How The Weaker Singapore Dollar Affects Our Life?

By now, most of us would have realised that the Singapore dollar is weakening especially against the US dollar. 2 years ago, the exchange rate for USD/SGD is $1 US dollar to $1.22 Singapore dollar. Today, it is close to S$1.40 per US dollar. In laymen terms, this means we who are in Singapore, would require more money to buy the same US goods 2 years ago.

It was reported last week in the news that the Singapore dollar outlook is worst since the Asian Financial Crisis. The Asian financial crisis in 1997 was one which many people in Asia would remember. Stock markets plunged, currencies devalued to extremely low levels and jobs were lost. So how will the weaker Singapore dollar affect us this time? Will we see another Asian financial crisis?

When I was in University taking my degree in Economics, I had to research and write on how MAS conducts its monetary policy in Singapore. Currency movements certainly have impacts in our economy and it will surely affect our lives as we use money every single say. The depreciating of the Singapore dollar definitely signifies that something is happening. How bad and how long is still unknown.


An Asian Financial Crisis all over again?

The Asian financial crisis was triggered by the depreciation of the Thai Bhat and it quickly affected other major currencies in Asia including Korea, Indonesia, Malaysia and also Singapore. In the chart below, it shows the USD to SGD exchange rate. As we can see, the Singapore dollar depreciates against the US dollar during all major financial crisis. The 1997 Asian financial crisis was the worst as seen by the spike followed by the 2008 global financial crisis and also the recently sovereign debt crisis which saw the European region having trouble.

Chart of USD/SGD from tradingeconomics.com

Fast forward to now, it seems like the Singapore dollar is depreciating at a much faster rate than the 2012 sovereign debt crisis and almost similar to the 2008 global financial crisis now. The depreciating of the Singapore dollar just means that more people are selling the currency than buying it. This was partly driven by the data showing the slowdown in China, Singapore's largest trading partner. Investors confidence in the Asian region is shaken.


Why the Singapore dollar is depreciating?

The Singapore dollar has been strong for the past few years in an effort to combat inflation. Singapore adopts an exchange rate policy instead of an interest rate policy. This has been the case since 1981. The primarily objective of this policy is to maintain price stability and sustainable economic growth. The appreciation of the S$ dollar in the past has made it more expensive for foreigners to buy Singapore’s assets and at the same time increase export prices thus slowing down the economy and bringing down inflation.

Inflation has slowed down significantly and MAS said in January that it will slow down the appreciation of the Singapore dollar too. This has led to the Singapore dollar depreciating to what we see now. However, we have to note that our neighbours currencies are depreciating at a faster rate than us. Malaysia and Indonesia both have their currencies weakening for the past few months. If our currency stays strong, we'll lose our export competitiveness as goods in neighbouring becomes cheaper for international buyers.


How the depreciating of the Singapore dollar affects us? 

A strong local currency indicates a strong economy with high productivity growth and high savings rate. A weaker local currency indicates the opposite. The US economy is recovering and money is definitely flowing back into the US now. Apart from all the economic theory, let us take a look at how a weaker Singapore dollar will affect us directly?

Higher prices of import goods

With a weaker currency, importing goods from other countries especially the US would become more expensive. Singapore's top few largest trading partners includes China, Malaysia and United States. While our currency has depreciated against the Yuan and the US dollar, Malaysian Ringgit has depreciated at a much faster rate than the Singapore dollar.

A lot of us in Singapore also like to go online to buy stuff and some are businesses based overseas. A lot of these online shopping websites which are based overseas use the US dollar as their base currency. It'll be more expensive for us to do online shopping now.


Property Price Drop

Property prices in most Asian countries have been rising over the past few years. Singapore too was one of the hot property market places. When the market was bullish on Asia and bearish the U.S. dollar, the Singapore dollar did exceptionally well. Now, its the opposite. 

Property prices will drop mainly due to the increase in interest rates. The spike in interest rates is attributed to expectations of further currency weakness. Think of it this way, when Singapore's currency is expected to weaken, it reduces the attractiveness for people to buy Singapore government bonds. Interest rates need to be pushed higher since investors need more incentive to hold onto the local currency. 

During the Asian financial crisis in 1998, property prices dropped about 40% over a one year period. The government of Singapore also took drastic measures to cool the property market in May 1996. If those cooling measures were not implemented prior to the crisis, it could have been worse. Currently, the Singapore government has also implemented cooling measures to cool the hot property market. I would be expecting property prices to drop further as its only the beginning now. 

Interest rates have been rising but still at a low currently. As seen below, the increase in interest rates has always been accompanied by a drop in prices of properties. Interest rates (3 month SIBOR) have risen above 1% as at 24th March 2015.

No matter what happens, we can always be prepared for any situation which is to come. Being prudent in our finances, having emergency funds set aside and not taking on too much debt would ensure that we do not get into serious financial problems. 

