The relationship we have with money and finances is determined by many factors: upbringing and education; family, friends and relationships; even culture and ethnicity. Different behaviour towards saving and spending are visible in the ING International Surveys we conduct regularly.
Money management is personal. Each one of us has a different approach that is influenced by the external factors mentioned above and by our own individual drivers (professional and personal ambitions, security and risk-taking, etc.). And yet four years ago, as we developed alerts through My ING, we discovered that all types of clients were interested by the feature. And the same is true now that the alerts are available in push format on your smartphones.
It's actually not that surprising. From the control freaks who know with 100% certainty every cent that goes in and out of their accounts, to the most laid back account holders, all money-savvy clients want the following from financial notifications:
- time is money: notifications must be timely or near-instantaneous;
- clear and easy: the content of the notification (amounts, dates) must be sufficient to make use of it without requiring a login to your digital banking;
- responsible: discretion is a must in money management; the information is for you and only you.
In our testing, knowing when a standing order has been debited from your account proved to be useful for clients who closely monitor their financial activity (i.e. those who already expected the order to be debited) as a confirmation, and it was also of value for clients who have a relaxed approach to their finances (i.e. understand their general budget but don't actively check in and out entries) and perceived the alert as a convenient reminder.
Whether low balances, large transfers, activity on a credit card or incoming messages, everyone profits from alerts. The more you understand your financial activity, the better you become at money management - avoiding fees, making smart investment choices and having peace of mind.
I believe banking doesn't have to be difficult and time consuming. You can be good at money without logging in to your digital banking or even email account - with push notifications!
“Young people just waste their money on trivialities such as flat-screen TVs and expensive clothes” - how often have you heard this? – or even thought it yourself!- about the generation born between the 1980s and the early 2000s?
Often characterised as short-sighted thinking, narcissistic and overly consumed by technology and social media, Millennials, or Generation Y, defy these stereotypes when it comes to their behaviour and attitudes towards saving and spending. Most of Millennials might be more cost-conscious and money savvier than you think. In fact, they seem to be even better at managing their money than Baby Boomers and Generation X – their parents! – and to have the same saving habits as their grandparents.
According to a survey from investment outfit T. Rowe Price that analysed the spending and saving habits of more than 3,000 adults over the age of 18 in the United States, 75% of working Millennials track their expenses carefully, compared to 64% of Baby Boomers and 67% of Millennials stick to a budget, compared to 55% of Boomers. They want to be empowered to build their own future so they are very receptive to financial advice and seek guidance to help them reach their goals. Other studies highlighted the same behaviour and attitudes amongst young working Europeans.
Coming in the aftermath of the financial crisis, Millennials are more engaged on their financial situations than their parents at the same age. They spend money more often but in smaller quantities than their elders. And, contrary to what you may believe, they are not focused on possessions. A recent Eventbrite/Harris poll found that 78% of Millennials would choose to pay for real-life experiences – such as concerts, festivals, special events or a nice vacation – over buying physical things – such as a car or a home. Moving away from materialism, members of Generation Y think that experiences help shape identity and create long-life memories. They are less likely to buy something just because it is convenient (e.g. fast food); they focus on value for money (e.g. a homemade or freshly prepared meal).
Young adults have been called a lot of names – Millennials, Generation Y, Internet generation, Echo Boomers, etc. - but one of them is certainly not appropriate: “The Laziest Generation”. Money-conscious with both feet firmly on the ground, Millennials are changing the relationship with money and the way of consumption, just as they do in the workplace. They are definitely different, and they might have a thing or two to teach us!
Researching an article about money-saving behaviour, I started typing into Google: “How much cash is too much” and I was surprised by the suggestions the search engine offered:
My curiosity was piqued and I spent the next 30 minutes reading through the articles coming up for the different options. From discussions on how much cash celebrities carry on them to the maximum legal amount of money individuals can carry when crossing a border, there were many varied topics.
I read a study about how safe people perceive the use of cash to be as opposed to other payment methods. Nowadays, we hear a lot about credit card fraud and online scams. It’s crucial to understand these risks and learn how to minimise them. But we must not forget that pickpocketing and burglaries are still very common! According to Statec, in the four-year period from 2009 to 2013, 10% of Luxembourg households were burgled, with attempted break-ins adding an extra 9%. 8 out of 10 times, the attempted theft – regardless of what was targeted - was successful. This is partly why I am a big advocate of keeping your money safely in the bank, not under your mattress. The Police of the Grand Duchy recently reported that for several years in a row now there have been no successful hold-ups in banks in Luxembourg.
