out from their jobs because they need the money to pay their mortgages? Isn’t it true that the people who suffered most in the recent economic downturn, caused in part by reckless lending by banks for property purchases, were homeowners, especially in the US? The banks will sell a mortgage on the basis of low monthly repayments. However, in the first few years of the mortgage period, almost all of the repayments are to repay the bank’s interest charges. The equity in the house hardly builds for the first few years and not significantly until around half way through the mortgage period. A quick calculation, by multiplying the monthly rent by the number of years of the mortgage, will reveal how much is being paid for. A house bought for 500,000 (in any currency) would have cost three times its original purchase price by the time you own the house. Other financial problems While it could be argued that taking up loans to buy homes and cars are sort of self-inflicted wounds, we also have to accept that some personal financial crises are externally inflicted, especially in the case of an illness or an accident. If you are not fortunate enough to live in a country where there is free – or at least heavily subsidised – medical care, hospitalisation can be the final nail in your financial coffin. Yet, an illness is like a natural disaster, such as an earthquake or a tsunami. You can be pretty sure that at some stage it will happen, but you don’t know when. But when it does occur, you are in the proverbial because very few of us have the cash on hand to cover a significant hospital bill (unless you are covered by an insurance policy) so we end up having to borrow money, which simply compounds the problem further.
Education and death Some personal issues are even more certain, yet the timing is not, especially in the case of death. We can be sure it is going to happen sometime and that also it will incur perhaps a considerable cost. In some societies, people are known to make provisions for so-called “funeral money” so as not to be a burden on anyone when the inevitable happens. Again, insurance is a possibility here, because you are not personally going to take responsibiity for financing your funeral! For married couples that have a family, another expense looms – education. It will surely happen and we can more readily assess when, but again some couples would not have put enough aside to cover the cost when it does happen. Again, insurance can be very useful here. Though the article paints a gloomy picture, in the next one, we will explore how we can live resiliently, despite having a mortgage and two cars on hire purchase! ◆
Acknowledgement: Bob is an English-born New Zealander who has lived in Asia for the past 20 years. He has been in the field of human resources his entire working life and has been a management consultant since 1980. Most recently, he has been functioning as an ideas broker, which means reading widely, mining new ideas and linking them with ideas already mined, then sharing them with managers and companies that are interested in keeping themselves at the cutting edge. Bob shares ideas on his free blog at newbizideas4u.com
OCTOBER / NOVEMBER 2011
Plastics and Rubber Asia October-November 2011 electronic issue