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Interview with Singapore's finance minister on Singapore's economy during the 2008 global financial crisis

The 2008 global financial crisis was one of the worst crisis after the great depression. Singapore's economy was also hit with a contraction of -6% to -9% in 2009. Resident unemployment rate was at 4.3% in 2009.

Economic policies have changed over the years from the pre great depression era to the post 2008 global financial crisis era. In my current year 3 economics module in university, I'll be learning all the different economics school of thoughts from pre 1900s to post 2008. This is rather interesting to me as I can learn what caused the various crisis some to be more severe than the others and what was done to bring the economy out of the recession.

The great depression was so great that it was said to be one of the causes of world war 1 and 2. It was debated that had the governments back then implemented the right policies to bring the economy out of depression, the two world wars would not have happened. After the two world wars, we experienced one of the greatest economic booms in history. The new economic school of thought, which was known as the Keynesian economics, brought the world out of crisis and into economic prosperity.

It was until in 1979 where the oil crisis took place that brought the economy down again. This crisis was caused by shocks to the supply of oil and was different from all the past crisis. Governments used the old economic policies to try and bring the economy back to recovery again but this time it caused other problems. Inflation was born out of the oil crisis causing prices worldwide to accelerate. Hyperinflation was seen in some countries This was partly caused by the wrong policies that was implemented after the 1979 oil crisis.

The 2008 global financial crisis is something new again. This time it is global and the crisis is seen in almost every part of the world. There is already new research on going currently, which is known as the post Keynesian economic school of thought. This is still rather new and it'll be interesting to watch the developments of that theory. Having said all these, one have to realise that economic policies are one of the most important factors to a country. Without stable policies, the country will always be in trouble with high inflation and also high unemployment.

There's this video which was broadcast shortly after the 2008 financial crisis. The video consist of interviews with people who were affected by the crisis and also an interview with Singapore's finance minister. The interview talks about the various policies the government will embark on and how to bring Singapore out of the crisis itself. It is definitely not by chance that we could still be here today after the crisis.

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The fall of Lehman Brothers

Lehman Brothers was one of the oldest investment bank on Wall St. Now, we know that this big bank has become a history. How did the bankruptcy of one bank lead to one of the greatest financial crisis in the world? If you did not know, the 2008 global financial crisis was said to be the 2nd worst financial crisis in the world just after the famous great depression. The crisis was so bad that US had to embark on QE from then till now. Billions of dollars have already been injected into the economy to stabilise it.

One of the main reason for the crisis is greed and the love of money. Watch the following documentary on the fall of Lehman Brothers to find out more:

How the economy works? - A must watch video

I just watched this awesome video on how the economy works. As an economics student, i find this video very good in explaining the concepts of economics. Guaranteed that after you watch this, you'll understand why some events like rising prices, recessions have to happen. The video also explained what is credit and debt and why increasing productivity is important. After watching this, you'll understand the purpose of some of the policies that the Singapore government has made and why they do it. Understanding this will also help you in your investment decisions.

Enjoy the short 30 mins video!!

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Recession Heroes Ep 4 - Got retrenched at a young age of 23 but still full of passion in life

This episode really encourages and motivates me. The guy in this story is Ken Chee. I've saw his name somewhere before and i thought his face looks really familiar. The i realised he's the one who started a company called 8 investment. His company runs the millionaire investor program in Singapore and it teaches value investing. I've never attended the program so i'm in no way related to it and this is not an advertisement for the program.

Back to this person. I thought he looked and sounded really humble and i felt he's someone who's willing to help others. He grew up in a poor family as his father lost a lot of money in the stock market. His grandma had to come out from a semi retirement state and go back to work just to support the family. He started working at a very young age as his dad could not give him much allowance. When he graduated, he got a job in an IT company but during the Dot Com bubble crash, he was fired at a young age of 23. This woke him up to the reality of life. You can watch this episode here. The story is really heartening.

What caught me was this is another story of someone losing lots of money in the stock market. The financial loss not only impacted one person but the whole family. Its really saddening to hear that. People would say that stocks are dangerous and do not dabble in stocks because you can burn your fingers and lose a lot of money. This is true. I've heard many cases of it and even have friends who experienced it. They are as young as me. Many are much older than me with family to support.

On the other extreme, there are people who know that stocks are risky and never invest in stocks at all. The problem is they are also struggling in their finances. I realised many people have poor financial management and poor saving habits. Indeed, without knowledge and good habits, people struggle in life.

The purpose of setting up my blog is to educate readers on how to properly manage their money and also learn the proper way to invest. I hope i can do my part in this society and make it a better place. It is saddening to keep hearing stories of how people suffer in life just because they were taught the wrong financial habits or because of the lack of knowledge in investment. Many times its due to greed where people wants to get rich quick. Getting rich quick has nothing to do with financial freedom. Financial freedom is not about money. It is about the ability to choose what we want to do in life without having to worry about money.

