Protecting Your Child’s Financial Future

From the moment you hold your baby in your hands for the first time, life as you once know it changes. You have a new responsibility that you will be embracing, literally, for the rest of your life.

As you morph into a super-parent, obsessing over everything from your child’s cot, to food, to friends to grades and everything else in between, you also need to consider financial protection for your little one.

Here are four things you can do today to protect your child’s financial future.

1. Imparting good financial habits

“Give a man a fish and you feed him for one day. Teach a man to fish and you feed him for a lifetime.”

This popular saying is apt when it comes to inculcating good values and, by extension, financial habits in your child. Be a good role model, both in life and with the way you manage your money. How your child sees you manage your money will have a bigger impact than what he hears you saying.

Introduce money to your child from a young age, teach them the concept of saving up their allowance and Ang Bao money to buy something they really want, rather than to just give them everything they ask for. As they grow older, continue advancing them to more complex financial concepts, like investing in the companies that make their favourite toys or gadgets or showing them how their savings is compounding over the years.

By starting early, you give your child the best chance to learn and appreciate financial concepts that will one day become useful for them as an adult.

2. Providing a financial safety net, until they can provide it on their own

In the unfortunate scenario that you may no longer be able to provide for your children (and/or other dependents), you want to ensure that they are not left to fend for themselves, at least until they can stand on their own feet – with a job.

While nothing can replace a loving parent in any child’s life, having adequate life insurance and critical illness insurance can be invaluable when your chips are down. They form a critical financial safety net that, with a lump sum payout, enables your family to continue a similar standard of living even with your absence.

According to the Life Insurance Association of Singapore (LIA), the mortality protection needs in Singapore stands at 9.0x average annual income. This means that Singaporeans, on average, require life insurance protection worth 9.0x their annual wage. In the most recent LIA study, released in 2018, the gap between how much Singaporeans have and how much they need is close to 2.1x their annual wage.

Similarly, the study found that the critical illness protection needs in Singapore stands at 3.9x annual income. The critical illness protection gap currently sits at 3.1x annual income.

Do note that this is only an average figure, and individuals should calculate for themselves, or with the help of a trusted financial consultant, how much their dependents will need before they are able to start providing for themselves.

3. University tuition fees

One of the big-ticket expenses you may face as a parent is when your child goes to university. A good education is often seen as a stepping stone into a good career and advancement opportunities.

Today, the average local university fees cost between $28,000 and $147,000. Attending an overseas university will be even more expensive, costing up to US$271,000. It’s hard to imagine how your children may be able to afford this on their own.

In fact, it’s hard to see how you will be able to afford this without a proper financial plan. You need to start setting aside a fund for your child’s university education as early as possible. The longer the timeline you have, the better the investment return you can hope to achieve since you will be able to effectively ride out market volatility risks in your investment.

To start growing your child’s university education fund, you can consider investing into the stock market on your own, or for more conservative consumers, you can consider purchasing an endowment plan that has a certain level of guaranteed returns to supplement education needs.

An example of such a plan is the AXA Early Saver Plus. This policy offers guaranteed returns of up to 1.57% per annum in the form of Guaranteed Cash payouts to safeguard your child’s university education needs, flexible policy term from 10 to 25 years and payment term of 5 or 10 years. It also offers protection against death, terminal illness, total and permanent disability and additional rider to waive future premiums should an unfortunate incident happen to you while paying for the plan.

4. Leaving behind a will, and adequate knowledge

When you have a child, you need to consider whether you want to make or amend your will. This is because you may want to re-look how you want your assets to be distributed in the event of your passing.

While it can be a morbid subject, you should also consider the prospects of both you and your spouse passing on, as well as bringing up the topic with your children so they understand how you want your assets to be divided.

To avoid conflicts breaking out within the family, your will should clearly depict how you want your assets to be distributed.

One other thing to note is that you should update your CPF Nomination as well. Your CPF will not form part of your estate, and therefore, will be distributed according to Singapore’s Intestate Succession Act, rather than in accordance to your will.

Start as early as you can

The earlier you start on these four pillars to support your child’s financial future, the sturdier the foundation you build for them in unforeseen circumstances.

Similar to how your investments can compound to a substantial amount over a long time horizon, your child’s knowledge and behaviour will benefit from a similar compounding effect.

No parent wants to be absent in their child’s life, especially while they are still growing up. However, you have to accept that life can throw unexpected punches at people, and implementing a prudent plan to protect your child’s financial future is one way to ensure you leave them in a financially sound situation regardless of your physical presence.

Disclaimer:

This article is for general information only and does not take into account the specific investment objectives, financial situation or needs of any particular person. The views expressed herein do not necessarily reflect the views of AXA Insurance Pte Ltd and should not be construed as the provision of advice or making of any recommendation. There is no intention to distribute, or offer to sell, or solicit any offer to purchase any product. We recommend that you seek the advice of a qualified financial advisory professional before making any decision to purchase an insurance or investment product. Whilst we have taken reasonable care to ensure that all information provided was obtained from reliable sources and correct at time of publishing, information may become outdated and opinions may change. We are not liable for any loss that may result from the access or use of the information herein provided.