RESEARCH STUDY FINDS SINGAPOREANS POOR MONEY MANAGERS
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Source: OCBC Media Release
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Independent research commissioned by OCBC Bank to better understand the money management habits of locals shows that Singaporeans have little
invested, not enough assets and may face financial problems in retirement
Singapore, 18 July 2005 – OCBC Bank announces today that an independent study by a leading group of Singapore Management University (SMU) professors has unveiled further insights into the money management habits of the average man-inthe-street Singaporean.
Key findings reveal that Singaporeans are generally poor money managers who invest too little too late. Many only start to save when they are married. Most are illprepared for retirement. Apart from their CPF balances, the average person has little invested, with liquid and assets invested averaging just S$60,000 at age 55. Yet many expect to retire with an average monthly income of S$1,800.
In addition, many Singaporeans are overly dependent on earned income as their main source of wealth accumulation. Amongst those that may face financial problems, those who earn less than S$3,000 per month are the most vulnerable. “This is the first comprehensive study conducted in Singapore that specifically seeks to understand the money management behaviour of Singaporeans in the various life stages,” said Practice Professor Francis Koh, Associate Dean of SMU’s Lee Kong Chian School of Business and Director, MSc in Wealth Management Program.
Through this study, it has become clear that what Singaporeans really need is basic money management skills and to learn to be more proactive in managing their finances. “What started out as a simple exercise for us to understand the average Singaporean better has thrown up some interesting, if not alarming, insights where money management is concerned,” said Mr Nicholas Tan, Head Wealth Management, OCBC Bank. -
The Findings
Among the many findings provided by the in-depth study were some key insights that showed a worrying trend.
1. Singaporeans are ill prepared for retirement
The study found that 74% of Singaporeans wish to retire before the current
mandatory retirement age of 62; however most of them are ill-prepared for their golden years. Whilst 90% are not content to spend $700 or less per month during their retirement years, many do not have enough in their CPF to supplement additional monthly allowances.
“As CPF savings are unlikely to be sufficient for retirement, it’s critical that
Singaporeans save and invest actively during their working years. Yet our study shows that Singaporeans are poor money managers. They invest too little and too late to be able to enjoy quality retirement. In fact, we found that many who are aged 55 only have S$40,000 in liquid assets and S$20,000 in invested assets to help fund their retirement. This is insufficient,” said Practice Professor Koh.
2. Singaporeans are poor money managers
Singaporeans are poor money managers and are overly dependent on their earned income as the main source of wealth accumulation. Most tend to invest only when they start a family and are in their 30s. The average amount that Singaporeans across all age groups have in liquid assets (savings, current accounts and fixed deposits) is only about S$30,000.
3. Majority of Singaporeans not prepared for structural unemployment
Singaporeans are not well prepared for structural unemployment. Statistics from the Labour Market show that 41% of retrenched workers remained un-employed after six months. Professor Koh added, "Our survey shows that the median Expense Coverage Ratio was only 5.24 months. Thus, four in ten Singaporeans would face financial difficulties if they are retrenched. We also found that about 16% of individuals had less than one month coverage, which is really not satisfactory. They will encounter immediate problems upon retrenchment and may have to borrow to meet immediate cash flow needs.”
4. Group most likely to face financial problems are those earning less than
S$3,000 per month
Singaporeans who are most likely to face financial problems are those earning less than S$3,000 per month. This is because they are vulnerable to structural
unemployment, and are overly conservative in their investments.
In addition, these individuals are not willing to take risks to grow their savings. They are also not willing to pay fees for quality financial advice. This implies that Singaporeans who are earning S$3,000 and below are not likely to invest unless their money is guaranteed or their investments yield guaranteed returns or have good performance records.
As the average wage of a Singaporean in 2004 was S$3,329, this means that the majority of the population is vulnerable to financial problems in times of structural unemployment. At the same time, they are not investing their savings in the most effective way to grow them.
“Our survey shows that this income group has relatively low savings with an average savings balance of S$14,000. And, more than 37% do not have regular savings on a monthly basis and about 60% have an expense coverage ratio of less than six months to cover their needs,” shared Professor Koh. “What this means is that this group is more likely to suffer in the long run when faced with structural unemployment. Their investments would not generate sufficient returns and they have minimal savings to cover their needs.” Source of Average Wage: Ministry of Manpower
5. Commonly used financial ratios may not be accurate
Singaporeans may seem financially healthy based on financial ratios often cited by financial planners. However these ratios are based on US data and may not be relevant to Singaporeans. For example, in the Singapore context, the current savings ratio of 12% has resulted in an expense coverage ratio of 5.2 months which many may find inadequate when unemployment occurs. -
Solutions?
Mr Nicholas Tan, Head Wealth Management, OCBC Bank, suggest a few basic principles that Singaporeans can follow to circumvent future financial problems.
Principle number 1:
Save and invest early; because the power of compounding really takes hold only after a period of time. The key is to start early even if it means that your annuity sums may be small in the beginning.
Principle number 2:
It all starts with basic money management. Wealth management is not just for the wealthy; it is for everybody. “Before you do anything, you have to ensure your financial health is fine. You need to have someone explain and recommend the best solutions. This is similar to going to a doctor for a medical check-up and getting the doctor to explain what the symptoms mean and the necessary remedial actions to address possible warning signs,” said Mr Tan.
Principle number 3:
It is never too late to start. “Doing nothing is not an option,” added Mr Tan. “If a person continues to do nothing, then he would end up with nothing. But if he starts something small, like a monthly savings plan with whatever he can spare, there will be something at the end.”
Ultimately, to follow the three principles requires tremendous discipline not just on the part of the customer, but also on the part of the Bank. “Whilst the study validates our philosophy of developing products to meet real needs, it also means that we have to offer more effective solutions that will help the average Singaporean manage his money better,” shared Mr Tan.
“Firstly, we provide discipline to customers through our product solutions. Good examples being our monthly savings plan and regular premium insurance plans.
Secondly, discipline underlies customer advice to ensure needs and risk appetites are met. We are re-visiting our customer engagement process, equipping our people with enhanced skills sets and upgrading our WealthMap™ system to provide more customised solutions.”
“These improvements will be gradually implemented. We recognise that we cannot do this overnight. We hope that our customers will start to take small steps with us to start their financial journey and to adjust their expectations to match their needs. For example, don’t be frightened off by the large sums that others say you’ll need in your retirement years. You can retire on smaller, more realistic and achievable sums if you wish. It is a matter of discipline and adjustment.” -
Hence, we should give all our $$$ to banks for them to 'invest' for us is it?
Banks take our money and spend it and charge us a fee. Still call it investment. Fuck OCBC! -
cool it man.. To each his own.
Nobody asking you to spend money wor.. If you dun want to invest with OCBC, there's nothing anyone can do about it.
Anyway, they spend money doing research, it's only right that they get to advertise their services a little.
The main aim of putting up this article is to highlight that many Singaporean are not prepared for retirement and retrenchment, which is also what i observed. -
Who ask you to pass your money to bank and ask them to invest for you?Originally posted by yuppy4life:Hence, we should give all our $$$ to banks for them to 'invest' for us is it?
Banks take our money and spend it and charge us a fee. Still call it investment. Fuck OCBC!
Never trust your money with anybody but yourself. Btw, OCBC is a good stock to buy if you want something that gives you good dividends. 