Posts tagged ‘realsingaporedollar’

June 8, 2008

开源节流: My Reply

This is a reply to realsingaporedollar’s blog post on personal finance in 开源节流.

Let’s look deeper into realsingaporedollar’s post. In it he takes a potshot at financial education books, describing them as being overly focused on developing returns on capital, i.e. investing your savings and loose cash to make it work for you. Those same books, he argues, ignores the returns on labor, i.e. your salary or how much money you make as you do work for others. To sum up his post,

“Earn more, so you can save more”

At this point you should be expecting me to blast realsingaporedollar for his one-sided criticisms on those financial “bibles”. Here’s some shocking news: He’s not wrong. Well, not totally.

Statistics Singapore conducts a study every 5 years called the Household Expenditure Survey (HES) and produces a report of their findings at the end of the study. The report does a complete breakdown of per-capita income organized along several categories, e.g. earning power, occupation, and residence type etc. Using data from HES 1998-2003 (the next report is not due till 2010), the most striking thing to note is that regardless which strata of society they fall in, all residents in Singapore derive most of their capital from their labor, i.e. they actually work to earn their money. You can download the full report here.

However, my biggest beef with his argument is not with the overarching argument, but that the article subtly implies that people do not earn sufficient money to set aside for their future. Let me quote the section on household income.

The average income as of 2003 is almost $5,000, which I feel is a very large sum. Even if I were to take the third quintile as the mean, that amounts to almost $3,500, which is still a comfortable sum in 2003.

Using the same study, we also have a breakdown on spending habits. These are the goods that the lowest quintile of society enjoy:-

  • 61% own an audio or video cd player

  • 17% have cable tv subscriptions

  • 42% have air conditioners

This does not sound like people that are living on the brink of poverty. Almost half of them own air conditioners, which is by any measure, a luxury good and not a living essential.

I had the good fortune to attend a financial seminar organized by Channelnewsasia in Mar 2008 with speakers from the many different fields of insurance, credit and life planning, including both industry experts as well as community non-profit leaders. The talk that had the most impact on me was that by Mr Kuo How Nam from Credit Counselling Singapore, a non-profit group that seeks to help Singaporeans recover from serious debt problems.

His message is simple: the 3 most common mistakes that people make with their money:

  1. They overspend and live beyond their means.

  2. They do not save, or worse, borrow trouble by liberally using credit cards..

  3. They fail to see beyond today.

All 3 problems lie with the “capital” side of the equation. Even if an average person stays with his present job and salary, so long as he diligently builds up his nest egg he should be able to save enough to be financially free. The question is whether he sets aside enough, and uses it sufficiently to prepare for that future.

Relevant links:

You can request this article from me by dropping a comment here. This printer-friendly article comes with graphs taken from HES 2003, all presented in an easy to read format for people who prefer to read on the go.