S’poreans can use these tools & tips from DBS/POSB to guard against inflation

Inflation has become the headline worry for both the economy and consumers.

In Singapore the Monetary Authority of Singapore said in October 2022 that the headline consumer price index, or overall inflation, was 7.5 per cent; the highest in almost 30 years.

And while MAS expects the rate to moderate in 2023, it will still be higher than it has been in recent years.

So the question on ordinary Singaporean’s minds must be: Why? And what can I do to protect myself?

Thankfully, two DBS experts were on hand to answer some questions, Lorna Tan, Head of Financial Planning Literacy at DBS Bank, and Irvin Seah, Senior Economist at DBS Group Research.

What’s causing inflation?

According to Seah, rising inflation is caused by a number of factors.

A strong global recovery from the Covid-19 pandemic and loose monetary policies in previous years have led to a surge of demand for items such as food, energy, and materials.

Added to the demand pressure are other global factors such as the continued disruption to global supply chains, the Russia-Ukraine war, China’s zero-Covid policy and ongoing geopolitical tensions between the United States and China.

Domestically within Singapore, high CEO premiums, a resilient property market, and a tight labour market leading to wage inflation are some of the drivers on top of the global factors that further exacerbated the price pressure.

When asked about the obvious and less obvious ways that inflation will affect Singaporeans, Seah said inflation can mainly be felt in three areas: Food, Housing and Utilities, and Transport.

These three components account for about 63 per cent of the entire Consumer Price Index (used to measure consumer price inflation) basket, and also account for the bulk of consumer’s spending.

Therefore, those who dine out often will surely feel the pinch harder than the rest, along with private vehicle owners. Those using less energy-efficient electrical appliances should also expect to face higher bills.

Inflation’s regressive nature means that it affects the lower income group relatively harder as consumption expenditure accounts for a relatively larger share of their income.

To mitigate the impact of inflation, especially on lower income households, Seah said that the Singaporean government had introduced two support packages worth SGD 3 billion each.

In terms of more structural measures, Seah said that the Monetary Authority of Singapore (MAS) had tightened monetary policy five times, allowing the Singaporean dollar to strengthen against a basket of currencies, which has helped to keep imported inflation at bay.

Seah expects the government to introduce more counter-inflation measures in the upcoming Budget 2023. However, with growth momentum expected to ease further, and recession risk picking up in 2023, the room for further monetary tightening by the MAS is becoming increasingly limited.

The next policy decision by the MAS will be data dependent, specifically on the balance of risk between growth and inflation in the coming months.

Tools, tips, and advice

With that in mind, Tan gave eight specific tips that essentially speak to three main themes.

Firstly, take advantage of the financial tools available, many of which are offered by DBS. Secondly, seek advice where necessary. Thirdly, to constantly review information on your finances.

The eight tips were:

1) Make it a habit to review your expenses on a quarterly basis to make necessary adjustments.

Use the digital financial advisory tool DBS NAV Planner to help you keep track of your expenses and set up a budget and savings target.

2) Shop wisely by buying house brand products at supermarkets, bulk buying non-perishables if there is significant discount, or consider buying second-hand items.

Use credit/debit cards that are more suited to your lifestyle to earn cashback. For instance, the POSB Everyday Card provides up to 10 per cent cash rebates on daily essentials and more, such as groceries, dining and online shopping, as well as utilities and telecommunication bills.

Those who are more comfortable using debit cards may consider the PAssion POSB debit card, which offers customers up to 8 per cent savings on their daily spend.

Tan did caution that credit cards are double-edged swords and that credit card debts can snowball quickly if they are not well-managed.

3) It is important to stress-test your financial plan. Most financial plans assume an inflation rate of 1.5 to 2 per cent p.a. when projecting future income flows to determine retirement adequacy.

It is useful to plan for higher costs of living by assuming different inflation scenarios of 3, 4 or 5 per cent, and work out how these different rates impact your future cash flows and retirement planning.

4) It may be tempting now to cancel your insurance coverage in order to reduce expenses, but the last thing you want to worry about in a health crisis or accident is how you can pay for your medical expenses.

