Published January 28, 2014
By Genevieve Cua gen@sph.com.sg
SINGAPOREANS expect to retire at 61 and continue working for nine years, the latest Manulife Investor Sentiment Index survey has found.
But Manulife said they may have misjudged three aspects - the actual duration of their retirement, their daily expenditure and ability to work in retirement.
Annette King, Manulife Singapore president and chief executive, said: "Given the rising cost of living in Singapore and the fact that people here are living longer, the amount saved for retirement may seem fine now, but simply won't work in, say, 10 years' time.''
Singaporeans expect to continue working the longest at nine years, compared with the average expectation of six years among other respondents in the region.
The Manulife ISI is based on more than 500 interviews with respondents in eight Asian countries, including Hong Kong, China, Taiwan and Japan.
Singaporeans expect retirement to last 19 years including nine years of work, suggesting a life expectancy of 80 years. The average Singaporean now lives to 84, and about half may live longer.
This suggests their savings may be insufficient. Retirement expenditure is expected to be 65 per cent of current income, but in reality, with inflation, the amount could be larger.
In addition, while nearly three-quarters of respondents expect to work in retirement, the actual participation rate is much lower at 40 per cent among 65 to 69 year olds, and less than 15 per cent for those over 70.
Ms King said elderly employment levels are generally well below the level that respondents expect. "This may be because retirees are more selective about the jobs they take; (they look) for positions that offer flexible work schedules ... Or they may have elderly-related health issues that prevent them from working.''
Singaporeans' investment choices are overly cautious as well. They hold an average 33 months of personal income in cash, well above the regional average of 21 months. Of that cash, a fifth is set aside for daily and unexpected expenses. The balance is underutilised and losing value due to inflation.
Meanwhile, in terms of investor sentiment in the region, cash and own-residence property remained the two most favoured asset classes. Sentiment towards equities rose modestly, albeit from a low level.
Sentiment towards fixed income remained substantially above equities. But it ranks the lowest in terms of actual investments, accounting for just 5 per cent in portfolios.
Endre Peterson, managing director of fixed income at Manulife Asset Management, said: "We see reasons for investors to shift their exposure from a non-performing asset class like cash to fixed income securities with higher recurring income potential in 2014.
"Over the medium term, we expect fixed-income investment to continue delivering positive returns. We think it's best to focus on corporate debt on a selective basis because we think it will generate higher average returns than sovereign debt in the current market.''
Tuesday, January 28, 2014
Asian Reits 'do better than equities, bonds'
Published on Jan 28, 2014
ASIAN real estate investment trusts (Reits) demonstrate better longer-term total return performance than equities and bonds, according to a new report issued by the Asia Pacific Real Estate Association (Aprea).
In the January issue of its real estate index bulletin, Aprea said the latest data suggests that over the longer term - three years and more - Reit total return performance in Asia exceeds that of equities and bonds.
Annualised three-year rolling returns for Asian listed real estate companies overall have been 7.33 per cent and 8.2 per cent for Reits.
Asian equities achieved 3.77 per cent and bonds 2.4 per cent.
All major Reit markets in the region have outperformed equities and bonds over the longer term. The leading performers over this period have been Hong Kong (a five-year rolling return of 29.72 per cent), Singapore (26.71 per cent) and Malaysia (20.01 per cent).
In the same period, equity returns were 12.55 per cent and bonds, 5.55 per cent.
Last year, the outstanding overall Reit performance came from Japan, with total returns of 15.98 per cent, significantly ahead of all other markets and also equities and bonds.
Aprea chief executive Peter Mitchell said the research points to the value of Reits as an investment for "mum and dad" investors and institutions such as pension funds, looking to take long- term positions with their savings.
"The outperformance of Reits against equities and bonds over the medium term demonstrates the appeal of the Reit model," said Aprea chairman Lim Swe Guan.
"Total return of the sector has been underpinned by high income yield which also provided stability during periods of market volatility," he added.
ASIAN real estate investment trusts (Reits) demonstrate better longer-term total return performance than equities and bonds, according to a new report issued by the Asia Pacific Real Estate Association (Aprea).
In the January issue of its real estate index bulletin, Aprea said the latest data suggests that over the longer term - three years and more - Reit total return performance in Asia exceeds that of equities and bonds.
Annualised three-year rolling returns for Asian listed real estate companies overall have been 7.33 per cent and 8.2 per cent for Reits.
Asian equities achieved 3.77 per cent and bonds 2.4 per cent.
All major Reit markets in the region have outperformed equities and bonds over the longer term. The leading performers over this period have been Hong Kong (a five-year rolling return of 29.72 per cent), Singapore (26.71 per cent) and Malaysia (20.01 per cent).
In the same period, equity returns were 12.55 per cent and bonds, 5.55 per cent.
Last year, the outstanding overall Reit performance came from Japan, with total returns of 15.98 per cent, significantly ahead of all other markets and also equities and bonds.
Aprea chief executive Peter Mitchell said the research points to the value of Reits as an investment for "mum and dad" investors and institutions such as pension funds, looking to take long- term positions with their savings.
"The outperformance of Reits against equities and bonds over the medium term demonstrates the appeal of the Reit model," said Aprea chairman Lim Swe Guan.
"Total return of the sector has been underpinned by high income yield which also provided stability during periods of market volatility," he added.
Monday, January 27, 2014
What’s behind the emerging market meltdown
Published: 27 January, 4:02 AM
Emerging-market economies had a brutal week. For years, during the crash and its aftermath, they did well as the advanced economies slumped. Recently, not so much.
Many developing countries are seeing their currencies drop and their bonds and equities hammered. Just as the global recovery appeared to be strengthening, a fresh source of instability has presented itself.
The issue now is how to keep the turmoil from derailing the global expansion. In a way, this was not an unexpected development: The recession in the advanced economies caused central banks to push short-term interest rates to zero and buy assets to drive long-term rates down as well. Capital flowed to the developing world in search of better returns.
As investors prepare for a resumption of normal monetary policy, demand for emerging-market assets is bound to fall. The question has always been whether this adjustment would be smooth or abrupt.
The problem is that two things are amplifying the adjustment of capital flows: First, the dependence of global capital markets on the dollar, and hence on the policies of the United States Federal Reserve; and second, policy mistakes in some of the most-watched developing economies.
In the short term, there is little to be done about the dollar’s destabilising pre-eminence. But economic reform in some of the main emerging-market economies, desirable in its own right, would help calm nerves.
NECESSARY WIND-DOWN
Paradoxically, the US market crash of 2007 and 2008 entrenched the dollar’s global dominance. Investors sought safety, and US government debt remains the world’s safest asset. Despite tremendous federal borrowing, US debt was soon in short supply.
The Fed’s quantitative easing (QE) took trillions out of the market, and emerging-market governments bought dollars as a cushion against bad news and to hold their currencies (and export prices) down. As a result, the emerging markets are unduly sensitive to fluctuations — real or imagined — in US monetary policy.
The Fed has recently begun to pivot away from quantitative easing, signalling that the era of extraordinarily loose US monetary policy will come to an end. This is making investors think twice about putting their money in developing countries.
The Fed has begun to taper QE too soon — inflation in the US is still low and the labour market is still slack. On the other hand, the reduction in the pace of asset purchases is gentle (some would say to a fault) and, at some point, winding down the Fed’s unorthodox measures was going to be necessary. The remedy for undue global sensitivity to US monetary policy is not a different approach by the Fed; rather, it is burden-sharing. Eventually, other currencies, such as the euro and the yuan, need to function alongside the dollar as reserve currencies.
In the meantime, better US fiscal policy — less budget contraction now, when the economy needs stimulus, and more later — would also lighten the Fed’s load.
THEIR OWN FAULT
There is also more that emerging-market governments can do. They should recognise that last week’s financial-market turmoil was, to varying degrees, their own fault.
Argentina, which felt the full force of the storm with collapsing bond and equity prices and a steeply devalued peso, is a textbook case of economic mismanagement.
No mistake has been left unmade — including cooking the books about the true rate of inflation.
There is news to concern investors in other and more important emerging markets, too. Growth in China has been expected to slow for years. It now appears to be happening, and the government’s ability to manage the necessary economic restructuring is in doubt.
The world’s second-worst-performing currency lately is the Turkish lira: Political protests, corruption scandals and flailing leadership are calling the country’s economic prospects, and its place in Europe, into question. Russia is stumbling. So is Brazil.
Suffice to say, the best way for emerging-market governments to restore confidence would be to improve their policies. In last week’s financial turmoil, factors beyond their control were in play, but they are not innocent bystanders, and they are not powerless. BLOOMBERG
Emerging-market economies had a brutal week. For years, during the crash and its aftermath, they did well as the advanced economies slumped. Recently, not so much.
Many developing countries are seeing their currencies drop and their bonds and equities hammered. Just as the global recovery appeared to be strengthening, a fresh source of instability has presented itself.
The issue now is how to keep the turmoil from derailing the global expansion. In a way, this was not an unexpected development: The recession in the advanced economies caused central banks to push short-term interest rates to zero and buy assets to drive long-term rates down as well. Capital flowed to the developing world in search of better returns.
As investors prepare for a resumption of normal monetary policy, demand for emerging-market assets is bound to fall. The question has always been whether this adjustment would be smooth or abrupt.
The problem is that two things are amplifying the adjustment of capital flows: First, the dependence of global capital markets on the dollar, and hence on the policies of the United States Federal Reserve; and second, policy mistakes in some of the most-watched developing economies.
In the short term, there is little to be done about the dollar’s destabilising pre-eminence. But economic reform in some of the main emerging-market economies, desirable in its own right, would help calm nerves.
NECESSARY WIND-DOWN
Paradoxically, the US market crash of 2007 and 2008 entrenched the dollar’s global dominance. Investors sought safety, and US government debt remains the world’s safest asset. Despite tremendous federal borrowing, US debt was soon in short supply.
The Fed’s quantitative easing (QE) took trillions out of the market, and emerging-market governments bought dollars as a cushion against bad news and to hold their currencies (and export prices) down. As a result, the emerging markets are unduly sensitive to fluctuations — real or imagined — in US monetary policy.
The Fed has recently begun to pivot away from quantitative easing, signalling that the era of extraordinarily loose US monetary policy will come to an end. This is making investors think twice about putting their money in developing countries.
The Fed has begun to taper QE too soon — inflation in the US is still low and the labour market is still slack. On the other hand, the reduction in the pace of asset purchases is gentle (some would say to a fault) and, at some point, winding down the Fed’s unorthodox measures was going to be necessary. The remedy for undue global sensitivity to US monetary policy is not a different approach by the Fed; rather, it is burden-sharing. Eventually, other currencies, such as the euro and the yuan, need to function alongside the dollar as reserve currencies.
In the meantime, better US fiscal policy — less budget contraction now, when the economy needs stimulus, and more later — would also lighten the Fed’s load.
THEIR OWN FAULT
There is also more that emerging-market governments can do. They should recognise that last week’s financial-market turmoil was, to varying degrees, their own fault.
Argentina, which felt the full force of the storm with collapsing bond and equity prices and a steeply devalued peso, is a textbook case of economic mismanagement.
No mistake has been left unmade — including cooking the books about the true rate of inflation.
There is news to concern investors in other and more important emerging markets, too. Growth in China has been expected to slow for years. It now appears to be happening, and the government’s ability to manage the necessary economic restructuring is in doubt.
The world’s second-worst-performing currency lately is the Turkish lira: Political protests, corruption scandals and flailing leadership are calling the country’s economic prospects, and its place in Europe, into question. Russia is stumbling. So is Brazil.
Suffice to say, the best way for emerging-market governments to restore confidence would be to improve their policies. In last week’s financial turmoil, factors beyond their control were in play, but they are not innocent bystanders, and they are not powerless. BLOOMBERG
Sunday, January 26, 2014
Horse Year set to 'giddy up and go'
Published on Jan 26, 2014
CLSA's fengshui report gives full rein to tongue-in-cheek tips but investors should not get carried away
By Goh Eng Yeow Senior Correspondent
The Snake year, slithering away before our eyes, was a game of snakes and ladders as some penny stocks enjoyed meteoric rises before tumbling ignominiously.
