Speaker 1: money talks is brought to you by OCBC Bank.
Speaker 1: Vasu in just a few words, could you give us
Speaker 1: your thoughts on the following financial wellness? Very
Speaker 2: important,
Speaker 1: the fire movement
Speaker 2: embrace it
Speaker 1: side hustles
Speaker 1: be
Speaker 2: careful about it,
Speaker 1: speculation
Speaker 1: avoided investor knowledge critical thank you so much Basu.
Speaker 1: Hi, I'm Sarah al Khaldi and this is money talks.
Speaker 1: Ask any financial analyst what their outlook is like and
Speaker 1: you're likely to get a discouraging forecast, elevated inflation, higher
Speaker 1: cost of living, impending GsD increase all set against a
Speaker 1: looming recession. So it doesn't come as a surprise that
Speaker 1: the latest OCBC financial wellness index
Speaker 1: indicates that Singaporeans are worst off in 2022 than the
Speaker 1: previous year, fewer of us are saving for contingencies more
Speaker 1: have unsecured debt and we are spending beyond our means
Speaker 1: to help us understand what's going on behind these findings
Speaker 1: I have with me, Vasu Menon, he's the executive director
Speaker 1: of investment strategy at OCBC Bank.
Speaker 1: So thank you so much for joining us here on
Speaker 1: money talks,
Speaker 2: my pleasure. Thank you for having me, Sarah
Speaker 1: Well, Vasu the results from the OCBC financial wellness index?
Speaker 1: It seems to indicate that Singaporeans are worst off financially
Speaker 1: in 2022 than 2021. So is this because times are
Speaker 1: tough right now or is it because people are more
Speaker 1: excited to spend now that Covid restrictions have eased
Speaker 2: the decline in the financial wellness index indicates that Singaporeans
Speaker 2: are not as well off as they were last year
Speaker 2: and I think a few reasons for that. Number one
Speaker 2: inflation has been rising interest rates have been rising and
Speaker 2: as consequence stock markets have also taken a beating.
Speaker 2: So for the older generation, they face debt management issues
Speaker 2: because of rising interest rates for the younger generation, they
Speaker 2: suffered significant losses in the financial markets and as a consequence,
Speaker 2: that set them back as well from a retirement planning perspective,
Speaker 2: from an experience perspective in the markets, so that in
Speaker 2: a nutshell explains why the index fell from 62 to 61.
Speaker 2: But if you drill a little bit deeper, you find
Speaker 2: that there were positives and negatives on the positive side.
Speaker 2: You find that most people were sticking to their budget,
Speaker 2: they were undertaking annual financial planning, which is good. They're
Speaker 2: very aware of the tax relief schemes that were available
Speaker 2: and they had made enough preparations to pass on their
Speaker 2: wealth in the event of death, those are positives and
Speaker 2: on the negative side you also find that more of
Speaker 2: them were gambling because of tougher times, which is not
Speaker 2: a good thing.
Speaker 2: They were speculating in the markets as well. I wouldn't
Speaker 2: say this was a majority but a significant proportion
Speaker 2: and on top of that, as you highlighted, some of
Speaker 2: them were perhaps spending beyond their means because you see
Speaker 2: a greater percentage of rollover credit card debt,
Speaker 1: We'll drill down on some of those specifics later. One
Speaker 1: thing that stood out to me in this report, we
Speaker 1: are known to be good savers in this report. It
Speaker 1: shows that more people are saving at least 10% of
Speaker 1: their salary. But what's interesting is that there appears to
Speaker 1: be the shift in what
Speaker 1: singaporeans are saving for fewer people are saving for emergencies
Speaker 1: or contingencies and retirement but more are saving for travel.
Speaker 1: So do you think this is a YOLO situation where
Speaker 1: you're trying to focus on enjoying your money? Are we
Speaker 1: losing track of the long term here?
Speaker 2: Well I wouldn't press the panic button just yet. As
Speaker 2: you said, if you look at the statistics more than 90%
Speaker 2: of saving
Speaker 2: At least 10% of their monthly income. And if you
Speaker 2: look at the average is the average savings rate was 30%
Speaker 2: of monthly income which is pretty good. But as you
Speaker 2: highlighted the amount of their savings they're allocating to investments
Speaker 2: and things that matter in the long term like retirement
Speaker 2: for example has declined and instead they're using that money
Speaker 2: that is safe to go traveling and Sarah I wouldn't
Speaker 2: press the panic button because I think in the last
Speaker 2: 2.5 years many of us
Speaker 2: I have lived a tough life. We have been in
Speaker 2: some ways caged up. We've not been able to travel.
