities.

'Do not be too conservative. To achieve your goals, you may need to take some investment risk.

'They may provide you with potentially better returns. Ideally, you should invest your savings according to your risk tolerance level, time horizon and investment objective.'

And you need to review your financial plan from time to time as your financial circumstances change.

The cost of raising children is one half of the story. It is a good bet that you stand to receive pocket money from your children when the latter start working.

What goes out can come back full circle. Mr Teng, for example, gives his parents around $700 a month. If his children give him that sum in today's dollars, they would be paying back most of what it would cost to bring them up.

Over 20 years - for example, when Mr Teng is aged between 55 and 75 - $700 a month adds up to $168,000. 'Of course, it's very hard to be certain about the money that we will receive from our children,' he says.

How to increase the odds of that nice payback happening?

Just about every parent will agree with his reply: 'It's the values - filial piety, caring for your family - with which you raise your children. These will influence the outcome.'

 

Children don't come cheap, but the returns are immeasurable
Couple:  Ernest Teng, 33; Linda Sim, 32
Occupations:  Technopreneur; Legal secretary
Children:  Two daughters aged one and four
Home:  Five-room HDB flat in Sengkang
Maid: No
Estimated cost of bringing up a child: $200,000

THE money part of raising children does not bother Mr Ernest Teng, managing director of Gigatt, an information technology business.

His two young daughters will cost him and his wife about $400,000 in total to raise, he estimates.

And the figure is arrived at without indulging them excessively. He is mindful of what a novelist once warned against 'handicapping your children by making their lives easy'.

And he does not want his children to miss out on the joys of growing up by having their lives crammed with classes. The rat race can wait, in other words.

'I won't splash on extra classes because I'd rather they learn through playing and from their environment.

'Enrichment courses will always be there and can be taken up any time but our kids won't be kids forever.'

Still, by no means will it be an ascetic life. Like many of their peers, they will have pocket money for movies by the time they reach secondary school, and get a mobile phone then too, for example.

And he recognises they would want to dress well ('I know women are crazy about clothes!'), so he is prepared to let them spend up to $500 each a year on clothes.

He has been saving up through insurance policies to pay for their university education in Singapore.

Add the savings to some investments in stocks, unit trusts and foreign currency deposits, and he reckons there would be enough to pay for their tertiary education.

The Tengs are not planning to have more children - a decision that has nothing to do with government incentives.

'Couples who are looking at more tax rebates and incentives from the Government to have children are missing the woods for the trees,' says Mr Teng.

'Beyond a certain economic point, raising a child is a personal choice, involving sacrifice, time and effort. But the rewards are immeasurable!'

Paraphrasing an inspired piece of writing he read somewhere, he says that for the money he spends on them he will get the following:

Naming rights. Glimpses of God every day. Giggles under the covers every night. More love than his heart can hold.

Someone to laugh himself silly with, no matter what the boss said or how his stocks performed that day.

Great bang for his buck. He gets to be a hero just for retrieving a frisbee off the roof, taking the training wheels off the bike and removing a splinter.

An education in psychology, nursing, criminal justice, communications and human sexuality that no university can match.

A ranking right up there with God. After all, he has all the power to scare away monsters under the bed, patch a broken heart, police a party and love the children without limits.

 

Nothing's too much to give up for son's tertiary studies abroad
Couple: Mike Ng, 32; Angel Chan, 32
Occupations:  Finance manager; Senior executive in a statutory board
Children:  One son aged four
Home:  Terrace house in Upper Bukit Timah
Maid: Yes
Estimated cost of bringing up a child: $550,000

AN OVERSEAS education is the key reason the Ngs' projected cost of raising their son is an eye-popping $550,000.

They have estimated the cost of a foreign education at around $200,000. Strip that out, and replace it with a local university education (estimated at $25,000) and it will cost them about $375,000 in all to raise their son.

It's still relatively high but that reflects their combined income and their willingness to spend a lot on the child.

Another factor: the Ngs may not have another child.

Ms Angel Chan explains why they are keen on a foreign university education for their son: 'Foreign graduates live on their own for several years, and those I know seem to be much more confident, open and flexible than local grads.'

She will also be supportive of any non-mainstream course her son might pursue, such as theatre, which is available only abroad.

The Ngs' zeal for their son's development has led them to plan to enrol the four-year-old soon in classes such as drawing, piano and violin. Later on, he will have speech and drama classes too.

'All this will provide the foundation for developing soft skills. At this stage, it is important to instil confidence in the child, as well as an interest in learning,' says Ms Chan.

It's not just paid lessons he will be exposed to. Simple family outings to the park and watching educational TV programmes are also part of his upbringing.

'I read a lot to my son as that bonds us together, as well as improves his vocabulary,' she says. 'I also hope to inculcate reading as a lifelong hobby.'

She has budgeted $1,300 a year for books, video games and other computer-related expenses.

When he gets to secondary school, he will attend courses like leadership training, as well as workshops on other skills.

To partially fund his university costs, the Ngs are regularly putting aside money in an endowment insurance policy which is expected to pay $40,000 in 19 years. At the moment, they channel most of their savings into their bank accounts. They do not invest in stocks or unit trusts.

If there is one sacrifice they are already making, it's a nice car. Their current one is more than 10 years old.

When the time comes for their son to head overseas to further his education, they are prepared to make an even bigger sacrifice, says Ms Chan.

They may downgrade their home, a freehold 2,200-sq-ft terrace house which they bought for about $1 million two years ago.

 

'Only the best' for kids, like lessons to turn them into geniuses
Couple: Sam Chee Yee, 35; Teo Wai Choo, 32
Occupations:  Insurance adviser; Manager in a publishing company
Children: Two boys aged four and seven
Home: Condominium unit in Upper East Coast Road
Maid:  Yes
Estimated cost of bringing up a child: $326,000

IF MR Sam Chee Yee's projection of the cost of bringing up their children looks high, it is because he and his wife, in his own words, 'want the best for our children'.

That is why the couple subscribe to StarHub Cable Vision ($30 a month) for its educational channel.

And their two sons attend a course on the Shichida Method of learning, whose organisers regularly advertise in this newspaper as being able to turn your child into a genius.

The cost: $250 a month.

The Sams go on at least a holiday a year so the children get to see and experience more of life.

This year they have been to Bangkok (cost: $3,000). Last year, their plan to travel to the United States (cost: $15,000) was derailed by the Sars outbreak in the region.

In the examples above, the holiday costs have been bumped up by the cost of taking a parent and/or parent-in-law along.

For their children's higher education needs, the Sams are counting on their insurance policies.

Insurance policies, which represent a way of enforced savings, offer better returns than the bank savings account.

They are also a safety net because the policies will still cover the children's education if Mr Sam dies, or suffers total permanent disability or is struck by critical illness.

The Sams park $350 a month in a variety of policies that are expected to have cash values of $125,000 after 20 years.

They also have a small investment in unit trusts and shares.

Looking back at the time when he himself was growing up, Mr Sam says: 'It is definitely more expensive to bring children up these days.

'And now, there is much emphasis on academic excellence. When you have fewer children, you cannot risk any one of them not doing well.

'So you put them into a variety of enrichment programmes and these are not cheap.'

The Sams do not plan to have more children, as they do not have the luxury of time to devote to them. 'Both our children are demanding on our time.'

And of course, there is also the question of money.

Says Mr Sam, who is an insurance adviser with Prudential Assurance: 'We are now spending nearly $1,000 a month on each child. If we have, say, four children, I can provide them only the basic, the extras will be gone.

'This is a question of quality versus quantity.'