Young adults tackle first economic crisis

Posted on Jun 22, 2020 by The Strait Times

Instead of "Grab-bing everywhere” like he used to, freelance emcee Derrick Yip now wakes up earlier to walk to the MRT station, just one of the many saving habits he has picked up since his gigs dried up in February.

“If I walk, at least I can get the $5 voucher from the (National) Steps Challenge,” the 30-year-old quips, referring to the initiative to get Singaporeans to become more physically active.

While he has managed to stay afloat, starting work as a safe-distancing ambassador in late April, the past few months have made him realise one thing: “Every dollar counts.”

Like Mr Yip, many young adults are rethinking their financial habits amid the coronavirus pandemic, which is also the first major economic crisis they are experiencing.

About half of the 1,000 working adults between the ages of 21 and 65 who responded to a survey by OCBC Bank last month said they suffered wage cuts, were prescribed no-pay leave or had their commission reduced.

As for emergency savings, only about a third said they had enough to last them beyond six months.

Among those in their 20s, 38 per cent said they were saving more than usual, while 30 per cent intended to increase their investments.

Both percentages were slightly lower at 28 per cent for those in their 30s.

Perhaps most strikingly, more than 60 per cent of respondents in their 20s and 30s said they have been taking up more online courses.

In comparison, only 50 per cent of those between the ages of 40 and 54, and 31 per cent of those aged above 54, said they were doing so.

Mr Loh Yong Cheng, 34, a senior client adviser at wealth advisory firm Providend, says: “Young adults (aged below or around 35), in particular, may have to be more prudent with their spending and build more financial buffer in case their parents’ livelihoods are affected, as seniors tend to bear the brunt of a poor economy.”

He adds: “For those in their 30s, this is also the usual phase of planning to get married or have kids, and is most likely the first time they are spending such a significant amount of money. It is paramount to have a plan and enough financial buffer for the economic uncertainty ahead.”

Mr Yip, who plans to get married in June next year and pay for Housing Board flat renovations shortly after, is now saving “as much as (he) can”.

He spends only about $450 a month and has cut out whatever is a “luxury”, from takeaway food to store-bought coffee.

When he starts emceeing again, he intends to save about half of his income, up from the quarter he set aside previously.

“Although I had about six months of emergency funds in February, panic started to set in when all I saw on my account was a minus, minus, minus,” he says. “Saving money is not just for a rainy day; it is a way of planning out my life.”

Student-care teacher Saravanan Kumaran, 27, also tells The Sunday Times the circuit breaker period has helped him to cultivate stricter saving habits.

Besides cutting down on Grab rides, he makes his own meals, instead of ordering takeaway food, which he used to do whenever his mother did not cook.

Mr Saravanan was called to work less during the circuit breaker period and lost about a month’s pay, but managed to reduce his expenditure by about 40 per cent at the same time.

He says: “I am glad to see these habits carry forward after the circuit breaker as well.”

Besides spending less money, young adults whose jobs took a hit are also seeking other sources of income.

For example, when Ms Wajihah Wahid, 28, finished her five-year contract as an air stewardess in April, she applied to be a nurse at Singapore General Hospital, where she had first started working in 2012.

While waiting to hear back, she and her husband, a traffic police officer, are relying on his salary.

“We decided to buy only what we need, and not what we want, till I get a job,” she says. “Most of our expenditure is on groceries, so we didn’t buy new clothes even though Hari Raya just passed, and made other sacrifices like that.”

Because she started baking more during the circuit breaker period, she and a childhood friend decided to set up Melted Batter, which sells baked goods like burnt cheesecake, cinnamon rolls and tiramisu.

“It is home-based, so there is less risk, and we buy ingredients only after we take orders, so there is no wastage,” she says.

Her earnings are only 20 to 30 per cent of her previous salary, but Ms Wajihah hopes they can grow the business into “something big” eventually.

