Start saving to get on to the wealth track
WEALTH is often measured by a posh home, luxury car, several private bank accounts, and a fat salary.
But Paul Clitheroe, probably one of Australia's most visible spokesmen for financial literacy, says it is not how much you earn that makes you wealthy. It is how much you spend.
That is, frugality and a savings habit will help you get started on the wealth track. 'Globally no one understands that,' he rues.
He recounts that just the day before, he had a four-hour conversation with a bank chief executive earning a $3 million salary, and saving nothing. 'That's common. When he got home at night, doing his own budget was the last thing he wanted to think about. He spent the whole day doing the bank's budget. I could teach him nothing. Every good principle of money advice he knew. He will see a financial planner next week; he will know more than the financial planner.
'I told him - you're far better educated, but you have to shut up and listen. What the planner will do is to make you do the basics, a budget. You should be saving $1 million a year. Then he said - 'I got it! I thought the financial planner was a genius who is going to make me rich.' '
Mr Clitheroe was one of five founders of Australian financial advisory group ipac in 1983. The five friends pooled personal savings of a total of A$100,000 (S$127,000) to start ipac. In 2002, ipac was sold to AXA for about US$250 million. Today the group, which has an office in Singapore, manages more than US$14 billion in assets. Four of the founders remain active in the business.
Mr Clitheroe, who has written books, says: 'My role was always to be out in public to talk about the value of advice.' Between 1993 and 2002, he hosted a Money programme on Australian television, and has been chairman and chief commentator of Money Magazine since 1999. Currently, he is ipac executive director, and also chairman of the Australian government's Financial Literacy Foundation.
'What is financial literacy? Of every dollar I earn, I spend 80 cents and put aside 20 cents. You have financial literacy. The more educated people are, the more they earn, the less likely they are to save. The people in Singapore who most understand budgeting will be the poorest who wonder how they are going to buy rice tonight.
'They actually possess more financial literacy than many others put together. As a community like Singapore develops, the less people worry about how they will buy rice, we lose financial literacy.'
Mr Clitheroe says one of the great and persistent fallacies is that a financial adviser can make you wealthy. He tells aspiring entrepreneurs - who tend to be Asian - to take their savings, start a business, and return to see him in five years. Ipac's audience, instead, tends to be wage-earning executives.
'I don't believe financial advisers make people rich. People make themselves rich. The adviser's job is often a strategy to turn career earnings into wealth. But with a business owner, the time to save is likely to be when the business is sold, and that's a significant amount of money.'
People, he says, tend to chase 'false prophets' - in this case, the myth that an adviser can be a 'magic pill' to wealth. He recounts that earlier in the day, he exchanged pleasantries with a passing Australian couple here who recognised him. 'As they walked away, the question they asked was - Do you have a hot tip for us?
'What are the true hot tips? Be nice to your mother and don't stand on a canoe. That's valuable information,' he guffawed.
'It's like the diet industry. Would I prefer to eat chocolate doughnuts and eat a magic pill to keep slim? Give me the magic pill! Who is tricking us? If it looks too good to be true it will be.'
As Asians tend to be entrepreneurial, Mr Clitheroe say ipac's growth in Asia is likely to be slow. He shrugs off competition from private banks, however. 'When we sold ipac, I became a classic private bank customer. But a private bank is a money manager; they're not my life counsellor.' This is because a bank makes money from transactions, deposits and loans, and thus is more likely to churn clients' accounts.
Ipac charges a fee for advice, although this isn't common in the advisory market here. 'If you don't pay someone an annual retainer, how do they possibly give you trusted advice? I'm a very happy private bank customer, but the bank is transactional. My banker gets promoted every couple of years, and I get a new banker. In (ipac), clients that talked to me 25 years ago still talk to me. I have the same business cards with the same number. That's what I call a trusted advice model.'
He adds: 'We're not pretending this will be a dominant model in Asia; it won't be. But we feel very strongly it will be a powerful niche. Over time, most of our clients will come from other clients.'
Meanwhile, some of Mr Clitheroe's efforts goes towards getting employers in Australia to offer financial literacy courses to their staff. 'Around the world, employers say, that's not my problem. But the best argument for financial literacy is that it is in the interests of profitability and shareholders.'
Research in the US and Australia increasingly shows that financial stress in employees leads to lower productivity, absenteeism, demands for higher pay, and higher turnover as staff chase higher salaries elsewhere.
'I tell companies that building financial literacy through workplace training is not only a good statement about their role as a community citizen, it will make money for shareholders. The second I talk about making money, the conversation shifts dramatically.'
Some employers, he says, are concerned that staff who are financially comfortable will quit their jobs. 'Employers say, if they're broke, they'll need to work for me ... I say let's look at the research. People get bored with early retirement. Ten years ago the typical Australian retired at 55. But most went back to work at 57, and it's not due to money. It's the social contact they miss. Financially independent people are better employees. They go to work because they want to work.'
