Double whammy for low-income households

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Dec 10, 2007
Double whammy for low-income households
IN THE midst of the current discussion over the increasing rate of inflation in Singapore, one issue has been left out.
This issue is especially germane, since higher inflation affects the less-well-off in Singapore society much more than those who are better off.
I am referring to the declining real, as opposed to the nominal, interest rate, for savings in Singapore. The gap between the two is caused by the recent increase in inflation, combined with a stagnation in the interest rate offered by financial institutions here.
According to monthly data available from the Monetary Authority of Singapore's (MAS) website (https://secure.sgs.gov.sg/apps/msbs/interestRatesOfBanksAndFinanceCompaniesForm.jsp), 12-month fixed deposit rates of banks have averaged 0.92 per cent (over the last five years, that is, 2002-2006) and 2.05 per cent (over the last 10 years), 2.56 per cent (over the last 15 years) and 3.02 per cent (over the last 20 years).
The bank savings rate has averaged 0.31 per cent (over the last five years), 1.12 per cent (over the last 10 years), 1.52 per cent (over the last 15 years) and 1.94 per cent (over the last 20 years). The picture is similar for finance companies.
Annual inflation data from the SingStats website (http://www.singstat.gov.sg) shows that the average was 0.7 per cent (over the last five years), 0.7 per cent (over the last 10 years), 1.2 per cent (over the last 15 years), and 1.5 per cent (over the last 20 years). This year, it is expected to be between 3 and 4 per cent.
Thus, low-income households have suffered doubly in the current Singapore economy: their purchasing power has fallen (because of higher inflation) while their ability to grow their savings has declined. It is doubtful whether next year's increase in inflation will lead to any rise in interest rates.
In addition, while higher-income households are aware of alternative options for increasing their returns, such as REITs, ETFs and commodity futures which have boomed in recent past, lower-income households are unable to take advantage of such financial innovations.
It's a situation full of despair for low-income households - while they are asked to spend more time enhancing their skills so they can earn more, whatever savings they do have or put aside are steadily being eroded.
Harminder Singh
http://www.straitstimes.com/ST%2BForum/Online%2BStory/STIStory_184770.html

Latest comments (#1)newsstorm at Mon Dec 10 07:23:30 SGT 2007:
Plus, the richest 10% - 20% people in Singapore enjoy doubling, tripled or four-fold increase of their fixed assets like private properties and commercial properties and many made millions from en-bloc sales. HDB dwellers don't enjoy this at all. The rich also have their transport cost lowered. Lower import tax and road tax lead to the low cost of absolute car price over the years, a Japanese saloon car cost about $100,000 more than 10 years ago but now cost about $60,000. But public transport costs keep on going up and up. It pays to be a rich person in Singapore but the poor get to catch up with ever-increasing costs of living.
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(#2)CallMeKP at Mon Dec 10 07:48:37 SGT 2007:
Dear Editor,
This letter should have been moved to the PRINTED VERSION. As a public media, you need to continually highlight the plights of the suffering average citizens.
Thanks