STI: Bring up baby

Mar 31, 2004

Bring up baby
by Leong Chan Teik

RAISING children is expensive, but how expensive?

A check with several financial industry sources and academics finds no study done on the brutal economics here - at least not in recent memory.

So we asked Ms Anne Tay, vice-president of wealth management at OCBC Bank, to crunch some numbers.

The result would be interesting and relevant to a hot topic - why Singapore is facing a falling birth rate and what can be done to arrest the downtrend.

Ms Tay's calculations, details of which are in the graphic above, suggest that many families fork out $950 a month, or $275,000 over 22 years, per child. That is what it will cost to raise a child from birth through to a local undergraduate education estimated at $22,600.

Ms Tay says the figure, which does not factor in inflation, applies to a rather basic lifestyle.

If we are talking about a more indulgent lifestyle, which means among other things hiring a maid, the figure rises to $1,800 a month, or $500,000 over 22 years, she calculates.

The Sunday Times approached three families to do similarly straightforward estimates for their own children.

They were asked to ignore possible costs such as no-pay leave, a spouse opting for part-time work, and buying a bigger home or car for an expanding family.

These parents were picked from the same age category - the early 30s - so that their estimates can be compared based on a similar number of years of future expenses.

The families came up with the following figures: $200,000, $326,000 and $375,000. These reflect what they are willing and/or able to spend on their children.

For simplicity, the figures do not take into account inflation.

If inflation is to be assumed, then so must income growth. Chances are they could end up negating each other, which means that people's level of affordability would not change over time.

Generally speaking, the figures are not out of line with those in the United States, where government surveys in 2000 show that a middle-income family spent about US$165,630 (S$281,000) to raise a child to age 18.

For details, go to: www.usda.gov

In Singapore, the three families who estimated their children's expenses were surprised at their own findings.

Did they then wish they did not have children and have, instead, hundreds of thousands of dollars more to spend on themselves?

Replies Ms Angel Chan, 32, a senior executive in a statutory board and mother of a four-year-old son: 'No! I'd rather have the kid!'

She adds, though: 'But to have another one, we'll have to think very carefully. Money is not the issue. Bringing up children well is tougher than any job. It's trial and error because no one taught us how to bring up children. We try our best and it requires a lot of commitment.'

Her philosophy is similar to that of former US First Lady Jacqueline Kennedy, who once said: 'If you bungle in raising your children, I don't think whatever else you do matters.'

To Mr Ernest Teng, 33, who runs an information technology business, the sum of $200,000 to raise each of his children can be translated to mean a lost opportunity to own a BMW car. But no matter, he says. 'It's not so much the dollars and cents. It's the intrinsic joy of having children.' (By the way, he drives a Toyota Picnic, a multi-purpose vehicle that costs half as much as a BMW.)

Mr Leong Sze Hian, a board member of the Society of Financial Services Professionals, disagrees that the cost of raising children is high.

'I used to work at the airport and there were labourers who had as many as six children each. And they got by. Relatives, instead of maids, helped look after the children.

'At the end of the day, it's not a question of whether children are expensive or cheap to raise. It's a question of lifestyle.'

That is to say, what is a near-necessity to one may be a frill to another.

Mr Teng tells of a clear example of a frill. 'I have a rich friend who has given his four-year-old son a mobile phone. Yes, four years old!

'The phone is for the child to call his parents to let them know when granny fetches him from play school.'

Another example: a $250-a-month course on the so-called Shichida Method, whose advertisements make the incredible claim that it can 'turn your child into a genius'.

Some parents like insurance adviser Sam Chee Yee, 35, are all for it. Mr Sam's four-year-old son has started on the course.

What can you do to provide for your children, especially their university education?

OCBC's Ms Tay suggests that you take some risks by investing in unit trusts and equities.

'Do not be too conservative. To achieve your goals, you may need to take some investment risk.

'They may provide you with potentially better returns. Ideally, you should invest your savings according to your risk tolerance level, time horizon and investment objective.'

And you need to review your financial plan from time to time as your financial circumstances change.

The cost of raising children is one half of the story. It is a good bet that you stand to receive pocket money from your children when the latter start working.

What goes out can come back full circle. Mr Teng, for example, gives his parents around $700 a month. If his children give him that sum in today's dollars, they would be paying back most of what it would cost to bring them up.

Over 20 years - for example, when Mr Teng is aged between 55 and 75 - $700 a month adds up to $168,000. 'Of course, it's very hard to be certain about the money that we will receive from our children,' he says.

How to increase the odds of that nice payback happening?

Just about every parent will agree with his reply: 'It's the values - filial piety, caring for your family - with which you raise your children. These will influence the outcome.'

 

Children don't come cheap, but the returns are immeasurable
Couple:  Ernest Teng, 33; Linda Sim, 32
Occupations:  Technopreneur; Legal secretary
Children:  Two daughters aged one and four
Home:  Five-room HDB flat in Sengkang
Maid: No
Estimated cost of bringing up a child: $200,000

THE money part of raising children does not bother Mr Ernest Teng, managing director of Gigatt, an information technology business.

His two young daughters will cost him and his wife about $400,000 in total to raise, he estimates.

And the figure is arrived at without indulging them excessively. He is mindful of what a novelist once warned against 'handicapping your children by making their lives easy'.

And he does not want his children to miss out on the joys of growing up by having their lives crammed with classes. The rat race can wait, in other words.

'I won't splash on extra classes because I'd rather they learn through playing and from their environment.

'Enrichment courses will always be there and can be taken up any time but our kids won't be kids forever.'

Still, by no means will it be an ascetic life. Like many of their peers, they will have pocket money for movies by the time they reach secondary school, and get a mobile phone then too, for example.

