Different functions of Government

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

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

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

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

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

I prefer the system in USA followed by UK .

Tan Kin Lian

Missing the boat

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

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

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

Tan Kin Lian

Train your mind

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

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

Survey: Elected Member of Parliament

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

Traffic after the Lunar New Year holidays

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

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

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

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

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

Tan Kin Lian

Staff quarters

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

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

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

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

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

Tan Kin Lian

Survey: Elected Member of Parliament

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

Enslaving a person for life

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

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

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

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

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

Tan Kin Lian

Brave and sincere people

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

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

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

Tan Kin Lian

Blog promotion (15% discount) ends today

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

Availability of elected MPs

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

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

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

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

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

Tan Kin Lian

30th anniversary of Singapore Democratic Party

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

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

Dangers of Personal Investing

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

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

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

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

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

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

USA has become a social democracy

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

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

A wasteful society

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

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

Tan Kin Lian

Replace GST with a payroll tax

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

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

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

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

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


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

Tan Kin Lian

A job for every person

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

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

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

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

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

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

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

Tan Kin Lian

Moderation in my blog

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

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

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

Simplify taxation

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

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

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

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

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

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

Tan Kin Lian

Relief from income tax

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

Guide to Pro Investor

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

You can click here to play this simulation game.

Survey: The Stingy Nanny

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

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

Here are the comments from the respondents.

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

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

Temasek 15 year bond

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

Decreasing Term Insurance

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

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

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

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

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

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

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

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

Tan Kin Lian

Transparency in life insurance

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

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

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

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

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

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

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

Tan Kin Lian

Shape Quiz Minipak

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

Renting and owning a property

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

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

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

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

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

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

Tan Kin Lian

Mental training with Intellivence Quiz

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

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

Class action in America - suggestion by Teo Guan Hock

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

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

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

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

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

Tan Kin Lian

Popular items from i-Shop

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

Order here.

Mobile Application

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

IMF experts rethink long term ideas

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

Distribution cost

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

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

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

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

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

Tan Kin Lian

Survey: The Stingy Nanny

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

Effect of Deduction

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

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

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

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

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

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

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

Tan Kin Lian

Shared bicycles

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

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

Tan Kin Lian

Prepare for high inflation

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

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

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

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

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

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

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

I have received the following information on the seminar:

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

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

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

PARTICIPANTS TO BRING DOCUMENTS

Dear Mr. Tan,

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

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

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

RED Map

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

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

Better regulation to ensure a fair market

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

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

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

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

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

Tan Kin Lian

The Stingy Nanny

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

SIR 

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

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

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

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

Michael Eng Cheng Teo

High Commissioner for Singapore
London

Home prices and average salaries

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

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

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

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

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

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

 My book on Financial Planning can be purchased here.

Tan Kin Lian

Intelligence Quiz Vol 3

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

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

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

Click here.

Talks on Financial Planning at Company Premises

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

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

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

Talks on Financial Planning

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

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

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

Accountant interested in Pro-Investor

I introduced the Pro-Investor simulation game to an accountant. She was fascinated with the game and said that she would like to try it. It allows the player to practice and develop the skill of picking the right stock. Click here.

Good response to rechargeble torchlight

I gave the rechargeable torchlight to two friends. They found the torchlight to be most useful and were surprised that the price was only $6.50. One friend bought 10 pieces to give away. At the talk on financial planning,  the participants bought all the 10 pieces of the torchlight that I brought along.

You can buy the rechargeable torchlight ($6.50) at 15% discount in February (promotion code BLOG). The discount is also available for the books. Order here. Click on "details" to see a photo of the torchlight.

Talk at Pasir Ris Library - Financial Planning in Time of Crisis

I am giving the above talk at the Pasir Ris Library today (20 Feb 2010) 5 to 6 pm.
Please register at the NLB website or come early to the Library to register on the spot (subject to availability).

To register:
http://golibrary.nlb.gov.sg/Event.aspx?EventID=31770

Please note that the talk shows the previous title - which has now been changed.

Title - Financial Planning during Time of Crisis

Speaker - Tan Kin Lian, President, Financial Services Consumer Association

Place: Pasir Ris Public Library

Date: Saturday 20 February 2010

Time: 5 - 6 pm

Vacations

Do vacations make you happier. Read this interesting report. I agree with the findings. It is better to have a vacation at home.

