Finance for kids and adults ??

Prof Emeritus Lewis Mandell is in Singapore until next week. He teaches Economics for Managers in the UB (University at Buffalo) Executive MBA programme, which is offered in partnership with the Singapore Institute of Management.

Professor Mandell, who has researched financial literacy issues in the last 15 years, says teaching financial literacy to kids doesn't work. Financial literacy is defined as the ability to make important financial decisions for one's own benefit.

'I'm very pessimistic. I have been doing research continuously, tracking levels of financial literacy which have not gotten any better, and also attempting to measure the impact of educational programmes. The research gives no reason for optimism. It basically shows that students in high school who have had a course in financial education are no more financially literate than those who never had such a course. That's an indication that we have not figured out how to teach financial literacy.'

Since the financial crisis, regulators have been grappling with how the sale of investment products should be tightened particularly when investors are relatively financially unsophisticated. In Singapore, the Monetary Authority of Singapore has proposed a test to ascertain investors' knowledge before they can invest.

Prof Mandell says financial illiteracy takes a heavy toll on individuals and society. '(Mistakes) aggregate. They were not the sole factor in the meltdown but they were an important factor. If everyone makes a bad decision it can have a bad effect on the whole society. Is it possible to educate people to the extent that they will not make such mistakes? It does not appear to be possible.'

There are, however, ways to raise the chances that children will absorb sound personal finance principles. One way is to allow them real experience with money - with adult guidance.

Prof Mandell himself was allowed by his parents to invest his college education savings. 'When I was 13, my parents said - you have some money and you have an interest in the market. They called my broker, who was a cousin and told him to let me trade my own account. That was before there was online trading. So I'd call him and he'd invest. That helped me develop a great interest in finance.'

His daughter, he recounts, came home one day when she was 12, and said she wanted to invest in Pepsi instead of Southwest Airlines which was then a fast growing stock. 'She said - 'I think (Southwest) is boring. My friends and I all like the commercials for Pepsi. I want to invest all my money in Pepsi'.'

Prof Mandell told her to call the broker and to go ahead with whatever was jointly decided. 'The broker said - rather than invest all your money in Pepsi, let's invest half in Pepsi and half in Southwest.

'Pepsi fell. She lost some money but she learnt something extremely valuable. To this day she's very good at personal finance. She has a very good understanding that no matter how much you like a stock, it doesn't mean it will go up.

'I believe that it is useful to get children involved in their own finances to give them a degree of control with adult supervision. If they realise they are spending and investing their own money, they'll be much more serious about it than if it was a game.'

Children, he adds, should also be able to open their own savings accounts and have control over their spending. In Singapore, child accounts are typically jointly opened with a parent. Banks such as OCBC, however, do allow accounts solely in the child's name, from as young as five years old. Yet another avenue is to allow a child to have a supplementary credit card with limits on spending. This, he says, will teach the child to spend responsibly within a budget. Supplementary cards, however, can only be issued to a child of at least 18.

'I believe strongly in child accounts. I believe that a child should at a very early age have an account in his or her name, and that the parent should encourage the child to get into a behaviour of saving . . . If a parent can take money out of the account it doesn't give the child identification with those assets.'

Research on the effect of allowances on children yield startling results. There are generally three types of allowances, he says. One is a regular allowance. A second form is an allowance as a form of reward, for doing chores, for instance. A third is not to give a regular allowance, but to give money when the child asks for it.

'It turns out that children who get a regular allowance have the lowest financial literacy. Columnists are well meaning and often argue that an allowance teaches responsibility but it's the opposite. The ones who do best are those who get an allowance for doing chores or meeting expectations. They're followed closely by those who don't get a regular allowance but who ask for money.

'My reasoning is that children who get a regular allowance - it's like being on welfare. You're not reinforcing good habits. You're saying that regardless of how good or bad you are, I'm giving you this amount, and it doesn't tend to teach responsibility.'

Prof Mandell has been working on a proposal as part of the Obama administration's efforts to address the need for an 'automatic' retirement savings option that is safe and simple. His proposal, dubbed RS + (Real Savings +) is a portfolio that aims to provide capital and inflation protection with some upside from equities.

The default option in most US retirement plans is a target date fund where the asset allocation shifts to a more conservative profile as a worker nears retirement. But such funds came under fierce criticism in the crisis as their fairly heavy equity weightings caused severe losses.

Prof Mandell's portfolio would invest a portion in Treasury Inflated Protected Securities, at an allocation that would deliver the principal on an inflation adjusted basis at retirement. The balance is to be invested in equities through low cost index funds. 'My idea is to use financial engineering to develop products that are not going to make rich people richer, but to make ordinary people safer. They may use derivatives but to benefit the ordinary person rather than the financial institution.'

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We all need to invest early and start the day you start your first job ! !

We all dream of having a golden retirement - to indulge in new hobbies, travel and spend time with family. Whether you want to retire comfortably or lead just a simple lifestyle, you should take retirement planning early and seriously. You have to manage the transition from an employment income to an alternative stream of income - from savings or investments - to support your retirement period.

