Atomic Habits is the story of a British cycling team and the 1% Law of Change. About the fact that small changes in the short term can change the trajectory of the march, and become the cause of huge changes in the long term. This can also be attributed to the investment culture, which in Latvia is still only at the stage of formation. Various small and larger steps had managed to move it, but decisions of seemingly small impact can also stifle it in the long run. One such factor is the tax framework and its planned changes.
What is investment culture and why is it important?
Why should it be necessary to think about it, also when making political decisions in the future? Because investments are essential for personal financial stability, which in turn is the foundation of a prosperous society. Investments provide an opportunity to earn additional income, provide for old age and gain financial freedom. Citizens’ investments can contribute to the development of Latvia’s economy – not only through greater and “healthier” consumption, but through investments in securities and savings bonds of Baltic companies. The development of the Latvian capital market is also among the goals adopted by the government last year.
The positive impact of investments is multifaceted, for example also in the field of sustainability, which will only become more relevant. Sustainable investment can provide a very practical way to make the world a better place, both in terms of climate change and social change. By choosing sustainable investments, you can achieve even a much greater final impact than with daily “sustainability hygiene” steps such as limiting water consumption, etc.
The financial sector, including Swedbank, works a lot to promote knowledge about investments. Investment culture has developed significantly in recent years: according to “Swedbank” data, the total number of investors, or clients who have a security in their account, has increased by more than 50% in two years. At the same time, this year’s study of “Swedbank’s Financial Health Index” shows that Latvian society still needs to significantly strengthen its financial stability. For example, personal finances in general are completely unprotected or insufficiently protected for almost two-thirds of the population of Latvia (64%).
Measures promoting investment culture
The experience of the world and our own shows that the investment culture in the country is influenced by the level of income and education of the society, the availability and convenience of making investments, as well as the amount of taxes applicable to investments and the convenience of declaring and paying them. The tax framework is one of the factors where even seemingly small decisions can have a very significant impact on the development of the investment culture – building it up or destroying it.
Several things can be mentioned that have significantly contributed to the development of investments. At the national level, it is an opportunity to recover personal income tax (IIN) for contributions to pension level 3 and accumulative insurance solutions. Likewise, the type of investment account has significantly improved the convenience and efficiency of declaring and paying taxes. Private initiatives also contribute to the increase of Artava’s investment activity. For example, on behalf of “Swedbank” a year and a half ago, we started offering the holding of Baltic securities completely free of charge, which greatly increased interest in the purchase of Baltic shares, allowing private individuals to invest more in the Latvian economy.
For people, especially those who are just starting to invest or thinking about it, it is important to be not only profitable, but also convenient. Therefore, new simple and convenient solutions also contribute to the growth of investment activity. Among them are the Robur investment funds offered by “Swedbank”, in which you can invest from 1 euro and do it also in the mobile app, moreover, their purchase, sale and holding are free.
Upcoming tax changes and investments
Investors will be affected by the planned increase of IIN (capital tax), as well as the much louder decision to reduce contribution pension in the 2nd level. Changes in IIN are based on an important goal – to reduce social inequality. The goal is good and necessary, but it is also important to be aware of the side effects of such decisions, and one of them is that the various initiatives of the moment once again cause the relatively fragile foundation of investor culture to falter.
For example, the reality of the 2nd level of pension contributions will decrease by almost a fifth (or 17%). A very negative signal is given to current taxpayers and future pension savers, and their future capital is also tangibly affected. At one time, Estonia went even further in the 2nd level of pensions, allowing people to withdraw it – and got badly burned, because a large part of the withdrawn future capital went into daily consumption. Which may boost economic performance in the short term, but in the long term puts a much greater burden on the country, especially considering demographic trends.
In turn, the increase in VAT will also apply to capital growth, interest payments, dividends. In accordance with the planned changes, the withholding tax rate will increase by a fourth, or from 20% to 25.5%. In addition, it is planned to introduce a new additional tax of 3% if the total taxable annual income exceeds 200 thousand euros. Another news for investors will be that the annual capital gain clarification declaration will have to be submitted by February 1 of the post-tax year (instead of March 1).
