The arrival of a new child in the family is a good time to take stock of your finances and start planning for the child’s future. As a responsible parent, it’s natural for you to want to give your children a solid foundation in life so that they can build on that to live a successful and meaningful life. In today’s highly competitive world, the best way to do that is through good tertiary education, which equips them with the knowledge and skills to hold their own and forge ahead in life. So what are the key factors to think through in planning for your child’s university education?
Know your goal:
The cost of education is high and it can only be expected to be higher in the future. This means you need to start planning for your children’s education now. To get an estimate of how much money you will need, you should ask yourself questions like whether you wish to educate them locally or send them overseas, whether in a state school or a private school, and whether a professional course or other courses etc. Based on studies, the average education fee for Singaporeans in a Singapore university today is about S$40,000 for a 4-year course. Assuming you have a newborn daughter today, she will enter university in 18years’ time. By then, the fees for a 4-year university course would have grown to about S$96,000! Yes, the education fee inflation in Singapore is about 5% per annum, much higher than the core inflation rate.
Prioritize your goals:
Setting priorities is important when planning for your children’s future. At the top of the list should be life and medical insurance for yourself to make sure that there will be adequate funds for your children’s upbringing and education should anything happen to you. All your savings and investment efforts will be futile when all your funds get channeled to paying medical bills should critical illness strike. Buying medical insurance for your children is equally important as well in case they fall ill. Once these are taken care of, you can then have a peace of mind while you shift your attention to various ways of funding for your children’s education.
Sources of funding:
There are various products to invest and save for your child’s education. Savings endowment plans from insurance companies is one very common option for those who are risk averse as a portion of the maturity value will be guaranteed by the insurer.
For those who can take more risk, investing in unit trusts can also be a good way to fund for your children’s education. However, the danger is that by its very nature as an investment product, it is subjected to short-term volatility. If you are planning to invest in a unit trust to fund your children’s education, one way is to be aggressive in the first 10 to 15 years and then switch gradually to bonds, which are much safer, or even to cash when the ‘maturity’ date approaches eg 5years before your child enters university.
As your child moves closer towards university, you can also explore other sources of funding like your CPF Ordinary Account savings, student loans, scholarships, bursaries and financial sponsorship.
Start saving and investing early:
The earlier you start saving and investing for your children’s education, the more money you will have at your disposal when they become ready to go to university. For example, if you invest in a portfolio now with an initial amount of $10,000 and add $300 every month thereafter, you will have about $156,000 by the time your son is ready to enter university at age 21, assuming an annual return rate of 5%. On the other hand, if you start ten years later, you will have only about $68,000, a stark difference of $88,000! This simple example illustrates the power of compounding interest; let time and money work for you, not against you.
Review your plan regularly:
Planning is a process and not just a goal. Things may change along the way and you should make adjustments to your plan accordingly. For example, if there is a significant improvement in your financial situation after five years, you could adjust your plan to start making bigger monthly contribution to the investment fund to reach your goal earlier. If, on the other hand, your financial situation deteriorates, you should seek ways, with the help of a financial consultant, to keep the plan alive. A good financial planner will be able to allocate your budget wisely right from the beginning into various types of plans such that your losses, if any, will be minimized or even eliminated should there be a need to pause some of the plan funding temporarily. Even when things stay as they are, it’s a good idea to review your plan regularly with a professional.
Insure yourself, protect others.
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The author of this article is Mr Sean Ong. He is a Certified Life Coach and a Chartered Financial Consultant with more than 14 years of experience in the finance industry. A shareholder with the one of the largest independently-owned financial advisory company in Singapore, Sean also leads a top financial advisory group and has been featured on the local TV and radio. In his efforts to contribute to the society, Sean ran 1,000km over 87 days to successfully raise more than $13,000 for a children charity in Year 2012. He also published a book called “Mend Your Socks!” where sales proceeds were donated to charity. Sean can be contacted at firstname.lastname@example.org.