Enough or not enough? Reflections on the debate on basic standard of living and 3 steps for personal financial adequacy

A recent study from the Lee Kuan Yew School of Public Policy and the Nanyang Technological University have concluded that 3 in 10 Singaporean households do not earn enough to meet the basic expenses, but the Ministry of Finance has raised objections. MoneyOwl CEO Chuin Ting Weber weighs in.
10 October 2021
3 steps for personal financial adequacy

A Debate on Singaporeans earning enough to sustain a basic standard of living

A recent study from the Lee Kuan Yew School of Public Policy and the Nanyang Technological University have concluded that 3 in 10 Singaporean households do not earn enough to meet the basic expenses, but the Ministry of Finance has raised objections. MoneyOwl CEO Chuin Ting Weber weighs in.

Once again, we have a debate around what is enough needed to sustain a basic standard of living.

Researchers from the Lee Kuan Yew School of Public Policy and the Nanyang Technological University have concluded that 30% of working households do not earn enough to meet the basic expenses estimated at $6,426 for a family of four and $3,218 for a single-parent household, while the CPF Basic Retirement Sum paying $800 monthly annuity is only 56% of a single elderly person’s basic needs of $1,421.

The Ministry of Finance has pushed back on the report’s estimates being closer to average expenses based on actual expenditure, not basic expenses; on the accuracy of government transfer amounts; and the omission of the impact of building housing equity.

“Enough” is both an objective measure and a subjective experience

The content of this debate appears to be about personal finances but at the heart of it, it is about government policy.

No government will deny that it needs to have policies to take care of “basic” needs. We always know that the bottom 20% of the population would need constant extraordinary support through government transfers to take care of such basic needs. But to stretch this to 30% of working households and 56% of retirees is not taken care of is a problematic implication, to put it mildly.

The crux of the debate is the definition of “basic” and, related to it, “enough”. “Enough” has both an objective and subjective dimension. On the objective front, if you are involuntarily sleeping on the streets and going hungry because you earn only $200 a month or receive only $200 a month in retirement income, you definitely don’t have enough money for your basic needs. Conversely, if you are spending $10,000 a month and eating out at restaurants every single day, you certainly have more than enough for a clearly beyond-basic lifestyle. Thus, the government is not wrong to cite actual basic expenditures in its response. After all, we do not have 30% of working households or 56% of retirees anywhere near these dire situations, and as a country, we do very well by such international standards relating to infant mortality, literacy, education, and healthcare.

In between obvious extremes, however, there is a range of experiences. What is “enough” to make it worthwhile to be living beyond “breathing and being alive” (to quote one of the professors), is ultimately subjective. This is complex because things like peace of mind (what if something untoward happens to me), comparisons (how far I am from the very rich), common living (can a teenager afford a fast-food meal out with richer friends) come into play, and political issues of equity and division of responsibility come in. The “experienced minimum enough” averaged in the academic study are now spoken of using the same terms of “basic expenses”, but they probably mean different things to the two parties involved in this debate.

Should government policy go beyond a stricter definition of “basic” to provide for this re-defined “enough-as-experienced”? In the Straits Times report, we see that the Government has acknowledged the report as providing a data point on expectations and aspirations of Singaporeans and will regularly review its scope and coverage of assistance. As SM Tharman Shanmugaratnam once said, beyond a safety net, Singapore wants to provide a trampoline. That is wise for any government, given the importance of social and national cohesion and how citizen happiness goes well beyond the food, clothing, and shelter in a developed country. Beyond the government, its tripartite partners of employers and the Labour Movement will also have an important role to play in providing that trampoline.

Three steps to achieving a personal “enough”

This debate is mainly about policy. However, it will inevitably raise questions among individual Singaporeans regarding their own financial future: whether they have enough for the next life stage, be it raising a family or retirement, like the household types cited in the report. I can expect that very soon, this report will be used, not just by policymakers, but also financial salespeople who will see in it a proof point that CPF is not good enough and thus you need to invest your cash or your CPF or buy some insurance products. This might be suitable for some, but not all persons, and hence should not be the main conclusion from the report.

I would like to offer three actionable suggestions about how to achieve “enough”, and, extending SM Tharman’s analogy, how to achieve that trampoline effect for yourself for more.