This doesn’t mean I am completely against cash. Sure, I hate the cent coins in my purse and I am more likely to pay for everyday purchases with a card; but I am also aware of the advantages of cash. For instance if the terminal or the Wi-Fi of the store doesn’t work. Or when you want to leave a tip. Or even when you are on an out-of-control shopping spree and the physical act of handing over money to the salesperson might be the only thing to shock you back into reality. After all, paying cash, i.e. seeing your hard-earned money leaving your wallet, does hurt more than merely swiping a card.
So how much cash is too much cash? In terms of cash in your pocket, you will have to find the right balance between your need for immediately available means of payment and physical security. A 2013 Money Magazine survey revealed that 42% of respondents carried less than USD 40 and 30% less than USD 100. The same survey in Luxembourg might give slightly different results, depending for instance on whether people want to pay for dinner in cash or plan on taking a taxi back home…
In terms of cash allocation in your wealth planning – and I mean the money in your bank(s), of course – I recommend a limited amount of liquid assets: cash on your savings accounts (sufficient to cover your recurring expenses over a period of three to six months), cash in your emergency fund (which could be in a liquid investment product, such as Invest Plan), and that is it. The remainder of your money should be put to work in investment funds, in shares, in bonds… Talk to your financial advisor or relationship manager about your options and the diversification you need. Especially given one of the dangers of cash lies in the fact that it can lose value! Interest rates are so low that even with low inflation levels you might be losing money.
Be good at money – ask for advice and slowly move from cash to investments.
Mobile has become an indispensable part of our daily lives; most of us – and Millennials in particular – are really attached to our smartphones.
Sometimes at the point that it becomes an addiction: a lot of smartphone users admit that they get anxious when they don’t have their phone with them. According to several surveys, we check our phones 150 times a day: very short mobile sessions no longer than 1 minute, dozens and dozens of times per day. It’s like we are speed dating with our phones!
Every day we use our smartphones to check our emails, read the news, send photos or chat with friends on social media, not paying attention to all the distracting and irrelevant messages of brands. But then there are other moments – marketers call them micro-moments – when we turn instinctively to our devices to act on a need to learn, find, do or buy something. They are rich-intent moments when we are taking decisions and our consumer’s expectations are higher than ever. We want things right away and expect brands to immediately deliver exactly what we are searching.
During these micro-moments, we are open to the influence of brands. The quality, timing, relevance and usefulness of their messages can have an impact on our buying decisions. A recent research conducted by Google and Ipsos found that 82% of smartphone users consult their phone while they are standing in a store deciding which product to buy. One in 10 of those end up buying a different product than they had planned.
Micro-moments are becoming the new marketing battleground. The challenge is high: the time to capture attention and interest of the users is very small as micro-moments occur during lulls or complement simultaneous activities, such as waiting in line, commuting, walking, dining, shopping, relaxing or lying in bed. The brands that have the right strategy for understanding and meeting consumer’s needs in these micro-moments will succeed.
And what about consumers? Studies reveal that the impact of mobile device use on impulse buying is huge. Will micro-moments reinforce this trend and stimulate irrational purchases? The answer is in the question. Be good at money: beware of your emotions during your micro-moments and take time before buying something, especially if it’s expensive.
I spent some time with my family over Christmas and had a chance to talk to my niece. She’s at that weird stage in life where she’s not a little girl anymore but not yet a full adult, so conversations range from very basic “I-hate-spinach” tirades to philosophical debates about life and love.
My niece loves horseback riding and devotes a lot of her time and all of her hard earned pocket money to that hobby. We often talk about forecasting what she wants to buy so she can make a plan on how to save up for it. It’s fun to see how she negotiates with her parents for advances on future earnings when she sees a good deal – while, in the same breath, offering to babysit for us for free. The financial logic of a tween.
