Tan Kin Lian's Blog: Saving money for their children

Saturday, May 08, 2010

Saving money for their children

Many parents want to save money for the future needs of their children, e.g. education. They asked me if a life insurance policy is suitable for this purpose.

In my book on financial planning, I have recommended that the rate of savings be 25% of the earnings (and this 25% include any saving in CPF that is not used for housing). This saving for future needs can be used for emergencies (due to loss of employment or disability), medical expenses, education, and retirement. The savings is best invested in a low cost investment fund (such as the STI ETF) and should be kept flexible. A life insurance policy is rigid and high cost and does not suit this purpose.

Each time that you decide on the use of your long term savings, you have to consider if it is an appropriate use of the money. You should avoid spending too much of the money on education, if it leads to insufficient savings for retirement. Always consider the need to spend this money and if there are other better options that are less costly.

You can buy my book on financial planning online.

4 comments:

Createwealth8888 said...: Our children may be able to seek help or borrow from banks to pay for their university education but nobody is going to lend us to meet our retirement needs.; May 08, 2010 8:00 AM
Anonymous said...: Good ma..print more money, more money to spend, growth keep moving, things become more expensive, when no more money to spend, then print more money, more money to spend.
Bank can default, lesser beings can jump.; May 08, 2010 11:08 AM
dsowerg said...: "Saving for children" is overrated. One can always pursue local education and borrow to finance. Pls trust that your children will be able to earn their own living.; May 08, 2010 11:11 AM
Anonymous said...: First,saving for the children must come after meeting the bread winner's needs, including retirement.
But the problem is many parents put the cart in front of the horse. I don't blame them. Very often it is the ignorance or greed of the insurance agents . Also the product pushing insurance agents don't care and just sell what the parents WANT. This is wrong.
Secondly, for commission the insurance agents will sell an education policy which is an endowment with a lot of rubbish thrown in that eats into the return but gives high commission. The customer as a result gets short changed.
As createwealth8888 says saving for children is a low priority compared to retirement but becuase of love and emotion parents kiasu. As a result these parents get exploited and end up with rubbish education products.
The right thing is to invest regularly for both education and retirement with retirement as top priority. This method is low risk higher return but low commission for the agents and that is why they don't want to recommend and say it is high risk.Conflict of interest and that is how parents are short changed by unscrupulous agents.
Never use an insurance policy as saving plan. It is the worsen plan.
Don't trust the insurance agents because these plans give them high commission and NOT to your interest.; May 08, 2010 11:15 AM