Consumer Life Stage


Understanding your needs is only part of the Financial Planning lifecycle. Analysing the Financial lifecycle is a useful tool for making financial planning and asset allocation decisions. However an individual’s own circumstances are his/her priority, and the lifecycle should only be used as a guideline.

Teenagers and Students

A typical teenager spends several hundreds of Euros a year mainly on clothes, food, mobile phone calls and entertainment. Mostly, teenagers will be still at school but upon reaching and entering post-secondary education, they will significantly increase their purchases. This can be justified with the fact that many of them engage in part-time jobs, whilst other even find full-time ones, increasing the amount of money in their pockets.

Most teenagers are not well-prepared to make their purchases wisely. Some teenagers waste hundreds of Euros a year on purchases that do not represent good value. Much of this money comes from the hard-earned savings of their parents. Therefore, it is valuable to increase the awareness and appreciation to this age group with regards to the financial challenges faced by parents.

 

Student Bank Accounts

Getting ready for college or university can be an exciting and sometimes an overwhelming experience. For many of you, this will represent the first time you will have real independence and responsibility. You will have some big decisions to make – many that you’ve never had to consider before. Apart from the areas of study to choose, you have to focus also on money management and selecting the right student banking products for your individual situation and lifestyle.

The good thing is that you have options, however  you should always study the options properly to ensure that you make the right choice.

Before we move on, there’s something you should know about banks and other financial institutions. Many banks are extremely eager to sign you up to meet their long-term customer acquisition goals. Depositing your stipend with them now, increases the chances that you’ll continue banking with them later in life. For instance when you need a business loan, buy a home or even finance your own children’s education. This means that most banks are more than willing to offer you all kind of incentives and schemes, which can be impossible to decipher and make comparison between the banks difficult.

Don’t just settle for the gifts. Throughout your student life you need more than just a onetime freebie. Making a decision based on freebies and incentives is not a smart money tip and could make things harder for you in the long term. Money is often tight as a student which is why it’s so important to make sure you get the best deal on everything concerning your finances. You will need to find a bank that will help you manage your finances, save that extra money you may earn and offers you some financial flexibility.

There are a number of things that you should take into consideration before you select a bank. The location might be an important factor if you will be making most of your transactions at a branch level. However, keep in mind that nowadays there are more convenient ways to access your accounts, like automated teller machines (ATMs), internet banking and also phone banking.

Nevertheless, the most important thing above all these will be the products which are offered by the bank. You should look for an institution that offers a full suite of products for you to choose from, including current accounts, savings accounts, online banking accounts complete with e-bill pay options, credit and debit cards and student loans if that pertains to you.

Choosing your account wisely

Once you have chosen which bank suits your needs the most, you have to work out which type of account is right for you. A good starting point is to think about how important different features are to you, such as ways to run your account, access to cash, interest rates and the services attached to the account.

Before opening the account, ask the bank for the terms and conditions governing such account and make sure to read everything well before you sign on the dotted line. Most importantly, check what charges apply, for example with regards to receiving and/or transferring money in and out of the account.

You might also want to find out what interest rates the bank offers to students, how the account can be accessed, any spending limits (if applicable) and what to do if things go wrong.

When opening the account, you will usually be asked to:

  • Provide information about yourself;
  • Fill in a form confirming details of the terms and conditions of the account;
  • Provide proof of identity; and
  • Pay some money into your account.

When the bank provides you with its terms and conditions, look out for any reference with respect to account closure fees. You might incur charges if you decide to close the account before a predetermined date.

You might also want to enquire on how a student account will be treated after you finish college or university and how to go about making new arrangements to open other accounts after you finish your scholastic years. Keep in mind that the bank that might have offered you the best terms on your student account might not necessarily afford the same level of excellence throughout the whole range of its products and services and therefore it is wise to start shopping around again for the best deals.

Have you ever wondered what charges banks and investment firms in Malta apply for their services? You can compare their fees and tariffs with a few clicks on this very website! Your first click starts here!

 

Credit and Debit Cards

Credit and debit cards have become a common electronic payment instrument. However credit cards are different from debit cards. While a credit card is a way to “pay later” a debit card is a way to “pay now”. When you use a debit card, your money is immediately reduced from your current or savings bank account balance. This means that debit cards allow you to spend only what is in your bank account. On the contrary, a credit card is a form of short-term borrowing from the bank.   Indeed, some people find they do not have the discipline to control their spending especially when it is conducted on a credit basis, and thus make the sensible decision to do without a credit card. Therefore, if you are after the convenience but do not want to get into debt, you can use a debit card instead. Please read on!

Credit Cards

  • a form of short-term borrowing, allowing goods and services to be purchased sooner, even if at a greater cost, than if we had to save up for them.
  • a convenient payment instrument, reducing the amount of cash we have to carry around, including when we travel, for conducting purchases over the phone and over the internet.
  • may have attractive rewards programmes associated with them.
  • can also be useful as a source of emergency funds.

Do you qualify for a credit card?

If you are over 18, you may qualify for a credit card. Your bank will carry out a credit scoring exercise to assess whether you are eligible for such a card.

If you are under 18, you may qualify for a credit card if you are an additional cardholder. For example, a member of your family (e.g. your dad or mum) has a credit card in their own name and the bank issues a card to you as additional or "supplementary" card holder. However, your dad or mum remain liable for all amounts owing, including any losses from a secondary card-holder's negligence.

How do credit cards work?

A credit card differs from a debit card.  When making use of a credit card the money is not removed from your bank account after every transaction. However unlike repayment on a traditional loan such as a car loan, credit cards do not allow you to spread the amount you owe over a fixed period of time. Instead, you are required to make a minimum monthly payment, which is the smallest amount you can pay and still meet your cardholder agreement, that is the terms you agree to when signing up for the card. The minimum payment is usually between 2 and 9 percent of your outstanding balance. Unfortunately, by paying only the minimum each month instead of paying off your entire balance, your debt will continue to grow.

Questions you need to ask before applying for a credit card

  • Do I need it?
  • Will I be able to afford it?
  • Will I be able to meet the monthly payments?
  • If I decide to apply for a credit card what should I look for?
  • What interest or finance charges will apply if I make use of the funds available to me on my credit card? These are generally shown as the Annual Percentage Rate (APR) of charge. Do I need to pay any annual fees?
  • Does the credit card provide a time period where no payments are due before finance charges are incurred?

When should I use a credit card or make use of credit?

As a student/young adult, you will have to decide for yourself if you can handle the responsibility of a credit card. Credit cards are easy to get but not so easy to manage, especially if you end up with a high unpaid balance on which interest is accruing, and no payments are being made. Knowing when to make use of credit is the difference between purchasing what you need and paying for it or finding yourself in a situation of unbearable debt. The following are acceptable reasons to make use of credit:

  • Purchase of items which will result into cost reduction.
  • Purchase of a necessity.

What are the advantages of credit cards?

  • Using credit cards can help you build a positive credit history. This can enhance your ability to seek a future personal loan or a home loan;
  • Cash availability in the case of an emergency;
  • Automatic record keeping;
  • Internet orders;
  • Combine many purchases into one payment.

What are the disadvantages of credit cards?

  • They may be easy to get but not so easy to manage;
  • Impulsive spending increases;
  • Temptation to overspend;
  • Non-essential items being purchased;
  • Misuse of credit cards can lead to potential problems with your bank.

Will I be safe if each month I pay the minimum monthly payment only?

Although it may seem good to see that you have only a small amount to pay each month, in the long run if you continue to pay only the minimum payment you will never be able to pay the balance off. If you keep paying the minimum payment it might give you the feeling that you are on top of your bills and taking care of your responsibilities. This is a false illusion because if all you ever pay is the minimum, it will cost you money. Paying only the minimum payment amount or only a few euros over it, you will most likely take around 20 years to pay off your debt. After interest is added, your debt will be more than doubled.

The safest way is to carry no balance at all. If this is not possible as is generally the case you should pay at least an amount which is slightly above the minimum. This will also help you to slide a month or two when unexpected expenses arise.

If I get behind on my monthly payments, what should I do?

This is a situation that is easy to get into but tricky to get out of. The following tips are some precautions that you can take if you are not able to meet the payments:

  • Cut any recreational expenses;
  • Phone your bank to see if they can work out a new repayment schedule;
  • Develop a budget and stick to it. Having an excess amount of credit may damage your eligibility for future loans;
  • Use a debit card instead.

How is interest charged on credit cards?

Interest is generally either charged from the date of purchase of items or from the date your monthly statement is issued. For cash advances, interest is usually charged from the date of the withdrawal. Insist on seeing a copy of the Conditions of Use before you apply, so you can check because, other things being the same, you will most probably be better off with a card that only applies interest from the statement date.

Will I be charged fees on my debit card?

In Malta banks will give you a debit card for free, thus no fees will be charged when acquiring a debit card.

What are the advantages of debit cards?

  • A debit card is easier to get than a credit card;
  • A debit card frees you from carrying any cash or cheque books;
  • Using a debit card instead of writing cheques saves you from showing identification or giving out information at the time of the transaction;
  • Debit cards save you from carrying cash when you go abroad and are also more readily acceptable than cheques;
  • Debit cards do not have any interest charges linked to them.

