stock exchange 224.
(photo credit: Bloomberg)
If you’re just about holding your own financially and wonder what courses in investing could possibly have to do with you, think again, says Yossi Esh, chairman of the Israeli Union of Home Economy Advisers and Coaches.
“You don’t have to go study to be a portfolio manager and get a license from the Securities Authority to manage your finances,” says Esh. “But in recent years there have been so many changes that affect our financial lives that there’s no way that a modern family can ignore the capital markets totally. You have to understand how they work and how they affect you.”
Esh, together with Nahman Lidor, has written three books and numerous columns on family finances and makes frequent media appearances to discuss the subject.
He and Lidor also give a comprehensive course on family finances at the Financial Education Center, where participants not only learn to get a handle on their own finances, but can qualify to act as a mentor to other families. The course explains different types of investments, but also teaches its students how to get to a point where they have money to invest.
Things like bar mitzvas, weddings and higher education require large sums of money that the average family can’t just write a check for when the time comes, Esh notes. People have to save for these things, as well as put away money for their retirement.
So even if one understands the need to start saving for one’s children when they are still young, “it’s clear that a parent can’t just put aside NIS 300 a month and not care where it’s going,” says Esh. “Every family has to have some kind of dialogue with the capital markets; they have to be aware of all the possibilities.
“Now, when I say capital markets, I don’t mean having to trade in stocks all the time,” he clarifies. “There are investment options that are much more stable, and I would recommend that these savings be in stable investments.
“But even understanding the difference between a pakam [time deposit] and a makam [Treasury bill] can earn you another percentage point interest a year, and over 20 years, the compounding of interest can mean a difference of tens of thousands of shekels.”
Understanding the capital markets can also have important ramifications for one’s pension, provident and advanced training funds.
Since the Bachar Reforms passed the Knesset in 2005, the insurance companies now running these funds have to offer a variety of investment schemes, and individuals have the right to decide which they prefer and move the money accordingly.
“The ‘default setting’ for the pension funds is a general mix of investments of which 30 percent is in stocks,” Esh explains. “That might be an acceptable risk if you’re in your 20s or 30s; you might even want to increase your investment in stocks to 50% for a while. But if you are 55 or 60, then it might make more sense to put your pension money into something more stable.”
One need only recall the stock market plunge of 2008 to understand the reasoning behind that advice.
Indeed, over the past several years, there have been so many changes in the realm of pensions, insurance, credit, mortgages and banking that it’s harder for families today to get a handle on their finances. Much that was once in the government’s or employers’ hands has been left for the individual to decide.
Does one need a course to learn what to do, or is this something one can learn on one’s own?
depends on the individual, but the truth is that here in Israel, the
field of family finances is still very underdeveloped, and there hasn’t
been enough written about it,” says Esh. “In my courses, I’ve come
across bank branch managers, pension fund managers, and economists with
advanced degrees who didn’t understand some of these basic concepts.
invest in a little more education is never a bad thing,” he concludes.
“People who have studied with us found the investment in the course was
repaid not tenfold, but a hundredfold.” – S.A.