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.

Should teenagers in Singapore have credit cards?

Cardmembers can easily give their teenage children supplementary cards. But should Singaporean teens be using credit cards in the first place? Credit card holders are able to obtain supplementary cards, often for other immediate family members. This raises the issue of whether Singaporean teenagers should have access to them. The conservative answer is an immediate “no”, out of fear that teens will be reckless and incur large debts. But at the same time, there are mechanisms in place to control these; and there is a case for allowing teens to have their own card. It may be better that they learn to use credit cards while under supervision, as opposed to going on sprees when they turn 21.

 

Is It “Safe” for Singaporean Teens to Own Credit Cards?

A teenager given unsupervised access to a credit card, with the maximum credit limit, would be indefensible. Most credit cards have a credit limit of two to four times the principal cardholder’s monthly income. For example, a parent earning $4,000 a month could have a credit limit of up to $16,000. This is, for obvious reasons, a dangerous amount to leave in the hands of an unsupervised teen. However, cardholders need to accept the maximum credit ceiling. Many issuing banks will accept requests to lower the credit ceiling. Also, there are now student credit cards for those aged 18 and above, for which the credit ceiling is only $500. As such, it is easier for guardians to limit the possible spending. In addition, most credit cards will send an SMS to the principal cardholder, if a large amount (e.g. $500) is charged to the card. As such, it is quite possible to control a teen’s use of credit. The main risk is identity theft. If a teenager leaves the card at a bus stop, or shops at dubious websites, it could result in the card details being stolen and used. Overall, giving a credit card to a teenager is safe when the credit ceiling is capped, and an adult is on hand to immediately suspend or cancel the card when it’s lost. But even if it’s safe, should Singaporean teenagers get their hands on credit cards in the first place?

 

The Downsides of Teens with Credit

The main arguments against giving a teenager credit cards are:

•    The guardian(s) have a personal policy against using credit

•    It may result in a “spend first” mentality towards money

•    Some teens may become frequent revolvers as a habit

•    It can damage their credit score, if the guardian does not intervene on late payments

 

1. The Guardian(s) Have a Personal Policy Against Using Credit

Some people don’t believe in using credit at all, which is a viable approach to personal finance. If it is the policy of the guardian(s) to pass this on the teenager, then they may not want to permit access to a credit card. This approach has its drawbacks, in that the teenager may be able to acquire a credit card as a young adult, and may not understand how it works or how to handle it (see below.)

 

2. It May Result in a “Spend First” Mentality

One problem with a credit card is that it allows the holder to buy first, and worry about repayments later. This is a dangerous habit to cultivate at a young age – some teenagers may abandon the old ethos of saving for what they want. Instead, they will purchase it first, and then scramble to try and make the repayments later. This is the gateway to other bad financial practices, such as living pay cheque to pay cheque (the bulk of monthly income is consumed to pay off the bills of the preceding month). If the “spend first” mentality is left unchecked, it can be damaging to the teenager’s money management skills later.

 

3. Some Teens May Carry Rollover Debt

Some teenagers – like some adults – become addicted to the prospect of rollover debt. This is when credit card bills are not paid in full, and only minimum or partial payments are made. For most credit cards, the borrower can repay just $50 or three per cent of the amount owed, whichever is higher; it is not necessary for the entire debt to be paid. This can lead to debt problems later. The interest rate on a credit card is high compared to personal instalment loans, education loans, home loans, etc. Most credit cards charge around 24 per cent interest per annum, as opposed to personal loans which are just six to eight per cent per annum. For this reason, credit cards should be used as a mode of payment only. Ideally, the card holder makes payment with the credit card to get bonus miles, discounts, reward points, etc., but repays the full amount before interest can be charged. If teenagers are not taught this, or do not practice it, then they are merely learning to take on significant debt burdens.

 

4. It Can Damage Their Credit Score Without Adult Intervention

Guardians might want to think twice about punishing teenagers by refusing to help repay their debt. Repeated late payments and defaults will show up on the teenager’s credit score. This will impact their ability to get crucial loans in future, such as an education loan. It is better for guardians to inflict punishment by removing access to credit, rather than by letting the teenagers default. However, this can be financially inconvenient, and some may argue it defeats the point.

 

The Upsides of Teens with Credit:

However, there are some advantages to giving teens early access to credit. These include:

•    An understanding of how credit and loans work

•    They are already experienced with credit, by the time they get their own card

•    They learn to optimise the reward system on credit cards

•    They can build a better credit score

 

1. An Understanding of How Credit and Loans Work

At some point, almost everyone has to use some form of loan (e.g. home loans). As part of their financial literacy, teenagers should learn early on the effect of compounding interest, the difference between nominal and effective interest rates, the consequences of late payments, and the impact of a default. These lessons are less painful if experienced in a controlled situation, with a guardian’s supervision and a capped credit card.

 

2. They’ll Use Their Own Credit Card Responsibly

Many first-time credit card users are caught off-guard by the psychological aspects. They may not realise how easy and fast it is to rack up debt, or how tempting it can be to “buy first, pay later.” This can devastate the personal finances of a 21-year-old, who gets a credit card for the first time, and is actively going to clubs, going on vacation trips with friends, or loves to shop. Someone who has used credit cards at a younger age, however, could have a better sense of how huge debt can accumulate without notice. They would have experienced the temptation of instant gratification many times, and learned to cope with it by recalling the consequences. In particular, teenagers with credit will quickly that multiple small expenditures can run into thousands of dollars within the month. Again, these are lessons are more painful to learn without a safety net. A 21-year old who loses control may do so with a $12,000 credit ceiling, instead of $500.