Perhaps when thinking about improving the payroll tax system, one doesn’t think about how it will affect our own saving and investing culture. When studying the initiatives of other countries to promote the culture of investment, one of them can be highlighted as the idea that up to a certain profit a person would not have to declare taxes at all, as is the case, for example, in the United Kingdom. Similarly, “user experience” is very important in forming habits, but the planned changes unfortunately make tax declaration even more complicated.
What should an investor do?
From the point of view of practical steps, first of all, you will have to either start or continue to take even more care of your savings and investments, including by making regular contributions and investments with a long-term perspective. The range of investment products available on the market is wide enough to find the most suitable ones, starting from the already mentioned third pension level to investment funds and individual shares.
Secondly, if you plan to invest in the near future, evaluate solutions where the effect of taxes paid is smaller.
Also, remember that with the increase in VAT, the amount of recoverable taxes for contributions to the third level of pensions and accumulating life insurance increases, because instead of 20% refunds, we will be able to recover 25.5%. This greater benefit can in turn be channeled into additional investments for your future financial stability.
Thirdly, it is definitely not recommended for existing investors to decide to sell their investments this year just to avoid a higher tax, but to evaluate whether selling now would really be the best decision. Investments have a long-term perspective, so the golden rule of regularly investing in the financial markets to achieve the best possible result still applies. In addition, in the case of an investment account, tax must be paid at the time when an amount greater than the amount deposited is withdrawn from it, regardless of the period in which these contributions are made. Accordingly, the sale of the investment, if it is not necessary for some reason right now, and therefore the payment of taxes can be postponed until the time when the tax system may change again.
In conclusion, I do not support the above government decisions in terms of how they may affect the investment culture. The public and financial experts have quite directly and loudly expressed their opinion about the changes in the 2nd level of pensions. There is less public talk about the impact of changes in the IIN on investments at the moment, but here too the impact can be quite negative. All in all, this means that we must increasingly take care of our own investments, and the importance of financial education becomes even more important. For our part, we will continue to educate clients and the public about both financial health and investing as an integral part of it. On the other hand, state decision-makers, when thinking about future tax changes, should take into account all affected areas – how it will affect society not only in the near term, but in the long term. Or at least in the medium term.
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Alright, let’s delve into this with a mix of cheek, charm, and a smattering of cynicism, shall we?
Welcome to the bizarre, yet fascinating world of investment culture in Latvia!
Now, if you’re anything like me, the phrase “investment culture” might roll off the tongue like porridge gone cold. But beneath that starchy exterior lies the juicy heart of personal finance, societal prosperity, and perhaps the foundation of our future spa days—if only we can get our acts together before we’re devoured by inflation, tax changes, and the next big financial blunder!
What on Earth is Investment Culture and Why Should We Care?
Investment culture, my friends, is the clinking cocktail shaker of financial stability, the seed that sprouts into a garden of wealth—or it might turn out to be those pesky weeds that choke the life outta everything else. The essence of this concept is that without investments, we’re all just metaphorical hamsters on a wheel. Scurrying around in circles that lead to nowhere fast! And here’s the kicker: Latvia’s budding investment culture still needs some love! Think of it as cultivating your allotment; it takes time, effort, and a pinch of fertilizer—or in this case, proper tax frameworks and educated citizens.
So, why bother? Well, investments provide that sweet, sweet financial freedom to not only keep the pantry stocked but also fund our retirement dreams of endless holidaying on exotic beaches—possibly sipping imported piña coladas. Who wouldn’t want that, right?
Strutting Down the Investment Culture Catwalk
Now, the entire investment culture has shown signs of growth, or at least it’s trying. According to Swedbank, the crowd of investors has swelled by over 50% in the last couple of years. That’s right, folks, it’s like a concert for personal finance enthusiasts! But hold your applause—while some are jamming out, two-thirds of our beloved Latvians are still a stone’s throw from personal financial protection. It’s like having a rocking party in a house with no roof!
