Bringing a child up to tertiary education level can cost new parents
between $190k and $700k
According to the latest figures, Singapore’sfertility rate has plunged to an all-time low of 1.22.
The birth rate has been steadily falling for years. The last time it was near replacement levels was in 1975, when it was 2.07.
In 1999 it slumped to 1.47 and in 2004 it fell again to 1.26. The factors leading to such a low birth rate are complex but all parents appreciate that raising children requires love, time, commitment – and cash.
In fact, Mr Ronnie Lim, general manager for wealth management, Singapore and Malaysia at Standard Chartered Bank, believes that, on average, the cost of seeing a child through from birth to local tertiary education stands at about $300,000.
To help with this financial burden and encourage Singaporeans to have more babies, the Government has introduced a number of initiatives, such as enhanced maternity benefits, baby bonuses and tax incentives.
The Sunday Times takes a look at the dollars and sense of parenthood. Depending on the standard of living, this paper works out thatthe estimated costs for new parents amount to between $190,000 and $700,000 to bring up a child to tertiary education level, with the university course accounting for the bulk of the expenses.
The cost of raising a young child falls into five categories:
Pregnancy and delivery
Low estimate: $4,000
High estimate: $20,000
The Ministry of Health’s website estimates that it costs between $842 and $1,704 for an average stay oftwo days in a Ward C room for delivery at KK Women’s and Children’s Hospital.At the other end of the spectrum, Ms Tricia Tan, financial services director at Prudential Singapore, says it may cost as much as $9,000 to give birth via caesarean section and stay in a private hospital’s Ward A room.
OCBC Bank’s vice-president of wealth management, Ms Anne Tay, points out that parents can withdraw up to $4,200 from their Central Provident Fund Medisave account under the Medisave Maternity Package to defray pre-delivery and delivery medical expenses.
She estimates that total charges incurred for pre-delivery treatment and delivery, including hospitalisation, are $3,000 to $5,000 on average.
But on top of this, items for the new mother and baby must be bought. Things such as maternity wear, an electric breast pump, bottles, a baby cot and bedding can cost up to $2,000 – at the budget end of the spectrum – and $7,000and above for those willing to spend more, adds Ms Tan.
The costs for taking a newborn through to early childhood can be considerable.
Mr Rick Vargo, managing director of bancassurance at DBS Bank, points out that while costs will vary widely, based on the parents’ socio-economic background, on average, $100 per month will need to be set aside for health requirements, $200 to $400 per month for living expenses, and up to $600 per month for child care and development needs by a dual-income family with a healthy baby.
Parents can turn to the Baby Bonus Scheme, which includes a cash gift and a co-savings component.
From Aug 17, 2008, they get a cash gift of $4,000 for the first and second child and $6,000 for thethird and fourth child. The cash gift is paid in four equal instalments over 18 months and it can be used to supplement the cost of bringing up the children and pre-school education.
Infant care (two to 18 months)
Low estimate: $20,000 (total for this period)
High estimate: $30,400 (total for this period)
Help is needed to look after the baby if both parents are working.
They may be able to enlist the help of in-laws or other relatives but, if this is not an option, an alternative is to hire domestic help or entrust the baby to infant care centres.
Infant care centres charge $700 to $840 per month for half-day programmes and $1,000 to $1,200 for full-day care programmes.
To defray this cost, Ms Tay suggests that parents enrol their infants in centres that are eligible for infant care subsidy. Infant care subsidy ranges from $150 to $300 per month for half-day infant care programmes. For full-day programmes, the subsidy ranges from $150 to $600.
The subsidy applies to all Singaporean children regardless of child order.
If you pick an infant care centre that costs you $700 per month and your infant subsidy is $300 per month, you will be out of pocket by $400 per month for 16 months.
In addition, other infant care expenses for things such as milk powder, diapers, clothes and vaccinations must be allocated for. For the last item, up to $300 a year may be withdrawn from each parent’s Medisave account.
Because of the cap, parents can also draw on their Baby Bonus accounts to defray the cost of vaccinations.
Child care (18 months to below seven years old)
Low estimate: $25,000 (total for this period)
High estimate: $80,000 (total for this period)
Care costs for a child rather than a toddler can start from $350 for half-day programme and from $550 for a full-day one. There is a subsidy offered by the Government to defray these costs which ranges from $150 to $300 per month.
