Jo Velarde didn’t consider herself financially unprepared. She had emergency funds good for one year, a car, and a house. She was a successful professional in e-commerce and social media content creation. But none of these prepared her for COVID-19.
By early 2021, she had almost P2 million in debt from the hospital, P260,000 from 11 online lenders charging 3 percent compounded interest per day and P1.05 million from her friends, colleagues, and loved ones. Her whole family was hospitalized twice due to coronavirus. The title to her house was barricaded in the hospital’s vaults. Every asset she could sell from gadgets to appliances has been Lalamoved, and her very sanity was challenged.
Going through both mental and financial therapy, we established that her mind was her biggest asset, better even than cash. Making sure she could deliver at work was a financial strategy, too. It gave her strength and direction to take care of her mental well-being.
Then I taught her how to consolidate her debts, to contact all of her lenders before they look for her, to see which creditors she could approach for renegotiation, and to plan payments every month so that she knew when exactly she would be debt-free.
It’s a slow climb, but she feels empowered because every little step gave her strength that she would eventually see the end of her financial problems. Her depression has abated.
Not everybody is as lucky.
Prohibitive costs
Health-care and medical costs have decimated Filipinos’ incomes across the board, not just among those who are at the bottom of the income ladder. COVID-19 hospital bills range from P45,000 to P15 million depending on complications and comorbidities.
Worrying as these are, there are other diseases deadlier than COVID-19. A survey by Ipsos Hong Kong showed that a heart bypass can cost up to P812,000, a single heart valve replacement up to P870,000, stroke treatment P1.8 million and chemotherapy treatment P120,000 per cycle. “Filipinos pay for 48 percent of their medical expenses out-of-pocket. There is little or no level of insurance. The helplessness that results from this is very damaging. The inability to provide the best care for your loved ones because you lack the money—that is not easy to go through,” AXA Philippines Chief Executive Officer Rahul Hora said in an interview.
“The need for financial education has intensified during this pandemic, and everyday, I worry that people still don’t get it. We are not rational beings, so advocates must be more creative and thoughtful in reaching the masses,” Efren Cruz, chair and chief executive officer of PF Advisers said.
I am sharing with you now my seven-point strategy to prepare for a world with COVID-19 on loop.
1. Pay your consumer debts. And no, please don’t borrow from online lenders with 3 percent daily interest to pay off your debt. That’s not a lifeline just because it can release the money fast. That’s a noose around your neck.
2. Buy medical insurance. Do this as soon as you finish paying debts and even before building emergency funds. Buy what you can afford, but get quality ones from companies that will not get sick before you do. There are medical plans that will cover costs of dreaded diseases, not just once, but for every hospitalization and up to old age when you need it the most. Look for products that don’t increase the premium each time you use the plan. Most importantly, know what you are buying. Get COVID-19 coverage.
3. If you die today and don’t have enough savings to leave to your dependents, buy life insurance. Choose wisely, not just in terms of the product but also the agent. The skill and integrity of the financial adviser is a big part of what you are paying for. Make sure they have the patience to explain in simple terms and sincerely care about your needs, not just their commissions. If you are still in debt, no life insurance with investment component, please. Get pure term.
4. Build your emergency funds good for one year. Financial advisers used to say it must be good for three months for the employed and six months for the unemployed. COVID-19 has been with us for almost two years now. Everybody needs at least one year of emergency money so you don’t have to be buried in debt if you lose your main source of income.
5. Save at least 5 percent of your income for an upcoming big expense like a car or a home, the next 5 percent for your retirement. There is no forever when it comes to active income; we all grow old.
6. Invest. Savings in a time deposit lose money every day because the things that it can buy get more expensive every year. Money in a jar or under the bed lose value faster.
7. Avoid scams at all costs. Check your greed. When you are offered something that blows your mind because it gives guaranteed high consistent return, run.
—Contributed
Salve Duplito is president and CEO of Empower and Transform, OPC, a company that specializes in financial education.