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Singapore Gig Workers and Low-Income Individuals Struggle with Diminished Purchasing Power
Financial Challenges for Gig Workers
A recent study conducted by DBS in May 2023 revealed that gig workers and low-income individuals in Singapore are facing significant financial challenges. The study analyzed the data of around 1.2 million customers and found that gig workers, who are primarily self-employed, experience less stable income flows and declining savings. In fact, the savings of gig workers have declined to an "unhealthy range." This financial strain is attributed to the absence of employer contributions to the Central Provident Fund and the high expense-to-income ratio of gig workers, which was 112% in May 2023.
Struggles of Low-Income Individuals
The study also highlighted the struggles of low-income individuals. Customers earning SGD$2,499 and below per month experienced expenses that grew 1.2 times faster than their income. This leads to worsening cashflows and a situation where expenses make up 93% of their take-home incomes. Baby boomers, aged 59 to 77 years old, also faced financial difficulties, with expenses growing five times faster than their income. These trends highlight the challenges faced by different age groups and income levels in Singapore.
Housing Loans and Rising Interest Rates
Another concerning trend highlighted in the study is the growth of housing loans in Singapore. Rising property values and interest rates have led to an increase in the median customer's borrowing for home purchases by 3% compared to the previous year. Additionally, median mortgage payments have risen by approximately 12%. Middle-income earners, particularly those earning between SGD$2,500 and SGD$4,999 per month, may face financial distress as they allocate close to 60% of their income growth to service the increase in monthly mortgage payments. Refinancing mortgages on higher interest rates could further impact those earning less than SGD$5,000, as more than half of them have loans under floating rates tied to benchmark rates.
Potential Challenges in the Future
The study warns that potential challenges may arise if income growth moderates and interest rates remain high. The support from higher income growth to customers' mortgage servicing ability may fade if the economic outlook deteriorates. These challenges emphasize the need for financial planning and support for gig workers, low-income individuals, and homeowners in Singapore during times of inflation and rising interest rates.
Conclusion: Impact on New Businesses
The financial challenges faced by gig workers, low-income individuals, and homeowners in Singapore can have significant implications for new businesses looking to thrive in the market. The diminished purchasing power of these segments of the population may impact consumer spending, which can directly affect the revenue and growth potential of new businesses.
One key issue is the declining savings of gig workers, who make up a significant portion of the self-employed workforce. With savings reaching an "unhealthy range," gig workers may have limited resources to allocate towards discretionary spending, reducing their ability to support new businesses and contribute to economic growth.
Similarly, the struggles of low-income individuals, who face expenses growing faster than their income, can lead to a decrease in disposable income available for spending on non-essential goods and services. This can pose challenges for new businesses seeking to attract customers and generate revenue.
Moreover, the rising housing loan burden, driven by increasing property values and interest rates, adds additional financial strain to middle-income earners, many of whom may be potential customers for new businesses. As a significant portion of their income growth goes towards servicing higher mortgage payments, they may have less discretionary income to spend on non-essential products and services offered by new businesses.
To navigate these challenges, new businesses must be mindful of the local economic landscape and consumer behavior in Singapore. Strategic pricing, targeted marketing campaigns, and value-added offerings may be crucial in attracting and retaining customers within these financially constrained segments of the population. Additionally, exploring partnerships and collaborations with local organizations or initiatives that support gig workers and low-income individuals can help businesses tap into these markets and create mutually beneficial relationships.
In conclusion, understanding the financial challenges faced by gig workers, low-income individuals, and homeowners in Singapore is crucial for new businesses to adapt their strategies and offerings accordingly. By recognizing the limitations of purchasing power within these segments of the population, businesses can better position themselves to thrive in the market and contribute to the economic well-being of Singapore.
Article First Published at: https://www.cnbc.com/2023/07/14/singapore-gig-workers-most-affected-by-inflation-interest-rates-dbs-.html.svg)
