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Why Young Adults Should Not Focus On Investing At The Start Of Their Career

Two young adults, Kimberly and Johnathan starts out in their careers at the age of 25. Kimberly saves $20,000 a year and invests her money to earn only 4% investment returns while Jonathan saves $15,000 and invests his money to earn 7% investment return. Who will have higher net worth after 15 years?

Surprisingly, it turns out that Kimberly would have higher net worth in 15 years at age 40 even though she achieved lower investment returns. How is this possible?

Let’s take a look how this pans out in a chart as seen below:

As we can see, because Kimberly saves an extra $5000 a year, she is ahead of Jonathan even though she only earns an investment return of 4% vs 7% which Jonathan earns. This shows that investment returns doesn’t matter as much at the start of our lives or career. We should focus on saving more and earning more in order to save more.

The different income levels in Singapore

Much have been said about paper qualification and not to paper chase in the society. However, reality still hits us hard on the different income levels in Singapore especially those of the graduates and the non graduates. A recent article on the straits times said that fresh university graduates earned a higher starting pay last year, with some getting as much as $4,000 to $5,000 a month in areas such as business and computing. As compared to a non graduate, the startinf pay is only about $2200.

MOM releases statistics on the different graduate starting salaries of those from ITE, Polytechnic and Universities. The latest I found is for the year 2016. Let’s take a look at some of the different salaries for the different groups of graduates.

ITE graduates

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Course Median Gross Monthly Starting Salary ($)
Higher Nitec (Engineering) $1,700
Higher Nitec (Business & Services) $1,652.50
Higher Nitec (Info & Communications Technology) $1,650
Nitec (Engineering) $1,545
Nitec (Business & Services) $1,690

Polytechnic Graduates

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Course Median Gross Monthly Starting Salary ($)
BUILT ENVIRONMENT, ENGINEERING & MARITIME $2,200
INFORMATION & DIGITAL TECHNOLOGIES $2,100
APPLIED SCIENCES $2,000
HEALTH SCIENCES $2,400
BUSINESS, MANAGEMENT, DESIGN & OTHERS $2,000

University Graduates (NUS, NTU & SMU)


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Course (4 year degree programme) Median Gross Monthly Starting Salary ($)
Bachelor of Accountancy $3,000.00
Bachelor of Accountancy & Bachelor of Business $3,500.00
Bachelor of Arts (Chinese) (Honours) $3,300.00
Bachelor of Arts (Economics) (Honours) $3,300.00
Bachelor of Arts (Education) / Bachelor of Arts with Diploma in Education $3,525.00
Bachelor of Arts (History) (Honours) $3,000.00
Bachelor of Arts (Honours) $3,500.00
Bachelor of Arts (Linguistics and Multilingual Studies) (Honours) $3,365.00
Bachelor of Arts (Psychology) (Honours) $3,200.00
Bachelor of Arts (Sociology) (Honours) $3,500.00
Bachelor of Business Administration (Accountancy) (Honours) $3,075.00
Bachelor of Business Administration (Honours); Bachelor of Business Management $3,500.00
Bachelor of Communication Studies (Honours) $3,000.00
Bachelor of Computing (Honours) $4,000.00
Bachelor of Dental Surgery $4,050.00
Bachelor of Engineering (Aerospace Engineering) $3,675.00
Bachelor of Engineering (Biomedical Engineering); Bachelor of Engineering (Bioengineering) $3,200.00
Bachelor of Engineering (Chemical & Biomolecular Engineering) $3,400.00
Bachelor of Engineering (Chemical Engineering) $3,450.00
Bachelor of Engineering (Civil Engineering) $3,400.00
Bachelor of Engineering (Computer Science) $3,500.00
Bachelor of Engineering (Computer Engineering) $3,710.00
Bachelor of Engineering (Electrical Engineering); Bachelor of Engineering (Electrical & Electronic Engineering) $3,400.00
Bachelor of Engineering (Environmental Engineering) $3,300.00
Bachelor of Engineering (Industrial And Systems Engineering) $3,500.00
Bachelor of Engineering (Information Engineering and Media) $3,350.00
Bachelor of Engineering (Materials Engineering) $3,300.00
Bachelor of Engineering (Materials Science & Engineering) $3,540.00
Bachelor of Engineering (Mechanical Engineering) $3,390.00
Bachelor of Fine Arts (Arts, Design & Media) $2,700.00
Bachelor of Science (Physics / Applied Physics) $3,450.00
Bachelor of Science (Biological Sciences) (Honours) $3,175.00
Bachelor of Science (Chemistry & Biological Chemistry) (Honours) $3,149.00
Bachelor of Science (Economics) $3,700.00
Bachelor of Science (Education) / Bachelor of Science with Diploma in Education $3,525.00
Bachelor of Science (Honours) $3,300.00
Bachelor of Science (Information Systems Management) $3,600.00
Bachelor of Science (Maritime Studies) $3,398.00
Bachelor of Science (Mathematical Sciences) $3,500.00
Bachelor of Science (Mathematics & Economics) $3,300.00
Bachelor of Science (Nursing) (Honours) $3,500.00
Bachelor of Science (Project & Facilities Management) $3,000.00
Bachelor of Science (Real Estate) $3,200.00
Bachelor of Social Sciences (Honours); Bachelor of Social Sciences $3,300.00
Bachelor of Sports Science and Management $3,200.00

There are certainly differences with starting salaries for different groups of graduates. It seems like the median income for ITE graduates is about $1600, for polytechnic graduates is about $2200 while for university graduates is about $3400. This is quite a lot of difference for those who are starting out in their career.

Higher income will allow us to save more without compromising on the quality of life we still enjoy. Of course, there are people who are still not able to save even with higher income but that is another issue on its own.

For young people, it is important to invest in our own education to get a better head start in life in terms of the income we earn. Many young people look to investment in stocks thinking it is the answer to a better life but more often than not, it is not the case at all. As seen by the examples of Kimberly and Jonathan earlier on, just saving $5000 more every year will allow us to do better in life even with a much lower investment return for 15 years.

When will investment returns matter more?

Having said that investment returns does not matter as much during our early days, it does not mean we should totally ignore investing in itself. Investment returns will matter more when we have accumulated a substantial sum of money through savings.

Let’s look at Kimberly and Jonathan again and extend their life by another 10 years to 50 years old:

This time, Jonathan has surpassed Kimberly as he continues to invest and earns 7% investment returns. But do take note he only surpassed after about 17 years which is really a long time. If Johnathan saves more at the start, he would have been much better off earlier.

Another thing to note is that investment returns are unpredictable. We can never be sure how much investment returns we can make but we can control more on how much money we can save. Increasing your savings rate can have a more massive direct impact on your net worth over the first 15 years.

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