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Money & saving

Money & saving. WONG To Yeung (Leo) WONG Ka Wang (Kelvin) LAI Chung Yin (Roy). When you were young …. Did you save? How did you save? Why did you save?. What are we going to do?. How to calculate interest? MPF scheme Comparison between different saving methods. Saving in a bank.

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Money & saving

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  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.1If you save $100 into the bank at 1% pa for 2 years, theninterest = 100*1%*2=$2amount = 100+2 = $102

  7. 2.Compound interest E.g. 2If you save $100 into the bank at 1% pa for 2 years, compounded yearly, thenamount = 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% pa2, 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% pa2, save it for 30 year

  11. How to calculate? Amount accumulated by 1st sixth prize= $320*(1+2%/12)30*12 Amount accumulated by 2nd 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 contributionfor retirement Max = $20,000Min = $5,000

  16. How MPF works? Five types of funds:1, Money market fund2, Guaranteed fund3, Bond fund4, Mixed assets fund5, 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 … < $5000 -> 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/article?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 Insurance5-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 (rn-1) / (r-1) Let r = (1+3%/12)12 = 1.030416 Sum = A5 + … + A1 Sum = 20000(1+2%)r(1+r2+r3++r4) = 20000(1+2%)r (r5-1) / (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?

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