The hidden cost of becoming one of the world’s richest nations

Dec 02, 2016 11.00AM |

by Ryan Ong

SINGAPORE’S wealth-per-adult is up 1.4 per cent so we’re still one of the richest countries in the world despite recent slowdowns. The source comes from a report by Credit Suisse which will shortly be puzzled why a third of our population now hates their guts.

I wouldn’t have done it if I were you, Credit Suisse.

See, praising Singaporeans about our wealth is like congratulating your buddy on his million dollar insurance payout. A payout that came after he lost most of his face in a horrific bus accident. You don’t know if you’ll get a smile or a punch in the mouth. Singaporeans are wealthy by comparison to many countries, but there’s a price to it that not all of us have agreed to pay.


A rundown on the report 

According to the Credit Suisse report, Singapore’s median wealth per adult is around $143,927 as of this year. Average wealth (I’ll explain the difference below) is about $394,000 per person. Credit Suisse estimates that our average wealth per adult will rise to US$309,000 by 2021. Using today’s exchange rates, that’s about $440,332 per adult. But by 2021 that number’s likely to be different, because America has decided to replace its political system with Batman villains.

This comes to a growth rate of about six per cent per annum, from 2000 till this year. The numbers include the value of property, along with savings and assets such as shares and bonds. This also takes into account any recorded debt.


Wait, why do I seem a lot poorer than the average?

In terms of average wealth per adult, we’re seventh in the top 10. But in terms of median wealth, we placed ninth. This is due to our income inequality.

When you use average wealth, the abnormally rich will skew results. For example, say you have a room with 10 Singaporeans. Of these 10, nine have a total wealth of $250,000. The 10th Singaporean happens to be worth $10 million. The average wealth now becomes ($250,000 x 9) + $10 million / 10 people = $1.225 million. The presence of the multi-millionaire makes everyone seem richer than they really are when you measure it that way.

So no, you’re not some kind of horrible failure just because you have less than $394,000+ in cash and assets. Most of us don’t.

It makes more sense to look at our median wealth. And around $144,000, it does seem more typical for most Singaporeans. The median is arrived at by knocking numbers off both ends of a scale (poorest to richest), until you come to the middle.


There’s a price to all that wealth

The road to wealth was paved with unpopular decisions and will continue to be.  Chief among these are:

  • The flat as an asset
  • Growing income inequality
  • Less control over our own finances


1. The flat as an asset

A big part of our wealth is tied up in our home. As your flat rises in value, so too does your net wealth. But tying our wealth to our property like that – while it shows results on paper – has some drawbacks.

For starters, it’s not entirely certain if – as a home owner with just one flat – your property is truly an asset. It’s not as if you could sell it next week and relish the money, not unless they let you set up your home surround system on the park bench where you’re going to live.

Nor have you understood the implications of renting out to a stranger, until you’ve stumbled into the bathroom at six in the morning and walked face-first into your tenant’s drying underwear.

For most Singaporeans, the property “asset” sure feels like a liability. And while you could theoretically (emphasis on the “theory”) sell your flat for gains upon retiring and move to a smaller place, you still may not get as much money as you’d like out of it.

While the price of new flats and resale flats are de-linked, we also need to wonder about housing affordability for the next generation.

Sure, your flat appreciates but you’ve got to sell it to someone who pays for that higher price. The cost of our rising asset value? It may be our children being priced out of the resale market (assuming HDB maintains a separation between new flat prices and resale flat prices, or else even new flats may become less affordable).

Singaporeans have been able to ride a wave of rising property values due to the government’s foresight in public housing schemes. A large part of our wealth comes from the fact that most Singaporeans are home owners. But this comes at the cost of holding on to an illiquid asset and of vesting a large part of our retirement fund on a single asset.


2. Growing income inequality

Do you believe in trickle-down economics? That’s the belief that if you get enough rich people residing in one place, the money will leak out of them and trickle down to your wallet because they’ll spend money and invest and so forth. Now there isn’t room to get into this sometimes debated concept, like in this article; if you disagree with it, I have some advice for you: migrate.

Because that’s the direction Singapore’s political leadership has chosen. Back in 2013, Prime Minister Lee Hsien Loong said that:

In fact, if I can get another 10 billionaires to move to Singapore and set up their base here, my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs, and I think that is the attitude with which we must approach this problem.” 

Again, I’m not arguing whether he’s right or wrong. In fact, let’s assume he is and that bringing in rich people and widening the income gap is good for us.

Even if the money does “trickle down”, there’s an immense social cost that comes with it. Singapore isn’t a huge country, where the wealthy are living out distant lives in far away enclaves. They’re just a few streets away from you. And there’s a massive social disconnect when you complain about your HDB mortgage and the person you’re speaking to can’t understand how $800 a month is a lot of money.

In a Utopian situation, people in such a split society will count their blessings. The poorer ones won’t be jealous. They won’t begrudge the fact that richer ones can afford to give their children a better education, loan them enough to start (and even fail) multiple businesses, or bequeath them with private properties so they never have to work.

In return, the poorer ones get a little bit more money and job security (the word is trickle, not flow) and are content to let the richer ones have all the advantages and opportunities.

If that doesn’t seem right, it’s because anyone who can see beyond a spreadsheet can tell you it won’t work in the long run. Poor doesn’t mean stupid. At some point, the poorer (and much more numerous segment of Singaporeans) will realise this “wealth creation solution” is horse manure and they’re getting the short end of the stick.

Inviting hordes of rich people in will raise the average wealth per adult and it may result in some wealth trickling down. But as America has witnessed, it comes at the cost of a rich / poor divide that can rip a country in half.


3. Less control over our own finances

Singaporeans have a lot of savings because of the Central Provident Fund (CPF) contributions. We also don’t have too much debt because the authorities are quick to prevent over-leveraging. That’s why we’ve curbed car loans and housing loans.

Controlling people’s finances goes a long way toward easing later issues. If we make sure everyone has enough to retire on – such as by refusing to give them all their money till we’re sure they’re about to croak – we save taxpayers from having to deal with homeless people, people who can’t pay their medical bills and so forth. We force them to save and be prudent. If you put aside altruism (a quality that mixes with politics about as well as gangster rap does with classical music) it comes down to simple economic prudence:

People who don’t take care of themselves financially are a burden. They are a burden to their family, their friends and to society. Social welfare is expensive.

So we’ve dodged a need for expensive social welfare for many years. We’ve done that by controlling how people spend their paycheques, and by being interventionist in how they borrow and invest. Every country does this to some extent. As to whether Singapore’s approach is excessive, that’s a matter of your own opinion; the lack of control over our own finances is part of how we built up that wealth per adult.

The trouble with these costs is that they’re not inherently bad. The extent of the costs is subjective. Some Singaporeans will never understand why having their finances controlled is a problem just as how some will never understand why they have to accept inequality.

Some find these costs more tolerable than others and there will probably never be a common consensus. Measuring wealth is easy; you just look at dollars. But that’s never fully reflective of contentment.


Featured image A Fierce Economy (Singapore) by Flickr user Gyver Chang (CC BY-ND 2.0)

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