Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Monday, 23 January 2017

Unemployment with Artificial Intelligence and Automation

Automation and Artificial Intelligence (AI) is a big discussion topic at the World Economic Forum meeting at Davos. Many prominent speakers from politicians to business leaders spoke of both the pros and cons of it. Even in Singapore, our local media has recently published an article that half of the world's jobs can be gone if businesses just adopt the existing technologies. 30% of what most of us do on a daily basis can be automated away. This means that we could be clocking 30% fewer hours working or we could see more unemployment.

In 1930, Economist John Keynes published an essay stating that in the future, people will work for only 15 hours a week and spend the rest of our time enjoying life. Fast forward to now, we are far from that 15-hour workweek. The shortest workweek in the world is about double that 15-hour (Europe), Asia and America is about three times that (averaging 45 hours).

Recommended Post: Top News in 2016 that might affect 2017

An MIT professor, Professor Erik Brynjolfsson, argued for several years that technological advancement (e.g.; Artificial Intelligence and Automation) have destroyed more jobs than it has created since the start of the 21st century. He foresees a future where even more jobs will be lost to machines, not just in the manufacturing sector, but also in professions like law, finance, and medicine.

Professor Brynjolfsson's research showed that between WWII and the 21st century, productivity gains have coincided with jobs growth. But since the beginning of 2000, the 2 lines have diverged, with productivity continue rising but jobs growth stagnating.

Weak job growth is not the only problem caused by technological advancement. Another problem caused by technological advancement is a stagnating median household income. Median household income since the 1980s has not risen as much as the GDP per capita. GDP per capita in the 2000s is almost double that of 1975. Median household income, however, is barely 30% higher than 1975's level. The internet phenomenon begun only in the 2000s, this means that technological advancement (not just the internet) have not benefited the average household by raising their income at a rate comparable to GDP growth.

Solution to Jobs Growth?
Global population is expected to reach 9 billion in 2050 (a 20% growth from current 7.5 billion).
Suppose everything remains as its current state, productivity growth continues at its current pace while jobs growth remains stagnant. We may soon have 1.5 billion people unemployed - and that's a serious problem economically and politically.

With jobs growth on stagnating or declining, maybe the way to re-creating jobs is to reduce the working hours set by the law closer towards the "goal" set by Keynes. Productivity has increased multifold over the years, one man is now able to do the work that required several men to perform in the past - but has his/her salary went up by that many times?

It is simple mathematics:
1 man produces 1 output in 1 hour.
In an 8 hours shift with 4 men, a total of 32 outputs are produced.
Suppose a machine allows 1 man to produce 4 output in 1 hour.
In an 8-hour shift, 1 man with 1 machine can produce 32 outputs.
Now the company can fire the other 3 men.
Fairly harsh right?
What if, the working hours were changed.
Instead of 8 hours, now we work for only 4 hours.
In a 4-hour shift, 2 man with 2 machines produces 32 outputs.
Now we saved 1 man's job.

If we were never created to sloth our whole life, maybe the working hours should shift a little?
If we have become more productive, maybe we should share the gains of that productivity by working fewer hours. In fact, there has been researches and studies that show humans work best when we clock 30 hours or so in work. Of course, this drastic measure is too shocking and damaging to our economy if it were to be implemented immediately. Instead, a gradual shift is required by the to slowly reduce our working hours to 30 plus hours per week.

Recommended Post: Singapore Retirement, Re-Employment, CPF Withdrawal Age

Opposition to the Idea that Technology Kills Jobs:
Of course, there are economists who claim that the evidence provided does not fully support the idea the technological advancement. The period of study, particularly from the beginning of this century, happens to coincide with the Dot-Com bubble and the Great Recession, which economists claim could be distorted as data from the 2000s are not compared against post-Great-Depression period.

The Technology Review article can be read HERE.

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Thursday, 19 January 2017

CPF Home Loan or Bank Loan?

For an updated version, refer to the article HERE.

Buying a HDB flat for the first time can be an intimidating experience. It is probably the first big-ticket purchase in your life that will take the next couple of decades to pay off, so you would definitely want to rake in as much savings as you can.

Perhaps you have not really thought about what kind of loan to take up. If you do not already know, you have a choice between taking up a HDB loan or a bank loan, provided you are eligible for them.