Saddle up, though, as the Year of the Wood Horse gallops in, promising investors "plenty of giddy up and go".
This is the tongue-in-cheek take on the lunar year ahead offered by foreign brokerage CLSA in its annual fengshui report.
Previous Horse years may have been old nags but this one looks like a thoroughbred, especially for certain market sectors, it says.
Though it focuses on the Hong Kong market, the wisecracks hit the mark in relation to other regional markets too.
Of course, there is no scientific basis for relying on the stars and other unworldly means to make predictions.
But CLSA believes that "the wood in the coming year will fuel, rather than feud with, the horse's intrinsic fire".
That should augur well for the year ahead, it has divined.
It is expecting the market in the new Chinese year to start with a big bang, even though widely-watched regional barometers such as the Hang Seng and Straits Times Index are languishing within tight trading ranges.
Last year, it was spot-on when it predicted that investors might make a dash for trash - a prescient foretelling of the mad craze for loss-making penny stocks - amid complacency carried over from the ebullient Dragon year.
So, even though the predictions should be taken with a pinch of salt, they might just turn out to be accurate again.
On how the market may fare each month, CLSA says: "If February isn't the month for business in a pimped pink stretch limo, we may as well call it it qi-its. It should be a filly-yer-boots."
It is also positive on May - the month when markets had been roiled for three years in a row. It notes: "The five phases' balance is near the year's best, with fire, one of the five elements, back in the game. In our view, it is as good as manna for the markets."
But the best is likely to be served last as January next year will turn out to be the best period for the Horse year. "On paper, at least, it crackles. The energies' balance is brill - easily the best all year, with the fire coming home strong and steady," it says.
But while CLSA waxes lyrical on the year's prospects, it also notes that previous Horse years had not been kind to the stock market.
In 2002, the Water Horse year, the Dow Jones Industrial Index plunged 28 per cent, as traders suffered a dreadful hangover from the wild dotcom party that had straddled the new millennium.
Before that, the Metal Horse year in 1990 was marked by Iraqi dictator Saddam Hussein's invasion of Kuwait, triggering the first Gulf War the following year.
Sector-wise, CLSA's fengshui report uses the elements to separate the likely outperformers from the possible laggards.
Stocks in the agricultural, soft commodities, forestry, paper and old media business will shine, as the wood in the Horse year enables businesses planted on solid ground to blossom.
Sectors linked to the fire element are likely to glow too, as fire causes the wood to crackle. This augurs well for stocks in the technology, Internet, telecoms and energy sectors.
But CLSA is bearish on counters in the property and construction sectors which are linked to the earth element that clashes badly with the wood element in the Horse year. "Timing is everything, but Earth's time isn't this time," it says.
This makes its dour forecast on the property sector similar to those made by analysts who use more conventional means such as rising interest rates fears and the slew of property cooling measures taken by Hong Kong and Singapore to explain their bearish stand.
And after slithering up strongly in the Snake year, the financial sector, which is associated with the metal element, "is more sink than sync and wealth looks more mown than grown", with CLSA predicting that it will muddle along this year.
For investors who believe that money-making prowess rests with their zodiac sign, CLSA says those born in the year of the Rat might want to "make like doormice", as their fortunes come into direct conflict with "Tai Shui", the evil star.
But take heart. It may not be straight from the horse's mouth at all but just a load of horse-talk. A big Gong Xi Fa Cai - striking it rich - for all investors in the year ahead.
engyeow@sph.com.sg
CLSA's fengshui report gives full rein to tongue-in-cheek tips but investors should not get carried away
By Goh Eng Yeow Senior Correspondent
The Snake year, slithering away before our eyes, was a game of snakes and ladders as some penny stocks enjoyed meteoric rises before tumbling ignominiously.
Saddle up, though, as the Year of the Wood Horse gallops in, promising investors "plenty of giddy up and go".
This is the tongue-in-cheek take on the lunar year ahead offered by foreign brokerage CLSA in its annual fengshui report.
Previous Horse years may have been old nags but this one looks like a thoroughbred, especially for certain market sectors, it says.
Though it focuses on the Hong Kong market, the wisecracks hit the mark in relation to other regional markets too.
Of course, there is no scientific basis for relying on the stars and other unworldly means to make predictions.
But CLSA believes that "the wood in the coming year will fuel, rather than feud with, the horse's intrinsic fire".
That should augur well for the year ahead, it has divined.
It is expecting the market in the new Chinese year to start with a big bang, even though widely-watched regional barometers such as the Hang Seng and Straits Times Index are languishing within tight trading ranges.
Last year, it was spot-on when it predicted that investors might make a dash for trash - a prescient foretelling of the mad craze for loss-making penny stocks - amid complacency carried over from the ebullient Dragon year.
So, even though the predictions should be taken with a pinch of salt, they might just turn out to be accurate again.
On how the market may fare each month, CLSA says: "If February isn't the month for business in a pimped pink stretch limo, we may as well call it it qi-its. It should be a filly-yer-boots."
It is also positive on May - the month when markets had been roiled for three years in a row. It notes: "The five phases' balance is near the year's best, with fire, one of the five elements, back in the game. In our view, it is as good as manna for the markets."
But the best is likely to be served last as January next year will turn out to be the best period for the Horse year. "On paper, at least, it crackles. The energies' balance is brill - easily the best all year, with the fire coming home strong and steady," it says.
But while CLSA waxes lyrical on the year's prospects, it also notes that previous Horse years had not been kind to the stock market.
In 2002, the Water Horse year, the Dow Jones Industrial Index plunged 28 per cent, as traders suffered a dreadful hangover from the wild dotcom party that had straddled the new millennium.
Before that, the Metal Horse year in 1990 was marked by Iraqi dictator Saddam Hussein's invasion of Kuwait, triggering the first Gulf War the following year.
Sector-wise, CLSA's fengshui report uses the elements to separate the likely outperformers from the possible laggards.
Stocks in the agricultural, soft commodities, forestry, paper and old media business will shine, as the wood in the Horse year enables businesses planted on solid ground to blossom.
Sectors linked to the fire element are likely to glow too, as fire causes the wood to crackle. This augurs well for stocks in the technology, Internet, telecoms and energy sectors.
But CLSA is bearish on counters in the property and construction sectors which are linked to the earth element that clashes badly with the wood element in the Horse year. "Timing is everything, but Earth's time isn't this time," it says.
This makes its dour forecast on the property sector similar to those made by analysts who use more conventional means such as rising interest rates fears and the slew of property cooling measures taken by Hong Kong and Singapore to explain their bearish stand.
And after slithering up strongly in the Snake year, the financial sector, which is associated with the metal element, "is more sink than sync and wealth looks more mown than grown", with CLSA predicting that it will muddle along this year.
For investors who believe that money-making prowess rests with their zodiac sign, CLSA says those born in the year of the Rat might want to "make like doormice", as their fortunes come into direct conflict with "Tai Shui", the evil star.
But take heart. It may not be straight from the horse's mouth at all but just a load of horse-talk. A big Gong Xi Fa Cai - striking it rich - for all investors in the year ahead.
engyeow@sph.com.sg
Sunday, January 19, 2014
Keep insurance, investments apart
The Sunday Times
Jonathan Kwok
19/1/2014
If there is anyone in the financial services game we love to hate, it's credit card salesmen and telemarketers, although it's safe to say that insurance agents have a place at the top of the list too.
What rankles is that they take their commissions from the premiums we fork out, so it's in their interest to recommend expensive policies that we do not really need.
But - and this also rankles - we need these guys.
We need to go through them to buy most forms of insurance and we have to contact them for claims when something goes wrong. We also rely on them to assess our financial situations, explain complex product features and give sound advice.
So here is the dilemma: On the one hand we need agents to advise us but, on the other, we sometimes have good reason to doubt the advice they dispense.
I cannot see an easy way out of this one.
"I don't trust my agent," one reader told me last week. "She's representing her company and, if there is another product out there that is better, she won't tell me."
The reader added that many so-called independent financial planners get commissions from the insurance firms so there is reason to doubt them too.
So you can imagine how excited I was when I found out that a cousin was working part-time as an insurance agent during the recent university vacation.
It seemed a perfect opportunity to find out more about the sector. After all, as a family member, he was duty-bound to tell me the truth, right?
"So what type of products do you get the highest commissions from?" was my first salvo when we met recently.
"ILPs," he told me after thinking for a while, referring to investment-linked insurance plans. "Endowment plans are not bad too."
I continued: "So what gives agents the lowest commissions, then?"
That would have to be the private plans integrated with MediShield, he said.
I learnt that agents have a schedule of commissions when they sell products - meaning they get different percentages of your premiums. Some products charge much higher premiums, benefiting agents and the companies.
Of course, agents are not inherently bad people - it is just that the industry's structure exposes them to serious conflicts of interest.
So while it's in our interest to pay as little in commissions as possible and yet cover our basic insurance needs, how do we actually do it?
First, we have to remember the roots of insurance.
Insurance really exists because we humans are "risk averse", as economists will tell you.
That is, we terribly dislike the small chances of things going really wrong, such as dying in an accident or getting cancer. Such events will wreck our lives and our finances.
People are willing to pay money to avoid risks. It is impossible to totally avoid accidents and disease, but you can buy insurance to ensure they do not wipe out your savings.
The minority who are stricken will get a huge payout to tide them through from the pool of premiums that others have contributed.
Those who lead healthy and happy lives to a ripe old age get nothing.
I am perfectly okay with my insurance premiums going down the drain - as long as nothing happens to me.
I understand that insurance exists to help people reduce their risks and not to help them save or make money. Many policies still serve this basic aim.
The national health-care insurance plan MediShield is an example, as are the private integrated plans. The policies help you with hospitalisation costs. However, they do not pay anything if you do not stay in a hospital but die in an accident, for example.
Other examples of basic insurance include term-life policies - which pay out if you die or are disabled within a timeframe - and critical illness ones that pay out only if you get certain diseases.
These may not be dirt cheap but will cost less than more complex products.
Alas, many people do not like seeing their insurance premiums disappear so the industry has developed bundled products that offer savings, investment and bonus elements.
The premiums tend to be much higher, with a good chunk going to agents and companies as commissions and profits.
You may get back more than what you put in but if you had used the cash to invest on your own, you would have spent less on costs and probably grown your money more.
Such complex products are very popular here - about 72 per cent of new policies sold in 2012 were "bundled" policies, according to data from the Life Insurance Association of Singapore. ILPs, whole life and endowment policies all fall here.
The next time you come across a product, ask yourself if it is just insurance - or insurance trying to do too many things. As the saying goes, you would do well to just "buy term and invest the rest".
A colleague told me that he will avoid endowment plans in saving for his young daughter's university education but is considering a plan offered by a local bank that allows him to invest regularly in a low-cost stock index fund. He will supplement this with basic insurance for his child.
Another thing to remember is to try and find an agent you can trust.
My peers opt for more experienced agents, who tend to be more stable financially and hopefully less profit-driven than eager young ones just starting out.
They will also have more experience with products and claims although, of course, the responsibility of choosing the right policy still lies in your hands.
The industry is in the process of reform after the Financial Advisory Industry Review recommendations, and we can look forward to the changes.
By the middle of this year, you will be able to skip the agent and buy basic insurance directly with a nominal administration fee. Hopefully, this will mean cheaper insurance as you save on commissions.
A comparison website will also be launched by the end of the year so you can compare features of different policies.
These reforms could solve consumer concerns surrounding agent commissions or insurers' profit levels, which some see as excessive.
But for individuals, financial knowledge is the best weapon. Arm yourself with it and you will be able to handle it the next time an agent tries to sell you a policy.
jonkwok@sph.com.sg
Jonathan Kwok
19/1/2014
If there is anyone in the financial services game we love to hate, it's credit card salesmen and telemarketers, although it's safe to say that insurance agents have a place at the top of the list too.
