Sustainable schemes for debt relief key to narrowing rich-poor chasm: study

DEBT relief programmes are critical to help lift low-income households out of poverty, showed a new study on Tuesday.

The effects of Covid-19 continue to pressure the income gap in Singapore, and debt is expected to mount when temporary relief schemes end and moratoriums are rolled back.

To improve financial sustainability, these programmes can look at “sharing ownership” between the beneficiaries, charities and social service organisations, as well as the larger society.

There must also be greater scrutiny of predatory credit schemes, including enforcement action, against unethical actors targeting those in financial desperation.

These were suggestions from local charity Beyond Social Services, as it shared findings on Tuesday that showed how low-income families are bearing the brunt of the Covid-19 crisis.

The study, conducted among 1,231 families that applied for the organisation’s Covid-19 Family Assistance Fund between April and September last year, found that household incomes of Singapore’s lower-income families fell by an average of 69 per cent amid the pandemic last year.

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Median monthly household income among these applicants fell from S$1,600 pre-Covid-19 to about S$500 after the pandemic hit, representing a 69 per cent decline.

Based on 2019 figures, the median monthly household income of these fund applicants was 17 per cent of the national median. After the pandemic hit, this ratio dropped to just 5 per cent.

Median income per capita fell 74 per cent, from S$425 pre-pandemic, to S$113. Just over a third – that is, 35 per cent – of these applicants had their household incomes drop to zero. This latest study reiterates past reports that low-income families bear the brunt of the pandemic.

On Feb 8, the Department of Statistics released figures that showed overall median household income from work falling by 2.4 per cent in real terms – the first such decline in more than 10 years, since the global financial crisis.

Lower income households were the hardest hit, with those in the bottom 10 per cent experiencing a 6.1 per cent real decline in income.

As a society, Singapore should not be content with re-establishing the status quo that existed before the pandemic, marked by inequalities. The growth in household indebtedness has been linked to stagnating wages and an increase in income inequality even before the pandemic, the study’s lead author Stephanie Chok pointed out in a media briefing.

The study highlighted that a majority of its fund applicants are engaged in low-paid and precarious jobs, primarily in the service industry. They either lost their jobs or had their wages reduced due to pay cuts, had work hours shortened, or had been asked to take unpaid leave.

Financial exclusion, exacerbated during periods of financial crisis, can push low-income households to resort to alternative credit sources, which tend to be higher-cost.

The question to be guided by, the researchers urged, is: “When all this is over, how do you want the world to be different?”

On debt relief, the researchers cited a debt and savings matching programme by the Methodist Welfare Services (MWS) as a possible model. For every S$1 each family contributes to reduce debt or add to their savings, the MWS will provide a matching contribution of S$2. Other donors can also contribute.

This Family Development Programme, established in 2016, is targeted at low-income families living on a per capita income of less than S$850.

As at March 2020, figures from MWS showed an average participating family clearing S$1,800 in debt in one year.

The Beyond Social Services study showed that these obligations more than doubled as a result of drops in household income amid the pandemic. Noting that rent and mortgage form a large source of financial stress, the study also suggested that the authorities extend existing rent waivers.

The Housing and Development Board (HDB) in October 2020 announced a three-month, 50-per-cent rent rebate for those living in public rental flats. The researchers said these rent waivers should reflect the sharp income declines – one possibility is to universally reduce rental rates to the minimum amounts charged by HDB for that flat type.

There also needs to be greater emphasis on labour protections for the working poor, such as paid sick leave and paid childcare leave. The researchers also urged regulators to revisit the discussion on implementing a minimum wage.

“I think our goal, collectively, is to ensure that all people thrive, not just survive. And we should not normalise this kind of semi-deprivation for some people and be tolerant of it being a situation for them in the long-term,” said Dr Chok.

“We live in one of the richest countries in the world, and I really feel we can do much better in this regard.”

READ MORE: Lower-income hit hardest by Covid-19; better off still buying stocks, homes, cars