At the beginning of brainstorming for this paper, I was thinking about to write something about Chinese pension system. But during the material collection, I found that China’s pension system and ways to achieve people’s financial goals are not well developed, we all know that the system obviously had to be changed. Starting in 1997, there was a shift of the burden of pension provisions from only the state to be shared by state, employers and employees. There was also a move from PAYGO financing to a combination of PAYGO and funded systems. Last but not least, it was expanded to include all urban workers. Furthermore, China’s financial market is an emerging market, it is still not that perfect for Chinese people to select financial instruments to design their financial plans. Meanwhile, we need time for the market and the system to be improved. Therefore, I tried to find some optimal ways that can help Chinese people to achieve financial goals and I have found a theory called “life cycle financial planning”, which is designing the financial plan by different important factors in one’s lifetime. I hope it can be helpful to Chinese people to realize the important of life planning, and both private sectors and public sectors can contribute on new methods based on this theory. From the following, I will introduce what is life cycle financial planning and the main factors in it. What is financial planning?
Financial needs continually change throughout an individual’s lifetime. However, many people are still following similar financial patterns during their life. Nevertheless, everyone has an individualized financial plan that is dependent on many different factors in an individual’s life. Financial planning is a tool used to achieve financial success based upon the development and implementation of financial goals. It is important to use financial planning to help a person avoid financial difficulties. By having well-written financial goals and implementing them into a financial plan, a person will have the means to achieve the standard of living they desire. An individual’s values, goals, personal choices, major life events, lifestyle conditions, and life cycle needs work together to determine the details of an individual’s financial plan. As these factors change, so does an individual’s financial plan. Financial planning is an ongoing process that is affected by expected as well as unexpected events. Factors that affecting financial planning:
1) Financial goals
Source: Family Economics & Financial Education, Revised May 2010, Personal Finance Unit, Life Cycle of Financial Planning, Page 2 Financial goals are specific objectives to be accomplished through financial planning. Goals should be consistent with personal values and attitudes. Financial goals should be SMART goals. 2) Lifestyle conditions
Lifestyle conditions are affected by an individual’s values, goals, personal choices, major life events, and life cycle needs. Any lifestyle condition changes may require an individual to re-evaluate their financial plan. People may change careers, start careers, or start families late in life. For example, a single 40 year-old with no children will be focusing on different financial plans than a married 40 year-old with 2 children. 3) Life Cycle Needs
Financial needs change throughout an individual’s life cycle. Specific life cycle needs are affected by an individual’s values, goals, personal choices, life events, and lifestyle conditions. However, people in certain age groups tend to have similar life cycle needs. The table below gives examples of life cycle needs (activities and events) which would require financial planning for different age groups. The following table shows different needs of Chinese people in different life times. (Red part are needs that I think we should have but we did not realized ones) High School: Ages 13-17|
* Developing a plan for eventual independence *...