I did financial planning for many young gruduates over the years and really empathise with many of them on their financial difficulties in their early years and I have my fair bit of challenges in helping them getting the right insurance coverages and wealth accumulation discipline.
Many graduates from low or middle income families have to start paying study loans to the banks or to their parents CPF from day 1 they graduate. The average starting pay for a polytechnic graduate is about $1,800/mth and for a University Graduate about $2,400/mth. After CPF deduction, their take home is about $1,440 and $1,920 respectively.
For the University graduate who graduate at as old as 25 years old, he/she may start their foot with about $25,000 debts, payable over a period of about 4 years. With an interest rate of about 3.5%, their monthly instalment will be about $560/mth. This will reduce their income to $1,360. They gives their parents roughly about $300/month and expenses about $500/month on food, transports and entertainment. They will go for occasional holiday trips of $2,000/year and probably save the rest. Their monthly positive cashflow is only about $350/mth.
After 5 years, the salary of that graduate probably increases to about $3,200/mth and its time to tie the knot. They probably have a CPFOA of about $40,000 and a cash savings of about $30,000. Their wedding package may easily comes up to $20,000, including the ring, honeymoon, photography packages, wedding banquets losses, etc. Then it will be their property. A BTO in areas such as Bedok may cost about $480,000 or those nearer to town and MRT may cost about $580,000.
Assuming the couple took a $400,000 loan after depleting their CPFOA and took up a $200,000 loan each payable over 30 years at 2.6%p.a interest rate, their monthly contribution will be $800/mth. With a $3,200 salary, their monthly CPFOA contribution is only about $700/month. which means they still have to fork out $100 of cash every month. This will also translate that this person may have so little CPF monies by the time he/she retires at 60.
Simple renovation and furnitures may easily cost an additional $25,000. This means that by the time they gets their house after marriage, they start with nearly $0 in their bank account. And then comes the gynae checks for the wife, children expenses such as milk, diapers, infant care or domestic worker levy, etc… It eats into their cashflow in these early childhood years. As times goes, due to environmental pressure, they will send their kids for enrichment and development programs which can easily cost them $500/mth.
With the other expenses such as insurances, taxes and having to take care of their elderly parents, these people will find it hard to save consistently and retire.
I feel that the new generation is really having a hard time. The government should make housing more affordable for them and the education system less pressurising for the children. They are real challenges for them on the ground. Those from higher income families or with parental financial support do not usually face this problem and hence the cycle of the rich getting richer will just continue to spin.