Conspicuous Consumption And The Growth of Human Beings

An interesting ST Forum letter:

ST Jan 2, 2008
Flashy yuppies paint themselves into a corner

MANY young Singaporeans, gainfully employed in a booming economy, have expressed anxiety about building a large enough nest egg for a comfortable retirement. This is rather disturbing.

The reasons are not hard to trace, though, if one steps back and observes the lifestyles of these so-called 'yuppies' who hold lucrative jobs that promise much.

Today, Singaporeans' consumption habits more or less mirror those of Americans who have traditionally been consummate spenders. And like Americans, many Singaporeans discount the future in order to consume today. They are hooked on what sociologist Thorstein Veblen termed 'conspicuous consumption', which used to be the affliction of the rich.

To be sure, they get a lot of help in this respect. Crowded malls for drop-dead shopping with foodcourts to give respite to continue shopping; colourful full-page ads that tell you how good you look in that suit, how macho it would be behind the wheel of that new BMW, or hey, wouldn't that DaVinci sofa look great in our living room?

...... Keeping up with the Joneses has given way to keener appetites: affordable luxury; living well with a vengeance; we have it, let's flaunt it; you can't take it with you; and the rest. All of which keeps the cash register ringing and, of course, an unhealthy growth in credit card debt.

One can argue that consumption is normal desire made possible by a successful economy. But if you think about it, how much do you really need?

........ What one sees is an ethos of consumption that really did not exist a couple of generations ago, when the norms of the lower class and middle class dictated thrift and austerity, living within one's means, saving for the future and for one's children, and not being conspicuous, really, about anything.

The picture looks different now and it's not pretty. Overindulging Singaporeans are in a predicament of their own making and they must, for the sake of their retirement, find a way out unaided - and the sooner the better.

New year resolution, anyone?

Philip Lee Seck Kay

The term "conspicuous consumption" was first coined in a book entitled The Theory of the Leisure Class. It refers to the expenditure of money or other resources for the sake of displaying a higher status than others. A simple example would be the purchase of an expensive branded watch, when one could have purchased a cheaper alternative that works just as well.

Leaving aside economics for a moment, it's interesting to turn to psychology and consider Abraham Maslow's triangle of needs. In brief, Maslow says that human motivations are hierarchical. It's only when an individual has satisfied his lower needs that his attention turns towards his higher needs:

In a developed, highly consumerist society, we might say that a large proportion of individuals are getting stuck at Level 4. At this stage, they are driven by their need for social status and their desire for respect. In turn, their lifestyle develops into one of conspicuous consumption, whereby they constantly seek to acquire more material items so as to display their wealth to others.

Level 5, of course, is where life gets really interesting. Here, individuals start flowering into their uniquely best selves. It is at this self-actualisation stage that a person becomes filled with a desire to realize all of his potential to become an effective, creative, mature human being. "What a man can be, he must be", is one way Maslow expressed it. He also described self-actualisation as follows:

"an episode or spurt in which the powers of the person come together in a particularly and intensely enjoyable way, and in which he is more integrated and less split, more open for experience, more idiosyncratic, more perfectly expressive or spontaneous, or fully functioning, more creative, more humorous more ego-transcending, more independent of his lower needs, etc. He becomes in these episodes more truly himself, more perfectly actualising his potentialities, closer to the core of his being, more fully human. Not only are these his happiest and most thrilling moments, but they are also moments of greatest maturity, individuation, fulfilment - in a word, his healthiest moments."

Maslow predicts that the large majority of human beings will never get past Level 4. In other words, few people are truly self-actualising. If your focus in life is still on conspicuous consumption, then you are not a self-actualiser and you are a lesser being than you could be - and you aren't even heading in the right direction.

One day, you might still become more than your car, your condo, your clothes and your credit cards. But first you will have to climb past Level 4. Good luck.

Baca Selengkapnya »»

On Credit Lines & Credit Cards

ST Oct 3, 2007
Using cash advance from DBS credit card? Beware this catch

DBS allows customers to borrow cash (credit line) for six-months with 0% interest from their POSB Everyday credit card for a fee.

However, every month, when you make payment to your credit card, all payment goes first to repaying your credit line until it is fully paid before it applies to your credit-card transactions.

Let's take this example: You draw a credit line of $1,000 for six-months with 0% interest on your DBS credit card for a fee and, in that same month, you charge another $500 to your credit card.

