Time for Some Good News

The recession is here, but S'pore households
have enough wealth to weather the storm

By Zhen Ming

The Average Singapore Household’s Balance Sheet

...................................... End-2000 .............. End-2006

Assets

Currency & Deposits ....... $136,310 ............... $157,930
Shares & Securities ........ $ 75,340 ................ $120,360
Life Insurance Equity ....... $ 30,750 ............... $ 76,820
CPF / Pension Funds ...... $ 94,190 ................ $119,930
Residential Property ........ $386,830 ............... $384,920

Total Assets .................. $723,420 ............... $859,970

Liabilities

Mortgage Loans ............. $106,800 ............... $110,390
Personal Loans .............. $ 38,450 ................ $ 39,180

Total Liabilities ............ $145,250 ............... $149,570

Net Wealth ............... $578,160 ............ $710,400

NB: Numbers may not add up because of of rounding off. Assumes
average household size was 4.2 and 4.1 in 2000 and 2006, respectively.

Basic data: Yearbook of Statistics Singapore, 2008


BY now, you're probably fed up with reading all that bad news about the economy.

By now, you're also sick of listening to all those 'I told you so' stock market prophets of doom who - after years of being totally wrong - are finally having their day.

So let me, for a change, try to provide you with some year-end cheer instead - at least towards the end of this column on the upside of doom and gloom.

But first - yes, it's official, folks - recession has finally come to Singapore.

And yes, after years of free-spending and saying 'charge it' at every turn, we're again using words such as 'scrimp and save' and 'scrape up some cash'.

We're also cutting back on almost all fronts, regardless of how much we earn, by trimming grocery costs and buying fewer luxuries.

We're also saying 'no' and 'maybe' to travel for the holidays, eating out at restaurants, and entertainment such as going to movies.

Fear factor

Blame it, if you like, on a falling stock market that has eaten away at our wealth and on all those other consumers (not me) who feel panic and fear.

Blame it also on those kiasu banks that are now cautious about making new loans, causing a ripple effect in the economy as more businesses have trouble surviving.

The Government has taken emergency measures to break the downward spiral by making available $2.3 billion in loan and credit facilities to companies and $600 million for retraining workers.

The upside is that we should realise how blessed we've been since 1965 when we as a nation finally stood on our own two feet.

Since independence, like the proverbial hard-working ants that we've been, we've managed to squirrel away huge surpluses that are now the envy of many.

Not counting the mountain of foreign reserves held publicly (which, strictly speaking, we can't touch as individuals), even if we were to take stock of only the wealth that we've personally accumulated, we should be gratified to learn that the average Singapore household has done outstandingly well.

At the turn of the new millennium, at end-2000, the average household's private balance sheet showed a net wealth of $578,160.

This personal household wealth comprises an assortment of highly-prized assets - from currency and deposits, shares and securities, to life insurance, Central Provident Fund savings and the value of our homes less any outstanding loan (mortgage or personal) we may still have.

By end-2006 (the latest available data), six short years later, this net wealth had grown by 22.9 per cent to $710,400 per average household of 4.1 people.

Going by the rate at which we spent our money in 2006, even if all of us were to stop working all at once, it would still take us at least 8.75 years to totally run down our combined personal wealth totaling $762.6 billion to an absolute zero.

So never mind if others say the global economy need time (three, four, five years, according to Minister Mentor Lee Kuan Yew) to clean up the mess left behind by years of excessive debt and spending - we, as a people, will surely survive the worst that's yet to come.

So never mind if our own companies, too, need even more time to clean up their balance sheets - they will only emerge leaner to weather the slowdown and to expand even more when positive growth returns to the economy.

In the meanwhile, the hard times will only force a new generation of younger Singaporeans to regain control of their spending by foregoing a lifestyle beyond their means (through accumulating more debt than they can handle).

Rational behaviour

Lest we forget, during the current economic crisis, it is also important for all of us to keep a clear head and not get caught up in the fear.

After all, left unchecked, the credit crunch could inadvertently cause many of us to irrationally assume the worst and take drastic steps that can only make things worse.

To be sure, over time, this crisis will surely end and the economy will begin to expand once again.

So, go ahead, my friend, do spend more on Christmas gifts this year than last. But only if you can afford it.


Source: The New Paper, Sun 23 Nov 2008