This is the third and last part of the series. In Part 1 I argued that our current Total Fertility Rate (TFR) of 1.22 implies a fast shrinking population within a generation’s time. The scale of immigration needed to top up the shortfall would be so huge, it would probably raise unacceptable social problems: The people we see on the streets will be mostly different from us; the languages we hear around us we won’t understand; the food and merchandise in shops alien to us.
In Part 2 I discussed the scope of social changes that will be needed to raise our birthrate, not least that of value systems. With marriage rates so low, if we are ever to achieve the desired TFR of 2.1, singles too should raise a child each. But even if this mountain of an attitudinal change can be scaled, there still remains a formidable question: Can people afford to raise children?
What this post shows is that for many people holding low skill or semi-skilled jobs, the answer is not only No — which we, of a sort, knew already — but the affordability gap is huge.
For this exercise, I assume we’re dealing with a working adult with a relatively low income. Of course, the better off can afford a child; for them the question is whether they want one. But unless even the less well-off raise children too, we’ll not be getting enough babies. I just cannot see the better-off couples raising an average of three or four kids to compensate for the less well-off having none.
Am I assuming a single parent raising a child or a couple? Both. To get a TFR of 2.1, singles need to raise one each. Couples need to raise two each. I assume every parent works, and the economics per parent works out roughly the same whether it’s a single parent or a married couple (assuming the State does not penalise singles through its taxation and benefits policies).
What do I mean by a low income working adult? Well, here are some interesting data from the Ministry of Manpower:
If you find the above too small to read, click this thumbnail for a bigger one:
A number we can use as a starting point for this discussion is the average monthly income of the first quartile (i.e. the lowest 25 percent) of sales and service workers, or plant and machine operators. The figure is around S$1,300 a month. If we add a 15-percent contribution by employers to each person’s account in the Central Provident Fund (CPF), then the amount of money coming into a person’s name each month is about S$1,500. I call this figure the “gross plus”.
This parent, if prudent, would roughly budget his expenditure this way:
There is no provision for personal income tax in the budget. This is because someone earning $1,300 a month will not cross the taxable threshold.
Against each slice of the pie, I have indicated the dollar amounts for each purpose. Are those amounts sufficient? I would take a closer look at savings, housing, personal and children’s expenses.
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Savings and insurance, ideally at about 25 percent of gross plus. Given the mandatory sequestering of a good portion of one’s earnings through the CPF scheme, I believe this proportion can be achieved, provided it is not all spent on paying off a mortgage for a flat, which, unfortunately, is a scenario that is all too common.
But what’s wrong with that? Is not a property also a store of value? Yes and no. It is, but only if (a) it can be monetised when needed and (b) its future value does not risk major collapse.
Monetising the value of one’s flat by selling it is problematic if one does not have anywhere else to stay. For the lower income, the flat they own is probably the only roof over their heads. Alternatively, we’ll need an active reverse mortgage market, something which despite talking about for years, is still unrealised.
(b) is the big risk. We all seem to assume that property values will remain at least stable, more likely go up. But if we are looking at a scenario a generation from now when Singapore’s native-born population is shrinking and assuming the hue and cry over foreigners has been big enough to slow immigration and foreign worker inflow considerably, then we have to visualise a shrinking population in a city with more and more empty flats. There won’t be enough demand to sustain prices. Furthermore, with the tenure of 99-year leases running out, flats cannot be considered a good store of value in the long term. Prices will collapse.
You may say: Oh no, the government has to guarantee the value of flats otherwise there will be social unrest. Well, in that case, taxes must go up; if not, the government cannot live up to any such guarantee, buying back your flat at your expected valuation.
For these reasons, when I mark 25 percent of the pie chart as “Savings and insurance”, I really mean exactly that. I exclude payments for housing which our government, through the CPF scheme, tends to include. The savings and insurance are to provide an income stream in one’s old age.
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Cost of housing. I have marked 15 percent (S$225) as provision for this in the pie chart. Frankly, that’s about all someone in the first quartile can afford. If this is what we expect this person to be able to put aside to pay as his monthly installment for his flat, if he remains single, then over a period of say, 20 years, he can only afford S$54,000 as the total cost of his flat, inclusive of interest.
But we want him to raise a child, so we need to be able to provide a flat for two persons at this cost, a flat which probably will have to look something like this with preferably an additional small room for the child to call his own:
This is the challenge to our public sector architects and urban planners: Produce a flat like the above at a cost of S$54,000 to the buyer, inclusive of interest.
