Sep 23, 2014

    How much are S'poreans saving?

    A TREASURE trove of data was published last week when the Department of Statistics released the results of its latest Household Expenditure Survey, held once every five years.

    What are the implications for the investor?

    The data can prove useful in benchmarking yourself against the population, to see where you stand in saving and spending.

    The survey ranked households according to how much they earn and dissected their expenditure accordingly.

    From the charts, one can see that the lowest fifth of households spend more than what they earn. That puts them in a deficit every month. The other four fifths of households are in surplus every month.

    Interestingly, this group is increasingly spending a smaller chunk of their income over time. By implication, they are saving more over time. Similarly, the deficit of the lowest fifth of households as a proportion of their income is narrowing over time.

    We can calculate a "savings rate" based on how much is left over after spending, as a proportion of one's original income.

    For example, in 2002-3, the fifth of households that is second from the bottom, the 21st to 40th percentiles, saved 20 per cent of their income. In 2012-3, they were saving about a third.

    The top fifth of households saved 63 per cent of their income in 2002-3. In 2012-3, they were saving a whopping 69 per cent.

    Even the 41st-60th percentile, a group that is solidly middle class, appear to be saving 44 per cent of their income every month.

    The numbers are puzzling, given the vociferous complaints about how Singapore has become a much more expensive place to live in.

    Are expenditures understated?

    The survey looks extremely rigorous. It covered over 8,000 households in Singapore, and spanned over a year to ensure spending patterns during festivals and holidays were captured.

    Mortgage payments and renovation expenses were included. Ad hoc spending on big-ticket items like holidays, weddings and funerals were also included to minimise underreporting of expenditure. The latest survey even included a section on spending on Internet purchases.

    However, non-consumption expenditure such as loan principal repayments, income taxes, and the purchase of houses - a major distortional figure - were not included.

    Income taxes are not significant for most of the population except for the highest earners. So the top fifth of the population probably save less than they appear to.

    Are income numbers giving a wrong impression then? These include employer Central Provident Fund (CPF) contributions to give a fairer reflection of what constitutes income.

    Money in the CPF, however, is not perceived to hold the same value as money in the bank, because there are restrictions on how one can spend that money.

    Let's say that we just want to figure out how much money is going into the bank every month, excluding money going into CPF accounts. Once we exclude employer CPF contributions from our definition of "savings", savings rates fall to 24 per cent to 43 per cent for the middle three-fifths of the population.

    We then take out employee CPF contributions, which can be up to 20 per cent of one's income. If we assume that the maximum 20 per cent is put into CPF, we are left with more modest savings rates of 9 to 28 per cent for the middle three-fifths.

    In other words, if your household belongs to the middle three-fifths of the population by income and the household saves anywhere from 10 to 30 per cent of its total income in cash, it is saving at a rate comparable to its peers'.

    In essence, enforced CPF contributions probably contribute another 25 percentage points to one's savings rate.

    After crunching the numbers, the typical household probably saves $1,500 in cash every month, while the above-average household by income can put about $3,000 in the bank. Money for the top fifth of households, meanwhile, is probably piling up at the rate of about $10,000 a month.

    For the rest of the population, the CPF system is helping them save a considerable amount of money - equal to or more than what they can leave in a bank.

    Most people will probably not see their bank balances grow at the same rate as CPF's, leading to worries about not making ends meet and angst about how much money is locked away in the provident fund.

    But seen from the outside - with Americans typically having personal savings rates of just 5 per cent - Singaporeans aren't doing too badly on the savings front.