Distinguished Guests,

Ladies and Gentlemen,

I am happy to join you today at this Financial Planning Seminar organized by Oli 96.8FM.

Today’s seminar comes at an opportune time. We are living in a new economic era, an era in which we face heightened risks as well as increased opportunities. Many face a greater sense of insecurity about their jobs. But it is also an era that rewards those who are able to deal with change, and take calculated risks. It will reward those who plan for the future, rather than live for the present.

A large majority of Singaporeans depend on the CPF as their main source of savings, and a means towards meeting their housing, medical and retirement needs. The recent CPF changes, especially the cut in the CPF contribution rate, have reinforced the need for Singaporeans to plan their finances carefully and manage their CPF funds prudently. The life expectancy of Singaporeans will increase over the years. That is why we have had to adjust up the CPF Minimum Sum requirement. With effect from 1 July 2004, the CPF Minimum Sum will be increased yearly from $80,000 to reach $120,000 in 2014. This is to ensure that Singaporeans will continue to put aside enough money to meet their basic needs in retirement.

The longer you live, the more you can expect to spend on healthcare. A person who is 80 years old would, on average, spend 3 to 5 times more on healthcare than someone aged 62. The CPF Medisave Minimum Sum ensures that a CPF member would have set aside enough money when he turns 55 to meet his future healthcare expenses.

However, we have to move away from the idea that we can depend solely on our CPF savings solely to meet our retirement needs. We have to be proactive in conserving and managing our money, in order to build up a store of savings beyond what you have in your CPF.

Unfortunately, long-term financial planning is not a priority for many Singaporeans. Although most of us know the importance and benefits of planning for retirement, we keep postponing the effort to look at it seriously. Financial planning is seen as an activity requiring far too much time and effort, and involving financial skills beyond our abilities. These are myths we need to dispel. The longer you delay in planning for your financial future, the harder it will be to make your money work for you. Financial planning is a critical life skill for every citizen. It is something you have to embark on today, if you want to avoid hardship and if possible to live comfortably in the future.

Financial planning is at the end of the day no more than taking the effort to meet our life goals, through the proper management of our personal finances. However, planning for future needs does not just involve doing things in the future. Far more critical is to do things now, such as exercising discipline in our present spending, and setting aside savings to meet unanticipated needs. Unfortunately, these positive habits do not come naturally in most societies, and are not deeply entrenched in Singapore. Many families spend for today, taking up loans to buy larger homes and support lifestyles beyond their abilities to afford. They leave little buffer for unanticipated events such as a wage cut, or even the possibility of losing a job and not being able to find an alternative position quickly.

There are a few key priorities that all of us have to take the effort to engage in. First, looking long-term. It used to be that we would hardly need to see a banker except when we needed to borrow money to buy a car or home. Today, at shopping malls over the weekends, we see financial advisers offering attractive gifts to entice shoppers to invest in a whole range of financial products and services. When you walk into a bank branch to open a fixed deposit account, you are likely to be shown to a financial adviser or priority banker, offering suggestions on how you can get a better return for your savings. You may find yourself walking out with the latest unit trust or an endowment plan.

Some of these financial services and investment products could suit your needs, but such investment decisions can be complex and may require careful consideration. Without having a clear idea of your financial health, or what your longer-term financial goals are, it is easy to be persuaded by an enticing sales speech or succumb to pressure selling and clever advertising. To avoid this, it will help to develop a clear financial plan for yourself as early as you can.

The second priority is better money management on a daily basis. This involves prioritising our daily expenses, and ensuring that money is set aside whenever possible to meet future needs. All of us know of examples in the Indian community where families exercise weak discipline in their current spending. Often, I come across young families who run up huge bills on lavish home renovations and expensive lifestyles. I have also met ageing parents who part with their hard-earned savings to provide a more extravagant standard of living for their children, without thinking about their own retirement needs.

I was told recently of a middle-aged Indian divorcee with a medical condition, who had chalked up large borrowings from banks and relatives, in order to provide her son with an expensive overseas education, even though he had been offered a place in one of our local tertiary institutions. She also had no medical insurance coverage, and had never done up a retirement plan. Instead of setting aside funds for treatment of her medical condition, she preferred to divert what little she had in savings towards sending her son overseas.

Prioritising expenditures is perhaps the most basic financial discipline that we all need to practise. We should try and educate not just ourselves, but our relatives and friends, on the importance of this habit.

Excessive consumption of credit is especially a problem. Many Singaporeans are lured by the ease of using credit cards, but few realize that it could take many years to pay off a credit card balance, if you service only the minimum monthly amount. Many people in debt end up rolling over their credit across many banks. A lot of these cases end up in financial distress, with some being made bankrupts. The volume of bad debt on credit and charge cards written off by the banks in Singapore has also been on the rise, with a total of S$116 million recorded in January to August this year. This is already about 1.5 times larger than the S$78.7 million recorded in the same period last year.

This is therefore a problem we need to address quickly. There are some simple things you can start doing today. Just avoiding impulsive, spur-of-the-moment purchases can go a long way. If necessary, set a monthly limit on credit card purchases, and always try to pay off as much of your credit card bills as possible. Borrowing is not bad in itself, if you are taking up a loan to service long-term goals. However, getting into debt just for day-to-day needs is something that we need to avoid. When borrowing long term, make sure that you have a clear idea of your financial commitments, and set-aside money on a regular basis to pay-off your outstanding debts.

The third priority is investing wisely to grow your savings. As you save money, it is useful to consider prudent investments as a means of growing your retirement nestegg. The investment fundamentals are not complex. Diversify your risks and do not put all your eggs in one basket. Be aware that the actual return from the investment may differ from what you expect or what you have been made to expect. Making investments without a sound understanding of the risks involved, and without considering whether the product is suitable for you, often means ending up in distress.

Investors should take a longer-term view on their investments. Determine your longer-term financial goals before embarking on any specific investment strategy. If you are getting an insurance or endowment policy, ask yourself whether it is the right policy that best serves your needs. Make the time to sit down and review your financial objectives, read all documentation carefully, including the fine-print, and always fully understand the contract terms before you sign. (Look out for hidden charges and check if there are any lock-in periods and early withdrawal penalties.)

It appears basic to remind ourselves to read the terms and conditions, before committing to an investment decision, but we see many examples where retail investors invest in a stock or buy a unit trust without reading the prospectus or understanding what the fund invests in or what the company is engaged in. Many investors are also unsure how to read financial statements, annual reports or fund sheets of the companies they invest in.

Until recently, there has been a lack of information or resources available to Singaporeans about the concepts of wealth management. The bullish markets of the mid-90s made it difficult to tell a savvy investor from an ignorant one, since both were as likely to reap profits due more to market upswings, rather than as a result of informed investment decisions. However, today’s more sober market conditions have meant that we need to be more knowledgeable about our investments.

The introduction of the Financial Advisers Act has meant more professional financial advice is now available. The push towards greater disclosure and better corporate governance has also meant that companies are now more forthcoming in releasing financial information. When unsure, seek professional advice about managing your portfolio, or to guide you in determining your asset mix. However, at the end of the day, only you can be held accountable for your own investment decisions.

I am sure all of us here are keen to take a more active hand in managing our finances. Whether you choose to set-aside the time and effort to get yourself educated on how to better manage your finances, whether you set out a financial plan from young instead of leaving it till you are close to retirement, and whether you exercise care in your investments, will determine if you can enjoy your later years.

I hope today’s event will shed light and provide lessons on how to plan our finances and enjoy better lives. I commend Oli 96.8FM for taking this initiative, and wish you all an enjoyable and productive day ahead.

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