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Prepare for the cost of raising a child

New babies are a bundle of joy and, despite occasional challenges along the way, children bring parents tremendous delight. Yet parents also need to make sure they have enough money to pay for the costs of raising their child.

Estimates of the cost of raising a child in Singapore range from around S$200,000 at the low end to a seemingly astronomical sum of nearly S$1 million at the high end, with about S$360,000 as a middle-range average.

Looked at as a total amount, S$360,000 for raising a child for 20 years seems large. Yet it’s not nearly as daunting as it seems. The amount represents S$1,500 per month, which may seem more reasonable. That amount may also vastly overestimate the actual impact on families.

Curtin University Associate Professor Alfred Dockery analysed costs of raising children in Australia and found the estimates averaged A$537,000, even higher than Singapore. Using a “net wealth approach” rather than looking at total cost, however, he found that families only decreased their savings accumulation by A$1,300 per year and that children may even provide a net financial benefit.

The key reason is that spending patterns change, as parents spend nights at home and daytimes at parks rather than going to places such as fancy restaurants or on overseas holidays. “Children may be seen as complementary to activities that are not income intensive,” he concluded.

The costs may also drop significantly once parents factor in government support and take steps to reduce their spending.

PLANNING FOR EXPENSES

Even though that lower actual cost is good news, parents still need to make sure they have enough money. One of the first steps is for parents is to start planning to pay the expenses, and the next is to start saving.

The starting place for planning is estimating your income and, along with everyday expenses such as clothes and food and healthcare, the larger expenses for schooling. Costs parents should plan for and ways to spend less include:

Pregnancy and Delivery: Parents will have expenses for visits to doctors and for delivery of their baby in a hospital. These fees can range from about S$4,000 to more than S$20,000. Subsidies and Medisave can cover some of the cost.

Daycare and Kindergarten: More than 99 per cent of children attend at least one year of preschool, according to the Early Childhood Development Agency (ECDA). While ECDA says full-day programme fees average S$1,004 per month, actual costs vary tremendously and can exceed S$2,000. Parents of lower-income families can use subsidies to reduce fees to almost nothing, and other families can select perfectly fine and less expensive childcare or preschools.

Primary School and Secondary School: Although fees for most schools are low, parents need to pay for uniforms, school trips, meals, tuition, enrichment classes and other expenses. Total costs for up to 10 years of schooling can range from several thousand dollars to S$100,000 or more.

Tertiary Education: NUS estimates costs for tuition and expenses to be at least S$14,000 per year, and total costs could be higher once a child enrolls nearly two decades from now. Going overseas for university can easily cost nearly S$500,000. Saving is essential.

GET SUPPORT

One of the first places to look for help to pay these costs is government grants, which include:

• Medisave Maternity Package and Enhanced Medisave Grant for Newborns

• Enhanced Baby Bonus

• Tax Reliefs and Rebates for Parents

• Subsidies for Centre-Based Infant & Child Care, and MOE Financial Assistance Scheme

Parents should look carefully for these grants and other schemes so they can benefit from everything available.

SPENDING AND SAVING

The costs for raising children vary tremendously depending on lifestyle, parents’ income, family support, schools selected and a multitude of other factors. Once they’ve added up all the costs and calculated their income, though, parents can set up a budget and decide how to manage spending and saving so that they can provide for their children’s needs.

In addition to grants and money-saving practices mentioned earlier, expenses can drop if parents live a simpler lifestyle. Parents can also share ways to save money with friends and pick up ideas online, such as having friends lend them items, shopping online for discounts, or buying at second-hand stores. Choosing the right school for the child can, despite social pressure to attend top-name schools, make a difference.

For saving, parents can total the actual amounts they’ll need for expenses and then set money aside every month. Putting money into shares, bonds, ETFs or other investments with a long-term perspective can help make sure money grows so it is available when you need it.

PLANNING FOR THE LONG TERM

While there are clearly extra expenses that come with having children, the even-higher benefits are intangibly tremendous. As the Brookings Institution put it, “parents do not see these costs as a penalty. Instead, children are valued for their own sake, with the understanding that the joy of parenthood comes with explicit commitments of both time and money.”

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