What are the disadvantages of debit cards?

  • To make a purchase you need to have the money available in your bank account.

(As you can see, the advantages outweigh the disadvantages).

Watch out for fees

Depending on how you use your card, fees can add a lot to the cost of your card. Commonly charged fees include:

  • annual account fees;
  • fees to use rewards programs;
  • fees for late payments;
  • payment dishonour fees; and
  • fees for exceeding your credit limit.

Fees must be properly disclosed. -  They should  be published in the institutions websites and should also be available in the bank’s branches. If a card is connected to a payment account the applicable fees and charges shall be also displayed in a Fee Information Document.

As long as the terms and conditions for the card give the lender the right to increase existing fees and impose new ones – and they almost always do – there is not much you can do, if faced with a fee increase on your card, shop around for a different card or a new card issuer.

 

Budgeting

Not only finance ministers prepare budgets

As in all stages in life, during college and university you have to learn what you really need and what you can do without. As a student it’s easy to get complacent when you don’t have a home loan to pay, children to feed, or other significant money worries. The problem is that during your scholastic years you will often have a limited income and if you don’t record your spending carefully it’s easy to waste money on things that you could otherwise save.

You may create a simple budget. It does not take long. But we know you’re terribly busy. So we have prepared an online budget calculator which you are most welcome to use (click here).

If you take the time to analyse your income and on what you are spending it, you can get a better idea of where your money is going and where you can cut back. More importantly however, is having the discipline to stick to your budget. After all, if you end up spending more money than you have coming in you are likely to end up with the problems above of getting into debt and possibly ruining your credit. So make sure to keep track of your finances.

Young Adults

Young adults may imply students, first jobbers or those saving to get married. Young adults remaining in the student category may be challenged vis-a-vis the financing of their commitments and may rely on their parents, special student schemes or sponsorships to subsidise the cost of further studies.

First jobbers may find – if employed on a full time basis – the possibility for extending their purchases. If they are planning to settle down to get married, they may opt for savings products which might later on provide a buffer to be used as a front contribution towards the purchase of their prospective household.

Being Self Employed

Whilst self-employment can bring financial and lifestyle rewards - along with personal satisfaction - without the backup of a regular wage or salary, running your own business calls for careful money management and careful planning for your retirement.

Managing your cash flow

While your overall annual income may be strong, the flow of money is not always regular.  It can be weeks and even months between your clients pay you.

Therefore, it is important to manage your money carefully.  Running out of cash before you get paid again could mean living on credit cards and seeking an overdraft from your bank.

Pay yourself a wage

Rather than treating all income you earn from your business as your personal spending money, pay yourself a weekly or monthly wage.  You should also maintain separate bank accounts: one for business receipts and another for personal spending.

Deposit or transfer your business revenue into a savings account, and only draw on this account to pay yourself a set amount as a wage, or to pay actual business expenses.  Putting your business earnings in an interest account allows you to extra income through interest.

Set a personal budget to help you live within your wage, and so that you do not dip into business revenue too often.  Use the following budget calculator to record all of your incomings and outgoings, which give a breakdown of where your spending goes each week, month or year.

It is very important that you pay the social security contribution on your earnings so that you will qualify for the Social Security Pension when you retire.

Pay a wage to members of your family working with you

A member of your family working with you can only be entitled to a Social Security Pension if he or she pays his or her social security contributions on the wage earned.

If you do not pay a family member his or her wage that person will not qualify for a Social Security Pension during his or her retirement.

Plan ahead for holidays

As a self-employed worker you will not enjoy the benefit of paid holidays: it is up to you to set aside funds.  Saving a little extra on a regular basis helps you manage through quiet business periods, as well as funding a break.

Setting aside money for income tax and VAT

A common pitfall for a self-employed person is that of failing to set aside money for income tax or Value Added Tax (VAT).  If you do not meet your income tax (which can be on a quarterly provisional basis) or VAT obligations (which is on a quarterly basis), you will be subject to hefty penalties.

Keep on top of your tax obligations by opening a separate savings account for income tax and VAT respectively and regularly deposit part of your takings into both accounts.  It can take discipline not to dip into the account, but a good incentive to leave the money aside until you need to pay income tax and VAT is to remember that the Inland Revenue Department and VAT Department will charge you high penalties for late tax payments.

Additionally you will incur further expense as a result of fees you may have to pay accountants or lawyers to see you through such a situation and the time you will lose by being away from your business trying to sort out the matter out.

Plan for your retirement

As a self-employed person you are to pay an annual contribution of 15% on income earned, the government contributes the other 7.5%.

Self-employed persons are known to pay the 15% social security contributions on a low level of income earned in order to minimise social security contribution expense.  Whilst this may result in higher income whilst you are self-employed such an approach will negatively impact your Social Security Pension and hence your pension income during retirement.

If you are born between 1952 and 1961 you have to pay a minimum of 50 annual contributions for 35 years.  The amount of the contribution on which you pay your social security contribution in 2018 is capped at a maximum of €18,168.  This means that the maximum contribution you will pay in 2019 is €2725 or €52.41 a week (15% of €18,168) irrespective of the fact that you earn a higher wage from your business.

If you are born on and after 1962, you will pay a minimum of 50 annual contributions for 40 years.  The amount of the contribution on which you pay your social security contribution in 2018 is capped at a maximum of €23,702.  This means that maximum contribution you will pay in 2019 is €3,555.30 or €68.37 a week (15% of €23,702) irrespective of the fact that you earn a higher income from your business.

The Maximum Pension Income cap of €23,702 will increase by a formula of 70% wage inflation and 30% inflation every year if you are born on or after 1962.  This means that if your income is above the current Maximum Pension Income of €23,702 you will pay a further 15% contribution of the difference between the previous and new, Maximum Pension Income as this changes from year to year.

Example: Your Social Security Contribution Payment if you are Self-Employed

In 2018, you earned €30,000 from your self-employed business.  The Maximum Pension Income caps the social security contribution of 15% you have to pay on €23,702.  Your annual social security contribution payment is, €3,555.30.

In 2019, the maximum cap increased by an annual €493 due to the 70% wage inflation: 30 inflation formula.  This means that the Maximum Pension Income now increased from €23,702 to €24,195.  Whilst your income in 2019 remained unchanged, the social security contribution you will pay is now 15% of €24,195 that is €3,629.25.

Your pension is not calculated on your gross basic wage to a Maximum Pension Income cap but on 2/3 of your gross basic wage to a maximum of the Maximum Pension Income cap.  This also accounts for persons born between 1952 and 1961.

Do not neglect saving for your retirement over and above your state pension

Do not rely on selling your business to fund your retirement.  Without your involvement, your business may be worth less than you think.  Many business ventures can also be hard to sell. Instead, think about building a separate pool of retirement savings outside of the state pension.

Protecting your income

One hazard of running your business is being unable to work due to illness or injury.  Without sick leave, your financial situation is likely to take a turn for the worse if you become sick or injured.

If you pay your social security contribution you will receive temporary paid sick leave benefit.  In the event you retire early from your business because of an illness, you may qualify for an Invalidity Pension subject to a decision in this regard by an independent medical board.

The period you will spend in receipt of an Invalidity Pension will be credited as a contribution towards your Social Security Pension.

Marriage

Getting your home and planning your marriage are two important steps in your life which may have a number of financial implications. Such steps should not be taken lightly as every decision will affect you and your partner. Being well informed is of utmost importance. If you are getting a loan to purchase your property we suggest you check our article on home loans as well as a similar article specifically for young couples. It is important to check what type of loan packages banks are offering and the basis on which they are prepared to lend you.

Keep in mind that a bank would not normally loan you the full amount of the purchase price of your house, a small amount (usually a percentage of the total amount) would need to be paid by you. Remember that when purchasing your home and planning to get married, substantial funds would be needed in a relatively short period of time thus budgeting is a critical issue!

With regards to the wedding ceremony, reception and honeymoon, don't be carried away with the enthusiasm! If you can afford a lavish wedding, consider yourself lucky! If not, don't overspend! Many couples end up spending a lot on a wedding and already in (huge) debt at the time they are cutting the nuptial cake.

Controlling expenses early is key, because as you start to spend more it becomes harder for you to keep perspective on how much is being spent. The more you have already dished out, the smaller each new expense will seem in comparison. Some early decisions that can make a big difference include:

  • Guest list: Each additional guest bumps up the price of the wedding by an increment. Pay close attention to your list, and you could save a bundle by keeping the list down as much as possible.
  • Food and drink: check all the available options and make sure there are not hidden costs involved such as overtime after a certain time or additional costs for some particular food or drink.
  • Date and venue: During off-season, wedding venues and service providers such as videographers and food suppliers may offer discounts. On the other hand prices would be higher during the peak spring and summer seasons. Consider your date and venue well prior to booking. Also booking in advance or doing fairs may keep costs down. Make sure however you do not take any rushed decisions.
  • Honeymoon: A honeymoon after a wedding is traditional; however one does not need to overspend to have a holiday of a lifetime. Planning your wedding according to the honeymoon may be ideal to save money. Also check on exchange rates if you are going outside Euro Area countries. Booking from a local agency may save you money on exchange rates. Also make sure you get the appropriate insurance for your trip especially if you plan to spend some time outside the EU.