Bloody Tax Changes: The Uninvited Guests
Ah, the good old tax system, the ever-present rain cloud looming over our sunny investment prospects. Like a spoilsport at a party, it tends to ruin the mood. Once we start discussing the planned increases in capital tax and the decrease in pension contributions, one can only imagine the metaphorical pencils being sharpened to write the next chapter of ‘The Disappearing Investment Culture’!
The government aims to reduce social inequality—good on them! But let’s not kid ourselves: sometimes good intentions pave the way to financial hell. Just ask Estonia about their second-level pensions—what was once promising now stands as a ghost story for future investors!
What Should We Do with Our Hard-Earned Cash?
Enough doom and gloom! If you’re newly initiated into the investment world, now’s a magnificent time to secure your financial future! **Tip one**: Keep those savings accounts polished and make your investments with a long view—Rome wasn’t built in a day, and neither should your portfolio! **Tip two**: Look for tax-friendly avenues. Remember, just because they’ve yanked your favorite beverage from the menu, it doesn’t mean you can’t explore the mocktail section!
Even better, be on the lookout for increased VAT benefits! Yes, your tax refunds could soon wear a shiny new coat, potentially resolving to invest more in your future self—always a wise decision!
And now, for the pièce de résistance: **don’t sell out** your investments just because the taxman has suddenly gotten a little too cozy with your profits. We all know that investing is a marathon—not a sprint—so don’t let a few bumps in the road make you toss your metaphorical trainers in the bin!
The Final Word: Keep Your Mind Open!
In summary, while the government may symbolize shiny new tax burdens, one must remember that our financial education and habits need nurturing—much like a houseplant, but hopefully less prone to dying at the hands of neglect! We have to advocate for ourselves and fight for policies that don’t turn our dreams into nightmares. With a bit of foresight, we can mold our financial future into something far more rewarding.
So, gear up, Latvia! Let’s continue pushing for investment culture while navigating this rollercoaster of taxes and regulations!
And as always, if things get tough, remember to reach out for help! Financial advisors and institutions are there to grease the wheels of your investment journey—much like the oil-run machines of the British cycling team, who’ve ultimately proven that it’s those 1% changes that lead to towering success!
Atomic Habits narrates the transformative journey of a British cycling team, emphasizing the profound impact of the 1% Law of Change. This concept illustrates how minor adjustments in the short term can significantly alter the long-term trajectory, potentially leading to monumental transformations in various sectors, including investment culture. In Latvia, however, the investment terrain remains in its nascent stages, with small yet crucial steps taken to foster progress. Nevertheless, seemingly minor decisions, such as changes to the tax framework, can either propel this growth or hinder it for years to come.
What is investment culture and why is it important?
Investment culture is crucial, as it underpins personal financial stability, which is integral to a thriving society. As individuals invest, they not only create opportunities for additional income but also secure their futures and achieve financial independence. Furthermore, when citizens engage in meaningful investments—be it through stocks or savings bonds of Baltic companies—they directly contribute to Latvia’s economic development. Last year, the government committed to advancing the capital market in the country, recognizing its pivotal role in economic growth.
The multifaceted benefits of investments extend to sustainability, an increasingly critical focus area. Sustainable investments not only address pressing climate issues but also promote social changes. By opting for sustainable financial avenues, individuals can achieve a greater overall impact than by merely adopting everyday good practices, such as conserving water.
Swedbank is actively working to elevate financial literacy regarding investments, revealing a notable increase of over 50% in the total number of investors within the last two years according to their data. However, the recent findings from Swedbank’s Financial Health Index underscore a concerning truth: nearly two-thirds of Latvians (64%) remain inadequately protected in terms of personal finances.
Measures promoting investment culture
The investment culture’s development within any country is strongly influenced by various factors, including societal income levels, educational attainment, and the ease of accessing investment opportunities. Tax policies play a critical role; even minor alterations can significantly strengthen or undermine the foundation of investment culture in Latvia.
National initiatives have substantially bolstered investment growth, including the recovery of personal income tax (IIN) for third-level pension contributions and accumulative insurance solutions. Additionally, the introduction of user-friendly investment accounts has streamlined tax declaration processes, enhancing overall investment efficiency. Private sector efforts, such as Swedbank’s year-and-a-half-old initiative to allow free holding of Baltic securities, have markedly increased interest in local shares, further boosting investments in Latvia’s economy.