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Recession Heroes Ep 2 - Trader with 17 years of trading experience still lose money

I missed episode 2 of recession heroes so i watched it online on catch up TV xinmsn. This episode is even more interesting and we can learn a few points from this female trader who shared her experience. I have also wrote about episode 1 here.

Here is the summary of episode 2:

This lady was retrenched during the 2007/08 financial crisis. She was a futures broker in a financial institution for 17 years. She worked mostly from 6pm in the evening to 5am in the morning trading futures market.

Why still lose money in trading?
After being retrenched, she thought she would be able to trade at home and have time to look after her son. But, within 10 months into trading at home, she lost quite a lot of money and stopped. Why did she lose money? She said trading in a financial institution allowed her to have tips and instant news to make decisions fast. Trading at home is different as most of the time the news is delayed. The second reason is trading an institution money's is different from trading your own money. The emotional and psychological aspect is completely different. Even with the experience and knowledge of trading, it is still highly possible to lose money.

My views on trading
After watching this episode, it confirms my view on trading. Firstly, I've heard that most people lose money in trading and it is said that only 5% of the traders in the world can make money consistently. I didn't believe it at first but now i believe in it. Secondly, i've heard that trading is a psychological and emotional game. If you can't control your emotions, you can't be successful in trading. This point is also confirmed.

So is it still possible to make money through trading? I think it is still possible to make money from trading but it will not be a lot of money. In actual fact, very few people are full time traders. Most trade on the sideline occasionally. You may not agree with me but i've traded before and know what it is like to lose money. It is really an emotional game. Want to make a lot of money through trading? Think again.

My views on investing
On the other hand, investing is different. Most people can make money through investing. The more knowledge and experience you have in investing, the more successful you can be. The longer time you have in the market, the higher the chance of having better returns. That is why i advocate investing more in my blog. The benefits of investing at a young age is great. You can read more on how to invest here and here.
Knowing the difference between investing and trading is important. Know which one you're more suitable for and learn as much as you can.

The story ends with this lady becoming a housewife and does some baking at home. She sells some of the cakes and pastry she bakes at home to friends and relatives. She has more time for her family and her son especially. As family income reduced greatly, she had to sacrificed yearly expensive and long overseas trips, dining out in fine restaurants at hotels and reduce spending on buying branded stuff. She is more happy now and lives a more carefree life.

You can watch this episode 2 of recession heroes on xinmsn here.

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Preparing and experiencing a disaster. How we can prepare ourselves for a financial crisis?

I've not been posting in my blog for the past few days. I'm actually in Taiwan currently. If you've watched the news, Taiwan is preparing for a typhoon that is forecasted to come in today. The name of the typhoon is typhoon trami. I'm preparing for this disaster and experiencing it for the first time. I'll share with you on how we can prepare for a financial crisis too in this post. So read on to find out more.

As a Singaporean, we do not have any disasters in our home country. In a sense, we're really fortunate to live in a safe environment. Let me share with you how Taiwan is preparing for this typhoon.

The news channel here is reporting on the typhoon and keeping residents updated on the crisis. Many shops are pilling up sand bags. Fishermen are securing their boats to prevent their boats from being blown away by the typhoon. Currently, many states in Taiwan has declared the sea and land typhoon alert. Schools and offices are closed and declared typhoon holiday. Domestic and some international flights are canceled.

I'm at central Taiwan now. The strength of the typhoon is strongest at the north of taiwan at taipei. From where I am currently, it has been raining very heavily since morning and winds are very strong.

The bad thing for me is i'll be stuck in my hotel for the whole day today. Hopefully tomorrow when the typhoon passes, I can continue travelling.

Preparation for any crisis is very important. It is the same with our finances. During a financial crisis, we may lose our jobs, our investment portfolio will suffer loses and those with high debts will be affected the most.

How do we prepare ourselves for a financial crisis?

1) Set aside at least 6-9months of your monthly expenses as emergency fund

Having an emergency fund will prepare you in case you lose your job during a crisis. It helps you to have a piece of mind to continue living your life and provide for your family while you find another job.

2) Do not be overleveraged on debt

How much debt is a healthy level? Many financial advisors will recommend you borrow not more than 60% of your monthly income. This includes your housing loan. Debts require you to pay interest also. Generally, debts with high interest rates will increase the impact caused to you.

3) Have a compresensive insurance and hospitalisation plan

Having insurance will ensure your family have a sum of money in case something happens to you and hospitalisation plans will cover you for your medical bills. We should have ourselves covered by insurance and hospitalisation plans regardless of a financial crisis or not. Seek a professional financial advisor on what you need. A point to note is do not buy too many insurance plans. Some are not really needed. So do research throughly before buying one.