And this year, on Christmas Eve, my brother-in-law suddenly turned to me and said: “You work at a bank, explain to her why she should put her savings in her savings account.” If you’ve been following this column, you can probably imagine the surprised look on my face. My niece preferred to keep her savings in her piggy bank in her room rather than in her savings account! We started talking about the advantages of keeping her money in the bank: it would be kept safe, she could earn interest on it (and then interest on interest!), she could consult her account balance online at any time from the comfort of her room, she could pay with her debit card and also withdraw money with it whenever she needed some, she could review all her transactions which could help her understand better how much money came in and went out, and with what frequency…
She waved me off and asked very seriously (the way only tweens can do): “And what happens if I ever lose my card? Then I’ve lost all my money!” At first, I thought that she was talking about theft or even fraud but then it became clear she was worried about how the bank would know it was her money if she presented herself one day in a branch and asked to have it back. The simple yet brilliant logic of her argument (anyone looking a little like me could walk in and say they were me) is actually what keeps many of my colleagues busy all year long: preventing identity theft and fraud. Not only banking staff, but also regulators work around the clock to make banking as safe as possible. The result sometimes involves fastidious procedures and lengthy account opening forms… but now my niece is convinced it will not be that easy to trick her bank into giving her money to someone else.
And though still a tween, she’s already putting her money to work. What a great way to start 2017!
Are you already in the frenzy of the after-Christmas sales? Here are a few thinking traps that might trick you into spending more than you had planned, put together by our colleagues at eZonomics (www.eZonomics.com). Remember: if you buy something for €75 that used to cost €100 you’re not saving €25, you’re spending €75!
1 Once you start…
Deciding to buy one item may “open the floodgates” and increase the chances you will buy other items too. It is like going to the supermarket for one item and leaving with a bagful. Buying the sale item could lead to a few full priced ones too.
2 €20 is worth the same
Is a €20 discount more appealing on a €50 calculator than on a €1,250 laptop? Many of us will think so if we think about it as a share of the original cost. You may even be willing to travel to get the cheap calculator but not €20 off laptop. Remember the real buying power of the discount.
3 How much is full price elsewhere?
Simply seeing the word “sale” sparks thoughts of low price – even if that’s not truly the case. If the starting price is inflated, the discounted price may not actually represent a cheap deal. Combat this by researching deals at other vendors.
4 Beware the power of “free”
The offer of free delivery, buy-one-get-one-free (BOGOF) and other “free” offers are designed to appeal. The power is so strong that academic and author Dan Ariely often writes the word in all capital letters as “FREE!”. Look deeper. Costs can be worked in another way – and BOGOF offers sellers the potential to shift more product than offering 50% off.
5 I’ll just put it on the credit card
Putting a sale item on the plastic can be an easy option but beware it might reduce the “pain of paying” that shoppers are said to feel more intensely when handing over cash. During sales season, consider withdrawing the amount of cash you are willing to spend and paying only with that.
6 Drip, drip, drip of extra costs?
The delivery is free, but what about software, fees for using a credit card, a charge for handling? Known as drip pricing, unadvertised extras make the true total cost difficult to compare with prices elsewhere.
7 Available “for a limited time only”
It’s a sales cliché but for good reason. Increasing the urge to “buy now”, limited time offers up the pressure to buy by making the item or deal seem more scarce.
Are you already thinking of new resolutions for 2017? In case you need some prompting, here is a suggestion: spend less time in the office. How? By paying attention to these little time thieves:
1. Lack of organisation: it is sometimes wise to spend a few minutes organising your day or week. This way, you avoid wasting time deciding what to do next at the end of each task.
2. Undefined goals: not having clearly defined objectives can lead you to fritter away time and other resources, struggle with priorities and even encounter conflicts between tasks. Of course you are allowed to change objectives if necessary, but having short-, medium- and long-term goals will boost your effectiveness. After all, what is the use of running fast if you do not know where you are headed?
3. Postponing decision making: we often postpone deciding something because we want to wait until we have all the necessary information. Yet, putting off making a decision until later can also be caused by the lack of a clear goal. If this is the case, temporising only slows down our pace (as well as that of our team) and a faster decision might be more efficient.
4. Procrastination: similar to postponing decisions, we tend to put off completing tasks we dislike until the end of the day or even the next day, sometimes falling in a never-ending spiral of procrastination. This is disruptive in many ways: you might have to deal with the continuous awareness of unfinished business in the back of your mind or feelings of guilt (if the task is to get back to someone with information, for example). At some stage, you will find yourself cornered, having to do the task under less than ideal circumstances!
5. Not knowing when to say “no”: if you have been given a task that is not in line with your objectives, do not do it. Simple.
6. Failing to delegate: you trying to do everything in your company, team or project is not sustainable, nor is it productive. There are many tasks others can do better, quicker and more efficiently!
