Tan Kin Lian's Blog: Financial planning for a child

Thursday, January 07, 2010

Financial planning for a child

I wish to write an article on financial planning for a child. The key features are:

a) annual expenses for a child's education
b) savings for tertiary education of a child, especially if the child wishes to go overseas
c) insurance for the child's medical expenses arising from accidents and illnesses.

Are there any other special needs? What are the key concerns of a parent?

The annual expenses should be met out of current income. The parent should consider the need to spend money on enrichment programs and tuition, which seem to take a significant monthly budget. The best way to save for tertiary education is to have a savings plan that gives a good yield. The child can be insured for Medishield or private Shield, but the expense should be kept low.

Any views?

16 comments:

Tan Kin Lian said...: I have not received any comments yet. Look forward to get some views from parents.; January 08, 2010 9:54 AM
Tan Kin Lian said...: I read an article in the Straits Times that a parent spend $80 for transport for a child to go to school, and another $300 for enrichment programmes, such as piano and swimming lessons. I am not sure if this also includes tuition.

It is quite costly to meet the monthly expenses of the child, if these expenses are included. They should be optional, and should be spent only from well off parents. They should be avoided, if the parents are tight in their cash flow.; January 08, 2010 9:57 AM
Anonymous said...: Children's expenses are accounted for in the family expenses and thus there is no need for a separate account.
For children the insurance is medical .
Maybe set up a plan for the child's tertiary education if the bread winners have already got enough insurance and other plans.
If you see insurance agents they will tell you the child needs all sort of insurance. The ONLY one needed is medical and the rest are not a priority.; January 08, 2010 10:39 AM
Anonymous said...: Very often most parents and also insurance agents put the cart in front of the horse. For parents it is emotional , for the agents it is commission. The agents exploit the love and fear of the parents.
Yes children do need insurance but it must be based on priority, first thing first and their priority falls below that of their parents.
Children don't need insurance other than medical.. Those wholelife craps , education endwoment and critical illness are wrong products at the wrong time.
Death of a child is emotional and not financial; the probability of critical illness is 0.05% and educational plan is a waste of money and it only fills up the pockets of insurance agents.
Don't fall for the "give your child a head start" crap. This is a sales tactic and not financial planning .
Remember, prioritise your needs. Don't put the cart in front of the horse. Don't let insurance agents mess up your plans.
If the parents are earning UNLIMITED INCOME( maybe printing money) then this is a different matter, no need to plan and you can afford to let the insurance agents sell you anything and any skeleton and all kind of insurance but if the parents have limited resources planning is very important becuase they cannot satisfy their every need at the same time let alone their fancies and wants.
Another warning: never use insurance agents. They are salesmen and women who are only interested to earn a commission from you and so any product will do.They don't and can't plan for YOU but for themselves.

The Watchman; January 08, 2010 12:08 PM
Robert Tan said...: Just like eating out or spending on vacations, one can either spend a lot, spend moderately or spend less to bring up a child.

Enrichment classes are sometimes a luxury, some of the programs offered by private institutions can add up to thousands of dollars for a dozen sessions of a couple of hours each. Are they useful? Probably - otherwise, they would soon lose their business. Are they worth it/value for money? I'm not so sure - unless one has a lot of money to spend. On the other end of the scale is to spend some time and coach your kids yourself. ( I realize that some may disagree because they have no time and they are too busy pursuing their career so that they can earn more and spend more on their kids and themselves but to each his own.)

For the rest of us, we are probably somewhere in between the 2 ends of the spectrum.

Music, ballet and swimming lessons etc are optional. It may be good if one can afford them but they are not critical. We need to prioritize and live within our means. For those who are more well off, there are many ways to spend but for those who are not so well off, we should live prudently and within our means. This does not necessarily mean that we love our kids any less and overall, they are not necessarily worse off than children of the rich. There are after all many good things in life which may not necessarily need a lot of money, like love and concern, wisdom and kindness and humility.

The funny thing about money is that sometimes, it is never enough. The more you earn, the more you want. The more you have, the more you want to accumulate. This is why it it sometimes more difficult for the rich to give away 10% of their income/assets than for the less rich to give away the same percentage.