When you make a $700 payment for that month, the $700 will go fully towards repaying your credit line (after which you still owe $300 on the credit line). This means you incur finance charges (in the 10-25% annual percentage rate) on the $500 of credit card transactions automatically.

I called up DBS, and they say this is due to the payment hierarchy.

There is no way to specify how my credit card payment should be directed to.

OCBC has a much fairer credit-line scheme which I have used, as it allows you to specify which account you want to pay back, that is, I can fully pay my credit-card transactions monthly, and/or pay back a little of my cash line.

Chang Kui Yu

Quite apart from all that, please use your common sense. Can any bank really lend you money and charge you nothing? Only your mother could do that. And no bank is a mother.

Read the small print, please. “DBS allows customers to borrow cash (credit line) for six months, with 0% interest … for a fee." So instead of charging you interest every month for the sum you’ve borrowed, DBS charges you a fee.

Well, you can call it a “fee” or you can call it “interest”, but either way it’s money you have to pay the bank, for what you’ve borrowed.

According to the DBS website, the fee (which they call an administrative fee) is 2.5% of what you’ve borrowed. That is perhaps not that expensive, but it is also not as cheap as it may sound. An administrative fee of 2.5% should not be confused with, say, an interest rate of 2.5% p.a..

One difference is that interest is charged on what you actually owe in any given month, while an administrative fee is paid upfront on the entire sum you initially borrowed. No portion of the administrative fee is refundable, even though within 1 or 2 short months you may have dutifully repaid every cent you had initially borrowed.

Personally, apart from my mortgage, I simply do not live on credit. All my credit cards are paid in full by GIRO every month. Some years ago, I did sign up for DBS Cashline, but that was just to get a free umbrella. Since then I have not used the DBS Cashline even once, but I do still have that umbrella. Like my money, I save it for the rainy days.

Baca Selengkapnya »»

Your Retirement Savings

And after all the hue and cry about the changes to the CPF system ... what are you going to do about it? Personally, I mean.

A couple of points, if they were not that clear to you previously, ought to have become somewhat clearer by now. Firstly, whether you like it or not, chances are that you WILL live to a ripe old age. Here's some calculations by Tan Kin Lian, done in an ST article on 21 Sep:

"Many people think their chances of reaching 85 are slim. But they are mistaken. I estimate more than 50 per cent of the population will live to age 85 and beyond.

You do not believe me?

The Department of Statistics' publication Population Trends has data for the death rates of each age group over a period of 25 years from 1980 to 2005. Death rates have been falling over this period by about 3 per cent yearly.

I did some projections based on that data, assuming the decline will continue. This is likely to be the case, at least for the next 10 to 20 years. It has been falling at this rate for the past 25 years. Why should it stop now?

Based on my projections, a male at age 55 today has a 57 per cent chance of surviving to age 85, and 32 per cent chance of hitting 95. The probability for a female is higher, at 70 per cent and 42 per cent, respectively.

If you still do not believe me, remember I am referring to people who are 55 years and less today. This group will have a longer life expectancy compared to that of the older people living today."

Secondly, for many Singaporeans, CPF money alone won't be able to sustain them through their retirement. If these Singaporeans also do not have children to support them (adult children being the traditional safety net for the aged, in Asian societies), then the challenge grows greater.

Whatever the government may do now at the policy level, understand that it's pitched at the subsistence level. A monthly annuity payout of $300 is really just to ensure that you'll have enough money to buy your bowl of rice every day with a few sticks of veggies and toufu in it. It's to make sure that when you're old and wrinkled, you don't have to die of starvation on Singapore's nice, clean streets and spoil the scenery for tourists.

So if you want to enjoy your retirement years in much better shape than that, Mr Wang suggests that you spend some time thinking about how to save, invest and grow your money more effectively.

There's no point complaining: "But I only earn $X every month now, and after I pay my utilities bill and my handphone bill and my mortgage and my car instalment and my food expenses and give $Y to my parents, I only have $Z left, I have hardly anything left over to save."

Because, folks, it's your own life. And you know our kind of government is definitely not the kind that's going to give you any free money on a silver platter.

So you have to find a way, that's all.

Me, I drew up my first financial plan for retirement, during my 3rd year of working life. A crude model, no doubt, since I didn't know very much about personal financial planning then, but it got me started.