What are current prices like? From the HDB website advertising its newly launched Rivervale Arc project in Sengkang town, I see that the 2-room flats (i.e. 1-bedroom flats, 45 sq m) are priced from S$68,000 to S$96,000 each. With the available S$30,000 first-time buyer grant (and we’ll have to make it applicable to single parents), the nett price may well be just S$38,000 – S$66,000, before interest. Not too far off, but could get closer to affordability levels.
If it’s a couple, which implies two kids, and assuming both parents earn these low-end salaries, they should be able to put aside S$108,000 over a 20-year span. But the above design will not work for them. We’ll need to be able to produce a flat like the one below within their budget:
What is the current cost of the this 2-bedroom design? How far are we from this ideal target cost? From the HDB website,
..in Rivervale Arc, Sengkang: prices range from S$122,000 to S$157,000 (65 sq m internal)
..in Waterway Terraces, Punggol: prices range from S$186,000 to- S$237,000 (65 sq m internal)
The prices are quite far from the target of S$108,000 (inclusive of interest) even if we add in a first-home grant.
The HDB themselves will claim these prices are affordable. In a recent post, Mah Bow Tan exposes reason for low birthrate, I noted that the Minister for National Development expects people to put aside something like 20 – 30 percent of income for housing needs. If that’s what people have to set aside to have a roof over their heads, no wonder many say they cannot afford kids.
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Personal and child’s expenses. As you can see from the pie chart, all that’s left for personal expenses is 30 percent of gross plus, with 20 percent for the child. This means, if he is in the first quartile of sales and service workers or plant and machine operators and earning S$1,500, all he has for himself is S$450 a month, with S$300 for the kid. This is ridiculous. The cost of essentials in Singapore — food, clothing, transport, water and electricity, telecommunication — must come to more than this; I would imagine something like S$800 to S$1,000 per adult per month.
No wonder, again, people say life is too stressful to have kids.
What’s the cost of raising a child? The Sunday Times had a recent feature on this, providing estimated costs of childcare services and schooling:
At a minimum therefore, the parent has to allocate S$89,000 over 18 years for his child (excluding university education), which works out to S$412 per month. This is before costing in food, clothing, transport, medical, etc. which may bring the total to some $600 – 700 a month to raise a child.
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Let’s summarise: He has only $450 for himself. He needs at least twice that. He has only $300 to raise a child. He needs at least twice that. He has only $225 per month as provision for housing costs, when he may need 50 – 100 percent more than that.
What these shortfalls indicate is that a working adult needs to earn a gross plus of about twice $1,500 (i.e. $3,000 a month) to be a parent while being able to save for his own senior years. That’s a big gap. No wonder married couples either have just one child or none. And even if we encourage singles to be parents, no one in that income bracket is going to want to be one. It would be financial suicide.
We clearly need to raise such a worker’s income from S$1,500 a month to S$3,000 as part of a wholistic approach to our demographic crisis. But how? The latest mantra is productivity improvement. But even though it will make a difference, I frankly do not see this as sufficient to close the gap.
Obviously, fiscal transfers are needed. It is not anathema in Singapore; fiscal transfers go on all the time. Are they enough? Do they apply to singles too? If not, how can singles contribute to the birth rate? And if singles do not contribute, will we ever reverse the trend towards depopulation?
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Post-script: Click this link: Total fertility rate by country (Wikipedia). According to UN data 2005-2010, Singapore ranks 186 out of 195 countries/territories (as at the date of this post). Click this other link: CIA World fact book. According to US CIA data based on2010 estimates, Singapore ranks 221 out of 223 places (as at the date of this post). We have the third lowest total fertility rate in the world.
Yawning Bread 
Interesting article.
I was just wondering why Singaporeans seem to be obsessed with bathrooms? I mean, is there really a need for 2 bathrooms in a 60sqm apartment? I’ve recently seen for sale a new 4 bedrooms condos with 5 bathrooms! Are people spending there life in there?
“We clearly need to raise such a worker’s income from S$1,500 a month to S$3,000 as part of a wholistic approach to our demographic crisis. But how? The latest mantra is productivity improvement. But even though it will make a difference, I frankly do not see this as sufficient to close the gap.”
Note that wages as a component of GDP in Singapore hovers around 40 to 44 percent whereas in most developed countries, it is closer to 55 percent and above. The obvious implication is that there is plenty of room for the wage level to rise.
