The Senate recently passed on third reading Bill 1882, which aims to establish a “provident personal savings plan” to be called the Personal Equities and Retirement Account or PERA.
The law, according to the Manila Times, aims to “establish the legal and regulatory framework for an alternative pension fund that will give tax breaks to its members, and pave the way for voluntary personal savings and investment plan.”
According to Senator Francis Pangilinan, this measure aims to mitigate “concerns regarding the viability of the Social Security System (SSS) and the Government Service Insurance System (GSIS).” This is, of course, a welcome development.
But more than that, what makes me happy about this bill is that its tax exemption provisions could encourage ordinary Filipinos, most specifically those working overseas, to invest their money on shares of listed companies, exchange-traded funds, unit investment trust fund, mutual funds, and things like these.
This bill marks the first time for the government to recognize the fact that there are more to gain from our OFWs other than remittances.
If you come to think of it, the sheer number of the migrant workers we send out to many countries every year should have made our economy gain a lot. But it has not.
True, our OFWs’ remittances have continuously kept our economy alive, but when we talk of long-term benefits, I can say that the Filipino diaspora has so far produced limited results vis a vis the repercussions brought about by brain drain.
This is because unlike the migrant workers of, for instance, pre-industrialized South Korea, our overseas Filipino workers don’t seem to spend their money wisely.
Like instead of putting up businesses, an average OFW would spend thousands for unnecessary luxuries, like a 50 inch plasma TV for example. I have worked as a salesman in Tokyo’s Akihabara Electric Town and I can say that among the biggest spenders in luxury gadgets and appliances are Filipinos. Most of these big spenders are minimum wage earners in Japan.
Similarly, Filipinos tend to spend a lot on lavish events like fiestas, birthday parties and baptisms. I have a relative who spent 20,000 for her grandchild’s birthday party. The next day, she didn’t know how to pay her bank loans. She lost her house and lot a few years later.
There are, of course, many things to blame for this not-so-good attitude of most OFWs towards money and spending. I can imagine our friend benign0 pointing out Filipino culture as the main culprit.
Indeed, many Filipinos tend to spend lavishly on luxury goods and services because of our culture’s high regard for status symbols. Some people I know would even skip lunch to save for a brand new iPod. I’m not saying that it’s an inherently bad attitude. It’s just that this mindset isn’t the way to go if we really want to prosper as a nation.
Add to this is the fact that many Filipinos are- I hate to say this- indolent. It’s not uncommon to hear of people who would not even see the need to find a job just because their second cousins or great grand uncles abroad send them money. In Japan, many OFWs are breadwinners not just to their immediate family, but to their whole clan as well. Having to feed too many mouths leaves these migrant workers with virtually nothing to save, let alone invest.
The indolence and lavishness of many Filipinos are hard to change. But I don’t think they are permanent facets. They can be changed.
And critical to changing these negative traits would be an effort to get these OFWs to invest their money. I think this could be an easier task.
We can perhaps give our OFWs some tax-related perks if they start small-scale businesses for instance. This definitely would be way better a policy than Malacanang’s PhP 500 subsidies for every poor family in the archipelago.
But more than that, it is also vital for the government to encourage our migrant workers to invest not just in businesses but in other instruments and means as well.
The problem is, not many Filipinos are financially literate. Most OFWs don’t have much ideas about stocks and bonds or mutual funds, for example. We need to change that. There must be a vigorous effort on the government’s part to proliferate financial literacy among OFWs. This must be coupled with perks that would encourage them to invest.
One thing that makes our stock market volatile is the fact that there are few Filipino investors. In fact, most of the investors, I heard, are foreigners. If this is true, then we can say that our stock market will always be unstable. This is because foreigners don’t usually have an accurate idea of what’s happening in our country. They are thus reliant on our media, which tends to magnify many bad things about our country, whenever they think of investing in or pulling out of our market. This is probably why a mere coup rumor hurts the stock market hard.
But getting many OFWs to invest on our stock market could help propel our economy. An influx of local investors, who are less fickle-minded than foreigners when investing on Philippine stocks, would also expand our publicly-listed companies. And their expansions could generate more income for the government and opportunities for the people. More importantly, the returns of the OFWs’ investments, unlike the foreigners’, would be spent in The Philippines.
Getting the OFWs to invest their money wisely here, of course, would never be the sole solution to our country’s economic problems. It would at best merely compliment sound economic policies (like re-considering our debt service policy, protecting our industries and maximizing public investments for example). But it would nevertheless be a good boost to our economy.
I’m not an economist and I know these scenarios seem a bit exaggerated, but I know enough to say that these things are possible.
Bottom line is, we’ve nothing to lose if we vigorously persuade our migrant workers to invest in our local businesses and nothing to gain if we continue our aimless policy of just sending workers out of the country and relying on their remittances.
