Assets and Liabilities
”The reason why most Filipinos are languishing in poverty is because they are financially illiterate and they think with their emotions.”
That was the comment made by a foreigner friend who used to work as a stock broker. He found it shocking that some local professionals (doctors, dentists, lawyers, etc.) can’t even distinguish between assets and liabilities. Moreover, he couldn’t comprehend how these people managed to live on just one source of income considering that they are supporting not just their own families but also their siblings’ families.
According to this foreigner, assets are anything that brings money in the pocket. Liabilities are anything that takes away money from the pocket. It’s as simple as that.
Here is the interesting part ---- his own examples of liabilities: house, cars, clothes, jobless husband / wife, high spending girlfriends/ boyfriends, dependent relatives, children, credit cards.
His examples of assets are bank notes, treasury bills, dividends, royalties, bonds, intellectual property, land/ real estate
The problem with most Filipinos, he observed, is that they delude themselves into believing that a house, cars or children are assets. “Just because these things make you happy doesn’t mean they are assets. Once people accept this fact, they’ll realize the need for more than one income to support their liabilities and keep ahead of expenses.” He immediately clarified that people need not get rid of all their liabilities because that would be impossible. How about adding income sources and decreasing expenses, he suggested.
How can they get other income sources when they hardly have enough time for themselves, I asked.
He chuckled and said that income doesn’t always come from regular jobs, those that pay you for your time. “Haven’t you heard of passive income or portfolio income? Examples of passive income are rental payments, royalties from creative or information products, patents, dividends from shares holding and limited partnership in enterprise. Portfolio income include proceeds from stocks, bonds, equities and t-bills. These are revenue streams that do not require your direct personal involvement in order to keep coming in.”
He glanced at me and paused to make sure everything he said sunk in (This cold blooded bloke sure knows what he is talking about!).
"Do you want to be able to take time off whenever you want to, without worrying about what's going to happen to your current job or business, earn more and work less?”
Good. So do I, he added, that is why financial literacy is important.
“Poverty will not be solved with more money if the mindset of poor people has not changed. Just listen to those street protesters who expect government to feed them and provide them shelter”, he intoned. “Those poor people will forever be dependent on someone for their needs, living a pathetic hand-to-mouth existence. Even if you give them a lot of cash, they'll spend it all because that is how they were programmed to handle money. To them, nothing is ever enough. And look at those office workers who constantly rely on loans to cover their huge expenses and to fill the urge to buy things they don’t really need.”
” They are trapped by their own ignorance and unbridled emotions”, he said with a smirk.
”Instead of wasting time gossiping about their neighbors or blaming the government, Filipinos should be talking to stock brokers, financial analysts, tax specialists, bankers or anyone in the know about wealth building. If not, they can make productive use of their time teaching their children to be self-reliant.”
There is really a need for parents to show children how to create and handle money, my foreigner friend underscored, because financial education is usually obtained in everyday experiences not in schools... especially not in Philippine schools.
What can I say, he was right. Truth hurts though.
