Introduction to Financial Wellness

What is Financial Literacy and Why is it Important?

Financial literacy is the ability to understand and use different types of financial skills such as investing, budgeting, etc. It is important to learn to manage your finances on your own and financial literacy will prepare you with the knowledge and skills you need to manage your money effectively and safely. With that, let’s go through some key terms and questions you might come across!

1) What is income?

Income is money that an individual or business receives. Individuals earn income through labour wages, while businesses earn income from selling goods or services for a profit. Most forms of income are subject to taxation. What kinds of income are there?

a) Active income

You earn your money by working in a job. You exchange your time and energy (labour) for money. Active income includes payments such as wages, salaries, tips and commissions.

b) Portfolio income

Portfolio income comes from investments. For example, you might buy stock in a company for a low price and when they increase in value based on market rates, you sell your shares for profit.

c) Passive Income

Passive income is money earned from a rental property, limited partnership or other business in which you're not actively involved. For example, if you buy and rent a condo out, the rental you receive is passive income.

2) What is a Budget?

A budget is a financial plan for a defined period (usually a year) that can greatly enhance the success of your financial endeavours. Budgets help with goal setting, outcome measurement and helping you prepare for possible emergency. What kinds of budgets are there?

a) Corporate Budgets

Corporate budgets are plans businesses create which are essential for maximising capital and ensuring that funds are spent to maximise profits and efficiency in production.

b) Personal Budgets

Personal budgets are plans you make for yourself and your family regarding the money that you have. This can be as simple as planning how you want to spend your allowance in school or planning whether to invest in a HDB flat or a condominium.

3) What are Savings?

Savings is the amount of money left over after spending and other obligations are deducted from earnings. Savings represent money that would otherwise be idle and or would become part of expenditure later on.

How can I save fast?

The best way to save fast is to cut on expenditure. Spend prudently and plan a budget. That way, you are reminded of what your goals are and what you can and cannot spend on. This helps you have the discipline to save consistently.

4) What is a loan?

A loan is when money is given to another party like a bank, and that money is expected to be paid back with interest.

a) Components of a Loan

Principal: the original amount of money being borrowed. Loan Term: The amount of time that the borrower has to repay the loan with interests Interest Rate: The rate at which the amount of money owed increases, usually expressed in terms of an annual percentage rate (APR) Loan Payments: The amount of money that must be paid every month or week to satisfy the terms of the loan.

b) What is the loan process like?

When someone needs money, they apply for a loan from a bank, corporation, government etc. The borrower would need to provide details such as the reason for taking a loan, their financial history, and other personal information. The lender reviews the information to see if the loan can be paid back. Based on the applicant's creditworthiness (ability to pay the loan back), the lender either denies or allows the applicant to take a loan. If the loan is denied, the lender must explain why so that you can take the necessary action. If the loan application is approved, both parties sign a contract that states the details of the agreement. The borrower then receives the loaned value and the borrower must repay the amount including any additional charges such as interest charges.

c) Why Do People Take Out Loans?

Loans are taken for major purchases like housing, renovating and so on. Business owners might take a loan to invest in new markets or expand their operations.

d) What are the Implications of a Loan?

Loans require that you pay back your borrowed sum and interest by a certain time. Failing to do so means your assets (house etc) could be at risk if you are unable to pay. Good budgeting, planning and saving is required before undertaking any loan.

5) What is Debt?

Debt is money borrowed by one party from another.

a) What Is the Difference Between Debt and a Loan?

Debt is anything owed by one person to another. Debt can involve anything ranging from actual property to money or even services. On the other hand, a loan is a form of debt but specifically entails an agreement in which one party lends only money to another. The lender sets repayment terms, including how much is to be repaid and when. They may also establish that the loan must be repaid with interest.

6) What types of bank accounts are there?

There are three main types of bank accounts: savings, current and fixed deposit accounts. Each type of account has its own properties and specific uses.

a) Current and Savings Account

If you are going for day-to-day money management such as paying bills or withdrawing from an ATM for daily expenses, a current, savings or a combined current and savings account will be helpful.

b) Fixed Account

If you are thinking of putting aside a sum of money for long-term savings, then a fixed deposit account might be more suitable.

7) Credit vs Debit Card

Credit Card	Debit Card
allows you to borrow money fron the card issuer up to a limit	money is deducted directly from one's bank account
this card can be used for discounts, promotions, or travel credits	few rewards, if any
possibility of accumulating debt due to overspending	helps to curb overspending
may be required to payback with interest	no interest charged

8) What is credit, and why is it important?

Credit also refers to an individual's or business's credit worthiness or credit history. Your credit worthiness is important as it determines your ability to undertake loans or make purchases. A poor credit score indicates that you have not been able to pay back your loans on time or have failed to do so in the past.