Increase in motor insurance premiums

Mr Tan
I've been told by my motor insurer that there was a general increase of motor premiums of about 20% across the industry from last year. This is within your understanding?

REPLY
I believe that this is the situation, but you can call the General Insurance Association of Singapore to find out.

http://www.gia.org.sg/

Shared bicycles at University of Indonesia

The University of Indonesia has 14,000 undergraduates.

It provides 500 bicycles for shared use by the students. The students do not need to own their bicycles or to lock the bicycles when not in use. This save parking space.

This photo shows the students riding the shared bicycles along the bicycle path.

The university also operates shuttle buses to transport the students within the campus.

Affordable housing - 3 years of average income

According to this article, an affordable housing represents 3 years of average earnings. I have recommended that  the price should be not more than 4 to 5 years, so I am already stretching on the high side. Many people are buying properties representing 7 years or more of their earnings. I consider it to be far too high.

Products at Internet Shop

You can now view the pictures of the books and other products at Internet Shop. Click on "Details" for the specific product. There is a discount of 15% for purchases up to 28 February 2010 under the Promotion Code - BLOG.

To order: http://projects.easyapps.sg/iShop/public/common/Order.aspx

The Shape Quiz is now available in a book ($6) or a mini-pak ($2). They contain 4 plastic pieces to form 100 shapes. It is fascinating and interesting. Many people enjoy this puzzle. Some customers bought a few mini-paks to give to their children - one for each child. After 15% discount, the price is $5.10 and $1.70 only  

Get compensation from distributor

Dear Mr Tan,
I received a check for my Mindbond series 1, representing 21% of my investment. Fidrec has scheduled my hearing in March. The Fidrec officer told me they will continue to adjudicate my case, but I feel the hearing is meaningless. Could you kindly give me your advice please?

Reading you blog became my daily routine but recently I found limited information on the minibond issue. I think many victims have decided to give up like myself. I really appreciate what you have done for us victims.

REPLY
You should continue to attend the FIDREC adjudication and fight hard to get some compensation from the distributor for your loss of 79%. This should be on top of the refund that you have received.

Biggest speculation of a lifetime

The biggest speculation that most people can make in their lifetime is in property. This is a big transaction that takes 5 to 10 years of their earnings. If they get it right, they are rich. If they get it wrong, they have to pay for this mistake over many years.

Many took this decision out of fear that the price of a home will become more expensive in the future. Some speculate out of greed, to make money while the bubble continues. In most cases, the losers are the consumers who are ignorant of market trends and economic forces, have to depend on gossips, and can be exploited by the property agents and developers.

The property market in many countries have gone through cycles of boom and bust. They are the results of greed, fear and exploitation. This is not a fair market. It is an exploitative market. Many do not realize that it is a big speculative gamble - because it is clouded by the false belief that they are "making an investment".

A good government can shelter its citizens from the exploitation of the market by regulating the market. It can manage the economic forces to ensure that property prices bear a fair multiple to the average wages of a country. Each working person should be required to set aside a certain percentage (say 25%) of their earnings for a decent home. They should not be required to be exploited and pay more (say 35%) for this cost of living.

If a government has control over most of the land, it can set a benchmark for the market to follow. If the government allows the speculative forces to set the market price and then use it to justify its own pricing, it will contribute to instability in the property market - which is harmful for the economy.

It does not matter whether the people are buying or renting a property - it is more important that the cost is fair. I am referring to a decent housing at a fair rental or purchase price. If any person is willing to spend more for a larger house, it is their personal decision.

Many people have clamored for "affordable housing". It is an important role of a good government, especially one that has control over the cost of land.

Tan Kin Lian

Insurance brokerage and conflict of interest

The brokerage fees paid to brokers for selling insurance has led to conflict of interest that is harmful to consumers. Read this report.

TKL Intelligence Quiz Vol 3

Have you heard about the Intelligence Quiz created by Albert Einstein? If has baffled many people over the past decades. The quiz is contained in this website, together with the technique to solve it.

If you enjoy this type of logic quiz, my new book TKL Intelligence Quiz Vol 3 has been released. Vol 1 and 2 have been sold out. You can buy Vol 3 at the major bookstores ($7.90). The book contain the tips and 72 puzzles (24 puzzles at each of 3 level).

