money talks is brought to you by OCBC Bank. Vasu in just a few words, could you give us your thoughts on the following financial wellness? Very
important,
the fire movement
embrace it
side hustles be
careful about it,
speculation avoided investor knowledge critical thank you so much Basu. Hi, I'm Sarah al Khaldi and this is money talks. Ask any financial analyst what their outlook is like and you're likely to get a discouraging forecast, elevated inflation, higher cost of living, impending GsD increase all set against a
looming recession. So it doesn't come as a surprise that the latest OCBC financial wellness index indicates that Singaporeans are worst off in 2022 than the previous year, fewer of us are saving for contingencies more have unsecured debt and we are spending beyond our means to help us understand what's going on behind these findings I have with me, Vasu Menon, he's the executive director of investment strategy at OCBC Bank. So thank you so much for joining us here on money talks,
my pleasure. Thank you for having me, Sarah
Well, Vasu the results from the OCBC financial wellness index? It seems to indicate that Singaporeans are worst off financially in 2022 than 2021. So is this because times are tough right now or is it because people are more excited to spend now that Covid restrictions have eased
the decline in the financial wellness index indicates that Singaporeans are not as well off as they were last year and I think a few reasons for that. Number one inflation has been rising interest rates have been rising and as consequence stock markets have also taken a beating.
So for the older generation, they face debt management issues because of rising interest rates for the younger generation, they suffered significant losses in the financial markets and as a consequence, that set them back as well from a retirement planning perspective, from an experience perspective in the markets, so that in a nutshell explains why the index fell from 62 to 61. But if you drill a little bit deeper, you find that there were positives and negatives on the positive side.
You find that most people were sticking to their budget, they were undertaking annual financial planning, which is good. They're very aware of the tax relief schemes that were available and they had made enough preparations to pass on their wealth in the event of death, those are positives and on the negative side you also find that more of them were gambling because of tougher times, which is not a good thing.
They were speculating in the markets as well. I wouldn't say this was a majority but a significant proportion and on top of that, as you highlighted, some of them were perhaps spending beyond their means because you see a greater percentage of rollover credit card debt,
We'll drill down on some of those specifics later. One thing that stood out to me in this report, we are known to be good savers in this report. It shows that more people are saving at least 10% of their salary. But what's interesting is that there appears to be the shift in what singaporeans are saving for fewer people are saving for emergencies or contingencies and retirement but more are saving for travel. So do you think this is a YOLO situation where
you're trying to focus on enjoying your money? Are we losing track of the long term here?
Well I wouldn't press the panic button just yet. As you said, if you look at the statistics more than 90% of saving At least 10% of their monthly income. And if you look at the average is the average savings rate was 30%
of monthly income which is pretty good. But as you highlighted the amount of their savings they're allocating to investments and things that matter in the long term like retirement for example has declined and instead they're using that money that is safe to go traveling and Sarah I wouldn't press the panic button because I think in the last 2.5 years many of us I have lived a tough life. We have been in some ways caged up. We've not been able to travel. Not been able to do a lot of things that
we want to do. So you see a little bit of revenge spending taking place is a bit of revenge traveling taking place that's normal human behavior. So we will have to wait and see whether this continues into 2023. But my feeling is that people are just dying to go out there and travel and go to restaurants and which is why you see the airport's full, the restaurants full. So I wouldn't press the panic button.
You see a shift but it is not such a significant shift that it indicates a change in long term behavior
and we have to enjoy our life
tour. Indeed what's life if you can't enjoy it. Right. Exactly.
There are different factors that are contributing to how we are spending and saving. But another interesting points in the report is that we are taking on more debt specifically unsecured debt and more people are spending beyond their means. So can you explain to us what unsecured debt is? Is that worrying what type of spending is usually tipping us to spend more than what we can actually afford?