What rankles is that they take their commissions from the premiums we fork out, so it's in their interest to recommend expensive policies that we do not really need.
But - and this also rankles - we need these guys.
We need to go through them to buy most forms of insurance and we have to contact them for claims when something goes wrong. We also rely on them to assess our financial situations, explain complex product features and give sound advice.
So here is the dilemma: On the one hand we need agents to advise us but, on the other, we sometimes have good reason to doubt the advice they dispense.
I cannot see an easy way out of this one.
"I don't trust my agent," one reader told me last week. "She's representing her company and, if there is another product out there that is better, she won't tell me."
The reader added that many so-called independent financial planners get commissions from the insurance firms so there is reason to doubt them too.
So you can imagine how excited I was when I found out that a cousin was working part-time as an insurance agent during the recent university vacation.
It seemed a perfect opportunity to find out more about the sector. After all, as a family member, he was duty-bound to tell me the truth, right?
"So what type of products do you get the highest commissions from?" was my first salvo when we met recently.
"ILPs," he told me after thinking for a while, referring to investment-linked insurance plans. "Endowment plans are not bad too."
I continued: "So what gives agents the lowest commissions, then?"
That would have to be the private plans integrated with MediShield, he said.
I learnt that agents have a schedule of commissions when they sell products - meaning they get different percentages of your premiums. Some products charge much higher premiums, benefiting agents and the companies.
Of course, agents are not inherently bad people - it is just that the industry's structure exposes them to serious conflicts of interest.
So while it's in our interest to pay as little in commissions as possible and yet cover our basic insurance needs, how do we actually do it?
First, we have to remember the roots of insurance.
Insurance really exists because we humans are "risk averse", as economists will tell you.
That is, we terribly dislike the small chances of things going really wrong, such as dying in an accident or getting cancer. Such events will wreck our lives and our finances.
People are willing to pay money to avoid risks. It is impossible to totally avoid accidents and disease, but you can buy insurance to ensure they do not wipe out your savings.
The minority who are stricken will get a huge payout to tide them through from the pool of premiums that others have contributed.
Those who lead healthy and happy lives to a ripe old age get nothing.
I am perfectly okay with my insurance premiums going down the drain - as long as nothing happens to me.
I understand that insurance exists to help people reduce their risks and not to help them save or make money. Many policies still serve this basic aim.
The national health-care insurance plan MediShield is an example, as are the private integrated plans. The policies help you with hospitalisation costs. However, they do not pay anything if you do not stay in a hospital but die in an accident, for example.
Other examples of basic insurance include term-life policies - which pay out if you die or are disabled within a timeframe - and critical illness ones that pay out only if you get certain diseases.
These may not be dirt cheap but will cost less than more complex products.
Alas, many people do not like seeing their insurance premiums disappear so the industry has developed bundled products that offer savings, investment and bonus elements.
The premiums tend to be much higher, with a good chunk going to agents and companies as commissions and profits.
You may get back more than what you put in but if you had used the cash to invest on your own, you would have spent less on costs and probably grown your money more.
Such complex products are very popular here - about 72 per cent of new policies sold in 2012 were "bundled" policies, according to data from the Life Insurance Association of Singapore. ILPs, whole life and endowment policies all fall here.
The next time you come across a product, ask yourself if it is just insurance - or insurance trying to do too many things. As the saying goes, you would do well to just "buy term and invest the rest".
A colleague told me that he will avoid endowment plans in saving for his young daughter's university education but is considering a plan offered by a local bank that allows him to invest regularly in a low-cost stock index fund. He will supplement this with basic insurance for his child.
Another thing to remember is to try and find an agent you can trust.
My peers opt for more experienced agents, who tend to be more stable financially and hopefully less profit-driven than eager young ones just starting out.
They will also have more experience with products and claims although, of course, the responsibility of choosing the right policy still lies in your hands.
The industry is in the process of reform after the Financial Advisory Industry Review recommendations, and we can look forward to the changes.
By the middle of this year, you will be able to skip the agent and buy basic insurance directly with a nominal administration fee. Hopefully, this will mean cheaper insurance as you save on commissions.
A comparison website will also be launched by the end of the year so you can compare features of different policies.
These reforms could solve consumer concerns surrounding agent commissions or insurers' profit levels, which some see as excessive.
But for individuals, financial knowledge is the best weapon. Arm yourself with it and you will be able to handle it the next time an agent tries to sell you a policy.
jonkwok@sph.com.sg
The future of jobs
The onrushing wave
Previous technological innovation has always delivered more long-run employment, not less. But things can change
Jan 18th 2014
IN 1930, when the world was “suffering…from a bad attack of economic pessimism”, John Maynard Keynes wrote a broadly optimistic essay, “Economic Possibilities for our Grandchildren”. It imagined a middle way between revolution and stagnation that would leave the said grandchildren a great deal richer than their grandparents. But the path was not without dangers.
One of the worries Keynes admitted was a “new disease”: “technological unemployment…due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.” His readers might not have heard of the problem, he suggested—but they were certain to hear a lot more about it in the years to come.
For the most part, they did not. Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers. To think otherwise has meant being tarred a Luddite—the name taken by 19th-century textile workers who smashed the machines taking their jobs.
For much of the 20th century, those arguing that technology brought ever more jobs and prosperity looked to have the better of the debate. Real incomes in Britain scarcely doubled between the beginning of the common era and 1570. They then tripled from 1570 to 1875. And they more than tripled from 1875 to 1975. Industrialisation did not end up eliminating the need for human workers. On the contrary, it created employment opportunities sufficient to soak up the 20th century’s exploding population. Keynes’s vision of everyone in the 2030s being a lot richer is largely achieved. His belief they would work just 15 hours or so a week has not come to pass.
When the sleeper wakes
Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently. They start from the observation that, across the rich world, all is far from well in the world of work. The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant. In America the real wage has hardly budged over the past four decades. Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade. Recent research suggests that this is because substituting capital for labour through automation is increasingly attractive; as a result owners of capital have captured ever more of the world’s income since the 1980s, while the share going to labour has fallen.
At the same time, even in relatively egalitarian places like Sweden, inequality among the employed has risen sharply, with the share going to the highest earners soaring. For those not in the elite, argues David Graeber, an anthropologist at the London School of Economics, much of modern labour consists of stultifying “bullshit jobs”—low- and mid-level screen-sitting that serves simply to occupy workers for whom the economy no longer has much use. Keeping them employed, Mr Graeber argues, is not an economic choice; it is something the ruling class does to keep control over the lives of others.
Be that as it may, drudgery may soon enough give way to frank unemployment. There is already a long-term trend towards lower levels of employment in some rich countries. The proportion of American adults participating in the labour force recently hit its lowest level since 1978, and although some of that is due to the effects of ageing, some is not. In a recent speech that was modelled in part on Keynes’s “Possibilities”, Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54. In the 1960s only one in 20 of those men was not working. According to Mr Summers’s extrapolations, in ten years the number could be one in seven.
This is one indication, Mr Summers says, that technical change is increasingly taking the form of “capital that effectively substitutes for labour”. There may be a lot more for such capital to do in the near future. A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs are at high risk of being automated in 47% of the occupational categories into which work is customarily sorted. That includes accountancy, legal work, technical writing and a lot of other white-collar occupations.
Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends. The picture suggested by this evidence is a complex one. It is also more worrying than many economists and politicians have been prepared to admit.
The lathe of heaven
Economists take the relationship between innovation and higher living standards for granted in part because they believe history justifies such a view. Industrialisation clearly led to enormous rises in incomes and living standards over the long run. Yet the road to riches was rockier than is often appreciated.
In 1500 an estimated 75% of the British labour force toiled in agriculture. By 1800 that figure had fallen to 35%. When the shift to manufacturing got under way during the 18th century it was overwhelmingly done at small scale, either within the home or in a small workshop; employment in a large factory was a rarity. By the end of the 19th century huge plants in massive industrial cities were the norm. The great shift was made possible by automation and steam engines.
Industrial firms combined human labour with big, expensive capital equipment. To maximise the output of that costly machinery, factory owners reorganised the processes of production. Workers were given one or a few repetitive tasks, often making components of finished products rather than whole pieces. Bosses imposed a tight schedule and strict worker discipline to keep up the productive pace. The Industrial Revolution was not simply a matter of replacing muscle with steam; it was a matter of reshaping jobs themselves into the sort of precisely defined components that steam-driven machinery needed—cogs in a factory system.
The way old jobs were done changed; new jobs were created. Joel Mokyr, an economic historian at Northwestern University in Illinois, argues that the more intricate machines, techniques and supply chains of the period all required careful tending. The workers who provided that care were well rewarded. As research by Lawrence Katz, of Harvard University, and Robert Margo, of Boston University, shows, employment in manufacturing “hollowed out”. As employment grew for highly skilled workers and unskilled workers, craft workers lost out. This was the loss to which the Luddites, understandably if not effectively, took exception.
With the low-skilled workers far more numerous, at least to begin with, the lot of the average worker during the early part of this great industrial and social upheaval was not a happy one. As Mr Mokyr notes, “life did not improve all that much between 1750 and 1850.” For 60 years, from 1770 to 1830, growth in British wages, adjusted for inflation, was imperceptible because productivity growth was restricted to a few industries. Not until the late 19th century, when the gains had spread across the whole economy, did wages at last perform in line with productivity (see chart 1).
Along with social reforms and new political movements that gave voice to the workers, this faster wage growth helped spread the benefits of industrialisation across wider segments of the population. New investments in education provided a supply of workers for the more skilled jobs that were by then being created in ever greater numbers. This shift continued into the 20th century as post-secondary education became increasingly common.
Claudia Goldin, an economist at Harvard University, and Mr Katz have written that workers were in a “race between education and technology” during this period, and for the most part they won. Even so, it was not until the “golden age” after the second world war that workers in the rich world secured real prosperity, and a large, property-owning middle class came to dominate politics. At the same time communism, a legacy of industrialisation’s harsh early era, kept hundreds of millions of people around the world in poverty, and the effects of the imperialism driven by European industrialisation continued to be felt by billions.
The impacts of technological change take their time appearing. They also vary hugely from industry to industry. Although in many simple economic models technology pairs neatly with capital and labour to produce output, in practice technological changes do not affect all workers the same way. Some find that their skills are complementary to new technologies. Others find themselves out of work.
Take computers. In the early 20th century a “computer” was a worker, or a room of workers, doing mathematical calculations by hand, often with the end point of one person’s work the starting point for the next. The development of mechanical and electronic computing rendered these arrangements obsolete. But in time it greatly increased the productivity of those who used the new computers in their work.
Many other technical innovations had similar effects. New machinery displaced handicraft producers across numerous industries, from textiles to metalworking. At the same time it enabled vastly more output per person than craft producers could ever manage.
Player piano
For a task to be replaced by a machine, it helps a great deal if, like the work of human computers, it is already highly routine. Hence the demise of production-line jobs and some sorts of book-keeping, lost to the robot and the spreadsheet. Meanwhile work less easily broken down into a series of stereotyped tasks—whether rewarding, as the management of other workers and the teaching of toddlers can be, or more of a grind, like tidying and cleaning messy work places—has grown as a share of total employment.
But the “race” aspect of technological change means that such workers cannot rest on their pay packets. Firms are constantly experimenting with new technologies and production processes. Experimentation with different techniques and business models requires flexibility, which is one critical advantage of a human worker. Yet over time, as best practices are worked out and then codified, it becomes easier to break production down into routine components, then automate those components as technology allows.
If, that is, automation makes sense. As David Autor, an economist at the Massachusetts Institute of Technology (MIT), points out in a 2013 paper, the mere fact that a job can be automated does not mean that it will be; relative costs also matter. When Nissan produces cars in Japan, he notes, it relies heavily on robots. At plants in India, by contrast, the firm relies more heavily on cheap local labour.