You can also buy this book or other books at this website and enjoy a discount of 15% when you enter the promotion code - BLOG (valid until 28 February 2010). Many secondary and tertiary students enjoy this type of logic puzzles as it helps to train their logical mind.

To order, click here.

Tan Kin Lian

Social insurance

Some types of insurance cannot be operated on a private basis, e.g. unemployment insurance and health insurance, due to the problem of underwriting. Some people will not be able to have access to insurance due to their higher risk factors, e.g. certain types of occupation or poor health.

These insurances have to be operated by the state (through social insurance) and is made compulsory for every eligible person. There is no need for underwriting, as everybody is covered for the standard benefits,which are  usually provided at a basic level. The insured people pay a premium that meet a major portion of the cost and any deficit is usually funded through tax revenue.

There are significant savings in operating a social insurance scheme, as there is no marketing and underwriting expenses. There is lower administrative expenses. The saving in cost can amount to 30% to 40% of the premium that would be charged by a private insurer for a similar set of benefits.

It is possible for a state scheme to be abused but this can be controlled - as it would be a crime to cheat the state. A state scheme may be operated inefficiently, but this can be properly managed.

It is better for the basic needs of the people to be provided by social insurance and for the private sector to provide additional benefits on top of the state benefits.

Tan Kin Lian

Giving up an existing investment-linked policy

Dear Mr Tan,
I currently have an investment link life policy. I calculate my loss to be $6000. I decide to surrender this policy and take up term insurance. Is my decision to surrender this policy a wise choice? Should I buy the term insurance from Aviva or NTUC?

REPLY
Normally, it is better to continue an existing policy, rather than to terminate it, as you have already incurred the upfront cost. However, you should look at the continuing cost, before you take your decision.

I suggest that you ask both Avivia and NTUC Income to give you a quote for the term insurance. You can compare the premium rates and make your decision based on the facts.

You can get more guidance from my book, Practical Guide on Financial Planning. It can be bought here:
http://projects.easyapps.sg/iShop/public/common/Order.aspx

Switching to a new policy with special benefits

Sometimes, a new life insurance product is introduced with an additional benefit, such as the waiver of premium during retrenchment.  This type of rider usually has small print to restrict the entitlement to the benefit, such as circumstances of retrenchment or the waiting period.

While the value of this type of rider is debatable, it should not be used as a reason for a policyholder to terminate an existing policy to switch to this new policy. The policyholder will incur a large loss on the existing policy by making this switch, and will have to pay the upfront cost again on the new policy.

Switching policies is a costly exercise and should be avoided. An ethical agent will not give this type of wrong or harmful advice to their customers.

Tan Kin Lian

Home: our planet Earth

Here is a 90 minute video about the earth and the need to protect our environment.

SCMP: Government may compete for insurance. Government may vie for insurance business. Proposal aims to keep private firms 'honest' in volunteer medical plan

17 Feb 2010
The government is considering setting up its own insurance company to compete for the proposed voluntary medical insurance scheme in an effort to keep the existing players "honest".

A government official said such a "public option" could ensure there was real competition in the market, to guard against price-fixing. But the official said the government did not plan to turn its new programme into a social insurance scheme with itself as the sole provider.

The proposal will be put forward during negotiations with the insurance industry over the voluntary insurance scheme, which is part of the coming health care reforms.

The government will launch a public consultation later this year about the voluntary scheme, which it sees as a way to relieve the financial pressures on the heavily subsidised public health sector.

Insurance providers are in talks with health officials about the scope of the coverage, and on how to use the scheme's HK$50 billion start-up fund to attract more people to sign up for voluntary insurance.

The South China Morning Post reported last week that the issue of whether patients with pre-existing conditions will have to pay a higher premium has emerged as the major roadblock in the negotiations.

Now the government "does not rule out the possibility" of setting up a subsidiary insurance company to compete with the private insurers. There are concerns among officials that, as the six biggest companies control 80 per cent of the medical insurance market, they could easily co-operate to control the market and push up prices.

"To keep the insurance companies honest, the government may set up a company to compete with them so if their prices are too high, consumers can choose the public option," the official said. The insurance company set up by the government would run on "commercial principles", he said.

But Chan Kin-por, the insurance sector legislator, criticised the idea. "The government is not good at insurance services. It should leave it to the private sector I can't see the extra benefits in doing it. There will be a transparent mechanism on premium adjustment in future, to guard against any possible cartels."

