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Why Singapore High-Income Earners are Broke

In Singapore, a phenomenon that often perplexes observers is the prevalence of high-income earners who struggle with financial insecurity or even end up in dire financial straits. Despite earning substantial incomes, many individuals find themselves living paycheck to paycheck, burdened by debt, and lacking in savings or assets. This paradox raises important questions about the underlying factors contributing to financial vulnerability among high-income earners in Singapore.

A study conducted by researchers from the National University of Singapore (NUS) in 2022 analyzed the impact of a personal income tax hike on Singapore’s top earners. The tax increase, affecting the top 5% of earners with annual incomes exceeding S$160,000, was implemented in March 2017 alongside redistribution programs aimed at lower-income groups. The study found that despite the tax hike, high-income earners did not significantly change their spending habits.

Data from both a local bank and an international credit card company revealed marginal changes in spending behavior, with high-income earners increasing their monthly credit card spending by 0.8 Singapore cents per extra tax dollar after the announcement, and 0.5 cents per extra tax dollar after the policy was implemented. However, these changes were deemed statistically insignificant, suggesting that the tax hike had little to no impact on their spending.

High-Income Earners Statistics in Singapore

According to recent data, the median monthly household income in Singapore stood at S$10,869 in 2023. This figure serves as the midpoint, indicating that half of households earn more than this amount while the other half earn less. For the top 10% income group, the average monthly household income per member was reported to be S$14,803 in 2023, signifying the highest earners in the country.

There has been notable growth in household incomes in Singapore, with the median household income experiencing a 7.6% increase in 2023 compared to the previous year. However, for the top 10% income group, the growth was more modest, with a nominal increase of 3.1% in 2023. Adjusting for inflation, this group experienced a real decline of 1.9%, indicating a slight decrease in purchasing power compared to previous years.

These statistics underscore the disparities in income distribution within Singapore and highlight the challenges faced by high earners, despite their relatively affluent status. While they may enjoy higher incomes compared to the average household, factors such as rising living costs and inflationary pressures can impact their financial well-being. Understanding these trends is crucial for policymakers and financial advisors in devising strategies to address income inequality and support sustainable economic growth.

Factors Contributing to the Financial Strain of High-Income Earners

Despite their substantial earnings, high-income earners in Singapore often encounter financial challenges stemming from various factors. The high cost of living in the city-state is a significant contributor to their financial strain, characterized by exorbitant housing prices, steep healthcare costs, and rising education expenses. These expenses, coupled with societal pressure to maintain a certain lifestyle, can lead to excessive spending and financial overextension, despite their comfortable incomes.

High Personal-Income Tax Rate

Taxes also play a crucial role in reducing the disposable income of high earners. The progressive income tax system in Singapore imposes higher tax rates on those with higher incomes, with recent increases in the top marginal personal income tax rate further burdening high-income earners. Singapore employs a progressive income tax system, with recent changes raising the top marginal personal income tax rate to 24% for chargeable income exceeding $1 million, effective from the Year of Assessment (YA) 2024 onwards. Income falling between $500,000 and $1 million is taxed at a rate of 23%.

In addition to income tax, individuals in Singapore may also face liabilities for other taxes such as Goods and Services Tax (GST), property tax, and vehicle ownership taxes. These taxes contribute to the overall financial obligations of individuals residing in Singapore.

Overleveraging in Property Investments

Another factor contributing to their financial strain is overleveraging, particularly in property investments. High-income earners may take on significant levels of debt to finance property purchases, often stretching their budgets to acquire larger or more luxurious properties. This reliance on debt can leave them vulnerable to financial strain, especially if market conditions change or interest rates rise, increasing the cost of servicing their loans. Firstly, there are initial expenses to consider, including the property price itself, which can vary greatly depending on factors like location, type, and size. Condominiums in central areas may exceed S$1.5 million, while suburban apartments could be more affordable.

Additionally, buyers must factor in the Additional Registration Fee (ARF), Buyer’s Stamp Duty (BSD), stamp duty for options if applicable, and legal fees for conveyancing and other legal services. Renovation and furnishing costs also contribute, often reaching S$50,000 or more, depending on desired standards.

Beyond the initial costs, ongoing expenses must be accounted for as well. Mortgage repayments, if the purchase is financed through a mortgage, constitute a significant ongoing cost, including associated interest expenses. Property tax is another annual expense based on the property’s annual value, typically ranging from 4% to 12%. For condominiums, management fees for common area upkeep and services are also payable monthly. Additionally, a sinking fund contribution is mandatory, used for the building’s long-term maintenance and repairs. Considering both the initial and ongoing costs, investing in property in Singapore requires careful financial planning and consideration of various factors to ensure long-term financial sustainability.

Owning a Luxury Car

Owning a luxury car in Singapore is a costly endeavor, with expenses far exceeding those of regular vehicles. The initial purchase alone presents a significant financial hurdle, with prices typically starting at S$190,000 and climbing higher depending on the model and brand. Additionally, securing a Certificate of Entitlement (COE) is crucial, with prices ranging from S$70,000 to S$100,000 or more, depending on vehicle category and engine displacement.

Following the purchase, ongoing costs further compound the financial burden. Registration fees, including the Additional Registration Fee (ARF) and annual road tax, are determined by factors such as the car’s Open Market Value (OMV) and engine capacity.

Luxury car insurance premiums are notably inflated due to the vehicle’s higher value and perceived risk profile. Maintenance and servicing also incur substantial expenses, often exceeding those of regular vehicles due to specialized requirements. Fuel expenses constitute another significant ongoing cost factor, especially considering larger engine sizes and reduced fuel efficiency, exacerbated by rising petrol prices.

Other Expenses amongst High-Income Earners

Moreover, the high cost of living in Singapore presents a formidable challenge for high-income earners, encompassing housing, transportation, dining out, and entertainment expenses. Despite their substantial earnings, maintaining a comfortable lifestyle amidst escalating costs can prove difficult.

Lifestyle inflation compounds the financial strain on high-income earners, tempting them to indulge in luxury purchases and extravagant experiences as their income rises. However, succumbing to this temptation often leads to overspending and financial instability, particularly when savings and investment priorities are neglected in favor of immediate gratification.

In addition, inadequate financial literacy and planning contribute to the financial vulnerability of high-income earners. Despite their earning potential, many lack the necessary knowledge and skills to effectively manage their finances, making them susceptible to making poor financial decisions or falling victim to scams and fraudulent schemes.

Furthermore, unforeseen life events such as job loss, illness, or divorce can significantly exacerbate the financial challenges faced by high-income earners. Despite their relatively high incomes, the absence of adequate emergency savings or insurance coverage leaves them ill-prepared to cope with sudden financial shocks, further undermining their financial security.

In a Nutshell

The phenomenon of high-income earners struggling with financial insecurity in Singapore is multifaceted, stemming from a combination of factors including the high cost of living, lifestyle inflation, inadequate financial literacy, societal pressures, and unexpected life events.

Addressing this issue requires a holistic approach that encompasses financial education, prudent financial planning, responsible spending habits, and a shift away from materialistic values toward greater emphasis on long-term financial security and well-being. By promoting financial literacy and encouraging mindful consumption, Singapore can empower high-income earners to make informed decisions and achieve lasting financial stability.

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