Risky bets: Young Singaporeans take high-interest loans to invest despite poor financial literacy

SINGAPORE: Many people are afraid of investing in the stock market because they don’t know how it works. Some have reservations because they don’t know much about investing. But today, in the city-state, the risk appetite is very high among younger Singaporeans, though they don’t have substantial financial literacy. They are willing to take high-interest loans just to be able to invest in the stock market.

According to a survey by MDRT featured in the latest Insurance Asia report, of the 2,000 Singaporean adults polled, only 49% of respondents rated their knowledge of finances and investment as “good” (34%) or “excellent” (15%). In the survey, 23% said taking a 10% interest loan to invest is reasonable, an attitude common among younger Singaporeans. This daring attitude is highest among Gen Z (29%) and millennials (31%), and much less prevalent among Gen X (16%) and baby boomers (7%).

Awareness is high, but actual usage is limited

The survey also showed high awareness but limited use of financial tools.

Many of the respondents (81%) still favour the conventional savings account. Only 49% of those surveyed have fixed deposit accounts, only 42% hold high-yield savings accounts and a measly 29% have endowment plans.

Though 77% have some type of investment accounts, only 33% have invested in securities like long-term bonds, and only 31% are into the Supplementary Retirement Scheme.

The younger generation are more likely to explore higher-risk investments like cryptocurrencies and alternative assets like art and wine.

What is driving young Singaporeans’ bold attitude towards investment?

One reason why today’s generation is willing to take higher risks despite a lack of investment knowledge is their goal of achieving early retirement. According to a 2024 article in The Laotian Times, many of today’s millennials and Gen Z expect to retire in their 50s. Thus, they are planning for retirement now while they can still engage in investment ventures.

HSBC’s Affluent Investor Snapshot 2024 indicates that millennials are willing to commit a bigger percentage of their income (27%) to investments than baby boomers (22%).

An infographic from Frank Templeton showed that “financial freedom” is the topmost goal of young Singaporeans. They don’t want to worry about debt, and they want to possess the capacity to buy whatever they want to purchase. This could be the biggest motivation for  Gen Z and millennials’ willingness to engage in investment-related risks.