Here is a link of the newspaper article which pointed out that wages as a share of GDP is unusually low in Singapore even compared to other industrializing countries in Asia (S. Korea, HK, Taiwan, etc).
http://www.asiaone.com/Business/News/Office/Story/A1Story20100517-216611.html
Two comments:
1) On Singapore’s fertility rate ranking. I’ve noticed that whenever the question of fertility rate comes up, the government spokesman will say something like ‘low fertility rates are an inevitable consequence of women’s education/high incomes/etc.’. I’m not sure if people have noticed the sleight of hand going on in this response. Yes, nearly every country with the named factors has experienced drops in fertility rates. But most of them still have higher fertility rates than Singapore. So a lower fertility rate relative to that when the country was poorer might be ‘inevitable’ looking at the data, but it’s clearly not the case that a fertility rate as low as Singapore’s is inevitable. The financial pressures you point out are certainly a factor depressing Singapore’s fertility rate relative to many rich European countries, and the relatively less generous provisions for parental leave are another.
2) I wonder if the government is quite happy to have low income people remain unable to afford children, because of a certain senior statesman’s belief in eugenics. It may not be the only reason they aren’t doing much to help low income people have children, but given an option between attracting immigrants and encouraging low-income (and thus supposedly, according to the statesman, less intelligent) people to breed, believing in eugenics can easily make it seem like immigrants are the more attractive option (of course, I suppose the immigrants will have to come from ‘good stock’ as well).
I think the govt, being a smart one, has already considered the above points. But they still think importing foreigners is the better and quicker solution. That’s why they implement it most liberally, resulting in even prostitutes, under the guise of certain trades like hairdressing, restaurant workers etc being granted PR.
Frankly allowing singles to adopt and raise children is also not a viable and practical one. How many singles and how many kids can be achieved through this method? Somemore when growing up the kids may later feel a sense of incompleteness in such environment, when they compare with normal families.
As for fiscal transfers, the govt has implemented the Workfare system but things are still far from the ideal. In Singapore one cannot depend on the govt for welfare schemes to get into a decently “comfort” zone. Even with govt help, one will still suffer but suffer a bit less. And even if govt get the low wage workers into the “comfort” zone, there is no guarantee that they will have more kids, especially for a racial group that the govt is most concerned about its birth decline.
That’s why the massive import of foreign “talents” is the preferred solution, even if it means 2nd or 3rd rate talents. It is not only fast but also easy. If I were the PAP govt I will even do the same. Deal with the bad effects later as it comes. And with political power strongly entrenched, no issue on this.
If what you say is true about the decision made by the govt then its frightening. I would hope the govt based their decision on more than just it being the “fast and easy” solution.
The problem with “importing foreign talents” is that it depends on immigrants remaining. But immigrants can come and go. Hence its a policy that depends on Singapore remaining relatively more attractive than other options. If you are certain that Singapore will always be relatively more attractive then its a good policy bet to make. But part of this bet relies on the competing options to remain unattractive and I think this is where the risk is.
Taking steps to improve our birth rate is, I think, a sounder policy decision. To that end the relationship between a generous welfare system and increasing birth rate needs to be fully explored.
” One hates to invoke Scandinavia in stories about child-rearing, but it can’t be an accident that the one superbly designed study that said, unambiguously, that having kids makes you happier was done with Danish subjects. The researcher, Hans-Peter Kohler, a sociology professor at the University of Pennsylvania, says he originally studied this question because he was intrigued by the declining fertility rates in Europe. One of the things he noticed is that countries with stronger welfare systems produce more children — and happier parents.
This got me wondering: Is there actual social science backing up Kohler’s inkling that strong welfare states improve parental happiness?” – Dylan Matthews @ WashingtonPost.com
Its worth reading the entire post.
http://voices.washingtonpost.com/ezra-klein/2010/07/parental_happiness_and_the_wel.html
ps
I also think theres a perverse incentive at work in the making of this decision to encourage immigration. The govt heavily relies on GDP growth as a measure of its success. One way to increase GDP growth is to encouraging population growth. Not surprisingly productivity data over the past few years suggest that this was a major reason for our phenomenal growth rates.
