Thursday, April 15, 2010

Personal Finance in the 21st Century

Just before I was going to sleep last night, I was just brainstorming on certain ideas that I could further develop in the future for my postings. After all, there are those "desert" days when I have lots of topics that I would like to write about but when I start writing them down, I realise that I do not have much "meat" to add to make it a worthwhile posting.

I was just thinking about the concept of personal finance and how it is different in the 21st century compared to the previous centuries.

I personally feel that the concept of personal finance has changed over the hundred of years.

In the past, people had a shorter life expectancy, had close family support and most probably did not have the concept of retirement. These three factors alone were perhaps the reason why most people perhaps only practiced basic money management concepts like saving. Let me expound on the three factors a little more.

In today's developed countries, most people can expect to live way past the age of 70 or 80. Very often, they will no longer be physically fit to carry out any form of employment and thus need to save up to make sure they have enough to survive on when they are no longer working. This was different in the past where people just worked their entire lives (probably because they owned their own business too).

In addition, they no longer live with their children as some even migrate to other countries to live. In the past, families used to stay pretty much together and one could rely on your immediate family members to take care of you once you are old.

The concept of retirement must also be a pretty new concept as people used to work all the way till their death beds. They simply did not have the concept of retirement!

So with these changes, comes the need for people to understand personal finance. When we live longer lives, expect not to receive financial support from our children and expect to enjoy our retirement lives, we will need to actively plan our finances to ensure that we secure a good financial future for ourselves.

The questions we need to ask ourselves are these:

How long do we expect to live?

Do we expect to be financially independent or will we be reliant on our children or family members during our retirement?

Do we even expect to retire by a certain age?

If we know the answers to the questions above, we are better prepared to face the future.


  1. Don't be a liability to your kids.

  2. I think whether one becomes a "liability" to their kids depends on a lot of factors.

    In the asian tradition, taking care of one's parents or elders is viewed as filial piety or a sort of social responsiblity. That is why there are laws in place to make sure elderly parents are taken care by their children.

    The problem a parent faces is that there are times when they have to spend large amounts of money on a child's education. Or they might have the financial responsibility of taking care of their own parents too. This results in them having inadequate retirement funds for themselves. So it is really a case where they are left without a choice.

    I am sure most people of my generation would not want to be a liability to our children. But how confident are we of achieving that?

  3. Hi FF,

    I think child's education is expensive but can be taken care of easily. Nobody will lend you money for retirement purpose or medical expense, but there are many who would lend you money for child's education. The loan can be easily repaid off in 2-3 yrs time by the child when he/she starts work.

    Of course, every parent would want to give their child the best education that their own money can buy. I can only say we should try out best to provide for the kids, whereas for retirement, we must always plan for it ourselves.

    My priority is to settle my retirement (at least a large part of it) then settle my kids education. If paying for the kid's education is going to take a large chunk of my retirement funds, then I would ask the kid to borrow.

    Sounds harsh? haha

  4. LP,

    If you are not going to take care of your own financial independence, no one else will. Don't depend on others, even your own kids to plan for your retirement.

    University fees is already $10k / yr at local universities. 5 to 10 years down the road, who knows how much it will be. So, 2 to 3 yrs to pay back loan may be difficult. But having said that, the kids need to start being responsible for their own education and they will be better for it.

  5. Hi LP,

    So it seems that retirement planning is top in your priority list above saving for your child's education.

    When my child reaches university, I will be in my late forties and close to my fifties. I do not wish to retire as I don't really know what to do when I retire. Perhaps retirement for me will just mean being able to live off my passive income. But I will still be doing something to keep myself occupied.

    My saving method for my child's education is that I will save what I can. When the times come, I will just pass all the money over to him. If it is enough, thank God. If it is not enough, he will have to find a way.

  6. Hi anon,

    10k x 4 yrs = 40k. Starting graduates have around 3k salary (I'm just basing it on teacher's pay). So, 3k x 12 mths x 2-3 yrs = 72k to 108k total income. I think 2-3 yrs is really an okay target. I am assuming that starting salary will also catch up with the hike in university fees in the futures. Anyway, the interest rate is as low as it gets, I won't be worried too much if the kid cannot pay within 2-3 yrs.

    But I agree with you...we need to plan for our retirement. I've no intention to have the kids take care of me, unless I've no choice.

    Hi FF,

    Planning for retirement doesn't mean that I'll stop work. I just want to have the option of stopping, say at age 55. I will definitely continue working, but at a much lesser pace than I am doing now. Much much much lesser pace. It's different when we don't have to work for money.

    As for child's education, I'll do my best too, esp if it's local. If they want overseas education, they will have to borrow or get a scholarship.

  7. LP,

    "It's different when we don't have to work for money."

    It's just like it's different when we don't have to study for results :)

    For me, I want to try different forms of earning money... Earn not for the sake of needing it, but for the sake of trying different things and helping others out... That would be fun... :)

  8. hi JW,

    Earn not for the sake of needing it. Well said!

    So what are you exploring now?


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