Here's some helpful information about how to prepare for your child's financial future.
All parents want the best for their children – healthy and nutritious food to nourish their growing bodies; top quality education to enrich their minds; fun and engaging toys to encourage their creativity; a safe and comfortable place for them to call home.
So it is also important for new parents to plan their child's journey through life and be prepared for any unexpected bumps along the way.
If you have a new addition to your family and are wondering how to begin planning for your young family's financial future, here is a place to start: by learning what not to do. We share 5 money mistakes new parents make which you should be careful to avoid.
1. Not making use of grants given
The Baby Bonus Scheme is part of the Marriage and Parenthood Package.
Starting a family may come with a few expenses, so new parents should take advantage of all the grants given by the government to help ease financial costs of raising a child.
Singaporean babies can benefit from the Baby Bonus Scheme (which now includes a cash gift for all Singaporean children) and government matching savings into their Child Development Account (CDA) that can be used for their early education, medical bills, optical needs and other necessities from approved institutions.
Take time to read through the policies and create a plan for how you plan to use these grants and support from the government in your child's development.
2. Overspending on unnecessary items
Your baby might eventually grow up to be a computer genius, but not for a few more years to come!
Okay, this can be hard for many of us, because there is always something just "so cute" or "so perfect" that we must have it for our little one.
But take a moment and think, do you or your baby really need that overpriced contraption to warm up wet wipes? Or that expensive diaper disposal unit which claims to stop odours? What about that well-known teether toy that is all the rage with celebrities?
There are some parents who find it hard to draw the line between necessities and novelty items for their little one. Don't be one of those parents. Before buying those adorable shoes for your one-week old baby who can't even walk yet, it would be a good idea to ask around for a baby checklist from your experienced friends and family.
This will save you from overspending on unnecessary items and cluttering up your storage space in the long-run.
3. Not having life insurance for yourself
Your children are completely financially dependent on you and your spouse, so it is important to get life insurance.
Thinking about your own death is not a happy proposition for anyone. But as a parent, you need to ask yourself this "What If" question. You need to make sure that your family will be well taken care of and your child's education and healthcare will continue even if you are no longer there to provide for it yourself.
Accidents may happen and it is only responsible that you take care to insure yourself so that your loved ones are provided for should the unfortunate were to occur.
Term plans are a fairly affordable way in which you can protect your family. How these plans work is that you first choose an amount that you want for your family – the Life Insurance Association of Singapore suggests 9-10 times your annual salary. Next, you choose the scenarios you want your family to be financially protected against, which are typically death, critical illness, terminal illness, and/or disability.
There are also some innovative variations available in the market these days. For example, Aviva has two unique term plans. One is MyFamilyCover which pays your family a monthly income, rather than a lump sum, so you do not have to worry about the payout running out prematurely. The other one worth mentioning is Aviva's MyProtector-Decreasing that actually decreases your premiums as your debt is reduced - so there's no need for you to be worried about getting over insured.
4. Ignoring education savings
Education is the key to success, so it is important to start saving for your children's futures.
If you can save up for your upcoming family vacation and the new pair of shoes you have been eyeing, or your child's next themed birthday party, it is also important to remember to set aside some funds for your little one's future education.
All parents want their children to succeed in life, and with quality education, you can rest assured that they will have the foundation to achieve their dreams.
Committing to a structured savings plan will force you to be disciplined about setting aside money regularly for junior's tertiary education. Such savings plans that are specially designed for children's education are usually readily available from banks or insurers.
Aviva's MyEduPlan is one such plan that offers guaranteed returns when your child turns 19 or 21 (depending on whether they have to serve NS), and also provides smaller payouts to help with the preparation before they start school such as buying a new laptop.
5. Not buying health insurance for your baby
Remember that health is wealth.
Another common money mistake that parents make is to choose to save on the premiums for a health insurance plan. Fact is, children do get sick. If we are lucky it will be sniffles, a touch of flu and an occasionally upset tummy. However, we all know that broken bones and occasional hospitalisations are not uncommon when it comes to children.
The cost of medical treatment often comes unexpectedly and can be very expensive. It probably makes more financial sense to transfer the risk of that unexpected high cost to an insurer instead.
There may be economies of scale you can potentially reap when you purchase medical insurance for your family members. Look out for the different discounts offered by insurers as the savings could be more significant than you imagine over the long-term. An example would be Aviva's MyShield which offers discounted premium rates for children till age 20, if both parents are covered under the two higher plan options.
Republished with permission, the article first appeared on The Asian Parent on 1 October 2015.
Updated on: June 2017