Financial planning for resilience, not just wealth
SINGAPORE is becoming increasingly affluent as a wealth hub, but a general lack of financial planning by individuals could jeopardise their hard-won gains.
Last year, the Monetary Authority of Singapore (MAS) reported that the nominal income of the middle-income segment rose by 42 per cent between 2011 and 2021. Meanwhile, the country’s ultra-high-net-worth population is projected to reach 6,000 by 2026, a 268 per cent increase over a period of 10 years.
Singapore has cemented its position as a key location for professional advancement, ease of doing business, and financial success. But amid this rising prosperity, do people have sufficient planning to secure this wealth for the future?
Confidence versus preparedness
While there is rising interest in wealth planning in Singapore, many people are unprepared for unexpected events or financial shocks. Sun Life’s recently published Asia Financial Resilience Index found that 70 per cent of Singapore respondents are optimistic about meeting their long-term financial goals, but only 23 per cent are making financial plans on a five-year horizon or beyond.
Even among Singapore’s most affluent respondents, many underestimate their expenditure levels or the benefits of building a long-term financial plan. Barely half of high-income respondents are planning at least one year ahead, and barely a quarter are planning for five or more years ahead.
Being wealthy does not automatically mean being financially resilient. Interestingly, high-income respondents show similar gaps in financial planning to their less affluent counterparts. Some 19 per cent of high-income respondents spend beyond their monthly budget, while 22 per cent of lower-income respondents do the same.
The survey shines a spotlight on the gap between confidence about financial goals and actual long-term preparedness. This is a blind spot that people of all income levels urgently need to address to avoid financial worries down the track.
Getting started
Financial security starts with a plan, no matter one’s age or income level. This requires financial literacy, as well as getting access to the right financial education.
The same survey found that financial education was identified as a key desire by 39 per cent of respondents, underlining the need for better access and professional help in financial management.
A financial plan, combined with holistic financial advice, is the best way that individuals can start to secure their affluence. Various publicly available digital resources can help individuals enhance their own financial knowledge, achieve their goals, and plan their long-term financial strategy.
As individuals track their wealth journey, they also need to consider the current investment climate. Amidst an uncertain market landscape, there is now greater demand for wealth planning tools as investors seek to mitigate wealth erosion.
For example, insurance solutions have come to the forefront for succession and wealth planning. These provide an opportunity for individuals to diversify their portfolios while obtaining protection against unforeseen circumstances.
In recent years, there has been a notable growth of interest in indexed universal life plans amongst affluent and high net worth individuals. These plans offer investment returns that are linked to the performance of an index, such as the widely-recognised S&P 500 benchmark for the US stock market, while also providing insurance protection.
Adequate protection is especially key when it comes to securing the future of the next generation. It is easy to fall into a false sense of security and complacency when times are good and day-to-day expenses are met. But financial security is also about preparing for rainy days, and having the resources to cope with economic or financial shocks.
The writer is chief partnership and marketing officer at Sun Life Singapore
