Archives for category: Singapore

Financial literacy (FinLit) in Singapore is going to be a thing. After all, sometime late last year, it was announced that all Polytechnic and ITE students would be made to undergo some FinLit module.

I really hope that this programme pays off because there are too many old folks who are quite clueless about basic finance concepts and there are too many wannabe financial bloggers out there who offer shitty advice and they really don’t know any better.

Old Folks Getting Scammed

I read this in the news the other day about how an elderly petrol station attendant got conned of almost $130,000 over a period of 10 years. Now, this elderly man may be an extreme example because of how he fell for such an obviously fake story but how many folks do you know of that trust every single word their financial advisor tells them?

I find that among older folks, it’s only those that have been running their own businesses for some time that are more savvy of when the professional advice they get is dodgy. So, for the majority of folks that fall in the average, they wouldn’t question the advice from a financial advisor regarding what kind of financial products are suitable for them, and which are not.

The oft-used analogy is that if you’re sick, you would get professional advice from a doctor. Similarly, if you have problems with your finances, you should get advice from a financial advisor. To a certain extent, this is true. However, also consider the fact that the barriers to becoming a financial advisor in Singapore are much lower than that for doctors. Even more importantly, is the fact that most of them work for commissions. In other words, the more money you put into their products, the more they earn. To me, that’s why you can’t compare financial advisors to doctors.

And it’s not just older folks

Maybe it’s just me. Or maybe Google’s algorithm is getting too good. But lately, I’ve noticed a proliferation of blogs (and this is just Singapore-based ones!) that start off as personal finance blogs but have now ventured into the space of giving advice on stock-picking.

Now, it’s one thing to give advice on how to save money but when you give advice to people on investing, that’s a whole different ball game. There are some basic principles to investing but giving advice on whether to buy or sell a certain counter is treading into a murky swamp that even professionals fail to do very well.

Take the following for example:

Not going to put a link to this and forgive my amateur attempt to mask their identities. You can go search for the post if you want to but I suggest you spare yourself the agony.

I saw this featured on my feed that Google’s curated and it looks like this blog’s trying to sell some course that teaches you how to invest so that you can spend your time travelling and experiencing the fun stuff in life.

But I read the post and realise that it’s as vapid as the title.

There is NO SUCH THING as a safe return. Dividends can get cut, Bond prices can go down and assuming you get 6% in one year, then what? What are your chances of finding another “safe” 6% yield for another year and another and another?

The worst part about this blog is that they were even featured in a local newspaper which goes to show how FinLit inept our local journos are as well.

In Short

I really do hope that people out there beginning to take an interest in investing find the right sources to start with. In the Singapore Financial Blogger Universe, there are way too many bad sources and few good ones.

In the vein of supporting FinLit, I suggest starting with the following places:

Personal Finance/ Investing with a Singaporean flavour
Investment Moats
Financial Horse
Dr Wealth
The Fifth Person

US-based
Anyone from the Riholtz Team (Ben Carlson, Michael Batnick, Josh Brown, Barry Ritholtz)
Early Retirement Now
Mr Money Moustache

There are definitely other good ones out there but this list is not a bad place to start to or even get by with.

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Do not pray for an easy life, pray for the strength to endure a difficult one.

– Bruce Lee

2018 hasn’t been a very good year for me – the stock market hasn’t helped with building my net worth, I fell had to take sick leave from work twice in the last quarter alone when I usually go a whole year without taking sick leave. At times, I haven’t felt like doing much either because of this sense of boredom and jadedness with life and work.

Within the family, there have also been some health scares. Earlier in the year, our cat had a little bit of tummy troubles following his visit to the groomers. Then, the older family members faced some health problems.

Thankfully, 2018’s about to be over. And we should recognise and celebrate the things that made the year great. These are my “Best of 2018” and I hope you find yours too.

Market Calls and Cryptocurrencies

One of the few things I identified right was how overhyped crypto was at the beginning of the year. Of course, by then, cryptos had already fallen quite a bit from the peak reached at the end of 2017 but let me pat myself on the back for calling the bullshit on the investment that is crypto.

