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Preparing Yourself for Your Children’s Future Milestones

   

TL;DR

Busy chasing your toddler or kids around the house and don’t have time to read the full article? Don’t worry, check out our short summary below:

–   You should start planning for your children’s future needs as early as possible because the concept of time value of money demonstrates that costs will only increase in the future, thanks to inflation.

–   Savings is not your only option in preparing yourself and your family for the future. You could consider employing the use of suitable wealth products such as Insurance, Unit Trusts or Stocks based on your financial needs and risk appetites.

–   It is important to equip your children with knowledge about personal finance during their formative years to empower them to make wise financial decisions.

Preparing Yourself for Your Children’s Future Milestones

Every parent wants the best for their children. Whether it is their happiness, health, or education, you always give them the best you can afford, and we’re here to help ease your mental burden by sharing tips and options available to you.

Planning Ahead for Your Children’s Education

Today, everything from diapers to preschool to tuition do not come cheap. What’s more, a university degree has now become more of a necessity than a luxury. With annual education inflation rates ranging from 0.6% to 8%^, the best time to start saving for your child’s education is now!

On average, a 4-year business degree in Singapore costs around S$40,000^. But what if your children pursue law, medicine, or a specialisation only available overseas? This figure could increase to S$120,000^ or more. You can build up your finances to fund this so your children avoid shouldering payback of their study loan for several years after graduation.

To give your children that head start in adult life, you can constantly recalibrate and refine your overall finances. By doing so, you can steadily grow your wealth and have one less worry when your children are ready for university.

So, how much would you need to save for your children’s future education?

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Have you heard about the concept of time value of money? Essentially, it tells us that inflation causes consumer prices to increase and your dollar’s spending power to decrease over time. You may recall from your childhood the ability to purchase a filling meal for just S$2, but the same S$2 today wouldn’t allow you to do so. Similarly, we know that a degree would cost more in the future. But how much more?

If you have a sense of the country, university and course which is the most viable for you and your children in terms of interest and affordability, calculating the approximate amount that you need to set aside should be easy. Once you have derived your targeted amount to reach, you can find how much you will need to save every month, minimally, using this savings calculator^.

While the method above serves as a good gauge, keep in mind that the amount calculated may vary from the actual amount needed. Always remember that it’s best to start early, because the power of compounding over time means you can start with a smaller monthly sum!

What Are Your Options?

Even before your child is born, you can start putting financial plans in place to safeguard their future. To do so, here are some strategies you can employ:

Regular Premium Insurance Savings Plan

A baseline aspect of financial planning is getting you and your loved ones insured. Insurance plays a crucial part in providing your family with a financial safety net. Should anything unfortunate happen to you, your children must have sustenance and the means to continue their studies.

Consider purchasing a regular premium insurance savings plan which may be able to provide your children with future financial security and coverage at the same time. With premiums starting from as little as S$100/month, your children may enjoy yearly cash payouts and coverage against total and permanent disability. Furthermore, you may have the flexibility of making withdrawals before maturity or receive a lump sum payout at maturity which could be used to fund your children’s tertiary education.

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Depending on your children’s needs, you can enjoy the flexibility of selecting the type of insurance savings plan, premium amount and preferred premium payment frequency. There are several payment frequencies you can choose from, be it a one-time lump sum payment or in smaller denominations on a regular interval basis.

Unit Trusts via a Regular Savings Plan

To boost your savings further and earn passive income to meet your child’s growing financial needs, you may want to consider starting a unit trust regular savings plan (RSP) through our Online Unit Trust platform. For busy parents, RSPs make a great option as you don’t have to worry about timing risk which allows you to focus your time on your family and career.

Additionally, it doesn’t take much effort to start. You only need to invest a fixed amount of funds which can start from S$100/month, and let the amount accumulate and grow through compounding. Unit trusts also give you the flexibility of toggling your investment amounts, which means you can put in more whenever you have surplus cash. Moreover, as RSPs work on the concept of dollar-cost averaging, you can potentially enjoy cost savings in your investments as your average unit cost reduces over time.

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Notice how an RSP helps eliminate the need to time the market whilst smoothing out fluctuations? So long as your investment amount doesn’t change, you receive more units when prices fall and fewer units when prices increase, lowering the average unit cost over time. Additionally, your investments are generally not locked up – you can decide when and how much to redeem depending on the timeline which fits your financial needs. However, in exchange for the potential gains, you will need to be able to withstand the risk of losses when the markets are not in your favour.

Equities (a.k.a. Stocks)

If you are in for higher potential returns in exchange for higher risks, you might also want to invest directly in stocks through our SC Online Trading platform. If you are a beginner investor, consider investing in well-established companies with a strong history in market performance. These companies are also known as blue-chip companies^ and typically have strong fundamentals and brand reputation. Therefore, they are less likely to be adversely impacted in the event of an economic downturn.

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Find a brokerage which fits your needs and risk appetite and start investing. You can use the income earned from your investments to fund your children’s rapidly expanding needs. With SC Online Trading, you can get access to 15 stock exchanges, across 10 markets, around the world. With insights from our SC Online Trading Newsletter, you can be assured that you stay up to date with market news!

While you may have planned for your children’s future needs through the options above, have you actively engaged your children on financial education?

Financial Education Starts at Home

As a parent, you are the best role model for your children’s upbringing. Educating your kids about money management may sound daunting but there is no need to overcomplicate matters. Here are some concepts to kickstart your children’s financial education journey:

Understand the importance of saving

Start by explaining simple concepts like saving up for rainy days and encouraging them to use a piggy bank. You may wish to top up their savings to help them pick up the idea of compounding. Once their piggy banks are full, consider “graduating” to a junior bank account to celebrate the success in their saving efforts. As they see their savings grow, they will feel determined to save more.

Differentiate needs versus wants

Teaching your children to spend within their means goes hand in hand with their ability to differentiate between ‘needs’ and ‘wants’. Make this a fun learning experience by appointing them as “money managers” on your next grocery shopping trip. Give them a shopping list and a budget to work with and encourage them to select the most value-for-money options. By giving them the autonomy to make real decisions, your kids will be empowered to prioritise needs over wants.

Comprehend the value of money

Help your children appreciate the value of money by letting them earn their keep through simple household chores. This will give them a sense that money must be earned. By grasping the significance of money, your kids will learn to accept delayed gratification and make better financial decisions.

Even while your child is still a bun in the oven, you may already be thinking about how to give them a great and fulfilling life. Starting your financial journey early on will help you to be ready to provide for your children as they journey into adulthood and allow them to be free from financial worries. At Standard Chartered, we are here to support you and your family in achieving these goals. To find out more, speak to Standard Chartered’s Relationship Managers or visit any of our branches today.

References

1.  Education inflation rate in Singapore 

2.  Education inflation rate in United Kingdom

3.  Equities 101

Disclaimer

This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you.

You are fully responsible for your investment decision, including whether the investment is suitable for you. The products/services involved are not principal-protected and you may lose all or part of your original investment amount. Standard Chartered Bank (Singapore) Limited will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of information in this article.

 

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The information stated in this article is accurate as at the date of publication.