St. Francis’ Canossian College
St. Francis’ Canossian College Financial Planner
Specially Prepared for:
Mr. & Mrs. Chin
Case 1
16 July, 2008
Form Four
Jody Wu
Sarah Tong
Rubie Fong
Claudia Yuen
Vegas Cheung
HSBC Young Financial Planner Competition 2008
1
St. Francis’ Canossian College
1.) Financial Objectives
Goal
Time
Save HK$200000 on average per Every year
Amount Required (HK$)
$200000 per year
year
Mr Chin takes up Chinese
Yr 1-5
$85000
Yr 1-27
$9600 per year
Go on a tour once a year
Every year
$30000 per year
Mr Chin retires at 60
Yr 8
---
Mrs Chin retires at 65
Yr 22
---
Put aside $180000 for each of
Yr 6 & 12
$360000
medicine course
Mrs Chin takes up Dancing
course
their kid’s university fee
HSBC Young Financial Planner Competition 2008
2
St. Francis’ Canossian College
2.) Present financial situation
Current situation
Mr. Chin: 52 years old
Mrs. Chin: 43 years old
Two sons: 12 years old and 8 years old, studying in Hong
Kong
Total income (per year)
Salary (Mr. Chin + Mrs. Chin):$982000
Stocks:$125000
Bank interest:$3000
Sub Total:$110000
Total expenses (per year)
Living expenses: $597000
Provident fund + MPF contribution:$42350
Insurance:$40000
Mortgage on property:$150000
Sub total:$829350
Income Surplus (year 0)
$280650
Assets
Liquid assets:$6337000
Non-liquid assets:$700000
Sub total:$7037000
Risk Tolerate Level
Moderate
HSBC Young Financial Planner Competition 2008
3
St. Francis’ Canossian College


Mr. Chin has stable income ($56000/month)
Mrs. Chin’s income may fluctuate
Investments not diversify, mainly focus on stocks

With insurance protection (Life insurance, accident insurance and medical insurance)

Low cash deposit (< six month expenses)

High-valued assets (self-owned property, car)

Reasonable liabilities

Can save more than $ 200000 in year 0 (income surplus of year 0= $280650)
Income
3000, 0%
125000, 11%
Mr Chin(Salary)
Mrs Chin (basic salary)
Mrs Chin(commision)
250000, 23%
672000, 61%
Stocks Interest
Bank Interest
60000, 5%
HSBC Young Financial Planner Competition 2008
4
St. Francis’ Canossian College
Expenses
150000, 18%
150000, 18%
5000, 1%
30000, 4%
40000, 5%
8750, 1%
33600, 4%
120000, 14%
100000, 12%
48000, 6%
108000, 13%
36000, 4%
food and meal
insurance
motor expenses
transportation
utility bills
salary tax
entertainment
provident fund contribution
MPF contribution
travelling
textbook and stationery
mortgage on property
HSBC Young Financial Planner Competition 2008
5
St. Francis’ Canossian College
Assets
300000, 4%
400000, 6%
40000, 1%
47000, 1%
1250000, 18%
5000000, 70%
Self-owned property
Provident fund
MPF
Car
Stocks
Saving accounts Deposits
HSBC Young Financial Planner Competition 2008
6
St. Francis’ Canossian College
3.) Factors which may affect the financial status:

Unemployment

Diseases at old age

Investment return

Interest rate

Tuition fee(for son’s further education)

Accidents

Marriage

Death
HSBC Young Financial Planner Competition 2008
7
St. Francis’ Canossian College
4.) Assumption

The Chins’ income and expenses are stable; there is no accident which may affect
the income and expenses.

No divorce

Pay rises at an annual compound rate of 2%

Mr. & Mrs Chin will not take up any other interest course

Bank interest rate keeps constant (1%)

MPF contribution remains at $8750

Their children study 4 years of university only.

Textbook and stationery fees only apply when their children is studying.

Mrs. Chin keeps on dancing until she reaches 70 years old

Since the commission Mrs Chin earns every year is uncertain, we assume the
commission range is from $150000 to $200000. So the average commission every
year is ($250000/0.05-60000)=$115000

Mr. Chin can live until 80, while Mrs. Chin can live until 86. (appendix #1)

Mr. and Mrs. Chin’s medical expenses start at their elderly years(65) (appendix #3)

Average medical expenses every year per person is $3800 (appendix #2)

Son moves out right after graduation and all expenses reduce in half

Their sons can afford their own expense at 22, since they have graduated

moreover each son will give an average of $4000 house keeping allowance to his
parents per month

insurance contribution for 5 years($40000 per year)

The life insurance is for 2 person, when Mr Chin pass away, his family can get back
$3000000/2 = $1500000