Speaker 2: Not been able to do a lot of things that
Speaker 2: we want to do. So you see a little bit
Speaker 2: of revenge spending taking place is a bit of revenge
Speaker 2: traveling taking place that's normal human behavior. So we will
Speaker 2: have to wait and see whether this continues into 2023.
Speaker 2: But my feeling is that people are
Speaker 2: just dying to go out there and travel and go
Speaker 2: to restaurants and which is why you see the airport's full,
Speaker 2: the restaurants full. So I wouldn't press the panic button.
Speaker 2: You see a shift but it is not such a
Speaker 2: significant shift that it indicates a change in long term
Speaker 2: behavior
Speaker 1: and we have to enjoy our life
Speaker 2: tour. Indeed what's life if you can't enjoy it. Right. Exactly.
Speaker 1: There are different factors that are contributing to how we
Speaker 1: are spending and saving. But another interesting points in the
Speaker 1: report is that we are taking on more debt specifically
Speaker 1: unsecured debt and more people are spending beyond their means.
Speaker 1: So can you explain to us what unsecured debt is?
Speaker 1: Is that worrying what type of spending is usually tipping
Speaker 1: us to spend more than what we can actually afford?
Speaker 2: You're right. Unsecured debt is something that people should worry about.
Speaker 2: Because the interest rates on unsecured debt is fairly high.
Speaker 2: Interest rates tend to be sometimes in the double digit range,
Speaker 2: sometimes even more than 20%. So you're paying a lot
Speaker 2: of interest on unsecured debt. The percentage of singaporeans who
Speaker 2: have turned to unsecured debt is increased in 2021 that
Speaker 2: was 24%
Speaker 2: And I believe now it's gone up to something like 31% also.
Speaker 2: So quite a big increase and what is worrying is
Speaker 2: a larger percentage are also starting to express concerns about
Speaker 2: the ability to service its debt is 31% and not
Speaker 2: more than 50%. So the majority are still okay but
Speaker 2: you still have a significant 31% turning to unsecured debt.
Speaker 2: And there could be various reasons why people turn to
Speaker 2: unsecured debt as you said for traveling.
Speaker 2: That could be one reason why people use their credit card,
Speaker 2: greater e commerce activity taking place. People doing a lot
Speaker 2: more online shopping. What's worrying is fairly significant portion also
Speaker 2: rolling over their debt. In other words just paying the
Speaker 2: minimum some and not paying the full amount interest rates
Speaker 2: and unsecured debt can be very high. They're like an
Speaker 2: albatross around your neck. They can actually drag you down
Speaker 2: and prevent you from achieving your long term goals because
Speaker 2: you don't want to spend
Speaker 2: The next 5, 10 years just servicing very high levels
Speaker 2: of interest.
Speaker 1: It sounds like this is something we should focus on
Speaker 1: credit card debt. If that's something that's hanging over your head,
Speaker 1: try to pay it off as much as you can
Speaker 1: as soon as you can
Speaker 2: precisely and you can't focus on other things like your
Speaker 2: Children's education, your own travels, eventually your retirement planning. So
Speaker 2: it sets you back.
Speaker 1: Speaking of retirement planning since the pandemic, more people have
Speaker 1: become interested in investing.
Speaker 1: Millennials are a big part of this group as well
Speaker 1: and in this OcBc report, it shows that fewer people
Speaker 1: are on track with their investment goals. Can you help
Speaker 1: us understand why this is, so is it because people
Speaker 1: are investing in the wrong things or is it just
Speaker 1: because it's a bad time for stock markets all around?
Speaker 2: I think Sarah is a combination of all the things
Speaker 2: that you mentioned. The segment of the population that was
Speaker 2: most impacted by investments was the gen Z and millennials.
Speaker 2: Millennials would be those born between 1980 1995 and gen
Speaker 2: z would be those born between 1996 and 2005. They
Speaker 2: Reported that they suffered investment losses of more than 40%
Speaker 2: in 2022. When you break down and you look at
Speaker 2: what they've been investing in. Some of them have gravitated
Speaker 2: toward things like cryptocurrencies for example, and Kryptos has been
Speaker 2: very hot and very popular with the younger generation. And
Speaker 2: what's worrying is that despite the selloff in the crypto market,
Speaker 2: many of them are still positive on the outlook for crypto.
Speaker 2: They still think
Speaker 2: there are opportunities in that space. So you see more
Speaker 2: speculative activity taking place and that has resulted in losses.
