DPM Heng Swee Keat at the Endowus WealthTech Conference 2023
Speech by Deputy Prime Minister and Coordinating Minister for Economic Policies Heng Swee Keat at the Endowus WealthTech Conference on 20 October 2023.
Happy to see so many of you here at the conference today, to discuss more about wealth management and wealthtech. The way we manage our assets is critical not only to our personal well-being but also to the health of the global economy. I happened to have worked on our response to a few major crises impacting our financial system in my course of work – the Asian Financial Crisis and the Global Financial Crisis when I was running MAS, and the COVID pandemic when I was Minister for Finance. And when you look back at all those episodes you realize that there are a few learning points. One, we have to manage risks well, as financial crises are recurring parts of the global economy and of the financial system Two, we need to be prepared to deal with crises. And three, it is important for us to make sure that financial assets are deployed well for economic growth, with a close linkage to the real economy.
So if you look at the Asian Financial Crisis, I think some countries made mistakes in the way that they were managing the exchange rate system and the assumptions that they made, especially among the large corporates on exchange rate and interest rate risks. And in the end, it can bring down the whole economy. If you look at the Global Financial Crisis, I think that unfortunately some of the well-known and very old financial institutions were brought down because some decided to do financial engineering and manufacture CDO (Collateralised Debt Obligation) products, turning what were junk assets into AAA (Triple A) assets. It led to huge questions about how did that happen? And why is it that so many people were buying assets without realizing it. A bank that I know of did an excellent job. They avoided a crisis because they were careful, and decided to investigate when the Group CEO was told that we have these wonderful assets and it was growing so well. He asked, who are we lending this money to, to buy houses and other items, what are the credit checks that you have done. So through their investigations, they found out many were just doing clever financial engineering and concluded that this will not last, and the bank decided to pull out of everything. So they pulled out in time to avoid a major crisis that could have brought the bank down as well.
So I would say that is how we ensure that finance is properly channelled to productive users, to support the growth of the real economy is going to be a critical part of whether it can earn the right returns. And two, if you look at some of the best financial markets in the world, you will have very rich offerings of capital. And those range from Venture Capitals (VCs) to private equity, to funds that provide for M&A, to provide for corporate loans and so on. When you have proper risk management and getting the right risk profiles, you will get good growth and returns. So that is the way that I think we must regulate and run our financial system, to ensure that you are backing something substantial and not backing a house of sand or a Ponzi scheme, and that it gives you real returns in the long run.
Now, when it comes to the individual, the Singapore government has taken a somewhat unconventional approach to the way that we help citizens manage our finances. First, when we think about wealth, we should not just be thinking in terms of financial assets, because I would take a broader view that your wealth is anything that allows you to improve your well-being, to allow you to better meet your basic needs. In Singapore, we do not run a big welfare system. Rather, we run a very disciplined system of ensuring that there are proper incentives for people to make the right decisions and not to waste resources. But at the same time, there's a huge amount of government spending and subsidies on the things that matter most, especially those from the lower income group. So, let me name a few.
First, is housing. 80% of our people live in HDB housing, which is highly subsidized. We were very fortunate to have that very early on at the start of almost at independence. Because when you look at all developing economies, one of the assets that grow the most when there is confidence in the economy, is that housing prices go up.
A lady in her late 50s came up to me some time ago when I was visiting a market in my constituency and said, “Mr Heng, I want to thank the government.” I asked her why so? She said, “I have been living in this HDB, my husband and I have been living in this HDB flat for over 40 years. And now our kids have grown up, they both have their own HDB flat. Unfortunately, six months ago, my husband had a stroke. We decided that the four-room flat was too big for us, we then applied for a two-room Flexi flat. I sold the flat, I had about $250,000 to $300,000 of capital gain, more than enough to look after my husband and myself.” And there was a big wealth gain that they had. I'm so glad that we had a policy where our citizens owning their own flat is such a valuable part of our growth and of really distributing wealth very broadly. So that's one big item.
The second big item is education, we take education very seriously. Education in Singapore, in a primary, secondary school is free. And when it goes to the Institutes of Higher Learning, it is also highly subsidized. Even at university, students pay fees no more than 25% of the cost. So, it is investment in human capital that are allows individuals to really make the best of their ability, of their potential, to realize their potential. And we have SkillsFuture, and other programmes to encourage everyone to upgrade. Because I think by investing in human capital, it provides you with a long-term source of wealth. And the other of course, is healthcare.
And the last is, of course, the compulsory CPF savings, because it has been very helpful. And interest rates on the CPF have actually increased. Now, it is risk free and to my knowledge there is no other such saving scheme that gives you such interest rates, risk-free, to help people build up enough of their retirement account.
