A May 2023 study by DBS found that gig workers were the most financially stressed, with relatively volatile income streams and savings falling into the “unhealthy range” year over year.
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High inflation and high interest rates have sapped the purchasing power of Singaporeans, with gig workers and low-income individuals being the hardest hit.
That’s the conclusion of a new study conducted by DBS Bank in May 2023, which analyzed its database of some 1.2 million customers.
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The Bank of Singapore report said gig workers were the most financially stressed, with relatively unstable income streams and savings falling into the “unhealthy range” year-on-year.
In Singapore, gig workers are usually self-employed. “This includes platform workers, who earn a significant portion of their income through online matching platforms,” the report said.
Such platforms include ride-hailing or food delivery drivers from apps catch, Gojack and Foodpanda.
These workers do not receive employer contributions to the Central Provident Fund, a national savings scheme.
DBS said that in May 2023, the fee-to-income ratio for gig workers would be 112%, “significantly higher” than the 57% for regular customers.
In addition, savings for ride-hailing or food gig workers can only cover 1.7 months of expenses, down from 1.9 months in May 2022. That’s below the bank’s suggested range of three to six months.
Savings from customers earning between S$2,500 (US$1,891) and S$5,000 (US$3,783) can cover 2.3 months.
Irvin Seah, senior economist at DBS Bank, said: “Certain segments of society may find themselves in a double-whammy situation, with inflation continuing to erode their purchasing power and erode savings, while high interest rates weigh on their Balance sheet damage.”
Low-income groups and baby boomers are at risk
Disposable income for the bank’s customers improved from a year ago, as growth in median customer income outpaced growth in spending, the report said.
The survey found that expenses were growing at 2.7 percent, while revenues were growing at almost three times that rate.
“The slowdown in spending growth can be attributed to a slowdown in pent-up spending following the pandemic,” DBS said.
However, results for low-income groups and baby boomers (ages 59 to 77) paint a different picture — spending growth outpacing income growth.
Low-income customers, those earning S$2,499 and below a month, saw their spending grow 1.2 times faster than their income, the report said.
For this group, expenses accounted for 93 per cent of take-home income, indicating a “deterioration in cash flow” over the past year.
Spending among baby boomers is growing about five times faster than their income, accounting for 86 percent of income.
That’s higher than the 64 percent of Gen X (ages 43 to 58), the 47 percent of millennials (ages 27 to 42) and the 38 percent of Gen Z (ages 26 and under).
Mortgage Payments Rise
Home loans in Singapore have also grown due to rising property values and interest rates.
The median borrowing by DBS customers to buy a home was 3% higher than last year, and median mortgage payments were up about 12%, the report said.
Middle-income earners, especially those earning between S$2,500 and S$4,999 a month, may also be in “financial distress”, DBS added in a release.
These people spent nearly 60% of their income growth on rising monthly mortgage payments.
DBS also warned that customers earning less than S$5,000 – more than half of whom have variable-rate loans – could be hit when mortgages are refinanced at higher rates.
A floating rate is a variable rate linked to a base rate.In Singapore, floating rate home loans are usually linked to the Singapore Overnight Average Rate (SORA), which The Fed raises interest rates.
According to DBS Bank, The three-month composite SORA rose from 0.1949% in early 2022 to about 3% in January 2023.
“There could be potential stress if income growth slows going forward and interest rates remain elevated,” the report added.
“If the economic outlook deteriorates, the support from higher income growth for customers’ ability to service their mortgages could diminish.”