Page 26 - Layout 1

Finance
Saving smart
them in a solid financial plan, they will not be the best solution for all savers.
The great thing about the “endowment era” just gone by is that it succeeded in creating a strong savings culture amongst young men and women entering the workplace. As early as age 18, at the prospect of commencing their first job, parents took a lead role in the promotion of these plans, educating and encouraging their offspring to save and therefore instilling these important life values. More recently, it seems as though the importance placed on savings has diminished and this has taken a step backwards in the priority order of all the financial challenges and expenses we are daily faced with.
Financial guidance
The generation we live in, one obsessed with instant gratification and spending, has lost their ability to save. In the age of information and technology, younger, more independent should-be savers believe that they will get by without the financial guidance of their parents or an adviser. This, coupled with an apparent lack of suitable alternatives in the local market, raises the question whether this will lead to a generation that will rely more heavily on acquiring debt instead of making adequate savings provision.
This younger generation appears to have moved away from the traditional form of
By Daniel Pitaluga, Senior Associate, Abacus
Given the complexities and unpredictable nature of life, savings should always be an integral part of any financial plan. Whether it be to accumulate an emergency fund to help bail you out that one rainy day or to pay for fundamentals such as education, the effects of not having a suitable savings plan in place could be detrimental. Historically, Gibraltarians have maintained a commendable approach to saving disposable income, facilitated popularly through endowment policies, locally referred to as “un seguro de vida”.
Savings plan
An endowment policy is an investment product that you buy from a life assurance company. They are set up as regular savings plan and at the end of a set period pay out a lump sum. The policy includes life assurance, so it will also pay out if you die during the pre- agreed term. Due to their complex nature, endowments are often misunderstood by
consumers. Ultimately, the two prime issues at the forefront of someone’s mind when entering into any financial or investment contract are: How much is it going to cost and how much will I get in return?
A substantial amount of risk Although generally pitched as a secure regular savings plan, what many consumers do not realise is that their savings plan is an investment linked savings plan and the return on their monthly contributions is dependent on the performance of the investment markets. Whether these types of policy were not explained to consumers properly at the point of sale or because they were lured in by the prospect of significant returns at the end of the term, endowments have been, and to some extent these, or similar structured plans, still are, the savings plan of choice for locals. However, what most do not realise is that in order to make a substantial return, a substantial amount of risk must be taken and when you factor in the charging structure, including commission taken by the adviser at the outset, these opaque policies become a significantly less efficient savings vehicle. Whilst there may continue to be a place for
Continued p28
26 Gibraltar International
www.gibraltarinternational.com