High-interest bank account is top investment choice for the young: Poll

Most young working adults in Singapore are conservative when it comes to managing and investing their money, as many of them put their funds in risk-free bank products such as high-interest accounts.

A Straits Times survey of around 1,000 young people aged 18 to 30 found that 73 per cent of young full-time employees have bank savings accounts.

This result mirrors other polls which found that many bank customers are drawn to savings accounts that can give them an extra $100 to $400 to spend every month, simply by depositing their salaries there or using the bank's credit cards.

The monthly bonus interest, which is usually applicable to only the first $100,000 in such accounts, is an attractive option for young employees because many probably have yet to save beyond that amount since they have been working for only a few years.

The survey, which was carried out by market research firm Kantar, appears to dispel the common perception that young investors are more daring in jumping into lucrative and high-risk investments. Alternative products like cryptocurrency do not rank high in their choices, the poll shows.

Instead, their investment choices probably mirror their parents' portfolios because they also choose to put money in common products such as fixed deposits, public-listed stocks, exchange-traded funds and bonds.

It is interesting to note that many of them based their preference on the reputation of their investments and were more willing to park their money with well-established products such as gold, bond and real estate.

Close to half of them also appeared to be more risk averse and were drawn to investments that protect capital or those investments that grow steadily over a long period, even if this means getting lower returns.

Only about 12 per cent of young investors made use of technology in managing their funds, by engaging the services of robo-advisory platforms and micro-investment apps.

Like older employees, 88 per cent of young workers ensured that they would not be out of pocket if they were to be hit by serious illnesses or accidents.

About 63 per cent of them had life insurance and 40 per cent also bought private hospitalisation policies, even though the majority could be covered by their employers' group health insurance.

About 37 per cent also bought critical illness insurance so they would receive lump sums or monthly payments if they have to take a break from work to recover from serious ailments.

Some married employees even thought ahead by signing up for endowment polices for their kids, as well as annuities for their own retirement.

Young and savvy

It is heartening to note that many of our young employees are savers at heart rather than spenders because they have a good understanding of their needs and what they can afford.

For instance, the majority do not give in to impulse purchases and are likely to buy more expensive and non-essential items only after careful consideration.

Interestingly, given a choice between buying luxury goods and using that same amount of money for holidays, many prefer to travel as they prefer to have an enjoyable time than material goods.

What this means is that young people are more likely to subscribe to Yolo (you only live once) as they desire to enjoy life in the present moment than be doom spenders, whose expenses are driven by stress and anxiety about the future.

The good news is that many feel confident in managing their expenses well because they are likely to spend below their means.

This probably explains why over 40 per cent prefer to pay with money that they own, via debit cards or digital apps, rather than relying on credit cards.

They do so because they are keenly aware of the effects of inflation, which have affected the spending patterns for many people, especially in the last few years.

The silver lining is that the belt-tightening experience has driven many of them to prioritise saving and investing for retirement over immediate enjoyment, such as going for more holidays.

But like many adults here, around 70 per cent of young people are also drawn to chance-based activities, such as buying lottery tickets, because winning the million-dollar prize would enable them to pay for their first home.

Quite a number of them also indulge in something that will seem alien to many seniors - buying blind boxes.

This refers to the growing trend of hobbyists splurging on wrapped boxes containing toys or other collectibles they won't be able to see unless they buy a box. The idea behind such gimmicks is to entice collectors to keep buying until they get the toy or object they desire.

But those who indulge in games of chance say they would limit their spending to under $50 each time, reinforcing a broader trend of financial prudence, the survey found.

As young working adults have a long career runway ahead of them, here are two areas that they can look at so they can be better at managing money than their parents.

Be aware of important financial rules

When you are young and full of optimism for your ability to do well, you are unlikely to worry about negative things such as losing your job suddenly or running out of money. In reality, many things are beyond our control, especially global events that can affect the economy and ultimately our jobs and investments.

It is always prudent to set aside an emergency fund that would cover at least six months of household expenses in case you run into money problems. This is especially important if you have fixed monthly loans, such as for a car or a mortgage.

The survey shows that about 57 per cent of young workers are not aware of the need to have a substantial emergency fund to meet cash-flow problems.

The good news is that it's never too late to start. If you have one of those high-interest rate saving accounts, you will be rewarded with higher monthly bonuses when you accumulate higher balances in the account.

Make better use of CPF Special Account

Most young employees probably never take a second look at their CPF accounts since their employers will take care of it by depositing the monthly contributions.

But if you want to have more money to spend in retirement and enjoy a bit of tax savings now, you can start by topping up your Special Account with cash by up to $8,000 annually. Doing so will enable you to get tax relief for that amount.

More importantly, setting aside more money there will enable you to enjoy 4 per cent interest, which will be compounded so that you eventually have more savings.

Take, for instance, a young employee who has been topping up the account diligently until he manages to save $200,000 by age 35. With compounded interest, that amount alone will become over $438,000 when he hits 55 in 20 years. The reality is his Special Account will probably have over $600,000 by then because his monthly contributions from his salary will continue to give the account a boost.

So it pays to be aware of all the risk-free and, yes, free options such as the CPF, so that you can grow your savings even as you work harder to advance your career.