You're right. Unsecured debt is something that people should worry about. Because the interest rates on unsecured debt is fairly high. Interest rates tend to be sometimes in the double digit range, sometimes even more than 20%. So you're paying a lot of interest on unsecured debt. The percentage of singaporeans who have turned to unsecured debt is increased in 2021 that was 24% And I believe now it's gone up to something like 31% also.
So quite a big increase and what is worrying is a larger percentage are also starting to express concerns about the ability to service its debt is 31% and not more than 50%. So the majority are still okay but you still have a significant 31% turning to unsecured debt. And there could be various reasons why people turn to unsecured debt as you said for traveling. That could be one reason why people use their credit card, greater e commerce activity taking place. People doing a lot
more online shopping. What's worrying is fairly significant portion also rolling over their debt. In other words just paying the minimum some and not paying the full amount interest rates and unsecured debt can be very high. They're like an albatross around your neck. They can actually drag you down and prevent you from achieving your long term goals because you don't want to spend The next 5, 10 years just servicing very high levels of interest.
It sounds like this is something we should focus on credit card debt. If that's something that's hanging over your head, try to pay it off as much as you can as soon as you can
precisely and you can't focus on other things like your Children's education, your own travels, eventually your retirement planning. So it sets you back.
Speaking of retirement planning since the pandemic, more people have become interested in investing. Millennials are a big part of this group as well and in this OcBc report, it shows that fewer people are on track with their investment goals. Can you help us understand why this is, so is it because people are investing in the wrong things or is it just because it's a bad time for stock markets all around?
I think Sarah is a combination of all the things that you mentioned. The segment of the population that was most impacted by investments was the gen Z and millennials. Millennials would be those born between 1980 1995 and gen z would be those born between 1996 and 2005. They Reported that they suffered investment losses of more than 40% in 2022. When you break down and you look at
what they've been investing in. Some of them have gravitated toward things like cryptocurrencies for example, and Kryptos has been very hot and very popular with the younger generation. And what's worrying is that despite the selloff in the crypto market, many of them are still positive on the outlook for crypto. They still think there are opportunities in that space. So you see more speculative activity taking place and that has resulted in losses.
And that is worrying Sarah because it is important that the younger generation recognize the fact that you want to minimize speculation in the market. I think you can't completely cut off speculation important to trade the markets, but I think most of your money should be invested with the long term horizon and these are financial habits, investment habits we want to inculcate in the younger generation from a very early period.
But what happened in 2021, was that because interest rates collapsed and the markets did very well in 2020, by 2022, the markets were starting to struggle and people are looking for alternatives and the younger generation looking for fast bucks alternatives. And kryptos were popular and many of them speculated and got badly hit and hopefully it will be a lesson learned. It's not all doom
and gloom and going forward. It's important that they invest their money more carefully and not speculate we are very cautious in the crypto market. We think that there are better opportunities, safer opportunities, risks, moderated opportunities in other asset classes. And this is something that we've got to work hard towards impressing on the younger generation because they are our future and if they get it wrong for the onset, they'll have big problems later on.
Patients is really a virtue in this, isn't it?
Indeed, patients, patients is very, very important.
Hi, my name is steve Lie and I'm Teresa Tang and we are the hosts of the new podcast CNN correspondent from new york to Bangkok join us as we kick back and chat with our colleagues across the globe about the latest news developments look out for our weekly episodes wherever you get your podcasts on top of the fact that more of the young people, millennials and gen Zs are suffering investment losses. This is also the group that wants to build wealth as fast
as possible and retire as soon as possible. And the report shows that specifically those in In their 20's, do you think having unrealistic expectations about the investment journey ahead the lifestyle that we can achieve and the risk that we are taking on to achieve this state of being able to retire early?
