SG Budget Babe
Asked on 26 Dec 2019
Keeping all their money in savings accounts will cause it to lose out to inflation, so how do I convince my parents to take their money out of their savings accounts and invest wisely instead?
My parents are not that young anymore and I do not want them to take or feel that they are at risk when it comes to investment.
After much consideration, I decided not to convince them to invest their money, but rather, I will invest more of my money to support them somehow. I am their retirement plan.
Our parents are mostly risk-adverse. In fact, we started off from investing in growth policies from NTUC Income.
The first savings plan we put in 2004 net us a handsome return over 10 years, and the second one that started in 2014 for another round of 10 years gives us an interest rate of 3.5% per annum, until in 2018 which they adjusted to 3.25% i.e. If you have put $100,000, you will see $3,250 per year in interest.
Of course, you can take out the interest and spend. However, my advice is not to take it and let it compound over time (like your CPF). You will see a great return at the end of the policy.
Not too shabby, right? Considering if you compare it to CPF OA 2.5% & SSB. I think one of the blessings in life is we met a good advisor by chance. She was assigned by the call centre to take up our home insurance. You know lah, term insurance doesn't earn much commission. She's down-to-earth and sincere in her dealings (no hard sell), so we kept in touch till this day.
She certainly made loads off her customers (now she only services old clients, who I think also grew their money well) and the money she made she invested it...And guess what, she put it back with NTUC Income.
If we don't know how to invest i.e. maybe you don't need to even put in stocks, it may be best to put it with a company that knows how. For conservative investors like my parents, it is the insurance company, which gives stability (i.e. your capital is guaranteed) and a reasonable decent rate.
I think most people will baulk at this idea. However, not all insurers are that bad based on our experience with NTUC Income.
FYI, I'm not agent, just a satisfied customer over the years! :) Hope this gives some food for thought.
By the way, just a word of caution not to mix up with Investment-Linked Policy. You can lose money in ILP, which I did until recently it broke even...like FINALLY...took 12+ years...seems like forever! For your parents, you need to avoid ILP.
My parents are very conservative, so I recommend them to buy Singapore Savings Bonds instead. It is not worth getting into an argument just to persuade them to invest. I do not wish to spoil my relationship with them, knowing very well they have no interest in investment.
I wouldnt go as far as 'convince' them, but to share with them the benefits of investing and the opportunity cost of NOT investing.
Showing them the power of compound interest by illustrating how their money will grow over time if invested vs not invested might be a good way to start.
But keep in mind that our parents are not young anymore, probably even approaching retirement soon, so the 'invest vs no invest' comparison might not be as 'impressive' as you show to someone who just graduated.
Anyhow, that might be a good way to have them realize that investing their money is better than just leaving the money in the bank account.
Recommend them some low risk investment options such as Singapore Savings Bonds, or even Fixed Deposit. If they are more receptive, RSP into STI ETF and ABF bonds, or even REITs are okay too.
I think money is an immensely emotional issue, so you have to invest some time to understand how they came to formulate their views towards money and investing. Books like "Open Up: The Power of Talking About Money" by Alex Holder suggest that a lot of our ingrained money habits can be traced back to our parents, so perhaps you can start probing by asking how they perceived your grandparents' money habits.
I also think that our parents come from a time in which interest rates offered by the banks were substantial. I remember my mother dragging me to set up a fixed deposit with POSB in my teens (think the interest then was a whopping 5%.) so although interest rates have plunged, their mentality regarding interest rates remains the same.
as other posters have mentioned, we ought to focus on capital preservation for our parents, so I think a good way would simply to bring your parents along when you go and set up higher-yield saving accounts with some of the lesser-known banks like CIMB and Maybank and ICBC. I think many people in the older generation are very resistant to venture beyond POSB, so I will consider it a win if you can help them open up another bank account elsewhere.
You can try presenting to them lower risk/defensive investment portfolios since I guess at their age, they would prefer capital preservation rather than capital growth, since their risk is much higher. Show them that they can still grow their money safely even at their age.
Maybe a good start would be to move from older 0.05% interest bank accounts to the higher interest savings accounts like your UOB One Account, DBS Multiplier, or even CIMB Fast Saver.
The next thing to note is that they have a different investment horizon and objective than you. They shouldn't be investing the same way a younger person would.
So a conservative portfolio focusing on income and capital preservation maybe the better option. If you understand how to craft this for them, sure you can try and explain, if not it may be better to work with a professional licensed advisor.
This question warrants us to navigate through the many controversial opinions we each have. Hence I do not think an absolute answer can be obtained. Personally, I would not interfere with the management of my parent's fund as we treasure them dearly to ourselves and the idea of volatility may not be well understood to them. I do not want my parents to feel uncomfortable.
I personally feel that you can convince them showing there save account is lossing money showing them the cost of inflation of basic consumer good then showing them basic investment which does not have high ROI but safer. Remember this, investing is like a work out . There are many kinds of investing but it is still better then nothing
Perhaps a relatable way to share with your parents can be through examples of inflation in our daily life, for instance the price of chicken rice has raised from $2+ 10 years ago to the norm of $3 - 4 in recent days... which means even though we have the same $10 dollar bill, what they could buy nowadays might be lesser, especially for bigger ticket items
it might be good to understand the possible reasons behind their resistance to transfering their money out of their savings account. while investments may offer a higher return in monetary terms, some of our parents tend to prefer the stability with banks (especially when there is lower risk tolerance nearing retirement) or some might have a bad experience with financial instruments after the asian financial crisis in 1997 ... so maybe finding an investment (e.g. SSB) that addresses their concerns would encourage them to be more willing to change out of the regular savings account
I would explain inflation to them and explain how $1 today is worth more than $1 in the future. Then I will walk them through relatively low risk investments that they are comfortable with to try to curb the negative effects of inflation as best as we can
When I first started investing in the stock market, my parents were skeptical.
When they started to see that I am investing in a businesslike way instead of gambling, they became interested to know how.
When they started to see real results, they became convinced that hey, maybe there is a better way to put money that one do not need for some time in a great business bought at reasonable prices.
My parents are conservative due to CLOB history as well. They do not want a change to high interest savings account. Neither they welcome the idea of investing in stocks, reits, SSB, ETFs, or go for insurance related savings such as Singlife.
What I do is to cash top-up their CPF accounts, invest in bonds (surprisingly they allow Astrea and FP ) and go for high return FDs.
I think it depends on how conservative your parents are. For me my parent are quite open to try new things so they were okay w the idea of doing investment. But to be safe, they only invest like a small portion? So like if anything happen, at least they still have spare cash on hand. But i feel like if your parent dont like the idea of investment then we shouldnt force them as it can affect your relationship which is not worth it to me
I have this problem as well initially.
Then I started investing in the stock market and showed them the returns I made.
They were was skeptical at first but initially open to the idea of investing in the stock market. They gave me some capital and I helped them manage some investment through a broker.
I also added the value of money will go down due to inflation and explained to them why they should not keep their money in the savings account.
I have mad a video on monthly investment plan on youtube if you would like to watch it!
My parents (self-employed) are tradional and conservative.
They perceive investments as gambling.
As it's difficult to change their mind, I have suggested to put them into fixed deposit to earn higher interest or SSB.
Show More Products