The year 2020 has been an exceptionally difficult year for most people because of COVID-19. With governments around the world still trying to control the outbreak, the global economy is now at a standstill.
Not surprisingly, the virus has impacted most businesses in Singapore, and many Singapore workers are now finding themselves in an uncomfortable financial situation. Earlier this week, OCBC released some insights it learnt based on a Financial Impact Survey for COVID-19 done with 1,000 Singapore and PR working adults between the ages of 21 and 65, across different age groups and income levels to represent the Singapore population.
The survey was conducted in mid-May, about 1.5 months into the circuit breaker.
One thing that stood out is that nearly half (47%) of those surveyed have experienced a dip in their income, such as through wage cuts, being forced to take no-pay leave or a reduction in commission earnings. A similar proportion (46%) are also worried about losing their jobs despite extensive government support.
Here are 5 financial gaps that Singapore workers are discovering due to COVID-19.
#1 Lack Of Emergency Savings
The first financial goal that anyone entering the working world should work towards is having at least 6 to 9 months of average monthly expenses in emergency savings. Having an emergency fund is a crucial prerequisite before investing or even getting insurance policies that you have to pay in cash.
Unfortunately, the OCBC survey revealed that only 30% can sustain themselves for more than 6 months if they were to lose their job now. 18% admitted that they have enough savings to cover only up to one month of expenses. This does not bode well for their financial security.
The idea here is simple. If an unexpected event happens (e.g. loss of job, unexpected bill), you can then tap on your savings, rather than be forced to sell off your investments, surrender your insurance policies or borrow to cover your short-term expenses.
#2 Inability To Save More
One of the lessons that many of us are learning during this pandemic is the importance of savings. However, while it’s easy to admit that saving is important, putting this knowledge into practice is a lot harder.
In the survey, 55% of respondents said they had reduced their savings over the past months. We suspect this is because many respondents would have suffered a reduction in their income, making it hard to save more during this period if their expenses remain the same.
Like how people in the past used to stock up food in preparation for the long winters, we also need to focus on saving more during periods where we have excess funds, so that this can compensate us during the period when we do not have enough.
#3 Insurance Worries
Insurance is one of those things that most people don’t think about – until it’s too late. However, if you already agree that you may lack sufficient insurance coverage, even without needing a financial adviser telling you so, then chances are that you are likely to be correct.
According to OCBC, 41% of respondents are worried about having enough insurance coverage, with 47% of Singaporeans aged between 40 and 54 being the most concerned.
It’s hard to say if this worry for lack of insurance coverage is related to the current pandemic that has caused many of us to ask ourselves what would happen if we fell sick. But suffice to say, if you are worried about gaps in your insurance coverage, it’s worth having a review with your financial adviser, which can be done safely via a video call.
#4 Investing Lesser
Investing during a recession may seem counter-intuitive, given the uncertainty surrounding the financial markets. Still, it’s important to remember that investing during market downturns could be the best way to build long-term wealth.
Unfortunately, but perhaps not surprisingly, among those who have invested, 40% have said that they intend to reduce their investments. 9% even admitted that they would be liquidating some of their investments during this period.
While pausing our investments during this period may be a simple solution to increase our cash flow, it’s important to remember that doing so may also impact our long-term investment goals, including our retirement plans.
#5 Pausing Our Retirement Plan
Retirement may not be the first thing most people think about when they are still working, but it’s a part of our finance plans that we cannot afford to ignore. Like it or not, there will come a day when we are no longer able to work, even if we want to. Our retirement planning doesn’t stop just because of a recession.
Unfortunately, for many Singapore workers, it’s hard to continue investing for the future during the current climate. 27% of those with financial plans said they have stopped setting aside or even reduced their funds for retirement. A third (32%) of the sandwiched generation – those between the ages of 40 and 54 and many of whom must take care of both young children and aging parents – said they have cut down on such funds.
Short-Term Decisions Can Have Long Lasting Impact
It goes without saying that for most of us, getting through this difficult COVID-19 period is the immediate priority in our minds.
At the same time, it’s easy to make ‘bad’ financial decisions during a crisis, when emotions can quickly take over rational financial decisions. If these ‘bad’ financial decisions only affect us in the short-term, that’s not a huge concern.
However, the problem is that many of these ‘bad’ financial decisions can impact us in the long term and affect our long-term financial health. Similarly, good financial decisions made during the crisis can also go a long way in helping us build up our financial well-being. So even as we strive to overcome this difficult period, let us continue to make sound financial decisions for ourselves and our families.