The interest rate of bond is assumed to be 6% per year and that of stocks will be 15%
per year. The return of monthly retire plan will be 5 % compounded per year.
HSBC Young Financial Planner Competition 2008
8
St. Francis’ Canossian College
5.) Foreseen financial situation
- Unable to save $200000 per year
- The Chins often have negative cash flow (income unable to cover large expenses)
- Unable to afford high medical expenses in their elderly years
- The Chin family is not under sufficient insurance protection
- The growth of their saving is small and unproductive
- The return of stock is small
HSBC Young Financial Planner Competition 2008
9
St. Francis’ Canossian College
6.) Financial Planning
Cash & Credit Management
We suggest Mr. and Mrs. Chin to pay off all their current liabilities in year 1 (credit card balance
& outstanding utility bills = $33000) in order to avoid paying the late charge or financial charge.
Advice for The Chins’ expenses
Stage 1) Starting from year 0
The living expenses of Chin family is rather large comparing to their income. Problems of
negative income surplus sometimes arise. Hence, we suggest the Chin family to cut down some
of their expenses. We found out that the money spent on entertainment purpose is relatively high.
Hence, we would like to suggest the Chin family to cut 25% of their living expenses on
entertainment ($100000/year$75000/year).
Stage 2) Starting from the retirement of Mr. Chin (year 8)
We suggest Chin family to sell their car after Mr. Chin retires. The car will be seldom used as
Mr. Chin will not need to go to work anymore. Besides, the two sons will grow old enough to be
capable to use public transport. By then, the car will become an unnecessary luxury. Hence,
selling the car can help reducing the Chin family’s living expenses (Motor expenses$120000/year). However, Chin family’s transportation expenditure will increase by $3000 =
$48000+$3000=$51000 after they sell their car as they have to use more public transportation.
Moreover, we advice the Chins to cut their expenses on food and meal since Mr Chin has retired,
he can stay at home and cook for the family. Money can be saved from not eating outside.
Therefore, they can cut down 25% of their expenses on food and meal
($150000/year$112500/year) which is still a reasonable budget.
HSBC Young Financial Planner Competition 2008
10
St. Francis’ Canossian College
Insurance Planning
Stage 1 (from year 1 to year 13)
We advice Mr. and Mrs. Chin to increase their accident insurance from year 1 until year 14 as
the family is not being well-protected with a compensation of $1000000 if Mr. or Mrs. Chin die
in an accident unfortunately. We expect the total expense from year 1 until Mr Chin’s youngest
son graduate from university (year 14) is $9160207 (from appendix after planning), which is
greater than $1000000. This has proven that a compensation of $1000000 was not enough to
serve as a protection purpose.
With our financial needs approach, we suggest that the accident insurance should cover their
expenses until their sons graduate and move out (year1-14). With well-planned accident
insurance, the Chin family is under adequate protection and a stable living standard can be
sustained even Mr. or Mrs. Chin die in an accident.
Stage 2 (start from year 14)
When Mr. and Mrs. Chin’s children graduate from university and move out to live, Mr. and
Mrs. Chin can stop to contribute for the two sons’ medical insurance as their sons can buy
them themselves.
Mr. and Mrs. Chin’s own accident insurance can also be cut down because they are getting
older and will involve less in high-risk activities.
The money saved in cutting down accident insurance should be allocated to increase the total
annual premium for medical insurance with of Mr. and Mrs. Chin as their medical expenses will
increase substantially since they will start to have elderly diseases for example high blood
pressure, coronary heart disease, diabetes, high cholesterol level which
HSBC Young Financial Planner Competition 2008
11
St. Francis’ Canossian College
Invesment Planning
Stage 1 (Mr. & Mrs. Chin both at work -- from year 1)
Mr. & Mrs. Chin’s risk tolerance level is moderate since they are both at work and have a quite
stable income. There is still period of time until they retire. They do not have any great debt
(except mortgage). They can accept negative fluctuations in order to earn potential returns.
Stocks and bond are the perfect investment for the Chins. Though investing in stocks is risky, the
potential dividends earned may be higher than other investments.
We advice Mr. & Mrs. Chin to put 50% of $150000 from their bank deposit in stock investment
and the remaining 50% on buying bond.
$150000 is a favourable amount of money to invest
which leaves at least 6 months’ expense for emergency use in the bank deposit.
*However, the Chin’s bank deposit in year 1 ($300000) is not enough to cover 6 month’s
total expenses in year 1 ($414675). So, all investment should start from year 2.
Therefore, they will start to invest on bond and stocks from year 2.
Investment (Stage 1)
Bond
50%
