By Chuin Ting Weber, CFP, CFA, CAIA
CEO & Chief Investment Officer, MoneyOwl
Are tax incentives and multiple choices sufficient for good financial planning outcomes en masse?
It may not be obvious in Singapore, but financial planning and financial literacy are professions that attract international research.
Recently, Wharton’s Assoc Professor Christina Zhu conducted an award-winning study on US “529” tax-advantaged college savings plans.
A stunning 67% of these accounts between 2010–2020 suffered suboptimal outcomes, with lifetime losses estimated at an average of 8% — amounting to over US$15b for this group in 2010 alone.
We don’t have such college savings plans in Singapore. But the factors behind failure are similar, and relevant:
- Suboptimal investment or savings performance has a lot to do with high costs eating away at returns.
- Information-processing friction hurts
- Product sellers: Documents explaining products are too complex
- Parents/investors: They have responsibly taken action, but default to familiarity, e.g. State-level plans; and lack ability to evaluate products
- System: Advisor-sold plans come with higher costs, but there is little access to good, free tools for product comparison for self-directed purchases
- Product sellers: Documents explaining products are too complex
- Parents/investors: They have responsibly taken action, but default to familiarity, e.g. State-level plans; and lack ability to evaluate products
- System: Advisor-sold plans come with higher costs, but there is little access to good, free tools for product comparison for self-directed purchases
My takeaway for Singapore is that industry, policymakers, and employers can do more to help everyday people close these gaps to financial security.
Tax incentives and access to multiple options don’t go far enough.
We need to make the path to wise decisions much easier (and to bad ones difficult!) by addressing all of the following three aspects:
- Financial education – both theory and practical
- Tools for personalisation and visualisation of trade-offs & options
- An off-ramp to translate all of that into the last mile of what to do and what to buy — and not to and not buy. Without this, the other two steps end in futility.
This crucial third step in turn requires:
- Properly curated products and solutions – going beyond choice, to have selection parameters set with greater intentionality to benefit the everyday investor.
- A platform to make default action easy, e.g., an employer supported savings programme.
- Other incentives (including tax) to drive behaviour.
What’s at stake is not just statistics.
But much more important goals, like social mobility and equity. For the lives of real human beings: a child’s future, a working family’s dreams, a decent retirement in the golden years without anxiety.
Happily, individuals and families are also not without agency.
May I suggest that for a start you check out content, tools, rubrics and solution sets that MoneyOwl has for you on our website and Instagram? We’re a social enterprise and don’t do direct selling. We do this because we believe financial security and financial wellness should be for all.
That’s a birthday wish for Singaporeans on our 60th National Day. ❤️