But Peter Tam Chung-ho, executive director of the Hong Kong Federation of Insurers, said the industry "would not feel threatened" by the public option. "It will be good to have more competition in the market {hellip} but we need to know the details before commenting further, such as if the company will operate on commercial principles or with a public subsidy," he said.

In a recent submission to the government, the insurance sector outlined an agreed "basic plan" that removes exclusions for mental illnesses and congenital diseases, and makes premiums age-specific. But the sector is standing firm on not including people with pre-existing conditions in the basic plan, meaning chronically ill patients would have to pay a higher premium for coverage.

The insurance sector has called on the government to use some of the HK$50 billion start-up fund to subsidise the higher premiums for people with pre-existing conditions. But the government official said that was unacceptable.

"The purpose of insurance is to share risk: what is the point of selecting only the healthy people in the pool? Before asking the government to commit to any subsidy, the insurance companies have to do their work in cost control first," the official said.

The government has also, for the first time, revealed some key ingredients for a "basic" voluntary medical scheme:

Clear, standard coverage and benefits large enough to pay for medical services in the private sector; Standardised claims structure providing packaged benefits for certain kinds of operations or illnesses, for higher transparency and predictability, such as fixed compensation for operations and hospital stays; Transparent premium adjustment mechanism; Savings element to encourage people to get prepared for their future medical expenses;


Various incentives to encourage policyholders to stay with their plans. For example, insurance companies should not terminate plans after claims or policyholders' retirement, and should provide no-claim benefits and discounts for those who enrol with the plan earlier; 
Insurance companies must share risks with each other through reinsurance; 
Patients will be required to pay part of the medical bills to avoid abuse of services;
Insurance coverage is limited to local medical expenses only. 


The official said the move by the insurance sector to remove exemptions for mental or congenital diseases has very limited benefit for the overall population. "People suffering from these diseases make up a very small portion of the population. Only a very small number of mental patients require hospital care and there is no such service in the private sector," the official said.

Difficult to cross Singapore roads

Singapore roads are wide. Vehicles travel quite fast, unless they are caught in a jam. It is difficult to cross the roads, especially for older people. The overhead bridges and traffic lights are not conveniently located and require a long walk.

The former athlete, Tan Eng Yeow, was knocked down and killed while crossing Upper Thomson Road, close to where I lived previously.

I prefer the traffic situation in Vancouver. In the city, there is a low speed limit. Most vehicles travel slowly. The drivers are courteous.

Toxic products and traffic control

Someone told me an interesting analogy.

The Authority allowed the toxic products to be sold but require the issuer to put into a statement into the prospectus, "This product carries risk. You may lose some or all of your money".

It is similar to making a statement, "If you are on the road, you may be knocked down by a vehicle". After making this statement, the Authority does not need to control the behavior of the drivers and the vehicles on the road, i.e no need for traffic controls, rules or their enforcement. After all, the Authority has discharged its responsibility by giving the warning.

Tan Kin Lian

Switching between guaranteed and investment linked returns

Over the past years, insurance agents have earned high commissions by getting their policyholders to switch from guaranteed to investment-linked returns and back again.

When the stock market is hot, they tell their customers to move to investment-linked returns by enticing them with high projected values (which were not guaranteed). When the stock market fell, they tell their customers to move back to guaranteed returns.

Each time that the customer took the advice to make a switch, the insurance agents earn a high commission on the new policy that was sold. The customers were not aware that they were exploited and given poor financial advice. They were "taken for a ride", time and again.

An ethical agent will advice the customer to stick to the existing policies. They can invest additional savings in the new policy, rather than move the entire savings from an existing policy to a new policy.

If you have been misled by an agent using this technique in the past, you can send an email to kinlian@gmail.com

Tan Kin Lian

Watching EPL in 2010

Singtel will take over the broadcast of the English Premier League in 2010 for 3 years. Soccer fans have to switch over to the Mio platform. Many homes will have to run two sets of cables to watch the TV channels provided by Singtel and Starhub. This is a costly and wasteful exercise.

Starhub has offered to run the EPL channels for free. I hope that Singtel will accept this offer and save the subscribers the hassle of running a new set of cables. It was also save Singtel the headache of handling large numbers of subscriptions, which is likely to lead to technical and customer service issues.