In any case, she and her husband have also committed to set aside 20 to 30 per cent of their total income in the future.

“Many of my peers thought money would always be there and that we wouldn’t lose our jobs so easily, but after Covid-19, we are all talking about the importance of saving up,” she says.

While their incomes have remained stable, other young adults like channel sales engineer Chong Wen Han have taken the time to reflect on their spending patterns.

During the circuit breaker period, Mr Chong says he was able to save about three times his usual amount, as he realised he had a lot of “unnecessary expenditure”, such as drinking and dining out.

“This got me thinking about how careless I have been with my money,” says the 30-year-old, who was prompted to sign up for an investment plan. His usual commitments include his parents’ expenses and car and housing loans.

He adds: “For one thing, it’s better than money in the bank. Second, with a monthly commitment, I hope to continue this habit once everything is back to normal.”

DBS Bank’s head of financial planning literacy Lorna Tan says the market downturn has motivated some young adults to explore investment options as they are keen to “jump on the bandwagon and pick up some bargains”.

One of them is financial consultant Ho Shi Lei, who is seeing more investment opportunities.

The 24-year-old says: “Investment tools are generally undervalued now, but of course, (I need to proceed) with caution and proper planning.”

It appears the pandemic and its attendant uncertainties have sobered many young working professionals. Many have begun thinking about long-term financial planning.

Senior marketing executive Chua Yi Bei, 27, thinks her generation “is in the exploration stage of finding an effective financial habit to follow”.

They have chalked up some savings from having worked for a couple of years.

“We are exploring new ways of saving money, be it through investments or developing new habits like keeping track of our savings daily.”

Claims team manager Kiki Au, 30, intends to invest more of her savings within the next year or two.

Ms Chua, meanwhile, has bought savings plans catered for retirement.

“Everyone has different habits. It’s about reading up and experimenting with different kinds of financial habits. Find one that suits you the best and stick to it.”


Track your expenses and budget

Knowledge is power and it is no different when it comes to your savings. Mr Laurent Bertrand, co-founder and chief executive of fintech start-up BetterTradeOff, says one must understand where one’s money is going.That means setting up a realistic budget and being disciplined in saving, including immediately setting aside 10 to 20 per cent of one’s salary, and paying credit card bills in full every month.Mr Loh Yong Cheng, senior client adviser at wealth advisory firm Providend, adds: “Think about your values. From there, prioritise your spending. Know what you want your money to eventually do for you and make sure it’s directed that way.”

Save money for hard times

It never rains, but it pours, and in such times, one must have at least three to six months of emergency cash. Ms Lorna Tan, head of financial planning literacy at DBS Bank, says: “Develop emergency funds to last at least six months of your expenses. Your expenses should include insurance premiums and income tax – these two items are often missed out as they are annual payments.”

Think long term and invest

Invest in your future – your future self will thank you for that.

To help users plan for their financial future, BetterTradeOff has created a free online platform, Up, where they can build a customised financial plan by simulating various scenarios such as purchasing a new home or planning a child’s education.

It then projects the outcome of these decisions in relation to one’s living expenses, household income and financial assets like investments.

Mr Bertrand says: “Always think long term. It often surprises people how a small amount of savings now can add up to a lot later, especially if that money is invested. Few people appreciate the compounding effect of investing on an ongoing basis. Even if it’s a minimal amount, the returns are significant. This holds even more true when you’re young and have time on your side.”

Invest wisely

When it comes to your money, practise caution. Ms Tan says: “Do your due diligence and understand products before investing. Empower yourself with financial knowledge to make informed decisions.”

She adds that timing the market can be challenging for most retail investors. “Consider adopting an approach of making regular investments in the same investment/portfolio to lower your average investment cost over time.”

Shield yourself – get insurance

Finally, one needs to stay protected in a world with increasing entropy. Ms Tan says: “Review your insurance needs and ensure you have adequate insurance protection against premature death, medical conditions or disability.”