What millennials can do to cope with rising inflation

SINGAPORE — News about rising prices has hogged the headlines this year and is a major concern for everyone.

To compound matters, Singapore's core inflation, which excludes accommodation and private transport costs, hit its highest level in more than 13 years in May at 3.6 per cent. The Monetary of Singapore said on 14 July that core inflation in 2022 is expected to be 3 to 4 per cent, up from an earlier forecast of of 2.5 and 3.5 per cent.

With the Goods and Services Tax set to rise to 8 per cent in 2023 and to 9% in 2024, it is no wonder that youths are fretting over the increasing prices. But are there ways that we can cope with the rising prices?

This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and their finances. In this fourth part, we discover what millennials can do to cope with rising prices.

Start investing

With rising inflation, your savings are at risk of losing value in ‘real’ terms as you will be able to buy less with your money.

As such, most financial experts recommend that youths pick up investing to beat the impact of inflation. Given their age, youths have a longer runway to see their investments grow.

Gavin Chia, Head of Managed Investments and Investment Advisory of Standard Chartered Bank Singapore said, “If the returns that one is getting on their savings is less than the rise in prices, they are actually losing spending power”.

For example, if one is earning 0.5% on their deposits, and the inflation is at 4.1%, that means that they are actually losing 3.6% of spending power.

“This erosion is usually less apparent when looking at smaller ticket items like a plate of chicken rice, but when looking at bigger ticket items, this is something that millennials should not forget about,” added Chia. “S$300k during their parents’ time could buy a condominium, today a similar property would cost 10 times that amount.”

Similarly, Gregory Van, CEO of Endowus, a Singapore-based financial technology company, advises youths to invest in growth assets such as equity funds. Growth assets aim for capital growth and have the potential for higher investment returns over the longer term.

However he added a caveat: “Before investing, ensure that you set aside enough cash for emergencies — this is usually up to six months of your monthly expenses.”

• Also read: What can millennials invest in with only S$5,000?

• Also read: The good, bad and ugly of investing in NFTs

• Also read: What should millennials invest in — stocks or cryptocurrency?

Equip yourself with financial and budgeting knowledge

Other than investing in growth assets, Van recommends that youths invest in themselves too.

“For youths, their greatest financial asset is their future earning potential. It is more important for youths to pick up skills that can help them command a higher salary than to focus on managing their limited financial assets,” said Van.

This can come in the form of understanding the current markets, reading into price changes, understanding investment portfolios and looking at the general inflation rates. Having this information at hand will enable better decision making.

On top of equipping yourself with financial knowledge, a good knowledge of budgeting is also key. Budgeting allows you to track your expenses and have a clear overview on what you are spending on. It also highlights areas that you may be spending unnecessarily on so you can cut down in the next month.

“For millennials starting out on their financial journey, a weekly or monthly budgeting system is a great place to start. There are many mobile apps where you can track your spending per category,” said Salim Dhanani, CEO and co-founder of BigPay, a financial mobile app.

“Inculcating all these small habits from a younger age can help youths start building their financial wellbeing which in the long run, builds a strong foundation and financial position to cope with rising prices,” Dhanani added.

Pick up good financial habits

Besides budgeting, there are other good financial habits that can be inculcated from young which will be helpful throughout adulthood too.

For instance, youths can list down their needs and wants, which forms a foundation expectation level when it comes to managing expenses. It is critical to know what things are important and what are nice to have.

“This not only helps you trim your spending when you have some short term financial difficulties, but also gives greater gratification when you are treating yourself (such as to a holiday),” said Dhanani.

Additionally, decluttering of one’s lifestyle and change of habits might also be needed to save more every month. For instance, one can choose to leave home earlier and take the public transport instead of hailing a taxi. And instead of splurging on the latest mobile phone model, one can do with a battery replacement or an older model instead.

As for food, youths can try hosting pot-luck parties at home once in a while instead of eating out every week. Youths can also consider frozen food over house brands for their daily essentials.

“If you are able to, you can also consider purchasing any big-ticket items before the GST hike – provided they are necessities, but you can also consider lower-priced alternatives,” said Chuin Ting Weber, CEO of MoneyOwl, a bionic financial advisor.

Lastly, restructuring one’s insurance is another good financial habit to have. This is especially so if you are paying a lot for a whole life plan. Experts recommend such youths to consult a trusted adviser about options for term insurance that may be able to give them the coverage needed at a lower cost.

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