Category Archives: Finance

How much money that you need for diabetics

A friend was on holiday in a small town when her baby’s scheduled immunisation was due. After being directed to the local clinic who had the stock of the required vaccination, she duly fell in line with other patients to open a new clinic file. Although it seemed that many patients waiting in the queue could read, the clinic assistant in charge was adamant on reading the questions and completing the forms on their behalf.

“Do you have disabilities?” It would thunder through the room, and so forth. By the time it was my friend’s turn, she insisted on reading the questions herself. And to her surprise, the “disabilities” everybody was questioned about, turned out to be “diabetes”. None of those in front of her had disabilities, but should they have been questioned correctly, they could have confirmed their diabetic status.

Among the top five most prevalent chronic conditions

Diabetes is one of the world’s fastest growing lifestyle diseases. In 2015 South Africa had 2.28 million cases of diabetes according to the International Diabetes Federation (IDF). The problem is that for every diagnosed adult, there is an estimated one undiagnosed adult. The number of undiagnosed cases in South Africa is projected at around 1.39 million.

Both diabetes mellitus types 1 and 2 rank among the top five most prevalent chronic conditions under medical scheme members.

Although it is one of the most prevalent conditions and the coverage ratio for medical scheme members with Diabetes mellitus Type 2 is slowly increasing, the coverage still seems to be low.

The proportion of Diabetes mellitus type 2 patients claiming for chronic disease medicine was a mere 28.8% in 2015, the Council of Medical Schemes Annual Report shows.

The coverage of monitoring tests, such as the creatinine test was 33% in 2015 and coverage for the HbA1c test was 26.2%. It was at similar levels the previous years.

This is despite Diabetes insipidus and Diabetes mellitus types 1 and 2 being covered as chronic conditions under prescribed minimum benefits (PMBs). This means that medical schemes must cover costs of all members who suffers from diabetes, regardless of their benefit option.

Property and bonds

Old Mutual Investment Group sees domestic equities, property and bonds delivering higher returns in 2017, on the back of improving economic prospects.

It expects peaking interest rates and inflation in South Africa to create a positive environment for interest rate sensitive assets such as domestic property and bonds.  It sees inflation averaging at 5.4% in 2017 compared with 6.3% in 2016 and the benchmark repurchase rates falling to 6.5% by the end of 2017, down from 7% currently.

According to Peter Brooke, head of Old Mutual Investment Group’s MacroSolutions Boutique the 13.5% return on domestic bonds year-to-date as at November 24 2016 is artificially high due to an oversold bond market.

Instead, he said SA cash – with a 6.8% return in rand terms – is the best performing local asset class thus far. SA listed property delivered returns of 4% and the FTSE-JSE Share Weighted Index (SWIX) returned 2.5% over the same period.

After starting the year with the highest level of cash in its fund ever, the group is seeing more opportunities in equities as the domestic equity market de-rates.

“We’re not at the stage where the JSE is cheap yet. It is on a 13x forward but it does offer a real return in the region of 5%. We’re not back to levels that we have enjoyed for the last 100 years of around 6.5% but value is starting to incrementally rebuild,” he said.

Bank charges on paying

In South Africa’s somewhat peculiar banking system, monthly charges for transactional accounts are a given. But is the few hundred rand you’re paying per month (if you’re lucky!) the best possible deal?

The first question you need to answer is whether you value having a ‘platinum’ or ‘private clients’ account with all the “value-adds” these offer?

Things like lounge access, bundled credit cards and a ‘personal’ banker are must-haves for some in the upper middle market. On the other end of the scale are basic, no-frills bank accounts (like Capitec’s Global One (and the clones from the other major banks)), but the truth is that most people need something a little more comprehensive than that. There’s likely a home loan, almost certainly vehicle finance and definitely a credit card.

So, do you need a ‘platinum’ (Premier/Prestige/Savvy Bundle)-type account? Do you actually use or need those value-adds? Or, do you enjoy the ‘status’ of having a platinum or black credit card? (Here, emotion – and ego – comes into the equation….)

This is an important question to answer, because the difference in bank charges between a more vanilla bundle account and ‘platinum’ is easily 50%!

While banks try to shoehorn you into product categories based on your salary or profession, there’s nothing stopping you from moving to another product (or refusing those ‘upgrades’). From a personal perspective, the only reason I have an FNB Premier (i.e. platinum) account (not gold) is because I do actually make use of the ‘free’, albeit diminishing, Slow Lounge access. And, the eBucks rewards I earn on this account are the most lucrative of the lot, based on the products I use, my transaction habits and spending patterns. (‘Upgrading’ to Private Clients is a mugs game because the thresholds for ‘earning’ rewards are significantly higher, to match one’s status and earnings, of course!)

Once you’ve answered this question – which is more important than most people realise – the next step is to figure out whether a bundled account or pay-as-you-transact one makes the most sense. Most of us enjoy not having to ‘worry’, so we readily sign up for the all-in-one package without actually understanding the differences in pricing.