The time spent in retirement will rise with increasing life expectancy, so planning will also include managing longevity and inflation risks.

Start early :

There are times when retirement is forced upon individuals. By planning ahead, you ensure you are ready when it happens. Ideally, the best time to start planning is the moment you start work. When you have time to build your nest egg, you do not have to play catch-up. You do not have to take a higher investment risk to meet your retirement goal.

Points to remember :

Getting started early (regardless of the amount) is a means of forcing you to be disciplined. If you are 40, you are 264 pay cheques away from retirement, assuming you work till 62. If you put aside $1,000 per pay cheque, you will have a nest egg of $264,000. If you were to invest it at 4 per cent per annum, this amount will grow to $423,620.

Key factors that you should keep in mind include aiming to pay off your loans, such as mortgages, before you stop work. Also, educate yourself and be familiar with the financial world to help you get started. Ensure also that you have sufficient protection plans as medical costs are likely to increase as you age. Do not over commit on loans or spend on wants ( needs is important, not wants ), eg. car, club membership,etc which you do not really got to have them in life.......

Buy health protection plans, such as hospitalisation and surgical plans, critical illness and long-term care, when you are young and healthy to keep costs low.

Government schemes :

First, you can start with your Central Provident Fund (CPF) savings to build your retirement portfolio.  CPF members aged 55 from year 2013 (with at least $40,000 savings in their retirement account with the CPF Board) will automatically be enrolled in the national annuity scheme, CPF Life.  They can look forward to a stream of annuity income from age 65 for life.

Most are familiar with CPF savings but overlook another critical source of funds - the Supplementary Retirement Scheme (SRS).  For those who pay income taxes, SRS can be an excellent tax-deferral scheme. Each dollar of contribution to the scheme will reduce your taxable income by the same amount.

Individuals can leverage on this scheme to build a stream of retirement income. You can plan it such that your SRS drawdown starts at age 62 before your CPF Life Plan payment begins. You must complete your withdrawals in 10 years.

Alternative income streams :

Using cash savings and investments to build your retirement nest egg is another way.

A well-diversified retirement portfolio, consisting of investments in equities, bonds and commodities as well as fixed deposit savings, will provide staggered income streams. The proportion you place in each asset class will depend on the investment risk you are willing to take.

Having an annuity in your retirement portfolio is prudent because it would pay you an income as long as you live. You may want to supplement CPF Life payouts with annuity products to hedge against inflation.

With this, you do not have to worry about how long you live. The annuity products can be structured in your portfolio to cover your basic lifestyle expenses from age 65.

Guard your nest egg :

Don't be complacent about monitoring your retirement plan. Ensure that you monitor it - once a year, at least - as your investment risk appetite may fall or change over time.

Demise of a Singapore Great Legend...

PM Lee Hsien Loong's condolence letter on the demise of Dr Goh

15May2010

Dear Mrs Goh,

ON behalf of the government and people of Singapore, may I convey my deepest condolences to you and your family on the passing of Dr Goh Keng Swee.

Dr Goh was a founding father of Singa-pore. He belonged to the core group of leaders who struggled against the British colonial government, fought the communists in Singapore, and stood up against the communalists while Singapore was in Malaysia. After Singapore became independent in 1965, he tackled our nation's most critical problems, and laid the foundations for our prosperity and security. Without him, the Singapore story would have been very different.

Dr Goh was both a far-sighted visionary and a pragmatic manager. He was a man of ideas, but also excelled at bringing these ideas to fruition. Whatever the challenges, Dr Goh would stay calm, bring to bear his capacious mind, work out the best course of action, and then act decisively to solve the problem.

In his 25 years in office, Dr Goh served in the most important ministries, making bold, imaginative changes to the policies and structures that now define Singapore. As Finance Minister, he initiated the industrialisation programme and set Singapore on the path of sustained development and prosperity. As Defence Minister, he introduced national service and built up the Singapore Armed Forces (SAF) from scratch. As Education Minister, he totally restructured the education system, from primary schools to the universities.

In addition to the SAF, Dr Goh created and nurtured many institutions, including the Economic Development Board (EDB), Jurong Town Corporation (now called JTC Corporation), the Monetary Authority of Singapore (MAS) and the Government of Singapore Investment Corporation (GIC), which have endured and become distinctive features of Singapore's structure of government. He also set out the key principles guiding many of our policies, always in pellucid and magisterial prose. The fundamental tenets of thrift and hard work, free enterprise and prudent public finance, and harmonious industrial relations continue to form the bedrock of Singapore's competitive strengths and success.

For Dr Goh, success meant more than leaving poverty behind. He believed that for a nation to grow in confidence and resilience, it needed spirit and soul. Hence he conceived and launched projects like the Jurong Bird Park, the Singapore Zoological Garden, the Chinese and Japanese Gardens, and the Singapore Symphony Orchestra, for Singaporeans to relax, unwind, and develop an appreciation for the finer things in life.

In every organisation he headed, Dr Goh nurtured a culture of continuous adaptation and improvement to stay abreast of the changing world. He set high standards, and groomed and trained young officers to meet his exacting requirements.