It’s about time we get the most out of the Filipino diaspora.
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moe, you’re welcome! Nice to know that you’re helping our kababayans there. OFWs are in danger when they don’t save and invest. Usual scenario: An OFW goes abroad and works hard. After years of hard labor in foreign land, when he comes back to our country to retire he realizes that he wasn’t able to save enough money. Instead of retiring, he once again goes back to the foreign land to continue working to sustain his family and himself. Franciso Colayco’s books are mainly intended for OFWs, I hope they get to read them.
Contrary to the common notion that investing in the stock market consumes great amount of time, it is not the case. Mutual fund has a prettier return compared to banks. Problem is, it’s difficult to make money during a rough market because your money is tied to the investment or portfolio. On a second note, I think people should engage in the market and not settle for the idea that the market is only for pros. I don’t have the stats but fund managers probably manage 250 to 300 portfolio on an average year. Question would be, how much time do they spend in checking yours? I’m sure common people have more time to take a look at their stocks and assess whether it’s a good investment or not compared to the fund manager who has an extremely hectic schedule. There are to types of investors: The Day-trader who trades as much as he likes to. And the other would be the investor, who let’s his money sit and appreciate. Moving on, investors are further classified to (a.) Long term-investor who usually holds his stocks 9 or more months before trading it again. Filipino long term-investors tend to have a shorter patience so its 6 months or more. (b.) Short term-investor who trades their stocks before 9 months, or in the case of Pinoys, less than 6 months. My take would be be a long term investor. Frequent trading is not really needed as far as the gurus are concerned. Check out Warren Buffet, currently the World’s Wealthiest Man.
In my opinion, instead of paying for the commission/fees of the “professional” fund managers, use a portion of the money to pay yourself back, another portion for re-investing, then the remaining would be for buying materials like books and cds about the ” How-To ” of Investing. I believe this is a smarter way of realizing financial freedom.
RC0, thank you for sharing the shows. I’ll check it over the internet to squeeze insights. God bless your family!
(maybe the links are the reason I can’t post, so let’s remove them)
Good thing to know there are people like RCO and moe. :D
Just a few thoughts on what we got from the Trump Seminar:
The “seminar” consists of two parts. The first speaker was trying to convince us to attend a 3-day comprehensive seminar about real estate. The second part is also trying to sell another 3-day seminar but it is about tax lien receipts and tax deed sale.
I was almost swayed to go to the Trump seminar but good thing husband was there to tell me that this is not yet the right time to get involved in these things. But it was not completely a waste of time since we learned new things especially with regards to the tax lien receipts. The stories shared are also quite interesting and will inspire you to think outside the box.
Correction, it’s tax lien certificates (not receipts).
RC0, thanks for sharing your experience with the Trump seminar! Speaking of Trump, I’m reading the book “Why We Want You To Be Rich?” by Donald Trump and Robert Kiyosaki. I’m still on the first few pages, but I can tell that I’ll be worth reading.
Just recently, I was able to experience playing “CashFlow” a game designed by Robert Kiyosaki himself (best known for his “Rich Dad, Poor Dad” book). I had it for free. I hope there’s a group playing it there in the States so you can also experience it. Thanks!
Lee Angelo, I’ll check out the “CashFlow” game when I get the chance. Thanks!
I’m also interested in reading “Rich Dad, Poor Dad”.
There’s just much to learn but so little time :(
Yeah, “Rich Dad, Poor Dad” is a must-read book in this financially challenging time. I just started reading “Increasing Your Financial I.Q.” a newly-released book of Mr. Kiyosaki.
Update: Weeks ago, PGMA signed the PERA Bill into a law. Republic Act 9505: An Act Establishing A Provident Savings Plan. This is good news for everyone especially the OFWs, investors, and savers. I found an article written yesterday by Ma. Salve Duplito of Inquirer.net.. I posted her article on my blog, check it out. http://leeangelo.i.ph/blogs/leeangelo/2008/09/29/joys-of-tax-free-saving-and-investing/
Investing in Philippines? not bad… on PERA? sure but first , the government must have an established pension system and tax administration system efficient enough to provide positive ROI. Any uninformed investors will always want to know ” how much is their return of investment”. I do agree with Cvj, that there’s a 50/50 chance that my 1 million pesos investment with PERA for example may gain 8% yearly but inflation rate is at double digit. Making 8% on PERA but 12% yearly inflation is not a sound investment. I actually will lose 4% because the value of my 1 million is less than yearly inflation. Why would I trust my government to invest my money if they themselves cannot grow our money over inflation rate?
But on the positive side, let OFW invest and park their money for long term liquidity or equity on PERA without regard to inflation. Investing is not just about making positive return for most people but it is a feeling of SELF worth. :)
hi benigs
:)