We tend to think that young people should not concern themselves with money matters. So, we impart them with basic knowledge about savings and whether to get a loan from a bank or money lender and lie to them about other things which we think they will be able to better understand when they are older. But the truth is that there’s no right time to talk about money. And it’s better to start educating them about financial matters from a young age rather than let them figure it out for themselves.
Here Are Some Common Financial Lies Which To Young Singaporeans Need To Unlearn
1. It’s Always A Bad Idea To Owe Money
What’s worse than to owe money? Having no money at all. Young Singaporeans grow up believing this lie but the truth is it’s better to owe money and still have some savings, rather than no debt and no savings.
For example, you decide to buy a car so you took a loan from a bank to fulfill your desire. Months go by and you have diligently saved up money even after paying your EMI and a time comes when the amount of money that you owe to the bank for the car equals the amount of savings that you have in your bank. Now, you might be tempted to use your savings and clear your debt. Though this might be psychologically satisfying at the time it’s going to cause a lot of harm if you run into a financial bump.
You might even have to turn to a trustworthy source such as a Moneylender to help you out at your moment of need.
Therefore, it’s always smart to keep about 20% of your average monthly income as savings before repaying your loans and such. Although this might mean repaying the debt for a longer time, at least you will have a safety net to help you in times of emergency.
2. Keep Your Money With The Bank So It Will Grow
Banks do not pay much interest to money kept in current accounts. Most banks pay interest rate of 0.125% per annum to the current account holders. This percentage of interest is not enough to cater to the often rate of inflation which is forever on the rise. The rate of inflation in Singapore is about 3 percent per annum, which means that the value of the money that you leave lying around in your current account grows less every day which means that you will not be able to buy as many goods as you could when you opened the account.
Although you should keep some money in your current account so that you have access to all your funds anytime you need it, you should keep a portion of your money (equivalent to 6 months of your income) as savings. Beyond that, you should try to build a well-diversified and balanced portfolio by investing in various financial products so that your money can keep up with the inflation rate. A financial adviser can help guide you better on such matters.
3. You Should Prioritize Passive Income
No, passive income as its name suggests, should not be your 1st priority (it’s called passive for a reason) your very first priority should be your current income. You should focus on it and try to maximize it as much as possible. Focusing on basic things like getting adequately paid for the amount of work done and finding better opportunities will help you achieve this goal.
The next step is to earn a side-income. This includes anything that you do to supplement your current income such as working overtime or on weekends. Once you cross your median-wage threshold by up to three times, then you can think about earning a passive income by buying property to rent out or start a business.
4. Pondering On Money is Materialistic and Shallow
This is absolutely not true. As thinking about money makes you smart and responsible. If you do not think before spending your money, you might end up broke, or worse become a burden on your family and a drain on their resources.
If you make a budget, plan for retirement or at least maintain a savings account you can be self-assured that you will be able to cope with almost any problem that comes your way. On the other hand, if you do not think about your money, you might be completely unprepared for any emergency situations that may arise and this may put you under a lot of financial pressure.
Thinking about money makes you materialistic and irresponsible if all you care about are the finer things in life without sparing a thought to your income and expenses.
5. Your Degree Determines Your Salary
Which parent hasn’t said this to their children? While not entirely false, the logic behind this is that if you have a good degree, the chances of getting hired in a high paying job is much higher. Although this seems nice in theory, the truth is that the real world is a really complex place and thinking that a good degree equals a good salary may leave you disappointed.
Most companies hire you because they want you to be able to solve their problem and that has almost nothing to do with your degree because most of the time they do not care. It is often the case that someone with lower qualification gets the job rather than someone who is highly qualified and just out of college. This may be because of the fact that the person with lower qualification has more experience than the college fresher in that line of work.
You may find that most of the employers that you meet won’t be willing to pay you as much as you think you deserve. This may be because of the fact that the line of work that you chose to work in is saturated with similar candidates such as yourself, who are willing to work for a lower salary than what you are demanding.
The only way to cope with this is to keep yourself updated with the latest trends and by learning new skills which you think may increase your value in the eyes of your employer.
To sum it all up, it isn’t adequate enough to impart basic knowledge about savings or whether to get a loan from a bank or money lender, but instead we should focus on a wide array of financial topics to educate our children and try and tell them the truth so that they can make better financial decisions themselves when the time comes.