1. Money & saving WONG To Yeung (Leo) WONG Ka Wang (Kelvin) LAI Chung Yin (Roy)

2. When you were young … Did you save? How did you save? Why did you save?

3. What are we going to do? How to calculate interest? MPF scheme Comparison between different saving methods

4. Saving in a bank Saving account Advantage - safe - convenient - earn interest

5. What is interest? Reward for your saving Interest rate  expressed in per annum rate

6. 1.Simple interest E.g.1 If you save $100 into the bank at 1% pa for 2 years, then interest = 100*1%*2=$2 amount = 100+2 = $102

7. 2.Compound interest E.g. 2 If you save $100 into the bank at 1% pa for 2 years, compounded yearly, then amount = 100*(1+1%) 2 = $102.01 interest = 102.01-100 =$2.01 More interest!!!

8. Make a guess…. You have won the sixth prize of Mark Six $320 How much will you have saved, if ….. 1, compounded monthly at 2% pa 2, save it for 30 year

9. Answer $582.8 Almost double Do you think it is large?

10. How about this…? Suppose you will win the sixth prize of Mark Six EVERY months in the coming 30 year How much will you have saved, if ….. 1, compounded monthly at 2% pa 2, save it for 30 year

11. How to calculate? Amount accumulated by 1 st sixth prize = $320*(1+2%/12) 30*12 Amount accumulated by 2 nd sixth prize = $320*(1+2%/12) 30*12-1 Amount accumulated by 3rd sixth prize = $320*(1+2%/12) 30*12-2 …..

12. How to calculate? Amount accumulated by last sixth prize = $320*(1+2%/12) Total amount accumulated = 320*(1+2%/12) 30*12 + 320*(1+2%/12) 30*12-1 +…+320 *(1+2%/12) =$157935

13. Big or small??? Total interest = 157935 – 320*30*12 = $42735 About 37% of the principle

14. What is MPF? Mandatory Provident Fund Launched in 2000 Coverage: - employee OR self-employed - aged 18 to 65 - living and working in HK Monitored by MPFA

15. How MPF works? Regular contribution for retirement Max = $20,000 Min = $5,000

16. How MPF works? Five types of funds: 1, Money market fund 2, Guaranteed fund 3, Bond fund 4, Mixed assets fund 5, Equity fund

17. Reality Inflation  general increase in price level  measured by inflation rate management fee

18. Include the reality Recent annual inflation rate = 0.17% Average monthly management fee = 1.81% Annual rate of return=10% Monthly contribution = $1000 Working for 35 years So, monthly effective interest rate = (10%/12)(1-0.17%)(1-1.81%) = 0.8168590%

19. Include the reality Amount that you can get when you retire = $3,637,675 (homework!!) How about if we only save for 20 years? Amount that you can get when you retire = $746, 231 (homework!!) Conclusion: it’s never too early to start!

20. $6000 cash: How to spend ?

21. What you may think of … Lazy and stupid not to save Hardworking and wise to save

22. 4.Saving Cash – at home Ordinary savings account in bank Investment Insurance

23. i.Saving – Cash at home Useful Essential Convenient Easy come easy go

24. ii.Savings account HSBC, Heng Sang Bank … 0%, -$50/month >= $5000 -> 0.001% annual Eg. $6000 -> 10 years how much will be saved ? Depreciate …

25. iii.Investment To choose which stock / bond ? Link: http://hk.myblog.yahoo.com/stevetso/articl e?mid=373 Gain / loss ? Risk - Fluctuation in market High risk - high return

26. iv.Endowment Insurance 5, 10, 20 - year scheme Fixed payment – premium (>$1000) Pay annually until maturity day Interest plus dividend each annum Death protection & personal saving

27. China Life Insurance 5-Year Treasure Insurance Plan No investment, no return wealth security Insurance period : 5 years Single premium pa Guaranteed dividend rate : >2% of single premium

28. Which is the best ? Suppose HK$100,000, to save from today to 13/4/2016 (5 years)… no inflation or currency effect If save at home, still $100,000 If save at bank account, amount = 100,000(1+0.001%/12) 5*12 = $100,005.00

29. Insurance approach Assume dividend rate = 2% of single premium, interest rate = 3% pa Single premium = 100,000/5 yr = $20,000 14/4/11: $20,000 13/4/16: A1 = 20,000(1+3%/12) 12 (1+2%)

30. 13/4/15: [20,000(1+3%/12) 12 (1+2%)] (1+3%/12) 12 A2 = 20,000(1+2%)[(1+3%/12) 12 ] 2 13/4/14: A3 = 20,000(1+2%)[(1+3%/12) 12 ] 3 13/4/13: A4 = 20,000(1+2%)[(1+3%/12) 12 ] 4 13/4/12: A5 = 20,000(1+2%)[(1+3%/12) 12 ] 5

31. Sum of GS S (n) = a (r n -1) / (r-1) Let r = (1+3%/12) 12 = 1.030416 Sum = A5 + … + A1 Sum = 20000(1+2%)r(1+r 2 +r 3 ++r 4 ) = 20000(1+2%)r (r 5 -1) / (r-1) = $111693.45

32. Hope you find it useful ! Thank You!

33. Homework 1, Complete the calculations in slide 19. 2, Could you design a saving plan for yourself so that you can get $5,000,000 after 30 years? You can use the information in slide 18 Extra: Do you support the government directly giving $6,000 to every HK people? Why?

34. Online discussion Do you think you are saving enough? Why or why not? Do you support the introduction of MPF scheme? Why?