You might want to hold on to your cash and pay off your home loans using your CPF, but did you know that taking up a bank loan allows you to pay less interest? This is because bank interest rates are lower as compared to the CPF Ordinary Account (OA) interest rate which home loans are pegged to.

Recommended Read: Misconception of Re-Employment Age Extension

And while the down payment required to take up a bank loan may be higher (at 20%, with at least 5% paid in cash) as compared to a HDB loan (10%, fully payable with your CPF), you get to enjoy greater flexibility in retaining your savings in your CPF OA. Conversely, upon the collection of keys to your new home, HDB will wipe out your CPF OA balance to reduce the loan quantum required for you to service.

In the following infographic, we run through the main factors to consider while taking up a home loan for your HDB flat, and the main differences between taking up a HDB loan and a bank loan.

Click HERE to see the full infographic.

Recommended Read: Singapore Stock Market: Outlook

Infographics provider:
The team at Redbrick Mortgage Advisory has more than 60 years of banking experience and is proficient in structuring and sourcing for the best financing terms for both residential and commercial real estate in Singapore, Malaysia, USA, UK, Japan, Thailand and Australia.

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Monday, 16 January 2017

Singapore Retirement Age, Re-Employment Age and CPF Withdrawal Age

As a follow up to our previous post on the Misconception Singaporeans have on the Re-Employment Age, we decided to go further and explain the difference between Singapore's Retirement Age, Re-Employment Age and CPF Withdrawal Age.

Singapore Retirement Age
Singapore's Retirement Age is set at 62.
This means that your employer cannot ask you to retire before you reach 62.
This does not mean that you can only retire at age 62.
YOU CAN RETIRE ANY TIME YOU WANT, you just have to say "I QUIT" to your boss.

Recommended Read: Genting Singapore: A Possible Rekindled Flame?

Singapore Re-Employment Age
Singapore's Re-Employment Age is currently set at 65 and will be raised to 67 in July 2017.
Once you reach the retirement age (62), your employer is required to continue to employ you if you wish to and am healthy to continue working.
It ensures that if you are 62 but would like to continue working, your employer is not allowed to fire you.
This is similar to raising the Retirement Age EXCEPT it looks better policy-wise because raising the retirement age is often badly received by the public - read our misconception post to know why.
The Re-Employment Age gives it a much better packaging of "you can retire if you want to at 62, or you can continue to work if you would like to" instead of "the retirement age is now 67" which gives people an impression that they can only retire at age 67.

Singapore CPF Withdrawal Age
Singapore's CPF Withdrawal Age is set at 55.
This is the age you can start withdrawing money out of your CPF account.
You can only withdraw money above the Full Retirement Sum (FRS) or $5,000 (whichever is higher).
Subsequently, at age 65, you can choose your CPF LIFE plan (CPF LIFE) and start receiving monthly payouts until you pass away.
You also have the option to start your CPF LIFE payouts later, up to age 70.
Example: you can choose to start receiving payouts anytime between age 65 and age 70 (eg when you reach age 67), but the latest age to start is 70. For each year deferred, your future CPF LIFE monthly payouts may increase by up to 7%.

Recommended Read: Singapore Stock Market: Outlook

Share this knowledge with your family and friends who tell you that the Government is making them work until 67!
Sharing is Caring!

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Friday, 13 January 2017

Genting Singapore: a possible rekindled flame?

Back in December 2016, the Japanese government has passed a law that allows casino gambling in integrated resorts which includes hotels and entertainment lodges. Despite the long-standing proposal of this bill, Mr Shinzo Abe was determined to be the one to carry it through and this has certainly hit his public popularity whereby it was stated by a poll from Kyodo news agency, public approval rating fell from 60.7% in November to 54.8% in December for Mr Abe's government. In my opinion, this is could be a potential case of "doing what is right for the nation instead of what is popular", as we all recall the familiar phrase taught in Social Studies back in Secondary School. It is definitely reasonable to deduce that the Japanese government is trying to replicate the success of the local integrated resorts where income is increased while the negative social impacts are being controlled. This can be seen whereby gambling addiction prevention legislation could be submitted this year, similar to the processes that we had in Singapore when casinos are approved to be included in the 2 integrated resorts.

