Money matters

Have you ever signed on the dotted line at a bank for an investment plan that you did not really understand? Or bought an insurance policy without thinking much about what it covers?

Many of us end up like 62-year-old Mrs Ong, whose story appeared in The New Paper over the weekend. She put $50,000 into what she assumed was a fixed deposit account. Six years later, the grandmother found out she had actually invested in a high-risk unit trust fund that has since lost 40% of its value. After scrimping and saving for 38 years, she is now $20,000 poorer.

“I never dared to splurge on myself, or to spend on expensive food and clothes, so that I would have enough savings to get by in my old age. It was such a waste to have my hard-earned money lost like this,” Mrs Ong told the newspaper.

She is not alone. Anecdotal evidence suggests that many people in Singapore sign up for financial products that they do not fully understand, and suffer later when it is much too late.

We come out of school equipped with life and work skills, but are entirely ignorant about financial matters. We buy shares, unit trusts, and bonds without really knowing how they work. We buy investment-linked policies, term policies, life policies, or personal accident plans without finding out if they are what we really need.

I know a couple, who are in their forties, who bought some unit trusts from a bank several years ago for about $40,000, without really knowing how this investment worked. They sold it a few years later for $20,000, their savings effectively halved.

Another friend has five insurance policies – two from separate insurance agents, and three from banks. He says that they cost only about $40 each, but that adds up to $200 a month. That amount should have been enough to cover him comprehensively, but none of his existing policies were useful when he was hospitalised recently.

They are still relatively young. A 33-year-old like me could still make up for silly investing mistakes as I probably have more time on my side. It is worse when people in their 60s like Mrs Ong are affected, given that they are likely have less time to earn it back.

Banks and insurance companies must be clearer and provide more information when they sell financial products to everyone, especially older people like Mrs Ong. They should clearly spell out the element of risk that is involved in an investment. Not every bank officer or insurance agent is after a quick sale, but the reality is that they get a cut from the sale. That means that they would instinctively push a product with a higher commission, and not necessarily in the customer’s best interest.

The onus is also on us to do the research and know what we are doing. Online resources like the blog of former NTUC Income chief executive Tan Kin Lian and ShareInvestor,  a community of local investors, are just two starting points. There are many more out there, and we must equip ourselves with enough knowledge to make the right decisions.

We should all invest and be adequately insured. However, too many of us are also lazy and prefer to say: “I don’t understand, so just tell me what I should do.”

That is the attitude that could lead us to financial ruin. If we do not know what we are buying, should we pay for it? If we do not understand it, should we commit to it?

The answers to those questions are in the lessons we should learn from Mrs Ong’s unfortunate experience.