Singapore's rich: Big spenders, not big gamblers
MUCH has been said on how to get rich; be it saving hard, spending carefully and investing wisely, building relationships with the right people and entrepreneurship.
We can read about how investing legends and corporate titans made their millions and billions. But just as interesting is how they spend their money. What do the rich spend it on?
Are they spending on these items because they can well afford to? Or does spending the way they do somehow perpetuate their wealth?
Today, using data from Singapore's latest household expenditure survey, we can answer the first question.
Some things are not so surprising. The rich spend on and live in more expensive homes. Half of households living in landed properties earn $20,000 and more a month.
The rich spend a lot more on what economists call discretionary goods and services. These are things that people spend on because they can afford to, not because they need to.
These include nice-to-have but non-essential items like restaurant meals, wine, fancy clothing, package tours, pets, hotels and higher-end cars.
They also spend a lot on services that arguably enable them to retain their wealth and status: Private tuition and overseas education for their children - which give them more opportunities to succeed in school and in life - are particularly striking examples.
But the rich do not automatically spend more in every category.
Notably, there are two major items they avoid. These are tobacco and the coyly named "games of chance", which presumably includes gambling at casinos, lottery variations run by Singapore Pools, mahjong and card games. In short, the rich do not tend to smoke or gamble, compared to everyone else. They can very well afford to, but they don't.
Meanwhile, poorer households are spending more money on heavily taxed cigarettes, which are harmful to their health. They are also spending more on gambling activities which, statistically, result in them losing out in the long run.
THREE MEALS IN A HAWKER CENTRE, FOODCOURT OR RESTAURANT?
Before we get to casinos and cigarettes, let us examine the data on the most critical need of humans - food.
In Singapore, households across most income levels spend similar amounts of money on basic food items like bread, meat, fish, eggs, fruit and vegetables.
Most spend between $400 and $500 a month on these food items and non-alcoholic beverages combined. The third-poorest tenth of households, for example, spends just $50 less than the top tenth of households on these items every month.
Similarly, most households spend about $500 a month enjoying relatively cheap food at Singapore's ubiquitous hawker centres, foodcourts and coffee shops.
However, the data suggests that pricier restaurants, cafes and pubs are direct competitors to Singapore's hawker centres.
This means that as people earn more money, they tend to stop eating out cheaply. Spending on cheaper dining options drops sharply for households in the top third by income, replaced by restaurant dining expenditure.
The rich spend, on average, a few hundred dollars more a month on food than the rest.
MOVING UP AND AROUND
When we turn to expenditure like clothes and shoes, education and transport, more distinct patterns start showing.
People spend more on clothes and shoes as they earn more. A household in the bottom fifth by income spends $50 a month on them. This increases by $50 for each rung, hitting about $250 for a household in the top fifth.
Meanwhile, spending on polytechnic education is distinctly lower among the top two fifths of households by income. Most households spend similar amounts per month on average on local university education.
But the households making the most money tend to spend a lot more on an overseas university education.
The top fifth of households by income, on average, spends five times as much on an overseas university education as those in the next two fifths.
The top fifth of families by income spend more than five times as much as the bottom fifth of families on private tuition and other courses.
Moving on to transport, the rich appear more mobile and less reliant on public transport.
Monthly household spending on bus fares are highest for households in the 21st to 60th percentiles by income.
The top fifth of households do not spend as much on public transport, but they spend significant sums buying and operating cars. They also spend more on taxi fares.
Some 70 per cent of the top fifth of households own a car, 55 per cent of households in the second fifth and 43 per cent in the middle fifth. The rich also spend more on air transport and on holidays abroad.
NO SMOKING, NO GAMBLING
So far, richer households tend to outspend poorer households in almost every category.
Expenditure patterns are not as clear for necessities like food items, and are most distinct in areas like education and transport.
But when it comes to vices like smoking and gambling, the trend reverses. The rich smoke and gamble less. Why is that the case?
The link between smoking and social class has been discussed by academics.
In surveys by Germany's Robert Koch Institute, it was found that men of lower social status are more likely to smoke. Smokers also tend to be young adults.
A combination of factors might explain why households earning more income spend less on tobacco. For example, education is typically strongly correlated with income. High-income earners are more likely to be university educated.
As people become more educated, they might understand more about the risks of smoking, such as heart disease, stroke and lung cancer. Thus, they smoke less.
This is seen in the household expenditure statistics, where if a household is headed by an income earner with secondary-school education, it spends four times as much on tobacco as a household headed by an income earner with university education.
As people get older, they also tend to earn more and start families. They might want to avoid the harm that smoking can inflict on themselves and their children.
Wealthy people often want to live as long as they can to enjoy perks such as travelling around the world, spending free time with one's family and consuming fine restaurant food. Higher-income families also spend more on health services.
All these might explain why spending on tobacco declines among higher-income families.
Being healthy will reduce expenses for one's lifetime and increase one's enjoyment of life.
Similarly, the rich do not spend as much money on games of chance.
Perhaps they gamble on stocks, as a colleague snarkily pointed out. But smoking could be correlated with gambling, such that if one gambles less, one smokes less, or vice versa.
And perhaps the rich also understand statistics.
New Toto rules which kicked in this month have made the top prize even harder to win. The odds have gone from one in eight million to one in 14 million.
But prizes of $10 are now easier to win. This means more people are likely to be hooked.
Like all casino games, however, repeated attempts to play Toto mean the individual player will ultimately lose more money than he puts in. Small wins will make him feel better and gamble again, but the typical punter will eventually lose out to the laws of probability and statistics.
Unfortunately, both smoking and gambling are addictive behaviours that will trap the unwary and, more often than not, the poor and less educated.
The rich have many thousands of dollars to throw at baccarat or blackjack. But, more likely than not, they are scanning the market for their next investment or building their businesses to achieve higher sales and profits.
Of course, plenty of excess money will go to designer clothing, good meals and sports cars - expenditure that also serves as a display of status.
But a key difference between the rich and the rest is how they do not waste their money on things harmful to their minds and bodies.
Ultimately, that is what everybody else can learn from them.
THE BUSINESS TIMES