You might have come across adverts in the local media selling wedding insurance. This is an insurance policy which may cover you for a number of situations you might encounter on this special day. As with any insurance policy, this policy does not cover all eventualities which might occur. However, you might find it worth acquiring it if you feel it might assist you cope with the aftermath especially if high costs are involved. And, as with any insurance policy, don't commit money for premium unless you have informed yourself about the characteristics and exclusions of the policy.

Parenthood

It is always exciting to have a baby and, as the adage goes, nothing can quite prepare you for the changes this will bring into your life. However, you can sort out your finances in order not to get any unwanted surprises.

The first thing to consider is if there will be any changes to the family income, especially if any of the partners decides to stop working to look after the baby. This drop-in income will come at a time when more money is needed to cater for the new family member!

It is therefore important to start a new budget which takes into consideration the new circumstances. Since it might be difficult to know all the expenses involved, it might be ideal to get some advice from family and friends who have previous experience on what is exactly involved. These expenses might typically include nappies, baby food, nursery equipment and medical fees. You should always priorities on these items and focus only on the things you really need and afford.

It is important not to get blinded by commercials and adverts of new shiny baby gadgets and clothing. Most of these will only be used for a couple of months and children grow fast! To keep costs under control, you can look for second-hand items which family members may have used and may lend you.

There are also a number of government incentives which may vary depending on your income. These may include children allowance, tax break for working parents and other non-monetary assistance such as maternity leave. You should consult your employer and social security department to check if you are entitled for any benefits.

Starting to save for the future of your child

When choosing a suitable savings plan for your child, the same considerations apply as for adult savers. It is important that you start thinking early about saving for your child as the sooner you start, the more time your money will have to grow. This can be done through various products available from banks and insurance.

Many banks offer products which change with your children’s development in the form of traditional bank accounts. Starting from their first days until their first part-time jobs, these accounts would usually provide better interest rates and benefits. These would also be ideal when teaching your children how to save and spend.

You can also opt for a child plan or life policy which can be used for child’s savings. These may offer a better return over a number of years whilst offering a guarantee for your capital. Such plans may however be less flexible and subject to a number of terms and conditions – you need to refer to the product brochure before you commit your signature. Such products would typically have a life time of 18 to 24 years and start upon the birth of the child. The money can then be used for education or maybe to get your child’s first car!

Saving and Budgeting

As a young adult, starting a new job or finishing from your education, will present you with many choices on how to manage your money. Managing your money successfully will help you make smart choices whilst avoiding obstacles which can impede you from achieving your financial goals. If you manage your money successfully it will help you to buy a house, finance higher education or start an investment plan.

Is a budget worth it?

If you are finding it hard to save, it might be helpful to create a budget. A budget enables you to plan how you will spend your money before you reach for your wallet. That way, you're less likely to make impulsive and perhaps unnecessary purchases, and you can fully understand where your money goes.

A budget will allow you to understand where your money goes and may help you free up cash for important savings goals (e.g. retirement). For a budget to be successful you need a plan. This means figuring out all of your expenses, writing down your goals and setting time frames. Then you must find a way to achieve the objectives which you have set. This process will help you to assess you r spending habits whilst also help you to stay focused on your budget.

How can I create a budget?

Developing a budget might require some thinking but if you manage do it right, you will reap the benefits in the future. First you have to look at your monthly income, this can include your wage, dividends and other types of income. Once you determine your monthly income, you can assess your expenses. First see what your expenditure is for a month by collecting all the bills and receipts. It is important to gather every receipt regardless of how small it might be. It will help you to divide your expenses into non-discretionary expenses which are things that you cannot do without such as paying for your monthly internet access or computer loan, and discretionary expenses such as dining out. This will give you a clear picture on which activities you are forking out your money. The best way to reduce your expenses is by starting to reduce your discretionary expenses, since non-discretionary expenses can be harder to adjust.

Once I have developed a budget, what type of saving goals do I need to set?

The more detailed your savings goals are the easier it will be for you to reach those goals. You must also remember that your savings goals will move parallel to your budget so it is important to review your budget every few months to make sure it reflects your goals and to see if you are saving the maximum amount possible. There are three types of goals which you can set, which are:

Short-term goals such as buying new furniture or going on a holiday.

Medium-term goals such as home renovation or buying a new car, involving larger sums of money.

Long-term goals, future savings goals such as retirement savings and other long-term investments.

Access our Budget Calculator

Top 10 Finance Hints for Young Adults

Money is an important topic for everyone. If you are young, and just starting out in the world of work, you may not have much of it yet! But it is never too early to learn some basics

Whether you are thinking about banking, insurance or investing, we can provide some help to get you started. We have collected our top 10 finance hints - follow these, and you will be well on your way to making the best use of your money.

1. Understanding the basics

Financial services often seem really complicated, but it should not be hard for you to understand the basics for all financial services that you may need now or in the future. If you do not make some effort to learn, you could get a nasty surprise if something goes wrong.

Before you sign on any dotted line, make sure you understand the basics of:

  • What you have promised to do (e.g. make regular, such as annual, payments);
  • What the company has promised to do (e.g. provide a loan, or cover a loss);
  • Whether there are any exceptions or qualifications to these promises (e.g. an insurer may not have to pay your car insurance claim if you had been drinking when the accident occurred).

Do not be afraid or embarrassed to ask questions. Sometimes it can be awkward, but a good financial intermediary or a bank representative should give you enough time and information so that you can understand the product. You should also ask to take the documents away with you, so that you may have time to read them and get advice.

Do not be pressured into signing documents that you do not understand. You could regret it later.

2. Hold on to your paperwork

Anything related with money often involves lots of paperwork - account statements, contracts, policy documents, terms and conditions and more.

If you are tempted to throw all this paperwork away - stop! Even if you do not read it all straight away, get into the habit of keeping the important paperwork in a special file that is easily accessible. It will come in handy if you have a question or problem about your financial affairs. Moreover additional copies may be provided to you at a charge.

You should also get into the habit of keeping notes of any important telephone calls you have with your finance institution. Again, they might help if you have a complaint.

Your notes do not need to be fancy, but it is important to record basic information such as the name of the person you spoke to, the date and time, and an outline of what was said. Keep this with all your other paperwork.

3. Reduce your costs

Some form of savings or current bank account is almost a necessity these days. But do not be complacent about your bank account - there are ways with which you can reduce the costs of keeping a bank account. For example, if you are a student or a recent graduate, you may be able to get a special package from your bank.

But what if you are not eligible for such a package? You can still reduce your costs by changing how you bank. For example, it is often cheaper to use internet or telephone banking rather than to visit a branch. But first, you will need to understand how and when fees are charged to your account. Ask your institution to tell you about the main fees and charges. You can use this information to help you develop cheaper banking habits.

4. Minimise the risk of unauthorised transactions - keep your PIN secret

Banks receive many complaints about unauthorised transactions on a yearly basis. The best way to protect yourself against someone accessing the money in your account is to keep your PIN number and/or password secret! Do not tell anyone your PIN  and password - this includes your friends and family. Also, do not keep a copy of your PIN or password near your card, or on your computer (unless it is password protected).  Some banks may urge you to destroy the PIN.  It is best if you memorise your PIN and change it from time to time.

Many institutions will let you choose your own PIN, and this can help you remember it. But, be careful with what you choose do not make it so easy to remember that it will also be easy for a thief to guess.

Besides, be careful where you keep your cards to reduce the risk of them being stolen.

5. Be very careful with standing orders

Standing orders can be a great way of making sure that the necessities of life - like your bills - are paid on time. But make sure you know how to cancel a standing order if you need to.

To cancel a standing order, you should tell both your bank and the person or company to whom you are making the payment. Writing a short letter is often best. Keep a copy of the letter, and if problems arise, contact your bank and/or the company straight away.

Also, make sure you have enough money in your account to cover a direct debit (which is another form of standing order). If the account is not sufficiently funded, you might have to pay an expensive overdraft fee.

6. Shop around for insurance like you shop around for clothing

When you are planning to buy a car, planning a holiday, or taking out a loan, insurance is probably the last thing you want to think about. But you may need it for your own protection and those of your assets. So it is important to spend a little bit of time shopping around for insurance which best suits your needs. Having a good insurance policy can make all the difference to your pocket - both now and if the worst happens and you need to make a claim.

So don't just accept the first insurance policy that is offered to you - regardless of who offers it. Shop around. Even if you make just three or four quick telephone calls to different companies, you'll find that terms and conditions, including the price might vary between one company and another. The Internet can make this easier.

And before you take up a policy, make sure you understand what the insurer will and will not cover. For example, some travel insurance policies might not cover you if you are injured when skiing or doing other dangerous sport. If you don't choose a policy with the right coverage for you and your circumstances, you could end up with unpleasant surprises in case of a claim.

7. Be completely honest

For example when you apply for insurance, you'll have to provide a lot of details to the insurance company.