But Paul Clitheroe, probably one of Australia's most visible spokesmen for financial literacy, says it is not how much you earn that makes you wealthy. It is how much you spend.
That is, frugality and a savings habit will help you get started on the wealth track. 'Globally no one understands that,' he rues.
He recounts that just the day before, he had a four-hour conversation with a bank chief executive earning a $3 million salary, and saving nothing. 'That's common. When he got home at night, doing his own budget was the last thing he wanted to think about. He spent the whole day doing the bank's budget. I could teach him nothing. Every good principle of money advice he knew. He will see a financial planner next week; he will know more than the financial planner.
'I told him - you're far better educated, but you have to shut up and listen. What the planner will do is to make you do the basics, a budget. You should be saving $1 million a year. Then he said - 'I got it! I thought the financial planner was a genius who is going to make me rich.' '
Mr Clitheroe was one of five founders of Australian financial advisory group ipac in 1983. The five friends pooled personal savings of a total of A$100,000 (S$127,000) to start ipac. In 2002, ipac was sold to AXA for about US$250 million. Today the group, which has an office in Singapore, manages more than US$14 billion in assets. Four of the founders remain active in the business.
Mr Clitheroe, who has written books, says: 'My role was always to be out in public to talk about the value of advice.' Between 1993 and 2002, he hosted a Money programme on Australian television, and has been chairman and chief commentator of Money Magazine since 1999. Currently, he is ipac executive director, and also chairman of the Australian government's Financial Literacy Foundation.
'What is financial literacy? Of every dollar I earn, I spend 80 cents and put aside 20 cents. You have financial literacy. The more educated people are, the more they earn, the less likely they are to save. The people in Singapore who most understand budgeting will be the poorest who wonder how they are going to buy rice tonight.
'They actually possess more financial literacy than many others put together. As a community like Singapore develops, the less people worry about how they will buy rice, we lose financial literacy.'
Mr Clitheroe says one of the great and persistent fallacies is that a financial adviser can make you wealthy. He tells aspiring entrepreneurs - who tend to be Asian - to take their savings, start a business, and return to see him in five years. Ipac's audience, instead, tends to be wage-earning executives.
'I don't believe financial advisers make people rich. People make themselves rich. The adviser's job is often a strategy to turn career earnings into wealth. But with a business owner, the time to save is likely to be when the business is sold, and that's a significant amount of money.'
People, he says, tend to chase 'false prophets' - in this case, the myth that an adviser can be a 'magic pill' to wealth. He recounts that earlier in the day, he exchanged pleasantries with a passing Australian couple here who recognised him. 'As they walked away, the question they asked was - Do you have a hot tip for us?
'What are the true hot tips? Be nice to your mother and don't stand on a canoe. That's valuable information,' he guffawed.
'It's like the diet industry. Would I prefer to eat chocolate doughnuts and eat a magic pill to keep slim? Give me the magic pill! Who is tricking us? If it looks too good to be true it will be.'
As Asians tend to be entrepreneurial, Mr Clitheroe say ipac's growth in Asia is likely to be slow. He shrugs off competition from private banks, however. 'When we sold ipac, I became a classic private bank customer. But a private bank is a money manager; they're not my life counsellor.' This is because a bank makes money from transactions, deposits and loans, and thus is more likely to churn clients' accounts.
Ipac charges a fee for advice, although this isn't common in the advisory market here. 'If you don't pay someone an annual retainer, how do they possibly give you trusted advice? I'm a very happy private bank customer, but the bank is transactional. My banker gets promoted every couple of years, and I get a new banker. In (ipac), clients that talked to me 25 years ago still talk to me. I have the same business cards with the same number. That's what I call a trusted advice model.'
He adds: 'We're not pretending this will be a dominant model in Asia; it won't be. But we feel very strongly it will be a powerful niche. Over time, most of our clients will come from other clients.'
Meanwhile, some of Mr Clitheroe's efforts goes towards getting employers in Australia to offer financial literacy courses to their staff. 'Around the world, employers say, that's not my problem. But the best argument for financial literacy is that it is in the interests of profitability and shareholders.'
Research in the US and Australia increasingly shows that financial stress in employees leads to lower productivity, absenteeism, demands for higher pay, and higher turnover as staff chase higher salaries elsewhere.
'I tell companies that building financial literacy through workplace training is not only a good statement about their role as a community citizen, it will make money for shareholders. The second I talk about making money, the conversation shifts dramatically.'
Some employers, he says, are concerned that staff who are financially comfortable will quit their jobs. 'Employers say, if they're broke, they'll need to work for me ... I say let's look at the research. People get bored with early retirement. Ten years ago the typical Australian retired at 55. But most went back to work at 57, and it's not due to money. It's the social contact they miss. Financially independent people are better employees. They go to work because they want to work.'
This article was first published by The Business Times on Aug 6, 2008.
