20th November 2019 is Universal Children’s Day, marking the day the UN Convention on the Rights of the Child was adopted setting out children’s rights including the right to life, to health, to education and to play, as well as the right to family life. This obviously lays some pretty serious obligations accompany with financial challenge on parents.
The fact is that the minute you become a parent you also become someone with responsibilities. Not only the responsibility of keeping your child physically safe, well fed and emotionally balanced but also the financial responsibility of providing for their every need. That’s relatively simple for most of us when they are little – food, clothes and possibly nursery fees and you’re done. But as they change from cheeky-faced toddler to self-conscious teen the costs go up and up as they need a laptop to study on, a mobile phone that won’t make them cringe with embarrassment, clothes that cut the mustard with their peers and handouts to support their blossoming social lives. And then there is higher education which looms on the horizon, filling parents with dread at the horrendous fees that involves. How do parents cope?
The simple answer is by planning, which is actually best started before the cheeky-faced toddler stage as soon as you know a child is on the way. Here’s how to do it:
- Set goals regarding future costs such as nursery fees, private school and university fees.
- Estimate how much all that will cost.
- Forecast the expected cost in the future (university fees have been increasing above the rate of inflation for some time).
- Start saving and investing to reach your targets.
- Rebalance annually to check that you are on track.
Are you feeling overwhelmed yet?! It can seem hard to juggle all that with your regular living costs. Income levels, commitments and aspirations all come into play to complicate matters., and then there are the challenges of finding the most productive way to invest, coping with market fluctuations and dealing with the odd financial emergency that crops up. Nevertheless the ostrich approach will only make matters worse as time ticks by and you have less and less time to save. If you don’t plan for your child’s future, no-one else is going to do it so why not start right away and give yourself the longest time possible?
Investment vehicles specifically for children are limited in scope and it’s important to note the difference between savings and investments. You will probably open a savings account for your child and that’s great – it can be used to save their birthday, Christmas and pocket money in and as a tool for teaching them about some money basics like interest. Don’t make the mistake of putting the funds you have set aside for their further education in there though – you’ll be lucky if the deposit keeps pace with inflation and could actually end up losing money in real terms if it doesn’t.
Investing for your child’s university education requires better long term planning and investments that are going to give a better return. Yes, we’re talking stocks, shares & funds. That will be ringing alarm bells for the more risk-averse among you but over five years or more, this is going to be the best way to build your wealth.
Yes, investing will involve risk – it always does – but then so does keeping your money in a bank account where it is earning very low rates of interest. In today’s sophisticated financial markets there are products to match the risk tolerance of even the most cautious of investors. The trick is to properly understand your risk profile in terms of what you can tolerate and balance that with what the amount you need to generate and the time you have in which to do that. The other key investing principle to bear in mind is diversification because it spreads risk. Diversify across asset classes (by investing in property as well as stocks for example) and ensure your portfolio of stocks is spread across different industries and geographical areas.
Liquidity is another factor to consider. If your child is still a babe-in-arms you won’t need to access their university fund for another 18 years or so but as the time for your child to leave home approaches you will need to think about how to get cash out of your investments into a savings avenue which offers quick liquidity and the tax implications involved in doing that.
Of course education planning is not the only consideration you have when you become a parent. It is very common to become acutely aware of your own mortality when a child enters your life. Maybe that’s nature’s way of telling you to get life insurance! Life insurance is a way of ensuring that the dreams you have for your child can happen whether you are around to witness them or not. It’s not appealing to contemplate your own death, and particularly not a premature one, but we all have to face up to the fact that it’s a possibility and plan accordingly. Life insurance protects your family financially even if you’re no longer around as a breadwinner to support them. It really is a must-have for all parents.
Health insurance is crucial too. Imagine your child becoming critically ill and you not having the means to pay for the best healthcare available. That is unthinkable for most parents and why we always recommend that our clients take out a comprehensive health policy to cover the whole family.
If you are wary of investing, or if you’d just like some help and guidance in selecting the right investments and insurance products for you, it’s a good idea to seek the help of a professional financial planner – a good one with an established track record who will have your best interests at heart. There are a lot of elements to think about when putting together a financial plan to protect your child but with expert advice on hand you can work through the issues together and find the perfect solution for you and your family based on your unique circumstances.
Infinity has a wealth of experience in working with Asian and expatriate families and would be delighted to act as your guide through the financial maze of parenthood. Do get in touch to discuss your situation with us.
A leading provider of expat financial services and wealth management services across Asia.