4) Do not invest money you cannot afford to lose

During a crisis, stock market will crash and most of your investments will be negatively impacted. If you invest money you cannot afford to lose, you'll be emotionally unstable during a crisis and will not be able to make sound decisions. That is what happen to many people who over invest. They got their fingers burnt because they were forced to sell their investment during a crisis. Those who have capital to invest more during a crisis will emerge out better off. Learn how to invest wisely before you even start investing.

5) Upgrade your skills and seek to have more than one source of income

Upgrading our skills or learning more skills will enhance our competitiveness. In case we lose our jobs, we can find another one more easily if we have more skills. Investing in yourself and getting more certifications will definitely help you. Having more than one source of income is definitely even better. We can learn to create passive income. Other sources of income can come from rental from properties, dividends from stocks, part time business, royalties from intellectual properties like books and music albums etc. Learning to create multiple sources of income can increase our income greatly and let us reach financial freedom faster also. During a crisis when you lose your job, you do not have to worry too much too.

These are some of the points that can help us in preparing for a financial crisis. I can write so much today because I'm really stuck at the hotel as the winds and rain gets heavier and heavier. I can see the trees swaying agressively and the winds howling strongly even though the windows are tightly closed. I'm experiencing a nationwide crisis.

Start preparing today. Preparation starts before a crisis happens.

I'll end of with a famous quote:  "If you fail to plan, you plan to fail."

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How 27-year-ol​d S'pore woman lands herself in $100k debt

I chanced upon this article when one of my friend shared it on Facebook. The title caught my attention. I guess if you're reading now, you were also attracted by the title itself.

It goes to show that there are people who do not know how to manage their finances and regret it later in life. This woman was a real estate agent and i guess her income was really high from selling properties during the property boom.

Some points to summarise:

She was $100k in debt at just 27 years old.

Spent $10,000 a month just on entertainment.
I wondered how she manage to spend so much? $10k/mth is a big amount to just be entertained.

Bought a car for $70,000

Splurges on designer clothes and bags, and dining at exclusive restaurants.

Invested $30,000 in a dubious scheme which her friend promised a 20% return. Was conned and the friend ran away with the money.
Never invest in something you're not familiar with

Max out 4 credit cards with debts mounting

Place bets on illegal online football websites, thinking that gambling was the only way to recover her money.

Read the full story here: How 27-year-ol​d S'pore woman lands herself in $100k debt


The fact is it doesn't matter how much you earn but its how much you manage to save that matters. Most people spend money to impress people. It is always the pride and ego which destroys a person's life.

I'll end off with this quote:

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”

― Will Rogers

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Recession Heroes Ep 1 - Why people lose their money during crisis?

Just watched the first episode of recession heros on channel 5. This first true story is quite inspiration and I would like to summarise the story here.

The guy in the story lost all his money during the september 11 stock market crash.

Here's a summary of his story:

Father was a businessman in Malaysia.  Business was doing well until his father got cheated by a business partner and lost everything. His family was in debt for a few million dollars. They later moved to Singapore. To supplement his family income, he came out to work at a young age of 14. Work as a cleaner in the morning, gas station pump attendant in the afternoon from 1pm-10pm then wash taxi at night all the way to 1am. He worked this for 1 and a half years.

After that, he went to serve National Service in the singapore police force. Read many books on computers and developed an interest in it. Went on to secure a job as a computer trainer and quickly climbed up the corporate ladder to earn $12000 at the age of 25.

He got really arrogant and his ego became very big. He said his ego was more than 10 times his head. He would scold and despise his staff and colleagues. Started investing in stocks and turn a $50k portfolio to $500k. He became even more proud and think that he was a genius.

During the september 11 terrorist attack on the twin towers, the stock market tumbled and he realised his stocks portfolio was only left with $7000. He had invested all his money into stocks.

After that incident, he wanted to build up a business and started a company with another guy. The partnership turned sour and he was caught up in a 3 year long law suit. He lost everything at that point.

After all these failures, he finally understood what it means to be humble. 

He went on to pursue his dream again to own a business and start up a company with his wife called commsgate which provides IT infrastructure for SMEs. His business flourished until now.

2 things he learnt from the crisis:

1) Do not dabble in stocks with money you cannot afford to lose. Must know the rule of the game.

2) Wealth is a habit. Must build the habit to save and invest regularly for a leriod of time.

I do feel that the stock market is a place that will reward the humble and punish the rich. If a person is proud and looks down on others, it is easy for him to lose everything and be destroyed by his own ego. Invest with a humble attitude and learn the rule of the game to succeed. Risk management is important in investing.

Hope you're inspired by this story. 

This is a true story as shown on mediacorp channel 5. Watch the next episode every monday at 9pm.

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