3 Feb – More tales from the crypt(ocurrency)
14 June – So, who still wants to buy bitcoin?

But even more prescient than Crypto which I was largely skeptical of as an investment in 2017 was recognising the flow of easy money into the tech space.

10 July – State of the (U.S.) markets
11 Aug – State of the Markets (1 August 2018)

Now, before I get too swell-headed, I must confess that it’s not like I made profits from my views. I just got lucky that the tide against tech turned so much in such a short period of time.

Easy credit could have continued and I’d just as easily be labelled as someone who made a prediction and got it wrong. That’s the danger when shorting markets and unless you’re as experienced as someone like Jim Chanos, you shouldn’t do it.

This isn’t a how my portfolio did in 2018 post so I’ll leave it here. Look out for that when the year actually ends.

Learning New Skills

2018 was the year that I finally put whatever programming I picked up to good use. I wrote a script to automate some super bothersome tasks at work and if I had the time, I probably could write more scripts. I also messed around with some webscraping for stock data (shhh! Don’t tell anyone.) and I guess the next step would be having that data on a site for everyone to view. More importantly, I created a page to document the STI’s PE10. It went live at the end of July and I update it every first day of the month.

You can check it out here.

I’m hoping that in the not-too-far future I’ll have the chance to learn programming with a little more guidance and that I’ll actually have a chance to create sites that are useful. Best part is that I’m going to have my job give me time off (with pay!) to go do that. That’ll probably happen end 2019 or in 2020.

New Knowledge – habit formation

If I didn’t learn anything new all year, then that year would be a certain disaster.

James Clear’s Atomic Habits is easily one of the best things I’ve read this year. He gives really sound strategies on how you can form new habits and ditch bad ones. In fact, I didn’t know it then but I was using some of the same strategies to lose weight and practice mindfulness meditation.

This led me to cut sugar from coffee and I’ve lost even more weight than before and am at the same weight that I was in high school. Once again, the message is instructive – you have to make it a paradigm shift/lifestyle change rather than use willpower to make the change.

To drive the point home, let me give you another example.

I also developed the habit of writing roughly 3 blog posts a week this year and while it isn’t much, that’s helped boost traffic to my blog this year.

My blog stats across the years…pathetic but hey, this is a personal blog after all. I’m writing for personal amusement and not to bring in some dough.

You can see that this year is the year where, apart from April when I was on holiday for a week, the views each month were consistently above 2,000 (coloured blue). So what gives?

Well, the main things that happened was (1) that I finally got my new device, and more importantly (2) my wife started going to gym every weekend.

What has that got to do with anything? Well, every weekend, while she at the gym, I pumped out blog posts over coffee while waiting for her to be done.

This is precisely what Clear was talking about in his book. New habits need to have some place in your routine in order to become part of your life. This might be particularly instructive for some people as the new year is coming around and new year usually means new resolutions. If you really want to achieve something in the new year, you need to change your habits and not just hit some targets for a couple of weeks through sheer willpower.

Personal Front

On the personal front, this year marks the 6th year that my wife and I have been married and I couldn’t be happier. I’ll be lying if I said that we are happy 100% of the time but I’m pretty sure that on average, we’re happier together than we are apart.

I need to work on communicating with my wife more. Maybe it’s a guy thing or it could be just me but I’m not very good at communication (that’s why I have this blog!).

Our cat is also just the best thing that’s ever happened to us. He’s the one thing that makes me wake up at 6:45 am every single day and he really bosses me around until he gets his food. Then, he’s just the sweetest thing who will do whatever he wants: chilling under the bed, on his cat tree, cat window or on the sofa because he wants some attention from us.

This is his first full year with us and I know he’ll be with us forever. If you love cats, check him out on Instagram (@kingteddy_thetabbycat). Also, please donate to the Cat Welfare Society if you can. If you want a cat, adopt. Don’t shop.

2019, please be nice to me

I hope 2019 will be good for you and if anything, I’ll be working on the things I can control – my emotions, my temper, my actions, my reaction to events that are out of my control.

