by Li Choo Kwek Perroy 04:47 AM Dec 31, 2011
Article from Today Online
As the Chinese Year of the Dragon approaches, our tiny nation can expect a baby boom (by Singapore standards anyway). With close to 20 per cent more babies expected next year than in the decade or so, it is perhaps timely for parents who are planning to have that dragon baby to think about financial planning for your child's future.
With rising living, medical and education costs, raising a child requires long-term planning and regular savings.
How much does it cost to raise a child?
The cost of raising a child in Singapore from infancy to 21 years of age is estimated to be between S$300,000 and S$500,000, depending on the type of lifestyle and activities one chooses to expose one's child to.
This figure accounts for the medical fees incurred during pregnancy and delivery, infant care, childcare, enrichment activities, education costs from preschool to university level, basic food and other necessities.
The choice of schools can be a major factor in whether the cost is increased or reduced. Tertiary education costs in Singapore have been estimated to be approximately S$200,000 in 20 years' time. Overseas studies can easily cost up to four times more, depending on where you send your child.
Unless, of course, your child secures a scholarship. This will then leave you to spend your savings on other things in life.
When should I start saving?
The key is to start planning as early as possible, even before the child is born. The earlier one starts, the easier it will be to diffuse the costs. Early planning also helps tremendously when unforeseen needs arise.
There are many ways to set aside savings for your child. One way is to save a portion of your income in a fixed deposit with a bank or finance company. It is a low-risk option that ensures a smooth savings plan over the years although the returns on your investment may be limited by the current low interest rates. However, this option means that you may have to put aside a substantial amount monthly or annually to ensure you have sufficient funds saved in 18 years' time.
Two other options to ensure sufficient savings are set aside for your child's future are: 1) Investing in a relevant investment-linked plan or 2) An education endowment plan.
Invest in an education endowment plan
An endowment policy is a life insurance policy with a specified maturity date. It provides stable returns within a targeted timeframe. You can choose a policy term such that the policy matures at the time when your child enters university.
An endowment policy also offers higher returns than normal bank savings account interest rates. For example, the AXA ChampionSaver has a guaranteed maturity benefit plus bonuses to be declared every year. Such policies may also pay out a monthly cash allowance to cover the child's living expenses until the end of the policy term in the event something unfortunate happens to the parent.
Buy an investment product which offers protection
Parents need not wait until their child is born before investing in a savings plan. In fact, one can now consider allocating funds for both medical and life insurance and building a nest for the child's future with an investment-linked plan, which allows parents to invest for the child up to an entire lifetime. As pragmatic as it seems, a little planning goes a long way.
For instance, AXA Mum's Advantage is a prenatal insurance plan for the expectant mother, as well as an investment-linked plan that allows the mother to start saving for the baby while still in the womb.
Such plans can provide protection for both mother and child, while helping to defray the cost of treatment arising from possible pregnancy complications. The investment-linked plan can help to build up savings for the child through investment in a variety of funds. The plan be transferred to the child after he or she is born, and can continue to generate returns, and may be used to cover education and other expenses.
During the policy term, the mother may also vary the regular savings amount and the sums assured or make partial withdrawals according to her protection and financial needs.
Ultimately, every parent wants to be prepared to provide the best for their child. Consistent saving and investing require discipline.
Remember, when it comes to financial planning for the family, the earlier you start saving and investing, the more prepared you will be for the milestones ahead in your child's life.
Li Choo Kwek Perroy is chief marketing officer of AXA Life Insurance Singapore.
Article from Today Online