Also our high GDP growth rates makes Singapore attractive to migrants. The million dollar question is what happens when GDP growth falls back to levels typically associated with a developed economy once the population tops out at 6.5 million.
one point overlooked in all the calculations in the article is that costs remain the same. this certainly has not been the case, especially in the last few years. what does one also do about repairs to one’s home, replacement of furniture, appliances etc? tt too is not factored in. since income is certainly not rising in tandem with costs, but lagging behind it, the picture gets bleaker. unless you make it to the level of ‘elite’. meanwhile, from all accounts, it doesn’t appear that s’pore is aiming for replacement levels.
I never thought about the risk of falling population triggering a property value collapse before, but it makes sense. This means that the govt cannot let total population fall, or else a big part of our economy will suffer. So, if locals do not reproduce enough, the govt will say either see your property values collapse or agree to take in even more immigrants to keep total population at least 5 million!
If we restrict immigration and the population drops naturally, is it really so bad? I know the implication is that fewer younger people will support the older generation in retirement, but I’m not totally convinced that the problem is so dire.
What would a smaller population in the future mean?
1. Since as you mention, property can’t be readily monetized, a gradually falling or stable property market is actually good for poorer Singaporeans. They would be able to buy larger flats. What good is a rising valuation when one can’t sell it (and also paying rising taxes)?
2. A lower population would mean excess infrastructure. No more crowded buses and trains.
Okay, these are simplistic, but I am just not convinced that a declining population in a well-developed first world country is necessarily a bad thing. I think the health/old age costs are a bit overblown. Given the almost total lack of governmental support given to the elderly at present, how would even less support make much of a difference? We’re not a welfare state, so how can we lose something we’re not getting in the first place?
A smaller population with a growing retiree population would also mean that:
1. Fewer doctors and nurses to cater to the geriatric population.
2. Fewer bus and MRT drivers.
3. Fewer policemen to provide security.
4. Fewer cleaners to keep Singapore clean.
You get the idea. In the extreme case where everyone is a retiree, then we would have no doctors, nurses, policemen, etc. What good is your CPF or Medishield if you can’t use it to buy medical services since there would be no doctors around?
Perhaps there would be fewer doctors and nurses, but we wouldn’t have to build any more hospitals. With a lower population, fewer doctors and nurses would be necessary. Why would health care costs increase? More students would naturally take up medicine if there is increased demand for doctors. Not all our population would be retirees. I get your point – that the effects of a declining population are difficult to predict, but I just never saw a detailed sort of analysis on what the real effect would be. A lower population would probably mean a drop in GDP, but would it mean a drop in GDP PER CAPITA? Would my lifestyle actually be better or worse? I need someone more knowledgeable in economics to educate me.
Whoever is implementing the growth policy via import is obviously indifferent to the eventual outcome of the “heartware” of Singapore in the long run…anyway, he’ll be gone by the time the system comes crashing down.
‘Somemore when growing up the kids may later feel a sense of incompleteness in such environment, when they compare with normal families.’
Oh please!
This series of articles really strikes a chord with me. While I do not agree with your personal views on sexuality (which is none of my business in any case), the facts about the high expenses for raising children in Singapore are undeniable. Not too long ago, I did a conservative budget for my family (myself, wife and 2 young kids) which included items like parent support, savings for kids education, insurance, contingencies and savings for our own retirement (assuming a conservative rate of return and assuming the bulk of CPF goes to pay for interest & principal for housing loan).
I have quite a “typical” middle-income singapore lifestyle. 2 incomes, 5 room flat, a set of wheels. My budget for my family came up to about to $8,000 to 10,000 per mth.
Based on your chart above, only professionals and managers will have a median income to meet the budget above.
No prizes for guessing why our birth rate remains low.
If you think my budget is extravagant, consider this:
– If you don’t own a car, which will cost close to $2000 per mth including financial and running costs, try taking public transport (like our MRT) with two babies, prams and associated baggage? And try hailing a taxi, when you need to rush your kid to the doctor.
– If you don’t have at least a so-called 4 or 5 room flat (90-110sqm), how to house a family of 4 (plus parents some times)?
– If you don’t have a maid, how to have 2 incomes to pay for the house and car!!
Actually, if our past 10 yrs is anything to go by, Singaporeans’ quality of life has been negatively correlated to Singapore’s GDP…at least for the majority of us it is so; For the millionaire politicians, life has been a bed of roses minus the thorns.
Boboshoot’s numbers are consistent with mine. He came up with a figure of $2,000 to $2,500 to live a middle-class lifestyle per person, whether adult or child. I came up with $1,500 per person to live a sub-middle-class lifestyle; $3,000 for an adult with kid.