I once read somewhere about a man telling a friend about a wealthy person who had this and that and many, many so called "riches". His friend responded, " But I have something that he doesn't have." When the man asked his friend what it was that he had which the wealthy person did not have, his friend replied, "Enough."

Earn wisely, save wisely, spend wisely and live a good life..; January 08, 2010 12:13 PM
Anonymous said...: Hi Mr Tan

I spent $450 for my daughter who has just start Primary One this year. This amount include enrichment programs and transportation cost to her school.
For my younger daughter who is in childcare now, the cost of childcare fee that i am currently paying now is $350. This exclude other enrichement programs in the centre which they offer; January 08, 2010 12:28 PM
Anonymous said...: I agree with Anon 10:39am in that the only necessary insurance a kid should have is H&S.

Insurance agents are most happy if they know you have young children. They will say all sorts of things and show you all kinds of newspaper stories to manipulate your emotions, so that you will buy wholelife and endowments. These are unnecessary poor-value luxuries, as they provide low coverage and have lousy yields.

In S'pore's context, I think the major running costs for a typical kid is their education and self-development costs. Again, many enrichment and development costs are optional luxuries. In fact many activities can be free, if only parents bother to equip themselves and participate with their kids e.g. learning how to swim, playing musical instruments, being involved with charities and social groups to develop interaction and confidence skills etc etc.

As for tertiary education, I think at most is to save for local public university, where the parents' CPF can also be tapped on to provide low-cost education loan. If cannot enter local university, then should go for local polytechnics. In this new-paradigm economy, having a paper degree does not guarantee economic or career success. More important for the kid to have mental fortitude, creativity to try different approaches, self-drive, inquisitiveness to learn new things etc.

If the child is really smart and talented, he/she should tap on scholarships if want to study at prestigious overseas universities. In US, it is also common for the uni's to award bond-free scholarships and bursaries to good performing students (even foreigners).; January 08, 2010 1:58 PM
Anonymous said...: What you spend on your children is considered your family monthly expenses, just like the parents spend on themselves. You provide for and NOT save for.
What you save for will be the tertiary education but is it too early? It is too early if the bread winners are not sufficiently protected. It doesn't make sense to buy insurance for your kids. What good is the insurance when the bread winners are not around. Waiver of premium? this is a big crap, a gimmick of no financial planning value.; January 08, 2010 7:47 PM
Tan Kin Lian said...: Hi friends
Your comments have been helpful. I have written my article for the NSRCC magazine.; January 08, 2010 8:55 PM
Anonymous said...: Child's education:
The one-time basics are not costly - uniform, books, shoes: Should not be more than $200-$300 for 1 year. But monthly expenses can easily add up School bus: $120 a month is not unusual. Meal allowances - $100 per month.
So overall, I would budget about $250 -$300 per month per child for basic education. But once tuition and enrichment classes are added, the figure can be easily $500-$800 per month!

Savings for Tertiary Education:
A must, in my opinion. Even local (NUS/NTU) degree can cost $10,000 - $20,000 per year. I prefer to save for this myself, rather than through child insurance policy. My savings was though the properties we stayed in the past 19 years. Recently, we took advantage of property market recovery and downgraded back to HDB (fully paid-up) to free up cash for my kids' education. I feel the property one lives in is a good way for enforced savings, since it is a long-term investment. However, it is crucial to upgrade at the right time when market is depressed, and not when the market is too bubbly (like now!).

Medical Insurance for Child:
I did not take up medical insurance for our children. Two years back, my daughter was diagnosed with scoliosis (crooked spine). The operation & other expenses to correct this costs just over $32,000, of which some $24,000 was paid with cash (the rest from medisave). Would a medical insurance have covered this? I don't know. Perhaps. But from this experience, I would conclude that medical insurance is essential even for children, to cover whatever treatment they may need. One never knows.; January 09, 2010 1:07 AM
Anonymous said...: Medical insurance is the only insurance that is justifiable to buy for children. Besides, it is paid out of your medisave and it costs so little even with the highest plan.
The child can take over they start working so it will not deplete your medisave which you might need it in your old age.
other insurance? don't let the insurance agents con you.Don't let them play on your emotion.
Consider your own urgent needs first becuase without your needs taken care off and if something were to happen to you whatever insurance you bought for your children will be useless, they will soon be terminated. Don't depend on the 'waiver' rubbish.
There is a saying, "if you don't have enough to eat where can afford insurance".Every cent will be scrambled , the cash value and wahtever will not be left untouched.The 'plea' by insurance agents or insurance companies not to cancel the policy in time of financial crunch will not be heeded. What good is protection when there are so many other bills to pay? This is the result when there was no planning. The insurance agents didn't plan for this becuase he or she wasn't interested.
Think carefully and engage a good competent and honest advsier to help you even though it may appear a simple matter. The adviser is trained to see a larger picture and not the commission which is the focus of the insurance salesmen.
Yes , if you should die die plan for an education plan, never never never use an insurance education plan or endwoment to plan. It is very expensive and the return is so low and very inefficient and risky. Invest regularly . It is less risky and the return is much higher.; January 09, 2010 11:27 AM
Parent said...: A recent ST report on the cost of a primary one student is a good reference.

