High inflation and interest rates may stress household balance sheets, DBS study finds

Singapore.13 Jul 2023

Findings show gig workers and low-income group are the most financially stretched

Middle-income customers also face mounting financial pressure from growing liabilities and insufficient savings

Strong growth in investments; customers prioritise safety in risk-free assets

Singapore, 13 Jul 2023 - The double whammy of high inflation and elevated interest rates continue to drive up mortgage costs and diminish Singaporeans’ purchasing power, a DBS study has found. Gig workers are found to be the most financially stretched, as they continue to tap into their savings, which have declined year-on-year to an ‘unhealthy range’, to cover expenditure needs. Their expense-to-income ratio of 112% in May 2023 was significantly higher than that of the median customer at 57%. In addition, their savings can only cover 1.7 months’ worth of expenses, which fell from 1.9 months in May 2022. This is lower than the bank’s recommended range of three to six months.

An analysis of the bank’s proprietary database of anonymised and aggregated data insights from about 1.2 million retail customers found that middle-income earners, who bring home between SGD2,500 and SGD4,999, may also be in financial distress. These individuals are allocating close to 60%[1]of income growth to service the increase in their monthly mortgage payments due to rising interest rates, leaving less room for savings, discretionary spending, and investments.

Said Irvin Seah, Senior Economist, DBS Bank: “Last year’s report shed light on the financial risks and vulnerabilities faced by some age and income groups due to inflationary and economic pressures. Building upon the insights, this year, we analysed the saving, spending and investing behaviour among various income and generational groups, as well as gig workers. Our findings resoundingly underscore the importance of sustainable financial planning. Some segments of society could potentially find themselves in a double-whammy situation, where inflation continues to dilute their purchasing power and erode savings, while high interest rates take a toll on their balance sheets – especially among those with excessive financial liabilities such as credit card debt and hefty home loans. This is an urgent call to action for individuals to kickstart financial planning and leverage tailored solutions to bolster their financial well-being.”

While the income of a median customer grew almost three times faster than that of expenses year-on-year, a deep-dive into the lower-income group[2]and the baby boomer generation (ages 59 to 77) showed that growth in expenses outpaced income growth – with insufficient savings compounding cashflow woes. Customers across various age and income groups had also been using their credit cards more over the past year. Although they have been paying their credit card bills on time, individuals are urged to be mindful of their bill payments and to use credit cards wisely, such as to leverage card deals and rewards to stretch one’s dollar.

Here are the key takeaways from the fifth DBS Financial Health Series research report:

1. Customers saw improved expense-to-income ratios at 57%, down from 59% last year.Income of a median customer grew 7.2%, which was 2.7x faster than that of expenses at 2.7%, which led to declining expense-to-income ratios.

2. Boomers and low-income customers saw worsening wallet bandwidth.Contrary to other customers, both groups saw expense-to-income ratios inch up to 86% and 93%, respectively, as expenses grew 5.5x and 1.2x faster than that of income.

3. Savings dipped but remain healthy, except for the low income.The median customer saw their savings decline marginally from 3.7 to 3.5 months of expenses. Yet, savings for low-income customers could only last them 1.5 months, which may be concerning.

4. Gig workers are the most financially stretched.Their expense-to-income ratio of 112% in May 2023 was significantly higher than that of the median customer. Their savings of just 1.7 months of expenses are deemed too low.

5. Investments were partly channelled from savings, while flows shifted towards short-duration risk-free assets amid a volatile investment landscape.The move towards risk-free assets was observed in all generation and income groups. Singapore T-bills accounted for an overwhelming >70% of total investment flows in May 2023.

6. Credit card debt looks manageable despite the 12.8% increase in card spending.Higher growth in non-interest bearing, non-revolving balances at 23.6% suggest most customers are making timely payments to avoid hefty interest charges.

7. Higher monthly mortgage payments leave lesser for customers earning below SGD5,000 to enjoy from their income growth.They could use more than 50%[3]of income growth to service the increase in monthly mortgage payment.

8. Watch for further impact on mortgages as higher rates linger.Additional stresses could come when mortgages are refinanced on higher interest rates, as more than half of customers earning below SGD5,000 have mortgage loans under floating rates.

Despite improved income for the median customer, the report urged individuals and households to exercise prudence and keep a tighter rein on their expenses – especially amid rising costs in everyday needs and, potentially, growing liabilities. In doing so, customers may accumulate more savings and take opportunity of the current high interest rate environment, by leveraging high-yield savings solutions to inflation-proof each dollar.

“We recognised the impact that inflation and high interest rates has on our customers, and, in response to this pressing issue, the bank proactively rolled out a slew of solutions that could serve them well in navigating economic challenges,” said Lorna Tan, Head of Financial Planning Literacy, DBS Bank. “The remarkable growth in investment savvy among customers in such a short period is testament that embarking on financial planning can be as easy as growing one’s savings with low-risk, high-yield solutions such as Singapore government securities, fixed deposits, and DBS Multiplier. We remain committed to helping customers safeguard their hard-earned monies with accessible and intuitive solutions, as well as equipping them with the necessary skills and know-how to build a more secure financial future. Watch this space for more cost-saving solutions, especially for those who are financially stretched.”

DBS/POSB customers have been leveraging the bank’s wide range of savings, investment and protection solutions for their respective needs – whether it is uninsured gig workers seeking adequate coverage with limited budget, or budding investors looking for ways to future-proof their savings. More customers have also been using the bank’s proprietary digital financial and retirement planner – accessible via the “Plan” tab on DBS/POSB digibank – to track their saving and spending patterns, as well as protect, invest and manage their finances. Today, there are some three million users, with more than one-third being active users every month. The average AUM of users who use the tool is 59% higher than non-users.

In October 2022, POSB had introduced an HDB home loan package with below-market interest rate that is similar to the current HDB concessionary loan rate at 2.6% p.a. for lower-income borrowers, providing borrowers with more options – including those who no longer qualify for an HDB loan.

In addition, customers can tap on the bank’s investment and research experts to make well-informed investing decisions. Through DBS Insights Direct, a research platform, customers can access in-depth analysis produced by the bank’s award-winning analysts, of almost 700 stocks across Singapore, Hong Kong, China, US, Europe, Indonesia, and Thailand. For more information, visit:https://www.dbs.com/insightsdirect/home. Join us on Telegram for daily updates at t.me/dbsinsightsdirect or by scanning the QR code on the bottom.

For the full report, please click here (PDF,HTML)

[1] Figure is based on individual and will be lower for dual-income household.
[2] DBS/POSB customers with take-home employment income of SGD2499 and below.
[3] Figure is based on individual and will be lower for dual-income household.

About DBS
DBS is a leading financial services group in Asia with a presence in 19 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank's "AA-" and "Aa1" credit ratings are among the highest in the world.

Recognised for its global leadership, DBS has been named “World’s Best Bank” by Global Finance, “World’s Best Bank” by Euromoney and “Global Bank of the Year” by The Banker. The bank is at the forefront of leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney and the world’s “Most Innovative in Digital Banking” by The Banker. In addition, DBS has been accorded the “Safest Bank in Asia“ award by Global Finance for 14 consecutive years from 2009 to 2022.

DBS provides a full range of services in consumer, SME and corporate banking. As a bank born and bred in Asia, DBS understands the intricacies of doing business in the region’s most dynamic markets.

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