 

3. They Learn to Optimise the Card’s Reward System

Teenagers often have the time and inclination to optimise reward systems. When they learn that 32,500 bonus miles can net them a free business class ticket to Australia, for example, they may realise that steadily buying through the card (and repaying in full each time) can mean a free trip abroad for their graduation celebration. Most people learn to optimise and compare credit cards later on, by which time they’ve squandered most of the potential savings (e.g. Shopping with a credit card meant for petrol.)

 

4. They Build the Foundations of a Good Credit Score

Assuming the teenager repays the credit card on time, this can establish a good credit score This is better than having no credit score, as a prospective lender will have a sense of their responsibility. Having a good credit score can help them get bigger loans like a mortgage, should they be needed later on.

Three Money Topics to discuss before you and your beau get serious

 
How well do you know the financial habits of the person you’re dating in Singapore? Nothing kills romance like talking about money. But when things go from casual to serious, your financial compatibility can mean the success or failure of your relationship. In a long-term relationship, you and your partner will make many big and small decisions together. Often, these decisions will require you to take stock of your finances. You’ll save your future self from a lot of conflict and heartache by tackling money issues early on.

 

First, Know What You Want in a Partner

In the book Seven Pearls of Financial Wisdom: A Woman’s Guide to Enjoying Wealth and Power, authors Carol Pepper and Camilla Webster say that you need to know what kind of marriage or family life you want to determine the financial attributes your ideal partner should have. After all, it won’t work to convince a freelancing nomad to become the main breadwinner, nor will you be happy with a partner in debt because of a gambling or shopping problem. There’s nothing wrong with being critical about these matters even before the “M” word is said out loud. In order to be happy, your partner’s goals, dreams, and money habits need to be compatible with yours. And it’s important to know these early in the dating stage. By the time you get emotionally attached, you’ll likely be in denial about these key differences even when they start causing conflict. Assuming that you are both after a serious long-term relationship, the next step is to discuss important financial topics. Find a way to start conversations about the following:

 

1. The Family’s Money History

There’s some masochistic fun in knowing about your date’s exes, but the history that truly matters is how your date’s family manages money. Despite the availability of financial literacy programmes, young adults’ actual financial behaviours and attitudes towards money are heavily influenced by their upbringing. For example, if his parents gave him everything he wanted, he may not be able to delay gratification or know how to plan for financial goals. Or if his parents were frugal to the point of deprivation, he may subconsciously rebel against his upbringing by overspending. Knowing what shaped your date’s money attitudes can help you see where your differences lie, and if you can live with these differences. Instead of asking questions about the family’s past financial situation, bring up generic questions about childhood. For instance, you can ask about how he spent his summer breaks, what places their family travelled to, or the toys he played with growing up. The answers can provide some insight on his parents’ financial behaviours, and the values learned from the family of origin. These have a major influence on your date’s money personality. While personalities and habits aren’t always set in stone, keep in mind that some of these deeply-ingrained attitudes have emotional roots and can be difficult to break. Should you decide to pursue the relationship, it’s helpful to know what you’re getting yourself into.

 

2. The Debt Situation

Having debts is not necessarily a red flag, but it’s important to find out whether your partner’s debt is a good or bad one, and how well he is managing the repayments. While you are not legally liable for your spouse’s outstanding debts in Singapore, money spent paying off bad debts is money that could have gone somewhere else. And the more serious your relationship gets, the more your unpaid loans become the other person’s problems, especially when there is no plan to pay it back. During the early dating stages, watch out for spending habits that may lead to bad debt. For example, does his lifestyle seem too extravagant for his income? Does he use his credit card while complaining about never having any money? Making these observations will give you a good sense about your date’s debts without asking invasive questions. If you are at the point of making a long-term commitment such as moving in together or marriage, you deserve to know and share hard numbers about outstanding debts or credit card balances. If your partner has debt, ask what the debt repayment plan is and clarify if the debt will be a sole or joint responsibility. These questions are a bit heavy, but important. After all, not everyone can be like the woman who tolerates her husband’s S$250,000 gambling debt.

 

3. Long Term Goals and Obligations

When you love someone, you want to know what hopes and plans that person has. Does he want to take two years off to travel the world? Is he excited about buying a flat? Will he need to support his school-age siblings or his ageing parents? Money is tied to life goals, and knowing your partner’s dreams and financial obligations helps you determine if this is the future you want for yourself. Ask your date about what gets him excited about the future, whether that’s next year or five years from now. You also need to be confident about sharing your own dreams and goals. What you’ll find is that some of your goals will overlap, some will not, and some goals or obligations will affect the other in certain ways. A major goal your partner doesn’t share will not only be difficult to achieve; it can cause problems in the future. On the other hand, working and saving towards a shared goal encourages support and strengthens your relationship. If it doesn’t seem like you have shared goals, you might need more time to deepen your relationship. Not having compatible goals indicates that you’re on divergent paths, so know when to be flexible and know when to quit. Money isn’t the most romantic of topics, but it’s better to discuss them now than fight about it later. Having these conversations early on will help you see if he’s long-term partner material or not. The sooner you know, the faster you can commit or move on to a better match.