Dr Goh strongly supported leadership renewal, a continuing imperative for Singapore. He actively pushed for the transition from the founding generation to a new, younger team of leaders who would lead Singapore to greater heights of achievement. In 1984, he himself requested to step down from Cabinet, though he remained active in many other roles, both in Singapore and abroad. What he created has endured, and become the foundation for succeeding generations to build and improve upon. However Singapore has progressed and transformed itself since Dr Goh retired, it still bears the imprint of the master builder of modern Singapore.

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DR GOH KENG SWEE, who died at the age of 91 yesterday, has been described as 'an intellectual politician,' 'a political entrepreneur,' and 'a social architect.' He was indeed an intellectual and a politician. He was also entrepreneurial in his thinking. And having served at various times as minister for finance, defence and education as well as chairman of the MAS, his thoughts and deeds had a far-reaching social impact. But Dr Goh was arguably, first and foremost, an economist who was able to harness his profound understanding of the subject and put it to work in the real world, for the betterment of people.

As finance minister in Singapore's first self-governing cabinet in 1959, he inherited a situation that he characterised as 'wretched.' Unemployment was 14 per cent, there was an acute housing shortage and reserves stood at a paltry $300 million. By the time he quit public life in 1992 (he had retired from politics earlier, in 1984), Singapore's GDP had increased by more than 11 times, manufacturing output had risen 20-fold and reserves were up more than 300-fold.

Although he had studied economic theory and continued to track new ideas in the field throughout his life, Dr Goh was disinterested in theory for its own sake. 'Governments are seldom moved by doctrines, principles, theoretical arguments and analyses which academics consider important,' he believed.

Dr Goh saw himself as a practitioner and cared most of all, for what he called 'the practice of economic growth.' He once wrote: 'A practitioner is not judged by the rigour of his logic or by the elegance of his presentation. He is judged by the results.' In his ideas and policy prescriptions he was guided as much by his knowledge as by experience, which he described as 'a harsh school in which there are no alibis for failure.'

Dr Goh's innate pragmatism and scepticism of received wisdom was translated into policy. In the 1960s, he rejected notions of 'import-substituting industrialisation' which were then fashionable among economists - the idea that countries should try to promote manufacturing by substituting for manufactured imports. He understood that this would cut off Singapore from the discipline of international competition and create vested interests among business and labour groups. Instead, he welcomed multinational corporations (MNCs), again in defiance of conventional wisdom, which viewed them as instruments of capitalist exploitation. Thus Singapore was able to industrialise quickly, tapping into best practices in technology, knowledge and management. Other countries were later to emulate the Singapore example.

While he had great respect for market forces, Dr Goh was not coy about pursuing an activist industrial policy, despite the claims of what he called 'liberal theoretical economists' that no government can foresee future economic changes and should therefore refrain from trying to pick winners. 'It would take a very obtuse economist not to have recognised that the electronics industry was in a state of dynamic expansion in the mid-1960s,' he declared. Singapore went on to leverage the electronics industry for the next four decades.

But in welcoming MNCs, Dr Goh pragmatically refrained from sticking to a target list of industries. Most were welcome. To the charge that targeting growth industries amounts to picking winners in a horse race, his reply was 'if you bet on every horse you are certain to pick the winners.'

On the crucial issue of economic growth, Dr Goh was suspicious of the prime role that economists traditionally accorded to capital investment. He also recognised that human skills and knowledge, especially technical expertise, were equally critical drivers of growth - something he also noticed in the advance of Japan, Korea and Taiwan. He viewed entrepreneurship as being important as well, although not just that of the traditional 'towkays' who built fortunes out of nothing. He recognised that even MNC managers, although paid employees, perform entrepreneurial functions, because 'they introduce a new product, or they open up a new supply of components for their parent companies.' Indeed, he believed that even state-owned enterprises could be entrepreneurial, especially when they entered areas that were previously under-invested or neglected by the private sector - a rationale for the formation of many government-linked companies in Singapore, which Dr Goh supported. However, mindful of the failings of state enterprises in many third world countries, he insisted that while government could own enterprises, it should never interfere in management. This has remained the governance model for all of Singapore's GLCs.

After retiring from politics, Dr Goh advised the Chinese government on the development of special economic zones and the promotion of tourism. He became an avid student of China's economic resurgence, and was prophetic about its prospects. As far back as 1993, he said: 'I believe China's economy can continue to grow at between 8 to 12 percent annually in most years over the next 2 decades.' He was also confident that China's economic reforms would continue. He was proved right.

As a minister, Dr Goh had his own distinctive style. For instance, he liked to see things for himself. CapitaLand CEO Liew Mun Leong, who worked with him in the Ministry of Defence, recalled in an interview with BT that he would often pick up the phone and call a line-manager or technician directly rather than go via the manager's superiors. He was also demanding, including of rigour. 'I expect every request for finance from me to be properly presented, well argued, with figures to substantiate,' he once directed.

