True financial security
The power of compound interest has been extolled by the wise, from Albert Einstein (though his reference to it being the eighth wonder of the world may have been misinterpreted) to Warren Buffett (who says, “Time is your friend; impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market.”)
Likening compound interest to a snowball that increases in size and speed as it goes downhill, Buffett attributes his habit of saving early and investing regularly to his success in generating huge payoffs for himself and his clients.
Contrast this with many Filipinos who still fear investing in stocks, mutual funds, even bonds, lest they fall victim to scams or other traps. Sadly, scams are ubiquitous today, but saying no to all investments is a barrier to growing your wealth. Educate yourself instead about how to avoid scams, and at the same time, how to diversify your money in thoughtful ways. Start small, learn the basics, ask help from experts when needed.
Because of inflation, market risks, world turmoil, your earnings lose value quickly, which means that even if you have a steady job, this is no guarantee that you will be financially secure. Pensions are often less than what you expect, especially if illness or other emergencies arise.
“Contrary to popular belief, financial security is not synonymous with wealth,” says financial counselor Rick Munster in Money Fit. “You don’t need a mansion or a six-figure salary to feel financially secure. In fact, even those with substantial incomes can struggle with financial insecurity due to mismanaged money or overwhelming debt.
“True financial security is less about the amount of money you have and more about how well you manage it. It comes down to control: control over your income, your savings, your investments, and ultimately, your future.”
Planning for the long-term means some degree of discipline now. Rather than splurging on a new phone when you get a bonus, invest it prudently. Many Filipinos give money to family, and while this selfless act is enshrined in our culture, “there’s a fine line between helping and sacrificing your own financial stability,” says financial adviser Christopher Cervantes in BusinessWorld. “When’re constantly helping others out, you may end up needing help yourself. The best way to truly support your family long-term is to ensure your own financial foundation is strong first.”
As for lending to friends and family due to often-misplaced “utang na loob,” Cervantes says, “We feel obligated to say yes, even if it means borrowing ourselves just to lend to others. Saying no feels like turning your back on someone. But true generosity doesn’t require self-destruction.”
Financial security is a valuable asset that parents endeavor to pass on to their children. This entails transparency about inheritance and bequests, in part to prevent conflict among heirs later on. Buffett urges parents to make their will, and have their children reflect on the contents. While things are still relatively calm, parents can explain they made certain decisions, and be open to constructive feedback for the sake of the greater good (family harmony, for instance).
Unfortunately, many patriarchs or matriarchs shroud their wishes in secrecy, causing havoc upon their demise. “I saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry,” says Buffett. “I also witnessed a few cases where a wealthy parent’s will that was fully discussed before death helped the family become closer.”
Financial security also means using wealth to help the community. Upon his demise, most of Buffett’s wealth (more than $1 billion) will go to philanthropic foundations rather than his heirs. “Two of his three children are on [the company] board, but none is in management—nor will any of them ever become CEO,” says Bloomberg.
“Parents should leave their children enough so they can do anything but not enough that they can do nothing,” Buffett famously says. That is true financial security. INQ
Queena N. Lee-Chua is on the Board of Directors of Ateneo’s Family Business Center. Get her print book “All in the Family Business” at Lazada or Shopee, or e-book at Amazon, Google Play, Apple iBooks. Contact the author at blessbook.chua@gmail.com.
