Richard Gussow – Finance

Are You Financially Literate?

I was surprised by the results of a new international survey on financial literacy released by S&P Ratings, Gallup, the World Bank and the Global Financial Literacy Excellence Center (GFLEC) at George Washington University. According to the survey results, Israel ranked 4th in the world in financial literacy (Sweden, Norway and Denmark were tied for 1st place). The survey showed that 68% percent of Israelis were financially literate. Compare that to the US, where only 57% of the population is financially literate.

You are probably shaking your head. If you are new (or veteran) immigrants, I bet you’ve had a hard time understanding the Israeli financial system, with concepts you’ve never heard before, and in Hebrew no less. Terms like tsamud, keren hishtalmut and other items unique to Israel. By now you are probably thinking “Am I financially illiterate”?

The Financial System Here is Complicated

Let me reassure you. The survey measured basic concepts. I tried a few sample questions and indeed, the concepts were very basic. The financial system here is likely far more complicated that what you had in your birth country. So if you can even begin to understand the Israeli financial system, you are ahead of the game and would likely have done well in this survey.
That said, even native Israelis have trouble understanding how the system here works. Tax laws are complicated, and don’t get me started on pension rules, which seem to undergo radical changes annually. Just when you think you are beginning to understand, they change the rules of the game.

Foreign Citizenship Makes It Even More Complicated

It gets worse when you add another citizenship to the pot, especially US citizenship. Many people in Israel once craved US citizenship, now record numbers are giving up their US citizenship. Why? Well, unlike just about any other Western country in the world, the US taxes citizens who reside abroad. It results in onerous reporting. Not only that, a US citizen who invests in a non-US mutual fund, ETF or other types of foreign investments is subject to PFIC reporting taxation, which in some cases can exceed 100% of the profit! I cannot tell you how many of my US clients had PFICs in their portfolio when they came to me. If you have an investment account with an Israeli brokerage, the odds are you have PFICs as well. Caveat Emptor!

You Can’t Understand Everything

On the other hand, some people really believe they understand the financial system here. They think they understand everything there is to know and don’t need any assistance whatsoever. I have a client who thinks he knows everything there is to know, which leads me to believe that he only hires me to prevent him from making all the mistakes he would have made without me.

Professional Advice Can Save You Lots of Money and Aggravation

I bet some of you are DIYers (Do It Your Selfers). You try to manage everything on your own. For less complicated finances, that is fine and it can be a great way to learn the system without causing too much damage. However, for those of you who are older, with pension funds, investment accounts and the like, keeping your finances in order can be a daunting task. Do you really understand what your retirement benefits will be? Are you in the best possible investment vehicles to maximize your retirement pension? Is your portfolio appropriate for your lifestyle and risk appetite? I’ll bet that many of you will answer “I don’t know.” Even people who are in the financial services business cannot manage everything on their own. My firm’s clients include a senior executive of one of the major Israeli banks, and a very senior executive at a foreign bank that has a branch in Israel. If they don’t think they can do it alone, why should you?

The above information is not intended to be, and does not constitute, financial advice or any other advice. It is general in nature and not specific to you. Before using this information to make an investment decision, you should seek the advice of a qualified investment advisor and undertake your own due diligence.

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