If you are getting car insurance, you may be asked about your driving record, whether the car has been modified, and other things. Your answers will help the insurance company assess your risk, and work out how much your policy will cost.

Do not be tempted to play around with the facts! If you do so and the worse happens and you need to make a claim on your policy, your insurer may have grounds for refusing to pay your claim.

Remember: you must inform the insurance company about any material changes in your circumstances, in particular, each time you renew your policy. The type of questions that were asked in the original policy application will be a good guide to the information you might need to disclose when you renew. If you have any doubts - ask your insurer! Keep a written record of what they told you and ask for copies of any documents you are asked to sign by your insurer.

Keep this in mind: the more claims there are, and the higher the amount of these claims, the more likely it is for insurers to increase the premium for insurance covers. Always act prudently as if you are not insured!

8. Think about insurance before you choose your car

If you are buying a car, you must think about the insurance even before you decide about the car model you want.

You might think that, if two cars cost the same amount to buy, they would cost about the same amount to insure. But the cost of insurance depends on the type of car, the cost of the car, driver's age and driving experience, claims history etc.

For example, a sporty car might look great, and impress your friends, but it might cost you much more to insure than a basic car. And if your dream car has got modifications, like a bigger engine, insurance might cost you more again. It's better to be prepared for these extra costs than to get an unpleasant surprise after you have bought the car.

Also, remember that if you get a loan, the bank can require that you to take out comprehensive insurance to cover the car. You may have to take out other types of insurance - such as a life policy. But purchasing such other types of insurance may not be compulsory - double check this with your bank before buying such policies. Although the bank may offer its own policies, you are not obliged to purchase any of them. Shop around for the best deal.

9. Take things slowly

If you're like most people, it's easier to spend your money than to save it. But saving and investing are often the only way to achieve your big goals - buying a new stereo system, buying a car, going overseas.

Often, it's easier to save small amounts frequently - maybe by directly transferring part of your salary each fortnight to a savings account.

If you're thinking about investments - managed funds, shares and bonds - you need to think about what level of risk you are prepared to take. The higher the return, the higher the risk that you can lose some or even all your money. Keep in mind that the value of your investment can change over time and that you may not get back the original amount that you have invested.

There are many financial products on the market. If you purchase an investment, think of your future as well as your present. Talk to a licensed financial intermediary - he would be pleased to explain what is best for you and your needs, in terms of your circumstances.

10. Watch out for scams

If you have been contacted by someone asking for your help in transferring money out of the country, then you are one of thousands of people all over the world who have been targeted by what is sometimes called 'Advance Fee Fraud'. Sometimes they are called 'Nigerian Letter Scams' because they originated from Nigeria, although today they are sprouting from everywhere.

These letters promise you t o become a millionaire within a very short time frame in exchange for some assistance. These financial scams appear ruthless and simple. They appeal to our greed and our desire to avoid the work involved in solid long-term saving. Do not take heed of what they are promising you. These scams take all sort of forms - but they are all the same - SCAMS.

Remember that there are no easy ways to 'get rich quick'. If it sounds too good to be true, it probably is not true! Your alarm bells should ring loud and clear when you hear phrases like 'high returns with low risk' and 'get rich quick'. 'No risk' often means the biggest risk of all.

It is virtually impossible to become rich overnight. If you want to get rich quick, you have to work hard for it. These scams will not make your dream of becoming a millionaire overnight come true. Indeed, if you fall into these fraudsters trap, you will realise that you will no longer dream of becoming a millionaire, but of your expensive mistake.

If the prize or lottery notification has any of the following elements, we strongly suggest you do not respond to it:

  1. The information advises that you have won a prize - but you did not enter any competition run by the prize promoters;

  2. The mail may be personally addressed to you but it has been posted using bulk mail - thousands of other around the world may have received the same notification.

  3. The prize promoters ask for an 'administration' or 'processing' fee to be paid in advance.

  4. Getting your prize might entail travelling overseas at your own cost.

Protect yourself:

We strongly advise against any communication with fraudsters who run these scams. Do not respond at all. If you already have, cease all communication immediately.

Keep your credit card and bank account numbers to yourself.

If you have already given money to these fraudsters for any variety of reasons, unfortunately there is not much chance of recovery. Once the fraudsters have your cash, your money is gone.

Your First Job

Starting your first job is one of life’s most exciting times. While you are enjoying the freedom of financial independence, it is crucial to develop good money management skills to keep you on a solid financial footing.

Get a tax number

When you start a job you must give your employer your tax file number and your bank account details. You must do this so your employer can pay you. You must register yourself with the Inland Revenue Department so that you are provided with your personal income tax number. You can contact the Department on +365 2296 2400.

Do I have to pay tax?

The Table below presents the tax rates for basis year 2019.

TAX RATES FOR BASIS YEAR 2019
Chargeable Income (€)
 From To Rate Subtract (€)
Single Rates
0 9,100 0% 0
9,101 14,500 15% 1,365
14,501 19,500 25% 2,815
19,501 60,000 25% 2,725
60,001 and over 35% 8,725
Married Rates
0 12,700 0% 0
12,701 21,200 15% 1,905
21,201 28,700 25% 4,025
28,701 60,000 25% 3,905
60,001 and over 35% 9,905
Parent Rates
0 10,500 0% 0
10,501 15,800 15% 1,575
15,801 21,200 25% 3,155
21,201 60,000 25% 3,050
60,001 and over 35% 9,050

Depending on your income and whether you decide to opt for a single, married or parent rate, your employer will deduct from your wage or salary the income tax owed and your social security contribution. This means you will receive a wage or salary that is net of income tax and social security contributions paid.

In the second quarter of a new year your employer will provide you with a form titled ‘FS3’. This form will show the total income you received in the previous year – including fringe benefits, allowances, etc. – and the income tax and social security contributions you paid during the course of the year.

If you are employed with more than one employer, you will receive such an FS3 form from each employer.

You are to submit your income tax form by not later than 30th June (this will be your year of assessment i.e. 2019). You submit an income tax form only if your level of income for the base year (the year before the year of assessment i.e. 2018) you are submitting your income tax return has changed from that of the year previous (i.e. 2017) to the current base year.

It is important that you submit this form in time as you will otherwise be subject to high interest fines.

If you have an e-id Authentication (e-ID) you click and register with IR Services online where in you can submit your income tax form and pay any tax arrears online.

Check your payslip

It is important to check your payslip to see you are getting the right pay. Employers do make mistakes.

Watch your spending

While you may be thrilled by the purchase power of your wage because of your first job, make sure that your spending does not exceed your income.

Start saving for your retirement egg nest

Getting married, having a first child, buying a house, retiring – may all seem a long way off. Probably your immediate priority would be to buy a car.

Before you do so make it a habit to save part of your income every month. Regular saving is an excellent habit to get into. The earlier you start saving, the more money you will have to meet your various financial goals during the rest of your working life and in retirement.

You may wish to consider taking out a private retirement pension plan – they are now available on the market - so that you start preparing for your retirement – far away as it may seem to be. It is never too early to start planning for your retirement. Think of the day you headed off to kindergarten with your parents' hoping to prepare you for success in a world that seemed years away - suddenly you are there. Likewise, you need to prepare for your retirement well in advance. Thanks to the power of compound interest, the earlier you start saving the faster your savings will grow.

Create a budget

Budgeting involves making a list of all your expenses, and comparing it against your cash inflows. Use the following budget calculator to record all of your incomings and outgoings, which give a breakdown of where your spending goes each week, month or year.

Once you have a clear idea of your budget, work out a fixed amount that you can save each month and stick to it.

Adulthood

Adults may be split in three categories as follows:-

  1. Young Couples or single persons - these will be going through the purchase of their first home, furniture etc.

  2. Families - these will involve couples with children who contemplate buying a larger home or considering home improvements. Children will pose further challenges on the household possibly to finance their education-related costs as well as costs if they have reached teenage years. Insurance will be needed within this stage to protect the dependants. Disposable income may be limited.

  3. Empty Nests - these involve households where the dependants are self-sufficient and thus this may help to relieve pressure exerted on the disposable income. Savings and pension planning are a priority at this stage.

Financial Capability

Couples sometimes find it difficult to talk about money before marriage. This is not always the best thing, since sharing each other's perspectives about money can help couples resolve the financial problems that may arise in the future.

1. Be aware of each other's money personalities. Not all of us have the same money habits. Some of us like to spend more and save less, others are the opposite. However, understanding your future partner's background and values can help avert problems down the road.

2. Discuss your short- and long-term financial objectives. Setting financial objectives will help you develop priorities and define the type of lifestyle you will lead. It is important to break down your objectives into achievable goals. If you want to buy a house in three years, determine how much you need to save monthly to meet the down payment.

3. Make sure that you are financially literate. Financial Education is not always provided at a youth level. Couples must together develop their financial knowledge and improve their understanding by searching for information, and meeting with various financial planners.

4. Devise a plan to organize your finances. Couples can choose to either group their finances into joint accounts, separate accounts or a combination of both. There is no right or wrong way; the important thing is to come up with a plan that works for both of you.

5. Decide how to divide the money management tasks. It is important that you decide who will be responsible for certain financial duties e.g. keeping track of your investments, tax duties, budgeting and other financial responsibilities.

