Below is an article from Business TImes last week.
The author, comments on the need for S'porean to gear up themselves for a financial literacy world and be serious about their own financial planning.
I fully agree. You have a better headstart, if you start planning earlier in life.
Do not over-indulge in material items. At the end of the day, you may end up in negative cashflow. Start saving & investing today!
Make some mistakes,to err is human.
More important is to learn from your own experiences, and love growing your portfolio.
cheers,
Bee Bee
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Survey results:Overview of financial literacy score (out of 2,023 people)
Tier 1: Basic money management-budgeting,spending,saving,loans and credit facilities.
Action: 72 Knowledge: 76 Action+knowledge: 74
Tier 2: Financial planning and retirement planning
Action: 64 Knowledge: 61 Action+knowledge: 62
Tier 3: Investment know-how
Action: 67 Knowledge: 59 Action+knowledge: 58
Note: out of 100 points
AS a nation, we have just celebrated the big 40. We came through two recessions, survived the Asian financial crisis and overcame Sars. In terms of material advancement, we have come a long way. But three recent reports in the media got me thinking about the state of financial literacy in Singapore.
Novices and veterans: Many first-time car buyers may be trading off Tier 2 financial competency for Tier 1. Buyers of good class bungalows in 2003, on the other hand, demonstrated Tier 3 financial literacy in action
Survey findings
The first article highlighted the findings of the first National Financial Literacy Survey conducted in March. It shows that for the most part, Singaporeans have healthy attitudes towards basic money management, financial planning and investment matters.
The main negatives were that Singaporeans do not plan their finances in a disciplined fashion, are not adequately prepared for retirement and are not well-versed in the mechanics of common financial products like life insurance and unit trusts.
Going into the segmented results, it appears that Singaporeans have a decent score in basic money management (categorised as Tier 1) but score lower for financial planning and retirement planning (Tier 2) and even lower for investment know-how (Tier 3).
Asked when the ideal time was to start financial planning, 67 per cent said it would be when they started work or shortly thereafter. This is indeed a positive acknowledgement that early planning is a plus in a dynamic society like ours.
Students (29 years and below) as a segment scored very low on the overall literacy score, only managing to beat the retiree and unemployed segments. The need for consumer education in our schools becomes an obvious priority.
The sum total of these selected findings leads me to conclude that the low level of sophistication in financial matters for a nation plugged into technology and tertiary education deserves serious attention.
Car ownership
The second article was about first-time car buyers thronging the showrooms. With certificates of entitlement (COEs) no higher than $16,000 and car prices reduced due to lower taxes, a new car for $60,000 is now within reach for many who had previously depended on public transport.
Relating this news item to the financial literacy survey, I wonder if the young car owners understand that they are trading off Tier 2 financial competency for Tier 1. Yes, the car loan payment of under $1,000 a month is now affordable compared to last year. But like half the survey respondents, the new buyers of low-end cars are paying for expenses first before saving for their retirement and other financial goals.
Like 39 per cent of respondents, these car buyers may not be tracking how much they spend every month or appreciate that the effective interest rate for car loans is about 5.5 per cent a year. The true cost of owning a car is more than the sticker price (especially if petrol prices and ERP costs increase).
Good class bungalows
The third report appeared over the weekend, highlighting the rising number of transactions in good class bungalows (GCB). In fact, the smart money moved into this segment of residential properties in 2003 when the average selling price was around $250 to $300 per sq ft.
The market value has risen by 25 per cent since then and the average GCB is now valued at around $8 million. To have had the foresight and capacity in 2003 or 2004 to acquire an under-valued asset is admirable. This is indeed Tier 3 financial literacy in action.
The financial literacy survey clearly indicates that the high income earners (those most likely to be GCB buyers) had the highest overall financial literacy scores. Not surprisingly, the survey concluded that a combination of tertiary education and high income resulted in both knowledge and action in terms of financial literacy.
The survey did not track if top scoring respondents were more likely to engage financial advisers but the trend-setting GCB buyers must have worked with bankers and real estate brokers to validate their personal investment know-how.
Making informed judgments
Financial literacy refers to the ability of individuals to make informed judgments and take effective decisions in managing their finances. The two components of financial literacy are knowledge about financial products and effective action across the three tiers of basic money management, retirement and financial planning and investment know-how.
The future looks bright for Singaporeans. But we should not squander the opportunity to improve our overall financial literacy scores by the time this sur vey is repeated in five years' time. The benefits of financial literacy are evidenced by high net worth individuals (GCB buyers).
Needing attention
The two groups that need attention, in my view, are the students and the mass affluent segments. The Ministry of Education must seriously consider embedding financial literacy elements into mathematics and English classes, as they are planning in Australia. This is so that future generations of working adults and retirees will do better in the survey than the current generation.
The mass affluent market of educated and middle-income families in turn should consider working with financial advisers to enhance the knowledge provided by MoneySENSE and the media. We cannot afford to be mere followers of trends set by our friends and relatives when it comes to taking responsibility for our financial future. Let's get serious about becoming world class in financial literacy.
