Home' Trinidad and Tobago Guardian : August 17th 2014 Contents AUGUST 17 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
COVER STORY | SBG5
they get a job, they say, I am my own man.
I can do what I want!' And most of the money
for these young people in the first two years
is spent on socialising."
The consequence, said the financial planner,
was that new graduates often saddled them-
selves with mid to long-term debt, not under-
standing that this affects their ability to acquire
assets like a home, because their debt service
ratio is too high. A debt service ratio is used
by financial institutions to ascertain whether
their current level of debt is too high before
they give them more loans or extend more
credit. It is found by determining their level
of debt divided by their income.
The very financial institutions reaching out
to young people were also their enemy some-
times, said Williams.
"Have you ever heard of a marketing concept
called the total life-time value of a customer?
I have hired many people from the banks, and
they say, their ultimate goal as financial plan-
ners is to get you to take a new loan, consolidate
your debt, get a new credit card, they had
quotas. They had to sell a certain number of
credit cards and they had to sell a certain
number of loans. A number of times their
final advice was consolidation with a new
To compound matters, little effort is made
to educate young people about handling money,
either at home or school. Reversing roles briefly,
he asked the Sunday BG interviewer, "Were
you ever taught financial planning? Were you
ever taught how to deal with money?
"When we come out here (in the world of
work), it is on-the-job training. That is some-
thing I think should be in every school pro-
gramme, to manage your money. Because most
of the problems we have in this society, can
be solved by money, or are created by gluttony.
When somebody wants to take the money
and do something else with it. It is something
if not managed well can have very serious
He said the best way to judge how serious
the effects of not managing one's financial
resources were, was to ask the same young
people 10, 15 years later to account for all the
money they earned over that period of time.
A reluctance to even talk about 10 or 15
years into the future was another obstacle,
Williams said. Young people were unlikely to
initiate conversations with him about planning
for their home purchase, retirement or life
insurance because, as Williams said, no one,
especially the young, likes to think of them-
selves as dying.
"At 23, you think you are invincible."
Not just wishing upon a star
The result of this type of thinking only
become apparent as one approaches the end
of one's working life, said Williams, when
people realise they do not have enough to
The situation is common and what is amaz-
ing, according to Williams, was that it was
not unexpected. Few of the big financial hall-
marks in life came as a surprise.
Making a sketch of a "life path" on a piece
of paper, the financial planner punctuated it
with several financial milestones.
"You want a house, possibly in five years.
That is 2019. You want to go back to school
next year to make yourself more marketable.
That's 2015. But you have a girlfriend and you
want to get married, maybe in about two years.
Then you might want to have children two
and a half years after that. Eventually, you will
have to study, where you will get the money
to educate these children and, depending on
when you start your family, not only will you
be sending money forward for your children's
education, but trying to find money for your
own retirement as well."
Williams said he had a simple approach to
all these major milestones that young people
hope to meet.
"I talk to them about the things they dream
of, the things that they desire and then we
put a date and a price to it all. And then from
here, we can build out a time line."
This is goal setting, said Williams. It must
not just be the dream or the desire to acquire
"My definition of a goal is that it is a dream
with a deadline...The things that are very often
dreams only become goals, when we apply a
value to it, in terms of how much will it cost,
and it is not written, it is still not a goal. The
actual act of writing that goal, creates an infi-
nitely higher level to the commitment of the
achievement of the goal, than not having it
To illustrate, he used an example of the act
of buying a house.
"When you say, Winston, I want to buy a
home.' I tell you to tell me a little bit about
it in terms of its size, tell me a little bit in
terms of where you want this house located.
Then, you think about what it is going to cost
in that area. Then we look at the price of it
Factoring in inflation in calculating the value
of the house at the time one wants to buy it,
is critical. Williams said he uses an inflation
rate of five to six per cent when calculating
the future down payment one will need to
make on a house.
"Let's say the price of it today is $1,000,000.
That is 10 per cent down. Then there is mort-
gage indemnity. Then the valuation and the
legal fees for conveyance and searches and
finally stamp duty. There is the commitment
fee to the bank. Let's say that comes up to
$175,000. Do you have $175,000? The answer
is usually no, because the young person has
At an inflation rate of five per cent per
annum, the down payment will be $223,300
in five years.
(Williams uses the following inflation pro-
jections for the following goals: education
seven to 10 per cent; vehicle purchases three
to four per cent)
After calculating what the down payment
is likely to be, Williams said, this must be bro-
ken down into smaller amounts. For example,
to save $223,300 over a five-year period,
Williams worked out what was the yearly
amount that needed to be saved and then a
Therefore, $223,300 divided by 5, is $44,660
a year. This figure divided by 12 is $3,721.
Williams advised that the money should be
saved in a "holding bay, not subject to any
risk", possibly a money market account.
It is an approach, he said, that can also be
taken for lesser expenses like Christmas shop-
ping, yearly insurance payments, repairs to
homes or cars, school and vacation expenses
because they do not occur in a random fash-
Williams said this means they can be antic-
ipated and budgeted for without resorting to
loans, or what he called the "cancer of financial
economics" the credit card.
But what about a question often asked by
young people: do I get a car or a house first?
Williams said, "It depends."
Priorities and context
"If you inherited a home from your parents,
it would very unlikely that a home would be
your priority. You might probably want a car,
or if you have a bachelor's degree, you may
want to pursue your masters."
In his own view, though, Williams believed
having a home should be the one thing young
people should focus on first.
"I think the basic needs of all people are
food, clothing and shelter, so if we have food
and if we have clothing, the other need that
we have is for shelter. Now, a car is a good
thing to have, the nicer the car the better, but
it is not a necessity."
As for advice offered online and in books
telling young people to save money by par-
ticular ratios every month, Williams believed
financial planning was a highly individualised
process and that an honest examination of
what the young person's needs and wants
were, as well as the sacrifices they are prepared
to make to get them, was more important.
He did have his own rule though. Nothing
would be possible without saving. Williams
said most people tend to spend first and then
saved whatever remained.
"I tell them, save first, spend the differ-
Knowledge is power
Williams said it was imperative that young
people avail themselves of any opportunity to
learn more about handling their finances.
"Tell young people, when their companies
hold seminars like that, make every effort to
attend, because that is what you are working
for. Would you not want to protect it?"
He also said they should seek professional
advice from those qualified to give it, saying
that while accountants, insurance agents and
investment advisers incorporate elements of
what a financial planner does, they are not
financial planners. A large part of the difference
lies in who the planner works for, said Williams,
which is for the client.
Williams told the Sunday BG that he does
consultations for free. He said he asks those
he meets with, "in all fairness", to do business
with him. He said he may recommend Pan
American products, once they happen to be
the best one for the client. However, he said
in his capacity as a financial planner, he has
made recommendations for other financial
products as well.
Prioritise and set long-term goals
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