6. Developing a practicable budget. Couples without a sound budget are likely to live and spend from day-to-day. A good budget will help you save regularly whilst using your money wisely.

7. Know your future partner's investment personality and risk tolerance. Not everyone has the same amount of risk tolerance. It can range from being very conservative to highly risky. It is important that couples establish a degree of risk tolerance where they both feel comfortable.

8. Know how much debt your partner is bringing into your relationship. Knowing how much debt each of you will bring to the marriage will help you eliminate certain financial problems which may arise in the future.

9. Make sure that you discuss money issues on regular basis. Couples may have different ideas on financial issues; however discussing such problems will help you make smarter decisions.

Separation and Divorce

Ending a relationship can be a very emotional and traumatic time which will bring changes in your life. It is always important to seek help, both legal and personal in order to cope with any difficulties which may arise. There may also be some financial issues which need to be sorted out between the couple.

You may wish to start with the following;

  • Note down date of separation and other important events. One must remember that for a couple to obtain divorce they would need to be separated for at least 4 years.
  • Always seek legal advice: Speak to a lawyer in order to:
  • Freeze any joint accounts and investments;
  • Check on any property held in joint names (such as buildings and life insurance policies);
  • Legal action may need to be considered with regard to joint property in order to avoid future problems; and
  • Consider updating your will.
  • Always talk to your bank in order to establish what needs to be done regarding your joint accounts, mortgages and any other joint investments. If you have an insurance policy, you need to talk to the insurance company as well. For example, if you have a motor insurance policy, you need to talk to the insurance company in regards to your Non-Claims Discount. If you have a life policy, you also need to evaluate how proceeds will be distributed.

If your partner was the one who took care of the money, find out how things were organized and see if you want to make any changes in order to better manage your money and other assets. You can start by setting up a budget using our online budget tool. In addition, check how payments of your insurance policies are being made. If payments for a life policy are stopped, for example, it is likely that your policy would lapse and any life cover put in jeopardy.

In addition, make sure that your bank(s), investment firm(s) and insurance company(ies) have updated records (especially addresses) and are aware of your situation.

If you and your partner are separating and have children, you'll have to agree on arrangements for their care. There are a number of government agencies which may assist you with this matter especially since family breakdown can be a difficult time for children. With regard to the financial arrangements and childcare, you would need to discuss it with your lawyer, always keeping the children's best interest in mind.

Getting on top of your finances can be testing any time. This is especially true if you are dealing with a relationship breakup. Taking everything step by step should assist you to in gaining your confidence to better deal with your new reality.

Teaching Children How to Spend and Save

A typical teenager spends his or her income, mainly on clothes, food, mobile phone calls and entertainment.

When they enter post-secondary education, many teenagers will significantly increase their purchases. Those who get a job, especially a full time one, may spend more because the amount of money in their pockets is greater.

Most teenagers are not well-prepared to make their purchases wisely. Some teenagers waste hundreds of euros a year on purchases that do not represent good value. Much of this money comes from the hard-earned savings of their parents.

Teaching your teenagers how to save and spend is important to your present financial condition and to the future financial condition of your children. However it is valuable for another reason - helping to prepare your children to be wise consumers can provide an opportunity for you to do things with your teenagers that are interesting and fun, and will increase their appreciation of the financial challenges which you face as a parent. Handled properly, this opportunity is educational and enriches family life, at the same time.

The importance of saving

You should communicate to your children the importance of saving a portion of income for future expenditure - a car, a holiday, education, a house. You should also inform them of the dangers of spending more than their income.

The importance of budgeting

Developing and adhering to a budget is a method they can use to save and avoid burdensome debt. You should explain to them the importance of budgeting and how to carry it out.

How to teach your children

1.        As soon as children can count, introduce them to money. If you do not, TV will, directly and indirectly. Take an active role because repetition and observing others are the two methods they learn from.

2.       Communicate with children, about your values concerning money and how to save it, make it grow, and most importantly how to spend it wisely.

3.       Start early. Allowances, for example, send powerful and important conscious and subconscious messages. Given to children to recognise their active participation in their household, an allowance is an effective means of teaching an important relationship between money and effort: helping with family pets, washing the dishes, taking out the garbage. It creates a connection between effort and earning, which is much more positive and powerful than children simply getting what they want on demand. At the same time, children must be taught to appreciate that they are part of a household to which they must contribute voluntarily. They must not grow up expecting payment for every chore.

4.       Help children to learn the difference between needs, wants and wishes. This will prepare them for making good spending decisions in the future.

5.       Setting goals is a fundamental concept to help young people learn the value of money and also how to save. People, young or old, rarely meet targets they do not have. Nearly every toy or other item children ask their parents to get for them can become the object of a goal setting session. Benefits of saving to achieve the goal is an important aspect and provides built-in motivation. Goal setting for good grades, toys or savings, helps children learn to become responsible for their own future.

6.       Indoctrinate your children to savings instead of spending or consumption. Explain and demonstrate the concept of earning interest income on savings. Help children calculate the interest so they can learn and see how fast money accumulates through compound interest - where interest is earned on interest if added to an accumulated amount at the bank. You may even consider matching the amount your children save on their own such as when the family is considering buying a computer.

7.       When giving children pocket money, give the money in denominations that encourages saving. For example if the amount is €5, give out five €1 coins and encourage at least one of the coins to be set aside in savings.

8.       Take your children with you to a bank when you open their savings accounts. Beginning the regular savings habit early is one of the keys to savings success.

9.       Keeping good records of money saved and spent is another primary skill young people must learn. Encourage children to keep receipts of all purchases and to make notes.

10.     Take children with you to the supermarket and other stores, explaining how to plan purchases in advance and make price comparisons and also checking for value, quality, after-sales service, warranty, etc. Spending money can be fun and very productive when spending is planned. Unplanned spending however, usually results in money being wasted because we obtain poor value for money spent.

11.      Allow young people to make spending decisions, both good and poor, and then encourage a discussion of pros and cons before more spending takes place. Encourage them to employ common sense when buying. That means research before making major purchases, waiting for the right time to buy, and selecting at least three other things money could be spent on, once it has been decided to make a purchase.

12.     Teach children how to evaluate adverts on TV, radio and in print. Will the product really perform and do what the commercials say? Is it really a sale price? Are there alternative products available that will do a better job, perhaps for less cost? Just because something looks expensive, does not mean it represents the best value. Remind them that if something sounds too good to be true, it usually is.

13.     Alert children to the dangers of borrowing and paying interest. Be cautious about making credit cards available to young people. Credit cards have a message: "SPEND!" Some teenagers use cards for cash advances and also to meet daily needs instead of an emergency. If your bank permits you to do so, you can teach your children how to use a credit card by allowing them to use a supplementary card issued on your account. Set a limit on their spending and require them to pay related costs, including interest and the annual fee.

14.    Using a calendar, establish a regular schedule for a family discussion about finances. This is especially helpful to younger children. Discussion topics should include the difference between cash, cheques and credit cards and also wise  spending, how to avoid the use of credit and the advantages of savings. With teenagers also discuss on how to economise at home, and alternatives to spending money.

15.    Communicate some of the universal virtues that can be attached to money and receiving, spending or saving it: saving, charity, self-discipline, generosity, and sharing.

Money gives people (both young and old) decision-making opportunities. Everyday spending decisions can have a far greater negative impact on your children's financial future (and yours also) than any savings decisions they (or you) may ever make. Educating, motivating and empowering your children to become regular savers will enable them to keep more of the money they earn and do more with the money they keep!

Retirement Planning

Retirement should be one of the most enjoyable and fulfilling times of your life. Helping your children or grandchildren financially, can be rewarding. After a successful career and a sense of fulfillment with what you have achieved, together with the ability to live a retirement lifestyle as desired, can make this part of your life quite pleasant. Nonetheless there are still financial issues that should be tackled.

Preparing for Retirement

Preparing for retirement - some useful tips for those on or nearing pensionable age

Each and every one of us has a different plan for when retirement looms on the horizon. For some, it will be a definite point in one's life when the daily chore of going to work ends and a new chapter begins. For others, retirement may be a gradual process as they leave full-time employment and pursue a less demanding job. Others vary their working hours as priorities shift and change. The constant thing at that point in life is change, especially to our income and financial positions.

The financial aspects of retirement are often complex. There is no denying however that if you wish to maintain the same lifestyle at retirement, you need to save now as the state pension would be around two thirds of the average wage you received during the last three years before retirement. If you are happy with that, so be it. However, it is likely that you won't and you can only supplement your pension with additional savings and investments accumulated throughout your working life.

