Households financially sound, but concerns with rising costs

Experts say that although the average household’s net worth continues to grow, it could be put under pressure by rising costs of living.

The Department of Statistics reported that the net worth of households rose 7.6 percent to $2.72 billion in the third quarter of the year 2023, but people have been saving less money and their credit card debt is on the rise.

The net worth of a household is the amount left over after all debts have been paid.

A household that has a positive networth is one with more assets than liabilities. This gives it some cushion against unplanned emergencies.

Credit card debt, for example, is a liability. Savings are part of the household’s assets.

The latest Financial Stability Review by the Monetary Authority of Singapore showed that in November, the average personal saving rate in Singapore dropped to 34.6% in the third quarter.

This is above the average long-term of 31%, but it is still down 0.5 percentage points from the same time last year.

The decline in savings is a result of a growth in private consumption spending by 8.4% year-on-year in the third quarter, to $52.7 billion.

Singapore’s consumer price index for all items (CPI) increased to 4.7 percent on an annual basis in October. This is up from 4.1 percent in September.

Core inflation, which excludes private transportation and accommodation, increased to 3.3% in October from 3.0% in September. This reversed five consecutive months of slower growth.

Singaporeans also take advantage of the stronger currency to spend more money on travel abroad.

The CPI data revealed that in October, holiday expenses jumped 7.8% on an annual basis. This was behind only private transportation (11.7%) and alcohol drinks and tobacco (11.1%).

Credit card debt has increased due to the increase in spending.

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According to the most recent household balance sheet data, credit card debt was 3.8 percent of household liabilities. This is 0.4 points below its long-term median of 4.6 percent.

The total household liabilities as a percentage of disposable personal income has been trending lower for eight consecutive quarters due to a combination of lower debt and continued income growth.

Home loans account for 73,9% of average household liabilities. This could indicate a possible downturn on the housing market after months of increasing property prices.

The maximum amount that a household may borrow is determined by the loan-to-value.

The maximum amount of a loan is 75 percent for a bank and 80 percent for the Housing Board.

In general, a downturn in the property market results in a higher loan-to value ratio. This makes it more difficult for homeowners to refinance at a time when interest rates are rising.

While economists are concerned about lower-income families, they also worry about higher-income households.

Poorer households spend more of their incomes on necessities like food, utilities, and transportation.

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