CPF-related poster 'Misleading' or 'Informative'?

I came across this picture of a CPF-related poster on Facebook recently.



Different people shared it with different captions. Here are some of the captions:

"Next time if people ask you to explain compounded interest, show them our CPF amount."

"From 1cent can become 5.6 Million dollars....In just 30 days! PAP HUAT AH!  This time we really HOSEH LIAO! All becoming millionaire la kakis!" 

I will just stop at the captions and not even proceed to the comments.

I personally felt that the poster was meant to remind people that amount of money needed for retirement is not a small sum. The CPF (Special Account) savings earn risk-free interest up to 5% p.a. The message was to show how the interest earned gets compounded over time. To explain the concept of "making your savings work harder for you".

To illustrate the Magic of Compound Interest, the creator use an example of doubling the amount (100% interest daily) for a period of 30 days. Starting at 1 cent on Day 1 to $5,368,709.12 at the end of Day 30.

Read: 72, The Magic Number for Compounding Interest

Well, there was nothing wrong in the maths. There was nothing wrong in the explanation.

I just felt a more realistic example would suffice to explain how the CPF-SA generates substantial interest over a period of time.

To be fair, I do see other CPF-related posters at the background. Maybe, this particular poster was one of the many to explain the CPF to a layman.

To better set the expectation (for a layman), the actual 4% rate could be used to illustrate how your CPF SA "grows" the money.

A non-appealing example:

1. Xiao Ming, 25 years old
2. Monthly Salary: S$2,500
3. Total CPF contribution: S$925
• Employee (Xiao Ming) - S$500
• Employer (Boss of Xiao Ming) - S$425
4. With S$925 contribution to CPF, the breakdown will be:
• Ordinary Account - S$575.08
• Special Account - S$149.94
• Medisave Account - S$199.98 

If Xiao Ming works for the next 30 years, without a pay raise or a bonus, how much money would he have accumulated in his CPF-SA?


Xiao Ming surely knows that he has contributed close to S$54,000 in his 30 years of hard work. That is the easy maths - S$149.94 x 12 months x 30 years = S$53,978.40. With this example, Xiao Ming would realize he has earned ~S$51,000 of interest. I think he will be happy and probably did not bother how the Magic of Compounding worked.

At the end of day, I think my example would not entice people. It will not explain compounding interest. It just shows that our CPF-SA does its work to save a small sum for retirement from a monthly contribution of ~S$150.

Money really does work for you when you have a compounded interest of 4% (risk-free).