What about you?

Here's an interesting exercise - think of five ways you could cut down your expenses, without compromising the quality of life that you're accustomed to right now. No, let's make it more interesting - think of five ways you could cut down your expenses, which would either not compromise your current quality of life, OR improve it.

Baca Selengkapnya »»

Retirement, Money and Singaporeans

A Straits Times article, about retirement, savings and Singaporeans' expectations.

ST Aug 11, 2007
Retire? Not so soon, say many
Singaporeans polled
They need to carry on working because of worries
over insufficient savings
By Lydia Lim

SINGAPOREANS are in no hurry to retire and most want to work beyond the official retirement age of 62, some even into their 70s.

It's a case of 'CPF no enough' for many of these workers.

Seven in 10 polled last month in a Straits Times Insight survey on CPF said they do not think their savings in the national pension fund will see them through old age.

Six in 10 of them said the same of their Medisave funds for hospital bills and specified treatments.

The survey of 636 Singapore residents aged 30 and above found that apart from CPF, 77 per cent expect to be able to draw from other sources of retirement income, mainly savings, investments and insurance.

But a significant minority of 23 per cent had nothing else set aside.

One cause for concern is that only one in two Singaporeans has done any financial planning for retirement.

Even fewer, three in 10, have done their sums on how much they need to squirrel away.

What may mitigate against any resulting savings shortfall is their willingness to work beyond the retirement age of 62. Some two-thirds said they plan to do so.

Of these, one-third are willing to work up to age 65, another third up to age 70 and the remaining third into their 70s.

The journalist has got her thinking hat on backwards. The truth can be stated much more simply. It doesn't really matter what the "official" retirement age is. You will go on working as long as you (a) need the money, and (b) are still able to keep working.

Unless you regard suicide as an alternative, you don't have a choice. What were you thinking - that Singapore is a welfare state?

Blue-collar and lower-income workers are the most likely to want to work longer.
Eight in 10 plan to do so, against six in 10 among professionals, managers, executives and business types, or those drawing more than $3,000 a month.

Older Singaporeans are also more likely to want to work past the retirement age than those in their 30s.

The vast majority - 83 per cent - are however against a recent suggestion by ministers to raise the age when they can draw down their CPF minimum sum. It is currently 62.

The only practical significance of the "official" retirement age is that it is also the age when you can start utilising (in tiny little monthly instalments) your CPF minimum sum. For an explanation of how this works, refer to my old post here.

The survey findings also revealed a good amount of ignorance of the workings of the CPF system. Seven in 10 do not know how much they had in their CPF accounts.
And one in two does not know the rate of return on CPF savings.

Of the half who do, most - 63 per cent - are unhappy with the interest rate, which
stands at 2.5 per cent for Ordinary Account savings and 4 per cent for Special and Medisave Account savings.

The top two changes CPF members would like to see are more flexibility in the use of their money, and a higher interest rate on their savings.

Financial experts and Members of Parliament said it is good that Singaporeans feel no false sense of security over their retirement finances.

Manpower Minister Ng Eng Hen emphasised in an e-mail interview that a critical factor in determining what is enough for retirement is how long people work in relation to how long they can expect to live. Average life expectancy has risen from 61 years when CPF was introduced in 1955, to 80 today.

I believe that in the long run, what will catch many people off-guard is how long they end up living. Life expectancies (except in very poor countries) have steadily been rising over many decades and the curves don't seem to show any sign of topping off.

In 1900, life expectancy at birth in the United States was only 47 years. By year 2000, it had climbed to 77 years (an increase of 30 years). In 1950, life expectancy in China was 35 years. By 2000, it had risen to 71 years.

If you google around to check out what the scientists and doctors have to say about new medical discoveries and research and their implications for how long people are going to live, well, you'd probably be quite startled. Anti-aging medicine has become an industry in itself.

The question is - how long can you afford it? Not the medicine. I mean - life itself. Living 10, 20 years longer than you expected means that you need money to support yourself for an additional 10, 20 years. That's a pretty long time.

Baca Selengkapnya »»

Credit Cards For the Zero Income Earners

ST July 29, 2007
Have card, no income, know the risks
Be aware of legal issues facing those under 21 such as the penalty for missing payments
By Lorna Tan

EASY credit has long been a fact of life for many Singaporeans. But now the floodgates are being opened to vast numbers of people who would normally never manage to get their hands on plastic.

