Haven't we heard the common refrain from many fellow Singaporean friends and colleagues that the cost of raising a child is often fraught with many challenges in a pressure cooker education system and also one of extreme high cost? From infant care to childcare to weekly enrichment classes where parents spend thousands of dollars every month, it has been reported that the actual cost of raising a child up till their independence can be between a quarter million up to a million dollar for some parents.
How Much is Enough?
Having guided many families to plan for their financial planning journey over the last 15 years as a financial adviser and also as a father myself, I too share the same concerns of many Singaporean parents. As with all parents who want to give the best to their child, the common question I get asked during such planning session often is "How much do I really need to plan for my child's university education?" For starter, like every child is different, every parent has a different mindset and planning mentality towards how much they wish to provide for their child.
Local or Overseas University?
During the span of my career, I have met some parents who insisted that they would only wish for their child to attend a local university if possible and that they would utilize their CPF to pay for the fees when the day comes. The intention is not to spoon feed their offspring with the hope that the child will take ownership in his own education by paying his way through university as he will have to repay the amount used back to CPF with accrued interest.
While this philosophy is not wrong, it is a very simplistic attitude towards planning as a child may eventually decide to pursue their interest overseas especially with a generation of YOLO kids having very different outlook of life as compared to our generation and our parents' generation. Young children of today are already being brought up to chase their dreams, embark on a career that makes an impact which they are passionate about so what happens if your child has an affinity towards animals and decides to be veterinary or is a good debater and is passionate about Law but her grades are just not good enough to be enrolled in a local university to do law?
I recall a recent conversation with a client who shared about how she had to spend about S$300,000 (today's value) just to send her daughter to Spain to study fashion design and she lamented that she still has 2 younger children coming through the ranks who may need similar sum if they do decide to take the route less travelled. This client is someone with the means; having been a very successful career lady throughout her career. She revealed that she would have retired early if she didn't have 3 kids as she had already invested millions on her children.
That is why parents should really start to give education planning a serious thought and put things into perspective as I have seen many parents willing to spend over two thousands a month to send their children to premium preschool like Pat's School or Eatonhouse and tons of expensive enrichment classes but when the topic of education planning is mentioned, the attitude is often very nonchalant, almost dismissive at times.
Real Cost of Local University Education
Truth be told, just the real cost of university education in Singapore alone warrants more attention than one thinks. Below is a table of the current university fee extracted from MOE:
As seen from the above, the present cost (2018) of a general degree and a specialized degree (e.g. medicine or dentistry) in a local university is approximately S$10,000/yr and S$30,000/yr respectively. Factoring in a modest 3% rate of inflation over a 20 years period, if you have a newborn today, the future cost would be between S$18,000 to S$54,000 just to study a year in a local university (excluding living expenses).
Based on the above projection, a parent would by estimate, need at least S$150,000 to S$300,000 in the future to send their child to a local university in 2038 based on local subsidised tuition fee. The above figure will increase by at least two to two and a half times if a child decides to embark on his education overseas which would easily be over half a million dollar in the future.
Many a times, when this astronomical figure is being projected to my clients who are new parents, they would usually be shocked and wonder if they would have anything left for their own retirement. The solution to the this conundrum is really for concerned parents to start as soon as possible to sit down with their advisers to carve out a game plan to achieve the end result they wish to target for over the given period of timeframe.
How to Accumulate enough savings for child's education?
Just 2 very big factors decide if one ultimately will be able to accumulate enough to send their children to a local or overseas university, one is time and the other is compounding interest which has been rightly called the 8th wonder of the world. With a long enough time horizon coupled with a reasonable rate of return compounded over a long time, the astronomical future value for our child's education will be very much achievable through a monthly commitment of possibly a few hundred dollars. Most parents I speak to understand this concept easily since most are highly educated in their own right, the only problem for most is the execution of this concept on a regular basis.
How Qualified Advisors Can Help
Like Bruce Lee once said "Knowing is not enough, we must apply. Willing is not enough, we must do." Modern parents are often dual income, with women more independent than ever, sometimes even more highly paid than their spouse as I have seen in a number of my clients, also both parents are often already swamped by their job at work together with the demand of parenthood. Most parents often have little time to sit down to even do a simple budgeting exercise on how much to allocate the monthly surplus for their children's future education cost which explains the lopsidedness in the planning of spending a few thousands on things like preschool but very little on future university cost.
It is akin to what I call the "Weight Losing Syndrome". We all know we need to maintain our weight to stay healthy and we know we can do it ourselves but we usually end up not doing it due to lack of time or discipline which is why as we aged many of us let nature take its course and we grow horizontally inadvertently. Compare it to somebody who decides to take action and sign up a gym membership and pays a fitness trainer to come up with a structured weekly fitness program and monitor the progress monthly, you can bet who will stay in good shape over the longer term and meet his objective.
Financial planning for parents is often time better dealt with too when a qualified professional is able to do the same thing to structure a set of goals, allocate the budgets, decide on the instruments to go into, manage the risk/return and achieve them over the long term. A good adviser is like a clear roadmap guiding you through to reach your desired destination, without which, it is like shooting in the dark, hoping to land a kill.
So in order to do it right, my general advice is to look for a qualified adviser to set out the goals and implementing the right strategy to achieve the end result whether it is utilising an education plan, a portfolio of bonds or equities or ETFs or a mix of both. The last thing we want as parents is to have given the best we could during their growing up years like premium preschools, doing PV to get them into famous primary schools but we are not ready when they are ready to spread their wings and fly into the future to attend Harvard or MIT.
Best time to start planning is NOW.
As the saying goes, most of us do not plan to fail, but many of us fail to plan. The best time to start planning is now, for time is a commodity that will run out of its course if you don't seize it now.
About Dylan Ng:
Credentials: AFP, AEPP
(DID: 6535 4025)(Email: Dylan.ng@iwm.com.sg)
Dylan Ng is a 15-year veteran Financial Services Manager with one of Singapore's largest financial advisory firms. A multiple awards winner, he manages a team of 8 seasoned advisers with experiences spanning from private banks, international brokers, local banks, asset management and insurance firms. He specializes in private wealth management with a keen interest in multi-generation legacy planning for affluent and business owner clients.
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