Especially with the Covid-19 pandemic casting a spotlight on health in recent years and with inflation likely to increase healthcare costs, healthcare and insurance spending should play a more prominent role in our financial planning going forward.

As a guideline, DBS recommends that their customers have a basic hospitalisation plan, a basic term coverage of about 9 to 10 times their annual income, as well as about 5 times their annual income in critical illness cover.

5) One should always review their loans. If you are servicing a home loan, and out of your lock-in period, you might wish to consider refinancing or repricing to a more suitable mortgage, especially as interest rates are rising.

Tan recommends doing a cost-benefit analysis first, as well as consulting a DBS home loans specialist.

New homeowners should be cautious of over-leveraging, and should maintain adequate funds to tide through at least a year. For homeowners experiencing tight cash flows during this period, consider paying off housing loans with your CPF OA savings and maintain liquidity.

But DBS also advises that borrowers set aside sufficient funds, so they can have a buffer in case of unforeseen circumstances, such as further interest rate hikes.

Ideally, one should set aside some savings in cash or liquid assets that can be used to pay for their monthly home loan instalments for the next two years, in addition to at least six months’ worth of expenses.

This would allow sufficient time to restructure the loan, or even sell the property should they run into any financial issues.

6) Tan recommends inflation-proofing your savings too. While emergency cash should be kept liquid, it will not be enough to keep the rest of your savings in a simple savings account, as doing so will not preserve your purchasing power in a high inflationary environment.

Some possible instruments to consider include higher interest-yielding savings accounts like DBS Multiplier Account (up to 4.1 per cent), POSB Save As You Earn (SAYE) Account, Singapore Savings Bonds, endowment insurance plans or money market funds.

7) It is necessary to move beyond savings, and start investing your money and adopt a long-term horizon for a better chance of beating inflation.

Tan said that as a rule of thumb, at least 50 per cent of your net worth (assets minus liabilities) should be invested. DBS has a number of tools that are designed to help savers become investors.

One example is a regular savings plan like the DBS Invest Saver, which works on a dollar-cost averaging approach and helps customers accumulate their investment steadily with no need to time the market.

DBS also has an investment assisting program called digiPortfolio. This is a hybrid of human expertise powered by robo-technology, with a team of portfolio managers that carefully selects Exchange Traded Funds (ETFs) to create quality portfolios, monitors the market regularly and ensures alignment with DBS Chief Investment Officer’s (CIO) views.

You can also get investment ideas through DBS’ research platform Insights Direct, where you can access award-winning and in-depth analysis of more than 500 stocks across Singapore, Hong Kong, China, Indonesia, and Thailand.

Tan also suggested following Singapore Equity Picks, which is accessible through Insights Direct and one of DBS Group Research’s most-read products.

It has generated a time-weighted rate of return of 14.51 per cent in 2021 and has consistently outperformed the STI since its inception in July 2016.

8) Finally, Tan suggests that customers maximise CPF schemes as a way of reaping the benefits of compounding for long-term savings to boost your retirement nest egg in future.

DBS NAV Planner

One additional financial advisory tool that Tan recommended is the DBS NAV Planner, which is supercharged by SGFinDex.

SGFinDex consolidates information from banks, the CPF board, HDB, IRAS, CDP, and insurers, and allows tools such as DBS NAV Planner to provide an all-inclusive view of a customer’s finances.

With the DBS NAV Planner, consumers can see the impact of one’s transactions or financial decisions on other aspects of their finances.

This is akin to having a personalised balance sheet, offering greater clarity on an individual’s financial health, and enabling them to take more informed actions to achieve their short, mid, and long-term financial goals like retirement.

The tool even allows individuals to stress-test their finances by adjusting the inflation assumption to ensure that their financial resources are sufficient for the long term.

While DBS cannot, of course, predict how long the future’s uncertainty will last, it has positioned itself as a resource to help consumers prepare for a range of financial outcomes.

Most Singaporeans are aware of basic financial facts, such as the need to invest wisely and plan beyond things like CPF. But figuring out how to get started and overcoming inertia is also critical.

Luckily this is something that DBS is well-equipped to help them with, especially amid tough times.

Find out more here.

Top image via Sean Robertson on Unsplash

This sponsored article by DBS is making the author reconsider some planned purchases.