The Need for Financial Education

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.


Lyn Lyn said…
Ate Jills, I am glad that you created this blog to also help out those people who are in dire need of financial education. Let's continue to share this advocacy. Natutuwa ako lagi whenever I hear testimonies of people na they started investing na. =)

By the way, I would like to invite you to our Facebook Group who focuses on financial literacy and investing. =) I had the link on my recent entry. Enjoy your weekend, Ate Jills! :)
Carlos said…
Whoa! My head is spinning.

I just can't wrap my head around someone not trusting a bank product (which is monitored by the BSP no less!) - from the biggest bank in the country with a relatively small amount and yet entrust practically a fortune with a government employee! Wow!

I'm not even going to try and describe why government employees in the Philippines should not be trusted with such an amount.

But anyone should see that 5% is hardly enough of a return for such a huge risk.

The whole situation is just unbelievable!
Jillsabs said…
Thanks Lyn-Lyn! I'll check out your FB page soon :)
Jillsabs said…
Sad no? My mouth was agape the whole time my officemate was telling me the story.

Oh wow. BDO stocks? I would understand if the value of investment went down during recession, maybe the timing was really bad, but I can't believe they lost the entire amount.

And if it's too good to be true, it probably is. It's sad to know that many people fall into these scams. It seems like "easy money" kasi, pero if they do the math, it's really impossible.
i haven't started investing in stocks. pinag-aaralan ko pa. besides, i'm still building our emergency fund. thanks talaga. your blog is inspiring. :)

More "converts"!
Jillsabs said…
The thing is people don't seem to know what the normal is, kaya nga someone like Amalilio can dupe thousands of people and run off with billions of pesos because people believe that a double your money scheme is perfectly normal.

And add to that pa the Pinoys penchant for easy money and you have a tremendous disaster.
Jillsabs said…
*Ooopss...what the NORM is pala.
Jillsabs said…
Good luck with building up your emergency fund! Just keep at it, no amount is too small.

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