Absolutely. You got it all spot on. That was very well summarized. And I would say that it's normal for young people to aspire, what's life if there's no aspiration? These people in their twenties, they're looking out over the next 30 40 years, they've got a very long runway and they want to aspire. They want to make sure that they build up their wealth quickly for retirement. But I think the danger of thinking about building a world too quickly is that
you then take the wrong turns. You try and look for fast track avenues, you speculate in the market, you gamble the markets and therefore you could end up suffering losses, significant losses in the short term. That could really then your finances and dental you mentally as well. Because history shows that when people suffer big losses, they give up, they stop the journey, they give up and they say, look, we'll just drift along in life and we don't want
that sort of behavior. I think it's important for them to get the investment journey right and get their aspirations right as well. And as you highlighted, many of them want to retire comfortably. They have a certain goal in mind. They want to lead a good life when they're older, retirement goals have elevated. People have now chosen pricier retirement lifestyles, but when we speak to them, we also recognize that many of them have fallen short
in terms of their planning for retirement. While they've, For example, need $5,000 to retire comfortably. What they're planning for is only perhaps 3,005 or 3000. There's a gap, they're not addressing the gap sufficiently and more needs to be done for them to address the gap or reduce their expectations and their lifestyle choices. So reality is not completely struck. And hopefully in time many of them will recognize the fact that they've got to make adjustments
and make adjustments in terms of skills to write and knowledge in how you handle your finances and how you handle these investments. And it's not just about striking lottery and getting a lot of money all at once
precisely. I think it's perfectly okay to have what we call technical positions in the market. In other words, to trade in the markets to some extent, speculate in the market, it's not possible to completely eradicate this human behavior. We look for excitement, but we have to draw a distinction between excitement and investment. Excitement is when you want to get your adrenaline pumping investment is a patient long term journey And you want to have most of your money strategically allocated.
So you've got tactical asset allocation in what we call it, strategic asset allocation, things that you invest over the next five years, 10 years. It's like in some ways weight watching Sarah failed in my journey to lose weight because I keep looking at the weighing scale every other day, right? And if you keep doing that, you're not going to succeed. You've got to be patient work on your objectives. Don't look at
the scale every day and eventually get there. So you set a target similarly for investments, you set a five year, 10 year target and you work towards it and not keep looking at the markets at every twist and turn. You make a decision. I think those are things that the young generation have to learn that it requires patience. It requires careful selection of what you buy. Look at the fundamentals, do your research. If you get your grounding right, learn how to do that research and
do the research. It's a bit of hard work, but it needs to be done to prevent big losses and setbacks early in life.
Yeah, that's right. Like you said about weight watching it's also not just about losing weight and how much weight you lost, but your overall health, right? It's the same thing with finances,
not just
how much money you have in the bank, but how healthy your financial position is with your spending investment and everything.
So it's not good enough to look at your budget and say, look, I'm spending within my means. But the question is, even though you're spending within your means, are you investing your savings prudently? Are you making sure that you're growing your savings so that you have enough money for your kids, university education for your retirement? So it's a lot more holistic and you can't just look at one aspect of financial planning, you've got to take a holistic approach.
Yeah. The OCBC report also talks about seniors and it points out that more seniors are speculating excessively, presumably to build wealth in a short amount of time. And they're particularly vulnerable because they would have amassed some savings throughout the years. But if they lose them, they don't have a whole lot of time to try to make that money back and they need it sooner than most other people. So what are the reasons behind this?
And can you give us examples of the excessive speculation that you're seeing in the elderly group?
One reason why elderly perhaps speculating a bit more on the markets is because I think it's been a tough year, 2022 has been a tough year. It has resulted in losses in the equity markets and the bond markets as well and many of the elderly may have also invested in the bond markets and the bond markets have also taken a very bad hit. Many of them are saying, I've been set back And my runway is a lot shorter and I need
to get in back there in the markets. Look for that one or two stocks or investment that's going to make up all the losses have suffered in 2022. And my guess is that some of them may even put their money into crypto. I don't have concrete evidence but tech stocks, for example, have been very popular China-related stocks, for example, have been very popular With the investors and these are some of the areas
which have seen a big selloff going forward. It's important for them to get back to what they originally should be doing for older person. You should be adopting a more conservative approach. You have a shorter runway, more conservative approach. It's not too late. Changes have to be made. But my guess is that 2022 is an exceptional year. Many of them are just looking to make up for their losses in a quick way.