Your credit history is summarised in files known as credit reports and information may include:

The number of credit card accounts you have, their borrowing limits and current outstanding balances
·The amounts of any loans you've taken out and how much of them you've paid back
·Whether your monthly payments for your accounts were made on time, late or missed altogether
More severe financial setbacks such as mortgage foreclosures, car repossessions and bankruptcies

Now that you have a better understanding of common financial terms, always remember to save and spend wisely and to research before making large financial decisions!

According to Forbes, investing is the process of buying assets that increase in value over time and provide returns in the form of income payments or capital gains. With inflation, the value of $1 decreases in compounded rate as each year passes. In other words, the value of $1 today might be worth $0.80 the following year and then $0.64 in two years’ time.

Risks

Ensure your debt is fully paid off.
- Interest rates from bank loans get compounded too. Should your investment efforts suffer from negative returns, the losses would add onto the existing debts, thereby effectively snowballing your outstanding debts.
Have an emergency fund that lasts you for at least 3 to 6 months.
- Having liquid funds allow you to sustain your basic lifestyle should financially drastic events happen. For example, being let go of your job during the economic recession is an unexpected event which drastically affects your financial standing. By having emergency funds on hand, your invested funds can remain largely unaffected.
Not invest money you might need in the next 3-5 years
- Accounting for future needs and possible big-ticket purchases in the next 3-5 years when investing is important. For instance, monies should be set aside for housing repayment so that you can repay the housing loans in a timely manner. This allows you to protect your money from being diminished by the volatile interest rates in the stock or bonds market.

Financial literacy 101: Investing

Doing your research

It is important to research on how and what you can invest in based on your financial situation and goals. You can do so by:

Doing qualitative research

Understand the organisational goals and management of the company. These mechanisms affect the company’s overall performance, which ultimately affects investors’ level of confidence. Here are some questions that help you evaluate the company effectively:

How does the company make money?
Does this company have a competitive advantage?
How good is the management team?
What could go wrong?

Doing quantitative research

Reviewing the company’ financials is important to understand the financial situation of the company you are interested in.

Narrowing your focus

Financial reports can be very confusing. It is important for you to narrow down your focus and familiarise yourself with the revenue, net income, price-earnings ratio (P/E), return on equity (ROE) and return on asset (ROA).

Putting your research into context.

Compare the research with appropriate metrics and industry numbers to effectively evaluate the potential investment you are making. For instance, you may want to analyse historical data of the company when looking at a long-term investment opportunity. This allows you to gain a well-informed narrative of how the company performs during recessionary periods or other tough times. Additionally, you can utilise the help of your broker’s educational tools (e.g. stock screener) to make appropriate comparisons before making your investments.

The Beginner Guide to Investing (For Limited Resources)

1. High -Yield Saving Accounts or Certificate of Deposits (CDS)

These accounts pay interest on your deposits far above the traditional interest rate of checking accounts. Unlike long-term insurance savings and investment plans, these savings accounts also allow you to have the flexibility of when you want to make withdrawals. Additionally, it is noteworthy that interest rates on these savings accounts are on the rise as of 2022!

2. Free or Low- Cost Bookers

For low-cost brokers, you can consider avenues like Fidelity Investments and Charles Schwab. They offer you free stock and ETF trades while providing extensive research and educational tools to aid your investment journeys. There are, however, free avenues such as Robinhood and Webull allow you to trade for free on its platform. This free-to-trade option includes options and crypto. For other customer support services such as research, they offer them for relatively

3. Invest Modest Amount Consistently

Investing modest amounts at the start tends to increase your motivation to follow the market. This also allows you to set yourself in the frame of mind of an investor, thereby encouraging accountability for your investment. This also creates a cyclical effect of conducting your own research and evaluating your holdings.

4. S&P 500 Index Fund

According to Investopedia, S&P 500 index funds are mutual funds or ETFs that track the Standard and Poor's index of the 500 largest U.S. companies from various industries. By holding stocks across varied industries, your fund becomes highly diversified. This typically offers less-volatile returns as compared to when you own individual stocks.

Additionally, you do not need to be equipped with extensive market knowledge in order to kickstart your investment with the index fund. However, it allows you to understand how investing works and one investment strategy that is strongly backed by notable investment figures like Warren Buffett.

5. Robo- Adviser

If you do not feel ready to invest in individual stocks or index funds like the S&P 500, you may opt for robo-advisors. Robo- advisors will automatically create a suitable investment portfolio for you, depending on your time horizon and level of investment capability and willingness.

While you should note that robo-advisors usually charge a percentage of your assets (with the exception of some small accounts), you do not need to pay additional fees to the advisor beyond theadministrative and service fees.

6. Investing Applications

Another way of simplifying your investment experience is to invest through application such as Stash, Syfe and Acorns.

For Acorns, investors simply link their credit or debit cards to the app and the app will automatically round the purchases up to the next dollar and invest the difference into one of the few ETF portfolios. It is also noteworthy that the membership fees are considerably affordable at $3 per month for individuals and $5 a month for the family version.

