“Helping those who have more than the basic amount of CPF savings earn better returns was one of the priorities for the country’s retirement system” (Tharman Prods Younger Singaporeans To Take “Controlled Risks” With CPF Funds, Siau Ming En).
That 80 per cent of those who invested their monies through the Central Provident Fund Investment Scheme (CPFIS) “would have been better off leaving their monies in the Ordinary Accounts” (TODAY, Sept. 14), and that 45 per cent of them actually lost money should not come as a surprise, if these empirical findings are evaluated in the context of financial literacy rates in Singapore. Notwithstanding the limitations in its methodology – as to whether the sample might be representative of demographics – a survey conducted by Mastercard earlier this year found that even though the 422 respondents scored well in investment knowledge, retirement planning was the lowest-scoring component.
And in the first and only National Financial Literacy Survey conducted in March 2005, the report noted that “many Singaporeans do not manage and plan their finances in a disciplined or structured fashion … [and] are also not well-versed on the key features and mechanics of common financial products such as life insurance policies and unit trusts”.
The persistence of low financial literacy rates means that most Singaporeans do not fully understand the CPF and its components, much less know how best to “take controlled risks using their CPF monies in order to earn higher expected returns”. As Deputy Prime Minister Tharman Shanmugaratnam alluded to too, knowledge of risks and returns is necessary. And in this vein the implications of information asymmetries are not lost on the government, which has introduced national campaigns like MoneySENSE, to help more become self-reliant in managing financial affairs. The bigger questions, hence, are not only about how successful or effective these campaigns have been, but also about what should change in the future.
Consequently a broader discourse about the extent to which the government should manage the compulsory savings of Singaporeans – and on related issues such as the adequacy of the savings, for instance, with higher life expectancies – will be useful, yet that will only be productive if participants have adequate knowledge of the CPF. And for younger Singaporeans with more in their accounts, the CPFIS. How many know about the investment scheme, in the first place? Given the many functions of the CPF beyond retirement, including housing, healthcare, and education, plugging these information seem like an urgent task.
A version of this article was published in TODAY.