As we all know, Japan has been suffering from many years of stagnation and poor economic performance. Even with the implementation of Abenomics, results have been disappointing. Hence, I believe Japan will need all kinds of boosts that it is capable for generating to propel it away from its current plight. One of them is the Casino Bill. 

Japan is certainly not new to the gambling industry where "Pachinko" (pinball parlours) can be prominently found in cities. I can personally vouch that when I was touring in Tokyo! With this bill, Japan would likely see an increase in tourism, earnings from the gambling taxes and foreign investments on tourist facilities to capitalise on this opportunity. This could then be used as additional coffer to supplement its existing streams of income. 

With these in mind, it is natural to turn our area of focus to integrated resorts developers which includes Genting Singapore, that is conveniently listed on the Singapore Exchange. It can also be seen that the share price of Genting has been slowly creeping upwards since the announcement. The question though is: How likely is Genting Singapore able to come out on top of its competitors and secure the license?

Balance Sheet Strength
A logical requirement of building an integrated resort is money. By that, I mean, loads and loads of money. Looking at Genting Singapore's balance sheet, it is comfortable to say that it has a decent hoard of cash and cash equivalents, totaling of $5B, considering that it has a market capitalisation of $11B. This would likely give them a comfortable financial padding if they do undertake the project. A comparison to a competitor, Las Vegas Sands, which has an estimated of $3B in cash and cash equivalents, this does put Genting Singapore in a better position.

Experience Level
However, the mention of Singapore being a role model for the Japanese Government will not give Genting Singapore more advantages compared to Las Vegas Sands as both have Integrated Resorts in Singapore and are equally experienced developers. In fact, Genting's declining market share is instead proving to be more of a worry. 

Likelihood of securing the project
Given that there are multiple potential sites that integrated resorts could be implemented, this does help Genting in terms of increasing its chances of securing one project. 

Future Growth Opportunity
Nonetheless, with more openings of integrated resorts, there are also more competitors within the country fighting for both local and foreign market shares.

The upcoming restraining gambling legislation on locals may also limit the potential of the local market. This is also observed as a crippling factor in Singapore and there is not much steps or actions that the developers can do to sidestep its impact.

One comforting factor is that the Japan integrated resorts are projected to overtake Singapore, making it the second largest in global gaming market. Hence the pie could be big enough to accommodate 2 to 3 players.

Genting Singapore is definitely within the leagues of being a serious player in the Japanese market given its financial strength and relative reputation standing. Its future earnings potential could be limited and would likely follow the muted performance in medium term of 5 years after the novelty effects wear off. It will still give better returns on Genting's current large position of cash. The first few good years would also give its investors a run reflected in its share price, though I doubt it will last. This is of course subjected to whether Genting is able to obtain the casino license.

All in all, Genting Singapore is still a good option for investment due to its large cash pool but risks follow in terms of how the management will utilise it if it fails to obtain the license.

Wednesday, 11 January 2017

Misconception of Re-Employment Age Extension

Singapore Parliament has recently made changes to the Retirement and Re-employment Act, these changes will act to protect and encourage older workers to participate in Singapore's economy.

Some of the changes made includes:
  1. Companies must now offer employees the eligibility to work until 67. Previously it was until 65.
  2. Companies are not allowed to reduce the salary of employees who turn 60 from July onwards.
  3. If the company is unable to find work for the older employee, the company can
    • transfer the older employees to their subsidiaries 
    • transfer the older employees to other companies if the employee agrees to the transfer
  4. If companies cannot continue employing the older employee at age 62, the company is required to pay a one-time Employment Assistance Payment to that employee, pegged at 3.5 times the employee's monthly salary.
Recommended Read: Singapore Stock Market: Outlook

Common Misconceptions: Re-employment age increased from 65 to 67. This means I have to work until I am 67 before I can retire
You can retire at any age. You can retire the minute you strike 4D or Toto, there is no need to wait until 67 or 65 before you can retire. The Government has not shifted the retirement goal post further away from you. Instead, it mandates that if you wish to work and am fit to work, your company is REQUIRED BY LAW to keep you as an employee until you reach the age of 67.

Recommended Read: Top News in 2016 that might affect 2017
For more details on the changes, click HERE.

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?

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