Speaker 2: And that is worrying Sarah because it is important that
Speaker 2: the younger generation recognize the fact that you want to
Speaker 2: minimize speculation in the market. I think you can't completely
Speaker 2: cut off speculation important to trade the markets, but I
Speaker 2: think most of your money should be invested with the
Speaker 2: long term horizon and these are financial habits, investment habits
Speaker 2: we want to inculcate in the younger generation from a
Speaker 2: very early period.
Speaker 2: But what happened in 2021, was that because interest rates
Speaker 2: collapsed and the markets did very well in 2020, by 2022,
Speaker 2: the markets were starting to struggle and people are looking
Speaker 2: for alternatives and the younger generation looking for fast bucks alternatives.
Speaker 2: And kryptos were popular and
Speaker 2: many of them speculated and got badly hit and hopefully
Speaker 2: it will be a lesson learned. It's not all doom
Speaker 2: and gloom and going forward. It's important that they invest
Speaker 2: their money more carefully and not speculate we are very
Speaker 2: cautious in the crypto market. We think that there are
Speaker 2: better opportunities, safer opportunities, risks,
Speaker 2: moderated opportunities in other asset classes. And this is something
Speaker 2: that we've got to work hard towards impressing on the
Speaker 2: younger generation because they are our future and if they
Speaker 2: get it wrong for the onset, they'll have big problems
Speaker 2: later on.
Speaker 1: Patients is really a virtue in this, isn't it?
Speaker 2: Indeed, patients, patients is very, very important.
Speaker 1: Hi, my name is steve Lie and I'm Teresa Tang
Speaker 1: and we are the hosts of the new podcast CNN
Speaker 1: correspondent from new york to Bangkok join us as we
Speaker 1: kick back and chat with our colleagues across the globe
Speaker 1: about the latest news developments look out for our weekly
Speaker 1: episodes wherever you get your podcasts
Speaker 1: on top of the fact that more of the young people,
Speaker 1: millennials and gen Zs are suffering investment losses. This is
Speaker 1: also the group that wants to build wealth as fast
Speaker 1: as possible and retire as soon as possible. And the
Speaker 1: report shows that specifically those in
Speaker 1: In their 20's, do you think having unrealistic expectations about
Speaker 1: the investment journey ahead the lifestyle that we can achieve
Speaker 1: and the risk that we are taking on to achieve
Speaker 1: this state of being able to retire early?
Speaker 2: Absolutely. You got it all spot on. That was very
Speaker 2: well summarized. And I would say that it's normal for
Speaker 2: young people to aspire, what's life if there's no aspiration?
Speaker 2: These people in their twenties, they're looking out over the
Speaker 2: next 30 40 years, they've got a very long runway
Speaker 2: and they want to aspire. They want to make sure
Speaker 2: that they build up their wealth quickly for retirement. But
Speaker 2: I think the danger
Speaker 2: of thinking about building a world too quickly is that
Speaker 2: you then take the wrong turns. You try and look
Speaker 2: for fast track avenues, you speculate in the market, you
Speaker 2: gamble the markets and therefore you could end up suffering losses,
Speaker 2: significant losses in the short term. That could really
Speaker 2: then your finances and dental you mentally as well. Because
Speaker 2: history shows that when people suffer big losses, they give up,
Speaker 2: they stop the journey, they give up and they say, look,
Speaker 2: we'll just drift along in life and we don't want
Speaker 2: that sort of behavior. I think it's important for them
Speaker 2: to get the investment journey right and get their aspirations
Speaker 2: right as well. And as you highlighted,
Speaker 2: many of them want to retire comfortably. They have a
Speaker 2: certain goal in mind. They want to lead a good
Speaker 2: life when they're older, retirement goals have elevated. People have
Speaker 2: now chosen pricier retirement lifestyles, but when we speak to them,
Speaker 2: we also recognize that many of them have fallen short
Speaker 2: in terms of their planning for retirement. While they've,
Speaker 2: For example, need $5,000 to retire comfortably. What they're planning
Speaker 2: for is only perhaps 3,005 or 3000. There's a gap,
Speaker 2: they're not addressing the gap sufficiently and more needs to
Speaker 2: be done for them to address the gap or reduce
Speaker 2: their expectations and their lifestyle choices. So reality is not
Speaker 2: completely struck. And hopefully in time many of them will
Speaker 2: recognize the fact that they've got to make adjustments
Speaker 1: and make adjustments in terms of skills to write and
Speaker 1: knowledge in how you handle your finances and how you
Speaker 1: handle these investments. And it's not just about
Speaker 1: striking lottery and getting a lot of money all at
Speaker 1: once
Speaker 2: precisely. I think it's perfectly okay to have what we
Speaker 2: call technical positions in the market. In other words, to
Speaker 2: trade in the markets to some extent, speculate in the market,
Speaker 2: it's not possible to completely eradicate this human behavior. We
Speaker 2: look for excitement, but we have to draw a distinction
Speaker 2: between excitement and investment. Excitement is when you want to
Speaker 2: get your adrenaline pumping investment is a patient long term
Speaker 2: journey
Speaker 2: And you want to have most of your money strategically allocated.
