Now that baby’s here, it’s time to think about saving for his future. MH shares some savvy ways to do just that.
WORDS CHRISTEL GERALYN GOMES
Having a baby is cheap in Singapore,” said no one ever! If you’re like most middle-income earners in Singapore, being able to comfortably afford a child takes planning. Starting to save early, even before your child is born, will leave you thankful in the end. It’s also important to have a rough estimate of the costs you can expect, especially for the big-ticket items like medical expenses, childcare, and education.
What to Expect
Prenatal care, delivery and further medical
By now, when it comes to having a baby, you know that prenatal and delivery costs are among the most pressing financial considerations to be aware of. You’ll have to spring for consultations, supplements, and a hospital delivery package. The cheapest way to finance this would be to get a prenatal package covering scans, tests, and vitamins. This can cost between $400 at a public hospital and $2,000 at a private one. A delivery package will range between $1,000 and $4,000 at a public hospital depending on your needs and level of luxury, and up to a whopping $13,000 at a private one. Once your baby is born, doctor’s visits are estimated to be $2,000 for the next two years.
If you’re both working parents and require childcare, expect costs to be between $600 and $2,000 monthly. If you choose to have a live-in helper, your cost is likely to be about $1,000 monthly.
Here in Singapore, kids are starting school from as young as 18 months. and we all know, preschool education doesn’t always come cheap. Depending on the school you choose, fees can go up to $2,000 a month.
Thankfully, pre-tertiary education is affordable in Singapore. Your biggest spending for education will be for his or her University fees. At primary level, current figures for maximum monthly fees at a public school are $156 yearly. This goes up to $300 at the secondary level and to almost $400 in pre-university.
Bear in mind that besides school fees, your child will also require textbooks, stationery, an allowance and other miscellaneous items and fees.
At University level, current figures for tuition fees alone in one of the local universities range from $8,000 to $25,000 per year and are rising. This, of course, doesn’t include the cost of textbooks, just one of which could cost over a hundred dollars depending on the courses your son or daughter will take. Many students are also encouraged to do an exchange year or two abroad, which require living costs of an average of $20,000 to $30,000 a year, varying widely depending on which country your child goes to.
What You Can Do
Get a Child Development Account (CDA)
Capitalise as much as you can on the government’s dollar-for-dollar match by putting money into your child’s CDA. If you’re having a child now, on top of the baby bonus cash gift, the government will be matching your savings, dollar-for-dollar, for the first $3,000 per child for your first and second child, $9,000 for your third and $15,000 for the fifth child on. This is on top of a $3,000 gift deposit from the government once you open the account.
Once the money is deposited in this account, it can only be spent on approved uses such as childcare and preschool fees at approved institutions and for medical expenses.
This dollar-for-dollar CDA match remains valid till your child turns 12, so there is no need to rush to deposit savings. You can do it on a regular basis over 12 years.
Whatever funds are unused in the CDA once your child turns 12 will be transferred to your child’s Post-Secondary Education Account (PSEA) and can be used to pay for university tuition fees.
Various banks offer slightly different interest rates on the savings in the CDA, so be sure to do your research before picking a bank that suits you.
Get good insurance
Insurance policies not only protect you financially against unexpected events but can also be a form of forced savings.
There are three main types that are relevant once you have a child, but only two of those are a form of long-term savings.
Protects against unexpected medical costs
Here’s something to consider if you’re currently pregnant. As early as 18 weeks into pregnancy, this type of insurance is financial protection against pregnancy complications or congenital diseases when your child is born. Many will pay out a lump sum (around $5,000) and $100-200+ for each day of hospitalisation.
Insurers use this to gain a foot into life insurance for your child after birth usually giving you the option to convert the plan into an investment-linked insurance plan.
Protects against unexpected death or injury, but also gives you “cash value”
A whole life plan covers your child in the event of critical illness, permanent disability, terminal illness or death. The policy will pay out a lump sum known as the sum assured. Besides protection, whole life insurance policies also accrue ‘cash value’, which is a form of savings. At a certain date, you have the option to draw a lump sum greater than the total premiums you would have paid over the years, for emergencies, due to the compound effect of long-term savings. Once you do this, however, protection benefits will cease.
You may choose to buy a whole life policy and hand the responsibility of payments over to your child once he or she is of working age.
Primarily a savings plan
Endowment policies are primarily savings plans over a set term (10, 15 or 20 years). They function as forced savings because your payment is fixed over the term and due monthly. They give you the benefit of compound interest and their returns are higher than what you would get if you leave your savings in the bank. Endowment plans come with protection as well but this is typically very low, or what you would call token protection.
An endowment policy can be taken up with a specific purpose such as a university fund, or to pay for wedding costs.
Plan backwards based on the age you expect your child to need these funds and the amount needed, always accounting for inflation. Once you know the estimated sum you will need, count backwards to figure out when you should take up the plan.