I was once again reminded of just how much financial education most Pinoys still need when my officemate told me this story about her friend.
Now my officemate is one of my "converts", one of the few people I strong armed to start investing in mutual funds after she confided that she invested in jewelry. She claimed that every time she had her jewelry appraised in a pawnshop, the quoted price would be a little higher than the last appraisal. However, she admitted that the appraised price was still way below what she paid for her piece, but she was hopeful that it would at least reach the retail price in a few years. And that was when I butted in and forced her to invest in mutual funds, printing out the documents for her and holding her hand through the entire process.
She's been investing in an equity fund for about half a year and is quite happy with the results, so much so that she also started encouraging her friend (let's call her Ms. X) to open a mutual funds account. Ms. X claimed that she's so scared of investing in stocks after her husband invested Php15,000 in BDO and lost the entire amount. My officemate tried to explain that mutual funds are not the same as stocks, but Ms. X wouldn't listen, as she had already been traumatized and refused to go on that rollercoaster ride again.
But really, I can't imagine how you can lose your entire investment with BDO stocks, as the bank hasn't tanked or experienced a bank run. I told my officemate that Ms. X probably misunderstood her husband, because there's no way that you can lose ALL of your money in a conservatively run company like BDO (it's a bank for crying out loud!).
Anyway, Ms. X said that instead of investing their money in scary stocks, she borrowed Php200,000 from GSIS, while her husband borrowed Php100,000. They then invested this amount with a certain lady who would then lend the money to other people, with interest. For every Php100,000 invested with that lady, she guaranteed a monthly return of 5% or Php5,000. So their Php300,000 investment earned them Php15,000, while about half goes to repaying their GSIS loan, giving them a cool Php7,500 per month.
Take note though that the lender is just an enterprising person doing this on the side, she is not accredited with any lending company or any institution for that matter, aside from the government office she works for. But despite all this, Ms. X and her husband trust this lady because (1) she's been doing this a long time; and (2) she works in the government.
This is just a disaster waiting to happen. I can think of at least two things that can go wrong here: (1) What if the lady decides to take a permanent LOA from government service and absconds with the money? and (2) How can the lady guarantee payment from her clients? And corollary to that, what if her clients can't pay, how can she honor the 5% interest promised to her investors?
Maybe the lady has a direct hand in disbursing employees' salaries? Maybe she can deduct the monthly payments even before the employee/ borrower can claim his/ her pay? I really don't know, but all I know is that it has all the makings of a possible estafa case and the lady's rates are probably unconscionable, for how else can she promise 5% to her investors?
It's sad that Ms. X thinks that investing in the stock market or in mutual funds is a scary and unwise experience, yet she would willingly hand over her money to someone na "laway lang ang puhunan" and could very easily run off to Timbuktu (or Kota Kinabalu, if you want to go into recent events), never to be heard of ever again.
And that's why I will continue to nag, beg and bully my friends to start emergency funds and invest in mutual funds and stocks. The need for more financial education is clear as day for me.