Even when machine capabilities are rapidly improving, it can make sense instead to seek out ever cheaper supplies of increasingly skilled labour. Thus since the 1980s (a time when, in America, the trend towards post-secondary education levelled off) workers there and elsewhere have found themselves facing increased competition from both machines and cheap emerging-market workers.
Such processes have steadily and relentlessly squeezed labour out of the manufacturing sector in most rich economies. The share of American employment in manufacturing has declined sharply since the 1950s, from almost 30% to less than 10%. At the same time, jobs in services soared, from less than 50% of employment to almost 70% (see chart 2). It was inevitable, therefore, that firms would start to apply the same experimentation and reorganisation to service industries.
A new wave of technological progress may dramatically accelerate this automation of brain-work. Evidence is mounting that rapid technological progress, which accounted for the long era of rapid productivity growth from the 19th century to the 1970s, is back. The sort of advances that allow people to put in their pocket a computer that is not only more powerful than any in the world 20 years ago, but also has far better software and far greater access to useful data, as well as to other people and machines, have implications for all sorts of work.
The case for a highly disruptive period of economic growth is made by Erik Brynjolfsson and Andrew McAfee, professors at MIT, in “The Second Machine Age”, a book to be published later this month. Like the first great era of industrialisation, they argue, it should deliver enormous benefits—but not without a period of disorienting and uncomfortable change. Their argument rests on an underappreciated aspect of the exponential growth in chip processing speed, memory capacity and other computer metrics: that the amount of progress computers will make in the next few years is always equal to the progress they have made since the very beginning. Mr Brynjolfsson and Mr McAfee reckon that the main bottleneck on innovation is the time it takes society to sort through the many combinations and permutations of new technologies and business models.
A startling progression of inventions seems to bear their thesis out. Ten years ago technologically minded economists pointed to driving cars in traffic as the sort of human accomplishment that computers were highly unlikely to master. Now Google cars are rolling round California driver-free no one doubts such mastery is possible, though the speed at which fully self-driving cars will come to market remains hard to guess.
Brave new world
Even after computers beat grandmasters at chess (once thought highly unlikely), nobody thought they could take on people at free-form games played in natural language. Then Watson, a pattern-recognising supercomputer developed by IBM, bested the best human competitors in America’s popular and syntactically tricksy general-knowledge quiz show “Jeopardy!” Versions of Watson are being marketed to firms across a range of industries to help with all sorts of pattern-recognition problems. Its acumen will grow, and its costs fall, as firms learn to harness its abilities.
The machines are not just cleverer, they also have access to far more data. The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. Text-mining programs will displace professional jobs in legal services. Biopsies will be analysed more efficiently by image-processing software than lab technicians. Accountants may follow travel agents and tellers into the unemployment line as tax software improves. Machines are already turning basic sports results and financial data into good-enough news stories.
Jobs that are not easily automated may still be transformed. New data-processing technology could break “cognitive” jobs down into smaller and smaller tasks. As well as opening the way to eventual automation this could reduce the satisfaction from such work, just as the satisfaction of making things was reduced by deskilling and interchangeable parts in the 19th century. If such jobs persist, they may engage Mr Graeber’s “bullshit” detector.
Being newly able to do brain work will not stop computers from doing ever more formerly manual labour; it will make them better at it. The designers of the latest generation of industrial robots talk about their creations as helping workers rather than replacing them; but there is little doubt that the technology will be able to do a bit of both—probably more than a bit. A taxi driver will be a rarity in many places by the 2030s or 2040s. That sounds like bad news for journalists who rely on that most reliable source of local knowledge and prejudice—but will there be many journalists left to care? Will there be airline pilots? Or traffic cops? Or soldiers?
There will still be jobs. Even Mr Frey and Mr Osborne, whose research speaks of 47% of job categories being open to automation within two decades, accept that some jobs—especially those currently associated with high levels of education and high wages—will survive (see table). Tyler Cowen, an economist at George Mason University and a much-read blogger, writes in his most recent book, “Average is Over”, that rich economies seem to be bifurcating into a small group of workers with skills highly complementary with machine intelligence, for whom he has high hopes, and the rest, for whom not so much.
And although Mr Brynjolfsson and Mr McAfee rightly point out that developing the business models which make the best use of new technologies will involve trial and error and human flexibility, it is also the case that the second machine age will make such trial and error easier. It will be shockingly easy to launch a startup, bring a new product to market and sell to billions of global consumers (see article). Those who create or invest in blockbuster ideas may earn unprecedented returns as a result.
In a forthcoming book Thomas Piketty, an economist at the Paris School of Economics, argues along similar lines that America may be pioneering a hyper-unequal economic model in which a top 1% of capital-owners and “supermanagers” grab a growing share of national income and accumulate an increasing concentration of national wealth. The rise of the middle-class—a 20th-century innovation—was a hugely important political and social development across the world. The squeezing out of that class could generate a more antagonistic, unstable and potentially dangerous politics.
The potential for dramatic change is clear. A future of widespread technological unemployment is harder for many to accept. Every great period of innovation has produced its share of labour-market doomsayers, but technological progress has never previously failed to generate new employment opportunities.
The productivity gains from future automation will be real, even if they mostly accrue to the owners of the machines. Some will be spent on goods and services—golf instructors, household help and so on—and most of the rest invested in firms that are seeking to expand and presumably hire more labour. Though inequality could soar in such a world, unemployment would not necessarily spike. The current doldrum in wages may, like that of the early industrial era, be a temporary matter, with the good times about to roll (see chart 3).
These jobs may look distinctly different from those they replace. Just as past mechanisation freed, or forced, workers into jobs requiring more cognitive dexterity, leaps in machine intelligence could create space for people to specialise in more emotive occupations, as yet unsuited to machines: a world of artists and therapists, love counsellors and yoga instructors.
Such emotional and relational work could be as critical to the future as metal-bashing was in the past, even if it gets little respect at first. Cultural norms change slowly. Manufacturing jobs are still often treated as “better”—in some vague, non-pecuniary way—than paper-pushing is. To some 18th-century observers, working in the fields was inherently more noble than making gewgaws.
But though growth in areas of the economy that are not easily automated provides jobs, it does not necessarily help real wages. Mr Summers points out that prices of things-made-of-widgets have fallen remarkably in past decades; America’s Bureau of Labour Statistics reckons that today you could get the equivalent of an early 1980s television for a twentieth of its then price, were it not that no televisions that poor are still made. However, prices of things not made of widgets, most notably college education and health care, have shot up. If people lived on widgets alone— goods whose costs have fallen because of both globalisation and technology—there would have been no pause in the increase of real wages. It is the increase in the prices of stuff that isn’t mechanised (whose supply is often under the control of the state and perhaps subject to fundamental scarcity) that means a pay packet goes no further than it used to.
So technological progress squeezes some incomes in the short term before making everyone richer in the long term, and can drive up the costs of some things even more than it eventually increases earnings. As innovation continues, automation may bring down costs in some of those stubborn areas as well, though those dominated by scarcity—such as houses in desirable places—are likely to resist the trend, as may those where the state keeps market forces at bay. But if innovation does make health care or higher education cheaper, it will probably be at the cost of more jobs, and give rise to yet more concentration of income.
The machine stops
Even if the long-term outlook is rosy, with the potential for greater wealth and lots of new jobs, it does not mean that policymakers should simply sit on their hands in the mean time. Adaptation to past waves of progress rested on political and policy responses. The most obvious are the massive improvements in educational attainment brought on first by the institution of universal secondary education and then by the rise of university attendance. Policies aimed at similar gains would now seem to be in order. But as Mr Cowen has pointed out, the gains of the 19th and 20th centuries will be hard to duplicate.
Boosting the skills and earning power of the children of 19th-century farmers and labourers took little more than offering schools where they could learn to read, write and do algebra. Pushing a large proportion of college graduates to complete graduate work successfully will be harder and more expensive. Perhaps cheap and innovative online education will indeed make new attainment possible. But as Mr Cowen notes, such programmes may tend to deliver big gains only for the most conscientious students.
Another way in which previous adaptation is not necessarily a good guide to future employment is the existence of welfare. The alternative to joining the 19th-century industrial proletariat was malnourished deprivation. Today, because of measures introduced in response to, and to some extent on the proceeds of, industrialisation, people in the developed world are provided with unemployment benefits, disability allowances and other forms of welfare. They are also much more likely than a bygone peasant to have savings. This means that the “reservation wage”—the wage below which a worker will not accept a job—is now high in historical terms. If governments refuse to allow jobless workers to fall too far below the average standard of living, then this reservation wage will rise steadily, and ever more workers may find work unattractive. And the higher it rises, the greater the incentive to invest in capital that replaces labour.
Everyone should be able to benefit from productivity gains—in that, Keynes was united with his successors. His worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.
Link:
http://www.economist.com/node/21594264/print
Previous technological innovation has always delivered more long-run employment, not less. But things can change
Jan 18th 2014
IN 1930, when the world was “suffering…from a bad attack of economic pessimism”, John Maynard Keynes wrote a broadly optimistic essay, “Economic Possibilities for our Grandchildren”. It imagined a middle way between revolution and stagnation that would leave the said grandchildren a great deal richer than their grandparents. But the path was not without dangers.
One of the worries Keynes admitted was a “new disease”: “technological unemployment…due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.” His readers might not have heard of the problem, he suggested—but they were certain to hear a lot more about it in the years to come.
For the most part, they did not. Nowadays, the majority of economists confidently wave such worries away. By raising productivity, they argue, any automation which economises on the use of labour will increase incomes. That will generate demand for new products and services, which will in turn create new jobs for displaced workers. To think otherwise has meant being tarred a Luddite—the name taken by 19th-century textile workers who smashed the machines taking their jobs.
For much of the 20th century, those arguing that technology brought ever more jobs and prosperity looked to have the better of the debate. Real incomes in Britain scarcely doubled between the beginning of the common era and 1570. They then tripled from 1570 to 1875. And they more than tripled from 1875 to 1975. Industrialisation did not end up eliminating the need for human workers. On the contrary, it created employment opportunities sufficient to soak up the 20th century’s exploding population. Keynes’s vision of everyone in the 2030s being a lot richer is largely achieved. His belief they would work just 15 hours or so a week has not come to pass.
When the sleeper wakes
Yet some now fear that a new era of automation enabled by ever more powerful and capable computers could work out differently. They start from the observation that, across the rich world, all is far from well in the world of work. The essence of what they see as a work crisis is that in rich countries the wages of the typical worker, adjusted for cost of living, are stagnant. In America the real wage has hardly budged over the past four decades. Even in places like Britain and Germany, where employment is touching new highs, wages have been flat for a decade. Recent research suggests that this is because substituting capital for labour through automation is increasingly attractive; as a result owners of capital have captured ever more of the world’s income since the 1980s, while the share going to labour has fallen.
At the same time, even in relatively egalitarian places like Sweden, inequality among the employed has risen sharply, with the share going to the highest earners soaring. For those not in the elite, argues David Graeber, an anthropologist at the London School of Economics, much of modern labour consists of stultifying “bullshit jobs”—low- and mid-level screen-sitting that serves simply to occupy workers for whom the economy no longer has much use. Keeping them employed, Mr Graeber argues, is not an economic choice; it is something the ruling class does to keep control over the lives of others.
Be that as it may, drudgery may soon enough give way to frank unemployment. There is already a long-term trend towards lower levels of employment in some rich countries. The proportion of American adults participating in the labour force recently hit its lowest level since 1978, and although some of that is due to the effects of ageing, some is not. In a recent speech that was modelled in part on Keynes’s “Possibilities”, Larry Summers, a former American treasury secretary, looked at employment trends among American men between 25 and 54. In the 1960s only one in 20 of those men was not working. According to Mr Summers’s extrapolations, in ten years the number could be one in seven.
This is one indication, Mr Summers says, that technical change is increasingly taking the form of “capital that effectively substitutes for labour”. There may be a lot more for such capital to do in the near future. A 2013 paper by Carl Benedikt Frey and Michael Osborne, of the University of Oxford, argued that jobs are at high risk of being automated in 47% of the occupational categories into which work is customarily sorted. That includes accountancy, legal work, technical writing and a lot of other white-collar occupations.
