Monday, October 09, 2017

Manufacturing Outrage in the Financial Blogosphere.

It takes a troll to know when someone is trying to manufacture outrage using the realm of personal finance. Roy Ngerng had a large impact when he spoke about the CPF system even though a lot of reasonable folks wanted to point out that a lot of his arguments were unsound.

Mediacock attempted to so this recently, basically just creating a scenario where if you do the maths, you will become outraged and then proceed to take it out on the PAP or anyone who is perceived as an obstacle to your Singaporean dream. ( Simplest answer when you savings $960 to cover expenses of about $200,000 requires a minimum of 17 years, longer if you factor in CPF contributions. )

Netizens have pointed a lot of issues with this example :

  • Singaporean workers get increments and they tend to be higher in their younger years. Family income settles down to $8,800 a month. 
  • A wedding banquet is normally offset by ang baos. (A 60% offset is reasonable. My ang baos covered around 90%)
  • Photography and Videography is "nice to have".
  • 15% savings rate is a rookie number and really should not be a constraint. Graduate with a job should live like a student and gun for at least 50% savings. 10-15% in American finance books is not contextualised to Singaporeans who live with parents prior to getting married.
But the simplest way to debunk this attempt at outrage is to note that folks without degrees are settling down and doing fine.

For a savvy university graduate couple who can save up to 50% of their income and gain increments of 8% a year, $200,000 can be accumulated within around 5 years. Maybe even 4 years if they pick up some solid investing skills. Of course, very few folks are savvy.

Imagine a different scenario where we exist in a European Socialist welfare system :
  • Maybe 50% of the income of this graduate couple may be taxed to line the pockets of the unemployed Welfare queens.
  • Sluggish economy means that salary increments are almost non-existent and may not even cover inflation.
  • Folks pay rent because it's so hard to be able to afford homes.
  • Welfare economies do not incentivise the development of financial planning know-how.
  • Upside is that families are breaking down so folks cohabit and no longer get married.
Mediacock can try such a math problem and figure out how long it would take to accumulate $200,000 SGD.

I think that's a bigger reason for outrage.


Spur said...

Although highest tax bracket may be high, but becoz of the progressive tax regime, the effective tax rate is lower. E.g. S'pore's highest personal income tax rate is 22% but it doesn't mean that high-salary people such as ministers are paying 22% of their income as taxes LOL!

Taking a typical slow-growth economy such as Italy, one of the originals PIIGS with debt problems. It's highest tax bracket is an eye-watering 43% for anyone earning more than 75K Euros. However for a worker getting 100K Euros, his total income tax is 36,170 Euros, effectively a 36% income tax. This would cover for education (esp if he has kids), medical, unemployment, pension. He can take it as being like CPF & Medisave, just that everything is pooled and no separate individual accounts.

The main problem when Europeans say they cannot afford to buy homes etc is mainly becoz of 2 things: unemployment (esp younger people) & not saving enough. Many European countries, just like East Asians, have culture of home/land ownership (except Germany). E.g. 70+% home ownership in Italy, and this is mainly freehold LOL!

I would hazard a guess that without govt's concession for most of CPF to be usable for property, most young Sinkies will not be able to afford housing. Minimally people here will need to downgrade their property expectations by 2 grades in order to afford, IF CPF is not allowed. The situation will become closer to that in HK.

Christopher Ng Wai Chung said...

Thank god for CPF then ?