This past week, I’ve come across some interesting stories that justifies the comment or perception that financial literacy in Singapore is pretty low. The problem is probably global but since my evidence is local, let’s leave it at that.

First, there was this.

Paying with plastic has become so common that outstanding credit card loans are set to top $10 billion for the first time by Christmas, according to figures from the Monetary Authority of Singapore (MAS).

And rollover balances – bills that are not paid in full – have also jumped 50 per cent to $5.4 billion over the same period. Several banks recently raised interest rates on credit card bills.

According to figures from Credit Bureau (Singapore), there were nearly 1.58 million credit card consumers as of October, up from 1.2 million in October 2009.

Around one in three cardholders – or nearly 540,000 people – were not paying their bills in full as of October.

And 3 per cent of cardholders – or around 47,000 people at last count – have debts exceeding a year’s salary.

These articles were accompanied by the usual stories of people who fell into debt and climbed their way out. (like this: Single mom spent $ 7k on $ 4k pay) Maybe it’s the local mainstream media’s way of getting some public message across because the newspapers these last two weeks have been carrying too many stories of people who have gotten into debt due to overspending and gambling.

Of course, statistically, these people make up a small proportion of the entire population which is why the local papers also ran stories saying that systemically, this isn’t a problem. The issue I have, is that there ARE some people out there who think that overspending is not a problem. Either they are stupid or they fail to understanding that compounding is a very powerful force and that if it is working against you, rather than for you, you will be in big trouble very soon.

I know that psychologically, peer pressure and short-term thinking are huge factors that cause people to make bad decisions but I’m not sure if blaming external factors is helpful. After all, you cannot stop someone from buying a rolex or a BMW but you sure can stop yourself from buying these things if you can’t afford them.

The second story* that I’ve come across is a personal one. Someone in my family has a close financial adviser friend who asked them to switch out of some funds into a cash or bond-like fund following the rout in the oil markets because of the belief that the markets are going to turn south soon.**

This particular financial adviser is pretty wealthy (at least it seems so based on his ability to invest in waterfront properties and a senior position in his company) so this family member has complete faith in his abilities. However, I wonder if anyone stopped to ask, “How did this guy make his money?”

In this part of the world, financial advisers generally take on a different role from that traditionally thought of in the western world. That’s mainly because financial advisers here are a role that evolved from a insurance salesperson and while the title may have changed, the skill-set hasn’t.

Financial advisers here mainly advise their clients on protection, savings and investments BUT mostly within the confines of the products offered by the company they represent. Now, this is all fine and good and there’s nothing actually wrong with that except that’s not how an insurance person would make most of his money.

Typically, a successful financial adviser in Singapore makes his or her money from commissions. Those commissions will allow for a very decent living but when you get to the financial adviser who has made it big, you would typically find that these guys first make serious money from leading a team of salespeople.

And with serious money, they would then typically go into property investment or equities or some form of business (e.g. a spa or club). So next time a financial adviser tries to advise you on market movements, please show him or her this. And if they still try, ask to see a 10 year (or at least 7 year) breakdown of how their own investments have done.***

Now, if financial advisers succumb to the Dunning-Kruger effect when it comes to their investing knowledge then what does it mean for everyone else who has never taken a finance, economics or investing course?

I recommend a few things:

1. Be objectively skeptical
2. Be mathematically competent
3. Be patient
4. Go low-cost
5. Read broadly

Through writing this post, I realised that I’m truly worked up by some of the lousy advice that goes on out there so starting in the coming year, my blog will take a more focused path by posting (a) content on person finance/investing matters and (b) a series on basic financial skills and concepts that everyone should know.

Now, I may have ruffled a few feathers out there but if you are a financial adviser who has made it big through the standard investment products offered by an insurance firm alone, please feel free to let me know (with documentary proof of course!) and I will post your side of the story here as a counter-weight to the assertions I’ve made above.

*Story details have been tweaked but the main point remains relevant.

**As a sidenote, this isn’t the only story I’ve heard of non-professionals thinking that the markets are going to get hit real bad next year. Which makes me wonder…

***Of course, make sure that the returns presented conform to some standards and are not subject to some seasonal or survivorship bias.

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