SINCE the Government announced initiatives to help Singaporeans retire comfortably, discussions have centred on whether these measures would encourage Singaporeans to save more.
But will increased savings guarantee a comfortable retirement, especially for lower-income Singaporeans?
The proposed changes come at a time when their salaries may not be able to keep pace with the rising cost of living. The challenge for this group lies in managing their expenditure.
The first step is to learn to differentiate between the two types of spending.
One type generates returns or allows consumers to improve the quality of their lives by increasing their future earning capacity.
One such example is spending on education. The additional skills learned may increase one’s earning capacity. Such expenditure is strongly encouraged, as long as consumers are sure that the anticipated return is worth the investment.
The other category of spending does not generate returns, but may still be ecessary, such as setting up a new home.
Consumers need to distinguish between their needs and wants, and to try to reduce expenditure on the latter.
This will be a challenge for consumers who find it hard to curb their spending as they are reluctant to forego immediate gratification for future financial security.
They may take loans for the wrong reasons and be stuck trying to finance their unsustainable spending habits. A loan can help an individual and is a positive affair when conducted responsibly.
How do we maximise the potential of spending or borrowing, to help our future finances and retirement plans?
There is a limit to what the Government can do in this area. While the Government can implement measures to make it compulsory for Singaporeans to save, it has much
less control over spending and borrowing, which are matters of personal choice and freedom.
This is where the finance industry can help by adopting lending practices to help Singaporeans borrow responsibly. The industry should increase product transparency and assess credit rigorously.
Product transparency has been a bugbear for loan applicants, especially as financial products become increasingly complex. Industry players need to realise that ensuring product transparency is in their best interests as it builds trust and helps reduce the number of loan defaults.
Customers can do their part and demand that industry players adopt fair and transparent processes, such as explaining key points in detail using plain English.
Industry players should also highlight all fees and charges applicable and help applicants consider their ability to repay the loan without incurring additional charges.
Rigorous credit checks are more important than ever in the light of recent market liberalisations.
Industry players must ensure that credit assessment standards are not compromised in their bid to gain market share.
Consumers should view these procedures not as barriers, but as objective assurances that they can repay their loans.
The procedures also help ensure individuals do not end up with bad debts which will affect their future ability to borrow to finance other important needs for different stages of life.
They need to realise that loans are an important part of life and are in place to help, not hurt. The procedures help reduce loan defaults and keep interest rates lower than might otherwise be the case.
From GE Money’s experience in providing for those with annual income levels from $20,000 to $30,000, conducting a comprehensive interview and customer-focused processes have allowed us to give appropriate loan products.
Still, while the Government and industry players can help encourage Singaporeans to save, spend and borrow prudently, the onus ultimately rests on consumers to learn to be more financially savvy and adopt disciplined financial habits so that a comfortable retirement is within their reach.
The author is the chief executive officer and president of GE Money Singapore and the chief marketing officer of GE Money Asia.
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