In a nutshell, our demographic problem is linked to the whole social and economic model we have adopted, and there’ll be no solution without an overhaul of these. But these models are the PAP’s credo, so I’m really pessimistic that the overhauling will ever come. Instead, we’re going to see tinkering at the fringes, e.g. more child care centres, that might mitigate the problems, but will never be enough to get our TFR anywhere near 2.1
Teck Soon – Fox’s point is valid in a general way, even though he does not have numbers from sensistivity analyses, and neither do I.
The reasoning goes like this:
Scenario A: A society has 1 million people. Of these, 600,000 are working age adults, 200,000 juveniles and 200,000 elderly. Of the working age adults, 1 in 300 is a doctor. Thus, there are 2,000 doctors looking after 1 million people.
Scenario B: This is a an aging society. It has 1 million people, but of these, only 450,000 are working adults. 150,000 are juveniles and 400,000 are elderly. Of working adults, 1 in 300 is a doctor. Thus there are 1,500 doctors looking after 1 million people.
So long as country B always has a new generation smaller than the previous (due to TFR below 2.1) they will remain top-heavy with elderly people, so scenario B is not self-correcting.
One could therefore say, all else being equal, society A has better healthcare than society B, since it has a better doctor:patient ratio.
I also foresee a possible rebuttal. If Society B raises its retirement age and keep elderly people in the workforce, then it can still have the same number of doctors as society A.
With doctors, maybe age is not a great barrier to expertise and efficiency, but there are other jobs (policemen, paramedics) where a younger workforce gives better results, so just raising retirement age does not completely rebalance society B against society A.
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That said, this angle does not exercise me very much. I can see the attractiveness of a slower pace of life, with gently sinking living standards for Singapore. My concern is that not everybody is happy with gently sinking standards. In any society there will be the bright and ambitious, and they will be the ones quick to leave Singapore. We may wish or hope to sink gently, but if an exodus of the bright and able starts, the decline will accelerate.
However, my key point is the existential question: Sinking and shrinking is not a sustainable scenario. It cannot continue indefinitely. If, with each generation, we half our population, at some point, it will reach a population level that raises questions about whether we can remain independent.
Or, if we wish to avoid such a risk, we will have to rev up immigration to make up for our birthrate shortfall, but that in turn means that in another generation, Singapore would be unrecogniseable. The Singapore that we know would be as good as gone.
@Teck Soon,
“but I just never saw a detailed sort of analysis on what the real effect would be. A lower population would probably mean a drop in GDP, but would it mean a drop in GDP PER CAPITA?”
Yes if the population shrinkage is due to an ageing population with deaths outnumbering births. As the proportion of retirees in the population increases even as the absolute size of the population increases, the number of active workers is reduced. Hence, GDP PER CAPITA must go down. Take the extreme case where everyone is a retiree. Then GDP per capita is zero because no one is working and producing any goods and services.
@yawningbread,
At some point of Singapore’s history, the population was pretty young with few retirees and young dependents. Hence, GDP per capita rose very quickly as more and more people entered the workforce from schools. Also as fewer and fewer children were born, more women were able to enter the workforce and become productive workers. Labour mobilization was maximized.
That demographic advantage was a very important factor in Singapore’s early economic success. It is of course also the root of our coming (so-called) demographic winter.
BTW, this is no great insight of mine. Paul Krugman provided this explanation for the economic success of the Asian tigers in the 90s.
All very valid perspectives,
but we need a hinterland, for those who desire a slower pace of life (or cannot deal with the extreme pace of life a modern city demands). Where can we get such a hinterland to deal with such pressures?
Virtually all other countries decry rural depopulation (that is necessary to feed every city’s ever voracious appetite for cheaper units of production). Ours is one of the few that do not worry about that problem, but in reverse, face a different problem in the failure of sustainable TFR.
I wonder if studies have ever been made on TFR between rural/city divides within a country. Perhaps some expert can find out? (yes, I am lazy)
From the rural/city perspective, continuous importation of new labour (Bad pun?) is NOT a bad thing. It keeps the population tree bulging in the middle rather than at the top, provided we can figure out how to monetize (or export, or by some nefarious way reduce) our number of aged. Just that in a city-state like Singapore, differences are very stark (or not?), and the economically weaker members of our society do not face many positive options for living a life of sensible comfort rather than relentless toil.
E.o.M.