Not all incentives work

By Randell Tiongson on July 21st, 2009

Note: This article originally appeared in my column at the Business Mirror, 07.20.2009

I was reading an article in Bloomberg that China’s foreign-exchange reserves now  exceed $2 trillion. It seems that China is on a roll and that they were right on the money with their stimulus package.

The Shanghai Composite Index, the world’s second-best performer, surged 75 percent this year as “hot money” is making a comeback to China, with a vengeance. It is no secret that China has the strongest prospects among all major economies, and the renewed confidence in China’s economy has pushed stocks and property prices up. All economic indicators are very encouraging for China—foreign direct investments (FDI), trade surplus, reserves, etc. The Bloomberg article further reported that “speculators are favoring China because the government’s stimulus package is working quite well, which will help the country to be the first to recover globally.” It is believed by many that China will be the first economy to recover from the global economic recession. At an economic growth of 7.8 percent in the second quarter, that’s definitely a rebound.

While China’s stimulus efforts paved way for positive results, the same can’t really be said of the United States. While it’s really not fair to say that it has not worked, it is pretty obvious that it will take a longer time for the United States to recover. While China has already registered a very good growth rate (despite the global economic condition), it looks like it will take the United States a longer time to recover. Of course, there is no doubt the American economy will recover; the question is when.

While both governments have adopted very generous stimulus programs for their economies, the results were not the same. China focused its stimulus packages in ensuring that its industries continue to run and push for productivity. The United States spent a great deal of the programs to aid failing corporate giants with management problems. Only time will tell if the Americans had a better program than the Chinese.

But one thing we can say right now is that not all incentives work.

In personal finance, we always try to do things that we hope would result in a better financial situation—things like reduced spending and increased savings. These may be simple goals but they remain elusive to many of us. Sometimes, we often “incentivize” our actions so that we can achieve our goals.

The biggest incentive I can think of is financial security. We all dream of a secure financial future and we all look forward to the day when we experience financial freedom. I believe that it is a good incentive for us and it works for some, but unfortunately not for most. It’s like giving our kids incentive to behave they way we want them to; it’s often a “hit and miss” thing.

For an incentive to work, you must have a purpose, a goal; find the reason God placed you here. That is the incentive that would really work.

“Many are the plans in a man’s heart, but it is the Lord’s purpose that prevails” (Proverbs 19:21, NIV).

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Randell Tiongson is a personal-finance coach and educator. He is a director of the Registered Financial Planner Institute (Phils.) and has over 20 years’ experience in the financial-services industry. He is also the cofounder of http://www.income-tacts.com, the country’s premier personal-finance on-line community. For speaking engagements, training and consultancy, send an e-mail to [email protected]. To read his personal-finance blogs, visit http://www.randelltiongson.com/


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Not all incentives work