Youth at the Crossroads: The Need for Financial Literacy (Part 2)

In last month's article, "Youth at the Crossroads: The Need for Financial Literacy," we delved into the financial challenges faced by millennials, emphasizing the crucial importance of financial literacy. The OCBC Financial Wellness Index 2023 highlighted several areas of concern. Infographics below are obtained from the OCBC Financial Wellness Index Report 2023. Let's take a look.

According to this year's study, despite consistent aspirations for a certain lifestyle in retirement, individuals' ability to fund and enjoy that lifestyle has diminished. Retirement planning has taken a back seat as

• inflation makes things more expensive, hence reducing monthly saving and
• working adults prioritise debt repayments amid high interest rates.

From the study, only 60 percent of respondents reported actively working on retirement plans, marking an 8 percentage point decline from 2022. Another alarming observation is across all age groups, there was a noticeable trend of postponing retirement planning; with respondents in their 20s postponing retirement planning the longest – to 42 years old on average, 8 years later than what was said in 2022. Some 79 percent of Singaporeans either do not have a retirement plan or are not on track with their retirement plans.

Further to the above, in light of the current uncertain economic climate, there are also fewer Singaporeans investing, with only 79 percent having investments compared to 85 percent the previous year. The average rate of returns for Singaporean investors has been halved to 0.4 percent for the second consecutive year. Notably, respondents in their 20s and 30s, representing young Millennials and Gen Z, experienced the highest proportion of investors facing losses, with 40 percent of those in their 20s reporting negative investment returns.

The proportion of Gen Z and young Millennials on track with their investment goals plummeted from 75 percent in 2019 to 32 percent this year, possibly attributed to a lack of rigorous research.

A combination of the above observations reinforce the importance of financial literacy, especially for the younger generation.

The emergence and easy access to credit facilities such as Buy-Now-Pay-Later allows the pursuit of an affluent lifestyle even though a person could already be stretching their monthly budget and at the same time, reducing their monthly savings to fund their daily expenses.

Moreover, due to higher inflation rates, most of the retirement plannings done in the past years using the assumption of low inflation rate potentially underestimate the amount of retirement savings needed in the future. Coupling it with lower than expected, or even negative, investment returns due to the volatile market sentiments, an updated retirement planning blueprint coupled with a measured spending habits is all the more important now.

While I cannot stress enough about the importance of financial literacy, it is also paramount to identify a credible source(s) of information.

The Straits Times reported that young investors — under the age of 30 — were emerging as a force in the markets, as technology widened their access to financial information. The proliferation of investing apps also made investing more accessible. Unlike older investors, these young investors also tend to seek their own investment information from online sources.

However, we ought to exercise greater discretion as OCBC's report raised concerns about young investors relying on self-help channels for financial advice, particularly social media platforms like TikTok and WhatsApp. In my October sharing, I shared about a viral TikTok trend in which young women rationalise their money habits or spending in inventive ways that don’t always make mathematical sense, such as justifying buying an expensive shirt ($100) and dividing it by the number of times you wear it (costing only $10 per wear if it is worn 10 times). Moneysense recently shared their opinion on the same topic recently on Instagram, highlighting the point that “while it can ease the guilt of blowing our budgets, thinking of our purchases this way could be detrimental in the long run.”

As we approach the end of 2023, it is a good time to take some time off your hectic schedule to review your financial habits and plans. The first step to financial success is to be aware of any biases that we may have, either consciously or subconsciously.