Answering the question of whether such automation could lead to prolonged pain for workers means taking a close look at past experience, theory and technological trends. The picture suggested by this evidence is a complex one. It is also more worrying than many economists and politicians have been prepared to admit.
The lathe of heaven
Economists take the relationship between innovation and higher living standards for granted in part because they believe history justifies such a view. Industrialisation clearly led to enormous rises in incomes and living standards over the long run. Yet the road to riches was rockier than is often appreciated.
In 1500 an estimated 75% of the British labour force toiled in agriculture. By 1800 that figure had fallen to 35%. When the shift to manufacturing got under way during the 18th century it was overwhelmingly done at small scale, either within the home or in a small workshop; employment in a large factory was a rarity. By the end of the 19th century huge plants in massive industrial cities were the norm. The great shift was made possible by automation and steam engines.
Industrial firms combined human labour with big, expensive capital equipment. To maximise the output of that costly machinery, factory owners reorganised the processes of production. Workers were given one or a few repetitive tasks, often making components of finished products rather than whole pieces. Bosses imposed a tight schedule and strict worker discipline to keep up the productive pace. The Industrial Revolution was not simply a matter of replacing muscle with steam; it was a matter of reshaping jobs themselves into the sort of precisely defined components that steam-driven machinery needed—cogs in a factory system.
The way old jobs were done changed; new jobs were created. Joel Mokyr, an economic historian at Northwestern University in Illinois, argues that the more intricate machines, techniques and supply chains of the period all required careful tending. The workers who provided that care were well rewarded. As research by Lawrence Katz, of Harvard University, and Robert Margo, of Boston University, shows, employment in manufacturing “hollowed out”. As employment grew for highly skilled workers and unskilled workers, craft workers lost out. This was the loss to which the Luddites, understandably if not effectively, took exception.
With the low-skilled workers far more numerous, at least to begin with, the lot of the average worker during the early part of this great industrial and social upheaval was not a happy one. As Mr Mokyr notes, “life did not improve all that much between 1750 and 1850.” For 60 years, from 1770 to 1830, growth in British wages, adjusted for inflation, was imperceptible because productivity growth was restricted to a few industries. Not until the late 19th century, when the gains had spread across the whole economy, did wages at last perform in line with productivity (see chart 1).
Along with social reforms and new political movements that gave voice to the workers, this faster wage growth helped spread the benefits of industrialisation across wider segments of the population. New investments in education provided a supply of workers for the more skilled jobs that were by then being created in ever greater numbers. This shift continued into the 20th century as post-secondary education became increasingly common.
Claudia Goldin, an economist at Harvard University, and Mr Katz have written that workers were in a “race between education and technology” during this period, and for the most part they won. Even so, it was not until the “golden age” after the second world war that workers in the rich world secured real prosperity, and a large, property-owning middle class came to dominate politics. At the same time communism, a legacy of industrialisation’s harsh early era, kept hundreds of millions of people around the world in poverty, and the effects of the imperialism driven by European industrialisation continued to be felt by billions.
The impacts of technological change take their time appearing. They also vary hugely from industry to industry. Although in many simple economic models technology pairs neatly with capital and labour to produce output, in practice technological changes do not affect all workers the same way. Some find that their skills are complementary to new technologies. Others find themselves out of work.
Take computers. In the early 20th century a “computer” was a worker, or a room of workers, doing mathematical calculations by hand, often with the end point of one person’s work the starting point for the next. The development of mechanical and electronic computing rendered these arrangements obsolete. But in time it greatly increased the productivity of those who used the new computers in their work.
Many other technical innovations had similar effects. New machinery displaced handicraft producers across numerous industries, from textiles to metalworking. At the same time it enabled vastly more output per person than craft producers could ever manage.
Player piano
For a task to be replaced by a machine, it helps a great deal if, like the work of human computers, it is already highly routine. Hence the demise of production-line jobs and some sorts of book-keeping, lost to the robot and the spreadsheet. Meanwhile work less easily broken down into a series of stereotyped tasks—whether rewarding, as the management of other workers and the teaching of toddlers can be, or more of a grind, like tidying and cleaning messy work places—has grown as a share of total employment.
But the “race” aspect of technological change means that such workers cannot rest on their pay packets. Firms are constantly experimenting with new technologies and production processes. Experimentation with different techniques and business models requires flexibility, which is one critical advantage of a human worker. Yet over time, as best practices are worked out and then codified, it becomes easier to break production down into routine components, then automate those components as technology allows.
If, that is, automation makes sense. As David Autor, an economist at the Massachusetts Institute of Technology (MIT), points out in a 2013 paper, the mere fact that a job can be automated does not mean that it will be; relative costs also matter. When Nissan produces cars in Japan, he notes, it relies heavily on robots. At plants in India, by contrast, the firm relies more heavily on cheap local labour.
Even when machine capabilities are rapidly improving, it can make sense instead to seek out ever cheaper supplies of increasingly skilled labour. Thus since the 1980s (a time when, in America, the trend towards post-secondary education levelled off) workers there and elsewhere have found themselves facing increased competition from both machines and cheap emerging-market workers.
Such processes have steadily and relentlessly squeezed labour out of the manufacturing sector in most rich economies. The share of American employment in manufacturing has declined sharply since the 1950s, from almost 30% to less than 10%. At the same time, jobs in services soared, from less than 50% of employment to almost 70% (see chart 2). It was inevitable, therefore, that firms would start to apply the same experimentation and reorganisation to service industries.
A new wave of technological progress may dramatically accelerate this automation of brain-work. Evidence is mounting that rapid technological progress, which accounted for the long era of rapid productivity growth from the 19th century to the 1970s, is back. The sort of advances that allow people to put in their pocket a computer that is not only more powerful than any in the world 20 years ago, but also has far better software and far greater access to useful data, as well as to other people and machines, have implications for all sorts of work.
The case for a highly disruptive period of economic growth is made by Erik Brynjolfsson and Andrew McAfee, professors at MIT, in “The Second Machine Age”, a book to be published later this month. Like the first great era of industrialisation, they argue, it should deliver enormous benefits—but not without a period of disorienting and uncomfortable change. Their argument rests on an underappreciated aspect of the exponential growth in chip processing speed, memory capacity and other computer metrics: that the amount of progress computers will make in the next few years is always equal to the progress they have made since the very beginning. Mr Brynjolfsson and Mr McAfee reckon that the main bottleneck on innovation is the time it takes society to sort through the many combinations and permutations of new technologies and business models.
A startling progression of inventions seems to bear their thesis out. Ten years ago technologically minded economists pointed to driving cars in traffic as the sort of human accomplishment that computers were highly unlikely to master. Now Google cars are rolling round California driver-free no one doubts such mastery is possible, though the speed at which fully self-driving cars will come to market remains hard to guess.
Brave new world
Even after computers beat grandmasters at chess (once thought highly unlikely), nobody thought they could take on people at free-form games played in natural language. Then Watson, a pattern-recognising supercomputer developed by IBM, bested the best human competitors in America’s popular and syntactically tricksy general-knowledge quiz show “Jeopardy!” Versions of Watson are being marketed to firms across a range of industries to help with all sorts of pattern-recognition problems. Its acumen will grow, and its costs fall, as firms learn to harness its abilities.
The machines are not just cleverer, they also have access to far more data. The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. Text-mining programs will displace professional jobs in legal services. Biopsies will be analysed more efficiently by image-processing software than lab technicians. Accountants may follow travel agents and tellers into the unemployment line as tax software improves. Machines are already turning basic sports results and financial data into good-enough news stories.
Jobs that are not easily automated may still be transformed. New data-processing technology could break “cognitive” jobs down into smaller and smaller tasks. As well as opening the way to eventual automation this could reduce the satisfaction from such work, just as the satisfaction of making things was reduced by deskilling and interchangeable parts in the 19th century. If such jobs persist, they may engage Mr Graeber’s “bullshit” detector.
Being newly able to do brain work will not stop computers from doing ever more formerly manual labour; it will make them better at it. The designers of the latest generation of industrial robots talk about their creations as helping workers rather than replacing them; but there is little doubt that the technology will be able to do a bit of both—probably more than a bit. A taxi driver will be a rarity in many places by the 2030s or 2040s. That sounds like bad news for journalists who rely on that most reliable source of local knowledge and prejudice—but will there be many journalists left to care? Will there be airline pilots? Or traffic cops? Or soldiers?
There will still be jobs. Even Mr Frey and Mr Osborne, whose research speaks of 47% of job categories being open to automation within two decades, accept that some jobs—especially those currently associated with high levels of education and high wages—will survive (see table). Tyler Cowen, an economist at George Mason University and a much-read blogger, writes in his most recent book, “Average is Over”, that rich economies seem to be bifurcating into a small group of workers with skills highly complementary with machine intelligence, for whom he has high hopes, and the rest, for whom not so much.
And although Mr Brynjolfsson and Mr McAfee rightly point out that developing the business models which make the best use of new technologies will involve trial and error and human flexibility, it is also the case that the second machine age will make such trial and error easier. It will be shockingly easy to launch a startup, bring a new product to market and sell to billions of global consumers (see article). Those who create or invest in blockbuster ideas may earn unprecedented returns as a result.
In a forthcoming book Thomas Piketty, an economist at the Paris School of Economics, argues along similar lines that America may be pioneering a hyper-unequal economic model in which a top 1% of capital-owners and “supermanagers” grab a growing share of national income and accumulate an increasing concentration of national wealth. The rise of the middle-class—a 20th-century innovation—was a hugely important political and social development across the world. The squeezing out of that class could generate a more antagonistic, unstable and potentially dangerous politics.
The potential for dramatic change is clear. A future of widespread technological unemployment is harder for many to accept. Every great period of innovation has produced its share of labour-market doomsayers, but technological progress has never previously failed to generate new employment opportunities.
The productivity gains from future automation will be real, even if they mostly accrue to the owners of the machines. Some will be spent on goods and services—golf instructors, household help and so on—and most of the rest invested in firms that are seeking to expand and presumably hire more labour. Though inequality could soar in such a world, unemployment would not necessarily spike. The current doldrum in wages may, like that of the early industrial era, be a temporary matter, with the good times about to roll (see chart 3).
These jobs may look distinctly different from those they replace. Just as past mechanisation freed, or forced, workers into jobs requiring more cognitive dexterity, leaps in machine intelligence could create space for people to specialise in more emotive occupations, as yet unsuited to machines: a world of artists and therapists, love counsellors and yoga instructors.
Such emotional and relational work could be as critical to the future as metal-bashing was in the past, even if it gets little respect at first. Cultural norms change slowly. Manufacturing jobs are still often treated as “better”—in some vague, non-pecuniary way—than paper-pushing is. To some 18th-century observers, working in the fields was inherently more noble than making gewgaws.
But though growth in areas of the economy that are not easily automated provides jobs, it does not necessarily help real wages. Mr Summers points out that prices of things-made-of-widgets have fallen remarkably in past decades; America’s Bureau of Labour Statistics reckons that today you could get the equivalent of an early 1980s television for a twentieth of its then price, were it not that no televisions that poor are still made. However, prices of things not made of widgets, most notably college education and health care, have shot up. If people lived on widgets alone— goods whose costs have fallen because of both globalisation and technology—there would have been no pause in the increase of real wages. It is the increase in the prices of stuff that isn’t mechanised (whose supply is often under the control of the state and perhaps subject to fundamental scarcity) that means a pay packet goes no further than it used to.
So technological progress squeezes some incomes in the short term before making everyone richer in the long term, and can drive up the costs of some things even more than it eventually increases earnings. As innovation continues, automation may bring down costs in some of those stubborn areas as well, though those dominated by scarcity—such as houses in desirable places—are likely to resist the trend, as may those where the state keeps market forces at bay. But if innovation does make health care or higher education cheaper, it will probably be at the cost of more jobs, and give rise to yet more concentration of income.