And he recognises they would want to dress well ('I know women are crazy about clothes!'), so he is prepared to let them spend up to $500 each a year on clothes.

He has been saving up through insurance policies to pay for their university education in Singapore.

Add the savings to some investments in stocks, unit trusts and foreign currency deposits, and he reckons there would be enough to pay for their tertiary education.

The Tengs are not planning to have more children - a decision that has nothing to do with government incentives.

'Couples who are looking at more tax rebates and incentives from the Government to have children are missing the woods for the trees,' says Mr Teng.

'Beyond a certain economic point, raising a child is a personal choice, involving sacrifice, time and effort. But the rewards are immeasurable!'

Paraphrasing an inspired piece of writing he read somewhere, he says that for the money he spends on them he will get the following:

Naming rights. Glimpses of God every day. Giggles under the covers every night. More love than his heart can hold.

Someone to laugh himself silly with, no matter what the boss said or how his stocks performed that day.

Great bang for his buck. He gets to be a hero just for retrieving a frisbee off the roof, taking the training wheels off the bike and removing a splinter.

An education in psychology, nursing, criminal justice, communications and human sexuality that no university can match.

A ranking right up there with God. After all, he has all the power to scare away monsters under the bed, patch a broken heart, police a party and love the children without limits.

 

Nothing's too much to give up for son's tertiary studies abroad
Couple: Mike Ng, 32; Angel Chan, 32
Occupations:  Finance manager; Senior executive in a statutory board
Children:  One son aged four
Home:  Terrace house in Upper Bukit Timah
Maid: Yes
Estimated cost of bringing up a child: $550,000

AN OVERSEAS education is the key reason the Ngs' projected cost of raising their son is an eye-popping $550,000.

They have estimated the cost of a foreign education at around $200,000. Strip that out, and replace it with a local university education (estimated at $25,000) and it will cost them about $375,000 in all to raise their son.

It's still relatively high but that reflects their combined income and their willingness to spend a lot on the child.

Another factor: the Ngs may not have another child.

Ms Angel Chan explains why they are keen on a foreign university education for their son: 'Foreign graduates live on their own for several years, and those I know seem to be much more confident, open and flexible than local grads.'

She will also be supportive of any non-mainstream course her son might pursue, such as theatre, which is available only abroad.

The Ngs' zeal for their son's development has led them to plan to enrol the four-year-old soon in classes such as drawing, piano and violin. Later on, he will have speech and drama classes too.

'All this will provide the foundation for developing soft skills. At this stage, it is important to instil confidence in the child, as well as an interest in learning,' says Ms Chan.

It's not just paid lessons he will be exposed to. Simple family outings to the park and watching educational TV programmes are also part of his upbringing.

'I read a lot to my son as that bonds us together, as well as improves his vocabulary,' she says. 'I also hope to inculcate reading as a lifelong hobby.'

She has budgeted $1,300 a year for books, video games and other computer-related expenses.

When he gets to secondary school, he will attend courses like leadership training, as well as workshops on other skills.

To partially fund his university costs, the Ngs are regularly putting aside money in an endowment insurance policy which is expected to pay $40,000 in 19 years. At the moment, they channel most of their savings into their bank accounts. They do not invest in stocks or unit trusts.

If there is one sacrifice they are already making, it's a nice car. Their current one is more than 10 years old.

When the time comes for their son to head overseas to further his education, they are prepared to make an even bigger sacrifice, says Ms Chan.

They may downgrade their home, a freehold 2,200-sq-ft terrace house which they bought for about $1 million two years ago.

 

'Only the best' for kids, like lessons to turn them into geniuses
Couple: Sam Chee Yee, 35; Teo Wai Choo, 32
Occupations:  Insurance adviser; Manager in a publishing company
Children: Two boys aged four and seven
Home: Condominium unit in Upper East Coast Road
Maid:  Yes
Estimated cost of bringing up a child: $326,000

IF MR Sam Chee Yee's projection of the cost of bringing up their children looks high, it is because he and his wife, in his own words, 'want the best for our children'.

That is why the couple subscribe to StarHub Cable Vision ($30 a month) for its educational channel.

And their two sons attend a course on the Shichida Method of learning, whose organisers regularly advertise in this newspaper as being able to turn your child into a genius.

The cost: $250 a month.

The Sams go on at least a holiday a year so the children get to see and experience more of life.

This year they have been to Bangkok (cost: $3,000). Last year, their plan to travel to the United States (cost: $15,000) was derailed by the Sars outbreak in the region.

In the examples above, the holiday costs have been bumped up by the cost of taking a parent and/or parent-in-law along.

For their children's higher education needs, the Sams are counting on their insurance policies.

Insurance policies, which represent a way of enforced savings, offer better returns than the bank savings account.

They are also a safety net because the policies will still cover the children's education if Mr Sam dies, or suffers total permanent disability or is struck by critical illness.

The Sams park $350 a month in a variety of policies that are expected to have cash values of $125,000 after 20 years.

They also have a small investment in unit trusts and shares.

Looking back at the time when he himself was growing up, Mr Sam says: 'It is definitely more expensive to bring children up these days.

'And now, there is much emphasis on academic excellence. When you have fewer children, you cannot risk any one of them not doing well.

'So you put them into a variety of enrichment programmes and these are not cheap.'

The Sams do not plan to have more children, as they do not have the luxury of time to devote to them. 'Both our children are demanding on our time.'

And of course, there is also the question of money.

Says Mr Sam, who is an insurance adviser with Prudential Assurance: 'We are now spending nearly $1,000 a month on each child. If we have, say, four children, I can provide them only the basic, the extras will be gone.

'This is a question of quality versus quantity.'