7. Individual Retirement Account (IRA)

You got that right, CPF is another investment medium for people with a job! As an IRA, it allows you to defer taxes on any profits and excludes your contributions from your taxable income. This essentially allows you to save on taxes.

The Bottom Line

All in all, it is crucial to start early to gain the best leverage over the benefits of investing. It does not matter how modest your investment amounts are for a start! Rather, it is important to take the time to learn about the market and investing for beginners, before plunging into riskier or larger investments.

A Guide to Cryptocurrency

Is everyone around you seemingly knowledgeable about cryptocurrency and constantly recommending that you invest, but you have absolutely no clue what they are talking about?

Don’t worry, you’re not alone; getting into investing can be a daunting experience. Cryptocurrency is relatively new, gaining popularity in its recent years. Examples of cryptocurrency are Bitcoin and Etherum (Corporate Finance Institute, 2022). Cryptocurrency is a form of digital money that is not governed like a central bank; it operates via blockchain, which is a distributed ledger technology (Patel, 2022).

What is Blockchain

A blockchain is a distributed database that stores information electronically (Hayes, 2022); this ensures that transactions are secure via usage of a decentralisation (Amazon Web Services, n.d.). In a decentralized blockchain, data is stored into blocks; these blocks are then arranged in chronological order. In addition to the decentralised aspect, input data is irreversible and is set as a permanent record that is viewable by the public (Hayes, 2022).

Cryptocurrency

Ownership and Autonomy

When buying stocks, investors often have to go through a brokerage; they then transact the trade on the owner’s behalf and keep the stock under the investor’s name (Maryville University, n.d.). This means that personal information has to be disclosed, but some level of security is assured. Whereas for cryptocurrency, anonymity is possible and there is no need for any intermediary. However, one has to have a record of their cryptocurrency wallet and are responsible to safeguard their own accounts and remember their 16-character- minimum password (Maryville University, n.d.).

Regulation and Volatility

Stock markets oftentimes are overseen by governmental bodies (N26, 2022a). Companies are mandated to disclose all information that impacts stock value, and the authorities are capable of taking action if they were to find any illegal activity. However with cryptocurrency, governments have no control over them hence leaving cryptocurrency investors without that additional security if they were to encounter issues with their investment (Maryville University, n.d.).

Benefits:

Transparency
- When buying stocks, investors often have to go through the typical financial system, and third-party intermediaries are common or even necessary in the banking and stock trading realm. However, for cryptocurrency, transactions can be made without the use of any intermediaries; they can be viewed by anyone (N26, 2022b).
Resistant to inflation
- With the decentralised nature of cryptocurrency, they are not bounded by any specific economy; thereby, it is more resistant to national inflation as the price more so reflects global demand (N26, 2022b). There is a limit to the coins issued, meaning that supply is controlled whilst demand fluctuates; this way, inflation is controlled for.

Risks:

Unpredictable
- While price shifts in financial markets are commonplace, the intensity in these shifts can be drastic in the cryptocurrency realm. According to Herlean (2018), who is a part of the Forbes financial council, Bitcoin was worth an estimated $20,000 on 17 December 2017, and stooped to a $6,461.01 worth on 6 November 2018.
Legal implications of taxation
- Cryptocurrency can be considered a currency or an asset, depending on the jurisdiction (The Economic Times, 2022). Therefore, cryptocurrency purchases can be subjected to government taxation. To avoid running into legal issues, digital investors should consult a tax professional (Reiff, 2022).
Cyber security threats
- With cryptocurrency being decentralised, where transactions can remain anonymous, with no single governing body responsible for management (Roohparvar, 2022), and there are no physical locations unlike the banks that we are familiar with, cybercrime may occur. Although operated with blockchain technology, cryptocurrency wallets can be vulnerable to ransomware attacks (The Economic Times, 2022).

How do I Protect Myself?

Research

Before jumping on the gun to invest in cryptocurrency, conducting adequate and in- depth research is paramount. Cryptocurrency investment may not be for everyone, and one should understand the benefits and costs. With cryptocurrency having no limit on the amount of investment, unlike when going through an intermediary such as a bank, one should ensure that emergency funds are set aside, and only invest in what one is able to lose (Puterbaugh, 2021).

Be careful of fraudulent information

The benefit of decentralization can also bring about risks. Phishing scams, illegal trading platforms, and malware may frequent the cryptocurrency scene. An example of phishing is when a scammer or hacker sends a link to a malicious website.

To prevent this, one should check with the authentic site before clicking on any link that is sent to us, and only transact on authorized sites. Since trading is becoming the future, people can be intrigued by new platforms; however, it is crucial to conduct thorough research before investing.

As with malware, specifically crypto-malware, will enable hackers to mine cryptocurrencies on the hacked owner’s computer or server. To avoid this, one should be cautious of any code that is received; do not download them if you are unsure or suspicious of the code intent.

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