Goodbye 2018.

It’s been a crazy week for the U.S. markets this week. I keep expecting Asia to follow suit but each morning after a bloodbath on Wall Street, Asia remains subdued. I guess that’s what happens when everyone’s away for the holidays.

It’s the weekend before X’mas but somehow I feel like X’mas has already passed. I’m not a X’mas person anyway and I’m really looking forward to next year. This one has been nothing short of bad for the markets but I’ll leave it more for a “end of year” post.

Happy week ahead!

How Cheap Is The Singapore Stock Market Currently? (Motley Fool Singapore)

Regular readers will know that I usually use the PE10 but there are many ways to skin a cat. I’m not usually the Motley Fool Singapore’s biggest fan but this is interesting because I’ve seen James Montier do a similar study on international markets and it is a feature that when markets are beaten down, “Net-Nets” must appear.

“Net-Nets” were popularised/invented(?) by Benjamin Graham to find stocks that are trading for less than Net Current Assets. In theory, buying these companies and immediately liquidating them will earn you a positive return. The nub of course is that the value of their current assets may not be realised in reality. However, the theory is still valid and therefore, is an indication of how pessimistic investors are about a company.

In any given market, you tend to find companies that aren’t doing well and so you would expect a certain number of “Net-Nets” to exist at any given point in time. However. the number of “Net-Nets” in a bear market would be exceptionally high as pessimism of general prospects are dim.

In short, an exceptionally high number of “Net-Nets” in a market would be a fantastic indicator of when investors are too pessimistic about the future and hence, would be useful as an indicator of how cheap a market is.

Right not, the Motley Fool data seem to indicate that we’re cheap but not dirt-cheap.

Nov 2018 – Monthly Updates (Minimalist in the City)

Putting this one here because of the interesting statistic cited in the post:

Interestingly so, a study also mentioned that a child typically only plays an average of 12 toys out of 238 toys they own. This is about 5% of the toys which is quite an astonishing figure that should bring attention to the adults that a child does not really need that much toys at all.


5% is a ridiculously low number but I’m not surprised. The funny thing is that I think it’s not confined to kids. I’m pretty sure it applies to clothing, shoes, bags etc. Heck, it might even apply to our cat because he doesn’t play with most of the toys that were bought for him.

It’s sobering and a timely reminder that we should really think hard about what we need before we spend money on things that’s just going to take up space and gather dust.

Don’t Be Your Worst Enemy: Self-Inflicted Wounds Are Terribly Unnecessary (Financial Samurai)

A fantastic post listing some of the ways we sabotage ourselves.

I’ve done it many times in my life as well.

When I was younger, I drank way too much. That was a complete waste of time and money. I should have spent my time picking up some more practical skill.

There are many more examples I can give you and while each of them seems like a waste of either time or money or both, I learned important lessons from each case. It’s as if each misstep increased my self-awareness – the things that I’m good at, how to play to my personality, the areas that I’m not so good at that I could and should increase my competence in.

There’s nothing I can do to get the time that has passed so what matters most is how I spend my time, money and energy on from here on out.

Photo by Tookapic on Pexels.com

I saw this article on Forbes and I completely agree with it. Here’s the headline:

This Is Why Talking About How “Hard” You Work Makes You Look Incompetent

Amazing article because at my old workplace, there used to be colleagues who would work through the weekend or overtime over many evenings in a given week when our contracts only state that we’re paid for a 44-hour work week.

Now, obviously what I’m going to say doesn’t apply to people who get paid by the hour or people who HAVE to hustle because of commitments like medical bills and so on but for the most part, I think my argument will stand.

Bragging about Working Hard is Stupid

My initials thoughts then were about how dumb they must come across to everybody when they say that because having to put in more hours than they were paid to do so must either signal one or two things:

  1. You’re inefficient.
  2.  You can’t tell the difference between the important stuff and the not important stuff so you do everything.