For novice investors, simplicity and convenience matter greatly. Innovative financial solutions, like the Robur investment funds from Swedbank, empower individuals to invest as little as 1 euro through mobile apps, with zero fees for transactions, thereby facilitating their entry into the investment landscape.
Upcoming tax changes and investments
Investors are bracing for significant impacts from the anticipated increase in IIN (capital tax) and the major decision to reduce second-level pension contributions. While the aim of these changes is to address social inequality, the potential ramifications on investor culture must be carefully considered.
The planned adjustments will reduce the second-level pension contributions by almost 17%, sending discouraging signals to present taxpayers and future pension contributors, ultimately jeopardizing their financial futures. Historical precedents, such as Estonia allowing withdrawals from second-level pensions, serve as cautionary tales, revealing how immediate fiscal gains can lead to detrimental long-term consequences, especially against the backdrop of demographic shifts.
Additionally, introducing a 25.5% increase in the withholding tax for capital growth, alongside a new 3% tax for high earners exceeding 200,000 euros in annual income, will further strain investors. Changes to the annual capital gain declaration date, now due by February 1 of the following tax year, complicate the landscape even more.
Thoughtful consideration of payroll tax system reforms is essential, as these decisions will invariably shape the saving and investment culture. The successful promotion of investment culture in other countries, such as tax-free profits in the UK, demonstrates the importance of a user-friendly experience in fostering investment habits. Unfortunately, the upcoming changes threaten to complicate tax obligations further.
What should an investor do?
In light of the evolving tax landscape, it is crucial to prioritize your savings and investment strategies by committing to regular contributions and a long-term mindset. With a diverse array of investment options available—spanning third-level pension plans to investment funds and individual stocks—individuals can strategically select offerings that align with their financial aspirations.
Additionally, prospective investors should explore avenues that minimize tax implications. As VAT increases, so does the recoverable tax amount for third-level pension contributions and accumulating life insurance, enhancing the benefits they can reinvest for better financial security.
Finally, current investors should avoid impulsively selling their investments to dodge higher taxes. Evaluating the rationale behind potential sales is crucial, as investments are inherently designed for the long term. With investment accounts, taxes are only incurred when withdrawing amounts exceeding initial deposits, allowing flexibility to delay sales until more advantageous circumstances arise.
In conclusion, I oppose government decisions that jeopardize the investment culture, especially concerning pension changes. While public discourse may not yet fully address the potential negative impacts of IIN alterations on investment strategies, these developments warrant attention. The onus is on individuals to actively manage their investments, underscoring the necessity of financial education. As a partner in this endeavor, we will persist in empowering clients and the public about maintaining financial health and recognizing investing as a crucial component of that journey. Moreover, policymakers must consider the broader implications of future tax reforms on society across both short- and long-term perspectives.
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Questions to ask your financial advisor about your portfolio PDF
Vestors should remain informed and engaged with changes in the tax code, keeping an eye on how these alterations may affect their portfolios. It’s essential to consult financial advisors who can offer tailored advice based on individual financial goals and circumstances. Developing a robust investment strategy that accommodates tax considerations can lead to more stable growth and minimize the impact of regulatory changes.
Moreover, staying active in personal finance education through workshops, community programs, or online platforms can also enhance one’s investment acumen. With changes looming, being equipped with knowledge will empower individuals to make sound decisions in a dynamic environment.
Lastly, approaching investment with a resilient mindset is crucial. Economic climates fluctuate, taxes shift, and markets change, but a well-thought-out plan remains a vital tool for navigating the ups and downs. Embracing the journey with patience and discipline will significantly enhance the likelihood of achieving financial independence.
as we consider the state of investment culture in Latvia and the impacts of upcoming tax changes, it’s vital to foster a proactive attitude toward investments. By prioritizing financial literacy, seeking guidance, and maintaining a long-term view, individuals can contribute to a stronger investment culture and safeguard their financial futures amid uncertainty.