An employment bond represents a long and serious commitment. Ask yourself these 4 questions before signing up for one.
Many companies agree to pay for their young employee’s education, as it improves their own talent pool. But while the offer is tempting, it comes with many strings attached. A common one is a bond, in which you must agree to work for the company for a number of years. Before you accept it, here’s what to consider.
First, Know Your Alternatives
There are many ways to pay for your education, besides accepting a bond. Make sure you understand your options, before signing anything.
Singaporeans can use the CPF Education Scheme, in which they access their parents’ CPF savings to pay for their education. It can cover the entire cost of education, with a loan tenure of 12 years. Furthermore, repayment only starts a year after graduation, so you’ll have time to find a job and start repaying mom and dad. The interest rate is a low 2.5 per cent per annum.
Alternatively, many banks offer education loans as well. A bank loan can cover 90 per cent of your education costs, with a loan tenure of up to 20 years. You can wait up to two years before starting repayment, and the loan is interest free until you graduate (the interest rate depends on which bank you use).
Both these options give you long loan tenures, and they don’t require you to pay a single dollar until you’ve finished school. So think about them before accepting any bonds.
If you’re still considering the bond, ask the following questions:
- What is the Route of Advancement (ROA) provided by the company?
- What are the consequences of breaking the bond?
- Are you acting on blind certainty?
- Are you prepared to stick it out if the company changes?
Q1. What is the Route of Advancement (ROA) Provided by the Company?
If the company is paying for your education, they must have great things in store for you right? Not necessarily.
Sometimes, companies are known to “trap” employees in a specific position, precisely because they paid to develop a narrow specialty. For example, if a company pays for you to become a qualified welder, there’s a real risk you have no shot at higher positions, such as management.
After all, the company paid to develop that narrow skill set, so you could do one specific thing. And if you’re good at it, they don’t want to lose your expertise by promoting you. An old saying goes: “if you don’t want the lousy jobs, don’t be so good at doing them”.
Check your employer’s ROA for your career, if you don’t want to be stuck in the same position (and at the same wage level) for the next five, six, or even 12 years in which you’re bonded.
Even then, be wary if your field of study is highly specialised. Companies can go back on their word, regarding your ROA; and a narrow field of expertise makes you hard to replace, as well as hard to promote.
Q2. What are the Consequences of Breaking the Bond?
When considering taking up a study bond, the guiding principle is “never say never”. You might be sure you have no intention of breaking the bond right now – but five to 12 years (the length of many bonds) is a long time.
For example, what if your parents or children become chronically ill, and you need to care for them? Your job may not allow you the time required; and it can be heartbreaking to not put family first.
People can and do break bonds, for reasons that range from marital complexities to child-rearing difficulties. Every one of those people were probably dead certain, at the time they signed, that they would “never” break their bond. Don’t assume you’re different.
Always know the exact financial cost of breaking your bond. Speak to a financial advisor, and develop a savings plan that can cope with the potential cost. If it turns out such a cost would be unbearable, then you had best consider an education loan instead.
Q3. Are You Acting on Blind Certainty?
Most fresh graduates don’t stick with their first job, throughout the rest of their lives. The first three to five years after school are partly experimental – fresh graduates move around a bit, until they find a job that suits them.
If you’re bonded, you don’t have this luxury. Do think about how old you’ll be, by the time the bond is finished – there are fewer opportunities for, say, a 35 year-old to change careers than there are for a 25- year old.
And if you do switch jobs, consider that you’ll start again at the entry level. That’s not so bad in your mid to late 20s, but it can be a serious problem in your 30s; by then, you may have a family and a mortgage to pay.
Make sure you’ve at least used internships, or taken part-time jobs, to get a feel for your intended career path. Never act on blind certainty that it’s the job for you, and bond yourself to it.
Q4. Are You Prepared to Stick it Out if the Company Changes?
You may be eager to take a bond because you’ve already worked with the company, and you feel it’s great. The group insurance is generous, the bonuses are regular, and the work culture inspires you.
But again, remember that a bond lasts a long time. A lot can change within a company, in the space of five to 12 years.
The colleagues you met during your internship may be replaced by people you can’t stand. The boss you love may be transferred to a different country. Group insurance policies can change, and even shrink if the company goes through bad times – the health benefits may fade as quickly as your bonuses.
It certainly matters if a company is a good fit for you; but never let that be the sole consideration when taking a bond from them.
Read This Next:
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.