Therefore, I used to joke that if someone brought up a colleague who regularly works overtime and weekends as a shining example of who ought to be, then I would retort that this person should instead be penalised for being inefficient.

We do what the system rewards us to do

I’m not sure if it’s because most Singaporeans have been educated to do so or it’s because most people work really hard at doing things that don’t really lead to much.

I can’t say about the private sector* because I’ve never worked there but unfortunately, much of the work in the public sector is not aimed at being efficient but at making sure that the important people don’t get embarrassed when extreme events happen.

And we get rewarded for that. Things that get the bosses’ attention are not the standard operational work that we’re supposed to be doing. Instead, it’s all the other projects and non-operational work that help one public officer stand out from the other.

Having Said That…

I believe that if we find joy in the thing that we’re doing and that if putting in the time and effort brings value to many other people’s lives**, by all means, we should do it.

For example, it’s almost inevitable that people at the operational level in the F&B industry put in long hours at work. However, the value that a cook brings to people’s lives when people get their daily sustenance or a good meal, is in my view, a much getting reward to society than if you saved your boss’s ass by working over the weekend on a deck of PowerPoint slides.

This is a reminder to do the things that matter for you, your community, and your society at large.

Not your boss.

Notes:
*But if my wife’s experience is anything to go by, the private sector is not much different. Entire industries have no reason for existence other than to save many people from embarrassment or to extract economic rents. In my mind, that pretty much sums up the entire lobbying and consulting industry.

**This is one instance where I believe quantity over quality matters. Bringing value to 100 people is definitely better than bringing value to your best friend’s life. There should be no reason why the universe would weigh your best friend’s life greater than 100 other people.

I’ve written before about how I think inequality and poverty is an issue in Singapore and that the poor need more unconditional help. (see here, here, here). It appears that the issue has been getting a bit more attention lately with Channel NewsAsia (CNA) putting this piece out some days back.

 

boy wearing green crew neck shirt jumping from black stone on seashore

Photo by ajay bhargav GUDURU on Pexels.com

Poverty in the spotlight

In particular, the piece highlights how the poor tend to make decisions that are less than best or what economists call, “sub-optimal”. Take the opening anecdote in the article.

Every time her four children passed by the provision shop downstairs, they would ask her to buy packet drinks for them. Every time, Mdm Mary Yeo would reply, “No, not today.”

The first time the divorcee received financial assistance from the Social Service Office, her first thought as she sat at home alone, pondering what to do with the money, was their wistful request the night before.

“I rushed down to the provision shop, and I bought quite a lot of drinks,” said the 47-year-old. “The next day, I bought (more).”

After three days, she had bought S$400 worth of drinks – 40 cartons – “because that same thing kept coming” to mind.

Now, 40 cartons of soft drinks is a ridiculously huge amount of soft drinks and the first reaction of many people would be to say something like, “See, this lady is poor because she’s stupid. No one buys that many soft drinks. Furthermore, if she lets her kids drink that much soft drinks, they are going to have other problems down the road.”

What the article did differently was to describe the process behind her thinking which changed the framing of the same issue from being “poor because she’s stupid” to “stupid because she’s poor.” In other words, they highlighted the fact that she made this stupid choice because she was so poor that she couldn’t even afford a simple treat like a soft drink for her kids.

I’m particularly impressed with the way the article presents the issue of decision-making and poverty because it’s a good contrast to the usual messages of how Singapore is a meritocratic society and provides an equal chance for anyone, regardless of background, to succeed.

 

The message we’ve been fed all these years

The message that we’ve been fed all these years is that Singapore is a place where your dreams can come true. All you have to do is study hard, work hard, and you’ll make it.

And very often, to prove their point, the nation-building Straits Times will highlight the fact that some of our high-flying people in government came from less than privileged backgrounds and succeeded despite the odds against them.

Even the education ministry, in its bid to move away from an emphasis on grades, has been profiling students who have either done well or passed the exams despite the odds against them.

Once again, the message is that you can make it if you try hard enough.

