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Higher spending, lower income gains: How to cope with inflation and rising cost of living

Experts share tips, as recent Singapore study suggests a worrisome trend: Spending is not keeping pace with earnings

Pedestrians at Orchard Road
The rising cost of living is the biggest worry among Singaporeans, reveals a post-National Day Rally survey. ST PHOTO: MARK CHEONG

The prognosis is stark. Inflation in Singapore has hit levels not seen in over a decade – and prices are not easing anytime soon.

The rising cost of living is also the biggest worry among Singaporeans, reveals a post-National Day Rally survey of 600 people by Milieu Insight.

Singapore’s core inflation – which excludes private transport and accommodation – was at 4.8 per cent last month, the highest in almost 14 years. The Monetary Authority of Singapore reckons inflation will peak next quarter, before easing towards the end of the year.

There’s not much we can do to influence global inflation. So what is the solution?

Prime Minister Lee Hsien Loong, at Sunday’s Rally, offered an answer on a national, collective scale: “What is within our power is to make ourselves more productive and more competitive. Then our workers can earn more, and can more than make up for the higher prices of food, fuel and other imports.”

But what can you do on a personal level? It will be challenging, suggests a large-scale study by DBS released earlier this month. The study analysed anonymised data from 1.2 million customers who use DBS as their main salary-crediting bank.

Some concerns flagged by the study:

  • Higher spending, lower income gains

People are spending more each month than the year before. Expenses in May 2022 was up by 22.2 per cent, double the average income growth of 11.1 per cent. The study defined income as credited salary.

  • Lower income, higher pain

Low-income households (defined as those with income of less than $2,500) and baby boomers (ages 58 to 76) are most vulnerable to inflationary pressures. With higher spending and slower income growth, they spend almost all of their income on monthly expenses.

Is there something you can do to help yourself? Yes, say experts, if we mind the 3Ps.

 

Plan more, spend less

“Individuals must cultivate prudent spending habits and keep tabs on their monthly expenses, especially when the increased costs of essential items take a toll on their wallets,” says Ms Evy Wee, head of Financial Planning, Investments and Insurance Solutions, DBS Bank.

Millennials, in particular, should heed her advice.

While monthly spending increased across all age groups, the DBS study found that millennials (ages 26 to 41) spent way more than others.

Their expenses increased by 27.6 per cent, compared to 17 per cent for baby boomers and 20.5 per cent for Gen Xers.

In general, people spent more on transport (60.2 per cent), shopping, entertainment and travel (56.7 per cent), and food (38.7 per cent) over the past year. This could likely be due to inflation and pent-up spending from the reopening of borders and easing of Covid-19 measures, says Mr Irvin Seah, senior economist, DBS Group Research.

Ms Wee recommends customers to track their monthly expenses, using tools like the DBS Nav Planner, and review them regularly.

You can also set up a monthly budget with saving and spending targets. "By doing so, you will know which areas you can work on to reduce discretionary spend and enhance your financial situation so you can better manage the uncertainties ahead," she says.

Protect yourself and your wealth

Food, transport and housing and utilities are the top three expenditures for most Singaporeans – and also the key drivers of inflation, says the DBS study. And they affect low-income households most.

As it is, they’re already spending 94 per cent of their income each month, says the study. Their monthly expenses grew by 13.8 per cent over the past year, while their earnings inched up by just 2.5 per cent.

Higher interest-yielding instruments like the DBS Multiplier Account, Singapore Savings Bonds, endowment insurance plans and money market funds can help.

Protecting your wealth also means having sufficient insurance coverage.

“It may be tempting to cancel or reduce insurance coverage to lower monthly expenses, but the last thing you want to worry about in a health crisis or accident is how you can pay for your medical expenses,” says Ms Wee.

Have a basic hospitalisation plan, a basic term coverage of about nine to 10 times your annual income (if you have dependants) and a critical illness plan with five times your annual income.

Prioritise investing

With an inflation rate of 5 per cent, $100 today will amount to just $38 in 20 years, says the DBS study.

Excess cash, if uninvested, risks seeing its value erode.

If you have enough savings, put your extra cash to work. “The rate of inflation outpaces that of the returns earned on bank deposits, translating into negative real returns on cash,” Ms Wee explains.

This is critical for Gen Xers (ages 42 to 57) – the only generation who saw expenses (20.5 per cent) outpace their growth rate of investments (14.5 per cent year-on-year), says the DBS study.

“Many Gen Xers belong to the sandwich class, which often face money problems as they need to have enough to take care of their parents and their children,” says Ms Wee. “They must find ways to better control their expenditure while keeping their retirement needs in check, and that includes insurance and investing.”

Since they’re nearing retirement age, Gen Xers can look at investing in products that offer regular cash payouts after a short gestation period. Retirement insurance plans like DBS’ RetireSavvy are also an option, as they provide monthly payouts to supplement retirement income for a specified period of time.

Multi-asset funds that offer regular income payouts can help with portfolio diversification.

Those who have limited savings and are unable to take high investment risks should leverage government schemes like the Central Provident Fund (CPF), advises Ms Wee. They can top up their CPF Retirement Sums to help grow their nest egg.

There’s also the CPF Matched Retirement Savings Scheme, she adds. Launched in 2021, the scheme aims to help seniors with low CPF balances build their retirement savings.

Every dollar of cash top-up made to the Retirement Account of eligible members will be matched by the Government, for up to $600 a year for five years.


A look at 3 generations

The DBS study showed how each generation differs in income, expenses and investment growth over the past year.

Expense, investments and income growth across generations

This is the first of a four-part series titled "Win the race against inflation", in partnership with

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