Today we'd be looking at how you can save for your child.
Below is a quick summary of the points that you'd be getting an analysis on.
How much to save up for their university fees?
Let’s say, instead of aiming for an overseas education, you send your boy/girl to our good old local university. I've university fee update for you.
I graduated from NTU Accountancy in 2008 and during that time (always the good old days) I paid only $3,800/yr for my university fees.
I did some detective work and the tuition fees have now inflated to $9,400!
What is a fair rate to inflate course fees in projections?
I've found fees from 5years later. Accountancy was $8,600 in 2013.
That means 1.8%pa inflation on average.
Hey wait.... that doesn't seem like what most insurers and banks project?!?
I've seen 5%p.a inflation for education thrown around before! Look below, up to $1m???
More realistically, let's assuming an inflation rate of 2% after 18years, the possible course fees per year at NTU may be $13,400/y if you have a baby today.
Hence, $50k or $60k is definitely needed!
This is the minimum target sum for education planning per child.
If it is a medicine course or an architecture course (which are both more than 4years), then more savings is needed.
Note: For overseas university then yes, $200k to $400k per pax is needed.
For 2 children, prepare $100k or $120k in total!
Ok so back to 4 ways you can save for your child...
Method 1) Long Term Investment Plan
If you know how to invest into shares, you can do a regular share investment plan.
My suggestion is to invest together with your child.
Then you can use it to impart the importance of investing to them.
If you invest into Capital Mall Trust, tell them you own this place every time you go to Bugis Junction! Even if it is 0.000001% haha...
It's a great way to teach money to your child.
* Note this is not an investment suggestion. Just a point on letting your children know which big brands they own and let them feel proud of it!
If you are not into shares investing, then do a regular investment portfolio plan.
It is much more stable because the focus is on diversification.
If targeted long term average investment returns are 4%pa,
then it only needs $200/m to reach this $50k to $60k mark.
By investing as early as possible, the investment returns you make with your child can compound more.
When it comes to investing, there are no lock-in periods and you can modify the monthly contributions along the journey. However, it is important to keep a long term view.
Method 2) Flexible withdrawal long term saving plan
These are also known as perpetual endowment plan.
Some examples are Pruwealth and Manulife ReadyBuilder.
These plans are not for pure retirement purposes but rather very effective multi-use savings which includes for possible child education savings.
Check post on Manulife ReadyBuilder
This is a previous brochure description of Manulife ReadyBuilder which I feel is visually nicer.
Key thing is you can buy the plan even before you have a child!
This is the new infographics now. To read brochure here
Several strategies of how you can use this for planning
1) High total yield once past 20years
2) Flexible withdrawals after at least 15 years. As of now, you don't know the exact age on when your child will go into university. If your child gets a scholarship, then don't even need to withdraw from the plan.
3) Partial withdrawals: You can use whatever needed pay off university fees and keep the rest rolling on for more interest down the road.
Cons of the plan: Guaranteed returns are low.
Below is an illustration of Manulife Readybuilder for a private client that I did. It was a lump sum of $45,454.
Method 3) Education plan
Personally, I did not use this method for saving for my child.
But it has it's merits. There is higher guaranteed components than a perpetual endowment plan.
In addition, payouts can match projected university years beautifully.
Some of the best education endowment plans in my opinion are
3) AXA Early Saver Plus (illustration below)
Buying such a plan is hassle free in terms of managing it.
It is a low risk way to get guaranteed returns if you have a baby now.
Method 4) Singapore Savings Bond Ladder (SSB)
I've a video to understand on the Singapore savings bonds here for you. Click on the youtube if you want to learn on it and remember to help me like it! It's to tell youtube algorithm its good!
You may choose to purchase the Singapore savings bond online or through an a local bank ATM.
These bonds are for 10years and this works perfectly if you are thinking of doing something for your kid who is 5-12years old.
Remember above, we assumed inflation rate of 2%?
Possible course fees per year at NTU in 10years may be $11,500/y (FV of $8,700 in 10y at 2%) if your child is 5-12 years today. That is $,5,700 per semester.
A strategy would be to purchase $5,000 in June and $5,000 in December for the next 3 years.
If it is 2.2%pa, then each bond will mature with $6,215 (Fv of $5,000 in 10y at 2.2%) to match nicely!
Why Start Now?
Simply because compounding needs time.
Compounding is to generate returns on returns and it is a proven method to exponentially growing your savings.
If you save $10,000 for 5years at 3%pa, you'd get $11,593. Only $1,593 gain
But if you save $10,000 for 15years at 3%pa, you'd get $15,5801! A $5,801 gain!
There are offers and promotions with plan purchases.
To find out more on education planning, email to josh.tan@promiseland.com.sg or
How about using CPFOA?
You can use your CPFOA for your child's university fees.
There is an "Available Withdrawal Limit" which is either 40% of your accumulated OA savings, or your remaining OA balance (whichever is lower).
However, if your CPFOA is drained towards your house, then look back to one of the 4 methods of planning above.
What about high interest accounts like DBS Multiplier or Citibank MaxiGain Account?
These accounts are great for your emergency savings.
But terms and conditions will very likely change along the years.
I prefer the above 4 methods for long term savings for saving for child education.
Summary
In the recent National day rally 2019, government has announced to keep tertiary fees low.
This has to be good news!
There are offers and promotions with plan purchases.
To find out more on education planning, email to josh.tan@promiseland.com.sg or
Most parents that I have surveyed save around $200-$300/mth for their child.
That is not too bad an amount to be get started.
Again planning for your own retirement is just as if not more important than your kids education.
Last updated on October 15th, 2019 at 12:31 am