Although an uncompromisingly tough policymaker, Dr Goh was a humanist at heart. In her vivid and insightful biography 'Goh Keng Swee: A Portrait', his daughter in law, Tan Siok Sun points out that, a classical music fan himself, Dr Goh believed that man should not live by economics alone. 'There is also a need for some soul,' he said. Thus, many of Singapore's recreational facilities and institutions - the Japanese and Chinese Gardens, the Jurong Bird Park, the Zoological Gardens, Sentosa Island, and the Singapore Symphony Orchestra were his initiatives and he persisted with them even though some of them lost money.

In fashioning an economic system virtually from scratch and building the institutions to make it work, Dr Goh was perhaps fortunate to have had the backing of an equally pragmatic and visionary prime minister. Historians will record that he and Lee Kuan Yew were a dream team. In December 1984, when Dr Goh retired from politics, Mr Lee wrote him a letter in which he is quoted to have said: 'Your biggest contribution to me personally was that you stood up to me whenever you held a contrary view. You challenged my decisions and forced me to reexamine the premises on which they were made. Thus we reached better decisions. This benign tension made our relationship healthy and fruitful.'

For all his towering achievements, Dr Goh remained modest and even retiring. He rarely sought the public eye and granted few interviews. Looking back towards the end of his life, all he allowed himself to say was 'life has been kind me in that I had this opportunity to make my contribution to Singapore's development and to lay a foundation for the next generation to build on.'

With the passing of Dr Goh Keng Swee, Singapore will mourn one of her greatest sons and the world has lost one of the most brilliant economic practitioners of his generation.

Avoid Office Politics if need to ....

No matter how well your friendships with your colleagues have been, we may need put up some walls. As it may seem, if you do not establish professional boundaries, you may not have the objectivity to supervise effectively.

Many companies fall short when it comes to training new managers. Some companies do not even bother to train their managers at all and thinking that everything goes well as long no complaints from the production floor. Your bosses won’t expect you to know how to tackle every aspect of your new job from the outset, but they will assume that you will ask for the help you need. Without training, it’s easy for a new manager to overlook the implications of what one wrong thing said or done could end up. If you can’t get the level of help you need internally, sign up for one of the educational programs and improve your own skills.

If you’re new to a company, understand that no matter how similar the culture seems to others you’ve experienced, it is going to have its own unique and sometimes bizarre behaviour. Listen carefully when colleagues volunteer tips on, say, the best time of day to approach the General manager or CEO, and pay attention when they tell stories about the office.

Be careful about seemingly getting too close with any one of your seniors — even your direct boss. The best job-protection insurance, especially as a newbie, is to remain as neutral as possible on controversial issues. If your boss asks for a point of view, run through the pros and cons of a decision rather than answer directly.

Should your manager ask for your support at a meeting, offer it, but remain as neutral as possible when you’re at the meeting room table. If the boss asked you later why you didn’t speak up more, you can say something diplomatic, like “Maybe I wasn’t paying attention that point in time”. Remember that your boss could be gone anytime or tomorrow someone else got promoted and take over his place — and you could be working for the person whose point of view he totally opposed. I see this too often everywhere and my coming to 30 years of working life.

Showing your bosses that you’re ready to take on new projects isn’t just a matter of stellar performance or demonstrating initiative — though these things certainly help. You also need to prove to the top brass that they can trust you in many ways. However in big organizations, you may not be able to get close to top brass of the management and your chances of getting "up there" would be very slim. To establish more trust with your supervisor, err on the side of keeping your conversations quiet and, when in doubt, ask if the content is for general consumption.

Even with solid backing from the top, you won’t be able to get anything done if your section fellows are not behind you. This often means building support among longtime or more senior workers — including some who wanted your job and didn’t get it. You won’t win any allegiance by reminding them that you have an MBA that your last gig was at an even bigger company.  Meet with each member of your team individually to learn about his background and ask for advice on upcoming work load. Let them know you’ll be relying on their expertise. You don’t have to act on the advice they give you, but listening carefully will go a long way toward building the good relationships you will need to succeed.

From the outset, tell everyone on your team how you will evaluate performance. If anyone in the group slacks off or breaks the rules, it will be easier to raise the issue in an objective way. If it is very clear what you are measuring, you can say, ‘This job requires x, y, and z. I’m not seeing z”.

Confront poor performance head on. If someone — friend or not — is failing, act decisively. Give formal warnings, recommend how to remedy the problem, and keep a written record of your conversations. If the situation reaches a point where you have to let your poor performer go, you don’t want him or her to be surprised. Alternatively, get the HR to do the counseling.

If a manager lays out the " pros and cons of a decision rather than answer directly." they might be seen as either dodging the technical issue or maybe that you don't have the experience to give a proper answer or worst of all does not know how to manage; because  you are being evaluated through a more critical lens at that time (did the management make the right decision to promote you or was the promotion too early, etc).

