Sunday, June 5, 2016

An 8-Step Plan to Saving S$80,000 for University in Singapore

 
In 2030, attending university in Singapore will cost up to 70 per cent of your annual income. Rohith Murthy shares ways to help you save for your children’s education. According to a recent study by the Economist Intelligence Unit (EIU), the cost of a university education in Singapore is set to rise. It’s estimated that, by 2030, a four-year degree will cost as much as 70.2 per cent of an individual’s annual income. University fees have been rising non-stop since 2010, a symptom of the general rise in cost of living. Still, there are a number of ways Singaporeans can ensure their children get that degree.
 
University Has Never Been Cheap in Singapore to Begin With
I remember parents were proud of me when I was awarded a full scholarship to complete my university studies here in Singapore. Even today, they like to remind friends and relatives about this accomplishment of mine. I know of friends and relatives whose parents have spent thousands on their kids’ college education. I am happy I relieved my parents of this huge financial responsibility. Today, I am a parent myself, with a nine-month old baby daughter. In a few years, I will face the same financial challenges my parents did when they sent my brother and I to the best schools and tuitions. However, the rising cost of living is making this trickier today.
 
An Estimate of Education Costs by AIA
I examined another study on the rising cost of education by AIA insurance – this one had more specific numbers. According to their research, the cost of tuition fees in Singapore in 2010 was S$33,803 for a typical four-year degree course. Along with average living costs of S$46,104, this adds to a cost of S$79,907 for a four-year degree. By 2015 last year, the cost of tuition fees had risen to $40,147, and living expenses were up to S$53,707.  The total cost had risen to $93,854. According to the study, the cost of tuition fees increases by 3.5 per cent on an annual basis, and the cost of living expenses rises by about 3.1 per cent per annum. If we were to maintain this rate of inflation till 2035 – around the time my daughter might be in university – the average tuition fee will be a whopping S$79,885. Living expenses will be around S$98,902. The predicted total cost? S$178,787, or about half the price of a three-room flat today.

With this in mind, I have started to put together a simple checklist that will help me save for my daughter’s university education. I hope you find this useful as well:
 
1. Get an Endowment Plan
Insurance for myself is important. Granted, it is possible to save up a lot of money for emergencies and be “self-insured”. But that locks up the money, as I can’t use it for other purposes, and medical costs can be unpredictably high. If I intend to manage my own portfolio, I could get term insurance for cheap. But I can also get an insurance policy that doubles as a savings plan. Endowment policies provide a sizeable payout (based on the policy purchased) at a given time. My intention is to buy an endowment plan for 20 years – by the time the payout arrives, it should be sufficient to pay for the tuition fees. Going by the AIA study, I’d have to find a policy that can reach S$80,000, or at least come close.
 
2. Open a Child’s Savings Account 
Of course, I don’t expect this to pay the university fees (the interest rate is usually 0.8 per cent). It’s more about educating my child on the importance of saving. If we use compound interest, at S$1,000 deposited per annum for 16 years at 0.8 per cent, that comes to around S$16,286 saved by the time she reaches college. This can help cover part of her living expenses or college fees. Learning to track expenses, such as how much is deposited and withdrawn, are essential – the less of these things a child understands, the higher those living expenses tend to be later. Money Saved: S$16,286
 
3. Use Cashback Cards to Help Build an Emergency Fund
There’s no telling when a crisis will strike. I dread the thought of a disaster costing so much to fix, that I end up tapping my daughter’s education fund to pay for it. The best way around that is to build an emergency fund, of about six months of household income. In order to build up the fund, I’m putting the family on a budget. That will mean skipping on luxuries for a time – like doing away with smartphone upgrades, not getting a car, holding off on the expensive renovations, etc. Once the emergency fund is intact, it’s possible to be a little more liberal with the money. Groceries are a major expense, so I get discounts whenever and wherever I can. A cashback credit card can net about five to six per cent rebates for purchases, in addition to getting more points. As an example, I spend about S$2,000 a month on groceries, dining, and petrol.  Assuming I get 8 per cent cashback, I will get S$75 back every month (there is a cashback cap of S$25 each for groceries, dining, and petrol). This adds up to S$14,400 in savings after 16 years, which can help cover part of my daughter’s college expenses. So long as I always pay my credit card bill back in full, there is no interest to worry about. Money Saved: S$14,400
 