Eighteen-year-old youth and those with no or low income can now apply for a ground-breaking card that does away with the standard $30,000 minimum annual income requirement.

Regulatory changes have allowed Citibank to launch the card, which offers a maximum credit of $500, a fraction of the typical limit of two months' pay.

In my opinion, this new Citibank initiative is at least partly due to the recent decision by NETS to approximately triple its administrative fees for retailers.

In order to allow their customers to make payment by NETS or credit card, retailers have to pay fees to NETS and credit card issuers. Traditionally, credit card issuers charge higher fees than NETS. That's why lower-end retailers accept payment by NETS, not credit card.

Now, by raising its fees, NETS has made it possible for the likes of Citibank to compete in the space of facilitating low-cost cashless transactions. If NETS facilities are not any cheaper than credit card facilities, your average HDB shop owner who allows you to pay by NETS might as well also allow you to pay by Visa or Mastercard.

The first step by Citibank, of course, is to ensure that the average customer of the average HDB shop can have a credit card, and not merely a NETS card. Since the MAS regulations have changed such that there is zero income requirement to get a credit card, your average HDB customer WILL be able to get a credit card.

Applicants under 21 need the consent of their parents, but the bank will not require parental income information. However, the bank is playing it safe: If the minimum monthly payment is not made, the card will be blocked.

The Citibank move - which could admit more than 900,000 people to the ranks of new credit card users - has sparked debate over whether Singaporeans, particularly teenagers, can be trained to use credit responsibly.

It is a pressing issue as more of such products are in the pipeline, with OCBC Bank and United Overseas Bank saying they will introduce similar cards soon.

Some people are concerned about the danger of raising a generation of young adults who chalk up debts even before they leave school.

I think the attention got a bit misdirected. They forgot about the adult uncles and aunties in the heartland - the ones who queue up at the 4D and Toto outlets, and/or who are genuinely struggling to make ends meet.

"My income close to zero, what. I also over 21.
Maybe can use credit card to buy 4D."

How much will one be able to borrow via credit card, if one has no income? According to the ST article, it's $500. Of course, this is on a per bank basis, and we also learn from the article that apart from Citibank, two other banks - OCBC and UOB - will be introducing similar cards.

If you have zero income, but apply simultaneously and successfully to all three banks, you'll be able to borrow $1,500. If you wait and see if HSBC, Maybank, ABN AMRO and Standard Chartered come up with similar cards, who knows, you may be able to get 7 cards x $500 = $3,500.

Not bad for someone with zero income. A pretty good recipe for financial disaster too.

One interesting thing to watch is how the nature of credit card advertising will change as a result of the new rules. In the past, credit cards were often marketed as a symbol of the customer having "arrived", being successful etc. In fact, a credit card is one of the five C's that commonly represent material achievement in the Singapore lifestyle. But now that kids and poor people can also get credit cards, I think that the usual advertising/marketing themes will have to change.

Into what? That's the interesting question.

Baca Selengkapnya »»

Managing Your Own Money

I've never used a financial adviser. I've talked to several of them in the past, but always stopped short of actually engaging their services. My distinct impression was that none of them would be the best person to manage my money.

The best person would be me. Assuming, of course, that I first put in the effort to learn about personal financial planning. Which I did - through reading lots of books on my own. That was years ago. Nowadays I actively manage my own investments (and I do a rather good job at it).

Now it's 2007, and ironically I find myself having to take the same exams as would-be financial advisers. I must say that it's quite interesting. I'm learning some useful ideas on how to manage my own portfolio. None of this, however, changes my earlier conclusion that financial advisers are not for me.

I'd go so far to say that any reasonably intelligent person willing to put in some effort learning about personal finance is probably better off managing his own money than using a financial adviser.

I've just been studying the chapter on "Financial Needs Analysis". A fancy term for a straightforward process. FNA is what happens when the financial adviser sits down with you, pulls out a long questionnaire and starts asking a long list of questions - your age, occupation, monthly salary, bank credit balance, number of dependents, type of home, outstanding mortgage, existing insurance policies etc.

All this information is relevant for your financial planning. The problem is - human beings tend to be rather complicated. They can't be easily categorised or classified. I'm quite confident that in many cases, standard questionaires will regularly fail to capture important pieces of information about a given client. The questions asked will simply miss out on special circumstances relating to that particular client.