So I will say that on the government side, there is a huge amount of support for people to build their earnings, to build their wealth, to build their health. But at the same time, I think there are many individuals, especially all those of you here in this room who will have more than that, to think hard about seriously investing for the long term. I think it is a valuable thing for all of us to take charge of our own savings and investment, and also to plan what our needs are, what our spending needs are going to be in the coming years, and how best to reach it in the best possible way with the right risk return profile.
So if you look at the Asian Financial Crisis, I think some countries made mistakes in the way that they were managing the exchange rate system and the assumptions that they made, especially among the large corporates on exchange rate and interest rate risks. And in the end, it can bring down the whole economy. If you look at the Global Financial Crisis, I think that unfortunately some of the well-known and very old financial institutions were brought down because some decided to do financial engineering and manufacture CDO (Collateralised Debt Obligation) products, turning what were junk assets into AAA (Triple A) assets. It led to huge questions about how did that happen? And why is it that so many people were buying assets without realizing it. A bank that I know of did an excellent job. They avoided a crisis because they were careful, and decided to investigate when the Group CEO was told that we have these wonderful assets and it was growing so well. He asked, who are we lending this money to, to buy houses and other items, what are the credit checks that you have done. So through their investigations, they found out many were just doing clever financial engineering and concluded that this will not last, and the bank decided to pull out of everything. So they pulled out in time to avoid a major crisis that could have brought the bank down as well.
So I would say that is how we ensure that finance is properly channelled to productive users, to support the growth of the real economy is going to be a critical part of whether it can earn the right returns. And two, if you look at some of the best financial markets in the world, you will have very rich offerings of capital. And those range from Venture Capitals (VCs) to private equity, to funds that provide for M&A, to provide for corporate loans and so on. When you have proper risk management and getting the right risk profiles, you will get good growth and returns. So that is the way that I think we must regulate and run our financial system, to ensure that you are backing something substantial and not backing a house of sand or a Ponzi scheme, and that it gives you real returns in the long run.
Now, when it comes to the individual, the Singapore government has taken a somewhat unconventional approach to the way that we help citizens manage our finances. First, when we think about wealth, we should not just be thinking in terms of financial assets, because I would take a broader view that your wealth is anything that allows you to improve your well-being, to allow you to better meet your basic needs. In Singapore, we do not run a big welfare system. Rather, we run a very disciplined system of ensuring that there are proper incentives for people to make the right decisions and not to waste resources. But at the same time, there's a huge amount of government spending and subsidies on the things that matter most, especially those from the lower income group. So, let me name a few.
First, is housing. 80% of our people live in HDB housing, which is highly subsidized. We were very fortunate to have that very early on at the start of almost at independence. Because when you look at all developing economies, one of the assets that grow the most when there is confidence in the economy, is that housing prices go up.
A lady in her late 50s came up to me some time ago when I was visiting a market in my constituency and said, “Mr Heng, I want to thank the government.” I asked her why so? She said, “I have been living in this HDB, my husband and I have been living in this HDB flat for over 40 years. And now our kids have grown up, they both have their own HDB flat. Unfortunately, six months ago, my husband had a stroke. We decided that the four-room flat was too big for us, we then applied for a two-room Flexi flat. I sold the flat, I had about $250,000 to $300,000 of capital gain, more than enough to look after my husband and myself.” And there was a big wealth gain that they had. I'm so glad that we had a policy where our citizens owning their own flat is such a valuable part of our growth and of really distributing wealth very broadly. So that's one big item.
The second big item is education, we take education very seriously. Education in Singapore, in a primary, secondary school is free. And when it goes to the Institutes of Higher Learning, it is also highly subsidized. Even at university, students pay fees no more than 25% of the cost. So, it is investment in human capital that are allows individuals to really make the best of their ability, of their potential, to realize their potential. And we have SkillsFuture, and other programmes to encourage everyone to upgrade. Because I think by investing in human capital, it provides you with a long-term source of wealth. And the other of course, is healthcare.
And the last is, of course, the compulsory CPF savings, because it has been very helpful. And interest rates on the CPF have actually increased. Now, it is risk free and to my knowledge there is no other such saving scheme that gives you such interest rates, risk-free, to help people build up enough of their retirement account.
So I will say that on the government side, there is a huge amount of support for people to build their earnings, to build their wealth, to build their health. But at the same time, I think there are many individuals, especially all those of you here in this room who will have more than that, to think hard about seriously investing for the long term. I think it is a valuable thing for all of us to take charge of our own savings and investment, and also to plan what our needs are, what our spending needs are going to be in the coming years, and how best to reach it in the best possible way with the right risk return profile.
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