How family’s fortunes have grown over the years

I refer to the letter “How family’s fortunes have grown over the years” by Ms Mabel Tan dated 26 Sept 2009.

Ms Tan’s bemusement is understandable. She is bemused because she and her family are totally unencumbered by the recent sharp increases in property prices. Like the person watching a fire from the safety of the opposite bank of a river, she feels neither anxiety nor pain.

She shares with us her good example of being able to stay with her in-laws for 8 years and so she expects everyone else to be able to do so. But I know of a colleague whose husband slept in the living room of his parents’ flat before their marriage because his family was too big. Does Ms Tan expect my colleague to sleep in the living room of her parents-in-laws’ flat? Ms Tan shouldn’t have moved out after 8 years but should have continued to stay with her in-laws to uphold the example she had been setting.

Ms Tan claims that her family’s fortunes have ‘grown’ over the years, but she provides no details as to how it has actually grown. Let’s see, there is no doubt that from a one-room flat to a four-room flat, Ms Tan’s parents have benefitted from asset inflation. But has Ms Tan’s extended family benefitted as a whole? Let’s say for simplicity’s sake, Ms Tan’s parents’ flat appreciated from $30,000 to $300,000, that’s a cool $270,000 that Ms Tan’s parents pocketed over the years without doing anything. But what about Ms Tan and her siblings? If the price had stayed at $30,000, Ms Tan and her siblings would have been able to snap up units at $30,000 each only. But because of asset inflation, Ms Tan and her siblings now have to fork out $300,000 each. In fact, Ms Tan and her two siblings would have to fork out a total of $900,000 instead of $90,000. Collectively, they would have paid $810,000 more. The extra burden of $810,000 that Ms Tan’s generation has to bear far outweighs the gain of $270,000 that her parents pocketed.

So that is the truth behind the fallacy of asset appreciation. We can of course adjust all prices for inflation but what this simple example illustrates is this: the so-called gain from asset appreciation of one generation will be borne by the future generation. It becomes a debt for the future generation to bear. Unless salaries can keep up, that debt will keep increasing and increasing until it becomes totally unbearable.

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