HSBC Young Financial Planner Competition 2008
Stock
50%
12
St. Francis’ Canossian College
Stage 2 (Mr Chin retired, Mrs Chin still at work -- from year 8)
Mr. & Mrs. Chin’s risk tolerance level is conservative since Mr. Chin has already retired. Mrs.
Chin will become the sole breadwinner of the Chin family, income of the Chins will therefore
drop. However, they need to ensure they have money for their sons’ university fee. They would
like to preserve their investment but they are willing to accept minor negative fluctuations in
short term. Low risk is important to them.
We advice them to put 30% of the investment capital*, 50% on bond, and 20% on monthly
income retirement plan. As Mr. Chin has retired, their total income has decreased and should
reduce high-risk investments such as stocks due to their risk tolerance will become conservative.
More money can be spent on buying bond which is more stable and less risky. Buying monthly
income retirement plan gives more saving and less protection, it is advisable as they are getting
old and seldom involve in high-risk activities.
*Between year 8 to year 12, the Chins’ income and expenses vary dramatically as Mr. Chin
has retired and his sons has gone to the university. Therefore, we have arranged some reasonable
change in the amount of the investment capital, but meanwhile we make sure there are enough
and appropriate savings (at least half of their yearly expenses) to maintain their living.
Investment (Stage 2)
Monthly income
retiremet plan
20%
Stock
30%
Bond
50%
HSBC Young Financial Planner Competition 2008
13
St. Francis’ Canossian College
Stage 3 (Mr & Mrs Chin both retired -- from year 22)
Mr. & Mrs. Chin’s risk tolerance level is risk averse since both of them have already retired
and they are old, so they may be uncomfortable with short-term investment fluctuations and wish
to minimize the risk of capital loss.
When Mr. & Mrs. Chin both retire, they will no longer earn a monthly income from work. Their
risk tolerance will be lowered to risk averse. We advice them to give up buying stock as its risk
is high. They can invest all their money* on buying bonds to ensure a stable investment and still
earn money from interest. They can release all their money from the monthly income retirement
plan all in one time so that they have more money in their bank account to prepare for the huge
medical expenses in their elderly years.
*We advice Mr Chin & Mrs Chin to invest $400000 every year, leaving a reasonable amount of
cash deposit preparing for emergency use. (e.g. unexpected medical expenses)
Investment (Stage 3)
Bond
100%
HSBC Young Financial Planner Competition 2008
14
St. Francis’ Canossian College
7.) Conclusion
With well-adapted financial planning, Mr. and Mrs. Chin can accumulate assets, grow assets, and
also protect their own assets. Moreover, the couple can achieve a series of financial goals
through financial planning. When Mr. Chin is 65 years old, they have a bank deposit of $590207,
also, as we have increased his medical insurance, thus, he will surely be able to cover his
medical expenses in his elderly years. When Mrs. Chin has retired, she will receive a lump sum
of $2391315 from the return of monthly retirement plan . Hence, they will have a bank deposit
of $1092269, so she does not have to worry about her medical expenses either. In short, they are
prepared for unexpected huge medical expenses, meanwhile still can maintain their present living
standard.
With our financial planning, there are much fewer years of negative income surplus in the Chin
family. However, they still have two years with negative income surplus after the year Mr. Chin
retires. But the whole family’s financial situation has improved a lot.
We have analyzed that the Chin family has spend too much on unnecessary expenses. Therefore
we advise them to cut down their entertainment expenses, motor expenses and food and meal
expenses. This results in a increase in income surplus and has fulfilled our expectation
marvelously.
We have done wonderfully in helping the Chin family to buy different insurance plans in
different stages in order to suit their changing financial needs. They do not have to worry about
having insufficient money to deal with sudden medical expenditure.
To sum up, this financial planning is successful.
HSBC Young Financial Planner Competition 2008
15
St. Francis’ Canossian College
Appendices
HSBC Young Financial Planner Competition 2008
16
St. Francis’ Canossian College
#1
http://news.bbc.co.uk/chinese/trad/hi/newsid_6430000/newsid_6438800/6438877.stm
香港男性的平均壽命是79.5年，女性為85.6年
#2
www.soco.org.hk/publication/elderly/elderly_2007_11.doc
在受訪者中，以公立門診為主要醫療佔 56%，其次為專科門診 26%及私家醫生 (13%)，
可見超過 80%的長者是非常依賴政府提供的醫療服務(表 4)
1.8. 在受訪者中，有 82%的長者患有長期病，其中以高血壓 (54 人) 及骨科病 (25 人)
的患者最多(表 5)。
受訪長者當中，有超過 80%的人需要長期服藥(表 17)，當中以高血壓(42 人)及糖尿病
的人(19 人)為最多。
2. 醫療開支
受訪者的每月平均開支為$2356、中位數為$2200，而當中的醫療費用平均開支為
$316，約佔長者的收入約 20%。就醫療費用的問題上，95%的長者表示醫療費用的加
增會令他們感到壓力。93%的長者希望政府能給予長期病患者及 60 歲以上的長者免費
醫療服務。
#3
www.hkcss.org.hk/download/folder/el/el_chi.doc
長者一般指65歲以上的人口。這也是現時香港法定的退休年齡。
HSBC Young Financial Planner Competition 2008
17