Angela Tan
Senior Business Correspondent
The Straits Times
SINGAPORE – A huge transfer of wealth is under way across the world as baby boomers who enjoyed the rapid economic growth since World War II pass on trillions of dollars worth of real estate, stocks and cash to a new generation.
Not everyone will benefit of course, but it does not mean those of us from more humble backgrounds cannot secure financial security for ourselves and the next generation, say financial advisers.
“It is even more important for this group to set a strong foundation and make more right decisions to ensure security and stability,” notes Mr Francis Peh, associate director of Singapore financial advisory firm finexis advisory.
Mr Peh himself comes from a humble background, having had to take on part-time jobs from the age of 12 to supplement his family’s income and support his educational aspirations, which saw him graduate with first-class honours in banking and finance from the University of London.
He knows all too well how important it is for every adult to look at how they can start building generational wealth.
This includes young adults whose parents have benefited from Singapore’s growth and so are in a good position to inherit some wealth.
Middle-aged adults benefit from financial planning as well. Commonly known as the “sandwich generation”, as they have to care for ageing parents while managing their own needs and those of their children, they tend to save more and are hungry for investment yields.
They believe in being self-sufficient and do not want their children to be in a similar “sandwich” situation, Mr Peh says, so they are more receptive to planning even for difficult topics like death and falling sick.
Elderly folk also need to plan for the transfer of their wealth to ensure a harmonious family relationship.
They have seen their homes grow in value along with the expansion of Singapore’s economy. They tend to be more frugal, preferring to save the cash allowance given by their children than spend on themselves.
Planning early can help avoid what is called a reverse wealth transfer. This is where younger people have to dip into their savings to support the older generation, which is increasingly a reality with Singapore’s ageing population and declining birth rate.
Here are some financial tips to ensure peace of mind.
Contingency planning
The bedrock of any financial plan is putting cash away for emergencies. Start small and build up when income grows so that an unexpected bill does not accumulate credit card debt.
Hefty ad hoc medical bills, a severe disability or job loss can have a profound impact on an entire family, with the household required to make many adjustments.
The Ministry of Health estimates that one in two healthy Singaporeans, by age 65, could develop severe disability in their lifetime, and may need long-term care.
To provide basic financial support in the event of severe disability, the Government introduced CareShield Life, a long-term care insurance scheme that offers basic coverage for long-term care costs in the event of severe disability.
Singaporeans born in 1980 or later are automatically covered from Oct 1, 2020, or when they turn 30, whichever is later. Participation for those born in 1979 or earlier is optional in most cases.
However, CareShield Life payouts alone may not offer adequate financial support, so it is wise to explore other coverage.
Life insurance protects loved ones who depend on your income, while term-life insurance covering 10-year to 30-year periods is a good fit for those who are younger.
Debt and cash management
Apart from risk planning, a sound financial plan should include details about your cash flow, savings, debt, investments goals, insurance and any other items such as big-ticket purchases like cars and property that can affect your finances.
Some young adults tend to try get-rich quick schemes and novel instruments, such as social media and digital assets. Others adopt a buy-now-pay-later option to sustain their lifestyle.
A crucial step in any financial plan is to pay down high-interest debt such as housing loans and credit card balances. Credit card interest rates may be so high that you end up repaying two or three times what you borrowed.
Investment strategy
Having concrete goals makes it easier to identify steps needed to make dreams a reality. These should include children’s education and retirement funds.
There are many options available, each catering to different goals and needs.
For a start, leverage the attractive government-guaranteed interest rates offered by Central Provident Fund savings, which enjoy the magic of compounding.
Financial literacy trainer R. Sivanithy says those below 55 can top up their CPF Special Account up to the prevailing Full Retirement Sum, which is $205,800 for this year. If the top-up is in cash for yourself, a tax rebate of up to $8,000 per year is available. An additional tax rebate of up to $8,000 is also available if the top-up is in cash for a loved one.
You can also transfer your Ordinary Account savings, which earn at least 2.5 per cent a year, to your Special Account to earn the higher interest, which is at least 4 per cent a year. But the transfer is irreversible, says Mr Sivanithy.
Singapore Savings Bonds and Treasury bills, which are highly liquid, government-backed securities, also offer safe investment avenues for risk-averse investors.
At some stage, you may want to set up your portfolio using low-cost investment options such as mutual funds and exchange-traded funds. These are baskets of securities that can give you exposure to a range of asset classes but spread your investment risk across sectors and places.
Consider using a dollar-cost averaging strategy to help you stay consistent. This means investing the same amount on a regular basis, rather than putting in a lump sum.
Financial planning may sound like something for rich people or for those who have already established their careers, but it is valuable for all of us.
A good financial plan can help build generational wealth, and careful estate planning can ensure that this wealth gets passed down to your loved ones.
Not doing anything poses a risk because your purchasing power with the same dollar shrinks with time.
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