Save more money for their kids

With the start of 2017 looming, many parents may have started to consider the cost of their children’s school and tuition fees for the next school year. While families have a number of financial commitments to attend to every month, this is the time of year where school funds are often moved to the top priority to ensure that the family is financially prepared for the expenses that accompany a new school year.

Saving for a child’s education requires careful consideration and proper planning.

Here are some tips below for parents to ensure that they have planned appropriately for their children’s education costs:

Start early

Parents should start saving for their children’s education as soon as they possibly can. Many people do not consider, or are not aware of, the great advantages of compound interest, and how accumulated savings grow over several years when invested properly. By investing from an early age, parents will eliminate the financial worry of not having sufficient funds to give their children the best education possible, as the funds in their investment will grow every year.

Automate savings

The best way for parents to ensure they are regularly contributing towards their children’s education is to open a dedicated savings account and set up a monthly debit order. This way the parents will automatically save money every month towards this cause. However, they must have a strict rule in place to never withdraw any money from this account if it is not related to the child’s education.

Explore ways to get discounts

It is advisable to do some research and contact schools to find out whether they offer financial incentives that could result in long-term savings. Many schools offer a discount if the fees are paid as a once-off amount in advance. Some also offer a reduction when there is more than one child attending the school. These types of savings can make a big difference over an 18-year period.

Include education funding in the financial plan

It is important that parents include education funding in their overall financial plan. These expenses have to be accounted for as part of the monthly household expenses to determine how it will affect the family’s overall financial position. When it comes to developing financial plans, it is usually a good idea to consult a reputable financial planner who will be able to develop a solution for the client to ensure that they have provided sufficiently for their children’s tuition fees and related education expenses.

With the cost of education increasing every year, parents are faced with increased expenses for the privilege of sending their children to school. School fees are a big financial commitment, but with the right advice, families do not have to see this expense as a financial burden.

Great gift that keeps on giving

This time of year sees both children and adults preparing their wish-lists for the upcoming festive season. But as many South Africans continue to grapple with rising debt, now is a good time to shift the focus from giving material items to providing future financial well-being.

Giving a child an investment as a gift will not only promote a culture of saving from a young age, but will also show them how you can make money grow.

There’s a powerful story of one customer’s commitment to leave a legacy for his family, and the value of sound financial advice. In November 1968, a customer made an initial deposit of  R400 into the Old Mutual Investors’ Fund and 48 years later, his investment is today worth over R600 000.

More precious than the value of his money, however, was the culture of saving and the legacy that he passed on to his children and grandchildren. On special occasions such as Christmas and birthdays, he invested a set amount of money on his children’s or grandchildren’s behalf. With this investment, his daughter was able to provide for her daughter’s schooling.

If South Africa is to develop a generation of financially savvy adults, it is crucial to not just talk about it, but actually practise good money habits. It is important to teach your children about money, and the festive season – with the spirit of giving – is a good time of the year for parents to set a good example. Teach your children about the importance of giving within your means, as well as showing them the value of relaxing with family and rewinding after a long, hard year, while respecting the value of hard-earned money.

Families should consider starting a financial tradition of their own. Set a reasonable budget for gift giving this festive season, and instead of spending all your money on gifts that are likely to fade, go missing or be forgotten, speak to your financial adviser about starting an investment in the name of your children.

When children become old enough to understand more about money management, parents should involve them in the process. Teach them the principle of compound interest and explain why putting money away today means they will have more money tomorrow. Help them set a budget for the money they’ll receive over the festive season, encouraging them to spend a smaller percentage today, and investing the rest for the future.

Tips for give your children a financial

Many parents find it very difficult to talk to their children about money. Either the topic is seen as too sensitive or they just feel that they don’t know enough to give good advice.

However, the worst lesson that any parent could ever give a child about money is not talking about it. Children learn the most from the example that they are set, and that is why it is so important to show that money is not something to be scared of or anxious about it. It is something that should be made to work for you.

This is why it is best to expose children to the idea of saving sooner rather than later. From a young age they should see that they can have control over their money.

Here are three easy ways to get them thinking the right way about saving:

Give presents that mean something

Of course children love toys and having something to play with, but not every present they receive has to give them instant gratification. Putting money in a unit trust or stock broking account might not sound like the most exciting gift in the world, but it can be very rewarding.

For a start, it gives them some sense of having their own savings and some money of their own to look after. Over time, it’s also the best way to teach them about different savings products, asset classes, and things like interest and dividends, as they can see for themselves how they work.

A low-cost online stock broking account could even allow them to make their own decisions about what stocks to invest in. At an early age their decisions are not likely to be influenced by rigorous analysis, but they can still invest in companies that they know something about.

For instance, if they like eating at Spur, why not show them that they can actually buy a part of that company? Or if you always do your shopping at Pick n Pay, let them buy the stock. Over time, the likelihood is that their interest will grow in how these businesses work, how they generate earnings, and what being a shareholder means. This will eventually lead them to making more informed decisions about their investments.

