Most recently (in fact just 4 days ago), a new addition came onboard to the family. A brand new journey awaits in the financial planning for this little one! Life has been quite hectic while we adapt to the changes and schedules for two kids. Both needed equal attention, time and care; though being equal is subjective.
The eldest one took a liking for the little one right from the start when we brought him back home from the hospital (visitors under 12 were prohibited during the COVID season). It was definitely companionship for her, a move away from her lonely days previously as an only child.
Having had the good experience of managing the first child’s financial planning, I have been wiser on the good and not so good take-away lessons to apply towards the second child. I shared the Portfolio (Child’s) of the first child here.
There were some articles I had written previously to capture some of my thought processes, and looking back, I’m pleasantly surprised how extensive I was. This has proved useful for reference instead of starting from scratch for Number 2:
CPF from birth
- Power of compounding your child’s SA from young
- Simulating the compounding of SA from young
- Leveraging 5% interest on first $60,000 of combined CPF SMRA monies
- A call to kick-start your CPF retirement planning early
- Kick-start my baby’s Ordinary Account with her Child Development Account
- Leaving behind a Legacy for your Child, via his CPF SA top-up
Investment from young
- Why Investing early matters
- Inculcating transferable and manageable savings and investment habit
- Your child should invest early in life
Insurance as a necessity
- A glimpse 20 years into the future
- Baby FIRE movement
- Planning Effective Goals for your child from Young
- Why my Child gets all the spare change in the house?
I guess the key to initiating financial planning for your child from a very young age is not to prepare for their retirement or to gift them a silver spoon, but more towards setting in place the foundation (insurance) and an example to inculcate in them the good habits of managing their finances (savings and investment).
Baby FIRE movement is the key comparison which I would be using as a guide against what I would do the same or differently for my second child.
What would I do the same?
Similar to my first child, my second child will automatically have a CPF account created and also qualify for the enhanced $4,000 MediSave Grant for Newborns by the Government. The first step I would carry out is to quickly link Parents-to-Child CPF account to be able to view their statements online, by completing PART 1 to 3 of the attached application form (Form MAC 4 below) and submitting it together with a copy of child’s birth certificate back to the CPF Board, either by walk-in to their Service Centres or address within the form.
The idea then is to carry out small monthly RSTU cash top-ups to my child’s SA/MA accounts to leverage on the 5% interest on first $60,000 of combined CPF SMRA monies. Parents may prefer to contribute to their child’s MA instead of SA, I may do the switch as well from SA contribution to MA contribution, as the latter has more liquidity and can be used for shield plan premiums, medical bills etc. SA comparatively, is strictly for retirement only. Also, it may make lesser sense for parents to contribute beyond the first $60,000 (which falls back to 4%) unless you have quite abit of spare cash set aside.
For insurance, Buy Term Invest the Rest (BTIR) remains my core motto, in only covering unexpected negative events in life (like illness, diseases and injuries). However cheap it may be while they are young, I would still not go for whole life or term plans as they do not have any liabilities at this age.
I would however continue covering the key ones, such as hospitalisation, accident and critical illness. Times have changed and with the strong competitiveness in the market, it would be good to re-look and compare the coverage and cost of various policies.
For hospitalisation plans (or integrated shield plans), it would be wise to stick to one instead of policy hopping to a cheaper one when premium rises. What I have learnt is that “over the last few years, premiums of the private insurance component of private hospital Integrated Shield Plans (IP) have increased by an average of 7% per year; a trend that is largely reflective of increases in private hospital insurance claims”. Even for my current insurer, prices have risen largely. Insurance companies will take turns to raise their prices, as a consumer, you can run but you can’t hide — you may not be covered for pre-existing conditions under your old Shield plan when you switch.
The habit of Saving up starts from young. I had been giving the spare change to my first child, and ever since she was two, she would automatically put coins that she found in the house or when given into the piggy bank of hers. While she is still too young to understand the value of money, it is the motion of “keeping money safe” that could be slowly progressed when her conscious is of a more matured state. The same will go for my second child.
What would I have done differently?
A joint-junior account for small but regular monthly investment is still a good necessity, save the choice of equities vested. However, being vested in local market equities may not have been the smartest of choices. A joint-junior trading account or robo which allows access to foreign markets or ETF tracking foreign indexes might have been a better move.
I started slightly later (about 6 months) in doing the Dollar-For-Dollar Matching ($3000) with the government for her Child Development Account (CDA). The interest ‘loss’ is minute, though when you think of it as being compounded over 55 years till her retirement, it does add up. I would create the CDA account and match the amount in the first month of birth for the second child. I would still not touch the CDA accounts for both child and let them grow.
Why 55 years compounded? The monies progress as my child go through different stages of life, from the CDA to PSEA and finally to CPF-OA. Assuming the same dollar value is not used, the monies work its way towards his retirement age.
|Child Development Account (CDA)||0 – 12||2%|
|Post-Secondary Education Account (PSEA)||13 – 30||2.5%|
|Ordinary Account (CPF-OA)||> 30||2.5%|
Two kids means the efforts and dollar-sum now doubles as well. As parents, we aim to be equal in treatment for both child, especially if our finances allows for it. We have to work around our cashflow to further reduce unnecessary expenses where possible or substantiate on high cost spending. This may include simple things like childcare cost versus value for money, enrichment classes versus interest of the child etc.
In the end, money is just a means to an end. It is good to map out some of the goals you wish to attain for your children and your family. As for now, I am happy to have a new portfolio to manage. I feel like Temasek Holdings now.