The quesiton becomes, if you are really able to provide input that will be valued... and actually taken into consideration. Stating your opinion and mentioning that a) it's ultimately not your decision and b) you are seeing it through YOUR lens, and you'd like to hear also what others thoughts are, make it a better choice than walking the non-committal line. It lets everyone know that you've got an opinion and technical acumen that they will be working with and that you are interested in seeing the bigger or broader perspective, because these days, there are too many factors involving or contributing to an issue, eg. inexperience worker, many newcomers undergoing a stage of basic training,etc. It also lets them know that you are committed and interested in the well-being of the organization business, not involving or getting tangle in the office politics.

You can befriend your colleagues whoever you naturally can click with as long as you don't play favorites at work and you have an clear signal that adult-to-adult understanding of your differing roles. Work is work. Friendship is friendship. Sometimes work requires that you make difficult decisions and tackle tough issues but not necessary to offend or stab someone in the back or say bad things of others in front of bosses. This will reflect later your wellbeing when the bosses started to realise you may be "getting personal" with some of your peers or colleagues. Working life in an office environment with many different kind of human being is never simple or easy. To forgo a real friendship in this day and age when true friends are hard to come by seems more like risk avoidance. If both parties understand the roles, the friendship can work, even if it takes some hands to clap. That's been the experience, both from having been in the role of the subordinate and from having been the senior manager.

Singapore rising wage costs soon ?

Come next month, no longer wage subsidy from the Jobs Credit scheme which was mooted by our NTUC chief Mr Lim. July, higher levy for foreign workers, or pay more to hire local workers as the inflow of foreigners starts reducing. September, slightly higher contribution to the workers' Central Provident Fund (CPF) accounts.

And above all to heed national call to boost productivity and pay packages. Is this right timing to be payback time looking at the situation of European crisis sparking ?

For years, companies have creamed off a larger share of economic gains - larger than those in other developed countries or industrialising economies in Asia. As a result, workers get a slice of Singapore's gross domestic product (GDP) that is considered unusually small compared with their counterparts' share in those countries.

Workers' wages account for less than half of Singapore's GDP. In contrast, wages take up more than half of GDP in developed countries.

This means that Singapore may have achieved one of the highest per capita GDPs - at $51,656 last year. It has led some analysts to wonder if Singapore is a First World economy with what is closer to a 3rd World wage structure. Indeed our wage levels are much higher than 3rd world economies, otherwise, so many foreign workers would not be flooding into Singapore.

The issue is not our wage levels, which are reasonably high, but whether we are paid or commensurate with our per capita GDP level. So are wage levels keeping pace with economic growth? Or is Singapore's low wage share of GDP an indication that workers have been losing out? Look at our wage structure comparing to the increases in necessities, like housing or transportation cost,etc…….

THE issue of Singapore's low wage share has surfaced time and again.

In 2000, a paper by the Singapore Statistics Department highlighted this anomaly, noting that it could be due in part to conscious efforts by the Government to moderate wage increases and maintain high returns to investment largely from multinational companies. The GDP is split three ways: One share is paid out in wages, another to companies as profits, and lastly, to the Government as taxes.

In 1980, the wage share was a low 38 per cent, climbing to a peak of 48 per cent in 1985, due to high wage policies during that high-growth period. But recession hit in the mid-1980s, and the high wage policies were seen as adding to the severity of the situation as they eroded the profitability of companies.

Since then, the wage share has moderated to an average of 43 per cent to ensure a competitive wage structure. It is, however, not on a par with that in other countries with similar GDP rates.

In 2000, Singapore's wage share was 42 per cent, lower than the United States' (58 per cent), Japan's (57 per cent) and France's (52 per cent), according to the paper by the Statistics Department. In contrast, Singapore's profit share was 48 per cent, higher than these countries', which were closer to 35 per cent.

In fact, countries such as South Korea, New Zealand and Spain have a higher wage share than Singapore even though they have lower per capita GDP.

Yet, a decade later, the wage share has not risen much. At last count, it was 44.9 per cent in 2008.

In March last year, economist Linda Lim said Singapore's economic growth model has tried to 'do too much, and achieved too little' in delivering returns for Singaporeans, relative to foreign firms and foreigners. She cited the low wage share (41 per cent in 2007) and high share of profits, interest and dividends (more than 50 per cent). Foreign share of domestic production and income has also increased.

Similarly, a survey by Swiss bank UBS on prices and earnings last year showed a sobering picture for Singapore workers.

On a list of 73 cities, Singapore is the 24th most expensive city - moving up eight spots from the previous survey in 2006. It is costlier than Chicago, Hong Kong and Sydney.

But when it comes to wage levels, Singapore slipped two notches to 40th position. It is just one rung above Moscow, which is way down the 'expensive cities' list at No. 56 - or 32 places below Singapore.

With prices rising more than wages, Singapore workers cannot afford to buy as much as people in many other cities. Purchasing power in Singapore declined 10 spots to 50th place, behind cities like Bratislava in Slovakia, Johannesburg in South Africa and Kuala Lumpur in Malaysia.

While some observers question the accuracy of such comparative studies, one inescapable conclusion is that wage increases have not been on a par with economic growth.

IT GOES back to the issue of low wage share - for two main reasons.

One, the dominance of foreign multinationals, which are likely to repatriate a large proportion of their profit rather than distribute it back to workers as wages.