 

We need a new message

I think it’s time we need a new message. And that message is that as a society, we acknowledge that the odds are stacked against those who come from less privileged backgrounds. And since the odds are stacked against them, we need to make sure that they receive unconditional help as far as the basics are concerned.

And this is where I think the government is still behind the curve. Now, I’m not saying that our government doesn’t provide help to those in need. We have an entire ministry that oversees social and family issues as well as an army of social workers that work extremely hard to help families in need.

Unfortunately, it seems that in order to qualify for all sorts of help, there are layers and hoops to jump through. In other words, there are lots of conditions attached in order to receive the help they need.*

More importantly, having all sorts of conditions attached in order to receive help continues to send the message that poor people can’t be trusted to make the right decisions for themselves.

It’s also in the same spirit that former GIC chief economist, Yeoh Lam Keong has come out to question Minister for Trade and Industry Chan Chun Sing on why he exhorts the better off in society to do more to help the less well-off rather than have the government do more instead. Yeoh points out that an increase in spending of 0.8% of GDP would be enough to improve Workfare Income Supplement (WIS) and Silver Support Scheme (SSS) substantially.

 

Conclusion

I think Singapore has developed to the point where we can help the less fortunate in society more. We can step away from the old messages of “helping them more will lead to higher taxes”** or that “if you work hard enough, you will succeed”.

 

Notes:

*I understand the need for paperwork as the government needs to ensure that taxpayers monies are disbursed and used in the right manner. However, people need to recognise that additional procedures and paperwork create friction. At some point, the friction and inefficiency from the paperwork is going to outweigh any costs of the system failing. In other words, the inefficiency in the system has a higher cost than the abuse the paperwork is meant to prevent.

**Anyway, GST is projected to increase to 9% in a few years time. The rationale is that we need to increase revenues as the burden on healthcare will increase.

It’s December! Christmas is right around the corner and soon, no one’s going to be in the mood to do any work.

Just kidding. My students have tests in a couple of weeks. They should be doing lots of reading and practice right now.

Here are some reads to start your week.

 

books on bookshelves

Photo by Mikes Photos on Pexels.com

How to Retire Forever on a Fixed Chunk of Money (Mr. Money Moustache)

If there’s anyone interested in FIRE, then you need to read everything MMM writes. This is a good overview of the strategy that anyone who retires early will have to follow. The article covers some other points like why MMM only holds stocks, should you worry about a bear market etc. You may not agree with all the points but nonetheless, those are points to consider.

 

The Biggest Myth in Retirement Savings (A Wealth of Common Sense)

A look at the U.S. experience with 401(K)s and the early incarnation that is defined benefits plans. While we gripe about CPF, the alternative may not be that great either. Note that Ben Carlson says this in a footnote:

1Here’s the Ben Carlson dream retirement system: Everyone who is employed is automatically enrolled in the government’s Thrift Savings Plan. The maximum contribution is $50k/year and this one account can be used as a 401(k), IRA, and 529.

Practically CPF.

 

Patient Capital: The Key To Long-Term Wealth Creation (Financial Samurai)

A particular important read in trying times.

With all the fluctuations in the stock market, it can be jarring to see your wealth rise and fall drastically from month to month. But remember, what’s important is not your wealth tomorrow but your wealth in 10 or more years time.

If you have the right strategy, patience and work ethic, you should find yourself much, much better off than you were 10 years ago. If you have, then continue doing what you’re doing and 10 years later, you’ll find yourself much better off than today.

Updated the STI PE10 stats.

airport bank board business

Photo by Pixabay on Pexels.com

 

As of 1 Dec 2018, the STI closed at 3,117.61 with a PE of 11.53x. That gives it a PE10 of 12.6x or if you prefer, a ten-year average earnings yield of 7.94%. On this basis, markets haven’t been this cheap since early 2017.

In fact, the STI was cheaper just a weak ago which shows us how fast sentiments can change. The STI would have been cheaper still if we go back to late October where it briefly dropped below the 3,000 mark.

Over in U.S markets, November was probably a horrid month for most investors. Major drops in the Dow, S&P, Oil and even Bitcoin marked a month where the only refuge was in cash.