The machine stops
Even if the long-term outlook is rosy, with the potential for greater wealth and lots of new jobs, it does not mean that policymakers should simply sit on their hands in the mean time. Adaptation to past waves of progress rested on political and policy responses. The most obvious are the massive improvements in educational attainment brought on first by the institution of universal secondary education and then by the rise of university attendance. Policies aimed at similar gains would now seem to be in order. But as Mr Cowen has pointed out, the gains of the 19th and 20th centuries will be hard to duplicate.
Boosting the skills and earning power of the children of 19th-century farmers and labourers took little more than offering schools where they could learn to read, write and do algebra. Pushing a large proportion of college graduates to complete graduate work successfully will be harder and more expensive. Perhaps cheap and innovative online education will indeed make new attainment possible. But as Mr Cowen notes, such programmes may tend to deliver big gains only for the most conscientious students.
Another way in which previous adaptation is not necessarily a good guide to future employment is the existence of welfare. The alternative to joining the 19th-century industrial proletariat was malnourished deprivation. Today, because of measures introduced in response to, and to some extent on the proceeds of, industrialisation, people in the developed world are provided with unemployment benefits, disability allowances and other forms of welfare. They are also much more likely than a bygone peasant to have savings. This means that the “reservation wage”—the wage below which a worker will not accept a job—is now high in historical terms. If governments refuse to allow jobless workers to fall too far below the average standard of living, then this reservation wage will rise steadily, and ever more workers may find work unattractive. And the higher it rises, the greater the incentive to invest in capital that replaces labour.
Everyone should be able to benefit from productivity gains—in that, Keynes was united with his successors. His worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove. However, society may find itself sorely tested if, as seems possible, growth and innovation deliver handsome gains to the skilled, while the rest cling to dwindling employment opportunities at stagnant wages.
Link:
http://www.economist.com/node/21594264/print
Monday, January 6, 2014
The boring ’secret’ to being rich
The Sunday Times
Jonathan Kwok
5/1/2014
"What is the secret to getting rich?"
That is a question many young adults ask themselves - and I too was grappling with it about a year ago as I pondered my financial future.
There had to be a difference between the haves and have-nots in society, I thought, as I pored over books, essays and websites to look for the Holy Grail of personal finance.
I also started asking well-to-do newsmakers, colleagues and friends if they knew the secret to riches.
One of the benefits of being a financial journalist is that you get to speak to some of the richer people in society. And a few of them will open up more when their minders are not around.
"The first way is to be born to rich parents," said one wildly successful businessman, when I posed him the question. "The second way is to marry someone rich."
That is certainly true, especially in countries such as Singapore, which has very low taxes on the rich and zero estate duty. But unfortunately it does not apply to the vast majority of us.
"The third way is through starting your own business, the fourth way is through climbing the corporate ladder and the fifth way is through investments," the businessman continued.
"There are one or two more ways, but I'm still trying to find out what they are. Maybe you can tell me when you find out."
That was a decent start, but it didn't provide the clarity I needed to change my life.
Another answer hit closer to home, though in an unexpected way.
"There is no secret, lah," said this respondent, whom I judge to be very comfortable financially.
"First you need a job that pays you decently - better if it pays you more. Then you need to spend less than your salary," he said.
"Then you invest your savings. It's your investments that will make you rich."
That caught me off-guard as I was expecting something really secretive and majestic that would change my life forever. Instead, this guy was offering me a path... that I was already on.
But when I mused further over it, it seemed that this "boring" method was a workable one for many average folk.
It certainly has helped thousands of baby boomers accumulate comfortable amounts of wealth. Many of them are now looking ahead to a comfortable retirement.
They may never make it to the Forbes rich list or be able to buy companies in billion-dollar deals. But these people do not have to worry much about their finances - this makes them rich enough, in my book.
I get the point that the older generation benefited from Singapore's rapid economic growth, helping them in their wealth accumulation.
My peers will find it harder doing things the old-fashioned way as growth inevitably slows down. Bonuses will get lower, investments will not rise as rapidly.
But I see numerous examples - at my workplace and elsewhere - of those who have become rich through working and investing. This gives me hope that we can still do this, with some adjustments.
Maybe we will need to make more savvy and disciplined investments, or maybe we need to retire later.
Either way it will be a long slog over many decades to finally get rich, the same way it was for our seniors who worked tirelessly.
Perhaps that is the way it is meant to be. Perhaps there is no short cut to getting rich.
Some people will protest at this notion.
I have heard people make claims about their quick-fire methods to let them retire in a posh villa in the Maldives within five or 10 years.
These may involve trading, starting an online business, multi-level marketing or selling insurance.
The problem is, I have not really seen many examples of people who have made it big using these methods, so I remain sceptical.
I have now become comfortable with the tried-and-tested route of earn-save-invest, which will take years and years of hard work.
I will add to this the importance of some insurance - not too much - so our savings do not get wiped out by a catastrophe such as a major illness.
It was this driving force that led me to adopt the habit last year of recording every dollar I spend, and trying to keep my budget to below $35 a day. The idea is to save more by spending less.
"A penny saved is a penny earned," American founding father Benjamin Franklin once declared, and this still holds true about 300 years after those words were uttered.
Along the way I designed a road map for a fresh graduate to accumulate $100,000 in savings and investments by the time he hits 30.
It mainly involved carefully watching your expenditure and ensuring you get an average graduate's salary and wage rise.
People sometimes ask me if I am on track to hitting this target myself. I tell them I do not know as I do not actively keep track of my net worth - all I do is just try to spend as little as possible and invest where appropriate.
Besides, your net worth is dependent on your stock portfolio which is in turn subject to the whims of the share market.
It does not really matter what your current net worth is, or if your target is $50,000, $75,000 or $150,000. The more important thing is to devise methods to earn more, spend less and invest smart.
I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances.
Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
In this new year, I hope that you sort out the basics and come up with methods and plans to build your finances from the foundations.
Earn-save-insure-invest. It is not a big secret, but many of our seniors have shown that it is a workable method to get rich.
jonkwok@sph.com.sg
--------------------------------------------------------------------------------
Background story
Start good habits
... devise methods to earn more, spend less and invest smart. I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances. Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
Jonathan Kwok
5/1/2014
"What is the secret to getting rich?"
That is a question many young adults ask themselves - and I too was grappling with it about a year ago as I pondered my financial future.
There had to be a difference between the haves and have-nots in society, I thought, as I pored over books, essays and websites to look for the Holy Grail of personal finance.
I also started asking well-to-do newsmakers, colleagues and friends if they knew the secret to riches.
One of the benefits of being a financial journalist is that you get to speak to some of the richer people in society. And a few of them will open up more when their minders are not around.
"The first way is to be born to rich parents," said one wildly successful businessman, when I posed him the question. "The second way is to marry someone rich."
That is certainly true, especially in countries such as Singapore, which has very low taxes on the rich and zero estate duty. But unfortunately it does not apply to the vast majority of us.
"The third way is through starting your own business, the fourth way is through climbing the corporate ladder and the fifth way is through investments," the businessman continued.
"There are one or two more ways, but I'm still trying to find out what they are. Maybe you can tell me when you find out."
That was a decent start, but it didn't provide the clarity I needed to change my life.
Another answer hit closer to home, though in an unexpected way.
"There is no secret, lah," said this respondent, whom I judge to be very comfortable financially.
"First you need a job that pays you decently - better if it pays you more. Then you need to spend less than your salary," he said.
"Then you invest your savings. It's your investments that will make you rich."
That caught me off-guard as I was expecting something really secretive and majestic that would change my life forever. Instead, this guy was offering me a path... that I was already on.
But when I mused further over it, it seemed that this "boring" method was a workable one for many average folk.
It certainly has helped thousands of baby boomers accumulate comfortable amounts of wealth. Many of them are now looking ahead to a comfortable retirement.
They may never make it to the Forbes rich list or be able to buy companies in billion-dollar deals. But these people do not have to worry much about their finances - this makes them rich enough, in my book.
I get the point that the older generation benefited from Singapore's rapid economic growth, helping them in their wealth accumulation.
My peers will find it harder doing things the old-fashioned way as growth inevitably slows down. Bonuses will get lower, investments will not rise as rapidly.
But I see numerous examples - at my workplace and elsewhere - of those who have become rich through working and investing. This gives me hope that we can still do this, with some adjustments.
Maybe we will need to make more savvy and disciplined investments, or maybe we need to retire later.
Either way it will be a long slog over many decades to finally get rich, the same way it was for our seniors who worked tirelessly.
Perhaps that is the way it is meant to be. Perhaps there is no short cut to getting rich.
Some people will protest at this notion.
I have heard people make claims about their quick-fire methods to let them retire in a posh villa in the Maldives within five or 10 years.
These may involve trading, starting an online business, multi-level marketing or selling insurance.
The problem is, I have not really seen many examples of people who have made it big using these methods, so I remain sceptical.
I have now become comfortable with the tried-and-tested route of earn-save-invest, which will take years and years of hard work.
I will add to this the importance of some insurance - not too much - so our savings do not get wiped out by a catastrophe such as a major illness.
It was this driving force that led me to adopt the habit last year of recording every dollar I spend, and trying to keep my budget to below $35 a day. The idea is to save more by spending less.
"A penny saved is a penny earned," American founding father Benjamin Franklin once declared, and this still holds true about 300 years after those words were uttered.
Along the way I designed a road map for a fresh graduate to accumulate $100,000 in savings and investments by the time he hits 30.
It mainly involved carefully watching your expenditure and ensuring you get an average graduate's salary and wage rise.
People sometimes ask me if I am on track to hitting this target myself. I tell them I do not know as I do not actively keep track of my net worth - all I do is just try to spend as little as possible and invest where appropriate.
Besides, your net worth is dependent on your stock portfolio which is in turn subject to the whims of the share market.
It does not really matter what your current net worth is, or if your target is $50,000, $75,000 or $150,000. The more important thing is to devise methods to earn more, spend less and invest smart.
I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances.
Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
In this new year, I hope that you sort out the basics and come up with methods and plans to build your finances from the foundations.
Earn-save-insure-invest. It is not a big secret, but many of our seniors have shown that it is a workable method to get rich.
jonkwok@sph.com.sg
--------------------------------------------------------------------------------
Background story
Start good habits
... devise methods to earn more, spend less and invest smart. I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances. Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
Sunday, January 5, 2014
Loneliness shortens lifespan of the elderly
The Sunday Times
Theresa Tan
5/1/2014
Loneliness does not just break hearts, it also significantly increases the risk of earlier death among Singapore's elderly.
And it does not matter if they live by themselves or with families as the risk of dying earlier is the same in each case, according to a nationally representative study of 5,000 seniors here on the ageing process.
"I thought living with your spouse or children would boost your life expectancy as you have someone to talk to and take care of you," said Associate Professor Angelique Chan of the Duke-NUS Graduate Medical School, who led the study, which was commissioned by the Ministry of Social and Family Development.
"But you can live with a big family and still feel very lonely. Or you could live alone but feel that you're wanted by family and friends."
Sharing the findings with The Sunday Times, she revealed how in 2009, she and a team of researchers started tracking 5,000 Singaporeans aged 60 and older. Through face-to-face interviews, the seniors were asked about their physical and mental health, family relationships, living arrangements and social networks, among other things.
To measure loneliness, questions such as how often they felt a lack of companionship or felt isolated from others were asked.
Two years later in 2011, the researchers revisited the seniors and found that 447 had died.
The data showed that those who said they were lonely in 2009 were more likely to have died by the end of 2011, said Prof Chan, who is writing a paper on the study.
This shows that feelings of loneliness hasten death "significantly", she added.
More men than women in the research said they were lonely. Living arrangements also had no effect on life expectancy.
Experts told The Sunday Times that the study mirrors research overseas which associated loneliness with earlier death and a decline in basic abilities such as walking.
Negative emotions, such as loneliness and depression, also increase the chances of infection, heart attack or stroke, said Duke-NUS Graduate Medical School dean K. Ranga Krishnan, who was not involved in the study here.