The success of Singapore's efforts to attract foreign investments meant that foreign investors also earned a larger proportion of the returns to capital in Singapore...Partly reflecting this, the growth in personal disposable incomes, from which households could finance their consumption, was lower than GDP growth in Singapore.

Two, an increase in the number of lower-skilled jobs created over the last decade, many of which are filled by foreign workers who depress the wages of the bottom fifth of workers here. Both trends are worrying.

‘It would be misleading to suggest that because Singapore's wage share is low, its workers' wages are stagnant despite economic growth,' says the Singapore Management University professor.

BUT whatever the difference in views, there is consensus on one issue: How the gains of growth are spread among the different groups of workers is critical. In this regard, low-skilled workers tend to get the short end of the stick compared with their higher-skilled peers, as their wages have stagnated while salaries of the rest have improved over the years.

For instance, the median monthly wage of cleaners and labourers was $1,270 in 2008, lower than the $1,389 in 1998. They were the only group of workers whose wages did not progress, according to the Manpower Ministry's report on wages last year.

The result is a widening wage gap between occupations at the top (managers) and bottom (cleaners and labourers). Those at the top earned four times more than those at the bottom in 1998; this grew to 5.12 times in 2008. This means the low-skilled workers have a less than equal share in the fruits of rapid economic growth. Income distribution is a key concern and this might be driven by economic shocks as skilled workers are better equipped to ride the business cycles as compared to the unskilled. Other developed countries have also not been spared the spectre of a growing income gap, with wages rising rapidly for the top 10 per cent - especially the top 1 per cent - at a much faster pace than for the rest.

Part of the explanation again leads back to how the profit share of GDP has risen at the expense of wages, as some top earners such as business owners also reap a bigger proportion of profits.

In the meantime, the profit share of GDP in these countries increased from around 11 per cent to more than 15 per cent in the same period. This shift is due in part to the massive surge of workers from developing countries such as China and India into the global market, which has weakened the bargaining position of workers in the advanced economies.

Does the solution for more even growth distribution lie in increasing the wage share of GDP, to tilt the balance in favour of all workers, including the low-income earners?

Great European Debt !

Web of Debt

So, is Greece, Spain, or Italy either one going to be the next Lehman Borthers ? Maybe they are not huge enough to cause global financial markets to freeze up the way US and Asian crisis did in 2008. Is it seriously that we're seeing the start of a run on all European government debt. United States borrowing costs actually plunged on Thursday to their lowest level in months. And while worriers warned that Britain could be the next Greece, British rates also fell slightly. Greece's problems are deeper than European leaders are willing to acknowledge, even now - and they're shared, to a lesser degree, by other European countries.

Many observers now expect the Greek tragedy to end in default; probably they're too optimistic, that default will be accompanied or followed by departure from the euro. The problem, as obvious in prospect as it is now, is that Europe lacks some of the key attributes of a successful currency area. Above all, it lacks a central government.

Consider the often-made comparison between Greece and the state of California. Both are in deep fiscal trouble, both have a history of fiscal irresponsibility. And the political deadlock in California is, if anything, worse - after all, despite the demonstrations, Greece's Parliament has, in fact, approved harsh austerity measures.

So is a debt restructuring - a polite term for partial default - the answer? It wouldn't help nearly as much as many people imagine, because interest payments account for only part of Greece's budget deficit. Even if it completely stopped servicing its debt, the Greek government wouldn't free up enough money to avoid savage budget cuts.

The only thing that could seriously reduce Greek pain would be an economic recovery, which would both generate higher revenues, reducing the need for spending cuts, and create jobs. If Greece had its own currency, it could try to engineer such a recovery by devaluing that currency, increasing its export competitiveness.

But Greece is on the euro and to survive the crisis, Greek workers could redeem themselves through suffering, accepting large wage cuts that make Greece competitive enough to add jobs again. European Central Bank could buy lots of government debt, and accepting - indeed welcoming - the resulting inflation; this would make adjustments in Greece and other troubled euro-zone nations much easier. Or Berlin could become to Athens what Washington DC is to Sacramento - getting enough aid to make the crisis bearable. The trouble, of course, is that none of these alternatives seems politically plausible.

What if bank runs happened, and just like the Argentine government imposed emergency restrictions on withdrawals. This left the door open for devaluation, and Argentina eventually walked through that door. If something like that happens in Greece, it will send shock waves through Europe, possibly triggering crises in other countries. But unless European leaders are able and willing to act far more boldly than anything we've seen so far, that's where this is heading.

EU leaders have insisted for days the Greek financial implosion was a unique combination of bad management, free spending and statistical cheating that doesn't apply to any other eurozone nation, such as troubled Spain or Portugal. They said the bailout should contain the problem by giving Greece three years of support and preventing a default when it has to pay 8.5 billion euros in bonds coming due on May 19.

Again yesterday, European leaders were almost desperately trying to talk away the problems. Agreement on rescue for Greece will be a demonstration of Europe's force, of solidarity. The markets have taken little heed. Stocks, Greek bonds and the euro plunged even yesterday. Along with the eurozone meeting, the G-7 finance ministers will hold a teleconference yesterday on the crisis, according to Japan's finance minister.

