When I started working in my 20s, I found it hard to get advice on how to manage my money. My mother was a housewife and my father had died when I was 12. There was no Internet then in the 1980s, which added to the paucity of information on how to invest, save and protect loved ones from the calamitous financial consequences of unforeseen events.
But, today, even with the glut of information now on tap, I cannot say my own two sons – in their mid-20s – are a lot more knowledgeable or savvy about financial matters than I was at their age. It is partly because they have not saved up enough since they started working to have to think too much about money management. I guess other issues – such as getting their career on track and planning a future with their girlfriends – are uppermost in their minds.
But I feel that parents – who have lived through economic crises and downturns that came with salary cuts and meltdowns in asset values – should actively nudge their children to take the right roads to financial prudence and independence. So I have reminded my sons that it is better not to, for example, be overstretched in their finances.
Certainly, they should not take a big loan, even if they can afford the monthly instalments, to, say, invest in a condo at this point of their lives. Condo prices still hover around the million-dollar mark for a small unit, and properties are often illiquid in an economic slowdown.
Protection is vital in the earlier years of one's married life when many aspects are not settled, from the kids' education to paying off the mortgage. It is certainly safer and more sensible to opt for a BTO flat, even if getting a unit in a popular area like Bidadari and Kallang is tough. Even projects in far-flung Punggol drew huge interest at a recent BTO sales exercise, with applicants drawn by the waterfront-living carrot.
My sons have had no luck so far applying for BTO flats in Bidadari and Bedok, but with the additional grants given to first-timer married couples by the Government for resale units, they are now also open to acquiring an older home when they get married – after I had sat them down to discuss the pros and cons. The outlay for a resale HDB unit, even in a popular estate such as Marine Parade, can be 50 per cent less than for a condo unit. That frees up more of a couple's available funds to grow their wealth by investing in more liquid assets, such as exchange-traded funds, Reits, shares, unit trusts and even Singapore Savings Bonds (SSB).
I tell my sons it is far better to bank on a diversified asset portfolio than to put most of their eggs in one basket.
Insurance is also a vital safety net.
Go on the Internet and there are many reasons to be found for buying, or not buying, insurance products such as investment-linked and whole-life types. My belief is that everyone's case is different, so you will have to decide if a certain insurance policy works for you since it is a long-term commitment and may become worthless if you cannot keep up with the premium payments. But I would strongly argue for at least buying term insurance.
For operationally ready national servicemen or full-time national servicemen, Mindef has tied up with Aviva to offer a term life plan that offers up to $1 million coverage for $1.37 a day. At $41 a month, it is cheaper than the $80 quoted on a major rival's website for the same coverage.
Protection is vital in the earlier years of one's married life when many aspects are not settled, from the kids' education to paying off the mortgage. I was glad when my sons took up my suggestion to buy term life – which they had very little awareness of initially, given that most insurers hardly market such policies.
A common refrain I hear from younger folk is that they shy away from investing in SSB because the interest rate is not very high. But given that they do not have much savings yet to take advantage of better rates for fixed deposits, often requiring a fairly big sum to start an account, my counter is: Why not treat the SSB as a better-paying savings account?
It is easy to apply for and redeem the SSB, incurring a charge of $2 each time at the ATM. Hence, if you were to invest $1,000 for a year, you would have earned at least $10, leaving you $6 richer if you redeemed the bonds after one year. In contrast, you would have netted $1, going by the 0.1 per cent interest rate offered by banks in a savings account.
There are also ways to capitalise on the attractive CPF interest rates – and top-ups to certain accounts earn tax benefits too. I tell my sons that they should use as much of their salary as possible to pay mortgage instalments, as the money in the Ordinary Account – which can be used to pay the mortgage – earns 2.5 per cent.
Money can also be transferred from the OA to the Special Account, which earns 4 per cent. Hence, one's CPF accounts are akin to fixed deposits, but whose values also gain further from the magic of compounding as the years go by.
And while parents may wish to live near their children and grandchildren, they should not be overly sentimental. I have told my sons that with the coming commuting links between Singapore and Johor Baru, there is scope too for living in the Iskandar region, where property prices are a lot cheaper.
But, of course, I would rather they stay close to us, their parents. Now, how much is that proximity grant from the Government for buying a resale HDB flat within 2km of the parents' home?
Source: The Sunday Times © Singapore Press Holdings Limited. Permission required for reproduction