Involve them in their own savings

If you are saving for your child’s education, are they aware of it? Do they know that you are putting away money every month, where it is going, and what it is for?

Explaining to your children that you are saving for their future allows for you to have a discussion around why it’s important to do this and how it works. Not only will this give them some sense that they can’t just take things for granted, but it also gets them thinking about the importance of financial planning.

Think of their future before they do

The earlier your children start saving for retirement, the less they will need to save. One of the biggest impacts you can make on their future financial well-being is therefore to start for them.

Plan to present your child with a lump sum on their 18th or 21st birthdays, either in their own tax-free account or placed in a retirement funding vehicle. You may not think you are contributing much, but just R10 000 will grow to nearly R1 million over 45 years at a compound growth rate of 10% per year. That is a worthwhile boost to their future retirement, and will also get them thinking about their financial future as soon as they enter the working world.

If you do this in a retirement annuity (RA), they will not be able to access the money until they are at least 55, which will ensure that it is kept for what it is meant for. However, if you believe that they will be disciplined it makes more sense to use a tax-free savings account. This is because over such a long period the benefits of a tax-free savings account will likely be greater, and you can also invest fully in growth assets like equities, while an RA will have to meet the restrictions of Regulation 28.

Financial kick in the pants

  • Prepare an itemised list of all your expenses and divide the expenses into Group A, being fixed expenses, such as car repayments, other debts and payments you are contractually bound to pay monthly. Other discretionary expenses you are able to reduce or even cancel without suffering any negative legal or financial consequences such as entertainment, clothing, cable TV should be included in a Group B.Select certain Group B expenses you wish to reduce or stop [that gym subscription?), do so and allocate extra payments to shorten the outstanding payment periods (and reduce the interest payable) of Group A expenses or start a small rainy day account for those unexpected financial surprises. Which expenses should be reduced and in what order of priority will depend upon circumstances such as interest rates, tax deductibility, outstanding payment periods and so on. Always a good idea to consult a professional to assist you in making the correct decision.
  • Make an appointment with your financial planner to verify whether your life, disability, dread disease and accident benefits are adequate or surplus to your needs and whether recent product developments have resulted in more cost efficient and/or comprehensive cover being available at the same or at a cheaper cost to you. Planners are, today, required to provide you with comprehensive comparative information to provide you with the peace of mind that you are making a decision that is in your best interest.
  • Create a filing system (whether it be a lever arch file or a folder on your desktop for emailed documentation) for all your financial records such bank or credit card statements, accounts and invoices. This will save an enormous amount of time when a payment is in dispute. If you have other important legal documents, why not also save these using a similar format?
  • Request your short term broker to review your insurance to ensure that your house, car and other property is sufficiently insured against damage or loss.
  • You will have, in all probability, already made a decision as to your medical aid plan for 2017. Speak to the medical aid consultant about so-called Gap cover to meet any possible shortfalls you may experience in the event of a medical emergency. These plans are relatively inexpensive and worth consideration.
  • Harass your banker for a better deal around your banking options. Is it really worth all those bank charges to have a Rolls Royce cheque account and credit card if you are not making use of all the benefits they offer? Consider a down grade of the banking package, at the risk of losing benefits you don’t use anyway but in so doing your bank charges may very well be substantially reduced.
  • Contact a credit bureau and request your free creditworthiness check, even the basic information provided by these reports can be an eye-opener. If there are there any adverse debt payment findings present on your profile, take steps to correct these by speaking to an attorney or the creditor responsible for the adverse record. Be particularly aware of possible instances of identity theft where your personal information and even identity number has been fraudulently used to obtain financing or credit facilities without your knowledge.

Public pay practices of finance

Remuneration practices have far-reaching consequences, not only for individuals and companies but for the economy as a whole.

Employees’ personal finances for the most part, depend on their salaries. These salaries allow them to procure goods and services which stimulate the economy and ultimately form the life blood of the economy. These salaries, however, cannot simply be raised indefinitely in a bid to stimulate the economy (through increased demand), as the cost associated with these increased salaries will cause the cost of goods and services to rise (inflation). As a result, individuals would still only be able to purchase the same basket of goods as they did before, despite the increased salaries.

Employee remuneration is more often than not, the largest percentage of a company’s total expenditure. As a result, firms are highly concerned with their pay practices as they impact on their financial bottom line.

The pay practices of public (municipalities and State-owned enterprises (SoE)) and private sector firms differ significantly, particularly at the lower levels. According to 21st Century’s salary database, Table 1 shows the pay practices of the public and private sector at each occupational level.

Executives have been left out of the analysis as the remuneration structure of private sector executives is heavily influenced by long-term incentives. The compa ratio of the public entities is expressed as a percentage of the private sector salaries e.g. at the A band the SoE salary is 192% of the private sector salary and the municipal salaries are 231% of the private sector salaries.