And on top of the eurozone summit, key leaders like France's Nicolas Sarkozy, German Chancellor Angela Merkel and ECB president Jean-Claude Trichet will huddle ahead of time seeking a common strategy to soothe the markets. Well these new leaders have to work harder before they can enjoy their lead in either running the government office or at home relaxing with their spouse and children....


16 May 2010 Sunday report on paper,
Yet financial experts say the Greek crisis is unlikely to spark another global meltdown.

The European Union (EU) rescue package (worth $1.4 trillion) is sufficiently large and wide-ranging as to put an end to concerns over a liquidity crisis that could have threatened contagion in global markets but many EU countries will likely see very slow growth for a number of years because the package requires nations with unsustainably large budget deficits to implement strict spending cuts and tax rises.

Greek crisis
Greece is at the centre of the storm. Credit agencies like Moody's questioned the state's ability to meet its debt obligations and downgraded its credit rating with an accompanying negative outlook.
There were already concerns over the high level of deficit-to-gross domestic product (GDP) ratio for Portugal, Ireland, Italy, Greece and Spain - known collectively by the acronym Piigs, noted First State Investments. The European Commission set a rule that this ratio should be kept at 3 per cent or lower but it turned out that the ratio for the Piigs exceeded a great deal. For instance, Greece, Portugal and Spain have a deficit-to-GDP ratio of 13.6 per cent, 9.4 per cent and 11.2 per cent respectively.

Contagion effect
Contagion risk is the fear that financial problems in one nation will spread to others which are linked to one another in some way. This happened during the Asian financial crisis when the currency turmoil in Thailand brought volatility in Indonesia and other neighbouring nations.
The contagion effect from the debt issues in Greece has hit other European countries, including the other Piigs. The potential contagion effect of any of these countries defaulting on their debts becomes clearer when we take a look at their loans to one another.

For example, Greece and Spain borrowed externally from many other European countries, in particular France and Germany. Germany and France are Spain's largest creditors with more than US$500 billion (S$694 billion) of exposure between them.
So the contagion risk is very real given that if any of the Piigs were to default, it would adversely impact the balance sheets of other EU countries.

Impact on stock markets
Stock markets have headed south in recent weeks and are experiencing significant volatility.
But experts are confident that this is a short-term reaction. 'Our 12-month fair value for the STI is 3,200. In the short term, we think the market will be range bound from 2,750 to 2,930,' she said. 'We will be buyers if the index falls back to 2,750 as further downside risk from there should be limited.'
While the weakened euro and current economic conditions in Europe may spell weaker demand for Asian exports, exports could still be supported by US demand and intra-regional trade. 'We do not believe that recent sell-off is a renewed bear market.'
While the short- to medium-term outlook is expected to remain cautious, the selldown has brought valuations to more attractive levels. Calling the selling a 'knee-jerk' reaction, smart money to gradually return to the market once the initial selling is over, as liquidity in the market remains strong.
In addition, equities continue to be good, long-term investments especially since current corporate results have generally been in line with or above expectations.

Impact on Asia
Though Asian investors may not be directly affected by the crisis, there are several indirect implications, such as declining demand for Asian exports.
The weakening of the euro means that European consumers have lower purchasing power, and with the EU being a key export market for Asian (economies) like China, Hong Kong, South Korea, Singapore and Malaysia, exports for these Asian economies could see a negative impact.
Financial experts pointed out that as an export market, Europe is as important as the US is, to Asia.

Asia's export exposure to Europe constitutes about 12 per cent of its total exports on average, with India and China having the largest export exposure of close to 20 per cent. Singapore has a 9.4 per cent export exposure to Europe.
The implementation of austerity measures in Greece is likely to be followed in weaker European economies like Portugal while larger economies like Britain are looking to rein in spending to avoid similar debt problems. This could signal a longer-term shift to weaker consumer consumption, and that is a negative for export-oriented Asian economies.

Other factors
Besides the Greek debt crisis, other possible headwinds for investors include the ongoing Goldman Sachs case where the US investment bank is facing a number of related lawsuits and investigations over the sale of mortgage-related investments. Another concern is the move by the Chinese government to curb rising property prices through tightening credit.

Well, what do we do with our cash, not worth to deposit in the bank and we need to make it growth with annual rate of few percentage point in order to benefit on it's cash value? Think twice to buy stocks at this moment, I suppose.

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The real reasons for the euro-led collapse are: an over-reliance on debt to grease the wheels of growth; countries and people living beyond their means, largely through borrowing and poor regulation by governments and central bankers; and excessive risk-taking - or greed, if you prefer - by inadequately capitalised investment banks which, it has to be said, ran many a hugely profitable scam in the past decade selling junk to a hapless public, often with the blessing of complacent regulators.

Perhaps just as relevant has been the inability of various government-led support measures to have an impact - from the US$1 trillion safety net announced by euro zone finance ministers a fortnight ago to German bans on naked short-selling.

