This post was inspired by my wife conversation with a Taxi driver.
Taxi Uncle was good in financial planning, and he reckons that he spent about $500,000 per child, and he has two children, he solemnly declared himself a millionaire, by total income earned in his lifetime.
A 6 digit sum expenses per child, is the magic number that most parents will come out with.
First & Foremost: Education.
Many parents feel that this is the number one biggest expenses that they will be spending on their child/children, and it is often their greatest worry.
But i beg to differ.
I am a strong advocate of ending the sandwich generation in our generation.
Just a quick calculation of education cost from my point of view. Purely education cost without allowance money, money given to grandparents, etc.
Childcare consists of 2 aspects, and should not be calculated as solely education cost alone.
1. The school taking care of the child, while the parents are not by their side. (Afternoon nap, showering, etc)
2. Education aspect.
This post’s point of view is more from the lower/middle low income family’s pov.
With enchanced kifas kicking in, and a cash gift of $3000 in CDA account, the first 4 years of pre-schooling(not childcare) is almost 100% covered for basic pre school without any childcare. And any expenses after the first $3000 is automatically discounted by 50% with the 1 for 1 government matching.
Scenario (Not childcare): At $6000 below for total household income, you will be paying a max of $60 per month for sparkletots Nursey to Kindergarten. (Without enhanced kifas, it used to be about $170 per month)
There are annual registration fees, annual material cost & uniform cost ($20 per set).
The cost would be about $3500 in total for the first 4 years of schooling for your child.
Pre school 4 years $60 x 48 months= $2880. (free for first $3000, CDA cash gift if not used for other purposes. )
Primary school 6 years $6.5 x 72 months = $468
Secondary school 4/5 years $15 x 48/60 months = $720/ $900
JC 2 years $19.50 x 24 months = $468
Poly 3 years $1000 x 6 terms = $6000-$7000 est. (excluding some higher paying courses)
Nitec 2 years $500 x 4 terms = $2000
Higher Nitec 3 years $650 x 6 terms = $3900
University 3 to 4 years average = $40,000 (excluding higher paying courses)
Allowance money should not be included in education costs, as irregardless of education or not, we need money everyday for daily expenses.
As you can see, if you decided to go for the bare minimum road for your children’s education, you would be spending a low 4 digit figures for your children’s education right up to their N, O levels.
As they go into higher education, learning a skill that will make them more attractive for general employment, it will start to rocket into the 5 digit figures, other than university, you would be looking at $1x,xxx max, that is for basic Singapore education.
My first choice for my children, is for them to pay for their own higher education. I believe it gives them a good investment perspective. Although alternative arrangements can be worked out, if their life went the unexpected way. Always ready for financial haywire.
As responsible parents, i do not wish for my children to give up on their education due to financial issues, i will set aside the money and let them decide if they would want to go into their first investment jouney with me. I will explain to them, on why i would prefer them to pay with the help of a tuition loan, and setting aside roughly 1/3 of their monthly salary to repay the loan. For $30,000 loan at about 5%, he/she will be paying about $900 per month for 3 years, roughly $3000 interest fees and processing fees paid.
I will teach them investing for a lump sum of $30,000 with the same timeframe of 3 years, the time needed for them to complete their university degree. And compare their total returns vs the $3000 interest to be paid to bank. This is their lightbulb moment, whatever they can comprehend from this comparison.
A lot of parents dread tuition loan due to the interest , and over commit to education insurance/investment scheme, with heavy lock in period and low returns, only canceling after years later and making a lost, my parents included. But i see it as an investment opportunity if you have that $30k ready and taking up the tuition loan instead, the first pot of gold.
After you have worked out the numbers, education costs and fees does not seems so far fetched anymore, it is not daunting when you face the numbers head to head.
My other thoughts on why i prefer them to pay for their own higher education fees, is also due to the question on whether higher education is worth it or not?
If they go out to work after their N/O levels, they will be getting a pay of $1,xxx, with chances of hitting $2,xxx, if they put in some OT, their choices of work would be lesser, as compared to one who possessed a cert of higher education and worked in relavant field.
After paying few thousand dollars of school fees and graduating with a poly/Nitec certificate, they would be looking at a range of $2000-$3000, slightly lower for Nitec, with the certificate paying for itself after a year of working.
And for university loan of $30,000 and a repayment duration of 3 years for 1/3 of their salary, the university cert would have paid for itself by 3 years time, with the knowledge and expertise sticking with you for the rest of your life. not to mention the higher starting pay of $3,000 to $4,000, as compared to diploma, nitec or N/O levels.
Different parents have different aspirations for their child/children. For me, i would like them to have more options for choosing but respect their decision, and to have the financial ability to send them for classes that interest them. Tuition are out for me at the moment, and i highly doubt that i will wish to send them for tuition in the future, unless they requested for it themselves.
The biggest expenses should be the daily F&B expenses and their allowance money. This is definetely a 6 digit figure sum, however it is still within the range of $100,000 to $200,000.
On average, 3 meals a day per child is about $10, excluding recess, which belong to the allowance category. At $300 per month multiply by 25 years, that would bring us to $90,000. During the infant years, $300 is also around there, when you include this and that.
Primary school $2 x 10 months x 6 years = $5,400 (Not given on holiday yet, as they are mostly at home.)
Secondary school $7 x 12 months x 4/5 years = $10,080-$12600 (Allowance given on holiday period for them to go out.)
Nitec/Poly/Jc $10 x 12 months x 2/3 years = $7,200 – $10,800
University $15 x 12 months x 3/4 years = $16,200 – $21,600
Total range for allowance money = $22,680 – $50,400
The allowance money doubled, when the education years are maxed out.
If I add all the expenses up, I am looking at about $150,000 per child, excluding university fees. For allowance money, I am giving slightly higher than what is necessary, I would like to observe how they are managing their money and their expenses/ savings rates.
If I aggressively reduce, I might be looking at about $100,000 per child, or if i add up all the miscellaneous, it will be about $200,000 per child until they start working. At $20k seed capital, at an investment rate of 10%, the money would double every 7 years, at the age of 21, I am looking at a good portfolio value of $160,000, with draw out every now and then to cover all the annual expenses, we would still be looking at a high 5 digit figures, which can be further deployed for their future life expedition, or added into the family portfolio for daily expenses or retirement.
Having children is our decision, and we do not expect them to pay back in any way. Realising their fullest potential for their first 10 to 20 years is our mission, and this no doubt require a good amount of money.
While we would have save a lot more without having children, and save all the headache, stress, tantrums, frustration & compromising. The joy of having children when you look back, is priceless.
At just $20,000 and a good, logical & sensible long term investing approach, the family finance is in good hands.
So have you set aside some money for your child?