 

 

 

In case you weren’t following the crypto scene, “hodl” is a typo for “hold” and someone that became a meme for crypto fanboys to buy and hold crypto for the long run.

close up of coins

Photo by Pixabay on Pexels.com

As Josh Brown reminds us, this week is roughly the one year anniversary of when most of the world suddenly realised that people were “making tons of money” from investing in something called “bitcoin”.

Plenty of other cryptocurrencies followed but we haven’t really heard of the widespread use case being implemented. That basically means that the usefulness of bitcoin and other cryptos have not been proven yet. The only thing that has been proven is that the technology consumes a shit ton of energy.

I hate to say I told you so but I told you so (here, here, and here).

The next shoe is already dropping

airport bank board business

Photo by Pixabay on Pexels.com

By the way, remember when I said that bitcoin and cryptos were just a symptom of easy money going into certain areas of the market and those areas ride a lot on optimism which has a high chance of not coming true?

That whole setup largely explains why tech has been getting hammered the way it has. Just a few months ago, we were talking about companies with trillion dollar market caps. As of today, Apple’s market cap has fallen to just under $750b and is no longer the largest publicly-traded company as measured by market cap. As of writing, that honour belongs to Microsoft.

Now, don’t get me wrong. I’m not saying that Apple is a lousy investment or a company on the brink of disaster. What I’m saying is that the fact that what’s happening in the markets right now is all a reflection of Mr. Market’s mood swings. Just a few months ago, he was totally positive on tech which propelled Apple and Amazon to trillion dollar market caps. Right now, the bipolar Mr. Market is obviously running the other way.

 

In local news

So what does all the above mean for the local market?

Surprisingly, the STI has held up relatively well despite the carnage in tech. Possibly because the STI is financials-heavy and our markets don’t really have a huge pie in the tech sector. The property and financial sector will hit the STI much harder than anything in tech and to be honest, those sectors have been hit pretty hard already in the last few months.

However, MAS has come out to warn that interest rates are on their way up and that households need to “be prudent”*. For some months now, I’ve been saying the same thing. That if mortgage holders aren’t able to service their loans with an interest rate of at least 3%, then they need to be very careful.

The STI is going to fall much further if an economic downturn happens and interest rates in the U.S. continue to march upwards as that will directly impact defaults in the loan sector. I mean, what could be worse than losing your job while your loans get more expensive?

Having said that, valuations on the STI are not demanding. If you ask me, it’s on the cheap side (but not dirt cheap!) but the macro headwinds seem to be blowing hard.

Notes:

*It’s nice that MAS gives a mention that interest rates in SG are closely linked to rates in the U.S. If you want to know why, here was my take on it.

Kyith over at Investment Moats really nailed this one.

athletics blue ground lanes

Photo by Mateusz Dach on Pexels.com

 

I’m not going to link to the original article that Kyith based his post on because I don’t want to give rubbish articles any more traction than they deserve but the article provides a good example of how you can easily mislead others with badly designed surveys.

In another life, I actually interned at a market research firm and I’m pretty sensitive to how questions are crafted and the conclusions that one can reach based on misleading surveys.

 

Background of the article

The article is based on a survey commissioned by an online e-commerce company and the demographics should set alarm bells off:

The survey polled 700 Singaporeans from different age groups and monthly income brackets, with about 65 per cent of females to 35 per cent of males. – from the original source

Furthermore, as Kyith has pointed out, the back-of-the-envelope calculations don’t make sense. $17,000/year on food is equivalent to spending slightly over $15 per meal per day.

Problems with the survey

Now, last I checked, Singapore doesn’t have such a terribly lopsided gender imbalance. If we did, I’d be part of a very prized demographic here in Singapore. I didn’t see the numbers for the age groups but I suspect a fair number of respondents were those in their late teens or early 20s — hardly representative of the working adult demographic.