It says that the pocket allowance for a primary one student is $5 daily. This is luxurious!
No wonder the kids are getting cherubic and having weight problems!

Parents should visit and note the cost of canteen foods. Wholesome living starts from home. No wonder everyone in Singapore defaults to eating out, with unhealthy choices.

My kids are much older now: 20years and 18 years. The older is in polytechnic and he gets $60 per week and his younger brother gets $30.
Their friends get much more. I can afford to give them more, but I choose not to. This will inculcate in them a sense that money is not free and needs to be earned. They have to work, if they want more. And they do part time work at restaurants.

There they will gain exposure to the ugly customer and indifferent employer.

I feel that parents in Singapore are using money as proxy to love.
I know that some parents give $50 a day to their primary 6 kids.

That is $6.25 per hour in a 8 hour work day.More than what a worker earns at Macdonald's !This is causing unreasonable expectations when the kids begin work.

Parents, there is a duty to impart values to the next generation. There is a difference between a need and a want.

Am I alone with this view?; January 09, 2010 1:02 PM
Anonymous said...: Iknow of a friend who kenna con by ntuc agent to buy all the below insurance for his son.
incomeshield with rider
vivolife limited illness
myuni education plan
revosave endwoment
wahlow, now he cannot tahan paying the premiun and asked advice what to do. I told him see FISCA waht to do and sue the agent to get refund for wrong and poor advice. i told him the agent is laughing at your stupidness so easy to con; January 09, 2010 7:38 PM
Anonymous said...: Don't let your emotion be exploited by insurance agents. The insurance agents all know today parents love their precious children and will do anything for them. These agents are trained by their company to zero in on your hot button.If you really love your children use your head rather than your heart and do the right thing.
The first right thing to do is 'never use an insurance agents by whatever title'.If you see titles like financial consultant, senior or executive or financial planner or wealth manager and without the professional financail planning qualification like CFP they are impostors and fake ones.It is good bet they are all salesmen and women or wolves in sheep's clothing. Run quickly before being conned.
Secondly, if they pitch you a product upfront without giving you a diagnostic check up, you also run.
Thirdly, if they recommend you wholelife or endwoment after a 'bluff bluff' check up better hold on to your wallet or credit card tightly before you lose your money and get trapped.
Fourthly,if you see one trying to impress you with their laptop computor, don't waste your time. It is another salesman who is trying to 'close' you within 20 minutes. It is the most cunning salesman who thinks you are easy to con.
Fifthly, before doing anything consult FISCA if you can and ask advice and perhaps ask to refer a good adviser(optional)
Take these steps and you will be well served.

The Watchman; January 09, 2010 11:01 PM
Anonymous said...: Get the agent to share in paying the premiums.. after all, its a good investment is it not?
Allow the agent to share the profits of the returns.. it is a good investment, right?

Once we counter offer this deal, the agent will run away. Works all the time for me!; January 09, 2010 11:19 PM
Anonymous said...: As a mum, I think medical insurance is a must.
Next give the child the best education. My girl is just an average student. I don't believe in sending her to tuition or enrichment centres. She has to handle her studies.
For tertiary education, I will save money for a local U. If she wants to go overseas, she has to work hard for it, maybe get a scholarship or work for a few years to save the money.

starlight; January 11, 2010 7:54 AM

Thursday, January 07, 2010

Financial planning for a child

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