Singapore “nudging” (silently) people for better financial well-being…

Mr Tharman Shanmugaratnam, Chairman of the Monetary Authority of Singapore (MAS), does not mention the word nudge/behavioral finance in this speech but one can read it everywhere.

The speech is about how MAS is planning to improve the financial well-being of the Singaporeans. They are also seen as poster children of neo-classical policies which believes in the rational consumer. One would usually imagine that people from this rich country would be rational and better at financial planning. MAS findings does not really show this :

MoneySENSE commissioned a Financial Literacy Survey earlier this year, which shows that Singaporeans are generally quite careful with their finances. 1 80% of Singaporeans save some money each month and 86% of people do not like taking on debt. Many people take on loans because of housing, but they don’t like to borrow more than they can comfortably service with their income.

4. But there are some people who over-spend and over-borrow, which we find in every society, and Singapore as well. Data from Credit Counselling Singapore (CCS) also shows that the people who over-spend and over-borrow are not just low-income people. In fact, most of them are not low-income. The average income of those who come to CCS with serious debt problems is around $2,800 per month, not far below the median income level; and quite a few are higher income. Hence everyone can over-borrow because of over-spending. According to the CCS, the most common problem is actually over-spending.

5. MAS has also found from the survey that more than half of those surveyed had insufficient insurance to protect their dependents if something were to happen to them. One in three of those surveyed did not know that they were covered by Medishield. Hence the level of awareness is not very high.

6. Quite a few people are passive towards managing their money. That means not planning ahead or finding out information that would help them to manage their money well. This is again something we find all over the world. In most countries, they find that many people do not plan ahead, and they take life one step at a time, taking things as they come. But eventually, they may end up with problems if they have not saved enough or not anticipated some future expenses for their children or themselves. So we can do more to help Singaporeans to plan ahead, by expanding financial education for all age and income groups, all over Singapore. This is not something we will do for one or two years. We will have to continue this work as our children become young adults and eventually retire, giving rise to a whole new cycle. Hence the work on financial education has to be done continuously, as it is a very important area to help Singaporeans.

There are two measures to increase well-being – tighter regulation to ensure fair practices by banks and financial education:

What will MAS do? We have a two-pronged approach to help Singaporeans to enhance their financial well-being. The first is to regulate the conduct of our banks and financial institutions. For banking, the key issue is to discourage the imprudent use of unsecured credit facilities. Consumer research has shown the immediate pleasure of purchasing a designer accessory or purchasing the latest gadget using a credit card. If you have a credit card, the immediate pleasure of using it to purchase the latest good that you’re interested in can lead people to spending more than they otherwise would. There was an experiment with a group of students in the US who were asked to bid for a pair of tickets to a basketball match. The experiment showed that those who bid for the tickets using their credit cards were willing to pay up to 100% more than those who were using cash. 2 And this was a group of students that was not a typical population, but a group of MBA students from MIT! Even they, with their credit cards, bid much more when using credit cards than when using cash. This is normal human behaviour.

8. Hence MAS’ credit card rules are important. We have to discourage people from excessive spending using credit cards. Many countries do not impose rules, or some have imposed rules only recently. We moved very early to discourage excessive credit card spending. I think it is a very sensible move, having a minimum income requirement and also making sure that once you have a credit card, you can’t spend too much compared to your monthly income. This is something we have strengthened recently. As some of you may know, we have a total limit on what individuals can borrow on all their credit cards and unsecured facilities combined, with all the banks. The total limit will be capped at 12 months’ of income, which is still a very high borrowing on an unsecured basis. But MAS started with this limit because we are aware that some Singaporeans’ borrowings currently exceed 12 months of income, and we have to give them time to bring their borrowings down. MAS will monitor the situation, and tighten the credit limits further, if necessary.

9. For insurance, our main challenge is to ensure that all Singaporeans have access to the right products, at an affordable rate. That is our main priority for insurance. We must help consumers to meet their insurance needs for themselves and their families without paying for something they do not need.

Interesting to know MAS is looking at limited usage of credit card…

In fin edu there are three sub-plans:

First, we must start earlier, with teenagers. Forming the right attitudes towards spending and saving early in life goes a long way.  16. Starting from next year, the Ministry of Education will introduce Food and Consumer Education (FCE) for all secondary one and two students. This is a way of teaching them life skills that they’ll find very helpful. A key objective is to inculcate basic financial literacy in our students, at a time when they are starting to think of ways of using money. MoneySENSE is working closely with the MOE and NIE to equip teachers with the relevant skills and knowledge, so they can help the children with money management skills. This is the first objective, start early when they are teenagers.

17. Second, we must deliver targeted financial education messages at key points in a person’s life, for instance, when couples intend to get married, to plan for wedding expenses, which can be very large if we are not careful; and later, when they are buying a flat, how to make sure they can buy an affordable flat for the future; advising parents on how they can plan and save for their child at public hospitals and clinics; and advising older Singaporeans when they withdraw monies from their CPF. So at each key point in life, we will provide targeted advice for people at the immediate stage of life they are coming upon. Deliver the right message at the right time.

18. Third, we will provide more avenues for people who are in difficulty or financial distress, to seek help. We must do everything we can to prevent people from getting into a worse situation, or getting into a debt spiral. CCS, with the help of ABS, runs a very useful debt management programme for those who cannot re-pay their borrowings from banks. We can do more, using our social workers and counsellors.

This is pretty much what most behavioralistas will suggest.  Just wish that Mr Tharman Shanmugaratnam mentioned nudging etc in the speech as well…


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