Do you think we are seeing a case of people concentrating their money too much in maybe a few stocks or in very small amounts of investments versus trying to spread them out so that when times are tough, everything doesn't tax so bad.
I've been in the wealth management industry for 34 years. In the early days, diversification was not a popular word, people believe in taking concentrated bets. But over the last 34 years I've seen a big change in behavior investor education has improved quite a lot. You can see now that investors understand the importance of diversification a lot
more than before. But at the same time, I think what has changed in the last couple of years is that because of covid and because a lot of stocks and the market will hit down very badly in 2020 and then saw huge run up because of ultra loose monetary policy from the Federal Reserve.
That resulted in exceptional, super high returns in some areas like technology, for example, even some china related stocks and that resulted in some of them actually getting caught into the speculation and the excesses and hoping to make very quick returns. It is the sign of the times, I think the ultra loose monetary policy of the Federal Reserve boosted markets in an exceptional way. People thought this would go on forever. They jumped into space
areas without diversification, they let their guard down. And some of them moved away from diversification towards taking concentrated bets and they got hit quite badly. So it is not a long term change in behavior I think by and large. My feeling is that most investors still appreciate the importance of diversification because the statistics show that there's still a lot of cash sitting in the banking system on the sidelines. So investors, some of them have been burned.
But many of them still have a lot of cash, which means they've been fairly conservative as well.
We keep hearing about how our recession is coming our way vasu what should singaporeans do in terms of our spending habits to prepare for this.
No, easy answer. Sarah. I wish I had a magical pill to solve the problem. But really it's going back to Budgeting, looking at your income versus your expenses and making sure that you are in positive cash flow. In other words, you're not spending beyond your means, making sure that you set aside at least at least 10% of your monthly income in the form of savings, making sure that you at least have perhaps 12 months of your income set aside
in an emergency fund for contingencies. Because if a recession hits, you may lose your job, you may have to tap into that emergency fund to keep you going. I think to distinguish between wants and needs. This is the time. And you've got to be more careful. Of course we all want things. Nothing wrong with that. But I think given the signs of the times, given the fact that there could be a recession, Be more careful with spending on non discretionary items, it's
fine to spend on essential. So I think it's really going down to granular details and telling yourself you've got to have more discipline and cut back on things that you don't really need. But the most important thing is make sure that you have set aside at least 12 months of your income in an emergency fund that you can tap on in the unfortunate event you lose your job.
What final advice or one thing that singaporeans should do in the next six months.
I think in the next six months it's important for a lot of singaporeans to look at their emergency funds. Make sure you set aside this emergency fund. I just spoke about the study shows that 54% have set aside six months of their monthly income in this so called emergency fund, But only 48% have set aside enough money in their
emergency fund to keep them going for 12 months. If you look at the numbers on the flip side, it also means that more than 50% of Singaporeans have not set aside in the emergency funds to tide them over in the event of recession. So be sure to set aside more money in the emergency fund. It's very, very crucial because during a storm, you need to depend on that fund to keep you going.
It looks like it's time to tighten our belts and cut down on non essential spending and really, really look how we are spending and investing. Thanks so much for your insights today. Vasu The
pleasure is mine Sarah. Thanks for having me on
the show and thank you to our listeners. If you've enjoyed money talks, do follow us on Apple podcasts or Spotify, if you like what you hear, do rate us or better still leave us a review. If you have a topic you're interested to hear about or have feedback write to us at C n A podcasts at mediacorp dot com dot S G. The team behind Money talks is Joanne, chan Jacqueline, chan Danieli Christina robert. And I'm Sarah called in. Money talks is brought to you by OcBc Bank.