Sat06242017

ING Visa Classic Terminal 400

Physical money has existed since the dawn of modern economy but its role is vanishing as new methods of payment emerge.

With the digital revolution offering ever-faster and more convenient means for settling transactions, cash seems to have no future. Non-cash-payment options have been growing rapidly in recent years. Credit cards, online transfers and direct-debit payments are already well established. And thanks to contactless payment that is deploying rapidly on bank cards, smartphones and connected watches, opening your wallet, giving a banknote and checking the change back or looking for small coins to pay the exact amount will be soon things of the past.

If cashless transactions are set to transform the way we shop for the better – increased security and reduced cash-handling costs -, they can also have a negative influence by potentially altering our perception of spending and transforming our shopping habits. Research into the “pain of paying ” suggests that the physical act of handing over money prompts more awareness about spending, and parting with cash may even “hurt” a bit more than swiping a bank card or using your fingerprint.

People tend to judge the value of an object (such as a coin or a banknote) from its actual size, shape and colour. A recent research, published in the Journal of Consumer Research, has even shown than we are more likely to use worn notes than to pay with brand new notes because it’s less painful. This money illusion explains why paying with cash – in other words, handling a material object – has a fundamentally different psychological impact from simply waving a contactless card or mobile payment system over a scanner.

By avoiding the sense of physical loss associated with handling material and tangible objects, electronic payments seem to disinhibit our buying impulses and encourage us to spend more money. This trend will be reinforced in the years to come with the rise of contactless cards and mobile payments which make transactions substantially quicker and easier – unless the same institutions that provide cashless payments support customers in thinking about money the right way, argues top researcher Dan Ariely in this video ..

Sooner or later, our society will be entirely cash-free. It is time to change our consumption habits, review our relationship with money and possessions and – last but not least! - teach our kids how to manage money wisely. Teaching our children to be good at money is the best way to empower them to stay a step ahead in life… and later in business!

Tuesday, 30 May 2017 22:09

Barbara Daroca: The Latte Factor

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Have you read anything published by David Bach, one of America’s bestselling financial authors?

He claims that “all you need to do to finish rich is to look at the small things you spend your money on every day” and instead put that money aside. I am not a firm believer of this principle – I don’t think the ultimate goal always needs to be “finish rich” – yet I agree with the fact that we often don’t realise the myriad of little purchases we do on a daily basis.

Here’s where his by-now famous The Latte Factor® comes in. Imagine if instead of spending every day in a working week €4 on a premium brand café latte (that makes €20 per week) you were to put that in a fund with an annual yield of 5% and compounded interest. This investment would help you save up to €19,282 in 10 years and €50,690 in 20 years. Try it yourself with the Latte Factor calculator (http://davidbach.com/latte-factor/)!

The point here is not to stop drinking coffee. Or going out for a beer with colleagues towards the end of the week. What David explains is that even the smallest amounts put aside on a weekly/monthly basis in investment funds and retirement plans can help us build our wealth. It is a modern version of The Grasshopper and the ants tale: it’s important to put aside some of what we have now, even if that means we must sacrifice a little, in order to have something when we truly need it.

It doesn’t have to be leisure items like coffee, beer or holidays. At ING we always advise to build up your savings in such a way that they don’t become a burden or a dreary task! Be smart about your choices (you can read this article for guidance (“8 tips on how to create a budget”). Maybe you can save a little in your commute, your car insurance or your mobile devices instead. And once you have figured out how much you can put aside regularly, what better way than to set up an automatic plan such as Invest Plan?

And always take into account inflation (“Inflation: will you be a winner or a loser?”)! We’re talking long term investments, so €50,000 in 20 years will not have the same purchasing power as they do today. Seek advice if you hesitate which investment suits you best – but don’t hesitate to start investing now!

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Research suggests people take more risk in the trading floor because the stressful, competitive environment itself boosts certain hormones - to the point of destabilising financial markets!

A British study published in 2015 (*) suggests that the alteration in the levels of testosterone (a hormone known to affect men’s behaviour) and cortisol (a hormone that modulates the response to physical or psychological stress) in male market traders could play a destabilising role in financial markets through risk-taking behaviour.

For their study, researchers simulated a real-world trading floor by having 142 men and women buy and sell assets among themselves. In the first experiment, they recorded the levels of cortisol and testosterone in people participating in the study and found that, in men, high levels of cortisol were linked to increased trading activity as well as the likelihood of mis-pricing and overall price instability. In the second experiment, researchers administered either cortisol or testosterone to young males before they played the asset trading game and found that both cortisol and testosterone shifted investment toward riskier assets. Cortisol appears to affect risk preferences directly and testosterone operates by inducing increased optimism about future price changes. Another study, conducted in 2008 in real conditions with 17 male London traders by John Coates – a former derivatives trader turned neuroscientist -, led to the same conclusions.

