Against the backdrop of a global pandemic and a contraction of Singapore’s economy, one may wonder about Singaporeans’ financial health. According to the OCBC Financial Wellness Index, Singaporeans’ financial wellness have dipped in 2020, for obvious reasons.
Last year, our writer took the test and you can watch this video to see how he scored for his financial health.
Today, we dig deeper into the OCBC Financial Wellness Index 2020 results for more insights.
Savings And Emergency Funds Are More Important Than Ever With Most Singaporeans Saving Almost 30% Of Income
With COVID-19 and a recession hanging over our heads in 2020, Singaporeans have placed an increased priority on savings and emergency funds this year. Saving regularly has improved from 87 to 92 points and this improvement is across all age groups surveyed.
Of note is the fact that people are saving for contingency (emergency funds) and retirement funds while travel/ overseas holidays have taken a backseat. With all travel restrictions and uncertain economic conditions, COVID-19 has in a way enforced better savings habits in Singaporeans and if we continue to keep this positive habit, it bodes well for our future financial wellness.
On a positive note, Singaporeans are also saving quite a significant portion of their income, almost 30%. This is consistent across the age groups with Millennials saving 29%, Gen X saving 26% and Baby Boomers saving 28%. For those who ask how much they should save, 30% may be a good benchmark.
Note: for this article and in reference to the index results, Millennials refer to respondents aged 21 to 39 years old, Gen X refer to those aged 40 to 54 years old and Baby Boomers refer to those aged 55 years old and above.
Almost One-Third Of Singaporeans Struggle To Pay Their Home Loans
However, more Singaporeans are also struggling to pay their home loans. The ability to pay off home loan has dropped from the score of 70 to 66 this year, a reflection of the poorer economic climate. 31% of Singaporeans surveyed are facing some problems paying their home loans with 9% saying that they may be forced to sell or downgrade. This struggle is exacerbated amongst Millennials, with 38% facing some problem financing their home loans.
While the current low interest rate environment may be enticing for some to take up larger loans to finance larger homes, these statistics are a sobering reminder that your ability to finance a home may be impacted by larger economic factors you cannot control, including unforeseen retrenchments or pay reductions.
Almost Half Of Singaporeans Have A Stream Of Passive Income But It Has Taken A Hit During The Recession
Singaporeans’ top 3 forms of passive income are unsurprisingly stock dividends, interest income and rental income. Naturally, these have taken a hit during the recession, especially for stock dividends with the banks told to cap dividends by MAS. This has also negatively affected Singaporeans’ spending ability and mortgage financing.
52% of Singaporeans (52%) have some form of passive income, even amongst Millennials (49%). This means that if you are not investing your savings to accrue some form of passive income, you are likely to lag behind your peers during retirement.
Singaporeans Need To Aim For A Higher Retirement Amount Even For A Modest Retirement Lifestyle
The Index results also showed that while three-quarters of Singaporeans aim for a modest retirement lifestyle, choosing Retirement Lifestyle A (36%) or B (38%), they still underestimate how much this lifestyle will cost them during their retirement.
For example, while living Retirement Lifestyle B will cost you about $2,900 in today’s value, this lifestyle will cost you $1.7 million for a 20 year retirement period in 2050, assuming you are aged 35 today and will retire at 65 years old. However, respondents estimated this to only cost about $1.2 million, a gap of more than 30%.
Additionally, aside from starting earlier, one difference between those who are on track for their retirement and those who are not is the way they choose to accumulate their retirement funds. Those who are on track rely more heavily on investments such as stocks and shares, instead of CPF Life.
Thus, it would be prudent to both start planning for your retirement earlier and to invest your retirement funds instead of relying on savings and CPF Life.
Millennials More Driven To Grow Their Wealth And Need To Exercise More Prudence In Doing So
Millennials place growing their own wealth as their top priority and they are also more aggressive in doing, with 39% of Millennial investors speculating excessively to make quick gains. Millennials are also more likely to do their own research before making financial decisions and their main source of information is from online sources. Millennials are also more likely to think that A.I makes better decisions than them.
All these findings point towards robo-advisors being a more suitable platform for Millennial investors to invest in, compared to the traditional investment advisor model that the older generations may be more used to. Using a robo-advisor may also curb the tendency for excessive speculation while catering to Millennial preferences for online resources.
Fewer Women Investors Feel Confident And Knowledgeable But Those Who Do Have Better Investment Results
Unfortunately, the stereotype that women are less savvy about finance seems to play out in the Financial Wellness Index: more women (42%) than men (33%) say that they don’t know the best way to grow their money and more women (38%) than men (30%) are likely to say that investing is gambling.
Only 28% of women feel confident and knowledgeable about their investment decisions compared to 48% of men. However, women are more than twice more likely to do their own research and seek advice from qualified financial representatives. This shows in their investment performance. 68% of confident women investors meet or exceed their investment targets compared to 59% of confident men investors.
In general, the findings suggest that women tend to be more cautious and conservative in their investment decisions and this may not be a bad thing in terms of investment outcomes.