Speaker 2: So you've got tactical asset allocation in what we call it,
Speaker 2: strategic asset allocation, things that you invest over the next
Speaker 2: five years, 10 years.
Speaker 2: It's like in some ways weight watching Sarah failed in
Speaker 2: my journey to lose weight because I keep looking at
Speaker 2: the weighing scale every other day, right? And if you
Speaker 2: keep doing that, you're not going to succeed. You've got
Speaker 2: to be patient work on your objectives. Don't look at
Speaker 2: the scale every day and eventually get there. So you
Speaker 2: set a target similarly for investments, you set a five year,
Speaker 2: 10 year target and you work towards it
Speaker 2: and not keep looking at the markets at every twist
Speaker 2: and turn. You make a decision. I think those are
Speaker 2: things that the young generation have to learn that it
Speaker 2: requires patience. It requires careful selection of what you buy.
Speaker 2: Look at the fundamentals, do your research. If you get
Speaker 2: your grounding right, learn how to do that research and
Speaker 2: do the research. It's a bit of hard work, but
Speaker 2: it needs to be done to prevent
Speaker 2: big losses and setbacks early in life.
Speaker 1: Yeah, that's right. Like you said about weight watching it's
Speaker 1: also not just about losing weight and how much weight
Speaker 1: you lost, but your overall health, right? It's the same
Speaker 1: thing with finances,
Speaker 2: not just
Speaker 1: how much money you have in the bank, but how
Speaker 1: healthy your financial position is with your spending investment and
Speaker 1: everything.
Speaker 2: So it's not good enough to look at your budget
Speaker 2: and say, look, I'm spending within my means. But the
Speaker 2: question is, even though you're spending within your means, are
Speaker 2: you investing your savings prudently? Are you making sure that
Speaker 2: you're growing your savings so that you have enough money
Speaker 2: for your kids, university education for your retirement? So it's
Speaker 2: a lot more holistic and you can't just look at
Speaker 2: one aspect of financial planning, you've got to take a
Speaker 2: holistic approach.
Speaker 1: Yeah. The OCBC report also talks about seniors and it
Speaker 1: points out that more seniors are speculating excessively, presumably to
Speaker 1: build wealth in a short amount of time. And they're
Speaker 1: particularly vulnerable because they would have amassed some savings throughout
Speaker 1: the years. But if they lose them,
Speaker 1: they don't have a whole lot of time to try
Speaker 1: to make that money back and they need it sooner
Speaker 1: than most other people. So what are the reasons behind this?
Speaker 1: And can you give us examples of the excessive speculation
Speaker 1: that you're seeing in the elderly group?
Speaker 2: One reason why elderly perhaps speculating a bit more on
Speaker 2: the markets is because I think it's been a tough year,
Speaker 2: 2022 has been a tough year. It has resulted in
Speaker 2: losses in the equity markets and the bond markets as
Speaker 2: well and many of the elderly may have also invested
Speaker 2: in the bond markets and the bond markets have also
Speaker 2: taken a very bad hit. Many of them are saying,
Speaker 2: I've been set back
Speaker 2: And my runway is a lot shorter and I need
Speaker 2: to get in back there in the markets. Look for
Speaker 2: that one or two stocks or investment that's going to
Speaker 2: make up all the losses have suffered in 2022. And
Speaker 2: my guess is that some of them may even put
Speaker 2: their money into crypto. I don't have concrete evidence but
Speaker 2: tech stocks, for example, have been very popular China-related stocks,
Speaker 2: for example, have been very popular
Speaker 2: With the investors and these are some of the areas
Speaker 2: which have seen a big selloff going forward. It's important
Speaker 2: for them to get back to what they originally should
Speaker 2: be doing for older person. You should be adopting a
Speaker 2: more conservative approach. You have a shorter runway, more conservative approach.
Speaker 2: It's not too late. Changes have to be made. But
Speaker 2: my guess is that 2022 is an exceptional year. Many
Speaker 2: of them are just looking to make up for their
Speaker 2: losses in a quick way.
Speaker 1: Do you think we are seeing a case of people
Speaker 1: concentrating their money too much in
Speaker 1: maybe a few stocks or in very small amounts of
Speaker 1: investments versus trying to spread them out so that when
Speaker 1: times are tough, everything doesn't tax so bad.
