Sunday, October 21, 2012

Role reversal: When it's your turn to take care of your parents

If you’re a working professional in your thirties, expect to see your relationship with your parents flipped into reverse, sooner or later. Mom used to take care of you when you were sick; now you’re the one making tinola while she’s in bed with the flu. Dad once handled the hospital bills for your operation–now he’s in the O.R. and the receipt for the procedure has your name on it.

The financial part of the role reversal often throws plenty of Pinoys for a loop. Sure, you’ve got your own health needs covered—now you’ve got to cover mom’s and dad’s too? They’ve taken care of you for so long—how do you handle taking care of them for a change?

The few who are prepared to handle the situation didn’t get there overnight. “The people who prepare think many years down the road,” explains Maricris San Diego, vice-president and personal banking head of the Bank of the Philippine Islands. “Their decisions in life—the lifestyle they will lead, when they’re going to retire, and the kinds of investments they will make—are determined by their responsibilities.”

So preparing for the inevitable begins with expanding your field of vision. Because your financial responsibilities don’t stop at your own spouse and kids, you’ll have to work your parents’ needs into your portfolio as well. San Diego believes you’re in a good position if the following are put in place:

Regular savings that cover your parents’ needs. San Diego thinks that young professionals in their 20s are in an excellent position to begin building an emergency fund. “There’s a longer period over which they can build the pot,” she says. “And there are facilities through which you can regularly save: scheduled transfers into your savings account, or regular subscription plans into an investment account.” San Diego suggests that the savings be put in a liquid account that can be easily tapped when something comes up—“a high-yielding deposit account, an SDA (special deposit account), or a short-term investment,” she says.

One of San Diego’s friends sets aside savings for her own widowed dad. “She has to have an emergency fund enough for the dad to fund his medical bills, enough for one major operation,” she recalls, adding that the figure isn’t set in stone: “It really depends on the health of the parent.”
Photos: How to save for your retirement

Updated insurance, SSS/GSIS and PhilHealth paperwork. “Make sure, even at an early stage, that your parents’ SSS and PhilHealth status are in order,” says San Diego: ensure that their contributions have been recorded properly and their benefits have not been frozen. PhilHealth may not be able to cover most of your parents’ health-related expenses, but every little bit helps. “PhilHealth benefits will help a lot in the hospitalization, especially,” says San Diego.

Don’t count health insurance out at this late stage. “There are medical insurance companies that actually offer medical insurance coverage for people who are up to 60 years old,” says San Diego.

A habit of seeking preventive care. By getting your parents’ accurate medical profiles, you can get any future health issues on the radar before they crop up, and address them now before they become major money-sapping emergencies. “You should consult the family doctor—what are the regular checks that should be done at particular ages?” recommends San Diego. “CBC, mammogram, whatever.”

With all these in place, you can complete the circle without unnecessary difficulty, accomplishing a role our society means us to play sooner or later. “In our culture, we take care of each other,” San Diego says. “Our parents took care of us, we have to take care of them back.”

How Americans Spend Their Money

Compared to other countries, the United States spends the most on housing and healthcare and the least on food, clothing and transportation. The question is why do Americans spend so much on housing and so little on food? What factors come into play on determining the price of these necessities?

HealthcareAmericans pay more for healthcare. In fact, Americans pay nearly double that of the majority of other countries on a per capita basis. Countries with subsidized healthcare pay significantly less per capita and are able to allocate their funds elsewhere.
TransportationIf you compare American transportation costs to that of the Japanese and the British, they look high. Simply put, North Americans just walk and bike ride less than those in Japan and Britain. The metro system in Europe is outstanding and things are a lot closer together in both countries. This makes it easier, and more practical, to walk and ride your bike. In turn, this saves Japanese and British citizens a lot of money.
If you compare the United States to Canada, you will see that fuel is another cheap commodity. On average, Americans pay a lot less than Canadians for fuel. At almost any given time there is a dollar or more gap between a gallon of gas in the U.S. and a gallon of gas in Canada.
FoodAccording to The Atlantic, Food in the United States is highly subsidized (corn subsidies), and it is cheaper than in many other countries. Large quantities of inexpensive food are readily available to Americans. However, the food items available may not be the healthiest option and may attribute to increased obesity rates . Foods such as potato chips are easy and cheap to produce and may end up being a cheaper alternative than fresh fruits and vegetables.
Fast food is a great example of how convenience has become a less expensive option. Going to McDonald's or Wendy's has become second nature to some Americans and some would argue that it's actually cheaper to eat out than to cook at home.
HousingAmericans put a large amount of their paychecks towards their housing costs. An infographic from The Financial Post, published in June, shows that Americans pay roughly $4,500 for rent (two bedroom luxury in New York), while their Canadian counterparts only pay about $2,200 (two bedroom luxury in Vancouver). There are many other large American cities that are extremely expensive to live in.
ClothingClothing is also an area where Americans pay less. Large corporations have the ability to mass-produce goods and are therefore able to sell them for less. Many malls in the United States have outlet stores that sell articles of clothing for a fraction of the price the clothes would be in the main store.
Americans are able to purchase clothing for relatively less, and as a result they are able to buy more. If a consumer was to feel satisfied after purchasing five shirts then he or she would reach this level of satisfaction for less capital in the United States than in neighboring countries. This might influence why Americans spend less on clothing than other countries.
The Bottom LineIn the end, consumers spend differently because of the values they were taught and the relative costs of the items in their countries. What is expensive in one country may be cheap in another. Certain countries may value bigger homes, while others value fresh food. Perhaps Americans spend the way they do because they are building their American Dreams. It has been ingrained into us to want the biggest and best of everything.

