Emerging into a new world of wealth post-pandemic

MUCH has already been said about how the Covid-19 pandemic has destabilised economies and industries around the world, and an even greater amount on its impact on our everyday lives.

Over a year on, for many in financial services, the message should now be starting to sink in. The old ways of doing things will soon be a distant memory. In their place emerges a new world of wealth, where many of us are now working differently, living differently and certainly spending differently compared to the "good old days".

Take the rate of savings for instance, which is typically already very high in Asian cultures. Over the past year, with most travel and hospitality venues closed and severe restrictions on overseas travel, this has led to an exponentially higher rise of many "accidental savers".

In recent research conducted by St James's Place, it was found that almost half of Singaporeans (47 per cent) increased their level of monthly savings over the past year. Such figures reveal how significantly the pandemic has impacted people's savings habits. While Singapore has generally done well at containing the virus, many people are not only trying to reduce expenses but also being more watchful over their finances.

This is fairly unsurprising, as Singaporeans would understandably now be more cautious with their money, compared to 12 months ago. However, the long-term implications for this are significant. Such changes, if they continue, could foster positive habits and greater societal resilience across an entire generation not only within our recovery period, but much further beyond in the future.

While this savings trend is likely to continue, and set Singaporeans up for a brighter financial future, care does need to be taken to ensure people continue to save and invest wisely once vaccines are widely distributed and health risks subside.

Another consideration for the future is just how many individuals must rethink their retirement plans, as Covid-19 has had a definitive impact on pension savings and retirement income.

Our research also highlights that more than half of Singaporeans (56 per cent) have had to draw down or reduce contributions to retirement savings at some point over the past 12 months, with 20 per cent having to do this in a significant way. A key reason for this may be that people are borrowing from their future to pay for their present situations, especially if they've been directly impacted by Covid-19.

This is neither ideal nor sustainable over the longer-term as it essentially means that many of us will need to work longer and retire later to make the difference. It could also mean sacrifices in our retirement, such as selling the family home or adjusting our lifestyle, including reduced leisure and travel activities, to suit our reduced future income.

In the new world of wealth, the ones that pay the highest price are our youngest. Singapore's younger generation of workers, particularly those aged between 25 and 34, are those who pay the least attention to their retirement plans and are also found to have made the most drawdowns and reductions in pension contributions.

This is a particular concern for a generation looking to emerge stronger from this pandemic, who perhaps may not realise that their time is the most priceless of assets. You couldn't buy more of it even if you had all the money in the world. The savviest advisers and investors will tell you that how you use or misuse your time will be the best indication for your future financial health. As this pandemic prolongs, "kicking the can down the road" will in effect mean losing the most from decades of foregone returns.

IF NOT NOW, WHEN?

This is where more education on financial management and awareness of the need for financial planning truly stands out. For young people who are fortunate enough to be in gainful employment, there is no time like the present to take advantage of the future and position oneself well for future recovery. This can be done through living with family, reduced spending on travel and going out, and aim to put the surplus into savings plans or pension funds.

Most importantly, the old investor's adage, that time in the market matters much more than trying to time the market, holds true. Data from the S&P 500 shows that if investors had excluded only the 10 best days of the last decade, they would be sitting at a loss of 33 per cent, compared to a return of 18 per cent if they had stayed invested throughout. Amid painful initial shocks and a rocky recovery, the pandemic will hopefully serve as an important lesson for many younger investors that it's never that bad.

An important element of consideration for achieving long-term financial goals will be in obtaining measured and appropriate financial advice, either from family, friends, or professionals, especially in the pessimistic and uncertain economic environment we live in.

It is somewhat ironic that only during a full-blown pandemic where distancing is required, that the true value of human, face-to-face financial advice is realised. Family and friends will always remain an important source of counsel, but given the current uncertainty globally, the new world of wealth will also herald a new age for financial advisers, who will be sought out in much greater numbers for their experience, guidance but also impartiality. Many will appreciate the need for a voice of reason to guide against fear, bias or greed.

Financial advisers will play an important role in educating people about making the "right" and often "difficult" financial choices. Whether it comes to investing in the market, maintaining long-term savings goals or planning for retirement, having independent financial advice on hand can really help to ensure that Singaporeans make the most of what they have accumulated. It can also provide a grounded and holistic view for those who've had to deal with a dip in their savings but are looking to get back on track.

Sorting through finances can be complicated, as no matter how hard we try to be rational, there is a degree of human emotion that can hamper our decision-making, particularly in a once-in-a-lifetime pandemic. Singaporeans must realise that they will soon emerge into a new world of wealth, and apply the appropriate safeguards to position themselves to thrive.

  • The writer is CEO of St James's Place Wealth Management Singapore.

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