Budgeting

Top 3 Reasons Singaporeans Go Bankrupt

Joanne Poh

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You don’t have to be addicted to casinos or get sued for defamation to go bankrupt. Every day, regular people like you and me file for bankruptcy—and the number is rising. In 2013, 1,992 people were made bankrupt, a rise of 14% from the previous year, and the highest since 2009 when the economy was in the doldrums.

You would think many of the people in financial trouble would have faced exorbitant medical bills or lost a huge lawsuit. But according to the Insolvency and Public Trustee’s Office, the top reasons Singaporeans go bankrupt are less dramatic:

 

Overspending

One of the top reasons identified by the IPTO was overspending, and irresponsible credit card use appears to be part of the problem. This has pushed the MAS to impose tighter limits on credit card debt—by June 2019, credit card users will be able to borrow a maximum of 12 times their monthly income, half of what they’re allowed to borrow now.

While the Orchard Road shopping belt might have something to do with it, experts say that rapid inflation has had a part to play, too. Not all the people accused of overspending are actually splashing out on luxuries they can’t afford. A number of these unlucky souls simply turn to credit card spending because they’re no longer able to keep up with their expenses on their current salaries thanks to rising inflation.

Unfortunately, with consumer debt levels rising year on year, it seems like Singaporeans aren’t going to stop spending. Other than spending on luxuries like fancy holidays and designer goods, many Singaporeans also have a weakness for gambling.

Rather unsexily, the key to curbing overspending is simply to do some good old budgeting and examination of expenses. Even if you think you’re not living extravagantly, there are usually ways to cut your expenses further.

 

Failed business ventures

The government often laments that Singaporeans are not entrepreneurial enough. But risk-averse locals will quake in their boots when they realise that failed business ventures are one of the biggest reasons Singaporeans go bankrupt. But failing in business doesn’t necessarily mean putting down all your money on a ridiculous idea without first conducting a modicum of market research.

In fact, many failed businesses that have landed their founders in hot soup used to be profitable. In recent years, the business environment has gotten a lot more challenging. Thanks to high COE prices, it now costs much more to buy company vans and cars than it did ten years ago.

Tighter rules on hiring foreigners have forced some SMEs, unable to find people willing to work for them for pathetic wages, to hire Singaporeans in low wage positions at slightly higher prices. The higher qualifying salaries for foreigners working in Singapore on the various passes has also increased the cost of hiring.

While starting a business always involves some element of risk, SME owners should be particularly wary of relying too heavily on the exploitation of cheap labour.

 

Unemployment

A third huge reason cited for escalating bankruptcy was unemployment. This does not seem too obvious at first glance, given the fact that unemployment rates in Singapore are some of the lowest in the world, at 2% currently. If not many people are unemployed, why are so many people going bankrupt because of it?

If unemployment can be cited as a key source of bankruptcy even with such a low unemployment rate, it stands to reason that anyone who becomes unemployed has a high likelihood of falling into bankruptcy. The low unemployment rate suggests that chronic unemployment is not a problem, meaning that those who lose their jobs find new ones soon after. So you might not even need to be unemployed for too long before the long arm of the law hoists bankruptcy upon you.

Given the high cost of living and the fact that Singaporean households are not saving much cash from month to month (if this report is to be believed, nearly half the households here live from paycheck to paycheck), being unemployed for just a few months could lead to rolling over of credit card balances, which can then spiral out of control quite quickly thanks to compounding interest.

Have you ever come close to being made bankrupt? Tell us about your ordeal in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.