According to a survey done by OCBC, many here do not have enough savings to allow them to maintain their current lifestyle beyond 6 months if they were to lose their jobs.
Elliott Danker & Manisha Tank speak to Tan Siew Lee, Head of Wealth Management Singapore at OCBC Bank as she shares more on the findings of the survey.
Elliott Danker: There was a survey that was released by OCBC which talked about how working Singaporeans are preparing for their future despite Covid-19. Tell us more about the survey that was conducted.
Tan Siew Lee: We wanted to conduct a survey that is data-driven to find out how working Singaporeans are preparing for their future during this difficult period.
We wanted to go beyond anecdotes to see how various pillars of financial wellness, such as savings, investing, and even retirement planning, have been affected. In this way, we will be able to offer targeted advice to our customers and not just generic comments.
Manisha Tank: Are you tweaking the way that you are advising your customers when it comes to financial planning as a result of seeing these numbers [from the survey].
TSL: Some respondents said that they will scale back on putting funds into their retirement. [I advise otherwise.]
Firstly, we need to be practical with our finances at this time. We should leave our savings and investments [our current practices or habits as it is] as much as possible, whether they are for retirement or savings, and try to adjust our expenses first.
We should only tap into our reserves when we have exhausted this route.
It can be difficult, but we need to balance our near term needs with long-term goals, and it is important to grow our funds for the longer term.
Secondly, [although] market volatility is unsettling, there are things investors can do to make your investment or retirement planning journey less unnerving.
Perhaps people can change their mindset and adopt a long-term perspective because such market dips over a longer-term horizon may present interesting opportunities to collect quality assets on the cheap.
To ride out a volatile market environment, investors should ensure that you are well-diversified across assets, geographies, and individual securities, especially if the fund that you have set aside is for retirement.
It also pays to remember that time in the market is more important than timing the market when it comes to generating long-term returns. So, you should stay invested so that you can benefit from market rebounds along the way as opposed to trying to time the market.
You can adopt a disciplined approach, such as dollar-cost averaging, to invest regularly and gradually so that volatility becomes your friend and not your enemy.
ED: One of the things that was pointed out is that two in three Singaporeans will not have enough savings to last beyond 6 months. People tend to be mistaken that a savings fund and an emergency fund are two different things right?
TSL: Absolutely spot on. An emergency fund is actually a subset of your savings fund. So your emergency funds [should] only be drawn strictly during times of emergencies, for example, a job loss or a sudden health-related bill.
This distinction has to be clear so that you do not tap on these funds for non-essential items, such as getting an extra pair of shoes.
MT: Do you think that the saving pattern among Singaporeans has been too reliant on government measures?
The government has made it pretty clear that they can't keep supporting everyone forever, everyone has to do their bit in the same way that we do our bit to curb the spread of Covid-19.
TSL: Yes, there is a worrying trend that many do not have emergency funds to tide them through the crisis.
Typically, one should save at least 6 months’ worth of expenses, or a more prudent estimate would be 12 [months], so that you have something to fall back on if you were to suddenly lose your job or meet with an unexpected event like a serious illness.
It is never too late to prepare for an emergency fund. Of course, the best time to start is yesterday, but the second-best time is today.
But due to the current situation, I can see how one may find it even more difficult to save especially if you have lost your job, suffer a pay cut or experience an unexpected increase in expenses.
What you can do is to look at adjusting your expenses first and remember to look at other expenses such as your income tax, insurance premiums, property tax, road tax, and include them when calculating your monthly expenses.
This way, you will be able to see what you are spending on and things you might [want to] cut back on, and thereafter, you must stick to your budget strictly.
ED: How big a part does age play in terms of a person planning their finances? Is a younger person more likely to have an emergency fund than an older person?
TSL: Our survey showed that the younger generation is doing more to future-proof themselves. They're investing more, saving more, and taking more online courses.
Almost a quarter of those in their twenties have a retirement plan and have put aside more money than before during this time of uncertainty.
But in contrast, only a third of the sandwich generation said that they have to cut down on funding for their retirement.
The young people stood out from the other age groups from our survey and I think we can all learn something from this optimistic and can-do attitude.
The statistics are encouraging because we often talk about the benefits of starting early, letting time and the power of compounding work its magic.
Young investors also have youth on their side and their margin for making errors is much wider compared to someone who is older.
MT: What are some words of encouragement for the people who are perhaps not prepared [for changes due to Covid-19].
TSL: Do not lose heart if you feel like you're stuck, not prepared, or are behind your financial wellness journey. Start reading up on the basics and approach a financial advisor [for advice].
Listen to the full podcast to find out what you should do if you plan to reduce your investments now:
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