"Your entire body reacts when you feel down. When you feel lonely, you may not want to take medicine or take good care of yourself."
As to why more men than women said they were lonely, Tsao Foundation's Hua Mei Centre for Successful Ageing director Peh Kim Choo said that men tend to find it harder to share their feelings.
They also typically build their lives and identities around their jobs and their role as the family's breadwinner. When they retire, they might feel lost and alone.
Women, however, do not "retire" from their mothering and caregiving roles, she said, unless they fall ill.
Dr Reshma Merchant, a National University Hospital geriatrician, said many of her patients feel lonely despite living with their families as their spouse or close friends had already died.
She said: "They accept loneliness as part of the norm of being old."
With loneliness being linked with the risk of dying earlier, Dr Huang Wanping, senior clinical neuropsychologist at the Institute of Mental Health, believes it is crucial to focus more attention on the mental health of seniors.
To reduce loneliness, families can spend more time with their elders and encourage them to take part in activities, suggested the experts who were interviewed.
Retired cleaner Fan Ah Mai, 84, has never married, depends on government financial aid and lives alone in a one-room rental flat in Bendemeer. Yet Madam Fan, who was not interviewed for Prof Chan's study, is not lonely.
Every weekday, she goes to the Lions Befrienders Senior Activity Centre at the foot of her block to chat with friends and take part in exercise sessions and handicraft classes. Once a week, she helps to prepare meals for other seniors.
"I'm contented," she said.
theresat@sph.com.sg
Theresa Tan
5/1/2014
Loneliness does not just break hearts, it also significantly increases the risk of earlier death among Singapore's elderly.
And it does not matter if they live by themselves or with families as the risk of dying earlier is the same in each case, according to a nationally representative study of 5,000 seniors here on the ageing process.
"I thought living with your spouse or children would boost your life expectancy as you have someone to talk to and take care of you," said Associate Professor Angelique Chan of the Duke-NUS Graduate Medical School, who led the study, which was commissioned by the Ministry of Social and Family Development.
"But you can live with a big family and still feel very lonely. Or you could live alone but feel that you're wanted by family and friends."
Sharing the findings with The Sunday Times, she revealed how in 2009, she and a team of researchers started tracking 5,000 Singaporeans aged 60 and older. Through face-to-face interviews, the seniors were asked about their physical and mental health, family relationships, living arrangements and social networks, among other things.
To measure loneliness, questions such as how often they felt a lack of companionship or felt isolated from others were asked.
Two years later in 2011, the researchers revisited the seniors and found that 447 had died.
The data showed that those who said they were lonely in 2009 were more likely to have died by the end of 2011, said Prof Chan, who is writing a paper on the study.
This shows that feelings of loneliness hasten death "significantly", she added.
More men than women in the research said they were lonely. Living arrangements also had no effect on life expectancy.
Experts told The Sunday Times that the study mirrors research overseas which associated loneliness with earlier death and a decline in basic abilities such as walking.
Negative emotions, such as loneliness and depression, also increase the chances of infection, heart attack or stroke, said Duke-NUS Graduate Medical School dean K. Ranga Krishnan, who was not involved in the study here.
"Your entire body reacts when you feel down. When you feel lonely, you may not want to take medicine or take good care of yourself."
As to why more men than women said they were lonely, Tsao Foundation's Hua Mei Centre for Successful Ageing director Peh Kim Choo said that men tend to find it harder to share their feelings.
They also typically build their lives and identities around their jobs and their role as the family's breadwinner. When they retire, they might feel lost and alone.
Women, however, do not "retire" from their mothering and caregiving roles, she said, unless they fall ill.
Dr Reshma Merchant, a National University Hospital geriatrician, said many of her patients feel lonely despite living with their families as their spouse or close friends had already died.
She said: "They accept loneliness as part of the norm of being old."
With loneliness being linked with the risk of dying earlier, Dr Huang Wanping, senior clinical neuropsychologist at the Institute of Mental Health, believes it is crucial to focus more attention on the mental health of seniors.
To reduce loneliness, families can spend more time with their elders and encourage them to take part in activities, suggested the experts who were interviewed.
Retired cleaner Fan Ah Mai, 84, has never married, depends on government financial aid and lives alone in a one-room rental flat in Bendemeer. Yet Madam Fan, who was not interviewed for Prof Chan's study, is not lonely.
Every weekday, she goes to the Lions Befrienders Senior Activity Centre at the foot of her block to chat with friends and take part in exercise sessions and handicraft classes. Once a week, she helps to prepare meals for other seniors.
"I'm contented," she said.
theresat@sph.com.sg
Money is a means, not an end in itself...
Published on Jan 05, 2014
... says ST's Goh Eng Yeow, who has compiled his investment columns into a book
By Rachel Scully
There is no magic formula to growing your nest egg but shrewd advice coupled with common sense can work wonders, as senior correspondent Goh Eng Yeow demonstrates regularly in his Small Change column in The Sunday Times.
The columns, which appear every two weeks in the Invest pages, have been compiled into a book, Small Change: Investment Made Simple.
Its 30 chapters range from how thinking positively can pay off to the need for an investment strategy for all seasons, and the dangers of letting emotions cloud your judgment.
While the book captures Mr Goh's investment philosophy, it also covers ground not usually addressed by financial observers.
He sets the tone in the opening chapter by reminding readers that chasing after material riches means nothing if you lose something money cannot buy, namely health.
The former physics teacher and remisier has three decades of experience in the stock market.
Q: What do you hope readers can pick up from Small Change?
You talk to any financial expert and you find that half the time, what he says sounds like gibberish. Worse, he may try to sell you a fiendishly complicated financial product which promises you a high return without fully explaining the risks involved.
But when I was an undergraduate at Cambridge, my professor stressed time and again that there are simple ways to solve even the most complicated physics problems.
In this book, I hope to adopt the same approach and offer some simple ideas to get to the heart of a tough financial issue while cutting out the unnecessary distractions which cloud an investor's judgment.
The book is a celebration of the lay investor who has prospered by applying simple logic to his investments. For instance, my car mechanic bought Citibank shares during the global financial crisis when its price plunged below US$1. That was a time when well-paid fund managers fumbled and lost their way. His investment has since quintupled.
Q: Many investors are driven by greed and end up speculating, rather than investing. What advice do you have for them to safeguard their interests?
It is difficult to fight the temptation of greed. At the back of our minds, we always find this voice telling us - just this once - as we watch our friends and colleagues make big bucks on some loss-making penny stocks while we watch like fools wishing we'd also joined in the fun.
But the problem is that once we get sucked in, we tend to make a bigger and bigger wager until the inevitable crash occurs, and we find ourselves nursing a whopping loss.
That is why I find that the most successful investors do not seem to be driven by the desire to make money. All of them share a common trait: They seem to be at peace with themselves and the world, and they generally enjoy what they are doing.
Above all, they know their limits and they do not put money into stocks - or for that matter, any other investments - which they know nothing about.
Q: How do you recover from a bad investment?
We all have our disasters in our investments. It is easy to dwell on them and moan about our losses. But this is counterproductive.
It is better to treat bad investments as part of the learning process. Rather than be depressed and disheartened, I ask myself: What went wrong? How can I prevent myself from repeating the same mistake?
So each time I consider buying a certain stock for the first time, the same question will surface: Is it good value? Can I see myself still holding it in five years?
That is how to turn a disaster into a big winner.
Q: What is the most useful advice in your new book?
What got me started on this book was a touching e-mail from a reader. She wished that more middle- class families could adopt the prudence that I promote in the Small Change column as she described the bliss her family enjoyed with their simple lifestyle.
Those who have tasted the sweetness and bitterness of life would appreciate that money is a means and not an end in itself. It is important but it only matters up to a point.
Apart from aiming to maximise our investment returns, we should try to make the most of our lives before it is too late. Above all, stay active and healthy.
rjscully@sph.com.sg
Small Change: Investment Made Simple is priced at $15, inclusive of GST. It will be available at all major bookstores and on www.stpressbooks.com.sg from Wednesday.
... says ST's Goh Eng Yeow, who has compiled his investment columns into a book
By Rachel Scully
There is no magic formula to growing your nest egg but shrewd advice coupled with common sense can work wonders, as senior correspondent Goh Eng Yeow demonstrates regularly in his Small Change column in The Sunday Times.
The columns, which appear every two weeks in the Invest pages, have been compiled into a book, Small Change: Investment Made Simple.
Its 30 chapters range from how thinking positively can pay off to the need for an investment strategy for all seasons, and the dangers of letting emotions cloud your judgment.
While the book captures Mr Goh's investment philosophy, it also covers ground not usually addressed by financial observers.
He sets the tone in the opening chapter by reminding readers that chasing after material riches means nothing if you lose something money cannot buy, namely health.
The former physics teacher and remisier has three decades of experience in the stock market.
Q: What do you hope readers can pick up from Small Change?
You talk to any financial expert and you find that half the time, what he says sounds like gibberish. Worse, he may try to sell you a fiendishly complicated financial product which promises you a high return without fully explaining the risks involved.
But when I was an undergraduate at Cambridge, my professor stressed time and again that there are simple ways to solve even the most complicated physics problems.
In this book, I hope to adopt the same approach and offer some simple ideas to get to the heart of a tough financial issue while cutting out the unnecessary distractions which cloud an investor's judgment.
The book is a celebration of the lay investor who has prospered by applying simple logic to his investments. For instance, my car mechanic bought Citibank shares during the global financial crisis when its price plunged below US$1. That was a time when well-paid fund managers fumbled and lost their way. His investment has since quintupled.
Q: Many investors are driven by greed and end up speculating, rather than investing. What advice do you have for them to safeguard their interests?
It is difficult to fight the temptation of greed. At the back of our minds, we always find this voice telling us - just this once - as we watch our friends and colleagues make big bucks on some loss-making penny stocks while we watch like fools wishing we'd also joined in the fun.
But the problem is that once we get sucked in, we tend to make a bigger and bigger wager until the inevitable crash occurs, and we find ourselves nursing a whopping loss.
That is why I find that the most successful investors do not seem to be driven by the desire to make money. All of them share a common trait: They seem to be at peace with themselves and the world, and they generally enjoy what they are doing.
Above all, they know their limits and they do not put money into stocks - or for that matter, any other investments - which they know nothing about.
Q: How do you recover from a bad investment?
We all have our disasters in our investments. It is easy to dwell on them and moan about our losses. But this is counterproductive.
It is better to treat bad investments as part of the learning process. Rather than be depressed and disheartened, I ask myself: What went wrong? How can I prevent myself from repeating the same mistake?
So each time I consider buying a certain stock for the first time, the same question will surface: Is it good value? Can I see myself still holding it in five years?
That is how to turn a disaster into a big winner.
Q: What is the most useful advice in your new book?
What got me started on this book was a touching e-mail from a reader. She wished that more middle- class families could adopt the prudence that I promote in the Small Change column as she described the bliss her family enjoyed with their simple lifestyle.
Those who have tasted the sweetness and bitterness of life would appreciate that money is a means and not an end in itself. It is important but it only matters up to a point.
Apart from aiming to maximise our investment returns, we should try to make the most of our lives before it is too late. Above all, stay active and healthy.
rjscully@sph.com.sg
Small Change: Investment Made Simple is priced at $15, inclusive of GST. It will be available at all major bookstores and on www.stpressbooks.com.sg from Wednesday.
Health coverage: Are you overinsured?
Published on Jan 05, 2014
Many who buy top plans may face cash crunch as premiums shoot up in later years
By Salma Khalik Senior Health Correspondent
Many Singaporeans complain about paying high premiums for health insurance plans, especially after last year's rather steep rise in premiums, with some premiums more than doubling.
But what most of them don't realise is that they are probably forking out such high premiums because they have over-insured themselves and are paying for a level of insurance they are unlikely to need.
Today, more than two million Singaporeans and permanent residents are paying for higher medical insurance coverage than offered by the basic MediShield. They are on Integrated Shield Plans or IPs, which ride on the basic MediShield, but offer higher payouts based on private hospital rates or the equivalent of being treated as private patients in a public hospital.