Good retirement planning should not only consider any immediate living expenses, but also cater for potential long-term costs to, such as, private elderly care. We are living longer and healthier lives, so it pays to think about the costs one may experience in later years. This increases the importance of good investment planning and constant monitoring of every aspect of your savings. The following are some important first steps one should take:

  • Create a realistic plan for your life in retirement: The sooner you bring your retirement into focus, the greater your chances for achieving the lifestyle you want. This might mean asking yourself a number of questions such as:
  • What do you want to do at retirement?
  • Who do you want to spend time with?
  • Will you keep on living in the same house or do you consider downsizing?
  • Would you like to continue working during retirement, even on reduced hours?
  • Do see yourself supporting family members (such as childrens, weddings or homes) in the future?
  • How will you balance your travel or entertainment needs with other expenses like old age care, health care and other living expenses?
  • Review your plan: Make sure your plans for retirement are in line with the resources you have to fund them. You must make sure that your retirement income sources and withdrawal strategy are aligned with your goals. If your goals are farfetched, consider revising such goals or increasing your savings to meets your future needs.
  • Prepare for contingencies: With retirement lasting 20 or even 30 years, it's important to regularly assess your progress and make adjustments when circumstances change. Setting up an emergency cash account will help to get through hard times should these arise. This account will act as a safety net in case some unexpected events happens, such as sudden medical expenses, market slumps which will affect your investments or other events which may affect your income. It would be wise for retirees to keep an adequate sum of money separate from their portfolio, which will help them get through for at least half a year, should tough times arise. If your lifestyle depends on income that you receive from shares, bonds or funds, you must also make sure that you have a sufficient amount of money to help you live comfortably should the market face a downturn.
  • Monitor your investments: Attention must be given to your investments for retirement from early on. The consequences of a poor investment decision, bad advice or even fraud can be more serious as you get older as you would have less time and ability to make up for losses. And, sadly, some people entering retirement are more vulnerable to such bad advice and risky investments as they would put income as first priority. The adage high return high risk should be kept in mind at all times when investing at this stage.Since at this point in life the pension or retirement plan, social security and investments replace salary, it is important that priorities are focused on making your investments last throughout your retirement stage, which will allow you to keep living a comfortable life style. One should therefore make sure to steer away from any products which may look dubious or in any way look complex to understand and manage.It is important to continue monitoring your investments carefully and if you are using a financial advisor, be sure to fully understand their recommendations before accepting them.
  • Protect yourself: Health care is a priority at any given age. However after retirement, health care probably becomes the most important issue as one tries to stay in good health meaning that this means more check-ups and preventative tests would be required. You must also consider the possibility of your health declining as your grow older and the increasing need for expensive medication and treatment. So make sure your medical insurance is adequate. The costs of medical care continues to rise and we are living longer.

Your Social Security Pension

Understanding Your Social Security Contribution Scheme

One of the main pillars of Malta's social security system is the Social Security Contribution Scheme.  The social security contribution scheme does not provide you only with a pension on retirement,  but also only entitle you amongst others to:

  • An Invalidity Pension until you reach your retirement age in the event that you get injured or suffer from a medical condition and you can no longer work.  On reaching your retirement age your will receive the social security pension.

  • A Widow's Pension will be received by your spouse until he or she reaches his or her retirement age in the event that you pass away before your retirement age.  On reaching retirement age, your spouse will receive the social security pension or the widows pension, whichever is the highest.

  • A Survivor's Pension will be received by your spouse in the event that you pass away after your retirement age.  If your spouse qualifies for a pension in his/her own right, he/she will receive the higher between your retirement pension and the survivor pension.

  • Six months unemployment benefits in proportion to social security contributions you paid in the event that you are rendered unemployed.

  • Free healthcare services.

The social security contribution that you pay is not added up into an "individual pension account".  This contribution is paid into the Fund.  This allows the Fund to provide for inter-generational solidarity by pooling all contributions received from young, middle aged and elderly persons in employment so that protection benefits referred to above can be provided to you and your family.

Different terms associated with retirement pension

Different terms are used to refer to the retirement pension provided to you under the Social Security Act (SSA).  You come across terms such as the NI Contribution Pension, State Pension, Social Security Pension, Two-Thirds Pension, Contributory Benefits Pension and Retirement Pension, amongst others.

The SSA defines a pension in respect of retirement under the social security contributions scheme as a retirement pension.  To qualify for such a pension you need to meet certain qualifying conditions established under the SSA.

The retirement pension is different from the age pension.  To differentiate between the retirement pension under the social security contribution scheme and the non- contributory age pension, this article refers to the retirement pension as the Social Security Pension.

Note that the social security pension is also different from a service pension, second pension, a mandatory second pension (or mandatory second pillar pension) and a third pension (or third pillar pension).  These are defined below:

Age Pension 

This is a means-tested non contributory benefits pensions.  To qualify for a retirement pension under the social security scheme you need to pay a minimum level of social security contributions.  If you do not pay this minimum level of social security contributions, you will not qualify for a retirement pension.

Malta's social security system, however, is designed to provide its citizens with a safety net.  Thus a person who has failed to pay the minimum level of social security, contributions may be entitled to an age pension.

Receipt of an age pension is not automatic for a person who failed to qualify for a social security pension.  For a person to qualify for an age pension, he/she has to pass a capital and income means test.

The capital and income means test is a mechanism that ensures that only persons who do not meet a defined level of capital and income resources qualify for the receipt of an age pension.

Service Pension 

Prior to the introduction of the social security contributions scheme in 1979, employees were in receipt of occupational pensions paid by their employer.  For example, employees who joined the government prior to 1979 were in receipt of what is known as 'The Treasury Pension'.

The social security reforms of 1979 no longer allowed for the payment of occupational pensions by employers to their employees.  Most private employers liquidated such occupational schemes.  Others, such as the treasury pension continues to be paid to persons employed in 1979 or earlier subject to certain conditions.

Second Pension 

This is a pension that governments in a number of countries introduced to encourage persons to save to top-up their income in retirement over and above the pension income they will receive from the State.

In a second pension scheme the contribution that you would pay would go directly to a pension account that belongs to you.

A second pension scheme can be introduced in a mandatory or voluntary manner.

Malta does not have such a pension scheme in place today.

Third Pension 

The government to encourage people to save for retirement incentivises you, normally through tax credits, to invest in a personal private pension scheme.  Given that you have benefited from an incentive to invest in a personal private pension scheme you are subject to certain conditions on how you can draw down your savings from such a scheme.

Normally such a personal private pension scheme is long term and 'locks' your savings up to a certain age, for example not before the age of 50 years.

Thereafter you are allowed to opt to withdraw a small proportion of your saving as a lump sum with the remaining large part of the savings to be received as a monthly annuity or a programmed annual / monthly drop down income or any other form of income withdrawal as established by the regulatory framework.

In 2015 Malta introduced a legislative framework for the provision of a third pension.  In fact, since November 2015 financial third pension schemes are being provided by local financial service providers.

Why is it Important to understand how the social security pension works?

It is important that you understand how the social security pension works so that you can plan for the quality of life you wish in retirement for you and your family.  If you do not know what income you will receive from your social security pension you run the risk of underestimating how much more you need to save to enjoy your retirement as desired.

You are more likely to bridge the gap between the pension income you will receive under the social security pension and the desired quality of life when you are in employment and earning income.

A miscalculation in your retirement planning during your life event journey leading to your retirement is likely to negatively affect you and your family's quality of life during retirement.  Once you have retired, it may be too late to boost your social security pension with other income as, at that point in time, you are likely to have limited opportunities to build a retirement savings egg nest.

Understanding your social security pension

The Social Security Act (SSA) provides for two types of employment.  A Class One (I) contribution refers to a person who is employed.  The social security contribution you pay under this class is as follows:

  • 10% by you.
  • 10% by your employer.
  • 10% by the State.

The contribution paid is on basic wage and capped to a Maximum Pensionable Income (MPI).

If you are a self-employed person or a self-occupied person, you pay a Class Two (II) contribution. The social security contribution you pay under this Class is as follows:

  • 15% by you.
  • 7.5% by the State.

The term 'Self-Employed' in the Social Security Act has a different meaning from that which you use in normal conversation

The terms 'self-employed person' or a 'self-occupied person' as applied under the SSA are deceiving.  The term 'self-employed in the SSA does not mean what you understand by it in normal conversation,' a person who is self-employed.

The SSA defines a self-employed person, as you understand it in normal conversation as 'self-occupied'.  More specifically the SSA defines a self-occupied person as a 'person who is a self-employed person who is engaged in any activity through which earnings exceeding €910 per annum are being derived'.

The term 'self-employed' as applied in the SSA means a person who has not yet passed his or her 65th birthday, ordinarily resides in Malta, and is neither an employed person nor a self-occupied person.

For the purpose of this article, the term 'self-employed' is applied to describe a person who runs his or her own business.

Your social security pension if you were born on and before 1951 and worked as an employee (and not in receipt of a service pension)

If you are born on or before 1951, you are already retired and in receipt of a social security pension.  The pension income that you receive is calculated as follows:

  • Yearly average of the best 3 consecutive calendar years within the last 10 consecutive calendar years.
  • You paid social security contributions of 10% on your basic wage to a Maximum Pensionable Income of €17,933 and an annual increase of the Cost of Living Allowance (COLA) awarded annually.
  • If whilst in employment you benefited from a collective agreement your social security pension income will be adjusted upwards every time the wage conditions of the grade you held is increased as a result of a collective agreement adjustment.  If your work was not covered by a collective agreement your pension will increase by the annual COLA awarded by government.
  • You retired at the age of 61 years (if you are a woman you may have retired at 60 years of age).
  • To qualify for a full pension you had to pay a minimum of 50 social security contributions annually for a maximum of 30 years.
  • There is a Guaranteed National Minimum Level (GNML) of pension in place, which ensures that you are protected against poverty in the event that you did not pay the full contributions you were entitled to pay.

