Gig workers ‘most financially stretched’ group in Singapore; spending exceeds income: DBS study

SINGAPORE: Gig workers are the “most financially stretched” group in Singapore amid the double whammy of high inflation and rising interest rates, said a study released by DBS on Thursday (Jul 13).

Savings for this group have dropped to “unhealthy levels” with spending exceeding take-home incomes.

The expense-to-income ratio for gig workers was at 112 per cent as of May 2023 - significantly higher than the median customer who spends 57 per cent of his or her income - according to the annual study of about 1.2 million retail customers who use DBS as their main salary-crediting bank.

With relatively less stable income, gig workers have dipped into their savings to cover their expenditure needs. This resulted in a drop in savings, with a median gig worker having savings equal to just 1.7 months’ worth of expenses as of May.

This is down from 1.9 months from a year ago, and “considerably lower” than the 3.5 months among median customers. The figure is also “way below” the bank’s recommendation for those with unstable income streams to have savings that can cover at least 12 months’ worth of expenses.

“This is not sustainable for gig workers over the long term,” said DBS economist Chua Han Teng at a media briefing.

In its report, DBS said gig workers need to exercise financial prudence, while also balancing short and long-term needs.

It noted that efforts by the government, such as raising the Central Provident Fund (CPF) contribution rates for gig workers, aim to “strike a balance between take-home income and long-term savings adequacy for housing and retirement”.

Authorities have said that transitional support – in the form of the government funding up to 75 per cent of the increase in CPF contributions for lower-income platform workers – will be provided in the initial years.

Alongside other policy support such as tweaks to the Workfare Income Supplement scheme, these will help to cushion the hit on the take-home income of gig workers and provide them with sufficient time to adjust, DBS said.

OTHER VULNERABLE GROUPS

The other groups that are more vulnerable to high inflation and rising interest rates included the boomers – defined as those aged between 59 and 77 years old – and the lowest-income group earning below S$2,500 (US$1,885).

Both customer groups saw an increase in expense-to-income ratios over the past year, versus the other income groups that saw the ratio fall or remain level on the back of rising income, according to DBS’ report.

Growth in expenses by the boomers and the low-income group outpaced that of income by 5.5 times and 1.2 times respectively, suggesting “worsening cashflows” over the past year.

Among the boomers, expenses accounted for 86 per cent of their income as of May, up slightly from 84 per cent a year ago. This is largely due to the “benign” income-earning ability of this demographic group, said DBS senior economist Irvin Seah.

Those in the lowest-income group spent 93 per cent of their pay, up slightly from 92 per cent a year ago. This group also faces the "concerning" issue of inadequate savings, with savings falling to about 1.5 months of expenses from 1.6 months a year ago.

Those in the next income bracket – earning between S$2,500 to below S$5,000 – have savings equivalent to 2.3 months, also falling below the bank’s recommended range of three to six months.

Urging these two income groups to be mindful of their savings, DBS said: “If expense growth continues to outpace income growth, we could see cashflow and savings dwindle further. 

“Prudent budgeting is warranted for these two groups, particularly against the current backdrop of elevated inflation.”

RISING MORTGAGES LOOK “MANAGEABLE” FOR NOW

Turning to household debt, DBS said mortgage repayments have increased over the past year amid rising interest rates but remain “manageable” for now due to income growth.

The bank’s median customer is now borrowing around 3 per cent more for a home purchase. Median mortgage payments have also increased by about 12 per cent.

So far, the income growth across all customer groups has been “more than sufficient to offset the rises to mortgage rates and with some to spare”, said DBS Group Research’s analyst Foo Fang Boon.

Nevertheless, higher monthly mortgage payments could still impact those earning below S$5,000.

Firstly, these home owners are allocating a bigger portion – more than 50 per cent – of their income growth to service the increase in monthly mortgage repayments, according to the report.

This is higher than the 45 per cent for those earning between S$5,000 to below S$7,500, 40 per cent for those with income of S$7,500 to below S$10,000, and 43 per cent for income earners of S$10,000 and more.

Secondly, more than half of those earning below S$5,000 have mortgage loans under floating rates, meaning that additional stresses could arise when mortgages are refinanced on higher interest rates, the bank said.

Mr Seah sees more upside to come in the Singapore Overnight Rate Average (SORA), which is the benchmark interest rate used for various financial products, including floating home loans.

Amid the successive interest rate hikes by the US Federal Reserve, SORA has risen more than 10-fold from 0.3 in May last year to about 3.6 currently, he said.

“Our expectation is that the bias is still marginally on the upside. We do expect the SORA to end the year at about 3.7, with one more Fed hike coming up,” the economist added at the media briefing.

Meanwhile, DBS customers have increased their usage of credit cards, with spending up 12.8 per cent as of May 2023 from a year ago.

Reasons for the rise in usage include the ability to tap on card promotions and rewards, as well as qualify for higher interest rates under DBS’ Multiplier savings account.

Despite the increase, credit card debt looks “manageable” as customers are paying their credit card bills on time to avoid the high interest charges, the bank said.

Looking ahead, DBS expects inflation and interest rates to remain elevated. There could also be an additional challenge of slowing growth momentum, which would in turn weigh down on income growth.

“I think the underlying message to everyone is that we need to live within our means. We need to essentially practice prudent budgeting and also to be more watchful in terms of our spending,” said Mr Seah.