Lower income group need more help suggests DBS’s inaugural research

DBS on Covid-19’s impact on Singapore residents’ financial health: more help needed for lower income group – Findings from the inaugural research paper include anonymised data insights from 1.2 million retail customers; the first-of-its-kind to be presented in Singapore

Covid-19 has caused a severe disruption to global economic activity and its impact on the Singapore economy has been broad and significant. As Singapore continues her efforts to contain the pandemic and its economic repercussions, GDP growth is expected to sink to -6.5%, making this the worst recession since Independence.

To better understand how Singapore residents are managing their personal finances amidst and beyond the Covid-19 maelstrom, DBS Bank has published its first report of a new research series, the “DBS NAV Financial Health Series”. Findings of the report – a collaboration between DBS Group Research and DBS Financial Planning Group– are derived from a multi-layered analysis of macro-economic data and anonymised data insights from 1.2 million retail customers over the months of March, April and May this year. Here are the key findings:

1. Indications of deep and broad-based income deterioration: The share of customers who experienced a significant (defined as more than 10%) decline in income has risen sharply to 26% in May. Among them, about one-third suffered even sharper income decline in excess of 50%.

2. More support needed for lower income group: The lower income group is bearing the brunt of the pandemic.

   Lower income earners (defined as individuals who earn a monthly salary of SGD 2,999 and less) constitute about 49% of customers who experienced a drop in their pay checks. Within this group, about half (51%) saw their incomes decline by more than 50%. In comparison, the impact on the higher income groups is considerably modest.

   Lower income earners require more support as they are heavily reliant on their salary to meet their monthly cash flow needs. A sharp decline in salary would inflict significant stress on their livelihoods. In this instance, the extension of some of the government support measures, with a specific focus on the lower-income earners, would be welcome.

3. Middle-aged individuals are vulnerable: While older workers were found to be marginally more vulnerable to income deterioration, those aged 35-44 years old account for the highest share of affected workers – the income of more than half (56%) in this age group plunged by 30% or more.

   This is partly due to current policy measures which have focused on job losses (in the case of older workers) and the lower income group. The middle-aged group is also considered the “sandwiched class” as they have more financial commitments, such as having two sets of dependants.

4. Income deterioration of employees in the F&B, Hospitality and Aviation sectors is especially pronounced and worsening: In particular, the Aviation sector saw the largest spike, with 81% of individuals employed in this sector experiencing lower income in May, up from 39% in March 2020.
5. Worry over income deterioration exacerbated by inadequate emergency funds: Concerns regarding income decline are even more compelling, considering that most of the affected individuals do not have adequate emergency savings. In May, 64% of individuals who experienced a significant fall in income had less than three months of emergency funds, with a sizeable 42% of this group having less than a month of emergency funds set aside.

   Amongst lower income earners, 33% had less than three months of emergency cash saved, of which 22% had less than a month of emergency funds set aside.

6. An investment opportunity for savvy retail investors: When the equity markets plunged in March, a group of retail investors took the correction in stock prices as a buying opportunity for equities. As of June, these retail investors outperformed institutional investors and the benchmark Straits Times Index (STI) by 6.8 percentage-points and 9.6 percentage-points respectively.

   Specifically, these are individuals who understand the importance of financial planning, have lower financial commitments and who have set aside sufficient emergency funds.

   They can be characterised by two qualities:

   • The propensity to invest rises with income level: Individuals who earn above SGD 10,000 invest significantly more. This group has the highest percentage of investors at 12.2% for retail customers and 15.8% for NAV Planner users.
   • Having more savings equates to a higher propensity to invest: DBS has observed a positive correlation between the level of emergency funds and income. For example, 54% of customers who earn SGD 10,000 or more have more than three months emergency funds set aside, compared to just 24% in the lower income group.
7. Investment decisions are largely based on life-stages: Individuals aged 25 to 35 years have a higher tendency to invest likely because of their lower financial commitments, whereas those aged 35 to 54 years suffer a dip in their ability to do so, partly because they are at a life stage when their financial commitments are at their highest.

   The inclination to invest jumped for those in the 55 to 64 age band. This is likely due to lower financial commitments and their ability to access their CPF savings, which can be ploughed back into investments.

Said Irvin Seah, Senior Economist, DBS Group Research: “The Covid-19 pandemic is a highly regressive event which could potentially widen the income gap in Singapore. Its impact on the various income groups has been disparate and uneven, and as we have found, skew unfavourably towards lower income earners. The Singapore government has swiftly introduced policy measures such as the Jobs Support Scheme which helped mitigate job losses, but more targeted policy intervention may be required to provide calibrated assistance to those that are worst affected.”

To help individuals and businesses alleviate the challenges they may face in managing their cashflows, DBS has rolled out three rounds of Covid-19 liquidity relief packages and also committed SGD 10.5 million in its “Stronger Together Fund” to provide meals and care packs for vulnerable individuals affected by the pandemic across its six key markets. In May, the bank also announced plans to hire more than 2,000 people in Singapore and pledged no job cuts.

Earlier in April, DBS introduced NAV Planner – an industry-first, feature-rich digital advisory solution leveraging big data and technology – which enables customers to independently plan and manage their finances by providing insights and recommendations tailored to their life stages and financial circumstances. More recently, the bank upgraded NAV Planner with a new “Map Your Money” feature and launched a retirement planning portal to help Singaporeans get a head start in planning for their golden years. This is in addition to the extensive library of financial planning-related guides, educational video clips and articles, as well as virtual financial literacy classes which are open to the public on its online NAV page.

More than one million users have since interacted with NAV Planner and NAV-related content, and close to 100,000 customers were able to turn their finances around to become net savers after doing so. “We are very encouraged to see our customers gain a more positive relationship with their finances through our NAV financial planning initiatives,” said Jeremy Soo, DBS Singapore Head of Consumer Banking Group. “The pandemic has also led many of our customers to reassess their protection plans and question if they are adequately covered. To address this, we will be implementing an enhanced NAV Planner module to help demystify and identify protection gaps.”