Here are the results of a survey carried out a few weeks ago. Among the soccer fans, 61% will switch over to Singtel but 39% will give up their sports subscriptions. 77% prefer that the EPL channels be made available on both platforms.

Tan Kin Lian

Resort World Sentosa

If you visited Resort World in Sentosa during the past few days, please share your experience here.

I have received a few negative comments, i.e. the resort is patronized mainly by foreign workers. Singaporeans are deterred by the $100 entrance fee.

REX mentioned that it is uncomfortable and hot to watch the shows in Universal Studio. I am surprised that the shows are performed outside. The heat is likely to deter visitors. We already had failures in Haw Par Villa, Tang Dynasty City and other theme parks - did not not learn from our past experience?

Someone circulated an e-mail with an image of the Straits Times photo, showing many visitors lying down at the entrance. He asked if this is a resort or a refugee camp?

Perhaps, we can have some positive comments?

Gift for mothers of new born babies

If you have a friend or colleague who has just delivered a baby, the ideal gift is a fashionable and comfortable baby pouch. You can order it here, to be delivered to the mother directly.
http://www.pupsikstudio.com/

Financial Planning book available at bookstores

My book "Practical Guide on Financial Planning" is now available at the major bookstores and at Seven Eleven outlets. The retail price is $12.

You can order the book at Internet Shop at a discount of 15% (Promotion code - BLOG) during February. The discount also applies to other books (e.g. Public Transport Guide, Shape Quiz, Intelligence Quiz, Logic9)  and the rechargeable torchlight.

It is easy to order online, as the shop front only displays a few books. There is no need to search for them. Payment can be made by internet banking transfer, PayPal or ATM.

Draft letter to MAS on Mini-bond settlement

I suggest that the investors send this letter by fax or mail to MAS:

DRAFT LETTER

Date

Managing Director
Monetary Authority of Singapore

10 Shenton Way MAS Building

Singapore 079117

By Fax: 6229-9229

Minibond – Series XX

Dear Sir,
I am a holder of the Mini-bond Series XX. My particulars are:

Name: xxxxxxxxxxxxxx
Certificate Number: xxxxxxxxxxx
Amount invested: $xxxxxxxxxx

I have received a letter from the Trustee of the above Notes informing me about the liquidation of the Notes as follows:

Fee to LBSF: xxx%
Fee to liquidator: xxxx%
Legal fee: xxxx%
Residual value to Note holder: xxx%

I wish to ask for the assistance of the Authority to request the Trustees to clarify the following:

1) What is the authority on which the Turstees have acted to liquidate the above Notes?
2) Why did the Trustee fail to call for a meeting of the Note holders to discuss the above action?
3) Who decided on the fee to be paid to LBSF? How is the payment of this fee in the interesst of the Note holders?
4) As a Note holder, am I legally bound to accept the action that you have taken to liquidate the Notes without my approval?

I wish to ask for for your assistance to get the Trustee to convene a meeting of the Note holders for the above Series, so that these issues can be discussed and the appropriate explanation given to us.

Name

Address
Telephone
E-mail address

Draft letter to Trustee of Minibond

I have prepared a draft letter for the Mini-bond investor to sebd by fax to the Trustee, HSBC. You have to change the letter to contain the details that is relevant to your case. So far, 31 investors have provided their particulars to me, asking for collective action to be taken. I will be e-mailing them to take this action.

If you have changed the draft to suit your circumstance, please send it to kinlian@gmail.com. I will share the draft with other investors (after removing your personal particulars)

DRAFT LETTER
Date


HSBC Institutional Trust Services (Singapore) Limited, 
21 Collyer Quay, #14-01 HSBC Building, 
Singapore 049320

By Fax: 65331077

Minibond – Series XX

Dear Sir,
I am a holder of the Mini-bond Series XX. My particulars are:

Name: xxxxxxxxxxxxxx
Certificate Number: xxxxxxxxxxx
Amount invested: $xxxxxxxxxx

I have received a letter from you, as the Trustee of the above Notes, informing me about the liquidation of the Notes as follows:

Fee to Lehman Brother Special Financing (LBSF): xxx%
Fee to liquidator: xxxx%
Legal fee: xxxx%
Residual value to Note holder: xxx%

I wish to ask for your clarification on the following:

1) What is the authority on which you have acted to liquidate the above Notes?
2) Why did you fail to call for a meeting of the Note holders to discuss the above action?
3) Who decided on the fee to be paid to LBSF? How is the payment of this fee in the interesst of the Note holders?
4) As a Note holder, am I legally bound to accept the action that you have taken to liquidate the Notes without my approval?