Will Euro survive ?
The euro, the common currency of 16 European Union nations, is undergoing its severest test since its inception in 1999. Now at a four-year low against the dollar, the euro's credibility has been hammered by the slow and confused European response to the debt crisis in Greece, which has now spread to Spain and Portugal.

European stock markets have retreated and a massive US$1 trillion rescue programme announced on May 9 has thus far failed to calm investors nerves. Suddenly people are asking what was unthinkable - will the euro survive, might the currency union fall apart? Since January, Europe has dawdled while Greece - one of the eurozone's weakest members - had to pay progressively higher interest rates on a debt that was growing faster than bond holders had been led to believe.
While Greece pleaded for help, Germany, the eurozone's biggest economy, resisted, saying the profligate Greeks had to clean up their own mess and cut government spending.

By April, Greece sought emergency help not only from its European Union partners but also from the International Monetary Fund. At the centre of the storm is 'Mr Euro', Jean-Claude Trichet, the astute 67-year-old Frenchman who has headed the ECB since 2003. By holding too long to the view that there was no possibility that Greece could default, Mr Trichet like others underestimated the magnitude of the Greek problem.

As the euro tumbled on exchange markets, government leaders finally realised that not just Greece but the entire euro currency project was at risk. At an emergency meeting in Brussels on May 7th eurozone leaders outlined the massive rescue package that emerged two days later from an 11-hour long meeting of finance ministers.

President Obama is not a passive bystander to the euro crisis. Alarmed that a double-dip recession and credit squeeze in Europe would derail the US recovery, Mr Obama telephoned the French, German and Spanish leaders urging prompt, decisive action. Mr Trichet, sobered by the crisis, is calling for 'a quantum leap in the governance of the euro area', meaning enforceable rules to assure fiscal discipline.


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Change of Fortunes :
HOW times change. It was fashionable even as recently as January this year, to proclaim that the euro would emerge as the world's key reserve currency because the United States was weighted down by its huge trade and fiscal deficits.

It was held as an article of economic faith that saver nations will, at some point, become unwilling to subsidise the penchant of Americans to consume far more than they produce. A disastrous fall in the value of the US dollar would end the unique advantage the US has enjoyed in possessing the global reserve currency since World War II.


Many lent their names to this theory. Even the former Federal Reserve Board chairman, Alan Greenspan, had an inkling of the US dollar's doom. It is 'absolutely conceivable that the euro will replace the (US) dollar as the reserve currency, or will be traded as an equally important reserve currency', he told the weekly, Stern, in 2007.
For now at least, all these views seem misplaced. The euro is gasping for air. In a dramatic reversal, the euro has fallen nearly 22 per cent from its peak reached in July in 2008.

When it was launched in January 1999, the euro was placed at a slightly stronger level against the dollar. Then, it fell through parity and languished for three years. It went down as low as US$0.82 in October 2000, before soaring to a high of US$1.60 in July, 2008. This remarkable surge helped to spread the optimism about the euro's dominant future. Conspiracy theories began to take shape. Wasn't the euro a factor behind the invasion of Iraq?
As the US dollar began to crumble, talk was rife that Opec would finish the job, delivering a deadly blow to American prestige and economy.


There were reports of a secret understanding among the big oil producers to dump the US dollar.
Indeed, across the world, central banks stepped up their holdings of euros in their reserves. According to the International Monetary Fund, euro-denominated reserves with central banks, excluding China, rose to 672 billion at the end of last year, from 97 billion in the first quarter of 2002. While China intends keep to diversifying its holdings, Russia has trimmed its euro reserves and Iran is having a rethink of its reserves.
For years, the euro seemed to defy the question of how a common currency could run without a common government. Many economists indeed thought that, after the initial years, a recession would wreck eurozone cohesion.
The scenario put out was that when a recession affects weak areas of Europe, it would lead to a conflict of interest vis-a-vis countries committed to disciplined economic policy.

Weak economies with populist governments, wanting low interest rates, would be willing to put up with some inflation. But strong economies like Germany, serious about maintaining price stability at all costs, would not oblige. And Europe would struggle to handle 'the asymmetric shocks' that would follow. Language barriers and a general reluctance of European labour to move within the eurozone would further handicap the governments.

The result would be a vicious political row and a potential financial crisis, as market players start to discount the bonds of weaker governments.
That script is now being played out. Germany's unilateral ban on naked short-selling - which was immediately opposed by France - has exposed a lack of cohesion in the EU nations. Worries are growing about the contagion spreading. The prospect of widespread government spending cuts is raising the spectre of social unrest and political turmoil in Europe. Analysts and chartists are predicting further falls in the value of the euro, which is trading at about US$1.23 now, or close to a four-year low.
So for now, and what for it is worth, the American dollar is back again as the top reserve currency and a safe haven.
However, while Europe is indeed in the midst of a major crisis, the economic shockwaves can travel beyond European shores. Moreover, the US has enormous budget deficits and debts as well. And many US companies have major exposures to the European continent - all of which makes the US economy also vulnerable.