4. Plan Family Vacations Meticulously and Use Air Miles
The further ahead a vacation is planned, the cheaper it will be. When you organise to visit on off-peak seasons, there are two advantages. First, airfare and accommodations are much cheaper. This varies based on where you’re going, but in New York for example, there can be a difference of up to S$400 in air fare if you visit in mid-February, versus mid-October. I have seen hotel rooms in London reach S$350 a night in December, but fall below S$250 in May. It’s all in planning the timing. I’d like to have one short getaway every three months, and one long vacation every year. But not to the extent that it would affect my savings for my child’s education, so I stretch every dollar as far as I can. One way to do this is to use air miles credit cards to rack up miles. When I’ve reached the rebate cap on my cashback card, I place my spending on my air miles card so I can maximise the points I will earn.
 
Credit Card
Base Miles
Miles Earned with Local Spend
Per S$1 Local Spend
Per S$1 Overseas Spend
S$800 / Month
S$1,200 / Month
S$1,600 / Month
S$2,500 / Month
 
1.4
1.4
15,440
22,160
28,880
44,000
UOB PRVI Miles Visa Card
1.4
2.4
13,440
20,160
26,880
42,000
DBS Altitiude Visa Signature Card
1.2
2.0
19,520*
25,280*
31,040*
44,000*
 
1.2
2.0
26,520**
32,280**
38,040**
51,000**
 
1.2
1.2
21,520***
27,280***
33,040***
46,000***
 
1.1
1.1
18,560****
23,840****
29,120****
41,000****
* 8,000 welcome miles upon spending min. of S$500 for the first 2 months upon card approval
** Welcome miles of 10,000 upon paying annual fee + 5,000 bonus miles for spend between S$1 -S$9,999 on card for first 3 months. Promotional period is 15th May 2016 to 14th August 2016
*** 10,000 welcome miles: 5,000 KrisFlyer miles upon charging first transaction and 5,000 KrisFlyer miles upon min. spend of S$1,000 in the first 6 months upon Card approval
**** 8,000 welcome miles: 5,000 KrisFlyer miles upon charging first transaction and 3,000 KrisFlyer miles upon min. spend of S$700 in the first 6 months upon Card approval. So if I spent S$2,500 a month, I have enough miles for round trip tickets to Hong Kong for my family and take them to Disneyland for Christmas. If I had not done this, the flights would have cost me about S$1,500 on Singapore Airlines.
Money Saved: S$1,500
 
5. There’s No Shame in Asking for Your Parents’ Help
There is no shame in letting my parents look after and play with their grandchild, surely. This helps to save on childcare costs, and fosters better family bonds. It’s unlikely that we can skip childcare costs completely (and some early childhood enrichment courses may be worth paying for); but the less we depend on paid child care, the more we save. Assuming a cost of $500 a month for the first three years, that’s around $18,000 saved by the time my daughter is ready for Primary school.
 
6. Shop for Deals at Secondhand Shops or Baby Fairs
These days you can also save a lot of money on secondhand sites, like Carousell and eBay. Most people don’t use prams, cots, and other baby equipment for long, so think twice before buying new. And yes, a new pram these days really can cost over $800. If you must have it new, well, I have a philosophy of never buying at full price. There’s any number of baby fairs that happen throughout the year, and early childhood stores always seem to have some kind of discount going on. Just stick to never buying at full price; if you look hard enough, someone will have it on discount.
 
7. See If You Qualify for Government Grants and Benefits
From 24th March 2016, all Singaporean children will get an extra $3,000 in their Child Development Account (CDA.) That’s a good start, but be on the lookout for more. The Singapore government is on a pro-family drive these days, with more benefits for new parents. It pays to stay up to date – once the enrichment courses are offered in Primary and Secondary school, the prices can go up. Whether or not you can use your child’s Edusave, check if more help is available.
 
8. Use Allowances to Teach Good Money Habits
I think an allowance is a good thing, rather than an arbitrary system of deciding whether to buy on the spot. I intend to give my daughter pocket money from the age of six, to cultivate the habit of saving for what she can’t afford. This will teach her that money is finite, and that it’s important to make wise choices when you spend. There is nothing wrong with desiring new toys and buying them. But when she spends her money on something she wants, she will learn that this was money not spent on something else. So if she were saving her allowance for Disney on Ice tickets but wants a new toy, she will have to choose only one. By giving her these choices, she will learn to prioritise and make smart financial decisions, which will help her manage money during her university years and beyond.

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