I wish to ask for you, as the Trustee, to convene a meeting of the Note holders for the above Series, so that these issues can be discussed and the appropriate explanation given to us.

Name

Address
Telephone
E-mail address

Fee to swap counter party on Mini bond

First posted on 11 Feb 2010

If you wish to join in a collective action to ask the trustee to explain why they paid a large fee to the counter party to unwind the Mini bond, please give your particulars here. I will need some investors to volunteer to take the lead in this collective action.

Update: 

Total of 31 people replied up to 16 Feb. The response has been quite poor. Nobody volunteered to take the lead.

Needs and Wants

In financial education, the consumer has to distinguish between Needs and Wants.

Needs are those that have to be met. They are compulsory and cannot be avoided. Wants are those that are discretionary.

Needs - to pay tax, school fees, to have meals, transport.
Wants - toys, entertainment.

What do you consider to be Needs and what are Wants? Do you have any interesting story to tell about real life experiences?

Logic9 (pocket size Sudoku)

Someone sent me a message on Facebook asking for the Logic9 (pocket size Sudoku) that was sold by NTUC Income a few years ago. Volume 3 and 4 are now available here. This is a handy size and is convenient for you to pass the time bus, train or plane.

Switching to a limited payment whole life policy

In the past, many people bought a whole life insurance policy. It provides life insurance cover for the whole of life and requires the premium to be paid for the whole of life. It has an option for the policyholder to terminate the policy and receive the cash value, or to stop the premium payment and receive a paid up value (payable on death). This option is usually exercised at an older age, when the policyholder has retired from work.

Take a hypothetical example. The policyholder insures for $100,000 and pays an annual premium of $2,000. After 30 years, he can terminate the policy and receive a cash value of (say) $75,000. Alternatively, he can stop the premium payment and continue the policy for a paid-up value of (say) $95,000, inclusive of bonus. The paid up value is payable on death.

Some insurance agents are unethical. They approach their existing policyholder and tell them that their company has introduced a new whole life policy that requires to be paid for only 20 years. They advice the policyholder to terminate an existing whole life policy and take up the new policy. They did not tell the policyholder that the existing policy already has the option to convert the policy into a paid up policy at any time.

If the policyholder is presented with a proper analysis of both options, the policyholder would have found that it is better to continue with the existing policy. However, the policyholder is usually presented with misleading advice to switch to the new policy. This bad advice is in the self-interest of the agent and is against the interest of the consumer. The insurance agent is able to earn a large commission  on the new policy that has been sold.

If you have been given this type of wrong advice, you can write to me at kinlian@gmail.com

Tan Kin Lian

All in the Family

Here is an article about Asia's political dynasties.

Economic strategies committee - real change or just words?

Read this article by Dr. Wong Wee Nam. I share his view that we should not continue to follow the strategies that do not seem to work. We need new approaches, rather than keep repeating the same nice words.

Cut working week to 21 hours

Read this report in the BBC. I agree with the general thrust of the suggestion, i.e. that people should work fewer hours and earn less, so that more people can be employed and older workers can continue to work longer. This will give a better balance and improve the quality of life.

We do not need to go all the way down to 21 hours, but 35 hours would be a good start.

In Singapore, many people are putting in 60 hour weeks. Instead of working fewer hours with higher productivity, we are working longer hours. This is why we have one of the lowest birth rates in the world.

Alex Tan's talk at Speaker's Corner

About 20 people (including TKL) turned up at Speaker's Corner. This was rather disappointing. Most Singaporeans are apathetic and will take the trouble to show their support for causes that they believe in, e.g. the need for change to our policies in Singapore.

Alex Tan gave a good speech. He said that it would be reported in Temasek Review. He intended to give a weekly speech at Speaker's Corner at 5 p.m. (most probably on Saturday afternoon).

I met Alex Tan for the first time today at Speaker's Corner. He had asked for my help earlier to publicize the event in my blog (which I agreed).

Alex Tan also organised a Facebook group on the need to make a change in the political system in Singapore. It attracted over 1,000 fans.

Update: A video of Alex Tan's speech is now available here.

