He first became interested in this topic while working on his PhD in Economics at the University of California at Berkeley. There, the China native read several papers about ageing populations and the increasing burden on people supporting elderly dependents and he wondered about how financial literacy and pension plans could help.
"The support ratio is changing from six people supporting one (senior) to two people supporting one in the next 30 to 40 years," said Professor Song, who is Assistant Professor of Finance at the Lee Kong Chian School of Business. "It’s a very serious problem, and having adequate retirement savings, such as a pension, is one way to potentially mitigate this issue."
He conceptualised a study in rural China where a pension plan was explained in varying degrees to 1,000 participants. Some were taught the benefit of compound interest, which can be thought of as earning interest on accrued interest, upon
their projected retirement savings.
He found that half of the participants could not answer a simple question on compound interest, with a majority underestimating the power of compounding. He also found that those who were taught basic compounding principles and who were shown calculations went on to increase their pension contributions by 40 percent.
One takeaway from the study, which was published in 2020, is that the correct timing of financial education, such as right before major financial decisions, would make it more effective and useful.
Assistant Professor Song has also undertaken a pilot study of pension design in Sri Lanka, working with nongovernmental organisations from the Netherlands and Sri Lanka. In balancing commitment and flexibility in the financial needs of people, a proposed new pension plan would be a two-account scheme, with half of pension savings locked in one and the other half of funds available for withdrawal. The traditional pension, with penalties on any withdrawals, was offered as the alternative.
"What we found was that people’s interest in the two-account pension was 10 percentage points higher compared to the traditional pension," he noted.
Apart from pensions, his research interests also extends to real estate. In studies of the real estate market in Singapore, he has observed the effect of superstition on purchasing decisions, as well as the effect of information advantage.
"In a standard economics model, we think people maximise their profit or utility with all available resources.
Superstitions don’t give people material utility. Whether you live in a home with a unit number that has an ‘8’ or ‘4’ in it, scientifically, doesn’t influence your life in any way," said Assistant Professor Song, who is currently teaching Analytics
in Finance and Real Estate to undergraduates.
Seemingly auspicious or inauspicious numbers should not rationally matter in real estate, where people make what is likely to be their largest financial transaction in life. "But we found that there was indeed a discount for units with the number
‘4’ and a premium for units with ‘8’," he said. This study was published in February 2020 in the journal Management Science.
In another study published in December 2019 in the Journal of Financial Economics, he found that real estate agents, with their knowledge of the market, tended to purchase homes for themselves that were more than two percentage points cheaper than the homes they broker between buyers and sellers. This raises questions of whether policies could be adjusted to eliminate bias for greater market efficiency.
Assistant Professor Song was set on the academic path relatively early in life, as early as middle school in fact. "Four or five of my classmates, they would wait for me after class. I enjoyed explaining and seeing them have that ‘a-ha’ moment when they understood," said Assistant Professor Song, who considers himself an "active" teacher who pushes his students to think, rather than receive information and learn passively.
As he was completing his studies in Economics at Tsinghua University in 2006, he was faced with two choices: pursuing consulting work after college or entering academia. "I wanted to do something intellectually challenging."
After speaking to his professors and seeing the work being done by top Chinese economists returning from the United States, he decided to pursue his PhD in the US, where he believed he would meet many smart and influential professors.
It was at Berkeley where Assistant Professor Song was further drawn towards research.
"I found reading papers there very enjoyable. In a sense, it was like watching a suspense movie. Later when I watched the series CSI, I could see ‘Oh, that’s the methodology we learned,’ even if this was just simulation."
Before joining Singapore Management University, he was an Assistant Professor of Economics at the National University of Singapore from 2012 to 2018. In 2018, he found out that the finance department at the Lee Kong Chian School of Business was looking to hire someone focused on household finance and real estate. This fitted him exactly, so he applied to join.
He said he wanted to work in Singapore because he had heard from college friends that the country was clean, well organised and a haven for good food. He and his wife, who works in the finance industry, are now well settled here with their two young children.
