I had a conversation with one of my colleague. He was sharing with me that, since he just got his flat, he saw his CPF wiped out such that, only a meagre amount was left.
I thought that must have been rather demoralising but I am glad that he actually thought of the well being of his future child and that he needs to save for it. The blue print answer here I would give is
- Move to a new job that pays you better
- Over-deliver at your work, get more promotion so that you have more income cash flow to save for it
- Cut your expenses! Find places where you can cut. Cut here cut there!
Of course those are good tried and tested suggestions.
How much do we need by the way?
If we are talking about $8000 per year for 2 semester (2010 is around $6300 so the growth rate is 6% in that short span). A 4 year cost will set you back $32,000.
If we need the money in 20 years time roughly, and that the growth rate to be around 5%, to put one child in a local NUS or NTU would cost $84,905.
That is a serious bombastic figure.
How do we get there by saving?
You can start putting your money in an insurance endowment or an index fund based product such as POSB Invest Saver. The POSB Invest Saver basically invest in the STI ETF, an index exchange traded fund that tracks the Singapore Straits Times index. Your time horizon is long enough to work out the ups and downs of the market.
If you key in 3% for an average insurance endowment return (could change a lot depending on future bond yields in my opinion), you will need $3100 per year or $263 per month to reach $84,905 in 20 years.
If you key in 5% for the past IRR of dollar cost averaging into the STI ETF at its peak in 2007, which is a really disastrous scenario, you will need $2567 per year or $214 per month to reach $84,905 in 20 years.
I realize when you put it in monthly terms, $200++ doesn’t look that bad! It is a target that my colleague can work towards.
Of course if the family intends to have more children whether willingly or unwillingly ( another good friend’s mother actually encourage my friend to find another woman to give him a child when the wife refuse to!)
Better solution: Bringing up the children right
I don’t have children of my own, so I am not going to profess to be some guru in this area. What I can tap on are some of my childhood experiences and what influences me in the areas that I read about. There are days when I still don’t understand how I turned out the way now or specifically what my parents did. I felt that I learn from them more of the right life values, but that I was rather sheltered till I was 18 years old.
My first real part time job happened in university and that came out of the need for survival because I told myself since I got into army that I don’t want to depend on my parents for pocket money. So I was pushed by circumstances.
If I had my way, I would have wished my parents push me to take courses in Society University earlier, which is to do more part time jobs when I turned perhaps 15 and 16. That will be challenging but I felt i would learn more about the harsh reality of real life, how difficult it is to earn the pocket money my parents used to give me and perhaps learn skills that I won’t be able to learn at school.
Developing children with the growth mindset, that don’t grow up to become spoil brats can be rather rewarding in that, they start contributing to the family early, you don’t have to be that worry about what they are going to do in the future, you have a place in their hearts and that they will take care of your well being for life.
I realized that these different types of students not only explain their failures differently, but they also hold different “theories” of intelligence. The helpless ones believe that intelligence is a fixed trait: you have only a certain amount, and that’s that. I call this a “fixed mind-set.” Mistakes crack their self-confidence because they attribute errors to a lack of ability, which they feel powerless to change. They avoid challenges because challenges make mistakes more likely and looking smart less so. Like Jonathan, such children shun effort in the belief that having to work hard means they are dumb.
The mastery-oriented children, on the other hand, think intelligence is malleable and can be developed through education and hard work. They want to learn above all else. After all, if you believe that you can expand your intellectual skills, you want to do just that. Because slipups stem from a lack of effort or acquirable skills, not fixed ability, they can be remedied by perseverance. Challenges are energizing rather than intimidating; they offer opportunities to learn. Students with such a growth mind-set, we predicted, were destined for greater academic success and were quite likely to outperform their counterparts. – The secret of raising smart kids
Failure to develop the child well could see either the child dependent on you for a blueprint or instructions all their lives, losing direction when they encounter the slightest failures, not emphasizing or understanding how difficult things they were always given was obtained. They grow up thinking its their god given right to go to the universities that their friends are going to and they will despise you because you cannot provide them the financial support to do that when all their friends can.
How would your child feel if you told him or her that education is important, but they have to work to put themselves in university, both academic wise and financial wise?
I think that is daunting. If I were to put myself in the shoes of an 16 year old Kyith, I probably would have thought the easy way out is to go poly and get out to work, instead of going to junior college and then to university. I suppose if there are major pull and push factors, such as an early realization that without a degree its difficult to find a good paying job, or that all my friends are all going there and I would like to go too, I would be force to challenge myself more than give up.
Some of these push and pull factors can yield good results:
When I was 18, my parents told me they had no money to send me to university, and that I had to go find a job to support the family (and my sister) from then on. However, I badly wanted to go to university as I knew that without a degree, I wouldn’t be able to go far in the future. I considered taking a bank loan, but my dad was too old to be my guarantor, and my mom could only be a guarantor on one more loan – which she reserved for my sister. I was stranded. I went knocking on relatives’ doors, but couldn’t find anyone willing to be my guarantor. In the end, I prayed hard and studied hard, hoping that I would get a scholarship instead so that my problem would be solved. And I did, unexpectedly. None of my classmates nor teachers believed it when I got straight ‘A’s for my national exams, myself included. But somehow I was blessed enough, and received 3 scholarship offers in total. My path to university was settled. – Work Life Singapore
Typically pessimistic folks would err on the side of caution and not believe that their child can eventually get a scholarship thereby saving huge amounts of money.
Part Time Work
But if you invest in learning to nudge and challenge your child the right way, learn to develop smart kids, the end result may see you not having to rely on so much savings. One way is to get your child to willingly work for his or her tertiary education.
