The 13th Month’s Paycheck
By Carlos Eduardo de Athayde Guimarães
In Brazil, the Christmas bonus, popularly known as the 13th Paycheck, was established by Law 4090 on 7/13/1962, and ratified by Decree 57,155 on 03/11/1965 with subsequent amendments. According to the law, every employee, including those out in the countryside, working in the fields, housekeepers, and even self-employed, are entitled to a bonus equal to 1/12 of the annual salary. The good news is those who didn’t ask for an advance on that payment can, as of December 1, receive this money.
The bad news is what most Brazilians do with the 13th Paycheck. Few opt to invest this money in order to fulfill their dream for financial security in the future. In fact in 2010, less than 3 percent of the people invested this money. In my opinion this is bad financial planning. If I might make a suggestion: in spite of all the monthly living expenses, how about not spending the 13th Paycheck?
A majority of Brazilians, 57% in 2010, chose to allocate this money to pay off existing debts. The debts were primarily in the form of overdrafts and credit card debt, i.e. consumer debt.
While the statistics have improved since 2009, most people in debt are short-sighted and prefer to live in the moment, and thus they end up paying a heavier price later (including interest rates). Very few are creditors who sacrifice themselves now in order to live better later. Nature is wise in this way, as trees save nutrients in the summer to sustain them in winter, just as the human body retains nutrients in the form of fat to burn in times of scarcity, like in the movie Castaway with Tom Hanks.
The unfortunate financial reality is interest rates are high and the savings rate is low, and as long as this relationship is maintained, there will be no possibility of sustained growth for Brazilians. When anyone is fortunate enough to receive a bonus paycheck, we ought to stop and reflect, to learn more from nature. Indeed how about giving a tree for Christmas to your loved ones – plant it together and care for it until it bares fruit.
Your financial life should be no different: dream, work, save, invest, build, until dreams become reality. For this we need commitment, dedication, patience and love.
Carlos Eduardo de Athayde Guimarães has a Master’s Degree in Finance and is a professor and financial director for FESP-PR.
