Five Cents Ten Cents

Younger People and Living Within Your Means

This Channelnewsasia report “Younger Singaporeans Biggest Debt Defaulters” is cause for concern. The report shares how younger people in their 21-29 age group have a debt default rate of 7.16% versus 3% for all other age groups.

What this means is that more and more younger people are starting to live beyond their means. There are still many young people who are prudent and live within their means but the statistics give us an indication of the future trend that is coming.

A Lifestyle Beyond Your Income

The lure of easy consumer credit could be a factor in helping more young people falling into the debt trap. Just take a look at the way the banks market their credit cards and personal unsecured credit facilities. The emphasis is on the ease and convenience of having money now and spending it on lifestyle products and services. Want that BMW 3 series? Use balloon payments and stretch out your car loan to the maximum tenure. Want to go for Europe holiday, spend now by borrowing and pay later? Want to take that MBA? Just get a loan and think about paying back later.

Easy consumer credit but itself is merely an enabler that allows those of you who are unable to distinguish between wants and needs to indulge in your wants.

It is easy to spend but it is difficult to save.

Singapore is a society very much driven by the values of economic growth, consumerism and a get-rich-or-die-trying culture. The messages we get from magazines, television programmes and the internet is to consume and we will be happy and fulfilled.

Keeping up with your neighbours and having that lifestyle for appearances and self-esteem drive many of us. I too was captive to this when the five Cs (car, cash, condo, credit card, country-club membership) beckoned as well.

Short-Term Gain for Long Term Pain

The downside of living beyond your means is that you need to borrow to fund your lifestyle. Borrowing comes at a cost of interest. And generally, interest rates of borrowing are almost always higher than interest you can get from risk-free investments.

A lifestyle that is beyond what you can afford is unsustainable in the long-run. Unless you get lucky at hit TOTO group 1 prize, your increment, promotion or windfall gain in the future is not guaranteed. But when you borrow, your interest is 100% guaranteed to be paid unless you want to risk being made a bankrupt.

You risk long-term pain of feeling financially pressured and stressed about meeting bills and payments if you live beyond your means. I remember the feeling each month when I initially started paying my housing loans, it was scary to see how much I was paying just for the interest and how little my monthly instalments went to reducing the outstanding loan principal amount.

When I managed to pay off my home about 2 years back, the lightness of feeling was indescribable. It really feels great to see a lot of your paycheck go into accumulating retirement income and providing for more luxuries in life.

I read the book “The HP Way” about how the Hewlett Packard company (now known as HP) grew organically but using its profits and never borrowed money from the banks. This conservatism was a characteristic of successful organisations when I later read “The Living Company” by Arie De Geus.

The more I read about news about how people start to abuse debt to fund unsustainable lifestyles, the more I realise that it is the ethos and values that comes from living in a consumer-oriented culture such as Singapore.

Share with Panzer what you think about the CNA article telling us than more young people are living beyond their means?

Be well and prosper.