Despite spending at least ten years in Primary and Secondary school, followed by tertiary education, most Singaporeans are not taught financial literacy formally, even if they major in Business or Finance.
This means that Singaporeans can graduate from university and enter the working world without having a basic understanding of important topics insurance, investing, retirement planning and tools like credit cards. Those who are more fortunate would receive some financial literacy education through our parents.
Today, the personal finance space is changing faster than ever. Technology has made new product categories possible, such as robo-advisors, cryptocurrencies and peer-to-peer lending. Government policies are also constantly revised and introduced, each with their own implications on our financial decisions. Thus, it is important that all Singaporeans are equipped to understand the ever-increasing financial decisions we must make.
In November 2018, the national financial literacy programme MoneySense announced that a compulsory financial education curriculum will be rolled out to all polytechnic and Institute of Technical Education (ITE) for incoming Year 1 students from 2019 onwards. This is welcome move that gives more young Singaporeans a solid foundation for their lifelong journey of learning and cultivating good personal finance habits.
Here are four reasons why Singaporeans should not neglect developing financial literacy.
# 1 Prevent Yourself From Getting Into Avoidable Financial Problems
As the saying goes, prevention is better than cure. If we understand basic concepts like debts, interest, and risk, then we can make wise decisions to avoid the pitfalls that lead to financial problems, as well as the vicious cycle that follows.
No matter how hard we work and how much we earn, if we don’t have the basic knowledge to manage our money, we can still end up in bad financial straits. And once we’re in financial distress, things become much harder for us.
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For example, if you borrow beyond your means and are not able to make your repayments, your credit score will suffer. This affects your ability to access credit, such as take a home loan at a reasonable rate, if at all. If this happens, your ideal timeline for your life milestones might be affected.
In more serious cases where you need to declare bankruptcy, you might be depriving yourself of job opportunities or serving on the boards of companies or organisations, even if you have the necessary qualifications and professional experience.
These are real examples where poor personal finance decisions can cause you to suffer unnecessarily, even if you might be successful in your professional career.
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# 2 Compound Your Returns Over A Longer Period Of Time
Compound interest favours those who start early. By understanding the concept of compound interest, young Singaporeans can get started early and take advantage of a longer time horizon to allow compound interest to work wonders.
To illustrate, a young Singaporean who invests just $500 per month from the age if 20 and continues to do so until age 65 will have more than $1 million dollars, assuming a 5% annualised return. Another person who does the same but started just ten years later at age 30 will get slightly over $569,000. As you can see, the 10-year additional time horizon contributed to more than $431,000 difference in investment returns.
Individuals who do not wish to invest in the stock market can still benefit from compound interest on their CPF monies. One common method is to top-up your CPF Special Account (SA) with cash using the CPF voluntary contribution scheme. This will earn you interest rates of up to 5% per annum, including the additional 1% interest for the first $60,000 in your CPF account. This interest rate is virtually risk-free as it is guaranteed by the Singapore government.
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# 3 Develop Good Budgeting Skills And Avoid Unexpected Expenses
Money is a finite resource, and budgeting is the process of allocating your spending such that it reflects your priorities and needs. A comprehensive budgeting plan includes considering how much savings you need to set aside for short and long-term financial goals, such as an emergency savings, buying a property, and retirement.
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Poor budgeting can cause you to spend more than what you can afford, leaving you with little or no savings left for unexpected expenses. People who live month-to-month may have a cashflow issue when they get presented with annual bills such as annual insurance premiums, yearly road tax renewals, or other ad-hoc expenditure like broken appliances.
With a proper budgeting plan, you can spot overspending much earlier and can adjust by reducing your expenses accordingly.
Cutting expenses can be difficult, especially when all your monthly bills seem necessary. However, you can often detect discretionary expenses if you track your daily spending based on your personal wants and needs.
# 4 Impart The Value Of Money And Financial Concepts To Your Children
Instead of relying on schools to teach your children about money matters, having financial literacy allows you to impart these good values and habits to your children at a young age.
As Singapore is transiting towards a cashless society, the next generation of children will likely have a different understanding of the value of money. This makes it even more important for parents themselves to be abreast and current in their financial knowledge.
Read Also: A Cashless Future: Why Our Children Will Learn The Value Of Money Differently, And Why That’s Okay
Start Early, Start Now
It is never too late to improve your knowledge on financial matters. There are plenty of online resources available, so you start to build up your knowledge and have informed conversations with your peers and trusted financial adviser.
It doesn’t even need to take a lot of time. You can begin by spending a few minutes a day to educate yourself and you’ll be on the right track towards improving your financial literacy.
The sooner you start, the better.
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