In Singapore, we have coffee shops and hawker centres where a meal will only set you back around $4-5. At best, if you decide to be lavish, you’ll spend $10. That’s not going to $15 per meal per day unless one of your meals is at a fancy restaurant. Every. Single. Day. If you cook or do meal preps, that’s going to reduce your expenditure on food even more.

Of course, the survey reported the average numbers and anyone who’s taken a course in statistics will tell you that averages can be skewed by outliers. Perhaps 8 out of 10 respondents only spend $5-10 per meal per day and the number got skewed upwards by the 2 out of 10 that spends $20-25 per meal per day. But if that’s the case, it’s still bad reporting because the average numbers don’t represent the truth.

Numbers do lie

In short, clickbait articles like the one mentioned often try to exaggerate the truth so that lots of people click through to read it or share it on their social media to provoke some discussion. If we want to be both media-savvy and financial literate, we need to be able to call bullshit on articles like these and if you do share them, share them to shame them.

Every month, the relevant government agencies here in Singapore release the latest data on inflation. Inflation, being the increase in the general price level is something that most denizens of a country should be concerned about because it affects their lives in a very direct way.

When prices go up, the same dollar that you have buys you fewer goods and services. If you don’t have the power to negotiate for higher wages, then inflation causes a hit to your purchasing power. We can argue about whether being able to buy more stuff is necessarily equal to an increase in one’s standard of living but I’m quite sure that when inflation leads to a problem with affording necessities such as food, shelter, and medicine, that counts as a hit to one’s standard of living.

What some people may not realise is that here in Singapore, we have quite a few different inflation measures. And this can be a problem when you read the news. A simple search on Google reveals this situation.

sg_inflation.JPG

Sometimes core inflation gets highlighted while other times, it’s just inflation. What gives?

 

Headline vs. Core inflation

Headline inflation is basically the textbook measure of inflation. It tracks the percentage change in the Consumer Price Index (CPI) which is an index of price changes to a basket of goods and services that the average household purchases. Of course, the basket differs from country to country but it should reflect what the average household spends on.

However, Singapore’s situation is quite unique in that private road transport (i.e. cars) prices are highly influenced by governments policies (i.e. our COE system and tariffs on cars) in a bid to keep our roads relatively less congested. This makes Singapore one of the most expensive places in the world to own (not so much driving) a car.

Similarly, the homeownership rate in Singapore is one of the highest in the world. This means that any changes to rents do not affect the purchasing power of most households. Most households in Singapore are affected more by changes in mortgage rates than the actual price of rentals or property.

 

So, what matters?

Therefore, in Singapore, if you are like most people and you want to figure out if price increases are getting better or worse, you should focus on the Core Inflation numbers.

Sadly, in recent years, core inflation numbers have been higher than the headline inflation numbers for the simple reason that rents have been falling along with the increase in rental vacancies.

In 2017, the core inflation number was 1.5% while the headline number was 0.6%.*

What more perceptive readers should realise by now is that saving money for the long run is a losing proposition if you can’t get a return of anything more than the inflation rate.

In Singapore, interest rates on savings accounts are pathetically low (~1% p.a.). The implication is that you should only have minimal savings in a savings account to meet liquidity needs. Even putting your savings in accounts/assets that return 2-3% p.a. are mostly rubbish as, at best, it helps you preserve the purchasing power of your savings.

 

What to do, what to do, what to do?

What to do, indeed?

This is where financial literacy comes in. Minister for education, Ong Ye Kung, recently announced how, starting from next year, all ITE and Polytechnic students will have to go through a financial literacy module in their first year of study

It’s a good first step but I hope the module will actually get students to be financially literate rather than giving them the simple impression that budgeting and saving money is all there is to become financially literate.

I also hope that the financial planning industry doesn’t get involved in these programmes in a big way. I can understand how it may seem wise to get financial planners to teach people about financial literacy but as Buffett once wisely said, “Never ask your barber if you need a haircut.”

Getting the financial planning industry involved in promoting financial literacy is precisely that.

 

Notes:

*Statistics Singapore has wonderful infographics for a variety of other economic data. It’s really easy to understand and instructive.