Slow start for Integrated Resort in Sentosa

The newspapers reported that there was a long queue in the foreigner entrance and a short queue in the local entrance for the integrated resort. I thought that it meant a successful start for the resort.

A friend told me that the people in the foreigner queue were not tourists but the foreign workers in Singapore. They went to the resort to enjoy the free drinks, cheap meals, showers and new facilities.  Few Singaporeans went to the resort as they were deterred by the $100 entrance fee.

Something is wrong. The expensive facilities are now enjoyed by the foreign workers, and not for Singaporeans. This is an unintended consequence.

Of course, this is early days, and the discrepancies will be sorted out. But, it is a bad sign. Surely, we are capable of better planning in Singapore?

It is quite sad that I could be misled into the wrong impression. I hope that the newspapers would be more upfront in giving the correct impression.

Tan Kin Lian

Minimum wage and cost of living

Several people have argued that a minimum wage will increase the cost of living further. This is true, but the impact will not be as large as feared.

Wages is only a part of the total cost of business operations. The other costs are rental, government levies and profit margin. Many workers now earn more than the minimum wage, so the increase in wage cost will only apply to the workers who now earn less than the minimum wage. This increase will not be significant for most businesses, except those that depend on low income workers.

Even if the wage cost increases, the price charged to consumers may not increase to the same extent. Businesses have to meet competitive pressures. If they are squeezed, they will have to pay lower rental on their business premises and reduced profit margin. The increase in wages will be partly offset by the reduction in these other costs.

In countries with a minimum wage, the property prices are at a more reasonable level (in relation to average earnings) compared to countries with wide disparity of income.

A minimum wage policy reduces the disparity of incomes and will lead to a more fair and stable society, which will lead to better long term growth.

Tan Kin Lian

Speaker's Corner - Singaporeans vs Foreigners

ALEX TAN'S TALK IS TODAY, AT 5 PM, AT SPEAKERS CORNER


Hi Mr Tan Kin Lian
 I will be conducting a speech on the topic "Singaporeans" at the Speaker's Corner on the 2nd day of Chinese New Year.

Date and Time: 15 February 2010 5 pm
http://www.facebook.com/inbox/?ref=mb#/group.php?gid=153492722129&ref=ts


Your support would be highly honored and appreciated.

Yours sincerely
Alex Tan

Minimum wage and cost of a maid

Some people argued for a minimum wage to be implemented in Singapore. REX argued against it, stating that the cost of a maid would increase to $1,500 a month, if a minimum wage is applied here.

I do not think that a minimum wage need to be as high as suggested by REX. It could be set at $1,000. If we consider the wages, government levy, food and lodging provided to a maid, most employers are already paying close to $1,000 a month.

If we pay a higher wage for a maid, we will get a better quality maid, which may be better in the long run. There is also a high cost in replacing a maid. Under the current system, many employers have to replace the maid quite often and suffer this additional cost.

We should not allow the higher cost of employing a maid affect our thinking towards paying a decent wage to other workers in Singapore who need to earn enough to pay for the high cost of living in Singapore.

Welfare in Singapore

Read the views in the Singapore Mind blog, and also the article by Economist magazine.

A nice name for big gambling

When you place your chips on a specific color (i.e. red or black) in a roulette game at a casino, you are gambling. The bigger the stake, the bigger is the gamble. You can gamble all of the money that you have in one bet. If you win, you win big. If you lose, you lose all.

Gambling is considered to be bad, especially if the bet is big and a loss may lead to financial ruin.

In recent years, banks have been gambling big, very big, to the tune of billions of dollars. They can bet on currency rates or on the chance of failures of any corporation. The types of bets have proliferated under the name of financial engineering and innovation. In some cases, they can gamble large amounts representing the capital of their shareholders and the deposits of their customers as well.

When the banks make these gambles, they do not call it a gamble. They call it by more respectable names, such as "trading:" or "risk management".

Gambling is bad, if the stakes are high and may cause financial ruin. It is bad for individuals. It is bad for businesses. It is bad for banks.

Tan Kin Lian

Most Livable Cities - Surveys

Here are some surveys of the most livable cities around the world. Singapore missed the top 10 but is not too bad (e.g. ranked 18 in the Monocle Survey).


In the Mercer survey, Singapore ranked 34th based on 39 factors including political, economic, environmental, personal safety, health, education, transportation and other public service factors. Cities were compared to New York City which was given a base score of 100.