If you are in this category of pensioners, you can continue to work as an employee or self-employed person and still receive the full pension you are entitled to.

If you take up such employment, you will continue to pay your social security contribution until you reach 65.  It is important to note that such a contribution is not assigned to your contribution history but will be posted in the consolidated fund.

Your social security pension if you were an employee born between 1952 and 1961 and work as an employee (and not in receipt of a service pension)

If you are in this age bracket your social security pension will be governed as shown in the Table below.

[table id=470 /]

The State pension also provides for a Guaranteed National Minimum Level of Pension (GNML), which seeks to protect you against poverty.

Once you reach the retirement age, you can continue to work as an employee or in a self-employed capacity and earn an income whilst continuing to receive the full income from your Social Security Pension.  If you take up such employment, you will continue to pay your social security contribution until you reach 65.  It is important to know that this contribution is not assigned to your pension contribution history but is posted in the consolidated fund.

If you accumulated a minimum of 50 weekly contributions for a period of 35 years, you could retire when you reach the age of 61 years. If you meet these conditions and retire you will not be allowed to continue in employment until you reach your statutory retirement age (62, 63, or 64 years of age depending on your date of birth).  This is a 'social cost' that you are asked to incur for the decision you made to choose 'leisure' as against continuing to contribute productively up to your retirement age.

Your Social Security Pension if you were born on or after 1962 and work as an employee

If you are born in this age bracket, your Social Security Pension is based on the rules showed in the Box below.

[table id=471 /]

Based on this formula, the MPI between 2014 and 2019 increased as the below:

[table id=526 /]

Social Security Contributions paid on basic wage or salary

The social security contribution you pay is only on the basic wage or salary.  In paying your social security contribution additional income such as car allowance, performance bonus, production bonus, overtime, petrol allowance, etc. is excluded.

Example

You have a compensation package that consists of a salary, petrol allowance, overtime, and a performance bonus.

In 2018 the total income earned from your employer was €15,300.  This consisted of:

  • Salary:   €13,000
  • Petrol Allowance:  €500
  • Performance Bonus: €800
  • Overtime:   €1,000

You do not pay the 10% social security contribution on €15,300.  You pay your 10% social security contribution on your salary of €13,000.  Thus, the annual social security contribution you would have paid for 2018 will be €1,300 and not €1,530.

Maximum Pensionable Income

The 10% social security contribution you pay on your salary is capped.  This is known as the Maximum Pension Income.

Following the 2007 pension reforms, there are in place two Maximum Pension able Income caps.  These are:

  • If you were born between 1952 and 1961, then the Maximum Pensionable Income cap is €17,933.
  • If you were born on and after 1962, then the Maximum Pensionable Income cap is €22,138.

Example

If you earned €25,000 in 2016 and you were born between 1952 and 1961, the social security contribution that you pay is €1,793 and not €2,500.

If you earned the same amount of money in 2016 but you were born on and after 1962 the social security contribution that you pay is €2,213 and not €2,500.

[table id=527 /]

The Third Pillar Pension

One of the main pillars of Malta's social security system is the Social Security Contribution Scheme, which provides us with a pension at the end of our working careers. The Third Pillar Pension scheme launched by Government back in November 2014, was aimed to encourage earners to start saving for their retirement and maintain their future quality of life.

The incentive was aimed at encouraging Maltese residents to start further saving for their pension by investing in private products offered by local banks, life insurance companies and other financial institutions.

One notes that life expectancy, thanks to advances in medicine and healthier lifestyles, is increasing. Its downside however is, that most of us will work for longer years. The retirement age has been pushed backwards in most developed countries over the past decade, and it could rise even further as we all live longer. Planning and putting a small amount aside at this stage will make your retirement easier to plan.

The size of your pension pot when you retire will depend on:

  • how much you pay into your pension pot
  • how long you save for
  • how well your investments have performed
  • what charges have been taken out of your pot by your pension provider

This is why it may be the right time to consider seeking professional advice on investing in a private pension, or as is also known, a third pillar pension scheme. You will need to talk with your bank, investment advisor or pension provider to learn more about the opportunities available for you, depending on what income you're able to put aside, in order to put your mind at rest for the future.

To incentivize Maltese residents into going for a private pension, Government had launched an incentive whereby investing in a private pension will allow you to save tax. In fact, when opting for a Personal Retirement Scheme, Maltese resident tax payers are able to obtain a tax credit against income tax chargeable in Malta. This is applicable on any contributions made by a person to any personal retirement scheme or premiums paid in respect of a qualifying policy of insurance. The second scheme, the Individual Savings Account (ISA), is also offered as part of the Third Pillar Pension Scheme. The ISA provides families the option to open a tax free savings account. Individuals can withdraw funds from such accounts any time, similar to a normal savings account.

As indicated, advice should be sought form licensed investment advisers. A list of licensed financial services institutions is available on the MFSA website.

Get Hold for your Finances

We don’t intend to make your life miserable; however, we have to be frank. Living beyond your means is definitely not the right way to handle your finances. Not even if your bank recently increased your credit card limit. Life is not without its sacrifices, sometimes we have to work harder to reach our goals. You need to plan your expenses. It’s as simple as that.

 

Get to grips with your money

Set aside one hour to see where your money goes. You can use our simple budget calculator to help you work out your daily/weekly/monthly/yearly income and spending. Then once you know how much money you’ve got left (or not) you’ll be in a better position to plan ahead.

Cut back on things that you don't need

Try keeping a spending diary for some time and keep a note of what you spend and where you spend it each day. You will probably notice that you are spending your money on a lot of things that you can actually do without. A few cents here and a few euros there can all add up. Then see where you can make savings by cutting back on a few things you don’t really need.

Stay in control

Setting up direct debits for payments like utility bills or credit cards can help you budget better and help avoid late-payment charges. But make sure there’s enough money in your account to cover them, otherwise you will be charged by your bank. Check if your bank offers internet banking services through which you can easily monitor your transactions.

Review your payments

Get into the habit of going through your account statements and check what money is going in and out of your account. Review your standing orders and direct debits. Check if you are not paying for any unwanted services. Perhaps you were given a free introductory offer but now you are paying the full price. Are you paying for a membership or subscription that you no longer want or need? If you are thinking about cancelling insurance to make savings, consider how you’d cope if things were to go wrong. If you cancel your endowment policy or retirement plan before maturity, you will barely get back the premiums paid.

Shop around

If you currently tend to buy on impulse then get into the habit of shopping around. You can shop around for almost anything, starting from groceries and clothes up to bank accounts, loans, credit and debit cards etc. There is lots of information available including product brochures, websites, and comparative tables. Start by having a look at our comparative tables to evaluate the fees and charges levied by financial service providers  in Malta for their services.

Many consumers are avid online shoppers. Shopping online is positive. However, don’t be a binge online shopper. Be careful with whom you are dealing with on the internet. There are a good number of reliable, bona fide websites but there are others which are scams. If in doubt, stick to renowned online retailers.

Get the best deal

Check if you can save money by changing your payment method. Many companies offer discounts when you pay by direct debit instead of cheque or cash. Check with stores if they offer in house store cards or loyalty cards which may entitle you for some discounts when you purchase from their outlets frequently. Always check the terms and conditions before committing yourself to such schemes.

Review your debt

If you plan to get a loan make sure it`s the best deal available to you. If you have debt in more than one place, compare the different rates that you are paying and then shop around for the lowest APR or APRC. These rates take into account the interest rates applied, fixed or variable, and any additional costs payable to the lender.

Don’t worry if you don’t manage all of these resolutions in one go, just choose a couple to start off with and see how things go.

Even small steps can make a difference.

Identifying Revenues and Expenses

Most people know how much they earn but have no idea how much they spend. In order to take control of your finances you must know how you spend your money. You will then be able to decide if that money is well spent or whether it could be used in a better way.

Understanding my Financial Situation

If you want to stop worrying about your finances you must first understand your financial situation. You need to know exactly how much your assets are worth when compared to your debts.

First, you should look at your monthly income. This can include your wage, dividends and other types of income (such as rental income  ). Once you determine your monthly income, you should  assess your expenses.

Start by checking  what your total expenditure for a month is, by collecting all the bills and receipts. It is important to keep  every receipt regardless of how small it might be. It will help you to divide your expenses into:

  • non-discretionary expenses: those that you cannot avoid, such as paying for your monthly internet access; and
  • discretionary expenses, such as dining out or going to the cinema.

Defining Objectives

Setting financial goals is an important step towards financial health. Goals should be: Specific, Measurable, Achievable, Realistic and Timely.

The more detailed your savings goals are, the easier it will be for you to reach those goals. You must also remember that your savings goals will move parallel to your budget so it is important to review your budget every few months to make sure it reflects your goals and to see if you are saving the maximum amount possible.

