Money, In The Eye Of The Beholder

Foreword from ShareInvestor

This article “Money, In The Eye Of The Beholder” by Cai HaoXiang was first published in The Business Times on 29 Aug 2016 and is reproduced in this blog in its entirety.

Cosmic justice is often served in the game of wealth as people think in percentages, not absolutes

I was shopping for fruit at a Bangkok supermarket, feeling rather perplexed. There I was, a Singaporean earning a salary that was easily many times that of the average Thai. But I was reluctant to spend. The items on offer were even more expensive than Singapore prices: normal-looking small apples at S$1 each, withered navel oranges going for S$2, and bags of grapes going for S$15.

As I found out, I was in no normal Bangkok supermarket. Rather, it was within one of the poshest malls in the city. It catered to the top one per cent of Thais, as well as foreign tourists and expats who didn’t know any better.

We know that beauty is in the eye of the beholder. One person’s preferences can be very different from another’s.

Wealth, too, can be relative beyond a subsistence level.

Spending becomes a game of percentages, not absolute numbers. The difference in quality is limited in absolute terms, but the price can soar far ahead exponentially.

There must be a cosmic law at work: Where there are rich people, so there will be ridiculously expensive things for rich people to buy.

This point was brought home a while ago when I complained to a young businessman about the ongoing stock market downturn, where I was down many thousands of dollars.

“Oh yes, I am down a few million,” he said, shaking his head as if he had suffered another petty annoyance, like dropping his iPhone in the toilet bowl.

It all works out. I had lost what I thought was a decent chunk of my wealth, but some people were faring far worse in absolute terms.

Some time later I was talking to a friend who wanted to invest her money. After discussing the nature of financial markets as well as of certain stocks, I asked her how much she wanted to put in. “Around S$1,000,” came the reply.

My risk appetite was already far beyond hers. In a day, I could be down that entire amount in paper losses and not bat an eyelid.

Stock investing, after a while, becomes all about the percentage gain or loss. You become numb to the absolutes.

But, in our personal finances, we should strive to avoid thinking about spending in percentage terms.

Once in a while, the media throws up examples of high-earning folk who feel stressed about cost-of-living issues. The Financial Times, for example, ran an article a few months ago about a couple with a four-year-old daughter living in South London, making a combined income of £200,000 (S$350,000) a year. The median annual disposable household income in the UK is just over £25,000.

But the family claims it is struggling. “We are caught in the middle where we are paying for everything,” said the wife, who works in IT marketing for a large consumer goods company.

While the article notes that higher earning households will have life choices and career opportunities out of reach to others, it also points out why the “squeezed upper middle class” might feel that way.

Tax reliefs for high earners have been pared through the years, while costs of property, school fees and childcare have soared.

More specifically, it is likely that the kind of services high earners go for – private tuition, central properties and high-end childcare – have become a lot more expensive relative to their salaries.

In other words, things got more expensive even in percentage terms.

The same sentiment strikes some members of Singapore’s upper-middle classes too. The Straits Times quoted a woman making S$250,000 a year complaining about having to pay more taxes as a result of a tax relief change.

Every Cent Counts

“I belong to the sandwiched generation, taking care of ageing parents and our children. Every cent counts,” said the woman, who is within roughly the top 5 per cent of income-earners here.

At other times, people have no choice but to think in percentage terms, instead of absolutes.

Live in a landed housing area, and you need to drive an expensive car. This is because there are no MRT stations near your house, and you’d be ashamed to own the only Honda in a neighbourhood full of BMWs and Audis.

You have to throw lavish birthday parties for your kids, because you have to invite their friends at the S$40,000-a-year international school who have thrown similar grand soirees.

At each wealth point, be it the 50th percentile, 90th, 99th, or 99.9th, there are people feeling squeezed.

There are people whose £5-million Knightsbridge apartment in London dropped by 15 per cent in Singapore-dollar terms due to the sterling’s fall after Brexit. There are those who own loss-making companies trading at a third of their former value. And there are Swiber bondholders.

If they have exposed themselves to too much leverage, creditors are knocking on their door, while margin calls can wipe out your wealth.

All’s fair, in a way. Want to win big and you have to be prepared to lose big.

But, amid the percentages, one absolute remains: You can make all the money you want, but you have to know how to keep it.

Quality goods, too, do not necessarily come at a hefty price.

In Bangkok terms, shop at Platinum, not Emporium.