Monday, May 28, 2012

How many Singaporeans spend beyond their means?

In 2008, PM Lee Hsien Loong said that MPs often "see families who have over-committed themselves financially’ – for instance those who have been ‘extravagant in doing up their homes using renovation loans’, or ‘bought expensive furniture or large screen TV sets on hire purchase". He added that some have bought houses that they could not afford as well. Can we put some numbers to this?
To do this, I looked at the Department of Statistics' Household Expenditure Survey. The Survey has data on income and expenditures for different income groups. For each group, we can examine what proportion spend more than they earn.

The results are shown in the graph below. Here, we have the proportion of Singaporean households spending more than they earn, grouped by household income. Understandably, richer households are less likely to over-spend than poorer ones. Only 3% of households earning $7,000 to $9,999 are overstretched, compared to 25% for households earning between $1,000 to $1,999.

Note: I excluded those earning less than $1,000 as it includes retirees, as well as those earning more than $10,000 due to data limitations.

To put these numbers in perspective, a quarter of the poorest one-third of households in Singapore are spending beyond their means. While the data dates from 2008, one would probably put their money on the problem getting worse today.

This was higher than I expected, but is this really a problem? On one hand, it might be a matter of personal irresponsibility, which PM Lee alluded to. On the other hand, it could be something in economics called "consumption smoothing", where the young, expecting incomes to go up as the rise in seniority in the workplace, spend more today and save more in the future. We can only guess.

1 comment:

  1. Where does the data for expenses come from?