Financial planning for kids

Some prudent parents cut down on expenses to buy education insurance and health plans for their children

When Mr Rohith Murthy, 34, became a father recently, he compiled a checklist on how to care and provide for his newborn daughter.

He jotted down 10 items, which included health insurance for Radha, now three months old.

Despite his background as a financial professional - he is managing director and co-founder of SingSaver.com.sg, a financial comparison website - he found it challenging to embark on financial planning for his family, feeling that he was "starting from scratch".

"There were a lot of things I'd to learn. I've never bought any insurance apart from travel insurance," says Mr Murthy, a Singaporean who is engaged to Romanian Briena Mare, 29, Radha's mother. The family, together with Ms Mare's five-year-old daughter Iana from an earlier relationship, have settled in Singapore.

Mr Murthy has signed up medical insurance for Radha, which has features such as providing for up to $500 a year in vaccination fees. Now that he has dependants, he plans to buy life insurance for himself too.

As a bachelor, he had a credit card to amass air miles. He has switched to a card that offers 8 per cent cashback, where customers receive a refund after making their grocery purchases in supermarkets.

These and other "financial hacks", such as cutting down on subscriptions to online magazines and cable TV channels that he did not watch often, has helped Mr Murthy save at least $300 a month.

You feel comforted that you work so hard, the money is well spent on the kids' future.''

MS ROSA TAN, on buying education and life coverage for her children, Raphael, Renfred and Regis. With them is her husband Raymond Ong

Apart from life policies and health insurance for medical emergencies, parents may seek endowment plans to save for a child's education or enable them to build their savings, says Mr Gregory Choy, head of wealth advisory at OCBC Bank.

According to an OCBC study of 170,000 parents between 2006 and 2013 who had opened Child Development Accounts - a special savings account for children under the Government's Baby Bonus Scheme - there was a "significant increase... in the number of parents who purchased endowment, health and whole life insurance plans within the first five months of a child's birth", says Mr Choy.

A whole life insurance policy pays out a certain agreed sum upon the death of the insured.

The increase was between 16 and 30 per cent across these three types of insurance plans. Mr Choy attributes this spike to a "heightened sense of responsibility, with a new life to care for".

In terms of financial planning for one's children, he advises against taking on too much risk. "Couples who take on large amounts of debt, for example, a housing loan, may find it hard to manage competing commitments."

But he cautions parents against procrastination too. "Many couples may feel they can wait to start saving up or they don't have the means to get started. However, getting started on saving for the future, no matter how little, is critical.

"Procrastination could mean that couples may realise too late the hefty costs involved when their children are about to gain entry to university, especially if they aspire to send their children overseas."

Ms Ariel Ko, 36, is one parent who started financial planning early.

When she was pregnant with her second son Hong Wei, who is now four months old, she took out an insurance policy that covered mother and child, which continues to provide healthcare coverage for Hong Wei after he was born.

While she did not buy a similar policy for elder son Kai Xiang, aged two, she subsequently came to know of people who landed big medical bills when their uninsured infants fell ill.

Ms Ko, a marketing and account management executive in a real estate development firm, was relieved she had insurance for Hong Wei because she experienced early- stage contractions while five months pregnant. Thankfully, the symptoms went away on their own.

She and her 35-year-old husband, Mr Alan Lin, a senior manager in a construction materials firm, have also bought insurance for their two children "to prepare for their future and in case of emergency", including coverage that can pay for their education at a local university. Each family member also has hospitalisation and life insurance.

She reviews their insurance policies once a year to see if they provide sufficient coverage and have factored in inflation.

With monthly premiums accounting for about 20 per cent of their household's expenditure, they have cut down on expenses such as eating out. They go to restaurants once a week rather than the three or four times like they used to when they had one child.

Moreover, parents can teach their children to save and curb impulse spending from a young age, says another expert, SIM University's Sundaram Janakiramanan, a finance professor.

"Very often, children indulge in impulse purchases. They may look at an advertisement and may want to own the item advertised. Parents should not allow the children to dictate what parents should get them," says Prof Janakiramanan.

Ms Rosa Tan, 44, prefers to spend on essentials for her three sons, aged between nine and 19. She refused to replace their five-year- old Xbox video game console and searches for discounted airline tickets for family holidays.

Ms Tan, the Asia-Pacific finance director for an American biotechnology company, and her 50-year- old husband, Mr Raymond Ong, a polytechnic adjunct lecturer, used their savings and her company share options to buy education and life coverage for their children, instead of things such as new cars and $10,000 holidays.

She has also planned for retirement, including buying a legacy plan, a type of policy that involves transferring one's wealth to one's dependants. All their insurance policies have been paid up.

"I bought the plans when I was between 35 and 40 years old. The premiums were much cheaper then. I have peace of mind. I don't have to worry about it anymore. You feel comforted that you work so hard, the money is well spent on the kids' future," she says. "If you enjoy material things first, what about the children's education?"

Her two younger sons - Regis, 11, and Renfred, nine - have a "two-in-one" policy covering education and life protection that cost $60,000 each. This policy was not available when the eldest, Raphael, 19, was a child, but he has similar coverage, says Ms Tan.

Her children's coverage could extend to any children they may have. For the younger two, for instance, their policies have a death benefit of $800,000 if they live to 80 years old. "I'm already planning for my grandchildren," says Ms Tan.

A version of this article appeared in the print edition of The Sunday Times on November 15, 2015, with the headline 'Financial planning for kids'. Print Edition | Subscribe