Goals will differ in the length of time needed to achieve them. Moreover, it is important to remark that the priority for savings shall always be an emergency fund. This is money you can draw on to meet unexpected expenses, without having to borrow. As a guide, aim to approximately save to cover your expenses from one to three months. Remember to keep this money for real emergencies and see that you top it up as soon as possible after use.

Besides that, you can have:

  • Short-term savings, for those things you want to achieve within the next couple of years. These goals could be to pay off your credit card debt, buy a new TV, go on a holiday or buy a car. Try and set yourself a realistic timeframe without too much cut-back which you might not achieve and,

  • Long-term savings, for those things you want to achieve in around five years or more. This could include buying a home or paying off your home loan, paying for your private schooling or retirement planning.

You must then find the best way to save depending on your goals. Savings accounts are for times when you may need to access your money quickly (such as the emergency fund and short-term savings) whilst term deposits and investments are for the longer term. You may wish to keep separate accounts, especially for short terms savings goals.

Saving and investing is a complicated area and decisions that are right for one person may not necessarily suit another. Our website has a dedicated section about investing and investments. if you want to read m

Managing Debts

In our society, debt is a part of life. Debt can help us get an education, buy a car, own a home, or expand our business. When debt is managed well, it is a stepping stone that enables us to improve our life. However, if debt is not managed well, it can hinder our progress rather than move us forward.

When you add up all of your monthly debt payments, this number should not exceed one third of your income. If it is greater, banks might not lend you any more money.

There are some clear warning signs, which may indicate that you need assistance with your debts such as difficulty paying bills on time, receiving past due notices or not paying credit cards in full each month.

If you are experiencing some of these warning signs be aware that you need to address them urgently.

Frequently Asked Questions

This section gives you easy access to commonly-asked questions about banking, insurance & investments aspects.

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Home Equity Release Scheme

How does it work?

  1. This product offers pensioners the possibility to translate part of the value of their property into a liquid asset.
  2. By entering into this contract, the pensioner will have more cash in hand whilst enjoying their retirement in their own home.
  3. Individuals who subscribe to this scheme will be essentially taking out a loan in exchange for regular income. The loan will be repaid when the property is sold.

Who is offering it and when?

  1. This product can be offered by licensed credit and financial institutions operating in or from Malta.
  2. MFSA is currently working on the regulatory framework that needs to be in place for it to regulate the equity release financial product.
  3. The equity release financial products regulations [Regulations’] will come into force on the 1st of September 2019. After this date no credit or financial institutions can offer such product without being duly authorised.
  4. Any licensed institutions providing such financial products will have one year to comply with the requirements set out in the Regulations published by the Authority.

Any tips?

  1. MFSA encourages interested individuals to seek independent professional advice and weigh their options before entering into an equity release transaction for the first time.
  2. It is your right to receive all the information you need to make an informed decision.
  3. MFSA will issue further updates once the framework comes into force. The public is encouraged to follow the Authority’s channels on Linkedin, Twitter and Facebook, or alternatively visit www.mfsa.mt for the latest updates.
Protection of Deposits

Question: I have funds in a bank in Malta are denominated in euro. A relative of mine, who for many years resided in Australia, has an account denominated in Australian dollar with the same bank. If our bank fails, are we both covered by the same depositor compensation scheme?

The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the MFSA. The Scheme, which has been in force since 2003, can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment.

The Scheme is managed by a committee appointed by the MFSA and is made up of persons representing the MFSA, the Central Bank, licensed investment firms, the banks and consumers.

The regulations (Legal Notice 369 of 2003) which transpose the EU Directive on Depositor Guarantee Schemes obliges the committee to compensate depositors following a process of due diligence which should not take longer than three months (which may be extended to another six months by the competent authority).

All depositors of Maltese banks are covered up to €100,000 (per depositor, per bank) and depositors will no longer have to bear the initial 10% of their losses.

Most types of deposit are covered, including current, deposit and savings accounts. Similarly, most depositors are covered by the Scheme. There are however some depositors who might not be able to claim. Companies which are permitted to draw up abridged balance sheets in terms of the Companies Act are also covered by the Scheme.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits prescribed in the Regulations, subject to eligibility. In respect of deposits held by a person acting as trustee or nominee for one or more beneficial owners, the deposit making up the claim shall be deemed to belong to such beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

A depositor can only submit one claim for all his deposits taken in aggregate against a failed licensed bank, including the depositor’s share in a joint account or a client account, less any amounts due to the bank (such as loans).

The Scheme covers deposits denominated in euro and deposits in the currencies of EEA countries whose currency is not the euro (such as the pound sterling). This means that deposits in Australian dollar are not covered by the scheme.

In the unlikely event of a bank failure and the Scheme needs to compensate depositors, the payout period is 20 working days that are reckoned from the date when the competent authorities determine that a credit institution is unable to repay its deposit liabilities – with a possible extension of 10 working days in exceptional circumstances.

Credit Institutions are also required to be more transparent with regard to the information that they are obliged to provide to current or prospective depositors in connection with the scheme.  The information on the scheme contained in advertising by participants will be subject to certain restrictions in order to prevent adverse repercussions on the stability of the banking system or on depositor confidence.

More information about the Scheme is available from www.compensationschemes.org.mt.

Question: I have been noticing multiple adverts on newspapers and TV advertising very good rates for fixed deposit account by banks which I had never been aware of. All these adverts claim that my deposit is protected under the Depositor Compensation Scheme but I want to make sure that none of these adverts is misleading – such as for example, enticing me to deposit my hard-earned savings with them on the basis that my deposit is covered by the scheme, when in actual fact it is not.

All banks licensed by the MFSA are required to be members of the Depositor Compensation Scheme. The Scheme provides a level of coverage of up to €100,000 for each depositor in the event that a bank becomes insolvent and therefore is unable to honour its obligations towards such depositors.

In light of the new regulations which came into force in August 2009, all banks are required to indicate clearly that they are members of the Depositor Compensation Scheme in Malta. Very shortly, all banks will also be providing information to their depositors (on demand or through their websites) relating to the scheme including the circumstances under which the scheme would pay compensation. This information is already available on the Depositor Compensation Scheme’s website (www.compensationschemes.org.mt) but banks are now also required to provide this information to depositors to enable them to understand better how the scheme works and whether and to what extent their deposits are covered.

In brief, the scheme covers deposits made by individuals and small companies which are allowed to draw up abridged balance sheets in terms of the Companies Act. The scheme covers deposits in the currencies of all EU and EEA (European Economic Area). Other non – EU currencies are excluded. There is no closing date as to the limit of €100,000 (as many depositors continue to think). The limit is per person, per bank so for example, if two banks are unable to honour their obligations at the same time, a depositor is covered for up to that limit for each insolvent bank.

As with diversification, there is absolutely no harm for a depositor to diversify and distribute his/her savings between different banks.

More information on the Depositor Compensation Scheme is available here.

Opening of Bank Accounts

Question: I would like to bring to your attention a problem many parents may be encountering. Once our children are 16 years of age they are told that they can have their own accounts. Knowing my children well, I went over to the bank to request information about my son’s account because I wanted to be certain that he is depositing his pocket-money. However, I was told that I could not be given such access as the account belongs to my son. I informed them that I was the parent and that legally he is still under-age and that my husband and I are still legally responsible for him. However the reply was that this was the practice in banking services and that the parents are consulted only if a request for a loan is made. I find this to be very wrong. At that young age many of them are still irresponsible and still need some guidance from the parents.

Article 188 of the Maltese Civil Code (Of Majority, Interdiction And Incapacitation) states that ‘Majority is fixed at the completion of the eighteenth year of age’. On the other hand, Article 971A of the Civil Code providing with the ability of children over sixteen years to open and operate bank account provides that ‘Notwithstanding any provision of this Code, a child who has attained the age of sixteen years may deposit money in an account opened by the child in his or her own name with any bank, and any money deposited in any such account may only be withdrawn by such child notwithstanding that such money may be subject to the administration, usufruct or authority of any other person. For all purposes of law the child shall with regard to the opening and operation of any such account be considered a major.’

In this respect, paternal authority ceases as soon as a child opens a bank account in his/her name.

Facilities may only be granted to a minor who has attained the age of sixteen years and such minor shall be deemed to be major with regard to obligations contracted by him/her for purposes of trade, if (i) he/she has previously been authorized to that effect by the parent to whose authority he/she is subject, by means of a public deed registered in the Civil Court or, where both parents are dead, interdicted or absent, he has been authorized by the judge of the Civil Court and (ii) a summary of the deed of authorization or of the decree aforementioned has been published by means of a notice in the Government Gazette and in another newspaper.

In this regard, minors who are traders authorized as aforesaid can by reason of their trade charge, hypotheca for personal purposes (home loan).

For instance, banks would not issue a credit card to young adults under 18 years of age. They may only do so if the primary cardholder is either the parent or legal guardian – in that case, the supplementary cardholder may be the young adult. Any debts incurred by suchte and even alienate their property, without any of the formalities prescribed by the civil law. It is important to note that in these instances facilities may only be provided to minors in relation to their trade (business loan) and not supplementary cardholder would be under the responsibility of the primary cardholder.

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