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.
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.
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.
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.
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.