First, use national schemes and CPF to build your “Most Reliable Financial Base”

This is your basic set of trampoline springs. CPF performs the function of laying the foundation for your three “Must Haves” in financial security: your own home, medical expenses for big hospital bills and chronic illness treatments (Medishield Life for B2/C wards), and in retirement, a basic reliable stream of lifelong income for a general living (CPF LIFE) and disabled living (Careshield Life). You can also use CPF for basic Dependents’ Protection Scheme (DPS) life insurance.

Specific to retirees, the Basic Retirement Sum is sized to deliver a monthly annuity payout to those who already have a property (i.e., a roof over their heads) and caters for “basic” living expenses corresponding to the second quintile (20th to 40th percentile) of actual retiree household expenditures. If the corresponding $800 per month (from aged 65, for someone turning 55 today) is insufficient for your definition of “enough”, the payout from having a Full Retirement Sum would be closer to $1,500 per month per person, and from the Enhanced Retirement Sum, around $2,100 per person. Except for the nomenclature of what to call “basic”, this more than sufficiently covers the retiree household budget of $1,421 cited in the report.

MoneyOwl has the benefit of serving lower and lower-middle-income clients in our Comprehensive Financial Planning service, which separates a plan from product sales, and projects your CPF LIFE payouts using our proprietary MoneyOwl CPF Analyser. Our clients in this segment tell us that their own comfortable-enough level for what we call a Safe Retirement Income Floor (or “die die must have income”) is around $1,200 per month per person – somewhat lower than the academic report and sufficiently provided for by CPF LIFE.

For many of these clients, we have had to persuade them not to give us their money to invest in products, but to top up their CPF; because there was just no need for them to take the market risk. And even if your definition of “basic” or “enough” is higher, I suspect that you could well use $2,100 in your CPF LIFE as that Safe Retirement Income floor. From our experience with clients, we also see the impact of homeownership on retirement adequacy, as some retirees have been able to monetise their housing by renting out a room in their paid-up flat. They can also consider such schemes as the HDB Enhanced Lease Buyback scheme.

Second, build yourself up and protect yourself as your “Most Important Financial Asset”

Achieving financial sufficiency as a working person starts from being able to earn and save. It does not start from investing or buying the “best” products with the highest promised return or even the highest risk-adjusted return. If you look to investments to try to “make up” for income, you are likely headed for gambling with leverage and financial ruin that will bring you far below even the basic level of adequacy. This is because markets are volatile and you need to have the ability to take risks. Instead, if you are always the best at what you do, and you up-skill yourself to stay relevant, you strengthen your trampoline and your income will be uplifted to that next level. You also need to protect your “Most Important Financial Asset” through low-cost, term insurance that replaces your income if it is taken away because of some unfortunate events.

Third, understand and undertake Comprehensive Financial Planning as your “Most Important Financial Manual”

It starts with good financial health in terms of cashflow and leverage, and having an emergency fund. A comprehensive plan would balance and optimise your limited resources to address your multiple needs – for living a meaningful life today, for protection, medical expenses, accumulation for kids’ education and retirement – most optimally. It does not stop there. You need to take action using the most fit-for-purpose solutions, which can include “free” national schemes like CPF (not just about investing CPF into commercial solutions). Any commercial products for additional protection or wealth-building should be low-cost and reliable. A personalised, actionable, and comprehensive plan is likely the best gift you can give to yourself, as you understand how to achieve your own definition of enough and more.

From time to time, there will be studies and reports that will cause us to wonder about our financial adequacy and resilience, on a national as well as personal level. Even as we look to policymakers to set out the broad safety nets and trampolines, we also should empower ourselves to reach sufficiency and confident living, today and into the future. By building your Most Reliable Financial Base and your Most Important Financial Asset, and laying hold of your Most Important Financial Manual, you will be able to not just scrape by with enough, but to Live Every Day And Purposefully (LEAP)!

Chuin Ting Weber, CFP, CFA, CAIA, is CEO and Chief Investment Officer of MoneyOwl – an NTUC social enterprise and a comprehensive adviser with fully salaried advisers, and Singapore’s First Bionic Financial Adviser. MoneyOwl’s Comprehensive Financial Planning service, which is separate from product sales, is at available at a promotional rate of $99 to the public and at $24.75 (75% off) for NTUC union members.

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