This is good since the basic insurance is pegged at subsidised B2 and C class rates and will not offer enough coverage for those opting for a higher ward class, such as B1 or A class in a public hospital.
What is surprising, however, is that more than half of those on IPs, or 34 per cent of all Singaporeans and permanent residents covered by MediShield, have opted for the most expensive plans - those pegged at treatment in private hospitals. This does not reflect the actual usage of hospital care today, with less than 20 per cent of local residents opting for private hospitals and the rest going to a public hospital.
Do one in three Singaporeans require private hospital medical insurance when fewer than one in five are treated at private hospitals?
Why do so many buy insurance plans they are unlikely to use?
They do so partly because it is easier to downgrade a health insurance plan than to upgrade. Four of the five insurers - NTUC Income, Great Eastern, AIA and Aviva - have plans in all three IP categories. Prudential no longer offer IPs for public hospital B1 wards.
Also many buy into the plans when they are young and when the premiums are highly affordable. Up to the age of 49, Medisave can fully cover the premiums charged for these private plans, so policyholders do not feel the pinch of out-of-pocket payments
But from age 50 onwards, policy holders will have to top up their premium payments in cash, as the premiums all exceed the $800-a-year cap for premiums paid with Medisave. Each year, up till the official retirement age of 62, they will need to top up their premium payments with cash amounting to several hundred dollars. But again, as many are still working, the amounts appear affordable.
But beyond the age of 62, premiums rise steeply, averaging $4,000 a year for those aged 75. The highest premium currently charged, at the age of 100, is $8,483 a year.
Today, on average, men can expect to live to the age of 80 and women 84.5 years. A man aged 65 in 2012 can expect to live to the age of 83.5 years and a woman to 86.9 years. And life expectancy is still going up.
Already, there are more than 10,000 people aged 90 years and older and close to 1,000 who have passed the century mark.
Based on current premiums, people on private hospital plans will need to pay between $120,000 and $180,000 in premiums for those 30 years after retirement, depending on which insurer they are with.
Unless they buy riders, which pay for the portion of their hospital bill which they will still need to pay in spite of insurance, they will also need to pay thousands, perhaps even tens of thousands of dollars, for their hospital treatment.
Riders which start at about $30 a year for children, go up to about $2,000 a year for seniors.
The actual amount people will need to put aside is likely to be far higher, as health inflation has always been higher than general inflation, and premiums will rise as cost of medical treatments goes up.
So those who opt for insurance pegged at treatment in private hospitals must ask this basic question: Can they afford the thousands of dollars in premium payments in their post-retirement years?
Different people have different priorities, as well as different levels of savings. After doing my maths recently, I've decided to downgrade my medical insurance plan.
One reader wrote to me to say that she opted for the top plan, and pays extra for a rider, so she will not need to pay any out-of-pocket expenses should she need to be hospitalised. She said: "Even though the premium and rider are costly, I am determined to continue with my plan for as long as I can. In the worst-case scenario, I am willing to cut down on my transport and food to service my plan, including the rider."
She has considered her options and made her choice. But not many people have given as much thought to their IPs.
I prefer to downgrade and spend more on living healthily and getting regular health screening to stay healthy and out of hospital.
And should I fall seriously ill in my old age, I will turn to public hospitals, which have excellent doctors and whose bills I can probably afford on my downgraded health insurance plan.
salma@sph.com.sg
facebook.com/ST.Salma
Many who buy top plans may face cash crunch as premiums shoot up in later years
By Salma Khalik Senior Health Correspondent
Many Singaporeans complain about paying high premiums for health insurance plans, especially after last year's rather steep rise in premiums, with some premiums more than doubling.
But what most of them don't realise is that they are probably forking out such high premiums because they have over-insured themselves and are paying for a level of insurance they are unlikely to need.
Today, more than two million Singaporeans and permanent residents are paying for higher medical insurance coverage than offered by the basic MediShield. They are on Integrated Shield Plans or IPs, which ride on the basic MediShield, but offer higher payouts based on private hospital rates or the equivalent of being treated as private patients in a public hospital.
This is good since the basic insurance is pegged at subsidised B2 and C class rates and will not offer enough coverage for those opting for a higher ward class, such as B1 or A class in a public hospital.
What is surprising, however, is that more than half of those on IPs, or 34 per cent of all Singaporeans and permanent residents covered by MediShield, have opted for the most expensive plans - those pegged at treatment in private hospitals. This does not reflect the actual usage of hospital care today, with less than 20 per cent of local residents opting for private hospitals and the rest going to a public hospital.
Do one in three Singaporeans require private hospital medical insurance when fewer than one in five are treated at private hospitals?
Why do so many buy insurance plans they are unlikely to use?
They do so partly because it is easier to downgrade a health insurance plan than to upgrade. Four of the five insurers - NTUC Income, Great Eastern, AIA and Aviva - have plans in all three IP categories. Prudential no longer offer IPs for public hospital B1 wards.
Also many buy into the plans when they are young and when the premiums are highly affordable. Up to the age of 49, Medisave can fully cover the premiums charged for these private plans, so policyholders do not feel the pinch of out-of-pocket payments
But from age 50 onwards, policy holders will have to top up their premium payments in cash, as the premiums all exceed the $800-a-year cap for premiums paid with Medisave. Each year, up till the official retirement age of 62, they will need to top up their premium payments with cash amounting to several hundred dollars. But again, as many are still working, the amounts appear affordable.
But beyond the age of 62, premiums rise steeply, averaging $4,000 a year for those aged 75. The highest premium currently charged, at the age of 100, is $8,483 a year.
Today, on average, men can expect to live to the age of 80 and women 84.5 years. A man aged 65 in 2012 can expect to live to the age of 83.5 years and a woman to 86.9 years. And life expectancy is still going up.
Already, there are more than 10,000 people aged 90 years and older and close to 1,000 who have passed the century mark.
Based on current premiums, people on private hospital plans will need to pay between $120,000 and $180,000 in premiums for those 30 years after retirement, depending on which insurer they are with.
Unless they buy riders, which pay for the portion of their hospital bill which they will still need to pay in spite of insurance, they will also need to pay thousands, perhaps even tens of thousands of dollars, for their hospital treatment.
Riders which start at about $30 a year for children, go up to about $2,000 a year for seniors.
The actual amount people will need to put aside is likely to be far higher, as health inflation has always been higher than general inflation, and premiums will rise as cost of medical treatments goes up.
So those who opt for insurance pegged at treatment in private hospitals must ask this basic question: Can they afford the thousands of dollars in premium payments in their post-retirement years?
Different people have different priorities, as well as different levels of savings. After doing my maths recently, I've decided to downgrade my medical insurance plan.
One reader wrote to me to say that she opted for the top plan, and pays extra for a rider, so she will not need to pay any out-of-pocket expenses should she need to be hospitalised. She said: "Even though the premium and rider are costly, I am determined to continue with my plan for as long as I can. In the worst-case scenario, I am willing to cut down on my transport and food to service my plan, including the rider."
She has considered her options and made her choice. But not many people have given as much thought to their IPs.
I prefer to downgrade and spend more on living healthily and getting regular health screening to stay healthy and out of hospital.
And should I fall seriously ill in my old age, I will turn to public hospitals, which have excellent doctors and whose bills I can probably afford on my downgraded health insurance plan.
salma@sph.com.sg
facebook.com/ST.Salma
Wednesday, January 1, 2014
Gold closes out worst year since 1981
Gold drops 28% over 2013
Published: 01 January, 7:48 AM
NEW YORK — The price of gold closed out its worst year since 1981 yesteday (Dec 31) as the United States economy improved, inflation remained at bay and worries about the financial system and gridlock in Washington faded.
Gold slumped 28 per cent last year. The price peaked at US$1,900 (S$2,400) an ounce in August 2011 and has been declining more or less steadily ever since.
Traders had bid the price of gold higher partly out of fear that the Federal Reserve’s aggressive easy-money policies would lead to inflation and weaken the US dollar. When that did not happen, demand for gold fell.
Yesterday, the actively traded February contract for gold fell US$1.50, or 0.1 per cent, to US$1,202.30 an ounce.
Silver for March delivery declined 24.5 cents, or 1.2 per cent, to US$19.37 an ounce. Silver also had a bad year, falling 36 per cent.
In other metals trading, copper for March delivery rose 1.4 cents, or 0.4 per cent, to US$3.3965 a pound. Copper fell 7 per cent for the year. Platinum for April delivery rose US$6.60, or 0.5 per cent, to US$1,373.80 an ounce. It is down 11 per cent for the year. Palladium for March delivery rose US$7.50, or 1 per cent, to US$718.30 an ounce. For the year, it is up 2 per cent.
Other commodities also had a bad year.
The price of corn plunged 40 per cent last year as it became clear that the US crop would be huge, bouncing back from a severe drought the year before. The price of wheat also fell 23 per cent for the year.
Yesterday, the price of corn for March delivery fell 1.5 cents, or 0.4 per cent, to US$4.22 a bushel. It started the year at about US$7 a bushel.
Wheat for March delivery rose 4.75 US cents, or 0.8 per cent, to US$6.0525 a bushel.
Soybeans for March delivery fell 16.25 US cents, or 1 per cent, to US$12.925 a bushel.
In energy trading, the price of crude oil fell 87 US cents, or 1 per cent, to US$98.42 a barrel. Wholesale gasoline lost 2 US cents to US$2.79 per gallon, heating oil was unchanged at US$3.08 per gallon and natural gas fell 20 US cents to US$4.23 per 1,000 cubic feet.
For the year, oil gained about 7 per cent, heating oil and gasoline each rose 1 per cent while natural gas jumped 25 per cent. AP
Published: 01 January, 7:48 AM
NEW YORK — The price of gold closed out its worst year since 1981 yesteday (Dec 31) as the United States economy improved, inflation remained at bay and worries about the financial system and gridlock in Washington faded.
Gold slumped 28 per cent last year. The price peaked at US$1,900 (S$2,400) an ounce in August 2011 and has been declining more or less steadily ever since.
Traders had bid the price of gold higher partly out of fear that the Federal Reserve’s aggressive easy-money policies would lead to inflation and weaken the US dollar. When that did not happen, demand for gold fell.
Yesterday, the actively traded February contract for gold fell US$1.50, or 0.1 per cent, to US$1,202.30 an ounce.
Silver for March delivery declined 24.5 cents, or 1.2 per cent, to US$19.37 an ounce. Silver also had a bad year, falling 36 per cent.
In other metals trading, copper for March delivery rose 1.4 cents, or 0.4 per cent, to US$3.3965 a pound. Copper fell 7 per cent for the year. Platinum for April delivery rose US$6.60, or 0.5 per cent, to US$1,373.80 an ounce. It is down 11 per cent for the year. Palladium for March delivery rose US$7.50, or 1 per cent, to US$718.30 an ounce. For the year, it is up 2 per cent.
Other commodities also had a bad year.
The price of corn plunged 40 per cent last year as it became clear that the US crop would be huge, bouncing back from a severe drought the year before. The price of wheat also fell 23 per cent for the year.
Yesterday, the price of corn for March delivery fell 1.5 cents, or 0.4 per cent, to US$4.22 a bushel. It started the year at about US$7 a bushel.
Wheat for March delivery rose 4.75 US cents, or 0.8 per cent, to US$6.0525 a bushel.
Soybeans for March delivery fell 16.25 US cents, or 1 per cent, to US$12.925 a bushel.
In energy trading, the price of crude oil fell 87 US cents, or 1 per cent, to US$98.42 a barrel. Wholesale gasoline lost 2 US cents to US$2.79 per gallon, heating oil was unchanged at US$3.08 per gallon and natural gas fell 20 US cents to US$4.23 per 1,000 cubic feet.
For the year, oil gained about 7 per cent, heating oil and gasoline each rose 1 per cent while natural gas jumped 25 per cent. AP
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