7. Bad communication: “in the interest of time” we sometimes keep things short – so short that misunderstandings occur and end up costing us more time (and resources). Even when in a rush, make sure the people you work with understand the ultimate goal, the timeline and the task at hand.
8. Interruptions: every time we are interrupted, we need an average of 15 minutes to get back to our previous level of concentration. Interruptions can take many forms: phone calls, colleagues but also emails, push notifications on your desktop or your phone, social-media alerts, etc. Politely asking someone to wait until you have completed your task and turning off those pesky notifications can improve your efficiency.
9. Meetings: if you ask me, we spend way too much time in meetings! Some meetings are crucial and productive, but others can be badly planned, prepared and/or conducted. They then become a colossal waste of everybody’s time.
10. Lack of concentration: many things can affect your concentration. Distractions in the workplace (as seen in #8), excessive workload, lack of sleep, emotional distress, unhealthy eating habits, and lack of exercise all make the list. Working more does not automatically mean working better! Take care of your mind and body if you want to go the extra mile!
This is not an exhaustive list, but it is a good starting point if you want to become more efficient and spend less time in the office next year. As with good money-saving goals, it is difficult to implement all of these time-saving goals at once. So choose the ones that appeal to you most (the thieves that steal most of your time) and work on them first. After all, time is money!
Happy New Year!
People in different countries have different attitudes towards saving; and yet across the globe, we all come up with similar excuses for postponing the adoption of a money-saving habit – a pity if we consider that putting money aside is the first step towards building your wealth.
“I don’t save because my expenses are too high.” The fact that household expenses are high is very true (26% of Luxembourg respondents to the ING International Survey (IIS on Savings this year said their savings had declined compared to the last year). Yet, it is still possible to economise; all you need is a broad overview of both income and expenses of your household. Seeing your budget in black and white will help you get rid of false assumptions and identify expenses that are no longer necessary or can be modified (e.g. carpooling). Remember: to start saving, you do not need a lot of excess income! The important thing is to build a habit, even if you start with €50 a month.
“I’ll start later.” Procrastination is human, but it is especially counter-productive when it comes to saving money. Of the respondents to the IIS on Savings who stated their savings had increased between 2015 and 2016, 50% claimed the reason was a “deliberate decision”! However, besides making a habit of putting money aside, there is another crucial element to saving: the compound interest. Often underestimated or even dismissed, compound interest is the interest you earn on the interests that your savings have already produced. This can make a big difference in the long term even if your monthly saving capacity is limited.
“It’s too late to start saving.” It is never too late! Granted, the earlier you start, the larger your nest egg will be in the end (all things remaining equal), but it is never too late to start putting money aside for an emergency fund(of respondents whose savings decreased in 2016 43% said it was due to unexpected expenses), for a dream trip, for a special occasion, etc.
“My salary isn’t high enough.” When it comes to savings, the absolute numbers are not relevant. The important thing is the relationship between your income (e.g. your salary) and your expenses. Whatever your current salary is, your expenses should never be higher. So reviewing your spending habits might free up some spare change to start hoarding those bucks!
“I can’t save because I’m paying off my mortgage.” Mortgage instalments often claim a significant portion of a household’s income (17% of Luxembourg respondents to the IIS on Mortgages last spring stated they found it difficult to pay their mortgage at the end of each month). All the more reason to put money aside to repay your mortgage more quickly or to invest in a cache for when you have repaid your mortgage. And do not forget that once you are done repaying your mortgage you can allot some of your income to start saving instead (e.g. if you used to earmark €1,500 a month for your mortgage repayment, start putting aside €1,000 each month to build your wealth).
There is a myriad of excuses for dragging your feet. Make sure your reasons for not saving are grounded in reality instead of blind assumptions. Believe me: tomorrow you will wish that you had started saving today.
With the end of the year approaching and in the light of major international political changes, it is difficult to forecast how markets will evolve in the future.
Last Tuesday 15 November at the European Convention Center, I attended the Financial summit that addressed the topic “How to anticipate the next financial crisis”. Ian Bright - Managing Director at ING Group Research – expert in behavioural economics was invited to share his views on this topic.
Ian stressed the fact that it is all about the behavior of people and that this behaviour is not as rational as you might think.
With regards to the next financial crisis, he noted that the level of household debt is high and increasing in a majority of European countries. At the same time, evidence from the ING International Survey since its inception in 2012 shows consumer finances are fragile. I find it surprising that more than three Europeans in ten do not have any savings according to the surveys and for those that do have savings often these do not cover three months of expenses. It is easy to see how this is something we should all be anxious about.