5 money mistakes new graduates must avoid

Every year millions of students enroll in college. These young adults are largely confined in the relatively safe, secure and structured environment that is academia, but new life lessons are learned, as students transition into the real world. How graduates approach financial planning in the first few years after college can set the tone for their financial habits down the road. By adhering to a strategy and plan, recent college graduates can avoid mistakes in how they deal with their personal finances.

Real World Lesson #1: Plan to Save


After graduates celebrate their conquest of college term papers, exams and theses, a large chunk of them take whatever jobs they can find. Some are disciplined enough to pursue the right field for them. However, recent grads too often find the traditional workplace routine unfulfilling or unchallenging. Unreasonable spending habits often take over as an escape from the daily grind, and entire paychecks are spent on regular expenses (such as rent and utilities), purchases (such as an automobile and furniture) and luxury items (such as travel and an oversized television).

Read: Budget Without Blowing Off Your Friends

Although you should enjoy your newfound freedom, you should also strive to save a nice portion of your paychecks. The recurring cash flow can be placed in a combination of stock, bond and money market investments. Once you are no longer living in the comfort of your parents' home, it is prudent to plan for contingencies, such as automobile accidents, personal injury, lay-offs and other unforeseen expenses.

Real World Lesson #2: Money Spent Is Money Lost

Having been broke for four years or so while in college, recent graduates naturally equate a steady paycheck with newfound wealth. No longer subject to the disagreeable taste of dorm food and late-night snacking on hot noodles, young adults easily form a new habit of transforming their recurring income into regular dining at upscale restaurants, bars and clubs.

In the real world, assets either appreciate or depreciate. The purchase of a car is the purchase of a depreciating asset because the car diminishes in value as soon as it leaves the lot. The same is true for furniture, clothing and expansive television screens.

Several factors can help create real financial security:

The performance of assets that appreciate over time, such as blue-chip stocks, dividend-yielding bonds and homes.

Investing in yourself as a professional to improve your prospects for growth and increased income. By investing money each month to improve your performance in your chosen field, you can expect to earn more promotions and higher pay over the long run than your complacent counterparts. These personal investments can take the form of training, online classes, industry certifications, books and seminars.
In a dynamic and competitive marketplace, paychecks provide only the illusion of security; it's how you use your paychecks that determines your financial well-being.

Read: The 10 Commandments of Investing

Real World Lesson #3: Control Debt Before It Controls You

Depreciating assets and reckless spending often lead to only one thing: debt. Debt devours your cash flow and negates your assets, skewing your personal net worth toward the negative side. Set time lines for eliminating your various debts, including school, car, credit card and home loans. Pay off the debts with the highest interest rates first—that's just common sense.

There is good debt; you can use other people's money to buy appreciating assets, essentially using other people's money to make money for yourself. That's how the private equity people do it. But the rule of thumb is to discipline yourself in executing your plan of attack. Kill the debt beast, whatever its form, by a certain deadline.

Read: How To Invest When You're Deep In Debt

Real World Lesson #4: Become a Good Credit Risk

Paychecks are vulnerable to being reduced or cut off altogether. In Lesson No. 3, we point out that if poor habits and consumption behaviors are not kept in check, debt can be financially disastrous. However, large transactions do exist that necessitate the use of debt—the wheels of the economy would grind to a halt if consumers had to bring in sacks of cash in order to pay the full value of a car or home up front. That's where credit comes in.

Manageable debt, as a means of establishing a good credit history and acquiring appreciating assets, helps recent grads become financially credible to lenders when it is time to take out an auto loan or mortgage. Additionally, extenuating circumstances may require a recent graduate to take out an emergency loan. Manageable debt means that payments and the principal balance are easily affordable and that there is a target time line for eventual pay-off.


Real World Lesson #5: Face Facts - Get Life Insurance

Death is stressful and expensive for survivors. Lack of foresight and planning can lead to financial distress for your family members. Life insurance can help alleviate much of this stress at a critical time.

The Bottom Line
Personal finance is a critical area for your mental and emotional well-being. As a student, IQ, grades, standardized test scores, popularity ratings and tolerance for alcohol are the benchmarks against which your teachers and peers judged your success. Once you graduate, personal finance should become one of your dominant priorities.

Unfortunately, the educational system—while providing interesting theories and insights on the universe—provides little in the way of real-world preparation for students in the areas of personal finance, workplace challenges or life's other adversities. A strong personal balance sheet and income statement will go a long way in helping you to overcome these challenges and maybe even find new and exciting opportunities to increase your net worth.