Being rich in Singapore might solve a lot of problems, but it also causes new and complex ones.
Having money solves a lot of problems, but not all of them. In fact, sometimes winning TOTO or being born rich can create whole new issues without a simple solution.
Here are some of the problems rich people in Singapore have to deal with. If you’re in a higher income bracket, you may want to keep a look out for these:
Accredited Investors Are Ideal Scam Victims
In Singapore, you can be an accredited investor if you:
- Have a personal net worth exceeding S$2 million, and
- Had an income of at least S$300,000 in the past year
Being an accredited investor allows you to make various investments that are not available to the general public. For example, you may be able to purchase units in a high risk, high return fund that is not sold to regular Singaporeans. The assumption here is that, due to your wealth, you are able to manage more losses.
But various institutions see accredited investors as the ideal scam victims. In particular, Singaporeans who are in the S$2 million to S$5 million range are vulnerable. Private bankers are reluctant to help them (they have too little money by private banking standards), but at the same time they qualify to buy riskier products.
A recent example of this was the Swiber bonds incident. Many accredited investors were sold bonds in oil and gas company Swiber, often at minimums of S$250,000 or more. When Swiber defaulted on the bonds, many of the bond buyers were left with nothing. Even at a net worth of S$2 million or S$3 million, a S$250,000+ loss can be devastating.
Had those investors not been accredited, they would never have been exposed to the risk. This is one of the main drawbacks of wealth; it tempts others to take advantage of you.
Exchanging Money Becomes a Headache
If you need to convert S$2,000 to AUS $2,000 for a trip, and the exchange rate goes up the week before, you may lose out on a few hundred dollars. For most of us, that’s worth a moan but it’s not a disaster.
For wealthy people dealing with big amounts though, it becomes a major hassle. Let’s say you want to convert money to buy a house, which costs 3 million euros. Assuming the exchange rates shifts a little, and 1 euro costs S$0.07 more, that’s a S$210,000 loss. Even a slight nudge in currency exchange rates can cost you an earth-shaking amount of money, when dealing with large amounts.
Now if you constantly deal with big sums (for example, you have assets abroad that bring in US$150,000 a month), fluctuations in the currency rate can lead to jaw-dropping losses over a period of several years.
Now you know why rich people end up going through Forex brokers or private bankers, in order to handle such exchanges.
Taxes, Taxes Everywhere
If you are rich enough to be in the highest tax bracket (above $320,000 a year), taxes can be as high as 22%. This can be worse in other countries, sometimes reaching 57% in some Scandinavian countries.
Now the rich in Singapore are lucky, in that our income taxes are low and we have no capital gains tax. There is also no inheritance tax, and this is one reason why wealthy people around the world prefer to put their money here. But even so, consider that 22% can amount to hundreds and thousands of dollars in tax.
This often results in a complicated scramble to allocate assets in order to minimise the costs. This can mean distributing your assets across many different countries, and needing a better understanding of financial management than most people. Lottery winners and celebrities, who often don’t get rich via business or savvy investing, are faced with a real nightmare here.
The Public Has Generally No Empathy for the Rich
Remember back in 2011, when a Sentosa Cove resident complained about a S$2 to S$7 fee to get in? You may not know that, back in 2014, the same thing happened when residents complained about a S$1 fee on the shuttle bus. Now the residents are complaining about the principles involved, not the amount - but you can imagine the amount of eye rolling received from the public.
Likewise, whenever there’s a news report that a rich person lost money, there’s much less of a reaction. Consider the lady who made an S$8.4 million loss and sued the bank. Was there public outrage? Hardly - the response was along the lines of a shrug, and a “she should have known what she was doing”.
The rich tend to be “on their own” when it comes to many financial issues, and often feel that way.
Rich People Worry More About Everything
Remember how we said rich people need a wide range of assets? Well it isn’t just about minimising taxes.
You see, rich people can’t put all their eggs in one basket. They can’t simply park all S$10 million with one bank, give it all to one fund manager, or invest it all in a single business. That’s because, if something goes wrong, they could lose all their wealth at one stroke. To use an analogy:
Imagine if you have S$10,000, that you had to keep in hard cash, and for some reason you can’t use a bank. You probably wouldn’t put it all the cash under the pillow. Some might go in your wallet, some in a Milo tin, some in a sock drawer, and so on.
Well now imagine if that amount was S$10 million. Where are you going to put it? Chances are it will be hidden in multiple spots, some even outside of the house, right?
That’s analogous to how most rich people will need to diversify. They need to spread their money across properties, different stock markets, different bonds, gold, art, wine, and so forth. However, this brings the added issue that they are worried about everything. They worry when home prices go down, they worry when gold prices go down, they worry about the market sentiment for fine art...the list is endless, because they have substantial sums of money all over the place.
When people say rich people have more problems, this is the reason why. For rich people, their options are to learn to manage their wealth (and the more wealth there is, the harder it becomes to manage), or lose their wealth.