Speaker 2: I've been in the wealth management industry for 34 years.
Speaker 2: In the early days, diversification was not a popular word,
Speaker 2: people believe in taking concentrated bets. But over the last
Speaker 2: 34 years I've seen a big change in behavior
Speaker 2: investor education has improved quite a lot. You can see
Speaker 2: now that investors understand the importance of diversification a lot
Speaker 2: more than before. But at the same time, I think
Speaker 2: what has changed in the last couple of years is
Speaker 2: that because of covid and because a lot of stocks
Speaker 2: and the market will hit down very badly in 2020
Speaker 2: and then saw huge run up because of ultra loose
Speaker 2: monetary policy from the Federal Reserve.
Speaker 2: That resulted in exceptional, super high returns in some areas
Speaker 2: like technology, for example, even some china related stocks and
Speaker 2: that resulted in some of them actually getting caught into
Speaker 2: the speculation and the excesses and hoping to make very
Speaker 2: quick returns. It is the sign of the times, I
Speaker 2: think the ultra loose monetary policy of the Federal Reserve
Speaker 2: boosted markets in an exceptional way. People thought this would
Speaker 2: go on forever. They jumped into space
Speaker 2: areas without diversification, they let their guard down. And some
Speaker 2: of them moved away from diversification towards taking concentrated bets
Speaker 2: and they got hit quite badly. So it is not
Speaker 2: a long term change in behavior I think by and large.
Speaker 2: My feeling is that most investors still appreciate the importance
Speaker 2: of diversification because the statistics show that there's still a
Speaker 2: lot of cash sitting in the banking system on the sidelines.
Speaker 2: So investors, some of them have been burned.
Speaker 2: But many of them still have a lot of cash,
Speaker 2: which means they've been fairly conservative as well.
Speaker 1: We keep hearing about how our recession is coming our
Speaker 1: way vasu what should singaporeans do in terms of our
Speaker 1: spending habits to prepare for this.
Speaker 2: No, easy answer. Sarah. I wish I had a magical
Speaker 2: pill to solve the problem. But really it's going back
Speaker 2: to
Speaker 2: Budgeting, looking at your income versus your expenses and making
Speaker 2: sure that you are in positive cash flow. In other words,
Speaker 2: you're not spending beyond your means, making sure that you
Speaker 2: set aside at least at least 10% of your monthly
Speaker 2: income in the form of savings, making sure that you
Speaker 2: at least have perhaps 12 months of your income set
Speaker 2: aside
Speaker 2: in an emergency fund for contingencies. Because if a recession hits,
Speaker 2: you may lose your job, you may have to tap
Speaker 2: into that emergency fund to keep you going. I think
Speaker 2: to distinguish between wants and needs. This is the time.
Speaker 2: And you've got to be more careful. Of course we
Speaker 2: all want things. Nothing wrong with that. But I think
Speaker 2: given the signs of the times, given the fact that
Speaker 2: there could be a recession,
Speaker 2: Be more careful with spending on non discretionary items, it's
Speaker 2: fine to spend on essential. So I think it's really
Speaker 2: going down to granular details and telling yourself you've got
Speaker 2: to have more discipline and cut back on things that
Speaker 2: you don't really need. But the most important thing is
Speaker 2: make sure that you have set aside at least 12
Speaker 2: months of your income in an emergency fund that you
Speaker 2: can tap on in the unfortunate event you lose your job.
Speaker 1: What final advice or one thing that singaporeans should do
Speaker 1: in the next six months.
Speaker 2: I think in the next six months it's important for
Speaker 2: a lot of singaporeans to look at their emergency funds.
Speaker 2: Make sure you set aside this emergency fund. I just
Speaker 2: spoke about the study shows that 54% have set aside
Speaker 2: six months of their monthly income in this so called
Speaker 2: emergency fund,
Speaker 2: But only 48% have set aside enough money in their
Speaker 2: emergency fund to keep them going for 12 months. If
Speaker 2: you look at the numbers on the flip side, it
Speaker 2: also means that more than 50% of Singaporeans have not
Speaker 2: set aside in the emergency funds to tide them over
Speaker 2: in the event of recession. So be sure to set
Speaker 2: aside more money in the emergency fund.
Speaker 2: It's very, very crucial because during a storm, you need
Speaker 2: to depend on that fund to keep you going.
Speaker 1: It looks like it's time to tighten our belts and
Speaker 1: cut down on non essential spending and really, really look
Speaker 1: how we are spending and investing. Thanks so much for
Speaker 1: your insights today. Vasu The
Speaker 2: pleasure is mine Sarah. Thanks for having me on
Speaker 1: the show
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