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Abu Dhabi: As part of raising awareness about Module 2 “Financial Products” of the “Wafra” training program designed to introduce the principles and rules of proactive financial planning and promote the culture of saving and investment, the General Pensions & Social Security Authority stated that understanding the features and characteristics of various financial products and services such as facilities, bank accounts, stocks, bonds, deposits and using them efficiently contributes to achieving the objectives of each stage the individual goes through in his/her journey of proactive financial planning towards the future.
The Module contributes to exploring the advantages and benefits of various financial products, knowledge of which helps in proactive financial planning to gain material returns when investing in them, and to better judge the timing of obtaining these products to serve the target objectives at each stage.
Financial Products
Banks offer a set of savings and investment financial services and products to help customers manage their money, such as accounts and cards of all kinds, stocks and bonds, and credit facilities; Banks provide two types of services: commercial service and banking service that are subject to the provisions of Islamic Sharia. The first type receives interest and fees, and the second one avoids speculation or lending money at high rates.
Credit Cards
Paying with a debit card is better for money management because when using a debit card, payments can be tracked. However, debit cards do not offer key benefits, such as rewards programs unlike credit cards. At the same time, a credit card represents a long-term credit burden, but using it properly can be a good option for saving; it is recommended to keep the maximum credit card installment between 10% to 15% of income.
Bank Accounts
There are two types of accounts to choose from, current or saving; A current account allows to deposit or withdraw money and customer can use checkbook, debit card, credit card and loan facilities. However, a current account does not offer any interest on the available balance, while savings account allows to deposit or withdraw money and offers interest on the available balance. For saving, savings accounts are less risky than investment accounts.
Debit Cards
Direct debit cards allow the account holder to access the cash money deposited in his/her account as well as pay for purchases of goods, and they are convenient and easy to use. Debit cards are low-risk as it does not allow you to exceed the permissible limit, while a credit card represents a revolving debt, especially if the interest rate accumulates and doubles as a result of failure to pay on time. The only way for the interest rate not to accumulate is to settle the card balance in full. The credit card represents bank facilities that allow you to purchase now and pay later.
Loans
Loans are of two types: Personal loans and overdrafts; Personal loans require repayment of the loan value with interest in monthly installments during an agreed upon period of time. Overdrafts are used to cover a loan in a limited amount for short periods of time. The borrower must pay interest on the due amount, and interest is calculated in each day the borrower uses the overdraft amount. Banks collect fees for unauthorized use of the overdraft. Loans represent a long-term financial commitment on the borrower, so you must use them wisely to avoid high indebtedness. When borrowing, you should consider the interest rate of the loan, so that its rate is not relatively large with the value of the loan.
Borrowing Tips
Before making the decision to borrow, it is important to make sure to finance personal and family needs first, as it is better to save money for future spending instead of obtaining loans, and obtain secured loans using long-term savings as collateral, review the debt service ratio, leave room for future emergency needs, search for good annual interest rate, and make sure to pay the monthly installments on time until the loan is repaid in full.
Debt Service Ratio
Debt service ratio is the ratio of gross installments to net income; If an individual has credit cards and old loan and wants to obtain another new loan, but his/her debt service ratio has reached the maximum limit, this may affect his/her future needs. Therefore, it is preferable for the individual to consider his/her options if he/she decides to obtain this loan, and needs to be careful, as loan will maximize his/her exposure to borrowing, thus he/she will no longer be able to apply for other banking products in case of emergency unless his/her income increases or some of his/her debts are paid.
Insurance
Insurance is a financial product offered by banks with several forms, the most important of which is risk insurance, where the individual pays a sum to insurance or takaful companies in anticipation of the occurrence of risks, in turn, the company agrees to bear some risks and pays the cost in case of unforeseen events, meaning that we pay insurance companies to bear the risks on our behalf.
Social Solidarity
Solidarity appears in its purest form through the retirement funds that countries provide to their citizens; There are two types of insurance: Takaful insurance and insurance with defined benefits and privileges. The insurance protects against risks such as old age, disability, death, work-related injuries, and occupational diseases in exchange for monthly subscription for receiving an end-of-service reward or pension. When any of these risks arise and the insured is at work or after his retirement, the period of service or age is not considered. Benefits extend to the dependents of the insured or pensioner’s family when the eligibility conditions are met.
Types of Investment
There are many and different types of investment according to the goal, purpose, means, return, and risks, such as: Assets, including stocks and securities, investment funds, fixed income instruments/bonds such as national bonds, corporate bonds, and government bonds. ROI rates represent the return the individual will gain as a result of the investment he/she makes. Investors look to grow their capital when the market value of the investment, in case of sale, is greater than the amount they paid for the investment. an individual may have a financial proceeds to finance the desired goals when obtaining the return of this investment. The money can be used as income as the investment provides a regular amount of money to be used as monthly income.
Tips to avoid risks
Care must be taken to diversify the portfolio of stocks in companies with different features and characteristics (type of field or industry, company size, type of stock), and long-term investment to avoid short-term fluctuations. It is recommended not to try to predict market price movements, as high stocks attract more buyers, which pushes prices to rise again, but prices may fall as quickly as they rose as investors begin selling to gain attractive returns; So seeking advice is important, especially when purchasing private stocks.
For more information, please contact:
Mr. Adel Ramzy
Media and PR Specialist
Tel: +971 2 2030 022
Fax: +971 2 4418 587
E-mail: adel.ramzy@gpssa.gov.ae
Website: www.gpssa.gov.ae