Does it mean that women would make better traders than men? According to recent research, the answer is "yes". Researchers in the Department of Economics at the University of Leicester  showed that employing a greater number of female traders would reduce the occurrence of the most extreme market crashes and increase the regularity of positive trading returns. Female traders have higher average earnings than their male counterparts. As they take less risks, they make extreme profits less frequently but also lose less money.

Despite these findings, the majority of trading desks continue to be dominated by male traders. Dr Daniel Ladley, Senior Lecturer in Finance at the University of Leicester and Deputy Director of the Leicester Institute of Finance, says this is due to reward schemes in financial firms. Financial bonus schemes typically reward the best performers and they are usually men. Trying to change the gender balance of the trading population will require a complete change in how firms reward their staff – from a culture that only rewards star traders to a system that rewards better consistent profits. Useless to say that the road to gender equality in financial markets is still long and hard...

* Cortisol and testosterone increase financial risk taking and may destabilize markets, Scientific Reports, July 2015

Monday, 17 April 2017 23:22

Barbara Daroca: ING Lux House – Moien!

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The day has finally come. ING’s new home in Luxembourg, ING Lux House just in front of the station, is coming alive with people and colleagues!

You might not be as excited as we are – after all, we have been waiting for this move for years! The demolition of the old Kons gallery and the construction of ING Lux House have been rather quick, just over 2 years (check out our time-lapse video). But we, the ING people, have been looking for a way to work closer together, to improve efficiency and agility in our day-to-day for longer than that.

At ING we believe all sustainable progress is driven by people with the imagination and determination to improve their future and the futures of those around them. ING Lux House embodies this belief: for our employees, the working spaces are open and flexible, adapting to the needs of the teams; state-of-the-art meeting areas invite to collaboration and exchange of ideas; and other closed places stimulate concentration. Different tasks have different requirements and the design of ING Lux House allows us to be agile in our day-to-day, adapting easily to the needs of the task at hand.

For you we have designed a brand-new branch, the jewel of the crown in ING Lux House. Here, too, ING Lux House accommodates different types of exchanges. We have made our original concept “Agence Orange” evolve even further from the classic branch model with different areas: a coaching zone to guide you as soon as you arrive, a self-service zone for your daily banking operations and an advisory zone for your more complex operations. ING Lux House represents well our nature: a universal bank. From the youngest savvy savers to the experienced wealth manager; from start-ups and SMEs to large multinationals, all are welcome at ING Lux House and all will have facilities specially designed for their needs, including a large auditorium. So whether you come for daily convenience banking, or you are planning a large project, we will welcome you in specially arranged facilities and help you achieve your goals – because every project is worth pursuing!

I warmly invite you to visit the premises when you get a chance – or at least sneak a peek whilst you’re getting a quick bite at our partner Golden Bean.

We’ll be open for business as of 18 April. See you then!

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Did you ever face this embarrassing situation? You are going to make an important purchase in a retail shop – a gift for someone you love or something valuable to you -, the cashier swipes the card through the machine and it returns an error message. What is your first reaction? Wil you react emotionally – panic, shame, anger, or all three at the same time – even if the causes are rational (the card is damaged, the expiration date is past, ...)? Yes, probably!

For many of us, money is an emotional currency linked to our sense of self-respect, our sense of self-confidence and our sense of security. Money evokes strong emotions that can deeply, and often negatively, affect our financial decisions. But where do our feelings about money come from?   Our thoughts about money come mainly from childhood. Most of school curricula do not include financial education and the only financial roadmap we have is what we have learned from our parents. Very often, the way we handle our money is based on the way our parents handled their money, and chances are great that they did not receive any training either. Unfortunately, these money attitudes and skills may not be helpful if our parents did not have a healthy relationship with money.

According to the American financial psychologists Bradley Klontz and Ted Klontz, each of us has an unconscious money script, transmitted by our parents, running in our head. In recent research, they have identified four categories of money scripts: money avoidance, money worship, money status and money vigilance.

- Money avoiders are convinced that money is bad and that they do not deserve money; for them, money is often seen as a force that stirs up fear, anxiety or disgust.

- Money worshipers believe that money brings power and happiness and will solve all their life problems; for them, there will never be enough money.

- Individuals who believe that money is a status symbol are locked into the competitive stance of acquiring more than those around them.

- All three of these money script profiles are associated with poorer financial health, including lower net worth and lower income. In contrast, people who have a money vigilance approach are focused on frugality and saving but their excessive wariness or anxiety regarding pending financial danger keeps them from enjoying the benefits that money can provide. For them, money is a deep source of shame and secrecy.

The truth is that the problem is not the money, but the way we approach, we think and we handle, money. Of course, money does make life easier and more comfortable and gives us access to better services, but it must not be the centre of our lives, to the detriment of health, family and quality of life. The best way to change the money script running in our head and to develop a healthier relationship with our finances is to clear out negative things and to educate ourselves – and our children! - about money. Financial intelligence is the key for growing wealth.

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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!

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“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!

Monday, 20 February 2017 18:20

Barbara Daroca: The Dangers of Cash

 

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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:  

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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.

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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. 

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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!

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