Concerns extend beyond financial arithmetic. Many people appear unaware of the financial risks they take. Knowledge of basic financial concepts such as compound interest and the effect of inflation on purchasing power is low. And if people do not understand how such concepts can influence their financial situation, how could they possibly prepare themselves for a financial crisis? There is a clear need for better financial awareness. Even in Luxembourg, a key European financial player, only 53% could answer three of five basic questions about financial concepts correctly.
Moreover, 61% of people in Luxembourg agree with the statement “house prices never fall” while at the same 89% believe house prices to be expensive. This inconsistency coupled with low savings makes a dangerous combination. Ian Bright believes that people are trapped into buying a property even though they think it is expensive.
But it’s not a doomsday scenario! Ian doesn’t think we should be worrying about anticipating the next crisis. Instead, we should ensure structures – whether that be markets, insurance systems and knowledge bases - are developed that provide protection against the complexity of modern financial systems.
This is exactly why at ING Luxembourg we started our blog mymoney.lu: with easy to digest posts about everyday finance, we strive to help people understand better what is going on, what choices do they have and what risks they need to be aware of. Only by providing the right information can we empower people to stay a step ahead in life and in business.
Choosing the right formula for your home loan is not always based on a financial calculation, as the latest ING International Survey (IIS) on Home and Mortgages (June 2016) confirms.
In Luxembourg, 39% of foreign residents would choose a fixed rate if they took out a loan today, compared to 32% of national residents. Historically, Luxembourg nationals have always preferred home loans based on variable rates. This begs the question: is one better than the other?
Very low interest rates
I assume you have noticed the very low level of current interest rates. 21% of Luxembourg residents believe the fall in interest rates has had a positive effect on their housing situation. In January 2016, fixed and variable rates were at the same level. Borrowers might want to take advantage of this and lock in a very low fixed interest rate for the duration of their home loan, right? Surprisingly, the results of the IIS show a very different picture: when asked what rate they would choose if they were to take out a loan in June 2016, the preferences of Luxembourg residents were almost the same as in 2013, a time when interest rates were 2 to 3 times higher than today!
In this light, it comes as no surprise that almost 1 in 3 Luxembourg residents state that they don’t really know what they should do. However, this might actually be good news in disguise, considering that the interest rate is only one of many components of a home loan. At ING, we often refer to a home loan as a “complex product”: many variations are possible and one size does not fit all.
The interest rate, paired with the principal amount and the duration of the home loan, dictates the repayment instalments. Your ability to generate revenue determine your capacity to make good on those instalments. It is crucial for the bank to understand how you plan to repay the loan in order to design the best proposal: will you repay it using your monthly salary? Or using the rent you collect from another property? The creditor also needs to know whether you plan to repay the loan in part or in full at the end of the credit term or earlier than expected, for example because you expect an inheritance or you will sell the property once you move back to your home country. In many cases, the ideal choice is neither black nor white (fixed vs. variable rate) but rather a combination of both. Such a solution allows for a certain level of lending flexibility all the while benefiting from the advantages both interest rates offer.
These and other factors of your life that might not seem directly related to your housing situation are key when taking out a home loan. It is no wonder that 35% of IIS respondents stated that their biggest worry when applying for a home loan was making the right choice between different offers. So make sure you receive relevant advice from your banker, explain your plans and do not be afraid to ask questions! The 2016 SNL Home & Living fair currently held at the Luxexpo is a great opportunity to test your knowledge – whether you are looking to buy or not. We would be happy to welcome you in our mobile branch in Hall 9 until Sunday, 23 October!
Get ready – save up!
Your first studio; a larger apartment with your partner; a house with a garden where your kids can play, your pets can roam and you can receive guests; an apartment in the suburbs now that the kids are all grown up; a holiday residence… Most of us have a housing-related dream or next step in mind. When asked what they were doing in order to be able to buy a house in the near future, 45% of Luxembourg residents replied that they were “saving money for a deposit”. This is actually a great strategy. If you already own some property, the proceeds from the sale can help with the deposit but chances are you sell to buy something bigger/better and, therefore, more expensive. We recommend you build your wealth steadily with intelligent financial products such as our Invest Plan (remember, interest rates are currently so low that traditional savings accounts yield next to nothing!).
And just so you know: buying in Luxembourg still seems to be a good idea, with 78% of IIS respondents expecting prices to continue to rise over the next 12 months!