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The Sunday Times is conducting a survey titled "Are you saving enough to pay for your children's education?" 10 readers will get to win $50 grocery vouchers sponsored by DBS Bank for just answering 5 questions in the survey.
I am sure we have read horror stories of how some people used their retirement funds or were thinking of using their retirement funds to fund their children's university education. What drugs were they on?
If their children's academic results were not good enough for a scholarship, then, their children should think of getting a study loan or using the parents' CPF-OA money (choosing the option that attracts a lower interest rate), if the option is available.
Of course, loving parents might protest. They want to provide the best for their children and not burden them financially. That is all fine and good but they should do this not at the expense of their retirement adequacy!
So, unless they have some money meant to fund their children's university education, love should only go so far.
They will do well to remember this because it is like not mixing up money in our emergency funds and money in our war chests. They have their designated purposes.
Think of it this way, their children have their whole lives ahead of them. Children will be economically productive for many more years than their parents.
There is nothing wrong with their children taking a study loan if there are no other options available.
On the other hand, if a senior is short of money to fund his retirement, there isn't such a thing as a "retirement loan", is there?
Loving parents who do not want their children to choose an option which would require them to repay with interest when they graduate and enter the workforce should think of a plan to help meet the cost of their children's university education.
Inevitably, for most, the plan would involve saving a portion of their monthly income. Then, the next step is to think of how to grow the savings at a faster clip while continuing to save money in a disciplined manner.
Question number 5 of the survey which is also the last question in the survey asks "Which do you think is the best way to save for this goal (i.e. your child's university education)?"
The options provided in the survey are:
1. Insurance endowment plans
2. Bank deposits
3. Investments
4. All of the above
Which one would you pick?
There is another option and I wonder why it wasn't listed.
All Singaporeans and PRs have a CPF account. So? Do voluntary contributions to their childrens' CPF accounts.
Money in the CPF-OA will grow at 2.5% to 3.5% per annum in a risk free manner. Some of the money contributed will go to the CPF-SA and CPF-MA, no doubt, which will earn higher interest of 4% to 5% per annum.
Contributing to their children's CPF account is a monetary gift to their children. For loving parents, this could be an idea worth considering. It is a gift that can be used only for specific purposes, including education.
Although it is true that their children will have to repay their own CPF-OA with interest in future if they were to use the money to fund their university education, they would be paying interest to themselves. This is more palatable than paying interest to a commercial lender, I believe.
It would also force their children to put aside a portion of their earned income every month in their own CPF account as they repay the debt owed to themselves.
Forced savings? Yes, it is. I think this is not a bad idea for the majority of the population.
If we are disciplined about our personal finances and are set on locking away money for our children's university education, then, it would be money we would not touch for any other reasons and for a relatively long time too. I think the CPF as a tool is worth considering.
Of course, if we were to pick the CPF as our option, we won't be eligible to take part in the lucky draw for a chance to win a $50 voucher.
Alamak!
Related posts:
1. Make CPF a part of your child's savings plan.
"I want them to save up and partially fund their own university education. ..After they graduate, they will to pay back their own CPF OA. I want them to experience some form of financial obligation when they start work so that they won’t take on debt too readily." EY
2. Why a wealthy nation cannot retire?
"Tan and her husband are currently paying for the education of their two children, including a 21-year-old daughter studying in Perth, Australia. While Tan, an administration professional, hopes to retire soon, she says she knows it might be another 10 years before that happens." CNBC
3. What is our attitude towards having children?
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