Which means that the financial adviser's recommendations will, in the end, be less than optimal.

Why won't the client just tell the financial adviser about his special circumstances? Well, in many cases, the client will want privacy. In other cases, the client, not being knowledgeable about financial planning, will simply not even know that his special circumstances have any financial significance.

Some examples to show how easily this could happen:

Mr Tan has an illegitimate child that his wife doesn't know about. Mr Tan wishes to provide long-term financial support for his illegitimate child. For privacy reasons, he doesn't tell his financial adviser. Thus when the financial adviser draws up a financial plan for Mr Tan, the child is omitted altogether.

John, a father of three young kids, works in the manufacturing industry. His job is particularly vulnerable to being outsourced to China. Not being in the manufacturing industry, the financial adviser doesn't understand that. The adviser recommends a long-term savings plan whereby John will commit a good part of his monthly salary towards his children's future university education. Actually, the much more pressing thing is for John to build up cash reserves to deal with the prospect of impending retrenchment.

Linda is HIV positive. She still looks and feels healthy. However, the HIV condition has massive implications for her financial planning - there are immediate and high medical expenses; her life expectancy is reduced; saving for retirement is no longer a high priority; and it is foreseeable that eventually she will become too ill to work. Due to the stigma of HIV, she doesn't disclose it to her financial adviser.

Alfred is an extremely high achiever. He works in a growth industry and possesses a highly sought-after skill set. He can reasonably expect his salary to double in three years, and to double again in another three years. Not wanting to sound boastful, he doesn't tell his financial adviser that. The financial adviser therefore projects Alfred's salary to grow at a modest 2-4% per year for the next 7 years, and recommends an investment plan based on that.

Kumar is a 40-year-old male. His financial adviser recommends a critical illness plan suitable for the average 40-year-old male. Actually Kumar is a California Fitness personal trainer who exercises five times a week, consumes an extremely healthy diet and always ensures that he gets enough rest every day. Kumar's scientific risk of getting a critical illness is much lower than average. Rationally speaking, he should spend much less on critical illness coverage, and channel the money into pure investment products.

In each example, the client will receive less-than-optimal recommendations from his financial adviser. That's because each client had some special circumstance in his life, which a standard FNA questionaire wouldn't have picked up.

Who could have picked it up? The client himself, of course. Each of us is in the best position to understand the unique circumstances of our own lives. That's why we are all the best persons to manage our own money.

Provided, as I said, that we also do some financial self-education. Go buy yourself a good book today.

Baca Selengkapnya »»

Exams for Mr Wang

I received my textbooks today. My new job requires me to pass certain exams, held by the Institute of Banking & Finance and also the Singapore College of Insurance. Rather annoyingly, most of the syllabus has no direct relevance to what I actually do at work.

So these are exams that I'll have to pass for the sake of passing. If I fail, the MAS will not allow me to work in Singapore and who knows, my employer may have to transfer me to Hong Kong (heheh) .

There are, however, some positive aspects to these exams. Some parts of my required syllabus are actually meant for personal financial advisers and insurance agents. I'll have to study in detail certain things like how to conduct a financial needs analysis; how investment-linked insurance products work; the CPF Investment Scheme system; the Supplementary Retirement Scheme; how unit trusts operate etc.

None of this will be completely new to me, as I have, for many years now, been quite hands-on and interested in managing my own money. But this will be a good time to organise the higgledy-piggledy personal financial planning knowledge in my head into a more formal framework. The studying won't be relevant to my job at all, but it will be useful for my own money.

In the coming weeks, I may blog more about such money matters. One of my readers, Ling, had written: "I'd like to get advice from you on how Singaporeans can prosper under the current situation in our country". Personal financial planning would certainly have something to do with that.

I'd like to take this opportunity to introduce one of my regular readers, Christopher Ng Wai Chung. Christopher is an expert on personal financial planning and has published a book, "Growing Your Tree of Prosperity", on the topic. The book was previously reviewed on the Singapore Entrepreneurs blog.

This book is useful particularly because it is written for the Singapore audience. There are always many money-related books available in the stores, but most are by overseas authors (so they wouldn't address Singapore-specific aspects of financial planning).

Baca Selengkapnya »»