Under the Enhanced Baby Bonus Scheme, the Government matches dollar-for-dollar savings of up to $6,000 each for the first two children. This is meant for parents who pay into a Child Development Account opened with the two managing agents, Standard Chartered Bank and OCBC Bank.
These matched amounts can be used for paying approved institutions such as childcare centres and kindergartens.
Bear in mind that the monthly cost may go up by another $900 if the family decides to hire a foreign maid to do chores and look after the child when he is not in school.
Primary, secondary and pre-university education
Low estimate: $40,000
High estimate: $70,000
Education is expensive and can cost up to $40,000 including living expenses from primary to pre-university level. This excludes fees for enrichment classes such as music and ballet.
There is the Edusave and Post-Secondary Education Account offered by the Government, where the child obtains $200 or more each year to help defray the cost of education, says Ms Tay.
Low estimate: $100,000
High estimate: $500,000
Most financial experts agree that the largest single cost for raising a child comes from tertiary education – especially if it is overseas.
In 20 years’ time, a degree from a university in Singapore will set you back by nearly $100,000.
The bill for an overseas university education, including living expenses, could range from $200,000 to more than $500,000, depending on where you send your child, say Ms Tay and Ms Tan.
One way to finance this is to get an endowment plan when your child is born, says Ms Tan. The monthly premium for a 20-year endowment plan to obtain a sum of $200,000 to $500,000 is about $600 to $1,400 a month.
“It is important that every parent starts planning as soon as possible for the child’s tertiary education through a systematic and disciplined savings programme, like an endowment plan,” she adds.
“The earlier you start the programme, the smaller the amount you need to set aside monthly.”
2. Tax incentives
Parenthood tax rebate
From the Year of Assessment 2009, the Parenthood Tax Rebate was extended to cover the first and fifth child and each subsequent child born or legally adopted on or after Jan 1, 2008.
The amount of tax rebate claimable for each qualifying Singaporean child, which includes the second, third and fourth child, is based on the child order and it ranges from $5,000 to $20,000 per child.
The rebate can be used to offset the income tax payable and may be shared with a spouse. Any unused rebate will be carried forward to subsequent years until it is used up.
Qualifying child relief
The income threshold for this child relief scheme has been raised to $4,000 from $2,000, with effect from the Year of Assessment 2010.
It is open to a taxpayer who has maintained an unmarried child who earned less than $4,000 in the preceding year. This includes income from working part-time or holiday jobs.
Working mother’s child relief
This may be claimed by working mothers for their Singaporean children.
Foreign domestic worker levy concession
Employers of foreign maids are entitled to a $95 levy concession if they have a child aged below 12 living with them.
Parents may want to consider medical insurance cover for the baby in addition to savings and investment plans. For the latter, there is a variety to pick from.
Last month, Prudential launched its PRUfirst gift policy providing cover to both expectant mothers and their babies from pregnancy through to childbirth. The cover is extended to a protection and investment plan for the child when he is born.
In May, DBS launched its Edu-Smart insurance product, which helps parents plan and save for their children’s future university costs. It comes with preferential terms on future study loans and a range of education products, resources and privileges through partners.
OCBC Bank offers School Plan: an endowment insurance plan comprising protection with a savings feature so that parents can defray the costs associated with primary, secondary and junior college education.
4. Planning early
Most agree that financial planning for the family requires a strict regimen of setting money aside and investing. The earlier you start, the easier it is to achieve your financial goals without having to resort to too many high-risk investments such as stocks and derivatives.
Mr Lim suggests that families consider investing small amounts regularly as this will help to lower the average cost of investing over time and help build up a portfolio.
“First, decide how much you need. After that, ascertain how much more you can save, given the time frame under consideration. The gap between what you have and what you need is what you will need to cover by making use of investment tools,” he says.
For the latter, he proposes lower risk investments such as money market instruments, endowment plans and professionally managed unit trusts. The important thing is to have a diversified portfolio that comprises a mix of stocks, cash and bonds.
5. Intangible benefits
The financial resources required for the various stages of parenthood are considerable.
But the ample return on investment from children is undeniable, points out Mrs Joni Ong, president of non-profit organisation I Love Children. She has five children aged 13 to 19.
“The joy and laughter my five children bring to my life and my husband’s, the unconditional love they have given us, far exceed the costs. These are things that no amount of money can buy.”