Nurturing financial savvy kids

Ok, Singapore’s birth rate is pathetic @ 1.2 (chinese), which is so far away from our leader’s target of 2.1. A lot of people gave their views on the problems that parents nowadays are facing while a hell lot more gave their “solutions” in tackling this sticky issue. My personal view?: Singapore’s birth rate is not going to see a meaningful reversal until the parents/parents to be are to receive more support from the government. Stop quoting example like, 1 sole bread-winner, 1 housewife, 4 kids without maids is possible. Hello, this is Generation Y and we no longer live in the Flintstone era whereby the standard of living is sooooo low. Besides, we are a bunch of educated people, so when we finally make the important decision to bring a new life to this harsh/competitive world, we do it responsibly. Ie to say that we make sure our kids will grow up in a proper environment, will receive a proper education (nursery till end of tertiary), will be able to pursue their interest while still contributing to the society in one way or another. In short, they must be able to live their life to the fullest. Is that too much to ask for as parents? Personally, i don’t think so..Hence, with that much of responsibilities on the shoulders of young working parents, how can the government expects to see magical numbers on the birth rate? Impossible!

Therefore, all parents need to plan way ahead to make sure that our next generation will be able to stay revelant and not get outcasted by the society and yes, financial planning is of the upmost importance here. As a young father, let me share alittle on financial planning and how you can nurture your kids to into financial savvy super juniors!

1.) To prevent and eliminate any chances of incurring any amount of hospitalisation fees due to problem arising after the birth of my boy, I bought a hospitalisation plan for him the moment he got his birth cert. By paying this small amount of premium, I can get one of my biggest financial worries off my mind and focus on taking care of him.

2.) As responsible parents, I feel that we would have fulfilled our duties as long as we provide our kids till they completed their tertiary education. If you have a financial calculator, you can key in the following inputs to calculate your kids school fees in 20 yrs time.

PMT = Local Uni school fees (6500/annum)
r = the rate that the school has been raising the school fees (6%)
n = no. of years into the future (20)
FV = the cost of Uni fees in 20 yrs

If you plug in all the variables, you will be surprised that you need to set aside at least a hundred K just for school fees alone so if you are not born with a silver spoon, you better start planning now!

100k may not be a small sum but with proper financial planning, it is definitely achievable. There are a couple of ways you can start working towards this sum and here they are:

  • Getting an endowment plan – If you are not investment savvy and lack of the discipline to save $$, this plan will probably suits you. At ~3%/annum and a small coverage provided, this plan will force you to save a minimal amount every month. I would suggest getting this as a base before working on other investments to achieve the 6%’s target.
  • Buying Unit Trusts (UTs) through dollar cost averaging. Just heard from a friend in Citibank that there is a relatively new UT that offers a yield of 6% (i am skeptical about this high yielding UT so i have my reservations). Nevertheless, there are still other UTs out there that offers a decent yield with a front end charge. Just remember to choose a defensive underlying fund for the UT that you want to buy.
  • Build up a portfolio of defensive stocks/bonds/preference shares – If you do have some knowledge on investing, build up your own portfolio that are defensive/stable in nature. Bear in mind that this amount set aside is to be use for your kids’ education so you cannot afford to have a portfolio that is high in beta and subjected to market swings. Refer to my value investing post for some tips for a start. Start off with something that is defensive in nature like telcos/post & courier services/local media/reits. There are stocks who fall within these industries and offer an attractive yield of 4-6%. Listed corporate bonds is another option but take note of the spread and liquidity. The same goes for preference shares.

3.) With the 2 points above, you should be on track to hit the target for your kids’ education fund. For parents who wants more protection/savings, they can opt to take up a 10-15 yrs life plan for the kid which can act as a form of insurance cum backup savings. This should complete the initial financial planning at birth.

Start early in incepting the concept of Time Value of Money (TVM) into your kids!

  1. Teach your kids TVM as early as you can so that they can better manage their money early. Time is money friend! The power of compounding interest will be an interesting topic to start with.
  2. Assist your kids in managing their $$, in your own creative ways! Example.) If they only have a dollar to save, you can be their market maker! Providing them with the same return as the markets will let them have a taste of having their own investment.
  3. Use simple examples to engage the kids in their critical thinking. Example.) If they were to ask for $50 to get a toy, try asking them if they are willing to forgo the toy now and get $55 at the end of the year (that’s equivalent to a toy + some spare cash for other things!) It’s not as simple as it sounded, but it’s definitely worth a try.
  4. Another plus point of learning the concepts of investment early is that the chances of losing a large sum of money is minimized since initial capital is likely to be small. Warren Buffett’s No.1 Rule: Don’t lose $$! But i guess it’s more like a guide now since risk Vs reward will be a better gauge in the current investing environment.

More coming up…

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