Financial health improvement observed in customers, reports DBS

Amid encouraging signs of a post-pandemic recovery, the financial health of most Singapore residents improved by the end of last year on the back of better economic conditions.

In an industry first, all Singapore residents can now use DBS NAV Planner, one of the world’s best financial planning solutions. DBS NAV Planner will harness world’s first public-private open banking initiative SGFinDex to widen reach to all.

Lower income group’s financial health remains vulnerable and requires sustained support, says the bank’s latest report

financial health
image: DBS

Amid encouraging signs of a post-pandemic recovery, the financial health of most Singapore residents improved by the end of last year on the back of better economic conditions, according to DBS’ latest “NAV Financial Health Series” research report.

The proportion of customers who experienced a significant income decline in December 2020 fell from 26% in May 2020 to 19.4% in December 2020. Emergency savings of all income groups also rose in 2020, reaching peak levels at the height of the crisis last June.

Some segments of the population, however, are worse off. The lower-income group, accounting for a sizeable share of those who experienced significant income decline, continued to struggle and were depleting their savings in the last quarter of 2020.

Even as near-term economic prospects gradually improve, DBS expects an uneven path to a post-pandemic recovery due to the disparate impact the crisis has had on different industries and segments of the society. The report highlights the need, amid the uncertainty, for more sustained and targeted support for the vulnerable lower-income group. It also underscores a greater need for customers to be more prudent with their money and start looking at financial planning solutions to strengthen their financial resilience.

Irvin Seah, Senior Economist, DBS Group Research, said: “No storm lasts forever, but it is important to plan for rainy days ahead. As economic conditions improve, so will people’s financial situations. Yet, our analysis over the past year has shown that while some segments of the society have made concerted efforts in financial planning, there were many who have not been able to do so. For the less prepared, though policy support will be helpful in closing the gaps in times of crisis, it should never be a cure-all or a permanent solution. The experience gained in this crisis pertaining to financial planning is important, particularly for those who have suffered from income deterioration. To better prepare for a sustainable financial future, rigorous and prudent financial planning should be a way of life for everyone going forward.”

This is the second report that DBS has published, after analysing macro-economic data as well as anonymised and aggregated data insights from a group of 1.2 million retail customers, in order to examine how the Singapore government’s policy measures alleviated the financial circumstances of Singapore residents. Based on data collated at the end of December 2020, here are the key takeaways:

1) Financial health of Singapore residents has improved across the board:

The share of customers who experienced a significant decline in income fell to 19% in December 2020, a 7%-pts improvement as compared to 26% in May 2020. This reflects an improvement in the financial wellness of Singapore residents amid the recovery from the crisis. Among those affected, the extent of impact has also moderated.
2) Sustainable support for lower-income group needed:

The lower-income group remained the worst hit, accounting for about half (49%) of customers who experienced income degradation. That said, the share of low-income earners who experienced severe income loss improved significantly by 9% pts to 42%, up from 51% previously.

  • Notwithstanding a turnaround in employment prospects, targeted policy support (e.g. mortgage deferment schemes) has played a crucial role in helping this group of customers reduce their monthly financial stress.
  • However, there are signs that this group will continue to dip into their savings to meet their monthly financial obligations. It will remain crucial for policy efforts to support this vulnerable group, especially in helping them improve their employment prospects.

3) Middle-aged workers still feeling the squeeze:

Middle-aged workers still accounted for the majority share of those who experienced income deterioration. In fact, almost half of those in this age group experienced income decline of more than 30% – though compared to the other age groups, middle-aged workers made the most significant progress during the economic recovery. A persistent increase was also observed in the unemployment rate of middle-aged workers. These findings suggest that this group will continue to face challenges, and therefore require sustained policy support.

4) Additional support warranted for the F&B, hospitality and aviation industries:

The financial health of workers in the F&B, hospitality and aviation industries also improved, based on a restoration of earlier wage cuts and payment of year-end bonuses. This came on the back of a slew of policy measures specifically aimed at supporting businesses in the hardest-hit sectors.

That said, these workers will continue to face higher impact to their income as compared to the other sectors. Additional policy support for these sectors, e.g. the extension of the Jobs Support Scheme as announced during Budget 2021, is warranted amid the grim outlook for the tourism-related clusters in the near-term.

5) Pandemic prompted customers to save more:

Emergency savings of all income groups rose amid the crisis and reached peak levels in June 2020, before tapering off gradually as economic conditions improved. For example, the emergency funds of customers who earn more than SGD 10,000 peaked at an amount equivalent to four months’ worth of salary.

  • However, the savings situation of those who suffered income decline appears to have worsened. As of December 2020, almost half of customers (47%) who experienced a significant fall in income had less than a month of emergency funds, up from 42% in May 2020.
  • The lack of sufficient savings appears to be more pronounced in the lower-income group, as they are most likely to have dipped into their savings to weather the crisis. Policy measures aimed at helping this vulnerable group will remain crucial this year.

6) Potential “cliff effect” from the mortgage deferment scheme not a major concern:

According to the bank’s data, only 8% of existing customers under the mortgage deferment scheme required a relief extension. This potentially alludes to a better-than-expected cash flow situation for most households, where the reduced monthly instalments are expected to cover interest and partial principal repayments for most individuals. Nonetheless, continual support for the vulnerable group – comprising individuals who experienced a bigger income degradation or lost their jobs due to the pandemic – remains imperative, especially as slippages into this group was observed in 2H20.

After the launch of the world’s first public-private open banking initiative SGFinDex last December, DBS was able to accelerate its plans for financial inclusion and scale AI-powered financial planning solutions to millions through its digital financial and retirement advisory tool DBS NAV Planner. In December 2020 alone, the bank saw a surge in new visitors, with 200,000 trying DBS NAV Planner. Between April and December 2020, customer interest in protection also surged, with the protection feature of DBS NAV Planner attracting more than 300,000 visits. The solution has now passed a key milestone, hitting 2.2 million users since its introduction in April.

“There is a real opportunity for us to help narrow the widening income inequality gap by helping all Singapore residents, including the lower-income group, to better manage their money with our suite of digital financial and retirement planning solutions,” said Evy Wee, Head of Financial Planning and Personal Investing, DBS Bank.

“This is especially important given the current low interest rate environment, which means people need to take steps to actively grow their savings in order to beat inflation. We are always looking at ways to help customers overcome this inertia, be it by lowering the barriers of entry for them to invest, or by developing new digitally-guided advisory frameworks that can help them make better and more well-informed financial decisions.”

The bank has observed consistent usage from customers who are empowered with a bird’s eye view of their finances through DBS NAV Planner. Most of these customers go on to act on the personalised recommendations it provides – such as to invest their excess cash savings via DBS digiPortfolio, or grow their current savings with a high-yield DBS Multiplier savings account.

The tool leverages more than 100 AI models to deliver personalised and useful financial planning insights to users and as of December 2020, more than 30 million financial planning insights were delivered for the year.

Written by Ravi Chandran

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