From the age of 16, a lady would have 3 years to work before entering university and subsequently 4 years during university to work part time. It is not uncommon for university students to teach tuition part time. Many of my peers did that to get pocket money.
Suppose a girl starts at 16 years old and work 3 years part time 3 days per week, 4 hours each time and earns $6 per hour. During school holidays she could work 8 hours for 5 days a week.
Her annual income would be 3 years x 10 months x 4 weeks x 3 days x 4 hours x $6 per hour + 3 years x 2 months holiday x 4 weeks x 5 days x 8 hours x $6 per hour = $14,400.
The girl teaches tuition for 1 secondary school student for $400 per month for 10 months per year for 4 years during university. This works out to 4 years x 10 months x $400 = $16,000. Your child mileage may vary depending on how hard she pushes herself or how well she manages her time ( another skill to nudge as a parent!)
If you add them up, its $30,400. That is rather close to the $32,000 in present day 4 year university course fee.
It gets better if your child is a guy, and he would have 2 year NS allowance. A corporal earns $550 rank allowance, a sergeant $800 and an officer $1000, probably not inclusive of the vocation allowance. You can see him saving $200 per month for a total of $4800 for the 2 years. Some even more gungho stay out men even teach tuition on the side for another $8000 for the 2 years.
That $30,400 gets bumped up to $35,200 or even $43,200.
Teach 1 year tuition or work for 1 year
When you are at that age, your outlook of time is rather different than a 35 year old looking back. Many think staying back 1 year due to poor results is like the end of the world. Looking back 1 year is really not that much in a lifespan of 60 to 90 years. My good friend in junior college stayed back one year while I moved on and 12 years later he earns double what I earn. So does that one year matter?
It depends on what you do in that one year that is important.
Your child can take that one year to teach tuition full time. He or she could take on 3 secondary school student for $1200 per month. In 1 ear that will add $14,400 to the funds.
Or if he or she doesn’t want to do that, can find a full time job paying $8 per hour. In 1 year he would have earned 12 months x 4 weeks x 5 days x 8 hours x $8 per hour = $15,360.
Sign on the army
This is a route that I know based on my experience in reservist or at work. You can sign on the army out of poly at 19 years old, and since you are paid a starting $2200 per month, you can take the next 5 to 6 years to fund a part time degree.
You will end up graduating at 25-26 years old, which is on par with the peers who took the traditional route.
The upside is that, unlike their peers who borrow from their parent’s CPF, or have to return money to their parents, they start off with a clean slate.
Set up Hybrid rules to motivate: A 1 for 1 match
One reader provide me with a splendid idea. The workers in USA can contribute into a retirement savings plan called 401K, where the money contributed in, the company matches it 1 for 1. So if you decide to save 6% of your pay or $3500, the company match by giving you $3500 to invest in the 401k.
A lesser degree is that some local companies (disclosure: I used to get that for my company) provides incentive for employees to purchase the company units or shares and they provide a % of matches.
As a parent you can set up certain incentive scheme as well. It can be, for the amount that they made from their part time jobs or innovations they did, the parent matches X% of it.
The benefit is that the parents work together with the children to boost their income opportunities, lets the children make early money decisions, such as what % should I spent on wants now, what % to set aside for an important future goals.
The common challenge
In order for a parent to pull this off, it requires the parent to develop a child that would be willing to go about this, and not hate him or her for the rest of their lives. That may sound harsh but I do see cases like this around. Parenting is challenging and I salute all the parents trying their best to make this work.
Another common challenge is that this is not easy for the child as well, as he or she will experience these challenges long before they started university life. They may wonder if university is worth it at all (perhaps in the future, it may not be THAT necessary and we can forget the objective of this article) . This goes back to the point of developing a child that manages time well to be able to read well, think clearly, manage time well so that they have enough time for play, part time work and yet have reasonable results in school.
While I based most of my figures on present value, it will be unfair to think that tuition and part time rates won’t go up.
I personally think that most of what is suggested is rather prevalent in our culture. Its not new. Its just that the money are usually focus on satisfying the child’s material wants. Tuition is prevalent culture in university life. Part time work is prevalent during school holidays. It is to get the child to focus on what matters and less on material wants.
The ultimate play is that you develop your child such that university is an option rather than mandatory. He starts a business even before he goes to university such that its not the most important thing then. He comes a professional athlete excelling in his field.
There are much options provided and you do not have to choose one. You can do a bit of all to overcome the short comings of each. Save a little perhaps not $200++ but $100 per month. Encourage your child to do part time and save 50% of what he or she earns and 50% to buy the stuff he or she wants. That will be viable as well.
Are there any helpful tips that you can share in parenting that other parents can learn from?
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For my best articles on investing, growing money check out the resources section.
- When Should You Top Up Your CPF to Enhanced Retirement Sum (ERS)? The Financial Planning Considerations. - April 2, 2023
- Your Mastery Over How You Frame Your Lifestyle Will Drive Your Retirement Capital Needs - April 1, 2023
- 42 Years of Europe Small Cap Value Premium over MSCI Europe. - March 29, 2023
Monday 19th of January 2015
Cw8888 says cagr including dividends is 3.4% p.a. while you say 5%
Who is right and who is wrong?
Monday 19th of January 2015
Honestly there could be a difference in the way the xirr is calculated . there should not be that much of a difference . one of our calculators is wrong.
Sunday 18th of January 2015
I have to agree, especially the investment into stock based index fund for university fees. A lot of agents sell education plans to parents whose underlying are bonds etc. For such long horizon, I think that's a waste of money.
Sunday 18th of January 2015
hi dowz, i have to disagree a bit there. not many understand volatility and tend to risk adverse, thus they go into inaction. the insurance endowment while costly may be a lesser evil. i bet you didn't think i would provide such a perspective. me neither