DISCERNIBLE megatrends are afoot; they will alter the way you view your career, spend your money and live your life!
There’s an increasing realisation that AI (Artificial Intelligence) will eliminate more and more human jobs in the decades ahead. The reported estimate that India may lose between 30 per cent and 40 per cent of annually created manufacturing jobs this year, as compared to 2016, is terrifying. Predictably that dip in new jobs for people is largely attributed to the increased usage of uncomplaining robots in factories.
Similar changes are taking root elsewhere. They are a compelling reason why President Donald Trump will face an uphill task bringing back as many manufacturing jobs to the shores of the United States as he would want.
We all know his intention is to “Make America Great Again”! Well, Trump’s tiresome (to me, at least) mantra will be even more difficult to realise because of US’s slide in numbers of American STEM (science, technology, engineering and mathematics) graduates. But that isn’t Trump’s fault.
THE RISE OF AI
In 2013 during President Barack Obama’s second term, not far from the White House, researchers at Washington DC’s Georgetown University’s Centre on Education and the Workforce pointed out in a comprehensive study that: “Jobs will return, but not everyone will be ready for them.”
The slide in American high school scholastic standards has been documented over several decades. In the latest PISA (Programme for International Student Assessment) rankings (2015), it was reported that of the 35-member nations of the OECD (Organisation for Economic Cooperation and Development) the US ranked 19th in science and an abysmal 30th in mathematics!
Here in Malaysia, we face our own challenges. For instance, our world-class rubber glove manufacturers are responding to the challenge of rising costs in Malaysia by increasing automation. The net effect will be to reduce the number of lower skilled foreign and domestic workers needed in that sector.
The continued rise of the robots will increase the need for STEM practitioners including roboticists, design engineers and servicing engineers. Unfortunately, despite laudable initiatives by the Malaysian government to raise the level of creativity among our children dating back to 1994, the actual ongoing focus on rote learning in our classrooms is inhibiting the creativity of many Malaysian school leavers and university graduates.
From a financial planning perspective this has two huge effects on Malaysian parents and their children:
1.Parents must sacrifice an increasing fraction of their potential retirement savings to educate their children at home and abroad, to elevate their creativity and STEM competencies.
2.Today’s kids must brace themselves to eventually compete for fewer but higher paid creative and STEM-related jobs focused on nurturing AI-driven innovation.
A DIFFERENT AI TO WATCH OUT FOR
When we take a cold, hard look at those trends and at the jobs that exist today and new ones that are likely to materialise tomorrow, we realise a great deal of attention must be given by Malaysians to a different type of AI: Active Income!
With the rate of change in countless spheres accelerating around us, it’s comforting to note that one unchanging mathematical relationship provides us with a touchstone or standard for planning our future finances.
This is tied to the 35- to 45-year active working careers many Malaysians aspire to secure and enjoy to pay for both today’s and tomorrow’s expenses. That touchstone for analysis is our present and future Active Income to Passive Income (AI:PI) ratio.
Unlike the ceaseless renewal of Artificial Intelligence-driven machines that grow more capable with every fresh iteration (translation: each new machine generation), we human beings face a finite number of active working decades. However, medical advances involving gene therapy and improved legal drugs will in all likelihood continue to push out our aggregated average lifespans to our late 80s, 90s and beyond. We will live way longer in retirement!
In order to thrive (and not merely survive) in those cherished golden decades after our active working years cease, we must establish replacement streams of Passive Income.
Passive Income, which I abbreviate to PI when explaining the concept to my clients, most commonly comes in the form of interest, dividends, distributions and rental inflows. Next week I will take a close look at suggested target ratios of a wise person’s Active Income (AI) to his or her gradually built up Passive Income (PI) to increase the likelihood of achieving personal financial freedom.
For now, I suggest you utilise this coming week to scrutinise your present AI to PI (AI:PI) ratio.
The calculation is simple and readily illustrated through hypothetical
If you currently actively earn RM3,000 a month (or a week or a day) and passively see cash inflows over that same period of RM30 now, and if you have a projected
AI of RM6,000 and PI of RM600 in 10
years, then you can see how your AI:PI ratio will shift over the next decade from 3,000:30 (= 100:1) in 2017 to 6,000:600 (= 10:1) in 2027.
Your goal should be to lower your ratio to as close to 1:1 as possible throughout your working life. So crunch your numbers this week; then check back with me here next Sunday as we delve deeper into the financial planning intricacies of your own AI:PI ratio.
© 2017 Rajen Devadason