Singaporeans should prioritise financial prudence and take less speculative risks in a protracted crisis

Year: 2020

This post is written as a brief comment to an article published on Today Online titled: Commentary: Why that loan to buy that new house and car is cheaper now (1 October 2020).

“FMG views commentaries such as this which urge Singaporeans to spend down their savings as being irresponsible, self-serving and disingenuous.

While the author does sound warnings of risks, the central thesis is that households should maintain a buffer of 6 to 12 months worth of living expenses in savings, and deploy the remainder in investments given the low-interest-rate environment. However, this ignores the facts.

First, the Covid-19 recession will be protracted, well beyond 12 months.

Second, unemployment is only at the early stages of building up as government support measures ease, though DPM Heng will announce additional support on October 5th. FMG views such a step as a moral hazard.

Third, this recession is accelerating the adoption of technology substitution of cognitive labour. This means that those out of work may well remain out of work. The Government will ‘create work’ in the public and quasi-public sectors.

This will only create fiscal drag and suppress productivity further. Fourth, to resuscitate the export economy, the MAS must ease defending the Singapore dollar, leading to imported inflation. Thus the purchasing power of savings will decrease.

In sum, Singaporeans should be saving more not less and taking fewer speculative risks not more.”

– Devadas Krishnadas